dotdigital Group Plc (DOTD) Earnings Call Transcript & Summary

Good morning, and welcome to the dotdigital Group Plc Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand over to Milan Patel, CEO. Good morning to you, sir.

Good morning, Alexandra, and thank you, everyone, for attending today's annual results presentation for dotdigital. Really appreciate it. I'm going to be taking you through the strategy side of the presentation and leave the detailed financials for Alistair to go through. In terms of what we'll be covering today, I will take you through some of the strategies and market drivers and also what we've seen in the last 12 months and what we're doing over the next 12 months. And then this time around what we'll do is a little bit more of a product spotlight and what we are doing, what we're excited about from a product standpoint, and then finish off with the outlook. So for us, always begins with why do we exist in business. And for us, our mission is to improve customer experience for everyone on the planet. Now it is a very ambitious mission, but everything else stems off of the mission that we're -- the reason we're in business, whether it's our company vision, whether it's our product vision, whether it's our cultural values. And for us, it's about customer experience, not only externally, but also internally, and making sure we support what our customers want. So for some of you that are joining today, this dotdigital will be a new story. So -- and for the ones that already follow the story, I'm just going to give you a bit more of a summary of what's been happening over the last 12 months. Today, we're up to 475 employees across 3 main hubs, as we describe it. Each hub has every single department within region that you can really scale from, whether it's customer-facing, whether it's back office, ready to support the international growth in -- of the regions that we operate or any regions that we're testing and moving into as we enhance our proposition. From our U.K. hub, we support Netherlands, which plays more into the Benelux and Nordics market. We have offices in South Africa and into Poland, which are our tech hubs that support our tech hub in the U.K. Within the North American market, we have a hub in New York, and that helps support our West Coast and mid-concentration of the U.S. They also sell into Canada and into the LatAm market today. In terms of APAC, we have offices in Sydney, which acts as the hub for Melbourne, Singapore, and also the new entry that we did within Japan. In terms of what we do, we really help marketers build those customer experiences, use our AI technology and the ability to house data to really drive return on investment. The focus in terms of customers is very much around that mid-market, larger enterprise customers. And over the last 12 months, as the depth of the platform expanded, but also integrating the acquisition of Fresh Relevance that we completed in September this time last year. That is acting as an enhanced value proposition, which is attracting larger value customers. Going back to our organic growth strategy. We like to keep things simple, whether it's around our geographic pillar, whether it's around partnerships that we're building around our product and the ecosystem or the product innovation work that we're doing. We spend about 12% to 13% of our revenues on R&D and continue to monetize that. What we've been always talking about as a public company over the last 16 years that we've been public is that sustainable growth, seeing that top line growth at double digit from an organic standpoint, but also seeing that operating margin, EBITDA margin coming through. So if we look over the 10 years, but you could look over a 15-year period, we've consistently delivered a double-digit compounded growth rate, along with profitability at similar levels and really turning that into cash. So what does the platform do? I [indiscernible], if I help describe it in 4 main areas, we have our customer data platform, which effectively makes it easy for our customers to really bring data in. Whether it's off the shelf connectors, they have development teams that can write into our API from a synchronization perspective or whether it's fire hosing data into the platform. We also have a small services team. Alistair will go through the revenue mix shortly, which allows us to be an extension of the customers' marketing team. So we do have customer integrations into other business systems that they may be using to bring that data in. So once the data comes into the platform, that's where you start doing more of the clever stuff, whether it's segmentation, really understanding more about the recipients that you're sending to, allows you to really build a data visualization of the data, but also be able to bring everything together. And then in the mid-layer of the platform, you have the orchestration layer, and that's where you can really start building those what we described as [automated] campaigns, but effectively, that's customer journeys within the platform. So that could be triggered based on behavior. That could be triggered based on data that you already have. And that's where all the content management and content creation happens. Also, we have all of our AI tooling, one, to help content creation, whether it's content review. So we'll talk a little bit more about that as we go into our -- what we've been doing over the last 12 months around AI and our strategy going forward. And then you have all the different channels that you can communicate on, whether it's e-mail, SMS, if you have a mobile application, you can do in app push. We've got newer channels like WhatsApp. With the acquisition of Fresh Relevance, we now have the ability to create a consistent experience on to the website as well. So in terms of channels that we have, it's pretty much all the channels that