Dotdigital Group (LSE:DOTD) — Final Results 2021

0:01 Good morning, ladies and gentlemen, and welcome to the DOTDIGITAL GROUP PLC Final Results Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type in your question and press 0. The company may not be in a position to answer every question it receives during the meeting itself. However, company will review all questions submitted today and publish responses where it is appropriate to do so. These will be available via your investment company dashboard and we'll notify you by email when these are ready for

0:31 your review. I'd also like to remind you that today's presentation is being recorded. Before we begin, I'd like to submit the following poll. And I'd now now like to hand over to Milan Milan Patel, CEO and Paragavan, CFO. Good morning to you both. Good morning, Alejandro. Thank you very Good morning, everyone, and thank you for taking the time to listen to our presentation on the full year results ended 06/30/2021. I'd like to get through the presentation as quickly as possible and leave, lots more time in terms of q and a. If we move over to the business at a snapshot. So a lot of you have followed the story, and thank you for your support. But just for the new people, wanted to give a quick history of the business and what we're looking at in terms of key operational KPIs and what we've been performing.

1:23 Business performed in '99 where the market was very nascent. It was about sending one content to everybody on their contact list using a platform. Today, the market is very different. The evolution that and the marketing sophistication that people have taken, it's all about that one to one experience. It's about making sure that they're connecting with the recipient, whether the whether they are customers, prospects, at every touch point that they have, and making sure that the communication comes through from a relevancy personalization targeting perspective. We're very much global business centered out to three main hubs. UK is our hub into EMEA, our New York offices are our hub into North America, and our Sydney offices is our hub into APAC. Now when we describe hubs within the organization, it's about having every single department within region not only to deliver on the needs of our customers, but also to scale for the future as we penetrate more international regions or where you can scale from as you start to dip your toe in other international markets.

2:23 In terms of the business, we have over 300 employees, from varying different departments. And as we go through the presentation, I'll take you through that. In terms of not only do we have new business coming in from our direct marketing efforts, We also have a very strong tech ecosystem of solution partners that assist us in driving more brand awareness. In terms of where we're focused, very much on that mid market where the cost of acquisition of a customer is around 8 to £10,000 to us. The lifetime value of that customer is a 140 to a £180,000. So over 10 x return in the investments that we're making. But what do we do? We have a platform that allows our customers to connect data, really to build a picture on who they're talking to.

3:09 That then gives, within the platform, we have a tool set that allows them to use that data to get really personalized from an experience perspective or driving more customer engagement. They can automate those campaigns or customer journeys that they may have, or they can do one off campaigns that they may be having to do. Whether it's ecommerce companies that use a platform, whether it's b to b marketers, we have 50% in the b to c marketing. We have 50% of our customers that drive b to b marketing. You can see some of the customers that we help on the right hand side, but I won't go into too much detail. We've got a few case studies on how people are using the platform itself. We very much operationally look at three main key metrics. The business in terms of organic growth strategy is centered around three main areas. One, which is around geographic.

3:59 Secondly, it's around strategic partners where we have strong integrations both into ecommerce or into CRM platforms. And then thirdly, it's around product innovation. If we look at our, pricing model, effectively, customer comes on board. There is a small bit of services within the business, less it represents less than 10% of our group revenues. In order to get them really started, whether it's design, whether it's training that they do, or a bit of onboarding, The main bulk part, over 93% of our group revenues is recurring, comes from two main areas. One that we describe is license and functionality, and that when a customer is coming on board based on the number of contacts that they're bringing into the platform, they pay a license fee. Secondly, it's about the data that they're bringing into the platform and the data insights that they're creating. They pay recurring for that. And the third part to that from a recurring revenue perspective is all about messaging, and that's where we're seeing most of our recurring coming from. If we look at what's been happening over the last ten years, we talk about profitable growth. It's about driving bottom line. It's about driving top line growth, and it's also about cash generation.

5:16 So what's happened in the last twelve year twelve months? We're seeing strong levels of organic growth, over 23% in the period, strong profitability coming through, whether it's our 90% gross margin channels or even some of the newer channels that we've integrated into the platform. We continue on that global footprint. We've seen over 20% growth in international revenues, more diversification of revenues outside of The UK. In terms of the market itself, it's not just about one single channel. It's about complementing different channels and making sure their end recipients get the best experience. And we continue to see that increased uptake as customers test how they can use that channel within their customer journeys or marketing strategies and continuing to educate that market.

6:03 In terms of some of the investment areas that we've done in the last twelve months, it's around really solidifying our international hubs. I always talk about the opportunities will always be there. It's about having strong foundations to take those opportunities. If you take those opportunities too quickly, it could crumble. So continuing to invest around international, continuing to make sure our processes are scalable, and making sure that that platform scales and continues to scale. In terms of strategic partnerships, we've seen them go straight, from shrink to strength. And what we're doing here is enhancing their value proposition. They help with the brand awareness as we piggyback on the coattails of our strategic partners and continue to build that product, making sure we're building functionality not only for today and staying ahead from a competitive advantage, but also building product functionality that keeps us innovating, making sure that we're delivering on aspirations of marketers and educating that market in terms of how they can use it from a use case perspective.

7:07 In terms of financial position, very remains very strong. We have no debt within the business. We have strong cash generation that allows us to really decide where we're gonna be investing, whether it's from organic, whether it's around m and a. If we look at what's what's happened in the, what's been happening and where we're starting from, we have high levels of confidence in the delivery of these targets and long term prospects of the business.

