dotDigital Group Regulatory News (DOTD)

7 March 2023

Dotdigital Group plc

("Dotdigital" or the "Group")

Interim results for the six months ended 31 December 2022

Dotdigital Group plc (AIM: DOTD), the leading SaaS provider of an omnichannel marketing automation and customer engagement platform, announces its unaudited interim results for the six months ended 31 December 2022 ("H1 2023").

Financial Highlights

Operational Highlights

Milan Patel, CEO of Dotdigital, commented:

"We are pleased to report another period of profitable growth and execution in line with our strategy, as we begin to realise the benefits of our strengthened operations functions following investment in the prior period.

"Organisations across industries are depending, more than ever, on driving higher engagement across their customer bases to support growth and loyalty. Our technology sits at the heart of this, with digital engagement tools underpinned by rich data that provide insights into the value and impact of marketing spend throughout the customer journey.

"We enter the second half of the year with a stronger pipeline of opportunities, supported by a profitable, cash generative business model and increasing recurring revenues. Whilst we remain mindful of macroeconomic uncertainty, the strength of our value proposition, expertise across sectors and expanding addressable market give us confidence in meeting market expectations."

Live presentation to investors: Management will host a live presentation to investors via the Investor Meet Company platform on Thursday, 9 March at 10.00 a.m. UK time. Investors who already follow Dotdigital on the platform will automatically be invited, others are invited to register in advance via the following link: https://www.investormeetcompany.com/dotdigital-group-plc/register-investor.

Notes

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

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

3. Adjusted operating profit is operating profit 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.

OPERATIONAL REVIEW

The Group made good progress over the first half of the year, in line with management expectations. The operational building blocks put in place in the second half of the prior year have started to yield results with evidence of increasing commercial momentum across the Group.

The Group delivered revenue growth of 9% to £33.8m (H1 2022: £30.9m) driven by improved customer retention and increasing revenue per customer, together with new customer wins and favourable FX movements. As expected, adjusted EBITDA was £11.1m (H1 2022: £12.2m), reflecting planned headcount growth of c. 45 people through the period and wage increases which were weighted to the start of the financial year, compared to a more gradual distribution of cost growth through the prior year. Cash generation continues to be strong, and the Group ended the period with a net cash balance of £49.6m.

The investments made to solidify the Group's global operations, from Sales to Customer Success and Partner Management teams, along with continued positive trading, have enabled the leadership team to renew their focus on the Group's growth opportunities. Overall, the Group has seen an improving environment to attract and retain talent as competitors pause to reflect on previous hiring initiatives. There is a refreshed sense of optimism and momentum internally with our teams energised around our growth plans.

Within the current economic climate, we are seeing organisations across industries assessing how to attract and retain customers whilst optimising their technology stacks to drive efficiency and cost savings. Dotdigital's platform, which offers clear, demonstrable ROI coupled with easy-to-use functionality and straightforward onboarding processes, is a compelling proposition. The Group continues to grow market share and cement its reputation across territories, evidenced by a growing pipeline, particularly within larger enterprises.

Marketeers at some of the world's biggest international brands rely on Dotdigital to power their campaigns. Along with continued strength in the ecommerce space, the Group has seen growing interest in sectors such as not for profit, utilities, financial services, construction, media and healthcare. New customers won during the period include Chartered Institute for the Management of Sport and Physical Activity, Shell Energy UK, Leeds Building Society, Galliford Try and CBRE.

Looking ahead, the Group is well positioned to capitalise on the market opportunity, with strengthened foundations across its three operating regions underpinned by a resilient, profitable SaaS business model. With high levels of recurring revenue and strong cash generation, the Board has the flexibility to continue investing in the organic and inorganic growth opportunity.

Market

Digital marketing continues to be the priority for organisations. According to the 2022 CMO Survey, digital marketing spending has accelerated since it was first measured in February 2021 (+11.5%) to a high in February 2022 (+20.2%), resulting in digital marketing investments accounting for 57.9% of marketing budgets.

According to the survey, 59% of Marketeers listed martech as one of their top digital marketing investments. A 2022 study by Gartner reported Marketeers planned to spend 25.4% of their marketing budget on martech in 2022, while the 2023 Deloitte Global Marketing Trends executive survey found 'Accelerating the move to new digital technologies/platforms' to be the number one priority for Chief Marketing Officers.

Within this, there is a growing expectation and requirement for increasingly sophisticated tools that allow for more personalised and targeted campaigns based on rich customer data. This holistic view of the full customer journey is what drives the Group's technology roadmap for Customer Experience & Data Platform (CXDP). In an October 2022 survey of B2B marketers carried out by Chief Marketer/OneTrust, the top three martech investment targets were content creation, analytics and automation, validating our direction of travel. With a wider backdrop characterised by economic uncertainty, we are seeing a heightened focus on optimisation and cost effectiveness as well as customer loyalty. Within this framework, email marketing remains the primary channel for customer engagement, still providing the highest return on investment. During the period, we saw email marketing volumes increase 13%. Alongside this, demand for omnichannel continues to grow, as organisations aspire to increase the number of touchpoints with customers all from one platform. For instance, according to Airship's Push notification Benchmark report, 51% of iOS users and 81% of Android users are opted-in to receive 'push' notifications, offering a potentially valuable complementary engagement channel for organisations.