you can engage on with the end recipients or customers. And then what brings it all together is the reporting and analytics. That really helps you drive a higher return on investment, really understand the output or the results of the campaigns that you're sending out. Also allows you to very easily go into your campaigns and modify to really enhance that return on investment. And we're doing quite a lot of work over the next 12 months around the reporting and analytics suite, and we'll go into that as we go through the presentation. So one of the areas that I did want to concentrate on is around the competitive landscape. And each of us play in -- well, we're optimized from a platform perspective for a particular segment of the client size, whether it's constant contact and [indiscernible], we're very easy to get up and running good platforms if you really want to send one content to everybody, and you're on the journey of really building data. You don't speak to anybody and you get up and running. Now as you start to do more sophistication, you want to start to incorporate more customer journeys. We're going to start using more data across your business systems, whether it's different brands that you have or territories that you really want to understand and enrich your data that you have in the customer data platform, you would move to more of a mid-market platform. So within the mid-market, we typically see a [indiscernible] in non-commerce, whether it's bloomreach as we push further into web personalization and combining them more of an all-in-one platform. We may see insider in Asia more so than anywhere else. And then you will typically see some of the larger enterprise clouds where today, quite a lot of customers are rationalizing their stack. They are looking for more cost-effective solutions, quicker to deploy. In terms of the differentiation between these competitors, it really depends on the use case of the customer or which competitor we are going up against. There are elements of product differentiation. Of course, there's functionality differentiation against the competitive landscape, but we also have more use cases that we can solve for customers, whether they're in the midsize, whether they're graduating from a small business platform or all the way up to that enterprise and more complex use cases. We probably have 94%, 95% of the functionality or use case -- solving the use cases. Any one of those enterprise cloud has, but we make it easier to really deploy our system across different territories and brands, and have the ability to enrich data across these different brands. So I thought what I'd do is give you 3 live examples of why we've won and take you through a little bit more detail. So the first one, from an EMEA perspective, that's Arena Racing. They do -- they own the horse racing grounds as well as greyhound racing. And they're a very large brand within the EMEA market. This to us, from a deal size perspective, is approximately 150,000 ARR, annual recurring revenue. And we took that from one of those enterprise clouds that we saw on the right-hand side of the previous slide. There were others that were pitching for the work, but we won because with some of those enterprise clouds, you've got to talk to multiple departments to help you either to put the campaign together or effectively create those customer journeys. That was part of the reason for them choosing dotdigital, where they could create that whole omnichannel experience, be able to have that consistency in messaging across the different channels, and do it all within the marketing department. Also, as we've continued to build out our partner ecosystem, for us, it's that symbiotic relationship. In this case or this example, we had a partner influence on that deal. Thelukenscompany, which was out of the U.S. region, is an agency for not-for-profit. The competitor was in that midsize, slightly ahead of -- slightly ahead in terms of average order values that they sign up. And effectively, there was a number of different reasons we won here. So we normally talk about the platform and we talk about use cases in the e-commerce space or commerce space, where there is a shopping basket attached, whether it's in-store purchases or online, but we also have 50% of our customers outside of commerce. And we -- that is across a variety of different verticals. So this example, we have a number of charities that use the platform. We have HR -- not-for-profit focus and strength from a vertical perspective, but also what we found in the mid-market, where some of those mid-market companies have been consolidated or taken out by private equity, they haven't really invested in the risk R&D. So in this case, Thelukenscompany, it was the product road map and the AI focus that we have, which would increase their margins by the use of AI and make it very easy to deploy, whether it's templates, whether it's campaigns that they set up across the different companies that they work with. So we're unique in the sense of managing multiple accounts from one place, be able to knock down the -- whether it's the templates, whether it's being able to do a customer journey once and then replicate that with a push of a button across whether it's the brand, whether it's the customers that you have. And then the third one was Converse. We originally won it in Japan, where -- which is a new market entry for us. That was from a lower midsized competitor, which was playing in the e-commerce space. And effectively, there was a number of different reasons. Some of the competitors that play within that lower midsized -- or platforms are optimized for that lower midsized. They don't really have their own end-to-end infrastructure in spending campaign or e-mails, for example. We have our own spending infrastructure. We control the end-to-end deliverability into inboxes. We also sit on the