5 March 2024

Dotdigital Group plc

("Dotdigital" or the "Group")

Interim results for the six months ended 31 December 2023

Strong growth in line with expectations and expanded addressable market

Dotdigital Group plc (AIM: DOTD), the leading SaaS provider of an all-in-one customer experience and data platform (CXDP), announces its unaudited interim results for the six months ended 31 December 2023 ("H1 FY24").

Financial Highlights

Operational Highlights

Milan Patel, CEO of Dotdigital, commented:

"We're pleased to report on a period of continued financial growth alongside the acceleration of our product roadmap and a growing market opportunity. We have invested into broadening and enhancing our platform offering, and we are seeing good levels of uptake, particularly from new customers, and our strengthened foundations across territories are translating into growth.

The acquisition of Fresh Relevance during the period added highly complementary personalisation technology to our offering, delivering early new business and cross selling success and a growing pipeline of larger value deals. Our proposition is now even further aligned with the market-wide demand for an all-in-one digital marketing platform, complemented by our sophisticated AI and machine learning tools.

We enter the second half with continued momentum, in line with Board expectations. Whilst cognisant of wider macroeconomic conditions across our markets, our robust financial position, comprehensive product offering servicing a diverse customer base and an expanded pipeline of opportunities leave us confident in the Group's continued success."

Analyst Briefing and Investor Presentation

Management will be hosting a live online presentation for analysts today at 9am GMT. To register to attend the analyst presentation, please contact dotdigital@almastrategic.com.

Live presentation to investors: Management will host a live online presentation to investors via the Investor Meet Company platform on Thursday, 7 March 2024 at 4pm GMT. The presentation is open to all existing and potential shareholders. Investors can sign up to Investor Meet Company for free and add to meet Dotdigital via this link.

1: ARPC: Average revenue per customer (including new customers added in the period and existing customers) based on our December billing

2: Adjusted EBITDA Earnings before interest, tax, depreciation and amortisation, adjusted for exceptional items such as acquisition costs and share based payments

3: Adjusted Profit before tax: Profit before tax adjusted for exceptional items and share based payments

4: Market Expectations: market consensus for Revenue for the year to 30 June 2024 is £78.5m; and market consensus for adjusted PBT is £15.7m

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About Dotdigital

Dotdigital Group plc (AIM: DOTD) is a leading provider of cross-channel marketing automation technology to marketing professionals. Dotdigital's customer experience and data platform (CXDP) combines the power of automation and AI to help businesses deliver hyper-relevant customer experiences at scale. With Dotdigital, marketing teams can unify and enrich their customer data, identify valuable customer segments, and deliver personalised cross-channel customer journeys that result in engagements, conversions, and loyalty.

Founded in 1999, Dotdigital is headquartered in London with offices in Croydon, Manchester, New York, Melbourne, Sydney, Singapore, Tokyo, Amsterdam, Cape Town, and Warsaw. Dotdigital's solutions empower over 4,000 brands across 150 countries.

Operational Review

The Group reports a period of strong operational and financial progress in the first half of the year, in line with management expectations. In addition to further building out our Customer Experience and Data Platform (CXDP), we have continued to grow in all regions, demonstrating the demand for Dotdigital's digital marketing proposition despite tough macroeconomic conditions.

We delivered double-digit revenue growth of 15% to £38.7m (H1 FY23: £33.8m), with underlying organic revenue growth (excluding Fresh Relevance) of 11% in constant currency (9% reported). This follows major enhancements to our platform offering following prior year investment in the product portfolio and business operations. As expected, adjusted profit before tax was £8.9m (H1 FY23: £7.7m).  Cash generation continues to be strong, and the Group ended the period with a net cash balance of £37.1m, in line with Board expectations, following the acquisition of Fresh Relevance during the period (for up-front cash of £18.8m).

A core focus of our investments in the half has been to enhance our product offering as we build out a comprehensive CXDP platform to address a larger addressable market. Having implemented and enhanced our AI capabilities, personalisation and omni-channel functionality during the first half, Dotdigital is positioned with a significantly enhanced competitive edge within our market, characterised by strong underlying demand for AI and machine learning capabilities across all spheres of marketing, as organisations look to optimise their campaigns and improve efficiency and ROI.

More broadly, we observe a continuation of the shift to digital marketing, with marketers increasing their portion of spend towards digital channels, particularly around retention marketing, favouring Dotdigital's proposition.

