Dotdigital Group (LSE:DOTD) — Results for the six months ended 31 December 2020

0:03 Good morning, ladies and gentlemen, and welcome to the DOTDIGITAL GROUP PLC investor presentation relating to the results for the six months ended 12/31/2020. Throughout this presentation, investors will be in listen only mode. The

0:25 will review all questions submitted today and publish I'd also like to remind you this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Milan Patel, CEO and Parag Haman, CFO of DOTDIGITAL GROUP PLC. Good morning. Good morning, Paul. Thank you very much for passing the mic. And I'd like to thank everyone that is watching the presentation for our half year results for six months ended 12/31/2020, and I hope you find it informative. We value engaging with our investor base and stakeholders, whether they're institutions or retail as well.

1:16 So just moving on to the presentation itself and going back to what we do. Some of you guys may have seen our presentation in the past, but this is just for them. It's a quick reminder of what we do, but also for the, potential investors that are, viewing the story for the first time. In terms of the platform, we provide an all in one platform that allows marketers to create that end to end experience, at every touch point that they have with the recipient, whether it's a transactional message, whether it's a marketing message. It all starts with that data and effectively allowing customers to bring that data in very easily. We take any unstructured data and structure it for their marketing campaigns or campaigns that they're deploying outside of the plat out the platform.

2:04 We provide the functionality not only to use that data, but also start building single customer view or, a view of that dataset from a visualization perspective, really to get relevant with the, the recipients that they're communicating to, be that personalized from a one to one basis perspective, and then highly targeted so that people continue engaging with your brand, whether it's from a re lead, acquisition perspective, whether it's from a retention perspective, or generally raising brand awareness. A lot can be done with with that data, and then that goes to the orchestration layer of our platform. And that's a combination of giving the tool set for them to create those campaigns without having any expertise in house, whether it be around HTML, whether it be around, being data analysts, etcetera. We make it very easy for marketers or the marketing department to, create those campaigns and then start to automate their customer journeys, whether it's a welcome journey, whether it's retention journey that they're continuing to do, both at whether they're a customer of our customers or at the prospect side of things.

3:19 And for us, we also provide every single channel today that the end recipient engages in and continue to build that out from a channel perspective. As we go through the presentation deck, we'll go into a little bit more detail in terms of the product vision, but also what the product does today. If we move on, brief history about the business. Started Life Out in 1999. Effectively, originally started out as a web design development house. Originally built the products for the BBC. At that time, the market was a lot less sophisticated, where it was all about sending one content to everybody. To today, where the platform is as well as where the market is, it's around sophistication.

4:05 It's around relevancy, targeting, and personalization. And we've we've built the platform and continue to invest in the r and d, not only to serve the needs of today, but also what's coming down the line and working with our customers to educate. In terms of the business, very much a global business centered around three main hubs. UK is our hub into EMEA, our New York offices is our hub into North America, and our Sydney offices is our hub into APAC. Now when we describe hubs, it's having every single department within region to really scale from as you push further into from a market share perspective into the continents that we we operate in or are strategic to us. We have offices outside of those hubs, within places like Netherlands to really take that, Nordics Nordics and the Benelux market wider into North America as well as into Singapore as we penetrate further into that Far East Asian market. And I'll talk you through, one of the pillars, which is geographic growth, to our organic growth strategy as we go through the presentation.

5:12 But not only do we have the the presence, from a scalability perspective, we have over 300 employees across the globe around, the three central hubs. Terms of, when we talk about partnerships, there's two main types, whether it's our strategic partnerships that either represent 10% of our group revenues or have that opportunity to represent 10% of our group revenues. And then wider from that, we have over 600 partners, whether it's from an agency perspective, other tech solutions that really help amplify the return on investment that our customer base is seeing from digital marketing. Very much focused on the mid market where the cost of acquisition of a customer is around about 8 to £10,000, and the lifetime values are increasing by around 140 to a £160,000.

6:07 Work alongside trade associations, whether it's around data privacy, whether it's about educating the market in terms of sophistication as well as what use use case studies and case, types and making sure that our customers are adopting newer strategies, to drive that return. In terms of some of the key integrations, you've continued to see that convergence between CRM, marketing automation, and ecommerce. And part of what we're doing in terms of, ecommerce, integrating into, whether it's the likes of Magento, BigCommerce, or Shopify from an ecommerce platform, or into the CRM space around Microsoft Dynamics or Salesforce.

6:55 Part of the vision of the business was to address through the integrations that we've built into ecommerce at least 50% of the mid market ecommerce merchants or 50% of the mid market CRM user base, and I think we can do more than that. In terms of, where we are, you can see on the left hand side of the presentation some of the companies we help. But, also, within the mid market, you pro we help companies that probably not everybody recognizes as well. So the platform spans not only from people that are graduating from small business platforms to mid market solutions all the way up to large enterprise using our platform as well. If we look at our ten years being a public company, we talk about profitable growth. It's making sure you're investing incrementally into the business to really drive that top line growth, but also making sure that you're driving those profits coming through and that cash generation.

7:56 So if we look at the the last ten years, seen over, 21% growth in revenue from a compounded annual growth rate, but also in that EBITDA, over 20% growth in EBITDA over those ten year period. In terms of when we look at the business split, it's centered around three main organic pillars, whether it's geographic, whether it's product innovation, or strategic partnerships. And part of what we continue to track is effectively what we're doing from a revenue perspective on a regional split basis. Part of the vision of the business is to diversify more revenues outside of The UK. And today, a third of our revenues come from comes from international regions. In terms of that business model, a typical customer will come on board, using the platform.

