dotDigital Group Regulatory News (DOTD)

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU 596 / 2014) WHICH IS PART OF UK LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018. UPON PUBLICATION OF THIS ANNOUNCEMENT, THIS INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN

Dotdigital Group plc

("Dotdigital" or the "Group")

Final Results for the year ended 30 June 2023

Strong profitable growth and cash generation

Dotdigital Group plc (AIM: DOTD), the leading SaaS provider of an all-in-one customer experience and data platform (CXDP), announces its final audited results for the year ended 30 June 2023 ("FY23").

Financial Highlights

Operating Highlights

Milan Patel, Chief Executive Officer of Dotdigital, commented:

"We are pleased to have delivered a year of strong growth and cash generation, slightly ahead of initial expectations, whilst continuing to invest in our growth opportunity and maintaining high profit levels. The Group's product offering has advanced materially in the year with the launch of our CXDP platform and enhanced AI functionality. We have also bolstered our global teams which is translating into positive momentum.

"The post period acquisition of Fresh Relevance's personalisation technology and talented team marks a leap forward in our strategy, accelerating our product roadmap and opening up new, high value market opportunities. We start the new financial year with solid global foundations, a substantially enhanced product offering and a robust financial position. We have had an encouraging start to FY24 and look forward to our continued profitable growth."

Analyst Briefing and Investor Presentation

Management will be hosting a live online presentation and Q&A for analysts today at 9.30am GMT. To register to attend the analyst presentation, please contact dotdigital@almastrategic.com.

The Company will also host a live presentation and Q&A covering the results via the Investor Meet Company platform on Monday 13 November at 11.00am GMT. The presentation is open to all existing and potential shareholders. Investors can sign up to Investor Meet Company for free and add to meet Dotdigital via this link.

Investor Deck: A copy of the slides relating to the FY23 results is available here: https://www.dotdigitalgroup.com/events-presentations/

Annual Report: A copy of the Annual Report for FY23 will be available on our website shortly: https://www.dotdigitalgroup.com/reports/

About Dotdigital

Dotdigital Group plc (AIM: DOTD) is a leading provider of cross-channel marketing automation technology to marketing professionals. Dotdigital's customer experience and data platform (CXDP) combines the power of automation and AI to help businesses deliver hyper-relevant customer experiences at scale. With Dotdigital, marketing teams can unify and enrich their customer data, identify valuable customer segments, and deliver personalised cross-channel customer journeys that result in engagements, conversions, and loyalty.

Founded in 1999, Dotdigital is headquartered in London with offices in Croydon, Manchester, New York, Melbourne, Sydney, Singapore, Cape Town, and Warsaw. Dotdigital's solutions empower over 4,000 brands across 150 countries.

CHAIR'S STATEMENT

Since we announced our FY22 results, Dotdigital Group Plc (Dotdigital) has made important steps forward and I am pleased to be able to report on a year characterised by solid commercial out-turn and, crucially, material advances in development and delivery of our growth strategy. We have entered the new financial year in a strong position and are optimistic about the future.

Optimal allocation of cash to accelerate growth and build long-term value

I would first like to welcome our new colleagues that joined the business with the post-period acquisition of Fresh Relevance Ltd (Fresh Relevance), a leading cross-channel personalisation technology firm. (For further details see note 33 of the consolidated financial statements).

Behind the scenes, much of the financial year was spent refining our Customer Experience and Data Platform (CXDP) growth strategy and ensuring we have a crystal-clear picture of where we want to get to as a business and the deliverables required to achieve this.

We operate in an incredibly dynamic industry that is in a perpetual state of evolution, so it is important that we build out our offering at pace to cement our competitive advantage. The Fresh Relevance deal enables us to meet several deliverables that would have taken considerable time and resource to achieve organically, enabling us to leapfrog several of our competitors and bringing us closer to providing the most complete platform on the market.

Dotdigital is a highly cash generative business and had built up significant cash reserves for a company of its size. The Board firmly believes that using Dotdigital's balance sheet to fortify its strategic position and unlock higher growth potential will deliver the best long-term returns to shareholders. The acquisition of Fresh Relevance is aligned to this and, supported by a financial position that remains strong, we are continuing to explore M&A opportunities where we are confident it will further accelerate progress towards our goals.

Established teams and steadily improving performance

Since joining Dotdigital in July 2022, I have observed a steady continued improvement as the Group moved past the challenges of H1 FY22. In some ways the year prior was a period of transition with important personnel changes against an uncertain macroeconomic backdrop. We now have the right talented leadership in place and teams well-embedded across all regions, with activity ramping up as expected.