Board of [indiscernible], which works with the post rosters and spam filtering software in order to continue getting those e-mails placed into inboxes. We also in the Asia market or more APAC market, it's more of a relationship sell. They want to speak to local people. So our local expertise in Japan helps secure this win. That continues to expand out. So not only do we do that for Converse in Japan, that's pushed out now into the Lat Am market. At some point, we are working on pushing the platform out into continental Europe. And as they start to consolidate some or displace some of the competitors that they may be using across the different territories, we are a preferred supplier for them. So those are 3 live examples of why we've won. I've taken you through that whole competitive landscape. For the investors or prospect investors that have really been following the story, the logos or the names haven't really changed. So if we go back and look at FY '24, whilst the macro environment is still certain, we delivered solid performance in EMEA. Whether it's around organic growth, incorporated and integrating the -- incorporating the acquisition and integration, we have seen an increase in average order values, and Alistair will go through that in a little bit more detail. But also we've seen expansion from existing clients, whether it's on the consumption-based usage around the messaging or increase of data and active profiles, which helps drive those license fees. If we look at product advancements, we've done a lot of work around AI tooling, really increasing the depth of the customer data platform, being able to take data from any business system and making that more real-time in triggering automation on the back of what's coming in. For us, there was growth across all 3 regions that we talk about, whether it's North America. And it's nice to see that returning back to double-digit organic growth. And whether it's in EMEA, but also a strong performance from the APAC market, and we'll go through that over the next few slides. For us, we have 94% of our revenues, which is recurring, of which 80% or close to 80% is contracted. So we have good visibility as we go into FY '25. So going back to our organic growth strategy and keeping things simple, whether it's around the geographic pillar, whether it's around product or whether it's around those partnerships that we've been building. I won't go through the individual detailed parts of how we grow across those 3 pillars from an organic standpoint, but the focus still remains on organic. Some of the capital deployment from the cash that we're generating would be around augmenting our organic growth strategy or business model, along with acquisitions that really makes sense for the business. So we did, through the life of the company, we've done. COMAPI, which really helped us push into a lot more channels and the ability for us to add a channel more quickly as we go to market. Then along came Fresh Relevance, which really helped us deliver on the depth of personalization, but the experiences that you can create across your different channels. As we look into the future, we see our acquisition strategy centered more around adjacent technology that would take us multiple years to build, but we could acquire it at a reasonable price that would take us to market quicker, where we can see upsell, cross-sell opportunities, but it also allows us to bring in customers that want that differentiated and more sophisticated campaigns that are going out of platform. Once we've done that, as we build out, there are some core verticals that could make sense, whether you partner, whether you build, whether you acquire. And those core verticals that I see that would really help increase the depth of the platform to becoming close to all in one platform would be now that we play within the web personalization space, the next evolution to that would be around search and merchandising. So now that you can -- based on data that you hold or based on what you know about a customer, you can now start to do content placement, show different imagery. The next evolution to that is your search bar, what people are searching and being able to serve based on KPIs or product affinities or interest, the relevant products. The second part to that, as there's more focus within the marketing departments, not just on customer acquisition, but also on retention, marketing, a loyalty platform makes sense. One, it increases the number of contacts. We call it profiles in our case, which in turn increases the license fees for customers. Secondly, increase in the amount of insights that you're really building, bringing that -- the ability to have that single customer view. And then thirdly, increasing the messages, which ultimately drives messaging revenue. And then the third one is around UGC or user-generated content. Another buzzword. We have lots of buzzwords in our industry, but more simplified to having reviews. So when somebody is making a procurement decision, is either looking at product reviews, looking at brand reviews, being able to incorporate that in your campaigns on a real-time basis. And the fourth one, which a lot more people are talking about, still, there are elements of that to be monetized, is around influencer marketing management. So managing those influencers, being able to control your brand reputation and actually see an end-to-end return on investment across that influencer marketing journey. In terms of geographic, pleasing to see North America. If you have been following the story, I was talking about a U-shape recovery post COVID. Well, we did see a higher level of attrition in employees. You fast forward to where we are today, we really build that business unit to scale. We have over 50 people in region, very strong pipeline coming through. And as that bookings started to compound and the sales