dotDigital Group Regulatory News (DOTD)

16 November 2021

Dotdigital Group plc

("Dotdigital" or the "Group")

Final Results for the year ended 30 June 2021

Dotdigital Group plc (AIM: DOTD), the leading 'SaaS' provider of an omnichannel marketing automation and customer engagement platform, announces its final audited results for the year ended 30 June 2021 ("FY21").

Financial Highlights

Operational Highlights

Outlook

Milan Patel, CEO of Dotdigital, commented:

"We are pleased to report a record year for Dotdigital, delivering double digit organic growth and enhanced profitability as a result of an accelerated uptake of our omnichannel offering. This performance is testament to our robust business model, as we navigated and supported our customers through the pandemic, and the efforts of our talented and dedicated team.

"The investments we have made in our Engagement Cloud platform, international hubs and partner network are bearing fruit. Our powerful data-driven marketing automation platform continues to excel in the market as a result of its feature-rich yet user-friendly functionality, and we are well positioned to support a growing number of customers as they look to drive deeper, more personal engagement with their consumers through digital marketing.

"As we enter the new year, trading remains strong. Our healthy balance sheet, strong recurring revenues and cash generation provides the flexibility to invest in our growth strategy, giving the Board confidence in the Group's long-term prospects."

Investor Presentation: https://www.dotdigitalgroup.com/events-presentations/

Investor Video: A highlights video is available to watch here: https://bit.ly/DOTD_FY21_overview 

Notes

1. ARPC means Average Revenue Per Customer (including new customers added in period and existing customers)

2. EBITDA is earnings before interest, tax, depreciation and amortisation and adjusted for acquisition costs and share-based payments

3. Operating profit is adjusted for acquisition costs and share-based payments

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THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED TO CONSTITUTE INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

CHAIRMAN'S STATEMENT

Overview

To have delivered our strongest year to date amid pandemic-related challenges, while managing a pronounced increase in the uptake of newer channels beyond email, is testament to the exceptional people at Dotdigital.

The effectiveness of our model and the continued desirability of our product are evident in the numbers, but without the hard work and adaptability of our teams, we would not have been able to record such a positive performance. On behalf of the Board, I would like to thank everyone involved in the business for their contributions.

After a period of disruption in Q4 of the previous financial year, we have gone from strength to strength, facilitated by the acceleration of digital transformation brought about by the pandemic. While the mix of channel usage varied as our customers' circumstances changed and evolved, we saw consistent levels of overall demand, aided by the diversity of sectors and locations across our customer base. This was achieved while helping our customers that struggled where we could.

Although restrictions are easing and vaccination programmes are under way in most territories, Covid-19 will continue to be a risk factor for the foreseeable future, and not all its after effects will be easy to foresee. We therefore need to continue to monitor its impact on our customer base, and be ready to respond accordingly.

That said, we have traded well since the onset of the pandemic, proving that the inherent versatility of our offering means we can help organisations, in both good and more challenging times. As we emerge from the worst of the pandemic and with a robust model and strong financial position, I am confident that if we continue to support our customers and execute our strategy in a measured and purposeful way, we will remain on course to meet our growth ambitions.

Strategic Progress

This financial year saw a significant increase in appetite for our omni-channel offering, with SMS proving particularly popular and more and more organisations choosing to use push messaging, social, WhatsApp for business and live chat, in line with the growing demand among consumers for alternative and more personal means of engagement.

The team has built an advanced data-led platform that is tailored to the increasingly sophisticated needs of the modern marketeer and continues to do an excellent job of penetrating international markets, with all three of our regions demonstrating good levels of growth in the year. Performance in APAC was particularly strong, supplemented by the growing conversion of pipelines in new markets such as Japan.

Our relationships with strategic partners - a key route to market for Dotdigital - have deepened considerably, enabling better collaboration in driving awareness and ultimately sales across their customer bases. As a result, we saw encouraging growth in revenue from Magento, Shopify, BigCommerce and Microsoft Dynamics - our four most valuable partnerships.