A return to growth in the US reflects the management's drive and the work they have done to enhance sales discipline. Our North American operations are now stable and there is a sense that momentum is building. Our venture into Japan, while still in its infancy, looks promising. For the team there to have achieved the level of sales traction they have at this stage is remarkable and bolsters the performance of an already strong Asia-Pacific region. (See note 3)

Geographic expansion remains a key pillar of our growth strategy and our overseas operations are now in excellent condition. The progress we are making overseas demonstrates the truly global appeal of our platform and we are confident of making further inroads as we elevate our offering and strengthen the channels and partners that underpin our growth ambitions.

Fostering a culture of responsibility

FY23 was a year of material progress across our ESG strategy. The establishment of Dotvoice, our colleague-led programme comprising Dotwellbeing, Dotgreen, Dotcommunity and DotDEI, has helped bring clear direction and purpose to our efforts. Together these groups have been instrumental in building a culture of learning and engagement across our communities and making responsibility an inextricable part of how we do business.

Dotwellbeing continues to be a beacon for our employees, supporting their well-being. Dotgreen has championed sustainability, achieving ISO14001 certification and actively contributing to our ambitious Net Zero 2030 target. DotDEI has made significant strides, ensuring diversity, equity, and inclusion remain at the heart of our organisational ethos. Dotcommunity, through impactful partnerships and initiatives, has reinforced our commitment to social responsibility.

Dividend

The Board will be maintaining its progressive dividend policy in line with Group EBITDA growth. Therefore, subject to approval at the AGM in December 2023, the Board proposes that the Group pay a final dividend of 1p per ordinary share (2022: 0.98p), payable at the end of January 2024.

Well-positioned to take advantage of the wealth of available opportunities

On behalf of the Board I would like to extend our gratitude to everyone at Dotdigital. Through their collective buy-in and dedication we have achieved important milestones in the year and are well set to make further progress.

The broader economic environment remains uncertain but with a meticulously mapped out set of organic and inorganic deliverables, an increased focus and exceptionally capable teams, we will navigate it with confidence.

CHIEF EXECUTIVE OFFICER'S REPORT

Overview

The Group delivered a robust performance in FY23, with double-digit revenue growth and strong cash generation. This follows healthy demand across the Group's diverse customer base as marketing professionals focus their budgets towards data-led marketing initiatives, together with a growing contribution from prior year investments which drove accelerating momentum in the second half.

The Group's roadmap of expanding Customer Experience Data Platform ("CXDP") capabilities and regular functionality enhancements continue to unlock new, higher value growth opportunities. This is reflected in the continued progression of Average Revenue Per Customer (ARPC) and functionality recurring revenue, both increasing 11% in the year, as customers expand their usage of the platform and the Group converts a larger pipeline of higher value enterprise deals.

Positive trading continues to translate into financial strength for the Group, which is governed by a resilient, profitable and cash generative business model with high levels of recurring revenues. For FY23, Group revenue grew 10% to £69.2m (FY22: £62.8m), with recurring and repeat revenue representing 94% (FY22: 94%). Adjusted profit before tax was ahead of expectations at £15.4m (FY22: £14.5m) and adjusted EBITDA was in line with expectations at £22.0m (FY22: £21.7m), reflecting planned investment in headcount and operations. Strong cash generation continued through the period contributing to a cash balance of £52.7m at year end (FY22: £43.9m).

This provides the resource and flexibility for ongoing investment in the organic and inorganic growth opportunity, which is centred on building out the Group's CXDP offering. These efforts were accelerated post year end with the acquisition of personalisation technology business, Fresh Relevance, adding highly complementary capabilities to the Group along with more than 300 customers and the ability to address a larger, higher value market opportunity.

The Group exited the year with positive trading momentum across all regions, a strong financial position and a clear product strategy. Investments into the Group's infrastructure, people and product has delivered results as expected, and worked to create a strong platform to layer on the capabilities and talent from Fresh Relevance. The Group is now in a stronger position to pursue its growth ambitions, supported by a healthy pipeline and robust financial position.

Business Review

Dotdigital provides omnichannel marketing automation technology and customer data insights to digital marketing professionals. The Group's technology works to unify datapoints from across marketing stacks to create a single, trusted source from which marketing professionals can launch highly targeted, personalised and relevant campaigns to customers and prospects. The result is better customer experience and improved conversions, helping to drive revenue and business growth.