7:35 So I always talk about not only having the world's best platform out there, making sure we also have the people. It's the combination of technology and people that really bring our business to life and make us successful. So as we transitioned into more flexible working, it was about creating not only the culture that we had within the organization from when people were coming into the office, but expanding that out as people work from home. In terms of what we have, predominantly, most of our investment in people is around IT and development, making sure we're continuing to deliver on the product innovation and around go to market revenue generating from sales and marketing perspective and a small team and client services.

8:22 So at a snapshot, what we've been doing over the last twelve months, we've continued to develop around our customer and data capabilities. As you can see here, in q four, we launched our customer data platform. Or to the people that don't know about customer data platforms, it's an ability to bring data in from various different sources, making sure we're joining all that data up to really visualize who you're talking to. In terms of connections, you know, we've done lots more around integrations, whether it's around the strategic partners. Now when we describe strategic partners, they either represent 10% of our group revenues or have the opportunity to represent 10% of our group revenues. And then we have a whole load of other integrations into the platform, whether it's around point of sales, whether it's around online events, and the list goes on.

9:13 Customers bring them all of that information or datasets into the platform. As I said, we we create the data visualization, and they can really use that visualization to drive return on investment on their marketing campaigns or even understand more in terms of personalization. And then we give them all the power in terms of using that data, creating automated campaigns, creating campaigns around all of that information, and then give them every single channel today to really communicate on on that one to one basis. So what you're seeing in terms of marketing strategies, instead of where it used to be, you know, we'll drive we'll do this campaign, and that's gonna really lead to lead acquisition. We're gonna do this campaign to do retention.

10:00 It's about really putting the customer centric or the recipient centric to their marketing strategies. We describe it as the four r's. It's about the right message at the right time to the right person through the right channels. With the DOTDIGITAL platform, that then generates outcomes, whether it's around growing their customer base, if it's an ecommerce company, it's about growing their sales. And what we've continued to see, I guess, through COVID, post COVID in some form of normalization is retention marketing strategies are coming to the forefront. Other areas that have been expanding is around influencing, and you can use all of that data to use channels like social, like video to really get influence behind it, building the community around the brand in order for customer engagement and continuously from a brand awareness perspective.

10:52 So in a snapshot, your data in. We make it very easy. To use that data, we make it very easy. Then once you've got the data into the platform, automating your campaigns, giving you the channels to communicate to create those outcomes. So I thought let's let's look at how some of the customers are using our platform. You can go to our website. There's lots of case studies, lots of testimonials, and people use our platform in a variety of different ways. But just taking two two examples, Southampton Football Club, what they wanted to do was automate more of the customer journeys that they're seeing, whether it's somebody visiting their website from the first time to even creating more repeat purchase on merchandising. They set up a six stage email campaign, really automating it, understanding who they're speaking to.

11:42 That generated more sales. But more importantly, they wanted to get more of the information out there in order for people to stay engaged. They saw a significant increase in open rates. In terms of reach jewelers, as the world of digital transformation starts to come through and which has been accelerated by COVID, you know, many years of digital transformation has happened in months. They wanted to increase the efficiencies of their processes by the use of data. And what we've seen there is an increase in revenue using the engagement cloud platform and also uplift in the average order value that they're getting from their sales, both from an in store purchase perspective, but also from an online. So I mentioned this earlier.

12:29 We like to keep things simple. It's about growing around the three organic growth pillars, whether it's around product innovation, whether it's around strategic partnerships and geographic expansion. As we go through the presentation, I'll go into a lot, lot more detail in terms of what's been happening in all three of these pillars over the last twelve months and how that sets us up for opportunities into the future. But if we look at the product innovation, we continue to expand the product suite. That fuels the growth, fuels the opportunities from an organic growth perspective. Very much developing those relationships, whether it's around the mid market, whether it's around larger enterprise and, growing into the different brands that they may have or growing into the different territories they may have. It's about creating those relationships. It's about showing how people can be using the different pump platform functionality from an adoption perspective and making sure we're delivering on what they're looking to use the platform for.

13:26 We always talk about a mission of ours about starting small and scaling quickly, making sure that they are continuously delivering those returns from a strategic partnerships, continuing to build new connectors, but also working with our strategic partners to really drive go to market. And that's what we've been doing, not over the last twelve months, over the many years that we've been operating in the space. Geographic expansion is very important for us to continue to grow our customer base globally, making sure that we're driving market share in these global markets that we we are penetrating. And as I mentioned earlier, for us, it's that the success criteria is for and the ingredients is all around technology. It's all around people. And continue to globalize our talent from an operational strength and capabilities perspective is very important for us.

14:18 So for us, it's about that focus on organic growth, but also where strategic m and a opportunities come through. We also have three main pillars to any m and a acquisition. We're not about just doing acquisition for the sake of an arbitrage. We don't like or we wouldn't ever join the treadmill where you do one, and you gotta keep doing it in order to keep those headline growth rates. For us, it's about really homing in on three main areas, whether it's around buying customer base, where we can see upsell opportunity or talent, acquiring talent in order to strengthen our international hubs or strategic territories that we wanna go into. Second part to that is complementary synergy technology, where it creates new revenue streams for us or where we can see ARPU expansion. And for ARPU, it's the MRR that the customer is spending with us year on year.

15:14 So people ask me, well, Milan, what sort of complementary synergy technology would you look at, and where does it make sense? So if I give you just a potted, where the market is today, what they're trying to do is create that complete experience and a unified experience across every channel or every engagement with the end customer. We're seeing the rise of retention marketing in overall marketing strategies. So a couple of areas that really make sense for us for us from a complementary synergy technology is around loyalty. Loyalty platforms could make sense where not only does it drive more data into the platform in turn, meaning recurring revenues are going up, It drives the number of contacts or subscribers, which means the license fee goes up, and it also increases the number of messaging going out the platform in turn, obviously, increasing the recurring messaging.