8:47 And, effectively, it's a three part recurring revenue on that. It's based on license and functionality, which is a recurring growth driver. Whether and the way that pricing model works is effectively they import contacts to subscribers, and based on that, they pay a license fee. In terms of, we have a data recurring element to the pricing model and effectively based on how much data they're bringing into the platform or number of insights that they're capturing, they pay a recurring revenue for the data element. And, the lion's share today from a recurring revenue perspective is messaging.

9:34 Bit like a mobile phone contract, you commit to a fixed volume of messages at a fixed monthly price. The third pillar, around strategic partnerships, we we look at customers that are connected of whether they're using our ecommerce integration or whether they're using our CRM. And we see over half of our customers connected as as they play to a greater emphasis on data. The characteristics of those clients are slightly different to that of the nonconnected client where effectively, they start with a higher ARPU or ARPC, effectively bringing more data into the platform. They have a higher subscriber base and using more sophistication from a relevancy targeting and personalization basis.

10:20 And they continue to grow significantly as they become more successful as well. So we always talk about within our business, the the right ingredients for us is about, not only best in breed platform, but also best in breed talent. It's a combination of technology and people that have has made us successful and continues to make us successful. The culture that we create within the organization, that very much family esque culture, really helps from a talent perspective, but also bringing that platform out to life, really understanding what the customer wants to do as they choose our platform and taking them through that digital transformation journey together. So very much a people and technology business.

11:09 In terms of I've already, touched on the three pillars of organic growth, whether it be around product innovation and continuing to monetize, whether it be strategic partnerships, whether they're in the integrations that we've done into ecommerce platforms or in CRM platforms or around geographic expansion from those three different hubs that we have. But if we go into a bit more detail, for us, it's continuing to spend those r and d dollars or, r and d spend in terms of really building the functionality set that makes our mid market successful. It's given them the ability to really very easily, without any expertise, use the platform to def deploy the different marketing strategies that they have, whether it's around lead acquisition, whether it's around retention marketing.

12:00 We're very much focused on the customer relationships, making sure we're delivering, on the needs of today, but also into the future, and focused on cross selling the additional benefits from a platform perspective to really drive that return on investment marketers are are getting. In terms of for us, it's about growing customer base globally, increasing our global market presence. We can see that the platform is being well received in international markets as we start to see more user adoption. In terms of, for us, the strategic partners really help from building that brand awareness in region, endorsing the platform, and working with us from a go to market perspective to really amplify the value proposition.

12:47 And as I mentioned earlier, the talent is also equally as important as we look forward in terms of growing the business. So we're very much focused around organic growth, but we do look at growth by acquisition. Now the acquisition really needs to make sense for the business to provide long term value for our stakeholders. We're not, on that arbitrage model, joining that treadmill and have to keep doing acquisitions to keep that level of growth going. It very much has to make sense to our customer base or from a business model perspective. So bit like the organic growth pillars, we look at three, acquisition pillars. One, whether it's a customer base or talent that you're acquiring in a strategic territory, really to strengthen those hubs and continue to scale.

13:39 Terms of complementary synergy technology, what we talk about there is having, acquiring technology that really helps us create new revenue streams in the business and delivering on the value proposition to the marketing department that we're selling in to. And thirdly, around product functionality. Always go through, do you build it versus do you buy it? If it takes us multiple years, to build and it could accelerate our go to market from a functionality perspective, but it really needs to drive our recurring revenue pillars, whether it's around customers, driving additional subscribers, and that in turn means license fee revenue or expansion in license fee revenue for us, whether it's around data and insights, which could increase our recurring revenues from a data element perspective or driving more messaging going out the platform.

14:35 So very much along with the growth, organic growth pillars, three acquisition pillars as well. So if we look at the the half year, we've continued to deliver that strong double digit organic growth with, despite macro environment. I think what we've seen from a macro environment perspective, you've seen that acceleration into digital transformation. You're seeing where companies would have done that over multiple years. That's happening within matters of months. And we're very much along that journey to support those customers going through that transformation. You've also seen digital marketing as a proportion of overall marketing budgets increasing as you can continue to measure that return on investment, and it's a very cost effective way to keep engaging with the end their end customer customers or recipients that they're talking to.

15:36 So very much from macro environment perspective, you're seeing that transformation. You're seeing larger proportion marketing budgets, but you're also seeing the sophistication of the marketeer. It's about creating that end to end experience, and I talk about consistent experience across every different touch point that they have with the end company. Continue to build. We've seen over 20% growth in all three of our regions from those different continents that we operate in, but we continue to solidify those foundations as we take more market share in those different regions. With any annuity revenue business, it's about sales and marketing in in any financial period that really generates those annuities over multiple years.

16:25 And we continue to benefit from what we've invested in the past, but what we also continue to invest around sales and marketing, around r and d from a monetization perspective, but also making sure we're delivering on the needs of our customers as well. In terms of the financial position, remains very strong. No debt in the organization. We have strong recurring revenues, which gives us future visibility in terms of whether it's growth or where to deploy our capital. Strong cash position. Everything we've done is organic. We've never raised money on the public markets, and it gives us a good, from a cash position perspective, a good view on investing back into the business or whether it's acquisitions that drive long term value.