Dotdigital's solutions address a common marketing requirement across regions and sectors, with the Group's customer base comprising a spread of industry verticals. During the year, the Group saw particularly strong momentum in charity and not for profit, events and entertainment, health and fitness and travel sectors , with new customers including Shell Energy UK, CBRE, Lloyds Pharmacy, Britvic PLC, National Farmers' Union of England and Wales, RSA Conference LLC and Hawksmoor Group . The Group's global presence, able to serve customers in multiple territories, its comprehensive offering and focus on customer support remain key differentiators.

Market opportunity

The overarching shift toward digital marketing continues its progression, occupying a steadily increasing proportion of marketing budget and forecast to be double digit growth in the coming years according to Statista. Underneath this, the uncertain global economic backdrop through the year prompted more acute focus on retention marketing backed by clear demonstrable Return on Investment.

The Group's technology platform, built from the ground-up with analytics and data at its core, represents a compelling proposition in line with long-term trends and in different market conditions. Customers of Dotdigital on average see a 409% ROI, $21k of cost savings and $1m increase in profit over a three year period according to Forrester's Total Economic Impact study that was commissioned by Dotdigital.

Through this, Email marketing maintains its place as one of the most cost-effective marketing channels, with email volumes growing 7% in the period, alongside the ongoing adoption of an omnichannel approach, including continued adoption of SMS with a pipeline increasing for WhatsApp and In-app Push messaging capabilities.

Growth strategy

The Group's underlying growth is the result of continued execution against a consistent organic growth strategy, centred on three pillars: geographic expansion, product innovation and strategic partnerships.

In addition, the Board looks to complement the Group's organic growth through select acquisitions focused on the following key categories: adjacent CXDP-related technologies that will drive ARPC expansion and open up new markets; consolidation in the market for talent and brand to expand geographical coverage; and specialist functionality for target verticals.

Geographic expansion

Regional breakdown reported in local currency

The Group delivered growth in all of its regions. Organic international revenue increased 18% to £22.8m (FY22: £19.2m), with international sales contributing 33% to total revenue (FY22: 31%).

The Group's largest region, EMEA, continued its upward trajectory, delivering growth of 9% to £52.3m (FY22: £48.2m). Contributing to this growth was new customer acquisitions, particularly in non-commerce related customers complemented by continued expansion within the existing base. Revenue growth in EMEA was somewhat offset by a lower level of professional service fees due to slower decision making from organisations due to an uncertain macroeconomic backdrop.

As anticipated at the half year, North America saw a return to growth in the second half, delivering an overall performance for the year of US$13.1m, an increase of 2% (FY22: US$12.9m). This is the result of previous investments into the region now bearing fruit, including the establishment of a strong management team in-region, increased emphasis on enablement for our Sales and Customer Success teams, and early success in converting a reestablished and growing pipeline.

In APAC, the Group reported strong growth in revenues, up 19% to AUS$10.8m (FY22: AUS$9.1m). The standout performer was Japan, an area where the Group has made measured investments in increasing brand awareness across the region, establishing a solid partner network and making several appointments in the go to market team. This has led to numerous customer wins in Q4 along with a stronger pipeline.

Product innovation

The core priority of the Group's R&D efforts is building out and enhancing its CXDP offering. This is designed to address the growing demand for more sophisticated marketing tools with a greater depth of analytics and personalised user experiences delivered via an all-in-one solution. In line with this vision, the focus areas of product development in the year were on: Connectivity and Data, culminating in the launch of a new data platform; Insights and Analytics, to support deeper actionable insights to drive a higher ROI and increasing efficiencies in the Marketing department; and Experiences, to facilitate more personalised customer journeys across any channel.

The first half of the year saw the launch of the Group's CXDP platform, an evolution of the Dotdigital Engagement platform, incorporating cloud first data architecture to support unification across channels and support next generation Application Programming Interface (API). Alongside the platform launch, the Group unveiled a number of new packages and plans for existing customers to support their transition and platform adoption of the new CXDP functionality, with all Dotdigital customers now benefiting from a new and improved user interface and navigation. The result of this effort can be seen in the increased functionality recurring revenue and reduction in churn of clients. Programme enhancements have continued post period end including new features to enable easy conversion of email campaigns to SMS, and improved unified contacts capability.

In May, the Group launched its WinstonAI intelligence engine within the Dotdigital CXDP platform, incorporating artificial intelligence and machine-learning capabilities to help marketers discover deeper insights and analytics, curate captivating content, and optimise communication for higher customer engagement. The platform's single customer view now includes WinstonAI's features such as predictive Customer Lifetime Value, predictive churn and predictive next order. The newly released capabilities have been one of the fastest adopted functionality features in the platform driving efficiencies within Marketing teams.