teams and customer success teams ramped up, we're now seeing that coming through to recognized revenue. Organic growth in region was around 11%. In terms of EMEA, that was slightly dampened in terms of growth by some of the smaller companies that were going into administration post November, December last year. What we saw was an increase in that small business segment within the EMEA market, obviously, we are the largest for what we do. We have a spread of different sizes of customers across that portfolio. So we did see that increase coming -- impacting on that organic growth rate. It was probably about 1.5%, 2% impact on the organic growth rate. And then also some impact from outside of the U.K. from a foreign currency perspective. If we look at the average order values, as the depth of the platform and the value proposition has been enhanced, we have seen an increase in average order values of close to 60% across the globe, and Alistair will take us through that. We are seeing more logo wins than the prior year, obviously slightly dampened by the increase in attrition from administration. In terms of APAC, a very strong performance. That's 27% organic growth in region. What we saw from there is that really having that focus around building a community, around whether it's the brand, whether it's the product, but we have a community of customers or power users that help amplify that story. Whether it's having a community of partners, agency, tech partners, some of our strategic partners or having those influencers in region, as I mentioned earlier, it is a lot more of a relationship sell building commitment to market. New entry was over the last 18 months, 12 to 18 months, we've been focused on growing our Far East Asia business, whilst, albeit from a lower base, in terms of group, it's not as material, but for APAC, Far East Asia is more material in region. So having that standout performer has really helped support the organic growth rates that we've been seeing within the APAC market. We've continued to invest further. So over the next 12 months, we are investing within the Japanese market, within the Australia and New Zealand market as we push further from a market share perspective. And we have supporting market drivers in region with the sophisticated product offering that is continuing to help maintain that growth rate. You'll see some of the brands. Each brand is aligned to the region that we've won them in. So from a product, what have we been doing? Well, there was a lot more focus in obviously integrating Fresh Relevance's platform within the core dotdigital customer experience data platform. Effectively, a lot of work has been done around whether it's single sign-on, being able to piggyback off of each other's functionality, being able to enrich that customer data platform or data that you have. And make it, from a -- whether it's a UI perspective, just make it easy for our customers to swap between platforms or be able to have cross campaigns across the different channels. We launched WinstonAI. So over the last 15 years, we've been building AI or machine learning technology. And it got to a point where, effectively, we felt it needed a brand. It needed the ability to really showcase what we've been doing over the last 15 years. And we've done a lot of work around being more -- well, creating more campaigns around mobile. One of the areas -- we do have nuances in terms of channels people use within different countries, different territories, continents. Within the North American market, we launched MMS. It's a lot more cost effective than anywhere else. We are seeing an increased usage as we launched into market. In terms of -- as the depth of the platform continues to build, it's not just about the training team. So we've created our dotdigital Academy, whether it's about partner enablement, allowing our customers to get more out of the platform or increase the adoption rate of the functionality we've been building. We've built out a certification program. And effectively, with that certification program, at some point, we could then operate more of a reseller model as we augment and mature the partnership's pillar of growth. But I could keep telling you how good our platform is, why we win, why we stand out across the competitors, but it's also nice to see the accolades from independent companies supporting the badges that we get, whether we're leaders in the segments or size of customers that we focus on, whether it's the leadership categories across G2 that we're getting in the functionality -- functional steps that we are getting and building. So it's nice to see that G2 uses customer reviews to help drive who the leaders are within the quadrant, instead of just using an analyst. So I thought I'd take you on that journey. We talked about some of the pricing levers, what helps our variability in terms of ARPU expansion, but also increasing the average order values for new customers. So if we kind of go back to what supports our license fees, well, that's a number of contracts or active profiles, data insights that you're bringing in. You -- that helps set the license, and that obviously continues to expand as you build more profiles. We saw an 11% growth in profiles over the last 12 months. That gives us good confidence as we go into the new financial year. The other area is around messaging. So one of the questions I get is Milan does the other channels cannibalize your existing revenues from e-mails that you get, what is actually happening? Well we continue to see that increase in volumes of e-mails. So that was an 8% increase in the last 12 months. But what we're also seeing complement in our recurring revenues from campaign -- sorry, customers sending out e-mails, is the increase in recurring revenues from other channels. So next to that e-mail was SMS, whether it's marketing SMS or transactional SMS, you're