17:14 And to sum up, we've continued to see that momentum, with the digital transformations that is happening, the levels of sophistication, but also into the second half, we remain confident in the prospects for the full year.

17:31 So just looking at our strategic organic growth pillars in a little bit more detail. Part of what we've been doing over the last five years, five years ago, I took over as CEO of the business, was the CFO of the business, and have been with the business over fourteen years and worked with, from a management team perspective, really driving the revenue from the technology side of the business. We're continuing to see that value in the platform coming through, whether it's around licenses and subscribers, whether it's the emphasis on data and data being brought into the platform, or bolt on functionality as our marketers get a lot more sophisticated. It now makes up 40% of the, group recurring revenues, and that's been growing very nicely.

18:18 That value in that platform is coming through. In terms of within our customer base, we're now starting to see, more and more customers using, different channels in terms of that overall customer experience or customer engagement and how they adopt their marketing strategies to engage with their end customers in these different channels, whether it's SMS to send them as part of the journey, updates on products that have been shipped or appointment reminders, or whether it's online, SMS surveys that they're doing in terms of how was their experience, with the purchasing of the transaction. But you're seeing that increased emphasis in terms of product data or even data as a whole being synced into the engagement cloud.

19:10 Some of the more sophistication in terms of AI and machine learning that we've been building within our platform is we're really seeing return on investment for our end customers. Even just deploying one particular marketing strategy, in this case for ecommerce companies, which is abandoned basket, is generating them significant uplift in revenue that is being recovered from the abandoned basket campaigns. And even on an average from an individual customer basis, they're seeing over a 100 k in terms of monthly recovered sales. So very much driving that return, which more than pays for their digital marketing activities that they do within the engagement cloud. So in terms of what we've been continuing to invest, it's around the AI and machine learning capability.

20:01 But as I as I mentioned earlier, it's around data and emphasis on data. It's making sure we can help our customers not only use the functionality and use that data, but also visualize that data. A lot of the mid market companies don't have data analysts, and we make it very easy to visualize that data from a persona perspective, whether it's around affinity or even building that single customer view on who you're talking to. Really knowing who you're talking to and then giving you the toolset to enhance your campaigns. Other areas that we've we've worked on as the world evolves into a more digital, transaction, consumer behaviors move more to online.

20:47 You're starting to see that increase in the chat capability that we have. We're ready to store those conversations and then get more relevant with those conversations in deploying their marketing. Other areas that we've worked on is around functionality that we've continued to build, for our marketeer to stay compliant around preference management and making sure that the recipient is really centric to that mark that marketing strategy. A post in the marketing marketing department saying, well, this campaign works with lead acquisition. That campaign works from a retention marketing perspective. It's all about, in today's world, from a sophistication perspective, having that recipient really centric at every touch point. And as part of that digital transformation journey, a newer connector that we've done is into Microsoft Power Automate, enhancing the ability to

21:44 trans from a transformation perspective, become from a business process efficiencies and also from a marketing automation efficiency and having that end to end efficiency from a process perspective. In terms of the product vision, we really, look at it from whether it's data, whether it's the orchestration layer of the platform, or whether it's the channels. We continue to accelerate our r and d spend around building a customer data platform or a data management platform. And effectively, that means is the ability to warehouse that data, the ability to really use that data in building that single customer view that I talk about, and then giving them everything within the platform, whether it's about a unified customer view, whether it's about activating that data to create automated customer journeys, or even in today's world around content personalization using those behaviors in terms of driving content.

22:46 We talk about the four r's. It's about the right message to the right customer through the right channel at the right time. And we also provide all the different channels that our customer base can communicate on, whether it's around email, whether it's about mobile, around the web, experience, or around social. One of the other areas that we're working on as we push further into Far East Asia is building integrations into messenger platforms like LINE and also WeChat as the demand for that is continuing to increase from a mobile channels capability in Far East Asia.

23:25 So looking at the strategic partnerships, with the strategic partners, we don't have a reseller model or an OEM. Like I said earlier, they really help amplify the brand awareness. They either refer in leads or the end customer relationships are with DOTDIGITAL. We signed that contract with DOTDIGITAL and continue to maintain those relationships really to drive that relationship further from a cross sell opportunity perspective, but also making sure we're delivering on what customers are choosing us for. But just going back to the connectors, we've seen strong growth in revenues from a customer using one of our integrations over 20% organic growth predominantly not only in Magento, but also some of the areas that we've continued to deploy more sales marketing dollars in terms of raising brand awareness, whether it's in the Shopify space from an ecommerce plat platform perspective, we've seen over a 100% growth.

24:30 And you can see that real rise in whether it's traditional bricks and mortar stores developing a brand presence, from an ecommerce perspective, or even ecommerce companies doing more with the technologies that they're choosing. And the other area, if you attended the last presentation we were talking about, was further investment in sales and marketing around Microsoft Dynamics, really driving more brand awareness in the CRM user base. And we're seeing early fruits of that where we saw over 25% growth in that, customer in that integration that the customers use. So as part of evolving a mature partnership model for us, we've continued to scale the partnership program, whether it's tiering our partners, from an agency perspective and tech perspective.

25:22 But we're also now starting to look at resellers and OEM re OEM in in regions that are not really, strategic for us, but we're seeing high levels of demand for the platform ready to push further from a market presence perspective. Part of what we've also been doing is strengthening the management team around partnerships and brought in a experienced global head of partnerships ready to focus on that pillar of growth and broaden out our partnership strategy as we look forwards.