16:06 But loyalty, you can charge for the access to the systems separately, which also creates new revenue streams. The second part to that is around web personalization. So a lot more, I guess, first time visits, people go to the website. With web personalization technology, not only does it use the the data that you have from a single customer view perspective, it also looks at the campaigns and how people have been engaging and how you've enhanced those metrics and then gives a fully tailored experience when somebody hits the website. So it could be welcome back, Milan. Based on what they know or what I've purchased in the past, they bring that to the forefront on the header of the website. The content is completely tailored to me. So I feel that effectively, I'm they know more about me, but they are giving me the experience on a one to one basis.

17:00 So very much three organic growth pillars and looking at strategic m and a that really makes sense for the business as we look forward. And then the third pillar to that is if we have missing functionality that takes us multiple years to build, we may buy or build.

17:19 So the market itself, you know, we continue to see more and more marketing automation, more use of AI and machine learning through the platform. And you can see here, I won't read out every single stat, but you can see more and more sales that are coming through just using some of our technology. You're seeing an increase in the adoption of cross channel or increasing different channels, not only just sending something out by email, following that up with SMS in terms of your deliveries due, or notifications if you got a dentist appointment, a reminder. So we have various different use cases for the different platforms. But you're also seeing a rise in in app push. So where more and more brands have application or mobile applications is making sure they have that consistent message as they communicate at every different channel.

18:08 The other area that we're seeing the rise in is in app, sorry, is chat. And what you're seeing the rise of from a market perspective or the market drivers there is the rise of, conversational commerce. And that allows the end customer or the recipient of communications to really engage with that brand that leads to that purchase. Some of the things we're doing as we penetrate further into Far East Asia, we're fortunate and we're unique in the marketplace that we have our user interface translated into multiple languages. And over the last twelve months, we've added four extra languages. With our platform, company could use it at corporate level, and every user within the platform could be using it in their local language. And that has, proved to be very successful for some of our larger customers.

18:59 And more and more data that is going into the platform. So sometimes people say, is email dead? Milan, what's going on around email? What's happening with SMS? And we did a sentiment study within our own customer base. Email is very much here to stay. Still generates the highest return on investment. It gives the end user or end recipient the ability to engage at their own time. So for us, if we looked back, volumes from an email perspective continue to grow. And what we're seeing from our customers, they're looking to invest more in email marketing. The other area as a key emerging channel is around SMS

19:41 and how they complement email. It doesn't cannibalize what we've got from a a single channel perspective. It acts as complementary, and that's what we're seeing with omnichannel. It increases our addressable market as we go further. It increases the ability to drive more growth not only from your core messaging that is being used today, but also the messaging that's coming live as we look forward. Brands are attributing more and more revenue to SMS, but also other channels that are built within the platform. So the competitive landscape, lots has been happening. And the reason for this slide is not only to talk about, well, where are where are different players positioned and the verticals that they really go after, but also a lot of consolidation has been happening.

20:31 Whenever history, I guess, tells us whenever there's a consolidation from an independent platform to a larger corporate or where they get injected capital growth, they go through their own disruptions. It very much acts as an opportunity for us to displace some of those, platforms from a customer base perspective. The second part to that, it acts as a hunting ground for us from a talent acquisition perspective. So let's look at this in a a little bit more detail. There's three main segments, within our marketplace or the market. There's platforms that are really built for the small business. There's a credit card sign up. They have basic level of functionality, and they that gets the business up and going. As they start to, what I describe as graduation, they wanna get more sophisticated.

21:17 They wanna start using more and more data. They want more flexibility and versatility in the marketing strategies they deploy, they then come to a mid market platform. And then the bigger clouds very much focus on enterprise business, which is fully customized. They talk a story about an all in one platform. You can buy everything from from them. But when what we've seen more recently, I guess, through through COVID or some form of normalization, larger enterprises are now moving back to more cost effective solutions, quicker to deploy, and looking at best of breed within the mid market. In terms of small business, you've got some of the the transactions that happened. Some of you may have seen Mailchimp being acquired by Intuit.

22:04 Constant Contact, originally was a public company on the Nasdaq market. It was originally acquired by Endurance, and then, private equity came in and bought Constant Contact, injected it with $400,000,000. Campaign Monitor, part of a a bigger group, they have multiple, heritage platforms or assets within that owned by Insight Partners. More recently, they acquired Selligent, in the mid market. And, about a few months ago, Cheetah Digital used to be owned by Experian. Vector Capital, private equity had originally bought Cheetah Digital out of Experian. They've merged those assets together. In terms of Klaviyo, they've been injected capital growth. They act as a conduit between, I guess, some level of sophistication when a small business wants to start doing a little bit more, and then they migrate completely to a mid market.

22:56 With DOTDIGITAL, the beauty of the platform is it can scale all the way down to small business, all the way to larger enterprise. We're very much focused with marketing and sales dollars that we can deploy, money investments we can deploy, very much at that mid market with the 10 x or 11 x, returns that we get from a cost of acquisition, lifetime value perspective. But we're also seeing an increase in enterprise clients using us from a platform perspective, Whether it's around, a single brand that really comes on board, they become internal advocates, and then we, we expand out into multiple brands, or whether it's multiple territories, and we continue to see that expansion in our customer base. If we look at the mid market, there's lots been happening there. EMASIS was acquired by SAP.