sending from augmenting that customer experience, but we're also seeing 44% increase in message volume outside of those 2 channels. So it's now nice to see some of those newer channels that are being used as part of their overall marketing strategies. The other area is the amount of data that is coming in. The more data that comes in, the more focused you can be with your campaigns, the more relevant and targeted you are across the different channels that you send on. So what we saw was a 1.3 billion revenue attribution for our customers in the e-commerce or commerce space from the marketing campaigns that they sent out in the last 12 months. But also what we are seeing is in the increased adoption of AI technologies. So we use AI as a way of differentiating across the different packages that you can use or choose within the dotdigital platform. And we're seeing that increased adoption of whether it's using predictive AI to drive a higher return on investment or using AI to help make your departments more efficient. So you can see some of the KPIs are factors that really affect and drive our revenue moving in the right direction, but it's equally as important from a people perspective to support our clients, and it's great to see 99% CSAT scores from the support we offer. We've seen that functionality recurring revenues grow very strong in the period, whether it's that data coming in, whether it's bolt-on functionality or that increase of profiles, which drives the license fees. So strategic partnerships, we described a strategic partnership as -- they are either 10% of our revenues or have the opportunity to be 10% of our revenues. And that continues to grow very nicely. If we see the connectors or deep integrations that we have within e-commerce. that grew 9%. We are agnostic across the e-commerce platform space. We can address through the integrations that we have approximately 70% to 80% of the mid-commerce or mid-market merchants. With the integrations we have within markets of Dynamics and Salesforce, we saw 10% growth in that connector or revenues coming from that connector and overall 9%. But at the interims, I was talking more about that focus on integration, making our customer data platform differentiated, but easy to bring data in. We've seen a strong increase in whether it's integrations that we're building into other technology partners or other technology partners building integrations into us, and us, we're verifying them for our customers. We've seen an increase in number of agency partners or technology partners. If you've seen this about 12 months ago, I was talking about 600 active partners. That's now up to 800 active partners across the globe. And at some point, some of those agency and tech partners become strategic partners to us. So I'll pass you over to Alistair to really go through the financial review.

Thank you, Milan. So right. So for those of you familiar with the story, you'll know the trajectory of the business has been on over many years, and Milan alluded to that, too. And for that part of the crowd, this is a story of more of the same, I think. So what we've seen this year is the continued organic growth on a constant currency basis of 9%, and that's been accelerated by the acquisition of Fresh Relevance, which closed on the 11th of September in 2023. So sort of at the end of our Q1 and in the year we're reporting on. Now with that, we grew the recurring revenues, and we grew in particular, our EMEA revenues, the vast majority of the revenues to the Fresh Relevance [indiscernible] EMEA. Now that business was about 6 million revenue run rate at the time we bought it, and was breakeven. So the impact of that on us is a very slight dilution in margins, but that's a temporary dilution. And you can see our EBITDA margin was 33% in prior year -- sorry, 31%, prior year was 33%. And you'll also see our operating margin is a shade under 20% this year, rounds off to 20. And again, that's a couple of percentage points dilution. Now that we believe the run rate now is Fresh Relevance is back in line with the core business, so it certainly will be by the end of this year. So that dilution in this year to 2025 will be minimal. And then ongoing, we expect to be back in the margin profile we've historically enjoyed. Cash generation continues very effectively, which we generate around 1 million a month. I share that the free cash flow value here is after the adjusting items or the cash impact of the adjusting items that are in the -- disclosed in the profit and loss. Now the quality of revenues we've got is as good as in previous years, so 94% of our revenues are highly predictable, recurring or repeating revenues. By repeating, what I mean is not forward contracted, but we've got a visibility of consistent customer base, long-timing customer base. We know the seasonality of those revenues. We know the expected volumes, and we have good relationships with those customers. So we are well able to predict them. That 79% is forward contracted, that's our software revenues and some of our marketing SLS as opposed to our Commons API revenues. That's in terms -- is for contracted. The contracts are normally sold either 1-, 2- or 3-year length of contracts and they go into an auto renewal cycle typically. The customers will commit to a level of functionality, a volume of data in the platform, which is a number of contracts and number of profiles and the volume of messaging they send, and that obviously is various channels that go into that calculation. Now those 3 levers define the customers' pricing, and they commit to that annual volume. It's a use it or lose it thing, so there's no rebates if they under consume through the year. But if they've lost through the commitments they've made, then there's either a punitive [ over charge ] charge or there's what we really want is the upgrade for a higher volume for the