26:00 So from a geographic expansion perspective, we're seeing strong growth in all three of the the regions that we operate from. We're seeing accelerating revenue growth from international, where we saw a 27% increase, partly driven by, lots of things and market, market from a market presence perspective, whether it's in APAC, we saw over 40% growth. That's partly, led from the relationships that we've built up in that region from partners and lead referrals that we're getting in, but also our direct marketing activities that we're converting. The other area that's been, strong for us from a growth perspective is Singapore, where we've got feet on the ground to really, bring through the relationship sale side of things, but also delivering on the mobile needs or mobile channel capabilities capabilities in that region.

26:58 It's slightly different in Far East Asia where it's a mobile first approach, and then they complement that with email and social. Whereas everywhere else, what we're seeing is email still generates the highest return on investment from all digital marketing channels, and they start with email and then start to use the other channels in developing that experience out. In terms of North America, very strong growth in North America, and that's led by ecommerce and our integrations that we have within my Magento, within Shopify, or into BigCommerce. In terms of EMEA, if we look at UK, we're seeing strong growth, obviously, from where the heritage of the business is. We have strong brand presence, in The UK market,

27:44 and we're now starting to see, adoption of SMS as part of that customer journey, whether it's from a transaction transaction messaging capability perspective or from a marketing perspective. But we've also seen strong growth in The Nordics and Benelux market, which where we've seen over 25% organic growth in that region as the brand starts to develop and demand at the top of the funnel starts to come through.

28:09 So very much strong strong performance, but part of what we have continued to do is continue testing those new markets. And what I'm not talking about is, going with lots of sales and marketing dollars in these different territories and what I describe as a spray and pray approach. It's very much generating top of the funnel. It's very much generating demand and then demand led in terms of new markets that we operate in or push further in. Part of what we've been doing from APAC, is pushing further into Japan. We've already got the user interface translated into Japanese. Sales and marketing collateral that supports a partner network in that region. Japan is one of the largest ecommerce markets across the globe, and effectively, what, Shopify is doing really well there. And part of what we're doing is a joint go to market plan from, dipping our toe in the water, really understanding that market from a pricing strategy, whether it's a resourcing strategy

29:13 or from a value proposition perspective, and then starting to deploy more sales and marketing as we as we start to generate demand. In terms of from the North American hub, we continue to push further into the Latin American market or LATAM. Effectively, it's one of the fastest growing ecommerce markets across the globe today as more and more companies go online. And Magento has been doing really well in that region. What we have from our integration perspective, we're we're in the core code base in Magento. So, naturally, as Magento has a higher user base in the LatAm market, that raises brand awareness for us where we're we're in that platform and effectively show them the value proposition and convert those clients. So we're seeing an increasing, customer count in the LatAm market too.

30:07 So that's very much the detail around those three organic growth pillars, And I'll now pass you over to Parag to go through a little bit more of the financials in detail. Good morning, everyone. So this is a slide that we typically put in just to show the long term trends that we see as business or have seen in terms of revenue growth, EBITDA growth and the CAGRs Milan mentioned earlier, over 20% on both. Also on this chart is cash and our current cash balance just shy of GBP 30,000,000 has continued to grow throughout the, period, of the over the last ten years. And of course, there was the acquisition of Kemappi that we made, in 2017, which is the spike down and then with, you know, our cash balance has returned above those levels over the last couple of years.

30:57 Now in terms of the first half of this financial year, the key points to make, Milan's talked a lot about sort of the the three pillars and all three of the financial metrics we look at for each of those pillars grew at least 20%. So from a product perspective, functionality recurring revenue, which is what we look at to see the value that customers are getting out of the product grew 20%. Geographic growth,

31:23 so the international revenue growth was 27%, and then strategic partners also grew 20%. So the overall top line grew 22% in the first half of the year. And within that, average revenue per customer is now just shy of £1,200 a month, and that grew 20% as well. So two other points just on on this slide to to highlight. Email volume growth in the period was also up 20% compared to the prior year. So it continues to show email being a very strong channel for marketers and and growing. And all of that from the top line perspective led to an adjusted operating profit growth of 9% in the period. So if I move on to the p and l, I won't go through every number on this slide, but what I will do is just go through a bit of the the sort of high level detail in terms of what the business metrics are and then just explain a couple of areas in terms of the profitability.

32:21 So as a business, just as a reminder, we typically target 15% plus top line growth, and we target a 20% plus operating margin. Now I've I've mentioned some of the factors that go into top line growth just before, but one other way of looking at top line growth is we take our existing customer base. That typically grows between 1520% gross each year. So our existing customers will be paying us between 1520% more by buying additional functionality through increasing their list sizes and also through, sending extra messaging. Now what that then leads to in terms of the overall top line is we see a net growth of existing customers of eight to 13% because we see an annualized revenue churn of around 7%.

33:13 And half or even more than half of that is typically customers who go into administration, what we would call uncontrollable churn, but the overall churn level is around 7%. So we see a net existing customer growth of around eight to 13%. Now on top of that through the year, we, of course, add new customers into the mix. Those new customers typically add around five to 10%, which is why on a longer term basis, we always typically see 15 to well, 15 plus, let's say 15 to 20% top line growth.