23:46 Braze IPO ed on the Nasdaq market yesterday. And the the commonality of a lot of these companies within our space making large sums of losses. They're going for land grab. But, effectively, what you continue to see is we're very much focused in the approach that we take. We're very much focused in terms of deploying our sales and marketing dollars and generating those returns, really dipping our toe in the water, making sure that we are not only increasing our value proposition, understanding the market, and then really driving from a top of the funnel demand perspective. So if we look at the the review in from a pillars perspective, all three of our pillars from an operational standpoint have been pointing in the right direction, continues on that trend.

24:36 In terms of product innovation we're doing and monetization in the last twelve months, we've seen over 30% growth in recurring coming from that element, whether it's a use of data, whether it's the aspirations of marketers more coming closer to reality in from a platform adoption perspective. You can see some of the stats there. I won't read them into detail, but we continue that trend on an upward basis in terms of driving more ARPUs from our customer base. So I talked about some of the things that we've been launching, over the last twelve months from the r and d dollars that we've been spending, whether it's around, reporting and analytics, whether it's around consuming data, whether it's around visualization. And I think more importantly, what are we doing next?

25:22 From the technologies or functionalities that we've deployed, we've seen a very good reception of customers now starting to use some of the custom data platforms, which really increases our addressable market from a monetization perspective. But as we look, beyond what we've done, some of the the areas that we're really focusing and couple of bits here to I think which are very exciting as we look forward is around cross account reporting. More and more enterprises, larger mid market companies are using the platform to drive their return on investment for marketing campaigns. So what we're working on is being able to see a snapshot how these different subsidiaries, these different brands are performing to really optimize what they're doing from a digital marketing perspective.

26:12 The other area, as always, from a marketing department perspective, there's always been a challenge around, well, what how did that what what led to that sale? And, normally, nine times out of

26:26 10, they do luch last touch attribution. So somebody might have seen them at a trade show and then purchased, or somebody might have just purchased from the website, and they attribute that return on investment from, to the website. But in today's world, it's a multi touch point sale. You know? People could have seen you in the web on the website. They might have seen you on social media campaigns. They might have just received an email marketing campaign, and that's what that's what took him over the edge to purchase. So over the next twelve months, we're really focused on, from our data science team perspective, on that multichannel attribution and really visualizing what really may led to that sale as we have an all in one platform. So very excited about some of the newer functionality that's coming on and continue to monetize that.

27:15 If we look around strategic partnerships, as I mentioned earlier, we really piggyback on the coattails of some of our strategic partners. They're very much global vendors. And, effectively, enhancing their value proposition really drives more brand awareness, and we're seeing strong take up in all three of our ecommerce partners, but also where we've had renewed efforts in investment around Microsoft Dynamics. The ecommerce platforms themselves are growing significantly. I guess part of what, COVID has brought more and more customers or more and more brands are going online. More and more brands are starting to create online experiences. And digital marketing also as, from an overall marketing budget perspective is continuing to increase.

28:03 So let's look at some of the things that have been happening. We've we've had strong growth from Magento. Magento is owned by Adobe. So strong growth from that connector that we have. We're seeing some of the newer connectors now generating significant revenues or an acceleration into revenues, whether it's around Shopify, whether it's around our newer relationships with the likes of BigCommerce, but also Microsoft Dynamics. We continue to put more r and d dollars over the last twelve months. We started to put more sales and marketing dollars in order to drive more brand awareness in that user base, and we start to see some of the fruits of the investments as we, over the last twelve months, but that continues as we look forwards. So looking ahead, very much continuous investment around what we call our strategic hires from a partnership manager perspective, really driving more partnerships, from raising brand awareness, but also working with the strategic partners around go to market.

29:06 For us, we continue to see a strong pipeline as a rise of data comes through and the world of con connected data, the world of relevancy and personalization. We continue to see a strong pipeline from the connectors that we've built into the the strategic partners. If we look around geographic, I mentioned earlier, over 20% growth in international revenue, really helping, for me, the confidence levels and endorsement of the platform that we've built

29:37 very much well received in international markets that we're playing in. But some of the newer demand that we're getting, if we look into the APAC growth of over 40% in that region, that's not only our direct marketing efforts in the Australia and New Zealand market, but also seeing a rise in demand in, whether it's out of our Singapore offices and further penetration as we've, as we've continued to build partnership networks or deployed more of our sales and marketing dollars. We're seeing strong uptake within Singapore. Newer markets that we've, we've started to dip our toe in the water with is areas like Japan, the third largest ecommerce market across the globe. Here, we saw, we've got a joint go to market plan with Shopify.

30:23 They came to us and said, we've Milan, let's work together. You've got a user interface already translated into Japanese. You've got sales enablement,

30:34 collateral. Let's work with the partners that we we have in region to really drive top line growth. And we continue to see that. We're now starting to put some feet on the ground in the Japanese market. If we look at North America sorry. We look at The Americas, there's a combination of two, two things happening. The rise in ecommerce, and that continues to mean that we're obviously on the coattails of our, of our strategic partners. We're benefiting from that. But also brand awareness developing from an ecommerce perspective within our own technologies and showing the returns that we can make. So very strong growth within the North American market. We're now also seeing some demand coming through the LatAm market. Over, I guess, the last twelve months, what's happened in LatAm is an increase in ecommerce penetration, which naturally means we're seeing strong demand in that region.

31:26 Within EMEA, we see continuous volume growth not only in our email, but also just use of other channels like SMS, like in app push, which is 90% plus gross margin, or even some of the chat functionality, which is also over 90% gross margin. So strong growth in all three of our organic growth pillars.