following year. And that overage charge of taxes the stick, if you like, to encourage the upgrade. And is that mechanism through which we've driven that revenue expansion through most of the life of the company. In financial year '24, there was a small impact to price increase, which was -- there's a very high inflationary environment. So I think it was fair for our customers who haven't had a like-for-like price increase for many years, but also an opportunity for us to maximize our net revenue expansion in the period. Now that net expansion was just over 100%, probably 102%, 103%, depending on which region you look at, but of that order. And yes, as you can see, ARR growth broadly consistent with the overall revenue growth rate. Point I'm making there is that the quality of our revenues and the visibility of revenues came to the new year of FY '25 as -- it doesn't feel very new anymore, but it was at the end of the year, that visibility is strong and undiminished on prior years. Now have a quick look at the P&L. I won't go through into huge detail because there's far more detail in the accounts. But I suppose some interesting factors that drive this. The value we get for our new logo bookings has changed quite significantly year-on-year. And this is -- this has an impact on our -- the cadence of deals and the or what we expect to be the future customer acquisition costs. So we've been moving towards larger deals, partly because of the CDP capabilities we developed and our ability to, therefore, position the business slightly differently within the market and partly because of the capabilities we got with Fresh Relevance. Those things together, we've been successful in attracting larger customers, getting into bigger RFP processes. And with that, our average new logo value has gone up by 60% in the year. I think it's as high as 85% in one region and 58% in EMEA. Now the benefit of that is the larger deals. One downside of larger deals is that they tend to have a longer sales cycle, so we have seen lengthening of sales cycles where those deals are larger. I think that's to be expected as you move towards [interesting]. And then in the year as the deal cycles have extended, we've also had a slight reduction in volume of deals. So overall, the value of new logo bookings actually went up by about 30%, not by 60%, if you look at total value. And then that -- unfortunately, for us, the churn that Milan mentioned, slightly offset the benefit of that coming through in the year. But I think it points to a very healthy sales engine and a product, which is now well positioned and to be able to take advantage of the opportunities with those larger customers. The average revenue per customer has moved as well. That's a little bit driven by the new customers, but obviously, our own customers are -- make up a much larger portion of our revenue. Our new customers, and that increase is really driven by the extended use of the platform and the pricing changes that we put through in the year. The overall margin profile is substantially unchanged, say, the impact of Fresh Relevance in the year. So I don't think there's much to call out in terms of the shape of the spending profile. We spend about 25% of our revenue on sales and marketing activity. And around, at the moment, about 13% on R&D. I think the [low] percent after that 12% and that little tick-up in R&D spend is because we've inherited the -- development team of Fresh Relevance, and that will get -- has been fully integrated, but that cost will effectively be absorbed, and we'll get back to that 12% level over the next couple of years. If I just look at the balance sheet quickly. Some of you may have noticed the cash balance. That's growing very healthily. We continue to be highly cash generative. And you can see the net working capital has been drifting very slightly up and to the right, which we're happy with. That's on the one hand, reflects the hard work of our credit control team, but I think more importantly, the work of our customer success team to keep your customers happy, keep them engaged and keep them paying. I think that it's a better sign of the health of the customer base than it is of the efficiency of the finance team, albeit at least one of my reports would speak that, I'm sure. Now what do we think you're doing with that cash balance, we can address that. Now I think Milan can also talk somewhat about the strategy in terms of acquisitions later. But we do -- we still have ambition to acquire aspects of functionality, which augment the platform we have. We want to build out that CXTP story. I think there's -- the more our customers can engage with their customers on a personalized -- at a personalized rate, the more value we offer. And therefore, the -- ultimately, the better margin we can achieve and the stickier our customers will be. And the places we want to move to with that are those places where it really has interaction with a customer and gets a deeper relationship, so the website is a perfect example of that. Whereas when you send an e-mail, it's a one-way flow of information. With the website, it's something that the end user is interacting with. And that's a really valuable touch point. Attached to that is the search bar, which, again, is an interactive thing. People put stuff into it, they get a return back, they put more stuff into it. So that, say having good quality results, our search product is a really valuable way of building that relationship with the customer. And similarly, a loyalty platform, which supports sort of maintaining that relationship, always [indiscernible] to find that relationship with a customer where that's what our customer wants to do, is again a really valuable thing. So those 2 areas we're looking at, in particular, but there's also opportunity around user-generated content and there's some influence from the marketing space in the