On the product front, we have continued to focus on building out our data and personalisation capabilities, and firmly believe we now have one of the most powerful, feature-packed and yet easy-to-use marketing automation platforms, capable of delivering unparalleled insight and strong return on investment without the need for a high level of technical expertise.

Sustainability

At the end of 2020, we set out to broaden and accelerate sustainability improvements throughout the organisation with a view to reducing the impact of our operations on the environment. Known internally as the 'dotgreen' initiative, it marked the point where sustainability was elevated from being an important consideration to a guiding principle for everything we do.

In the time since, our teams have worked tirelessly to make our infrastructure and working practices more environmentally friendly. I am pleased to report that, as a result, we can now claim to be the world's first carbon-neutral marketing automation platform.

We also obtained ISO 14001, the universally recognised certification awarded to organisations that meet a high standard of environmental management, became a Corporate Member of the Woodland Trust and, most recently, signed the Terra Carta, a part of HRH The Prince of Wales' Sustainable Markets Initiative that offers the basis of a recovery plan to 2030 with nature, people and planet at its heart.

In a relatively short space of time and against the backdrop of a pandemic, we have made significant, meaningful changes to become a more responsible business. While we are proud of our achievements, we know there is still room for improvement, and remain committed to driving further change to ensure we play our part in safeguarding the future of our planet.

People

Our people are the lifeblood of Dotdigital. Ensuring we have the right balance of technological prowess, interpersonal skills and commercial acumen across our organisation is vital to the delivery of our strategy, and to that end we continued to strengthen our workforce in the period. Most notably, our sales function grew and became more specialised to meet the growing demand for our product, and we bolstered our marketing and customer care teams with the internal promotion of a new Global Vice President of Marketing and the external appointment of a new Head of Customer Success EMEA from a leading competitor.

As we move through the new financial year, we will continue to hire high-quality individuals that bring new skills and experience into the Group while increasing management bandwidth where necessary to enable us to reach our strategic goals more efficiently. At the same time, we will continue to invest in our existing colleagues, cementing Dotdigital as one of the best places to work in the industry from both a development and quality of life perspective.

Dividend

The Board has agreed to maintain a progressive dividend in line with Group EBITDA growth. Therefore, subject to approval at the AGM in December 2021, the Board proposes that the Group will pay a final dividend of 0.86p per ordinary share (FY20: 0.83p).

Michael O'Leary

Non-Executive Chairman

16 November 2021

CHIEF EXECUTIVE OFFICER'S REPORT AND FINANCIAL REVIEW

Overview

I am pleased to report on a record year for Dotdigital, delivering our strongest financial performance to date and demonstrating the solidification of our transformation to an omni-channel platform.

This positive performance has been achieved in what has been a turbulent environment as a result of the Covid-19 pandemic, testing both our customers and our own resilience. We are the strong business we are today because of our passionate team who continued to innovate and stay motivated, supporting our customers through difficult times and taking our business forward to new heights. Backed by our solid financial footing, we did not have any staff on furlough and we continued to add to our teams across our global regional operations.

During the year we saw increased uptake of our digital marketing platform, from both new and existing customers, resulting in organic revenue growth of 23% to £58.1m (FY20: £47.4m) and adjusted EBITDA growth of 9% to £19.8m (FY20: £18.2m). The translation of this financial performance into platform volume growth demonstrates the scale of the Group's reach: 24 billion emails were sent via the platform, an increase of 15% YoY, complemented by an increased uptake of other channels including mobile messages, with a strong 28% YoY uplift in SMS, taking the total number of SMS sent to 665 million (FY20: 520 million).

Underpinning this growth is the Group's recurring SaaS model, with 93% of total revenue comprising of recurring revenue. The Group is cash generative and maintains a strong balance sheet, with no debt and net cash balances of £32.0m at year end (FY20: £25.4m), giving the Group visibility and scope to continue to invest in order to drive long-term, sustainable growth.

We continued to enhance our platform functionality during the year with a focus on driving greater data and automation capabilities. Recurring revenues derived from enhanced product functionality grew by 31% to £18.9m (FY20: £14.4m), demonstrating the value derived from our customer-centric R&D programme.