31:51 And I guess this is a topic that everyone talks about. What are you doing from an environmental perspective? What's happening from the sustainability? And as we attract more and more larger enterprise using the platform, but also, upper tier mid market companies, this has come into the forefront of decision making and of purchasing, who they're gonna be partnering with. So over the last twelve months, we've really invested in this area. We're the first carbon neutral marketing automation platform. We've, invested in, ISO 14,000 or environmental management systems. So we've got the ISO 14,001 accreditation, signed the Terra Carta and working with the organization to really push out how technology companies can become more green.

32:37 Lots has been happening around here. We've done quite a lot of work on our platform around ISO 27,001 and being accredited. ISO twenty seven seven zero one around data privacy, data security. So very much from a not only a perception perspective, also delivering on a very,

32:55 a grown up business and a maturing market model. And I'm gonna pass over to Parag for a quick financial review and going into more of the detail around financials. Thank you, Milan. So anyone who's attended any of our previous presentations would have seen this chart showing our historical growth trends. I think the the key thing for me that I'd like to highlight here is our business model has always been very transparent, very simple from a financial perspective. We look to grow revenue circa 15% each year, and we look to target a 20 to 25% operating margin. So if you look at the CAGRs, what we've seen is a slightly higher revenue CAGR over the the long history. And, obviously, we we started with lower revenues, so the percentage growth was higher. But over a long period of time, we've delivered over 15% top line growth, and we've done it at profitability of somewhere between the 2025%, operating margin every year.

34:01 So that's always been the DOTDIGITAL, model. Now what we're gonna look at this year is we've seen, obviously, top line grow faster than that at 23%. So what I'm gonna run through now is how that top line, let's say, was faster last year, what the underlying business looked like sort of beyond the spike, let's call it, beyond the 15% that we would ordinarily see, and then and then the margin progression that I think maybe slightly misunderstood by the market. So we grew 23% last year, of which circa 7,000,000 was SMS messaging that customers such as the NHS, the schools,

34:49 local councils, British transport police came to us and said, we need to send these messages, which were, you know, your vaccine appointments at this time, you're now homeschooling, whatever those messages were. But as as everyone can tell, those are pretty urgent messages that need to get sent to their customers. It's not business that we're ever gonna turn away and say, sorry. We know you you send emails through our platform, but we're not gonna let you send SMS because it optically distorts financials. Of course, it's very important messaging from our customer perspective. So at the start of last year, the anticipated revenue, what we'd expected for the year was around 50 to 51,000,000, which was was in the consensus numbers. So come the end of the year, we've obviously gone higher than that. But if you take away that SMS spike, we actually grew just over 15% in what we'd call our contracted and recurring revenue that we see. So recurring revenue today is 93% of our total revenue.

35:52 And areas such as SMS where we do often see those spikes for short term messaging, we would see that as almost one off revenue. Some of it may recur, but we wouldn't budget to it. So the key point I'm gonna make here is from a gross margin perspective, if we do additional SMS as we did last year, where SMS gross margin typically is in that 50 to 60% range, our group gross margin will, of course, be lower than the 90%

36:23 that we see and enjoy from email and and our other core, core operations. So from that perspective, what we'd see going forward is if we do do additional SMS, the gross margin may be lower. But as mentioned at the outset, we will always target a 20 to 25% operating margin. So even if our gross margin were to fall because we've had extra premium messaging, whether it be SMS or WhatsApp, etcetera, even if our gross margin fell to six say 7070% or 75%, we would still do a 23 ish percent operating margin because that's the way we budget for the business. So, hopefully, that explains a little bit around the top line, the cost of sales, and and the margin. And I'll just go I'll go into a little bit more detail once I move on to the the p and l slide.

37:15 But before going into that and I I didn't mention some of the numbers on the chart because Milan's already talked about the growth from the pillars. Before moving on to that, I just wanna quickly run through the SaaS business model, which hopefully adds a little bit more color for everyone around how we manage the business and why I suppose SaaS is not software. Ultimately, a software business model historically has been build some software, sell a perpetual license. So essentially, the customer has access to that software usually on premise forever. And then you reduce your costs over time because you you go into maintenance mode and you charge your customers a maintenance license. That model historically saw operating leverage come through, but until you build the next piece of software, which may be five or ten years later, your growth slows during that period.

38:11 The SaaS model or the subscription model is very much built some content, software, product, whatever it may be. Customers subscribe to it. They they contract in our case for at least twelve months average contract rents are over twenty months, but they subscribe to it, pay on a monthly basis, and then we as a business continue to add functionality to innovate, to add more to the product so that it drives a higher ROI for our customers. And in turn, customers pay more for that each year or each time they renew their contract. So for us, we have the levers that we look at which drive our top line growth, and those are messaging volumes and data or number of contacts that a customer brings into the platform to send messaging to.

39:03 So over time, we're looking to ensure that our product continues to see investment, continues to be become better for our customers so that they bring in more data, and then they send more messaging volume and in turn drives our revenue. And our average revenue per customer last year grew 16%. Customers are now paying us just over £1,250 a month. So we continue to see that growth in what our average customer spends with us. So the SaaS model is very much designed for ongoing investment, which in turn is why we target a 20 to 25% operating margin, and we're not looking to show leverage through the p and l. We would always want to reinvest any additional revenue that we see beyond what we budget for at the start, and that's what we announced when we did two, revenue upgrades last year. We would look to reinvest that back into the business to enhance the product, into sales and marketing, to drive future top line.