In September, we acquired personalisation software provider Fresh Relevance to accelerate our CXDP offering. Fresh Relevance's cross-channel personalisation and web technology is highly complementary to the Group's existing proposition, and through the additional capabilities and technical expertise brought about by the acquisition we are now better positioned to grow our addressable market and attract higher value customers and contracts.

The integration of Fresh Relevance has progressed well to date, and we have made significant headway to drive further growth both in combining our proposition for customers through a unified onboarding, single sign-on process, and the establishment of a joint go-to-market strategy.

The acquisition has brought 66 new people to the Group and, with the teams having a strong existing relationship prior to September, we are pleased to see the benefits of further collaboration. We now have established cross-heritage teams, including within our product and engineering teams, enabling Dotdigital and Fresh Relevance employees to learn from each other, share best practices and share workload. The integration of our finance functions has also progressed well, and we are slightly ahead of schedule with delivering tangible cost savings from the process of integration.

Customer feedback has been very positive, and Fresh Relevance is already contributing to new agreements with customers in larger segments, alongside cross-selling to existing customers.

We have signed a number of new joint customers across e-commerce and not for profit organisations, cross-sold in the EMEA region and now have three 'beta' customers signed up in APAC, with a significant and increasing pipeline for further agreements ahead. At the time of acquisition, we reported that Fresh Relevance was expected to add c.£6.0m of annual revenues to the Group, and the business is performing in line with expectations of revenue and profitability for FY24.

Looking ahead, our achievements in the first half and strengthened proposition have laid the groundwork for further growth into H2, with Dotdigital now better positioned to grow within its verticals and ability to attract larger customers. At the same time, the Board has the flexibility to continue investing in the organic and inorganic growth opportunity through its strong cash generation and high visibility of future venues.

Market

Digital marketing represents the core priority for marketing budgets, with marketing professionals across all sectors set to further increase their portion of spend towards digital channels. Supporting this, research shows that 76% of business leaders plan to invest more or the same into digital marketing in 2024¹, with a recognition that this channel generates the highest return on their investment. Equally, with global economic conditions remaining unsteady, there is a reinforced focus on retention marketing alongside customer acquisition in order to deliver tangible ROI.

We operate in a large and growing market, estimated to be worth $6.5bn in 2023 and forecast to be worth $9.5bn in 2027². Alongside this, the personalisation market is forecast to grow by over 23% annually from $943m in 2022 to $5.6bn by 2030³. Our focus within these markets lies primarily in the mid-market and enterprise segments, which form the bulk of value within this market.

AI, machine learning and data-driven analytics are increasingly becoming more important to power campaigns and we are seeing growing levels of inbound interest in our AI-enabled platform. According to recent research, 63% of marketers plan to invest in generative AI in the next two years⁴. Alongside this, many organisations are looking to consolidate their Martech stack to more cost effective and quicker to deploy all-in-one solutions, positioning Dotdigital well for further traction as it builds out its CXDP.

Email marketing continues to be the primary channel for customer engagement with the highest return on investment. According to Litmus (2023), 87% of brands say that Email Marketing is very critical to business success⁵. Email marketing still generates one of the highest returns from digital marketing activity for every $1 spent generates a $36 return⁶. Email Marketing continues to become more highly personalised through the use of data across their business systems and the use of AI functionality to create content. Dotdigital has continued to enhance the platform in both of these areas to help our customers drive efficiencies and ROI from their Marketing campaigns.

Alongside this, demand for omnichannel remains strong, with continued adoption of SMS and a growing pipeline for WhatsApp and In-app Push messaging capabilities across all regions. Reports show 63% of marketers have started or plan to implement omnichannel as part of their marketing strategy in the next 6-12 months⁷, reflecting the growing opportunities in these areas. The Group will shortly be introducing the capability for customers to deploy campaigns through WhatsApp native to the platform. These campaigns are based on pre-approved templates approved by WhatsApp, reducing the need for verification, which are expected to increase adoption rates across Dotdigital's customers.

¹https://www.webfx.com/blog/marketing/digital-marketing-spend-insights/

² https://www.researchandmarkets.com/report/marketing-automation?gclid=Cj0KCQjwtJKqBhCaARIsAN_yS_kZE2sqsfplTecCX23s4zuRyN4g

³ https://www.statista.com/statistics/1415357/personalization-software-market-size-worldwide/

⁴https://digitalmarketingsolutionssummit.co.uk/briefing/63-of-marketing-leaders-plan-to-invest-in-generative-ai-in-next-two-years/

⁵https://www.litmus.com/resources/state-of-email-workflows

⁶ https://www.litmus.com/resources/email-marketing-roi/

⁷ https://www.digizuite.com/blog/omnichannel-statistics

Strategy

The Group growth strategy centres around its three strategic pillars: geographic expansion, product innovation, and building on our strategic partnership relationships.