33:42 At the same time, as mentioned, we try to manage the business to at least a 20% operating margin. If you look back at the history of the business, prior to the last two years, and I'll explain the last two years in a minute, we've always seen operating margins on average of around 20 to 25%. So on average, they've been around 23%. That's what we're guiding going forward. So somewhere in that 20 to 25% range. But the reason the last two years and to some extent the first half of this year have been higher than that has been because we saw the introduction of GDPR, the general data protection regulation coming in in May 2018, which was a

34:21 regulation that did have an impact on the the entire industry. But we we have come through that very well. And then what we saw last year, of course, was the pandemic. So those two years were years where we as we as a management team decided not to put additional investment back into the business, and hence, we saw operating margins increase. Now this year, we are putting more investment back into the

34:46 business from some of the higher top line growth that we've guided to. We've had two upgrades through the course of this financial year in order to invest back into the platform, also into sales and marketing so that we can drive future top line growth. Being a SaaS model, investment today drives long term annuity revenues over future periods. So with that investment in mind, we're gonna see a likely around a 23% operating margin for the full year despite the fact, obviously, it was higher in the first half. But we are hiring people, and we are putting more into marketing and and sales in the second half of the the year. That will help continue to maintain that 15 plus percent top line growth in future periods.

35:28 The other point on this to note, you know, we've talked I've talked about operating margin. The gross margin itself, yes, it has fallen, but there's a there's a very good reason for that. So within our existing business, if we look at the the standard messaging channels such as email, in app push messaging, live chat, social audiences. These channels for us typically have around a 90 to 93% gross margin. And the cost of that is is predominantly our Azure infrastructure.

36:00 In the last couple of years, after the acquisition of Camappi, we started to integrate more channels into the platform. So there are now some premium messaging channels and the key one being SMS. We also have channels such as, WhatsApp for business. We have RCS, which is risk communication services, etcetera. But the key one that's being used is SMS. Now with SMS, you're buying wholesale routes effectively or wholesale quantities of SMS from an aggregator who in turn is buying from an operator. So the gross margin we see on these premium channels such as SMS is typically 50 to 70% when used for marketing, which is what we see as the key usage for our customers when using these other channels as part of an integrated marketing strategy.

36:47 So due to that, we saw an 83% gross margin in the first half. But over the longer term, we'd expect gross margins to sort of, floor around the 80% level. Now that's the mix between the premium messaging channels that I just mentioned and our traditional standard messaging channels for email, of course, being

37:04 the predominant one. But also as more customers use the likes of live chat in that push messaging, social audiences, those margins get, can can be maintained at that level for the for those channels. So just in summary, we expect to see 15% plus top line growth going forward from for future years. We expect to see an operating margin of at least 20%, 20% to 25% in that range over future years as well. But what we are doing this year is putting a little bit back into the business of investment in order to make sure that we grow those future years. Then just moving on to the balance sheet. It's a very healthy balance sheet. We have, as I mentioned earlier, just shy of 30,000,000 of cash currently sitting in our accounts. We have no debt. This does give us bandwidth for strategic investments.

37:54 So Milan mentioned, we do have acquisition as an option. And also, as I've mentioned, we can invest back into the business in terms of driving that long term growth. From a cash flow perspective, again, we have strong cash flows generated from operations. We typically will add somewhere around a net 5 to £6,000,000 of cash each year. So that cash balance will continue to grow. Consensus for this year will be ending, over 30,000,000, and then that will continue to grow in future years unless we use it for other reasons. But it's a very healthy business model and balance sheet cash flow that we have. With that, I will hand it back over to Milan to discuss about the market. Sorry. I should unmute myself. Thanks, Parag. In terms of the market itself, what you are still seeing is email still generates the highest return on from all digital marketing channels. A pound spent on email marketing generates £42 return for our end customer.

39:04 These are generic stats from the likes of Forrester and Gartner. But, also, as as our customers or people within the ecommerce space start to adopt cross channel approach for that end to end customer journey, they're seeing a higher lifetime value from their end customer. You're also seeing in store purchases. More and more customers are now starting to drive in store, footfall or in store purchases via digital channels, making sure that the end recipient is engaged and also looking at their buying habits to generate sophisticated strategy in the purchases itself. In terms of in today's world, consumers have multiple channels to really transact on, and you've seen a significant increase in the different ways peep from a consumer behavior perspective, are transacting with the end brand.

40:04 In terms of what we're seeing in our platform, you've seen an increase in message volume, year on year and seen over 20 growth as Parag mentioned earlier. You're seeing increased sophistication from the marketers where they're adopting more of the platform. And here, what I talk about is, I guess, pre COVID, the aspirations of a marketer versus the reality were quite wide apart. What you're now starting to see as people refocus on their digital experiences, the aspiration and adoption of platform coming closer together. We've seen an increase significant increase in automation of customer journeys. As Parag mentioned earlier, customers are now starting to adopt SMS as part of the overall experience.

40:55 And for us today, close to a quarter of our customer base now use more than one channel, and that continues to increase. In terms of what does the competitive landscape look like, there's a lot been happening in the marketplace. There's been a lot of moves in terms of companies being acquired from a martech perspective, and this competitive landscape has been evolving. So we you kind of with the engagement cloud, it can not only, as I mentioned earlier, take the graduation path for a small business that is looking for functionality, you more sophisticated ways of using data and having all of the channels available to them from an all in one platform perspective, they typically move to a platform like ours.

