dotDigital Group Regulatory News (DOTD)

dotdigital Group plc

("dotdigital" or the "Company")

Interim Results

dotdigital Group plc (AIM: DOTD), a leading omnichannel marketing automation platform, announces its Interim Results for the six months ended 31 December 2017 ("H1 2018"). The results reported here represent strong progress towards the Company's strategic pillars of geographic expansion, strong partnerships and product innovation.

Highlights

· Group revenue grew 25% to £18.8m from £15.0m in H1 2017

o Organic revenue grew 17% to £17.5m (H1 2017: £15.0m)

o Functionality revenue from additional services now annualised at £7.6m

· Group adjusted EBITDA grew 8% to £5.7m from £5.3m in H1 2017

· Cash balance at period end of £10.5m reflects cash outflow of £10.7m relating to Comapi Acquisition in November 2017

· Continued strong delivery against strategic pillars: product innovation, partnership development and geographic expansion

· Comapi acquisition provides further progress towards fully-fledged omnichannel offering

· Growing strength of platform enabling high quality data-led insights that drive better results and revenue for customers

Product innovation

· First channels now online from Comapi

· Launched additional features to support customer GDPR compliance

· Secured more than 10,000 customer domains to date, to further enhance security of the platform

· Launched a new cloud based Big Data infrastructure for storage of customer Insight data to underpin new machine learning and AI innovations

Partnership development

· Sales through strategic partners increased by 35% to £7.2m (H1 2017: £5.4m) - 63% e-commerce partners / 37% CRM partners

· dotmailer software bundled into the latest version of the Magento Ecommerce platform launched in November 2017, enhancing reach and visibility

· Shopify connector launched in July 2017 and client numbers now growing steadily

· Big Commerce, Woo Commerce, Shopware and Salesforce Commerce Cloud integrations have also gone live during the period

Geographic Expansion

· Core International sales represented 25% of total sales, up from 22% in H1 2017

· Core EMEA business continued to grow at double digit rate despite some sales cycle lengthening ahead of the introduction of GDPR in May 2018

· Revenue from the US region was up approximately 44% to $3.3m, (H1 2017: $2.3m) driven by channel partners and system integrators for Magento and Shopify

· APAC sales-team expansion and channel partners drove revenue from the region up approximately 75% to AUS$0.9m, (H1 2017: AUS$0.5m)

Milan Patel, CEO of dotdigital, commented:

"These results show dotdigital is making good progress. We are expanding and strengthening the platform which underpins our growth, while continuing to grow our presence in international markets. We're also delighted to have further cemented our partnerships with Magento, Shopify, Microsoft and our other partners, which demonstrates their trust in our ability to drive revenue for their customers through our platform.

As our offering becomes broader and more integrated, we continue to expand the quality and breadth of data on which our customers can draw when devising their campaigns. These insights are a vital component in creating personalised and relevant campaigns which increases customer engagement and ultimately ROI for marketers. We're working hard to ensure dotdigital continues to innovate in this area and we look forward to an exciting second half of the year".

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Operational Review

Our approach

dotdigital's model is based on the fact that consumers respond most positively to personalised, timely and channel-sensitive marketing campaigns. Ultimately, we seek to empower marketers to reach their customers in ways that engage them on their own terms. By first allowing customers to integrate broad and vast ecommerce and CRM data sets into a single platform, and then using leading-edge automation technology to support campaign development and execution, dotdigital ensures marketers can point to reliable returns on their investments and ultimately drive revenue for their brands.

For dotdigital, our 'software-and-a-service' model provides a high-quality and highly visible revenue stream with repeatable characteristics that underpins our future growth plans. Our products are sticky, and the relationships we have with a range of industry-leading ecommerce providers indicates the level of trust our industry has in our solution. We pursue a strategy which places organic growth at its core, and enables a virtuous cycle of product innovation, improved partner relationships, international expansion and inorganic activity which continues to drive dotdigital forward.

The Group's organic growth strategy continues to be focussed around three core areas:

1. Geographic expansion;

2. Developing strategic partnerships; and

3. Product innovation and features.

In the six months to 31 December 2017, key performance highlights against these areas were:

Geographic Expansion

EMEA

Whilst core international sales represented 25% of total sales, up from 22% in H1 2017, our core EMEA business continued to grow at a double digit rate.