The Group's acquisition of Fresh Relevance post period end marked a leap forward in the Group's CXDP growth journey, bringing together customer insights, cross-channel engagement, and on-site personalisation capabilities to provide marketers with the tools to exert greater influence across the customer journey. The result is a much-expanded addressable market opportunity, particularly within larger enterprises, as businesses consolidate their marketing tools and focus spend (see note 33)

Strategic partnerships

The Group's strategic partnerships refer to a partner where a customer using that technology integration has the potential to represent or accounts for 10% of Group revenue. This network is complemented by a broader general partner referral network which includes over 200 active global partners.

The main efforts of the Group's partnership expansion are on forming connectors into both ecommerce and CRM platforms, with the Group's core functionality able to serve a range of industry verticals. During the year, the Group has made significant additions to its technology integrations, enabling "out of the box" connectivity to customers' existing technology stacks including Zendesk, TrustPilot, Shopify Hydrogen, Facebook Lead Ads and Google Analytics 4.

Revenue from strategic partners increased 8% to £31.2m (FY22: £28.9m), with new partnerships secured in the year including NetSuite and Shopware. Of the two market segments, the main growth driver was CRM connectors, which increased 22% to £9.8m following targeted investment. Relationships in the ecommerce segment remain solid with partners including Magento, BigCommerce and Shopify contributing to overall ecommerce partner channel revenue growth of 2% to £21.4m where the pipeline remains strong but with a slightly lengthened sales cycle.

Investing in people

A key aspect of Dotdigital's differentiation is the Group's reputation for high levels of customer support and handling, alongside its innovative technology offering, a position rewarded to the Group as a result of the work of its dedicated and talented team. The Group's workforce of over 400 employees across 8 countries is fundamental to the Group's continued success, and we were delighted to see the result of the team's hard work culminate in the Dotdigital Summit post period end in October, showcasing Dotdigital's leadership position by bringing together over 900 professionals from across the industry sharing insight on the ever changing landscape of digital marketing.

We have continued to invest in our people and regional teams during the year, seizing the opportunity to add talent and expertise at a time when other businesses took stock of their prior expansion plans. Headcount grew 15% in the year, with a focus on bolstering the Group's international footprint.

Update on Fresh Relevance acquisition

Post year end we were delighted to welcome our new colleagues from Fresh Relevance to the team following its acquisition. With the two organisations having worked together as partners for five years, with circa. 60 joint customers and strong cultural alignment, the team integration has progressed well.

The existing integration between the Dotdigital and Fresh Relevance platforms facilitates the smooth transfer of web personalisation data from the Fresh Relevance platform into Dotdigital to deliver even more targeted campaigns.

Looking ahead, the integration roadmap focuses on enabling new and joint customers to seamlessly log into and move between the platforms, making it easier for customers to access all capabilities across both. Work will also begin on enhancing the data flow between both platforms to leverage the combined data sets to enable personalisation, segmentation, orchestration and content creation.

From the cost synergies that have been identified and the interest from higher value prospects and existing customers, we expect the acquisition to support the growth of higher margin recurring revenue and have a similar profitable profile to the Group in the medium term.

Current trading and outlook

The Board is pleased to confirm that positive trading has continued through the start of the new financial year, in line with expectations, alongside the continuation of increasing average order value and building momentum in new industry verticals.

The Group's product positioning, enhanced through the acquisition of Fresh Relevance is resonating in the market with increased pipeline, particularly for larger value deals. The Board is pleased to confirm that the integration of the two teams is on track to complete, and the combined Group has secured its first brand-new customer taking both capabilities. We have also seen an increase in interest from our existing customers from the additional capabilities Fresh Relevance brings to the Dotdigital platform.

The robustness of the Group's financial model and a healthy pipeline gives the Board comfort in the ongoing investment plans as the Group seizes the market opportunity. The Group continues to demonstrate its resilience and capacity to execute strategic progress, and the Board remains confident in the Group's continued growth prospects.

FINANCIAL REVIEW

Business model

The Group generates circa 80% of its revenues from software and annual message plans which are recognised evenly over the life of the contract. New customers are typically sold one of three packages of modules which are designed to address the most common customer personas, with pricing driven by the functionality adopted, the number of contacts, and the volume of messages a customer intends to send. These contracted volumes are committed; however, we of course allow customers to upgrade through their contract period as they recognise value in the platform and require more capacity.

The best value is available to those customers who take advantage of additional functionality and integrations which help them leverage their customer data - this is evidenced by the very low churn we see amongst those customers who have invested in the full power of the product. We have a small amount of professional service revenue (less than 5% of total group revenues) which is recognised as work is delivered. These services relate to both the initial deployment of software, design services, training and support to customers who want to get the maximise value from the product. 

FY23 saw the business change from a period of consolidation, as a rebuilt North American sales team ramped up and a new CFO was appointed, into a period of growth with many new hires to drive both sales and development productivity. 

In this context, and against the backdrop of challenging macro-economic in which many businesses reported slowing growth, we are proud to deliver revenue, profit before tax, Earnings per share and Cash slightly ahead of market expectations.

Revenue and gross margin

Our recurring and diversified revenue base proved to be resilient and thus we exit the year in a strong position to continue delivering in FY24. We saw a reduction in customer churn particularly in North America and over 94% of our revenues continue to be predictably repeating or contractually recurring.

Revenue increased by 10% FY23 to £69.2m (FY22: £62.8m), driven by SaaS and contracted marketing SMS revenue uplift of £4.8m (10%) and transactional SMS revenue uplift of £1.9m (20%). EMEA remains our largest region with revenue of £52.3m (FY22: £48.2m), however our growth rate in APAC of 19% continues to show the strength of our proposition in that market. Although the weakening pound through H1 had supported our interim revenues, these benefits largely reversed through H2. 

Gross margin on our core software product continues to be close to 90% but is diluted by SMS which is typically under 50%. Gross margin of 79.3% in the year reported was marginally lower than FY22 (81.6%) due to a small increase in transactional SMS volume.

Operating expenses

Despite high inflationary environment in all regions and significant investment in sales and development capacity to strengthen all the regions, we maintained a good adjusted operating margin at 21% (FY22: 23%). FY23 operating expenses of £40.4m (FY22: £36.7m) grew primarily because we increased net headcount by 54 and offered inflationary pay increases earlier in the year. This investment has resulted in declining staff attrition through the year, reducing to 12% on a 12 month rolling basis by June 2023.

Balance sheet

The business continues to generate cash in line with profitability and maintain a healthy working capital profile such that we end the year with £52.7m cash (FY22: £43.9m). We have implemented new cash treasury management processes through the year and have benefited from the higher interest rates that have been available for fixed term cash deposits than in recent history. Whilst after the balance sheet date, we completed the acquisition of Fresh Relevance and so reduced our cash balance by circa £20m, we continue to hold over £30m.

Tax

Our effective tax rate is 12.4% (FY22: 13%). This continues to be significantly lower than the mainstream UK corporation tax rate because of our Research & Development tax claim.

EPS

Adjusted Diluted EPS has grown by 6% to 4.43p (FY22: 4.18p). There has been only marginal movement in the number of shares in issue and share options granted in the year, so this reflects underlying profitability growth.

Dividend policy

Consistent with our progressive dividend policy we have increased our proposed final dividend in line with EBITDA growth to 1p in FY23 from 0.98p in FY22.

DOTDIGITAL GROUP PLC

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2023

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2023

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30 JUNE 2023

DOTDIGITAL GROUP PLC

COMPANY STATEMENT OF FINANCIAL POSITION

30 JUNE 2023

As permitted by section 408 of the Companies Act 2006, the parent company's income statement has not been included in these financial statements. The profit for the Company was £4,459,042 (2022: £4,163,416).

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2023

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2023

· Share capital is the amount subscribed for shares at nominal value.

· Retained earnings represents the cumulative earnings of the Group attributable to equity shareholders.

· Share premium represents the excess of the amount subscribed for share capital over the nominal value net of the share issue expenses.

· Retranslation reserve relates to the retranslation of foreign subsidiaries into the functional currency of the Group.

· The reverse acquisition reserve relates to the adjustment required to account for the reverse acquisition in accordance with UK Adopted International Accounting Standards.

· Other reserves relate to the charge for the share-based payment in accordance with IFRS 2 and the transfer on the exercise or lapsing of share options.

DOTDIGITAL GROUP PLC

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2023

· Share capital is the amount subscribed for shares at nominal value.

· Retained earnings represents the cumulative earnings of the Company attributable to equity shareholders.

· Share premium represents the excess of the amount subscribed for share capital over the nominal value net of the share issue expenses.

· Other reserves relate to the charge for the share-based payment in accordance with IFRS 2 and the transfer on the exercise or lapsing of share options.

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2023