41:47 Down at, like, kind of small business side of things, you tend to see Mailchimp and Campaign Monitor. Klaviyo bridges that gap between moving from a small business platform to that mid market platform. In terms of the mid market itself, we typically see Braze come up. And more recently, obviously, Selligent got acquired by Centimeters Group, which is owned by private equity insight partners. And, effectively, there's a little bit of disruption, so it provides a gap. In terms of list tracking that mid market, they are focused on the top 1,000 Alexa ranked fashion retailers. We're okay with that. That's not really our target segment. Emasis would have been in that market, mid market, and they they have a very good platform.

42:38 But what's happened more recently is they were acquired by SAP, and SAP have really moved Emasis really upstream to focus on enterprise clients. So you're seeing at that evolving competitive landscape, whether they they've been acquired by industry or they're seeing a significant increase in terms of private equity and VC money that we are being injected back into whether it's a competitive landscape or competitors. So very much in that mid market across all all three of our regions, you would typically see a see Braze or Selligent and less now in Emasis. So it provides a gap in the mid market for us to really focus on as we displace some of the competitive landscape while they go through disruption and change of strategy.

43:35 In terms of the last bit to mention around the competitive landscape, at the higher end we we are starting to win or seeing significant increase in enterprise clients using our platform. What they look for is, I guess, more cost effective solutions, best of breed solutions that are really built to play with others. And what I mean by that is where they can bring all their different relationships that are working and combine that with a platform that can really use those relationships to drive return on investment. You are starting to see where the Salesforce is or the Oracles or some of the the larger vendors, they talk about having a single platform all in one, whether it's your ERP solution, whether it's your accounting solution, your CRM solution, all talks to one place, and they're fully customized products.

44:26 And you're now starting to see, enterprise clients where they've paid a high implementation fee. They haven't reached that end of their journey in terms of that customization and moving back to either mid market platforms or choosing mid market flat mid market platforms. So we're seeing an increase in that customer base, whether they're rolling our platform out globally, whether it's into a particular brand, and then broaden that out. In terms of if we look at some of the independent accolades that we've we've got from a Forrester perspective in the Wave, we have strong strategy. We have strong product vision. We have strong capability. And we're now starting to spend a bit more r and d dollars to really position us into that leader segment.

45:12 People like Zeta and Epsilon, as you can see in that leaders, as very heavily services based revenue, but, we look into that quadrant of getting onto that leader side of things. In terms of g two crowd, very much, where a lot of b to b buyers would go, and their independent reviews from customers that have really given us those accolades. So it really helps us endorse that platform. If we look at the TAM or at the addressable market today, it's around $4,000,000,000, and Forrester forecast that to be about 25,100,000,000 as it gets to $20.27. You're seeing, I guess, what we are is well placed to take some of that growth in the marketplace.

46:02 So in summary and outlook, we've seen that continued momentum in terms of trading performance, double digit growth, majority of our revenues recurring, so gives us that revenue visibility as we look forward. Continue to build on those foundations from an international hub. We already talked about some of the newer markets that we are dipping our toe in the water really to drive that brand awareness, but also some of the demand pull we're getting in territories that we don't operate in today. We're seeing significant growth through those strategic partners, really, benefiting from the acceleration that we've done from an investment perspective in terms of sales and marketing dollars, raising brand awareness, but also a more scalable partnership program as we look forward.

46:49 In terms of our product, continue to invest in, r and d, particularly at this moment in time. The real focus is around data visualization and the intelligence capabilities that we have and then continuing to enhance them. And I think you're continuing to see that consumer behavior changing and, which has really led to that increase in digital marketing spend, but also some redeployment of traditional marketing budgets into digital. So I guess in terms of outlook, very much well placed to capitalize in that shift to digital. As we continue to invest and we're now starting to see some of the fruits of, investments that we've made in the previous years, We do continue to monitor and really respond to, I guess, the pandemic, but we've got a very strong revenue visibility.

47:45 We've got strong cash generation in the business and a very strong financial position as you deploy more capital, whether it's investing in the business or looking at synergy technology from an acquisitions perspective. In terms of what we continue to do is really from a a guidance, from a profitability or a revenue perspective, continue to maintain that as, for FY 2021. I think we've got risk to the upside, with what we're seeing if the momentum continues. In terms of, for us, very much a long term vision centered around those three organic growth pillars, and the value proposition remains unchanged.

48:30 So I'll now start taking some of those questions that people have been sending in. Well, I'm Parag. Thank you very much for the presentation. Ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while the company take a few moments to review those investor questions submitted already, I'd like to remind you that recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your investor dashboard on the Investor Meet company platform. I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide your feedback in order that the company can better understand your views and expectations. Milan Parag, investors have submitted a number of questions during the presentation itself today.

49:19 Perhaps I could just hand back to you and you can respond where it's appropriate to do so. May I ask you just to read out the question itself and perhaps ask who from? Thank you. No problem, Paul. Thank you. Firstly sorry, Parag, just before we get on to the questions, we've got quite a lot of questions. So I do apologize if we don't get time to answer every single question. But let's take the first question from Mark. As your slide shows, EPS growth has traditionally outpaced revenue growth, but forecast revenue growth 2022 is 34%. But EPS growth forecast is only 14%. Can you comment on this and longer term trends? So I'll pass that question to Parag to answer. Yes. As mentioned earlier, so we typically see that 20% operating margin on the 15% plus top line growth. So that's led to those over 20% CAGRs that we've seen on EPS and operating profit. Now one of the reasons the EPS CAGR has been significantly higher is because as we've entered new territories, particularly when we entered The Americas about six years ago and we entered the APAC region about three or four years ago, those business units for the first few years have losses, which then carry forward.