This performance demonstrates the underlying strength of our offering, despite some customers lengthening their purchasing cycles ahead of the introduction of GDPR in May 2018. As clients assessed their customer data ahead of implementation, to comply, we saw some volatility in volume-related spending while these processes were worked through. We continue to work with our customers to help them ensure GDPR compliance and would expect normal spending patterns to resume following further guidance from the EU regulator. Furthermore, the improved data-sets resulting from the implementation efforts will likely lead to better data-driven insights for customers, improving ROI for them and growing revenue for dotdigital.

Specifically, within the UK, dotdigital continued to focus on extending its market leading position through product development and innovation resulting in an increasing number of new clients signing up to the platform. We pride ourselves on our customer service and have seen high levels of customer satisfaction over the last six months following on from enhancing our Account Management service in the second half of the last financial year. In addition, we continued to invest in our dedicated sales team for the EMEA region and build our future sales pipeline.

We have a strong growing pipeline, alongside an increased number of new customer sign ups, in the Nordics and Benelux markets.

US

dotdigital continues to make excellent progress with its US expansion plans. Revenues from the region were up 44% to $3.3m (H1 2017: $2.3m), largely driven by the success of our partnerships with Magento and Shopify. We continue to strengthen our partnerships, increase our addressable market and improve our brand awareness in the industry.

The US office now employs 28 people. The investment that we have made in bringing the right people into the business has further enhanced our customer retention, average customer value and accelerated new business growth.

The restructuring programme in the US was completed at the end of the last financial year and the business has seen an acceleration in revenue growth and customer success following this.

APAC

Performance during the first six months of the year was also strong in dotdigital's newest geography as we continue to convert a healthy sales pipeline, particularly in Australia, with revenues from the region up 75% to AUS$0.9m, (H1 2017: AUS$0.5m).

As in the US, efforts made in previous periods to establish channel partnerships have seen dotdigital progress in building valuable relationships from which we are now seeing growing sales in the region.

Internally, we have invested in expanding our direct APAC sales team to meet the growing demand for our services in the region. Whilst our business in APAC is at a relatively early stage, we are confident and optimistic about the opportunities in the region and continue to focus on ways to increase sales through partnerships, e-commerce integration and growth in our sales and customer success team.

During the period we have seen our brand strengthening in the Far East, through thought leadership events and partnerships, resulting in new customer wins in Singapore, Indonesia, Hong Kong and Thailand. As we continue to strengthen our relationships with our partners, we expect the impact to be seen over the next 12-18 months.

Partnerships

Our partnerships remain a key part of our organic growth strategy, and we saw notable advancements during the first six months of the year. Sales through strategic partners increased by 35% to £7.2m (H1 2017: £5.4m) and were driven by a number of important relationships with trusted partners at the heart of the ecommerce and CRM verticals.

Perhaps most notably, our dotmailer software was bundled into the latest version of the Magento Ecommerce platform, which was launched in November 2017. In being included as part of Magento's core platform, dotmailer can be seamlessly integrated to increase ease of use for consumers. In addition, integrations with Big Commerce, Woo Commerce, Shopware and Salesforce Commerce Cloud were also launched during the period.

We also continued to see take-up of the dotmailer ecommerce connectors. We also see a strong opportunity with the Microsoft Dynamics connector, as we continue to strengthen our relationship with senior individuals and further enhance our integration, which adds to the value proposition to our customers.

Product Innovation

We have added features and enhancements to our product in the last six months to ensure that we continue to adapt to the changing market and offer a comprehensive service to our customers.

A new campaign reporting tool was launched within dotmailer following customer feedback, allowing the customer to increase their insight into both how customers behave alongside the success of their campaigns.

It is critical that we continue to invest in both our own and our customers' data security and as a result we have secured more than 10,000 customer domains (through SSL, Secure Socket Layer) to date. With GDPR on the horizon, we have launched additional features - such as The Right to be Forgotten (data deletion and modification), Evidence of Consent and Data Subject Requests - to support our customers, with the aim to make compliance as easy as possible.