We remain committed to our responsibility and sustainability ethos by ensuring that all our stakeholders, including employees, partners and the broader community, are central to our decision making. We have made significant strides against this agenda, recognising that we will always be pushing for better.

The digital transformation of marketing operations across all sectors is happening at pace, and we saw an acceleration of this during the year as businesses turned to digital as the primary means of engaging with existing and prospective customers. Our powerful data-driven platform is delivering results at scale, supported by a diversified customer base with broad sector exposure and providing us with a significant opportunity to continue our growth ambitions

Business Review

Dotdigital is focused on empowering marketers to connect with customers through its powerful automation platform that unifies all digital channels. Our Engagement Cloud provides the tools to allow marketing teams to launch highly targeted and relevant campaigns to customers and prospects with personalised engagement at every touchpoint - the right message, at the right time, through the right channel. The result is faster and more effective marketing campaigns with increased engagement and demonstrable ROI.

The use cases of the Group's offering are wide and global, however the Group remains focused on mid-market and enterprise clients across target verticals including retail, non-profit, education, financial services and travel. The Group's foundations and particular strengths are in email and deep integrations into strategic partners within e-commerce and CRM.

Market

The digital transformation of the marketing industry continues to progress, with digital marketing budgets increasingly taking share of overall marketing budgets. The pace of this transition accelerated in the lockdown environment as organisations had no alternative but to engage with their end users via digital channels. As we move through various stages of lockdown easing across our global operations, the allocation of channels varies but the overall shift continues its course.

With the rise of digital marketing, the sophistication of marketeers has also increased. We've seen a greater emphasis on data and personalisation by our customers and our platform is assisting in reducing the gap between marketeers' aspirations and the reality of what they can achieve through our platform. One result is an increasing trend towards direct-to-consumer engagement. Through our platform, brands can devise more informed marketing strategies with actionable insights and analytics that help them develop a deeper understanding of their end customer and drive a positive ROI.

Growth Strategy

Dotdigital's organic growth strategy continues to be focused around its three core pillars: geographic, product innovation and strategic partnerships.

Three Growth Pillars

1. Geographic

Despite the wider economic impact of Covid-19, all key global regions achieved strong revenue growth in the period, continuing Dotdigital's diversification of international exposure. This growth continues to be evident in that revenue from outside the UK was 31% of Group revenue for the year. We expect to continue this growth as we invest further in our key international regions. We saw strong demand for our multichannel functionality from our UK customers which we expect to continue, although it will be surpassed by growth in our international markets.

International expansion is a key tenet of our growth strategy and has been a significant area of investment in the period. We have strengthened our presence and enhanced our prospects across our key territories as reflected in the growth across our key international regions. We expect to further build on this momentum and continue organic growth as we move into FY22 and beyond.

EMEA

Revenues were up by 23% to £44.6m compared to £36.3m for the same period in FY20. We saw a normalisation of sales cycles in the region, particularly in the second half of the year, as pandemic restrictions broadly began to ease in this region. We have also seen an uptick in momentum both from a pipeline and sales conversion perspective and expect to see this trend continue as lockdown measures across the region continue to ease.

Take-up of omnichannel marketing solutions was strong in this region, particularly with SMS, driven by strong demand from our customers in the education and healthcare sectors as they accelerated their adoption of online tools to engage with their customer base during the pandemic.

North America

Revenues for North America were up 19% to US$12.5m compared to US$10.5m for FY20. This was driven by new customer wins, reflecting our growing brand awareness in this region.

North America presents the largest market opportunity for the Group, and we expect to increase our investment in this region to solidify our foundations to capture more opportunities. Our focus remains on growing and cementing relationships with partners and customers to help us build our presence while increasing brand awareness. In addition, we will invest in strengthening the customer facing teams and bolster the management structure in this region through creating an additional layer to create bandwidth and scale.

APAC

The APAC region delivered the highest growth in revenue in the year, albeit from a smaller base, as revenues were up 47% to A$7.7m vs A$5.2m in FY20, evidencing Dotdigital's increasing presence in this region and reflecting previous periods of investment. We increased our investment in this market in the period through expanding the team further into Asia. We remain mindful of the ongoing challenges in the region as a result of the Covid-19 lockdown which presents a degree of uncertainty for our end customers, however we see a strong pipeline of opportunities in Japan and the Far East, through our team based in Singapore.