50:38 That's meant that our tax rate has been significantly dampened to the point where it's been around sort of mid single digit for the last few years. Now that those losses are no longer carried forward because those business units are now profitable and the losses have been used when it comes to tax rate, that tax rate is gonna normalize. So we're back to sort of 14% tax rate probably for this year, going up to 16%, maybe even slightly higher for the for the next couple of years. And as the chancellor described yesterday, obviously, The UK tax rate is going up further by by 2023. So again, that will increase the tax rate. And that obviously has an impact on EPS. So the main reason why that EPS growth is more in line with our top line growth is because the tax rate is going to normalize over the next couple of years.

51:30 Thank you, Paramount. So the second question from Nick. Thank you for your question. How do you target new business, especially from larger clients? And what is the rationale for switching to you? And is there much work for them to make that switch? So I'll take that question, In terms of, targeting for new business from a larger perspective, we we're very much focused around that mid market where most of our direct marketing activities happen. But naturally, as you raise brand awareness and we have probably 95, 96% of the functionality any of the enterprise cloud has. And part of when we were doing our r and d, we knew we wanted to be a global business. We did quite a lot of work in terms of functionality for the enterprise, which we were serving to the mid market.

52:20 With the partners that we have from a strategic standpoint, that naturally raises awareness in that larger client base. So we're not very much focused in the larger client base, but we do find that they want to use the platform where we've got in region data processing across three different regions, whether it's North America, whether it's APAC or EMEA, and still being able to maintain that corporate structure, which has worked well. The user interface has already translated into multiple languages, not at a platform level, but at an individual user, base level. And all of these functionalities is really helping drive more adoption from the larger business as well as being thought leaders in the marketplace, continuing to educate, continuing to generate demand from seeing as thought leaders has naturally meant that larger customers are looking at us. The other bit the slight difference with larger customers, the the other element to growth, from a larger customer base perspective is we typically where it's a decentralized marketing team, series of mid sized businesses, I guess, which which create that large customer, we either go into a brand, and then we expand out as more and more brands want to either displace the platform that they have or use use new functionality from a marketing strategy perspective.

53:48 The other elements of that is you're seeing an increase in centralized marketing team now rolling our platform out across the globe. And the case studies that we generate on the back of that is also helping from a demand gen perspective. In terms of the rationale to switch, when I was going through the competitive landscape, what you are seeing is enterprise clients wanting more cost effective and quicker to deploy, platforms that have over 90% of the functionality. And as I mentioned earlier, the aspirations versus adoption is coming close together, but aspiration is still higher than reality. So they are looking for cost effective solutions, quicker to deploy, and something that that meets most of their requirements.

54:39 In terms of the final part to that question, how easy is it to switch? Because we've got the integrated off the shelf connectors and the the deep integrations, that helps from making it easy from a data perspective. The second part to that is we've got all drag and drop technology, so you don't have to have expertise. And therefore, with that drag and drop technology that they can very easily create their campaigns. And the third part of that is the analytics that they've obviously built up with the with the current marketing automation provider. We're able to inject all of that analytics.

55:26 So I think from a switching perspective, we make it very easy. We make it quicker to deploy to answer that question. So, another question, from Bob. Thank you very much for your question. On a scale of one to 10, how confident are you of your ambition to continue double digit top and bottom line growth going forward? What are the two key risks? Parag, if you take the first part of that question, I'll take the second part of that question. Yes. So in terms of top line growth, we've always said 15% plus. So double digit is something that we would very much expect to do. I mean, if we had to put it on a scale of one to 10, definitely sort of the nine, ten level. Bottom line growth, again, part of that will depend on the nature of investments that we decide to put in. So all things being equal, and if we continue to deliver the top line growth and not put in any additional investment and maintain the margins, then bottom line growth, again, will be double digits as well.

56:32 Thanks, Parag. The the only other bit to add to that is, obviously, with our revenue model, 93% is recurring, of which 90% is contracted. So it gives us good visibility in terms of the future revenue growth that we can have. But if we look at back to the metrics, you typically see, from a compounding perspective, about 15 to 20% growth from existing clients year on year. And a typical five to 10% is additional revenue in that financial period that you sign the customer up on, from a growth perspective. And then you see churn of about 7% on an annual basis.

57:18 So that's where we talk about that 15 to 20% top line growth. But from the customers that we win, that also gives us great visibility in terms of our exit run rates as we enter the new financial year, from a forecasting perspective. The second part to that, obviously, two key risks. One is, as I mentioned earlier, it's a combination of technology and people that really bring our business to life. So one of the things from a risk perspective is continuing to hire that talent. We do quite well in in getting the talent, but we don't really just put head count on for this for the for the sake of it in terms of meeting those numbers. We really look for the highly skilled people, which sometimes takes a bit longer, to hire in into our organization, especially for them to fit into the culture that we've built within the business.