Comapi Acquisition

In addition to our organic growth strategy, we also continue to add to our offering through selected acquisition. During the period we completed the acquisition of Comapi, a fast-growing business focused in the omnichannel messaging and cloud communications market, for a cash consideration of £10.7m.

The acquisition marks a significant step forward in the development of the Company's platform to provide a fully integrated omnichannel and conversational commerce platform to support marketers. It further enables dotdigital to deliver aligned conversational messaging across relevant channels for our customers, including email, mobile push, SMS, Facebook messenger, Apple business messenger, Twitter and live chat.

The move positions dotdigital as one of the most advanced platforms on the market, making the business more relevant in the strategic mobile-first Asian market.

With new channels now online, we have already seen early signs of success from our combination with Comapi. The integration of Comapi is on track and we look forward to launching a fully integrated omnichannel platform at our dotmailer summit in April.

Financial Review

Revenue

Group revenue during the period grew 25% to £18.8m from £15.0m in H1 2017. This performance was driven primarily by new direct customer wins and through our partnerships. Recurring revenue now represents c80% of group revenues, enhancing visibility on future revenues.

Organic revenue grew 17% to £17.5m (H1 2017: £15.0m), in line with management expectations, with functional revenue (includes license fees and bolt-on functionality), now annualised at £7.6m.

The geographic split of revenues continued to diversify, with core international sales representing 25% of total sales in the period, up from 22% in H1 2017. Of that, revenues were up 44% in the US to $3.3m (H1 2017: $2.3m), and up 75% in APAC to AUS$0.9m (H1 2017 AUS$0.5m).

EBITDA

Group adjusted EBITDA grew 8% to £5.7m from £5.3m in H1 2017, which was in line with management expectations. Adjusted EBITDA excludes a one-off charge of £0.2m for the acquisition of Comapi. We continued to maintain an EBITDA margin of over 30%.

Balance Sheet & Cash Position

dotdigital continues to generate strong cash flow from its core operations. After total expenditure of £13.1m, largely due to the strategic acquisition of Comapi for a cash consideration of £10.7m, interim end net cash balance stood at £10.5m.

dotdigital continues to prioritise product development and during the period spent £1.7m on development (compared to £1.3m in H1 2017). The Group continues to maintain a healthy balance sheet with gross assets of £40.2m and no debt.

Dividend Policy

A dividend of 0.55p per ordinary share (an increase of 28% on the prior period, up from 0.43p) was proposed by the Company at the time of its Final Results in October last year, demonstrating a commitment from the Board to deliver value by focusing on total shareholder return.

This dividend was approved by shareholders at the Annual General Meeting on 19 December 2017 and paid on 31 January 2018.

The Group's dividend policy continues to be that a full review of dividends will be held at the time of the year end, therefore the Board is not proposing an interim dividend.

Summary & Outlook

The first half of 2017 was a transformational period for dotdigital, as the business continued to deliver against its organic growth strategy as well as making significant advancements in our offering through the acquisition of Comapi.

As clients prepare for the introduction of GDPR in May 2018, we have launched additional features to support compliance, and have successfully implemented gap analysis measures to ensure our own. As the regulation comes into force, the Board will continue to proactively monitor and assess any impact to dotdigital and assess how it can best help clients through any transition they undergo.

Based on dotdigital's strong performance during H1 2018 and the continued demand for our core product solutions we have seen at the beginning of the second half, the Board remains confident in its expectations for the full year.

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

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

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

- The reverse acquisition reserve relates to the adjustment required to account the reverse acquisition in accordance with International Financial Reporting Standards.

- Other reserves relate to the charge for the share based payments in accordance with International Financial Reporting Standard 2.

- Retranslation reserve relates to the retranslation of a foreign subsidiary into the functional currency of the Group.

The UK operations includes Comapi as its turnover and expenses arise solely from operations within the UK, though Comapi delivers messages to over 200 countries around the world on behalf of its customers. The revenue from Comapi was £1.3m and the profit before tax was £0.1m from the date of acquisition to the end of the period.

The Group has not reported the different lines of businesses as separate operating segments as they do not meet the qualitative threshold under IFRS 8 Operating Segments.