Strategy

The Group is guided by a consistent and focused growth strategy, centred on three strategic pillars: international diversification, product innovation, and building on our strategic partnership relationships.

Geographic expansion

Regional breakdown reported in local currency

The Group's largest and most established market, EMEA, grew 7% to £25.3m (H1 2022: £23.6m) following continued strong underlying demand. The pipeline of higher value deals continues to trend upward as enterprises focus on technology rationalisation towards best-in-breed solutions with comprehensive functionality. The Group's growth in the region was somewhat tempered by a lower level of one-off professional services fees as the organisations' decision making on new projects was slower to navigate the uncertain macroeconomic backdrop. 

Revenues from North America were flat at $6.5m (H1 2022: $6.5m). This is against a strong comparative H1 and a lower entry run rate into the current financial year as a result of previously communicated employee and customer churn during H2 of the prior year. These challenges have been addressed and the trend has reversed with an improvement in customer retention and an in-region sales team now embedded and starting to convert a building pipeline. The Board expects the region to show positive underlying growth at the full year as this momentum continues.

APAC continued to post strong double-digit growth with revenue from the region increasing 17% to AUS$5.2m (H1 2022: AUS$4.4m). This follows continued investment in the region, including further expansion of localised go-to-market teams and, in Japan, the appointment of an experienced country lead.

Organic international revenue increased by 19% to £11.5m (H1 2022: £9.7m) in the period, with international sales contributing 34% to total revenue (H1 2022: 31%).

Product innovation

The Group's product roadmap continues to unlock growth opportunities with functionality recurring revenue (licence, data charges and additional functionality) growing 13% to £12.2m in the period (H1 2022: £10.8m).

Our Research and development focus is guided by the Group's Customer Experience Data Platform (CXDP) vision and how to bring this powerful functionality to the mid-market.

The innovations surrounding analytics have helped us attract larger and mid-market customers, some of which are finding that Dotdigital can meet their data capability needs and so replace point solutions. Cross-account analytics and account tagging are just some of the ways in which large businesses with multiple accounts can streamline how they analyse their data across departments and business divisions. We also see organisations review their larger cloud solutions and look to Dotdigital as a viable alternative that offers equivalent power at an attractive price-point. Our appeal to these businesses is further strengthened by the launch of back-in-stock notifications which is essential for brands who want to reduce their opportunity cost. Multi-touch revenue attribution is also key to demonstrating value and businesses are happy to invest in marketing despite external pressures if success can be measured.

Our product roadmap will continue to focus on self-service integrations, predictive analytics, and predictive subject line content creation as we enter H2.

Strategic partnerships

The Group looks to complement its direct sales channel by building brand awareness through strategic partnerships, with a core focus on forging connectors into both ecommerce and CRM platforms, complemented by a broader general partner referral network which includes over 200 active global partners.

During the half, revenue through strategic partners grew 17% to £16.3m (H1 2022: £13.9m). The Group's ecommerce partners, which include Magento and Shopify among others, grew a healthy 10%. Pleasingly, the Group saw significant growth through its CRM partners, including Microsoft Dynamics and Salesforce, which together grew 32% in the period following more investment into this channel. The CRM channel partnership growth was particularly strong in EMEA due to increasing brand awareness through the channel, providing increasing confidence of building on this momentum in the future. 

M&A

Now that the planned organic investment has been made and is showing returns, the Board is focusing on acquisition opportunities to supplement organic growth. Our acquisition strategy is 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.

Current Trading and Outlook

We are encouraged by the progress achieved in the period and enter the second half with strengthened operations and good trading momentum. In the current climate we are seeing a renewed focus on rationalising technology stacks to drive value and ROI, which is uncovering new opportunities particularly amongst larger enterprises leading to higher value deals.

As we look ahead, our focus is on building our CXDP, supporting our opportunity in North America through new hires, as well as additional headcount across the business to match demand and to drive more lead generation through partners and direct channels. Whilst other suppliers take stock of previous investment rounds, we see this as an opportunity to further entrench our position in the market, supported by a growing pipeline and resilient underlying business.

We believe the potential is substantial. We understand where our opportunities lie and how we can capture them. While remaining cognisant of the challenging macroeconomic backdrop, our growing global reputation, talented and committed teams, and good visibility over the second half, provides the Group with confidence in continued success.

FINANCIAL REVIEW

Revenue

Revenue during the period grew 9% to £33.8m from £30.9m in H1 2022. This performance was driven primarily by net revenue expansion but also growth in SMS volumes.