2. Product innovation

The rate at which the platform is developing means it continues to be at the forefront of the customer engagement category. Recurring revenue from enhanced product functionality and upgrades, taken by both existing and new customers, increased by 31% to £18.9m in the period vs £14.4m in FY20, illustrating continued growth in the number of customers using our enhanced functionality, including an increasing number of data connectors through our IPaaS (Integrations Platform as a Service) capabilities.

We have continued to educate the market through live online sessions and digital marketing content on how to adopt new features to enhance messaging. The platform continues to go from strength to strength, differentiated by our offering of an in-house platform and automation tools across all channels. The competitive advantage of our offering and our ability to deliver on the needs of our customers is evidenced in our strong performance this year and the increased uptake of multichannel solutions by existing and new customers alike. As we go into the new financial year the focus will be on platform adoption from the additional functionality added in the period.

Customer-centred R&D investment in the period was £6.8m compared to £6.5m in FY20, consistent with management expectations. We continued to execute against our product strategy and our roadmap has continued to develop as anticipated.

Our focused areas of innovation are:

3. Developing strategic partnerships

We have continued to invest in all our strategic partner relationships, which are a key aspect of our growth strategy as they help us to raise brand awareness, in the regions and verticals in which we operate. Revenue through connectors into strategic partners was up 14% to £25.4m vs £22.2m in FY20, evidencing the progress we have made in developing our relationships with strategic partners and refining our joint go-to-market strategies.

Continued growth in the Magento space was driven by enhanced brand awareness coupled with the additional functionality that we have developed for e-commerce merchants. Sign-up of customers in all regions remains strong, with a net new 66 Magento customers joining the platform in the period, taking the total number to 782. Revenue from Magento customers grew 11% to £14.3m from £13.0m in FY20 and we look forward to the continued collaboration between our respective teams to advance our joint marketing strategy and to enhance development of our integration.

At the end of the financial year, we had 132 customers using the Shopify connector compared to 83 this time last year, supporting the continued strength of our relationship with this partner. Revenue from Shopify customers grew 79% to £2.1m from £1.2m last year as we saw an increasing pipeline of new customers from the integration, built with Shopify Flow, which allows e-commerce merchants a seamless connection to easily deploy campaigns from the Dotdigital platform.

We saw a 249% increase in revenue from BigCommerce connected customers in the year to £0.4m from £0.1m. As BigCommerce's global elite partner through the period, we continue to deepen our strategic relationship, formulating a joint go-to-market plan through offers for e-commerce merchants, and joint efforts to the user. This plan will enable us to increase our addressable market across all regions, and we are already seeing an increasing demand to use the integration as a result.

As evidence of our commitment to our B2B Marketing customers, we hired a partner manager to build our strategic relationship with Microsoft for our integration into Dynamics 365 in North America. Revenues from customers using our Dynamics connector increased 12% to £4.3m in the year vs £3.8m in FY20; we believe that this significant opportunity to develop a meaningful partnership with a major North American player has only begun to be recognised and we look forward to building on this relationship in future.

Building on our integration success, we have created a repeatable blueprint for building integrations into the wider connected ecosystem faster and more agile than before. Most recently, we launched integrations into Shopware 6, Google Sheets, Eventbrite and Typeform, with more planned on the roadmap for FY22.

M&A

To support the Group's organic growth strategy, the Board continues to evaluate the market for complementary acquisitions, backed by the Group's robust financial position. The Board's acquisition strategy is focused on set criteria, being: synergy technology for new revenue streams; bolt-on functionality to accelerate platform development, new talent acquisition and the expansion of expertise, and extension of the customer base in strategic territories.

FINANCIAL REVIEW

Revenues

The Group achieved continuing operations revenue growth of 23% (FY20: 12%), which delivered record overall revenues of £58.1m, driven in particular by an increased volume of ARN (alerts, reminders and notifications) SMS messaging, as the effects of the pandemic continued throughout our financial year. Recurring revenues comprise 93% of the total, whilst international revenues continue to account for 31% of the total (FY20: 31%).