Geographic expansion

Regional breakdown reported in local currency

The Group is pleased to report growth in all regions.

EMEA, the Group's largest market, organically grew 9% to £27.7m, in line with our expectations.  Including acquired revenues, growth was 16% to £29.3m. We saw a good level of new bookings in the region, particularly from higher value new customers, as organisations increasingly opt for a more comprehensive, all-in-one marketing solution. We were also pleased to see a recovery in professional services to more normalised levels as customers re-initiated delayed projects.

The Group's momentum in North America continued to accelerate from FY23 levels, with revenues organically growing 8% to $7.0m. Including acquired revenue, growth was 13% to $7.3m. Following investment in the region and the bedding in of our regional team, we are delighted to the see the re-established pipeline converting to sales, with the foundation now in place for a return to double-digit growth over the medium term.

APAC continues its strong trajectory of double-digit growth, increasing 33% to AUS$6.9m. Whilst it is a newer market for us, growing from a smaller base, we see good potential in the region to take market share across the ANZ and Far East Asia market. The Group continues to invest in its sales teams in Japan and Singapore to support this expansion.

Product Innovation

As we work towards our vision of building the leading CXDP for marketers, R&D efforts during the period were focused on two main product releases: the release of '23three', launched in September, which was a milestone for Dotdigital's unified customer data platform through the acquisition of Fresh Relevance; and the release of '24four', launched in November just before the busy peaks of Black Friday & Cyber Monday.

A continuous pace of product updates and new functionality continues to unlock new value opportunities, both with new customers and up- and cross-selling within the Group's extensive customer base. Existing customers expanding their engagement of our platform offering is demonstrated by the increase in functionality recurring revenue³, which grew organically 8% to £13.2m (22% to £14.9m including Fresh Relevance) (H1 FY23: £12.2m). Key innovation highlights achieved during the period include:

The initial phase of product integration of the Fresh Relevance platform was completed in H1 and the second phase will continue into H2 with a focus on the homogenisation of user experience between the products, streamlined onboarding and further updates to the cross-platform data exchange of customer data.  We expect the final phases of product integration roadmap work to be complete by the end of calendar 2024.

We are pleased to report that global software marketplace G2 recently announced Dotdigital as a Winter 2024 Grid Leader in the Marketing Automation, Transactional Email, Email Deliverability, Email Template Builder, Landing Page Builder and CPaaS (Communications Platform As A Service) categories while also being highly placed in; Customer Data Platform, SMS Marketing, Personalization Engines, Mobile Marketing and Customer Journey Analytics.  G2 reviews are based on customer feedback and the awards demonstrate our continued innovation and the successful execution of our all-in-one CXDP strategy.  

Strategic Partnerships

Revenue from strategic partnerships continued to grow, albeit more modestly than in H1 FY23, with growth in CRM connectors offset through the larger e-commerce connectors. As a result, revenue through strategic partners grew 8% to £16.7m (H1 FY23: £15.5m). The strategic partnerships assist in driving brand awareness and provide global reach to complement our direct marketing channels. The Group saw growth in both the verticals that we focus on. Our customers using the e-commerce connectors grew 7% in the period from £10.6m to £11.4m. Over the same period we also saw strong growth in customers using the CRM connectors which grew 11% in the period from £4.8m to £5.3m.

As we look forwards, we will continue to enhance our strategic partnerships into other business systems to make it very easy for our customers to bring data into our customer data platform and see value in the combined offering.

We have also over the last six months strengthened our partner program which is focussed around adding agency and technology partners that work within the various ecosystems.

M&A

In line with the ongoing enhancement of the Group's CXDP proposition, the Board continues to appraise acquisition opportunities to supplement organic growth at appropriate target valuations. 

As previously stated, the Group's acquisition strategy is broadly focused on the following key categories: adjacent CXDP-related technologies that will drive ARPC expansion and deepen our international markets; for talent and brand to expand geographical coverage; and specialist functionality for target verticals.

Current trading and outlook

Having significantly strengthened our offering in H1, we enter the second half with good trading momentum and the ability to attract higher value deals, underpinned by continuous product enhancements to drive cross- and up-sells from the existing base. Supporting this are the long-term market drivers, with customers increasing their digital marketing spend and exploring the range of sophisticated AI and machine learning tools available to enhance their campaigns and deliver better ROI.

Our focus in the second half continues to be around enhancing our proposition, progressing the integration of Fresh Relevance capabilities into the Group's platform, growing our presence across all of our regions and capturing the increased opportunities now available to the Group. At the same time, we continue to appraise acquisition opportunities to accelerate our product development and unlock new verticals for the Group.

We remain confident in the Group's ability to continue to execute against its stated strategy and meet market expectations and look forward to updating shareholders on our progress in H2.

FINANCIAL REVIEW

Revenue

Revenue during the period grew 15% to £38.7m from £33.8m in H1 FY23. The acceleration vs prior periods was driven by the acquisition of Fresh Relevance.  Organic Growth was 9% as acceleration in North America and APAC was in part offset by adverse FX rate movement.

Recurring and repeating revenue continues to represent c.94% of revenues which is substantially unchanged by the acquisition of Fresh Relevance. The gross retention rate has remained stable despite macro-economic pressure which is testament to the strength and diversity of our customer base.  This same pressure can be seen in relatively low growth rates to messaging volumes vs previous years, however net retention rates and ARPC growth (now £1,709, up 9% from £1,573) have been maintained by strong positive movement in pricing and upsell of additional functionality.

International revenue represented 33% of total revenues in the period, from 34% in H1 FY23. Rapid growth in APAC and strengthening in North America (33% and 13% growth respectively in local currency) increased the proportion of international revenues in the Group, but this was in part offset by changes to FX rates and the relatively higher proportion of Fresh Relevance revenue which is UK based.  North American revenue was $7.3m (H1 FY23: $6.5m), while APAC revenue was AUS$6.9m (H1 FY23: AUS$5.2m). EMEA revenues grew 16% in the period to £29.3m (H1 FY23: £25.3m) largely accelerated by the Fresh Relevance acquisition.

Gross Margin

Product gross margins remain consistent with the prior period. Total Gross margin was 79.3% (H1 FY23: 79.1%) as Fresh Relevance gross margin was consistent with Dotdigital organic margins.

EBITDA

We are pleased that the Group achieved an adjusted EBITDA margin of 32% and an adjusted operating profit margin of 22% in the first half, which was in line with management expectations. The Group saw the full period impact of costs which ramped through the prior year as well as the impact of the Fresh Relevance acquisition which had lower margins. We have experienced cost inflation in many areas which is consistent with levels reported for the wider economy, however this has been substantially mitigated through rationalisation of certain back office costs negotiation with our suppliers and partners.  Exceptional costs in the period are driven by share based payments, acquisition and integration costs of Fresh Relevance.

EBITDA growth of 13% to £12.4m (H1 FY23: £11.1m) is ahead of our organic revenue growth, while Fresh relevance is expected to contribute positive EBITDA in future periods as cost synergies are realised.

Balance Sheet & Cash Position

Dotdigital continues to generate strong cash flow from operations with an interim period end net cash balance of £37.1m. Whilst there has been a brief period of normalisation of working capital balances following the acquisition of Fresh Relevance, the Group's historical strong cash generation has continued and so we retain strategic options, particularly involving opportunities to explore potential acquisitions of relevant adjacent technologies.

Cash management has been an increasing priority over the past 18 months such that we can optimise returns.  We now use a mix of accounts at banks with the highest credit ratings to balance security, accessibility and interest income.  Interest in the period increased to £0.6m vs £0.2m in H1 FY23, despite having a lower balance following our acquisition of Fresh Relevance. 

The Group continues to prioritise product development and so we have increased spend broadly in line with revenue such that we spent c.£4.4m on development (compared to £4.0m in H1 FY23).

Dividend Policy

A dividend of 1p per ordinary share (FY23: 0.98p) was proposed by the Company at the time of its Final Results in November last year, demonstrating a commitment from the Board to deliver value by focusing on total shareholder return. This dividend was approved by shareholders at the Annual General Meeting on 19 December 2023 and paid on 31 January 2024.

The Group will review the dividend at year end; therefore, in line with previous years the Board is not proposing an interim dividend. We expect to maintain our dividend policy of growing the full year dividend in line with EBITDA.