58:16 The second part, I guess, second key risk is you are seeing more and more consolidation, but also VC money and private equity money being injected into competitors that are buying revenue share at any price. But we're very much, with the combination of recurring revenues that we have from functionality driven revenue as well as messaging, continuing to stand our ground, and for us not to be that race to the bottom. So, hopefully, that answers your question, Bob. I think the next question, once again, Mark, thank you for your question, has been answered in terms of RCS, a rich communication service, Apple Business Chat, WhatsApp Business.

59:04 We have those different channels that are available to the end customer. We've already integrated all of that channel functionality into the platform. There's another question later on which also asks about in app messaging, and we also have that as well. So just to clarify, we do have all these channels available today. Thank you. So a question from Sarah. Apologies. I didn't understand the distinction between connected and non connected clients. Please, could you walk me through that? Parag, do you wanna take that? Yeah. So when we talk about connected and non connected, all that simply means is we have customers who bring in their data directly from their ecommerce or CRM platform.

59:52 So those customers may be using the likes of Adobe Magento, Shopify, Shopify Plus, or BigCommerce as which are the three biggest ecommerce vendors, or they may be using Microsoft Dynamics or Salesforce as their CRMs. And then when they're bringing their data into our platform, we we they have to effectively purchase or build a connector. You know, those are prebuilt, so you can also build connectors if you have a custom database into our platform. So when we when we make the distinction between connected and nonconnected clients, we're talking about those customers who are infusing their data into our platform through these connectors into their datasets. Perfect. Paul, do we have much more time? Or just another five minutes of questions?

1:00:44 We've got a question here from David. Once again, thank you for your question. Post COVID, is it possible that we should see an acceleration in SMS relative to other channels with higher mobility? For more pressure on consolidated margins, it looks like you have assumed mix remains stable from here. Parag? Yeah. So s SMS, we've seen we've already seen an acceleration through the COVID period, but that's not necessarily all down to COVID itself. Remember, this is a channel that we've only merged into our platform through once we made the acquisition of Qumapi over the last eighteen months. So as SMS and all of these other channels have been integrated in, customers are beginning to use them. And we have seen an acceleration because SMS, as Milan described earlier, is part of your marketing strategy where you're doing things like forms and surveys and and notifications become key. So post COVID, it's not necessarily that the industry would see an acceleration.

1:01:44 We will continue to seek our customers adopt SMS as we will other channels as well. In terms of that growth, therefore, we would anticipate that the pickup in SMS is very similar to the growth that we've seen, not just in email, but in in other channels over the last few years anyway. So the mix remaining the same is probably broadly right. It could be SMS is a little bit stronger. But in reality, I think over the long term, because email continues to grow, email continues to be the channel of choice from a marketing communication perspective, it will still continue to grow 20% plus as as we've seen. So yes, that mix, I think, it remains relatively stable probably makes sense.

1:02:31 Thanks, Parag. Another question, one from Louise. Thank you for your question. When does the discontinued operation drop out of the equation? Yeah. So 06/30/2021. So in a few months' time, that business will no longer be operating. And therefore, from the next financial year onwards, there will be no mention or no the discontinued operations would have gone. So by the end of this financial year, it will be fully closed down, fully discontinued and then no mention as we go forward. Thanks, Parag. There's been so many questions, which is great engagement, but I do apologize that we haven't been able to answer every single question today. We will endeavor to answer that through the investor meets company platform as much as we can.

1:03:23 I guess it leaves me to sum up. Paul, I don't know if you want to get involved or Yes. Absolutely. I was going to say is you guys can review all the questions submitted today. So thank you to investors for submitting those. And perhaps if you could just say a final few words, Milan, then we can redirect investors to give you some feedback, that would be great. Yes. Thank you, Paul. Firstly, thank you very much for listening to our story and supporting us through from a growth perspective. But if we go back to kind of the fundamentals of the business, we're seeing growth opportunities in all three of our organic pillars, whether it's around geographic and dipping our toe in the water further into Far East Asia within the LatAm market, or even growing from the foundations that we've built and the branded awareness that we're creating from a geographic standpoint.

1:04:15 In terms of product innovation, we continue to invest, and you can see that monetization coming through from the functionality recurring revenues that we're driving. And that continues to accelerate as more and more, marketers adopt more of the platform and have an increased emphasis on that data, which in turn means data recurring revenues or data element recurring revenues continue to expand. And going to that strategic partnerships, you're seeing an increase in, ecommerce companies maintaining or even enhancing those digital experiences at every touch point that they have with their end recipient. And the importance of data to create those, experiences, whether it's a positive one or a negative experience that they turn into positive, is really coming through with a mix of transactional messaging, mix of marketing messaging that's going out, but also surveys to complete that experience from an end end to end perspective.

1:05:14 So engaging with you consistently at every touch point that they have and every medium that they can, they can create that brand awareness and retention marketing. So very much, opportunities across all three pillars. That just leaves me to say we've got strong recurring revenues, strong cash within the business that really give us that visibility as we look forward, and we are very confident from a momentum perspective as we've gone into the second half. Thank you very much, everyone. You. Milan Parag, thank you very much for updating investors today. Could I please ask investors not to close the session? You should be automatically redirected for the opportunity to provide your feedback. If you've accessed the meeting from our website, the feedback page will appear in front of you. If you've accessed the meeting via the link sent to you in an email, you'll be simply asked to log back in and submit your feedback. It only takes a a few seconds. It'll be greatly appreciated by the company.

1:06:11 On behalf of DOTDIGITAL GROUP PLC, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you, and good morning. Thank you.