Business model

The Group generates the majority of its revenues from annual message plans which are recognised equally over the life of the contract. In addition, we sell upgrade packages to customers allowing them to use additional modules and features of our platform. For more sophisticated customers we offer customised functionality and integrations so that they can maximise the use of their customer data. We also have professional services contracts which are recognised as revenue as the work is performed. Over the past year we have built other messaging channels into our core platform, including SMS and Live Chat, and access to these channels are sold separately.

Gross margin

The gross margin for the period for continuing operations was 82% (FY20: 92%). Whilst the gross margin for email and standard channels remained above 90%, the decline in overall group gross margin comes from the growth of premium messaging channels, (routing purchased via a third party on a per message basis), such as SMS.

Operating expenses

Adjusted operating profit from continuing operations grew by 5% from £13.1m to £13.7m. Operating expenses as a percentage of revenues dropped from 64% to 59%, reflecting some investment back into the business. The Group continues to invest in people in the areas of development, sales and marketing, particularly within the high-growth global offices, to continue enhancing and adding to the product suite.

Balance sheet

There was strong cash management in the year with net cash generated from continuing operations of £20.7m (FY20: £18.2m). The cash balance at the end of the period was £32.0m (FY20: £25.4m). The Group continues to be debt free and maintains a healthy balance sheet. A combination of a highly efficient cash collection process and an incentivisation push to move more customers onto Direct Debit and other automated payment collection methods helped with the year-end position.

Trade receivables have only grown by 5% in the year, reflecting revenue growth and good cash management. Overall receivables have grown 3% due to the deferment of marketing expenditure such as trade shows and conferences, which have been postponed due to the pandemic, and related deferred commission on the sale of our products.

The Group continues to invest heavily in the platform to increase functionality around marketing automation, increasing the number of messaging channels and surfacing data and providing insights for our customers to provide excellent customer engagement. This continued investment is demonstrated by the increase in product development to £6.8m (FY20: £6.5m).

Tax

Profitability from continuing operations continues to grow. This is reflected within the tax charge, which is now £1.0m with an effective tax rate of 8%, with a lower than standard rate due to enhanced R&D tax credits.

EPS

In the year the continued operations adjusted basic EPS increased to 4.12p (FY20: 3.95p) and adjusted diluted EPS increased to 4.06p (FY20: 3.90p), despite the higher effective tax rate of 8%, (FY20: 5%). Basic EPS also increased to 3.85p (FY20: 3.68p).

Dividend policy

As announced last year, the Board conducted its review of its organic business plan for the following three years. This included evaluating the cash needs required for opportunities in organic growth to increase shareholder value and capital expenditure. The Board decided that it will continue to keep a progressive dividend in line with EBITDA growth. Therefore, subject to approval at the AGM in December 2021, the Board proposes that the Group will pay a final dividend of 0.86 pence per ordinary share (FY20: 0.83p), to be payable at the end of January 2022.

Current Trading and Outlook

During the year the Group has significantly advanced its omni-channel marketing platform vision with strategic progress against all tenants of our growth strategy, delivering a record financial performance. We have progressed our geographic expansion with stronger market presence in North America, EMEA and APAC; our strategic partner relations have deepened with better collaboration in driving brand awareness to our end markets; and we've added new capabilities to our platform to drive broader customer engagement. The focus remains in driving an increased adoption of functionality within the platform.

As we enter the new year, we do so within a more normalised trading environment as our end markets transition out of the immediate implications from the pandemic. Trading remains in line with management expectation and our technology platform is uniquely positioned to capture the transition to online marketing across the mid-tier enterprise space. Whilst we remain mindful of the wider economic uncertainty, our healthy balance sheet, strong recurring revenues and cash generation provides the flexibility to invest in our growth strategy. The Board is therefore confident in the Group's long-term growth prospects.

Milan Patel Paraag Amin

Chief Executive Officer Chief Financial Officer

16 November 2021 16 November 2021

DOTDIGITAL GROUP PLC

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2021

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2021

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30 JUNE 2021

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2021

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2021

· 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 International Financial Reporting Standards.

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