40:03 So this model is always about reinvesting back to manage to a certain profitability level so that you continue to grow that top line in future years. So if we look at the p and l, I'm not gonna go through sort of every number here, but I think there's probably two areas just to focus on. One is from a cost of sales perspective, one of the, I suppose, questions we have been asked is is around the restatement of what goes into that cost of sales line. We did this actually at the interim on the advice of our new auditors. So we have changed auditors from from during the year. We now work with MKS or more Stevens, and and we were with Jefferies Henry prior to that. But what we've now done is aligned ourselves to how pretty much every tech company works.

40:49 In the our cost of sales now only includes two line items. One is our technology infrastructure for sending. So, essentially, we work with Microsoft Azure and that's our sending platform. And the other is the cost of suppliers for SMS. So in in essence, with SMS, we are buying volume from aggregators and then we're reselling that supply onto our customers and hence, that's why the the margin is slightly lower than where, of course, we have our own infrastructure or sending infrastructure for email and other channels. So the cost of sale now reflects really what every other tech company shows, the true cost of sale. And what moved out of the cost of sale was marketing and commission that was was to partners and and others that was related to to when the sale is made. And and, of course, a commission that we pay our salespeople, our account managers was always in the admin expenses.

41:48 So all we've done is remove a couple of line items, put them from cost of sale into admin expenses, and where the where the tech cost was previously in admin has gone back into cost of sale. So now the p and l really is clean in terms of comparison with other businesses, but there's no there's no difference in terms of the actual numbers when you when you go down to the operating level. So from a cost of sale perspective, that number may well reduce slightly if we do more SMS or the SMS growth is higher than the other channels, and we saw that last year. This year, so far year to date, SMS growth is actually tracking in line with other channels. So we'd expect gross margin that's relatively similar. But, of course, if there is an SMS spike and and, again, we we can't predict what may happen, whether it's pandemic related or otherwise, that would lead to a reduction in the cost of an increase in the cost of selling, reduction in the gross margin. However, whatever that gross margin is, we will still achieve a 20 to 25% and, realistically, 23% is the number we aim for operating margin because we've budgeted based on what we know. So we when we do the budget, we'll base it on our recurring revenue that we are you know, we we know a lot of that's contracted, and we know that's going to happen and take place.

43:08 Therefore, the budget is done on a prudent basis based on those numbers. Meaning, if we do have a higher revenue, no matter what the gross margin on that additional revenue is, we then have two choices, which is to reinvest it back into the business to maintain that mid 20 to 25% margin, or we could show some leverage through the model. Now we showed leverage in two prior years, which was the year when GDPR took place, and that was because there was uncertainty around our customers and what they were going to do and how the world would work post GDPR introduction. Then And we did it in the pandemic year, not really by choice, but because a lot of events were canceled. And if, you know, if we remember, the pandemic kicked off really around March. Our year end is June. So in that last quarter, it was very difficult to redeploy the effectively the revenue the cost that went towards events back into some form of marketing.

44:01 What we did do last year, therefore, is increase that marketing budget up to £3,000,000 compared to the 1,700,000 we spent in the the the year where the fourth quarter was impacted by COVID. And that's therefore, some of that is catch up, and then we're moving back into a world now where where events are starting, etcetera. So we're we're we're in a more normalized world. So therefore, final point I'm gonna make just on the p and l and the business model is going forward, what we should be always looking for is circa 15% top line growth with a mid, say say, 23 ish percent operating margin. And that's what we've always done historically with the which those long term charts at the start show, and that's what we'll look to do going forward. One other piece to add, just having quickly browse through some of the the questions that people have been asking is the discontinued operations.

44:51 I just wanna make a very short comment on that. So when we purchased Camappi back in 2017, over time, we integrated in the technology into our core platform, and then we announced the discontinuation of that business. As of the 06/30/2021, that entire business was shut down, switched off, etcetera. But through the course of the last financial year, of course, customers would be leaving us. So where that business reported just under 10,000,000 of revenue the prior year, it did 2,500,000 order of revenue last year. Of course, some of that cost base was still there because customers were still sending. There was still the tech infrastructure that went alongside Kamapi.

45:36 There were some people, obviously, associated with that business, but all of that got fully shut down at the end of June. We'll no longer see any discontinued operations in any of the financials, but, of course, there was a drag both on cash flow and on, you know, on the p and l of the group due to come up here last year. But, essentially, that obviously will no longer happen, but it was only because we were running down that business with a with a end date and a final end date, which we'd obviously told customers where the platform was fully shut down. The business has no longer has offices, no longer has people, no longer has any technology, just no longer exists. That was all done at the end of June. So from now going forward, we'll never see the Kemahi business in any of our financials or no no discontinued operations.

46:23 So then just quickly moving on to the balance sheet. Nothing really here that's that's sort of very different to last year beyond the fact that we have generated more cash. And so the cash balance at the end of the financial year was 32,000,000. That continues to grow. So we have a very healthy balance sheet with a strong cash position, which gives us bandwidth for strategic investments. And Lance talks a little bit about our m and a strategy. And then similarly on the cash flow, we showed, strong cash flow from operations. As mentioned, obviously, the Kamape piece will disappear next year, so it will be purely the group. And when we start reporting financial years going forward, healthy cash balance, and that that will be expected to continue, unless we decide to use it for something. So then in summary, I'm not, again, gonna go through every number on this, but we've seen strong growth from all of our three pillars. It's led to strong top line growth. The underlying growth in the business, if you exclude a spike in SMS last year, was over 15%.