Recurring revenue represents c.95% of revenues, improving visibility on future revenues. Enhanced functionality revenue (which includes licence fees and bolt-on functionality) grew 13% to £12.2m from £10.8m in H1 2022.

International revenue was 34% of total sales in the period, from 31% in H1 2022. Of that, revenues were flat in the US at $6.5m (H1 2022: $6.5m) following stabilisation of sales and customer success teams in the region, and up 17% in APAC to AUS$5.2m (H1 2022: AUS$4.4m). EMEA revenues grew 7% in the period to £25.3m (H1 2022: £23.6m). The Group also benefitted from the strengthening of the US dollar.

During the period ARPC, measures at the end of period increased by 11% to £1,573 per month (H1 2022: £1,422 per month).

Gross Margin

Product gross margins remain consistent with the prior period. Total Gross margin % reduced slightly to 79.1% (H1 2022: 82.1%) reflecting fluctuations of revenue mix.

EBITDA

We achieved an adjusted EBITDA margin of 33% and an adjusted operating profit margin of 22% in the first half, which was in line with management expectations. The Group has absorbed significant cost inflation both relating to planned increased headcount and also third-party suppliers. It continues to invest in go-to-market activity and product development to deliver our product roadmap. The adjustments include a share-based payment charge of £0.26m and exceptional costs of £0.06m.

Balance Sheet & Cash Position

Dotdigital continues to generate strong cash flow from operations with an interim period end net cash balance of £49.6m. Strong cash generation has given us strategic options, particularly involving opportunities to explore potential acquisitions of relevant adjacent technologies.

The Group continues to prioritise product development and during the period spent c.£4.0m on development (compared to c.£3.4m in H1 2022).

Dividend Policy

A dividend of 0.98p per ordinary share (2022: 0.86p) was proposed by the Company at the time of its Final Results in November 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 21 December 2022 and paid on 31 January 2023.

The Group will review the dividend at year end; therefore, in line with previous years the Board is not proposing an interim dividend. This represents the 10th year of paying dividends which have increased with a CAGR of 29% during that period since our inaugural dividend in 2013. 

* Exceptional costs relate to the amortisation of acquired intangibles. Senior Management settlement costs of £355,000 were also included within exceptional costs in the 12 months to 30 June 2022.

Notes to interim financial statements

For the six months ended 31 December 2022

1. GENERAL INFORMATION

Dotdigital Group Plc is a company incorporated in England and Wales and quoted on the AIM market.

2. BASIS OF INFORMATION

These consolidated interim financial statements have been prepared in accordance with UK-adopted International Accounting Standards ('IAS') and on a historical basis, using the accounting policies which are consistent with those set out in the Group's annual report and accounts for the year ended 30 June 2022. The interim financial information for the six months to 31 December 2022, which complies with IAS 34 'Interim Financial Reporting' has been approved by the Board of Directors on 6 March 2023.

The unaudited interim financial information for the period ended 31 December 2022 does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The comparative figures for the year ended 30 June 2022 are extracted from the statutory financial statements which have been filed with the Registrar of Companies and contain an unqualified audit report and did not contain statements under Section 498 to 502 of the Companies Act 2006.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies applied are consistent with those of the annual financial statements for the year ended 30 June 2022, as described in those financial statements.

4. SEGMENTAL REPORTING

The Group's single line of business is the provision of data-driven omnichannel marketing automation. The chief operating decision maker considers the Group's reportable segments to be by geographical location this being EMEA, US and APAC operations as shown below:

Geographical revenue and results

5. DIVIDENDS

The proposed final dividend of £2,925,849 for the year ended 30 June 2022 of 0.98p per share was paid on the 31 January 2023.

6. EARNINGS PER SHARE

Earnings per share data is based on the consolidated profit using the weighted average number of shares in issue of the parent Company. Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares. Adjusted earnings per share is based on the consolidated profit deducting the acquisition related exceptional costs and share-based payment.

A number of non-IFRS adjusted profit measures are used in the annual report and financial statements and in these interim financial statements. Adjusting items are excluded from our headline performance measures by virtue of their size and nature, in order to reflect management's view of the performance of the Group. Summarised below is a reconciliation between statutory results to adjusted results. The Group believes that alternative performance measures such as adjusted EBITDA are commonly reported by companies in the markets in which it competes and are widely used by investors in comparing performance on a consistent basis without regard to factors such as depreciation and amortisation, which can vary significantly depending upon accounting methods (particularly when acquisitions have occurred) or based on factors which do not reflect the underlying performance of the business. The adjusted profit after tax earnings measure is also used for the purpose of calculating adjusted earnings per share.

Reconciliations to earnings figures used in arriving at adjusted earnings per share are as follows:

Management does not consider the above adjustments to reflect the underlying business performance.

Weighted average number of shares in issue as follows: