7 March 2023
Dotdigital Group plc
(“Dotdigital” or the “Group”)
Interim results for the six months ended 31 December 2022
Dotdigital Group plc (AIM: DOTD), the leading SaaS provider of an omnichannel marketing automation and customer engagement platform, announces its unaudited interim results for the six months ended 31 December 2022 (“H1 2023”).
Financial Highlights
· | Group revenue increased 9% to £33.8m (H1 2022: £30.9m) |
· | Recurring revenue as a percentage of total revenue increased to 95% (H1 2022: 94%). Contracted recurring represents 79% of total revenue |
· | ARPC1 up by 11% to £1,573 per month (H1 2022: £1,422 per month) |
· | Adjusted EBITDA2 of £11.1m (H1 2022: £12.2m) and adjusted operating profit3 of £7.5m (H1 2022: £8.9m), in line with expectations and reflecting planned investment in the team |
· | Strengthening cash position with net cash balance of £49.6m on 31 December 2022 (H1 2022: £40.0m) |
Operational Highlights
· | International revenue of £11.5m (H1 2022: £9.7m), representing 34% to total revenue (H1 2022: 31%) |
· | R&D continues to unlock incremental growth opportunities, with recurring revenues from enhanced product functionality increasing 13% to £12.2m (H1 2022: £10.8m) |
· | Ongoing product innovation to enhance the Group’s Customer Experience & Data Platform (CXDP), with a focus on predictive analytics and real time automation functionality |
· | Email marketing remains core alongside omnichannel uptake, with email volume growth of 13% and SMS volume growth of 18% in the period |
· | Strengthening of strategic partnerships in both ecommerce and CRM, with sales through connectors increasing by 17% to £16.3m (H1 2022: £13.9m) |
· | Ongoing planned investment in personnel and business infrastructure to support continued growth |
· | Growing new business pipeline, including higher value deals, with trading at the start of H2 tracking in line with expectations |
Milan Patel, CEO of Dotdigital, commented:
“We are pleased to report another period of profitable growth and execution in line with our strategy, as we begin to realise the benefits of our strengthened operations functions following investment in the prior period.
“Organisations across industries are depending, more than ever, on driving higher engagement across their customer bases to support growth and loyalty. Our technology sits at the heart of this, with digital engagement tools underpinned by rich data that provide insights into the value and impact of marketing spend throughout the customer journey.
“We enter the second half of the year with a stronger pipeline of opportunities, supported by a profitable, cash generative business model and increasing recurring revenues. Whilst we remain mindful of macroeconomic uncertainty, the strength of our value proposition, expertise across sectors and expanding addressable market give us confidence in meeting market expectations.”
Live presentation to investors: M anagement will host a live presentation to investors via the Investor Meet Company platform on Thursday, 9 March at 10.00 a.m. UK time. Investors who already follow Dotdigital on the platform will automatically be invited, others are invited to register in advance via the following link: https://www.investormeetcompany.com/dotdigital-group-plc/register-investor .
Notes
1. ARPC means Average Revenue Per Customer (including new customers added in period and existing customers)
2. Adjusted EBITDA is earnings before interest, tax, depreciation and amortization adjusted for acquisition costs and share-based payments
3. Adjusted operating profit is operating profit adjusted for acquisition costs and share-based payments
For further information please contact:
Dotdigital Group Plc Milan Patel, CEO Alistair Gurney, CFO | Tel: 020 3953 3072investorrelations@dotdigital.com |
Alma PR (Financial PR)Hilary BuchananDavid IsonKieran Breheny | Tel: 020 3405 0210dotdigital@almapr.co.uk |
Canaccord Genuity (Nominated Advisor and Joint Broker) Bobbie Hilliam, Corporate FinanceJonathan Barr, Sales | Tel: 020 7523 8000 |
finnCap (Joint Broker) Jonny Franklin Adams, Corporate FinanceAlice Lane, ECM | Tel: 020 7220 0500 |
Singer Capital Markets (Joint Broker) Shaun Dobson, Corporate FinanceAlex Bond, Corporate Finance | Tel: 020 7496 3000 |
OPERATIONAL REVIEW
The Group made good progress over the first half of the year, in line with management expectations. The operational building blocks put in place in the second half of the prior year have started to yield results with evidence of increasing commercial momentum across the Group.
The Group delivered revenue growth of 9% to £33.8m (H1 2022: £30.9m) driven by improved customer retention and increasing revenue per customer, together with new customer wins and favourable FX movements. As expected, adjusted EBITDA was £11.1m (H1 2022: £12.2m), reflecting planned headcount growth of c. 45 people through the period and wage increases which were weighted to the start of the financial year, compared to a more gradual distribution of cost growth through the prior year. Cash generation continues to be strong, and the Group ended the period with a net cash balance of £49.6m.
The investments made to solidify the Group’s global operations, from Sales to Customer Success and Partner Management teams, along with continued positive trading, have enabled the leadership team to renew their focus on the Group’s growth opportunities. Overall, the Group has seen an improving environment to attract and retain talent as competitors pause to reflect on previous hiring initiatives. There is a refreshed sense of optimism and momentum internally with our teams energised around our growth plans.
Within the current economic climate, we are seeing organisations across industries assessing how to attract and retain customers whilst optimising their technology stacks to drive efficiency and cost savings. Dotdigital’s platform, which offers clear, demonstrable ROI coupled with easy-to-use functionality and straightforward onboarding processes, is a compelling proposition. The Group continues to grow market share and cement its reputation across territories, evidenced by a growing pipeline, particularly within larger enterprises.
Marketeers at some of the world’s biggest international brands rely on Dotdigital to power their campaigns. Along with continued strength in the ecommerce space, the Group has seen growing interest in sectors such as not for profit, utilities, financial services, construction, media and healthcare. New customers won during the period include Chartered Institute for the Management of Sport and Physical Activity, Shell Energy UK, Leeds Building Society, Galliford Try and CBRE.
Looking ahead, the Group is well positioned to capitalise on the market opportunity, with strengthened foundations across its three operating regions underpinned by a resilient, profitable SaaS business model. With high levels of recurring revenue and strong cash generation, the Board has the flexibility to continue investing in the organic and inorganic growth opportunity.
Market
Digital marketing continues to be the priority for organisations. According to the 2022 CMO Survey, digital marketing spending has accelerated since it was first measured in February 2021 (+11.5%) to a high in February 2022 (+20.2%), resulting in digital marketing investments accounting for 57.9% of marketing budgets.
According to the survey, 59% of Marketeers listed martech as one of their top digital marketing investments. A 2022 study by Gartner reported Marketeers planned to spend 25.4% of their marketing budget on martech in 2022, while the 2023 Deloitte Global Marketing Trends executive survey found ‘Accelerating the move to new digital technologies/platforms’ to be the number one priority for Chief Marketing Officers.
Within this, there is a growing expectation and requirement for increasingly sophisticated tools that allow for more personalised and targeted campaigns based on rich customer data. This holistic view of the full customer journey is what drives the Group’s technology roadmap for Customer Experience & Data Platform (CXDP). In an October 2022 survey of B2B marketers carried out by Chief Marketer/OneTrust, the top three martech investment targets were content creation, analytics and automation, validating our direction of travel. With a wider backdrop characterised by economic uncertainty, we are seeing a heightened focus on optimisation and cost effectiveness as well as customer loyalty. Within this framework, email marketing remains the primary channel for customer engagement, still providing the highest return on investment. During the period, we saw email marketing volumes increase 13%. Alongside this, demand for omnichannel continues to grow, as organisations aspire to increase the number of touchpoints with customers all from one platform. For instance, according to Airship’s Push notification Benchmark report, 51% of iOS users and 81% of Android users are opted-in to receive ‘push’ notifications, offering a potentially valuable complementary engagement channel for organisations.
Strategy
The Group is guided by a consistent and focused growth strategy, centred on three strategic pillars: international diversification, product innovation, and building on our strategic partnership relationships.
Geographic expansion
Regional breakdown reported in local currency
The Group’s largest and most established market, EMEA, grew 7% to £25.3m (H1 2022: £23.6m) following continued strong underlying demand. The pipeline of higher value deals continues to trend upward as enterprises focus on technology rationalisation towards best-in-breed solutions with comprehensive functionality. The Group’s growth in the region was somewhat tempered by a lower level of one-off professional services fees as the organisations’ decision making on new projects was slower to navigate the uncertain macroeconomic backdrop.
Revenues from North America were flat at $6.5m (H1 2022: $6.5m). This is against a strong comparative H1 and a lower entry run rate into the current financial year as a result of previously communicated employee and customer churn during H2 of the prior year. These challenges have been addressed and the trend has reversed with an improvement in customer retention and an in-region sales team now embedded and starting to convert a building pipeline. The Board expects the region to show positive underlying growth at the full year as this momentum continues.
APAC continued to post strong double-digit growth with revenue from the region increasing 17% to AUS$5.2m (H1 2022: AUS$4.4m). This follows continued investment in the region, including further expansion of localised go-to-market teams and, in Japan, the appointment of an experienced country lead.
Organic international revenue increased by 19% to £11.5m (H1 2022: £9.7m) in the period, with international sales contributing 34% to total revenue (H1 2022: 31%).
Product innovation
The Group’s product roadmap continues to unlock growth opportunities with functionality recurring revenue (licence, data charges and additional functionality) growing 13% to £12.2m in the period (H1 2022: £10.8m).
Our Research and development focus is guided by the Group’s Customer Experience Data Platform (CXDP) vision and how to bring this powerful functionality to the mid-market.
The innovations surrounding analytics have helped us attract larger and mid-market customers, some of which are finding that Dotdigital can meet their data capability needs and so replace point solutions. Cross-account analytics and account tagging are just some of the ways in which large businesses with multiple accounts can streamline how they analyse their data across departments and business divisions. We also see organisations review their larger cloud solutions and look to Dotdigital as a viable alternative that offers equivalent power at an attractive price-point. Our appeal to these businesses is further strengthened by the launch of back-in-stock notifications which is essential for brands who want to reduce their opportunity cost. Multi-touch revenue attribution is also key to demonstrating value and businesses are happy to invest in marketing despite external pressures if success can be measured.
Our product roadmap will continue to focus on self-service integrations, predictive analytics, and predictive subject line content creation as we enter H2.
Strategic partnerships
The Group looks to complement its direct sales channel by building brand awareness through strategic partnerships, with a core focus on forging connectors into both ecommerce and CRM platforms, complemented by a broader general partner referral network which includes over 200 active global partners .
During the half, revenue through strategic partners grew 17% to £16.3m (H1 2022: £13.9m). The Group’s ecommerce partners, which include Magento and Shopify among others, grew a healthy 10%. Pleasingly, the Group saw significant growth through its CRM partners, including Microsoft Dynamics and Salesforce, which together grew 32% in the period following more investment into this channel. The CRM channel partnership growth was particularly strong in EMEA due to increasing brand awareness through the channel, providing increasing confidence of building on this momentum in the future.
M&A
Now that the planned organic investment has been made and is showing returns, the Board is focusing on acquisition opportunities to supplement organic growth. Our acquisition strategy is focused on the following key categories: adjacent CXDP-related technologies that will drive ARPC expansion and open up new markets; c onsolidation in the market for talent and brand to expand geographical coverage; and s pecialist functionality for target verticals.
Current Trading and Outlook
We are encouraged by the progress achieved in the period and enter the second half with strengthened operations and good trading momentum. In the current climate we are seeing a renewed focus on rationalising technology stacks to drive value and ROI, which is uncovering new opportunities particularly amongst larger enterprises leading to higher value deals.
As we look ahead, our focus is on building our CXDP, supporting our opportunity in North America through new hires, as well as additional headcount across the business to match demand and to drive more lead generation through partners and direct channels. Whilst other suppliers take stock of previous investment rounds, we see this as an opportunity to further entrench our position in the market, supported by a growing pipeline and resilient underlying business.
We believe the potential is substantial. We understand where our opportunities lie and how we can capture them. While remaining cognisant of the challenging macroeconomic backdrop, our growing global reputation, talented and committed teams, and good visibility over the second half, provides the Group with confidence in continued success.