47:23 The gross margin, whilst it does optically fall, obviously, on the p and l, has no impact on our ability to target our operating profit and operating margin. So we will enjoy 20 to 25% operating margins as we look forward, and the cash continues to grow. So hopefully, that gives everyone a good idea in terms of the financials, the business model, and of course, we'll look to answer some of the questions after. But with that, I'll hand it back to Milan just for the outlook. Thanks, Parag. So I guess just to summarize from a business perspective, if we look at what's been going on from a macro environment perspective, you know, you continue to see that increase in digital transformation. That continues. We assist our customers in that journey.

48:10 The marketing budgets from, proportion of overall marketing budget, it continues to increase, it creates more of a share. In terms of other areas, more and more customers are going online. More and more customers are doing, digital marketing from an online experience. We very much Parag already talked about it. We have strong recurring revenues that are contracted, very highly visible, which gives us confidence into the future years. Very much an agile business structure centered around our growth strategy, looking at the three pillars to growth, whether it's around geographic, and we can see that pointing in the right direction and momentum building, whether it's around product innovation and us continue to monetize it. We can see that coming through. Or our strategic partners that really help us drive that brand awareness, all three fronts from an operational metrics perspective continues to point upwards.

49:02 From us, you know, our long term vision and value proposition remains unchanged. And as we look into q one, our trading remains very much in line with management expectations and setting us up for long term future prospects. I'm going to turn to questions and hand back over to Alessandro. Milan Parag, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions in the Q and A tab situated at the right hand corner of your screen. I just want the company to take a few moments to review those investor questions submitted already. I'd just like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed by your dashboard on the investment company platform. I'd also like to remind you that your feedback is important to the company. And after the presentation has ended, you'll be redirected to provide feedback in order that the company can better understand your views and expectations.

49:54 Milan, Parag, we received a number of questions from Vessen. I want to start the q and a session off with those. Yeah. Obviously, we've received a lot of questions today, we don't have that much time left. But we'll try to get through as many of these as as we can. The first question reads as follows. Can you cover the progress you're making driving growth through new customers separately to the growth of ARPC? What is limiting faster update across the new customerssegments? If I take that, so the average revenue per customer, of course, includes both existing customers and new customers. But what we are seeing is typically, what we'd see is our average customer will spend a gross 15 to 20% more with us each year.

50:41 We then see annualized revenue churn of around 7%. So so the net growth from our existing customer base is around 10%. And then new customers typically adds around 5% plus to our revenue base. But, of course, new customers come in throughout the financial year. So they're not all added day one. And then, of course, those existing customers are added to with the with the new customers who come in during the year in the following year, creating a a a larger existing customer base. But, ultimately, what we're talking about is a net growth of a customer of 10%, and then new customers add 5% to our revenue, and they will continue to grow at that sort of net 10% going forward as well. That's great. The next question reads as follows. Please explain why direct marketing and partner commission were reclassified from cost of sales to administrative expenses, and tech infrastructure was reclassified from it from administrative expenses.

51:41 Surely, direct marketing and commission vary with sales and therefore cost of sales. The reason for change is not clear. Could you provide a little clarity on that? Sure. So as I mentioned earlier, those those were the changes. Now with the tech infrastructure, that is very much a cost of sale that we couldn't avoid. Right? If if we took that tech infrastructure to zero, we wouldn't have a sending platform. We wouldn't be able to do anything. So it's very much a cost that is it's not really a variable cost. It's a cost that goes with the running the business. Similarly, the aggregator costs that go into the cost of sale, it's the same thing. We couldn't send SMSs unless we purchase those from our customers. Now with marketing and with partner commission, we could take those to zero, and it doesn't affect your top line per se. So there's other ways of generating leads. There's other ways of of of generating new business.

52:32 So those are very much variable costs that sit more alongside the variable costs that go into admin expenses, whether that be headcount, whether that be commission that we pay to our salespeople or account managers, and then office costs and other types of costs that travel and leisure, etcetera, entertainment rather that go into our our admin expenses. So marketing and partner commission are very much controllable variable costs that aren't actually directly linked to revenue in any given year. They're there to try and generate leads for future years that may or may not generate revenue. So they're very much variable and therefore admin costs. And this, of course, we've done on the on the back of what our new auditors advisers as well. And it now makes us in line with many tech companies or most tech companies across the globe. So it's very much just aligning ourselves, but also the cost of sale is now pure cost of sale and the admin expenses are all our variable costs that we can control.

53:31 Thank you. Just turning to the next question. The decline in overall group gross margin comes from the growth of premium messaging channels. Why is this? So again, talks about earlier how SMS typically has gross margin of 50 to 60% because we're buying the the the actual routes from suppliers. So there are aggregators who we would buy the SMS routes from for various countries. We then resell that on onto our customer base. We have to be competitive with other SMS vendors in the market. And there's a number of those, whether that be the CPaaS vendors such as Twilio and Cinch, or also the email marketing platforms that we compete with directly who also have SMS. And so we need to be competitive on pricing. The the the margins are lower, but ultimately, as mentioned before, it doesn't impact the way we budget for the business. We'll budget for the business based on the recurring revenue we know is coming from our core business. Therefore, we can always manage the operating margin to the levels we want to for the business and reinvest any additional revenue that comes through from channels such as SMS and WhatsApp for business back into the business if we feel that that's the right thing to do at that time or show operating leverage for that year. So there's a lot of flexibility in our cost base, I suppose, is the the key way of looking at it. And our budgeting is very prudent.

54:49 And therefore, when we do sell premium messaging channels at a lower margin, it really has no impact on our sort of the rest of the p and l. All it is is additional revenue at slightly lower margin, which therefore just only impacts your revenue and and gross profit lines. Thank you for that. The next question asks, you could explain why the reported full year increase in profits is much lower than the reported increase in revenue. Do you anticipate this trend continuing? So for years where, like like last year, where we have said we would reinvest back into the business, again, we target that 23, 24% operating margin. We got the 24% operating margin. The growth in the revenue, therefore, was reinvested back in. And, of course, because a lot of that was SMS, it was lower margin than sort of core 90% that we enjoy from email and other channels.

55:40 But that that was reinvested back into areas such as marketing and and so going forward, if top line growth is growing 15% and we still target the twenty three, twenty four percent operating margin, you will see them grow in line. So ultimately, going forward, revenue growth will equal operating profit growth. The only caveat is on EPS where we all know there's a UK corporation tax rate coming change where tax goes from 19 to 25%. That will, of course, impact every company that has UK profits. So the EPS growth that people may see in some of the analyst numbers is impacted because it's going to be a material tax change. But other than that, if we didn't have that, you'd see the same level of growth coming through the entire p and l in a normal year if we show 15% top line growth, 15% growth in operating profit, and then 15% growth in EPS. Now if there are spikes and we show more or a higher level of revenue growth, we would look to reinvest a lot of that back into the business to still maintain the 23 ish percent operating margin. So that's why there are some years where if the the the revenue is higher, you may not see the the operating profit grow quite as fast as the revenue because we're reinvesting.

56:56 But in a normal year, 15% top line growth will translate all the way down through the p and l so long as there aren't any tax changes or or anything along those lines. But just to add to that, if we look at a SaaS business model, obviously, the the sales and marketing costs come in year one, the annuity comes over multiple years. So you always have a mismatch in terms of investment in the business with the revenue coming back over a number of years. But obviously, you're setting up for future growth, and that continues to compound. Thank you very much. The next question asks, how big is the addressable market and how fast can it grow, taking into account the three pillars compromising of one, geographic expansion, two, new and existing connectors, and three, the new the new premium functionality?

57:43 Yeah. I guess if you look at some of the stats out there, whether it's Forrester, whether it's Gartner, they they suggest that the market itself is worth 8,800,000,000, growing at 14%, so increasing significantly as they forecast out into the future years. Some of the newer things, you know, if we go back to the three pillars, geographic, we're only starting on a journey in terms of penetration into places like Japan. Some of the fiery stage in markets are lower down the, I guess, growth curve growth stage where the sophistication is now starting to come through. And we're only dipping our toe in the water very much, testing the market and then putting more sales and marketing dollars. UK itself, where majority of our revenue is, continues to grow. More and more people are doing, not only email messaging, the other areas of monetization are are all of our other channels as they start to be adopted. So very very nascent in people using other channels as part of their overall marketing strategy so we can see future growth coming from there. Some of the exciting stuff that we've done over the last twelve months around customer data platforms, we're looking at monetization opportunities, whether you create new revenue streams and continue to build on that, or you put it into the the platform and create more planned differentiation for ARPU expansion.

59:06 In turn, naturally, what you're seeing is more and more data coming in, more and more messaging going out, which continues to obviously, over the long term, we'll continue to increase that ARPU. The the other element, strategic partners, we're still very much on that journey. It's not like we've penetrated a 100% of any of our strategic partners. We're still, you know, at the largest at Magento and Adobe. We're only 10% penetrated into their user base. So so much more opportunities to go for there. Shopify growing significantly in their own right, which in turn means we continue to grow with them as they continue growing. So very excited around that. You know, product innovation I talked about, we're still continuing to monetize. And from a existing customer penetration, only 25% of our customers use more than one channel, and we've got multiple channels that we can continue to monetize.

59:57 So a lot more growth to go for. The addressable market is continuing to grow even from a geographic standpoint. You're earlier on in that growth curve from a market life cycle perspective as well. Thanks, guys. Just mindful of time and you've obviously answered a number of questions now from investors then. And of course, the company will review any further questions submitted and published responses where it's appropriate to do so. But Alan, I just wondered if I could ask you for a few closing comments just before redirecting investors. So if we look at the financial model, obviously, strong profitability coming through the business. We've got transparency in terms of recurring revenues, high proportion of our revenues are recurring. So it doesn't mean if we stop selling new business, it's gonna go away. It comes over multiple years, and we'll continue to add those customers.

1:00:49 In terms of geographic, you know, we're very much touching the surface in some of the new territories that we're going into. We're seeing strong demand coming from it, and we're supporting that with strong foundations to really take that growth. Product innovation, we've talked a lot about it. There's new opportunities from monetization of data. There's new opportunities from monetization of omnichannel. But in turn, the core business and the core channels that we, we have, that continues to grow in its own right. The macro environment, very much playing in our hands. Strong digital transformation coming through from an acceleration perspective. You're seeing bigger proportion of marketing budgets being spent on digital marketing. You're continuing to see more and more sophistication from a marketing, department perspective where they're putting customer centric.

1:01:40 So from all fronts, operational, KPIs that we look at, that's moving in the right direction. Macro environment is also assisting. And then from a financial metrics, it does give us the opportunity to deploy capital where we see whether it's organic, whether it's m and a, and continuously driving more from shouting about the world's best product that we have today. So with that, I'd like to thank everyone for joining us, listening to our story, and supporting us as we look forward as well. Milan Parag, thanks again for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations.

1:02:28 This will only take a few minutes to complete, however, it's greatly valued by the company. On behalf of the management team of DOTDIGITAL GROUP PLC, we'd like to thank you for attending today's presentation. That now concludes today's session and good morning to you all. Thank you very much everyone. Thank you.