longer term. Those are the key functional areas we consider, but we would also -- if the valuation were appropriate and it was a geography we wanted to be in, there's a real opportunity for geographical expansion, particularly into areas where it's difficult to develop a foothold unless you already have a local presence. So if those opportunities arose, we would consider them. Now we only consider an acquisition where the valuation was appropriate, and it would be accretive to certain KPIs, whether that's the growth rates, the margin profile, our churn profile, for example, those are the key areas that we look at. And I think if we can optimize those metrics relative to the valuation we pay, then we would be keen to doing acquisitions. So that's our -- what we would like to be doing with a significant chunk of the cash, obviously, leaving plenty of working capital or also floating the business to have efficient working capital and efficient operations. Moving on. So I won't step through the detail of the cash bridge balance year-on-year. I hope it's relatively self-explanatory, but I'll leave it there for just long enough if you have any questions. You [indiscernible] raising questions, please feel free to do so and we can address those at the end of the presentation. And I think the key message is there's no particular funding and working capital, we had to absorb a little bit with the acquisition of Fresh Relevance, but [indiscernible] a couple of hundred thousand, which in the grand scheme of things, is small, and that we'll get the benefit of that coming back in the coming years. So on that note, I will pass back to Milan.

Thanks, Alistair. So I just wanted to take you through some of the product strategy. I'm not going to go through individually all the different things that we have on the product road map as we go forward. There is a product -- sorry, a public-facing product road map, and then you can see on our website. But we typically theme our product road map based on 4 main areas, whether it's around portfolio expansion. So that's building additional channels that our customers are looking to use or are talking about. Things like WhatsApp is one that we are excited about, and I'll take you through more of what we are doing in order to either differentiate ourselves to whether there's point solutions around communicating on WhatsApp or giving us a competitive differentiation against the peer group that we operate within. The second part to that is around international success or themes around international success. So things like we specifically had channels for the U.S. or there are some regional use cases that we need to solve, to operate or see success in those regions. And then partner. Partner is a pillar to our growth. A symbiotic relationship between us and the partners to really deliver on what customers are looking for, which ultimately leads to higher lifetime value. So very much increased into our focus in the integrations that we will be doing over the next 12 months into the business systems to make it easy to bring data in. And then that next generation of customer experience data platform, myself and Alistair have already talked about some of the verticals that make sense, whether it's building, whether it's buying, whether it's partnering, to really increased the depth and the amount of experiences or personal experiences you can do. But there are a number of different things we are doing to increase that, and I'll take you through a couple of those shortly. And AI is not new. It is not a new thing that we've been building. We've been building it over 15 years. It is coming more to light and a lot more adoption is coming now -- is coming through. So there's 2 main categories and the strategy to build around AI and machine learning. One, that really helps customers become more efficient from a departmental perspective. So that's using things like natural language processing. We use ChatGPT, our own instance of ChatGPT that continuously learns, whereas helping with things like content creation, image creation, the next iteration to that is being able to analyze all your data that is coming through, but also your reporting data and really tell you a story about what's actually going on. And then there are elements of things like looking at [tone] subject line optimization as well as the ability to build one campaign and ask it to turn it into a 160-carat to text message or SMS, and it will just go away and do it. So these are the kind of efficiencies that marketing departments are really getting from use of AI. And the second part to that strategy is around predictive AI. Now that's where you're using marketing data on a client-by-client basis. So it's particularly optimized from an algorithm perspective for our customer on their data, which differentiates us to some of those competitors that are using data across the different industries. So data for an automotive industry is very different from a behavioral perspective to somebody in retail, for example. So for us, it's about rebuilding or optimizing algorithms for the particular client. From that, you can then start to doing more predictive capabilities, whether it's predictive churn of a customer, predictive next purchase, if you're an e-commerce company, predictive lifetime value or predictive engagement, there's a vast functionality set within our platform for these predictive capabilities. And you can read that in your own time, that some of the capabilities, and we're going to continue to increase the amount of investment we make around our AI credentials. But I talked slightly around WhatsApp. We are -- I'm very excited about this. WhatsApp has about 2 billion users across the globe, predominantly in Europe and also in APAC. Less usage in the U.S. However, what we are going to be able to do is really natively, so within the platform, have those 2-way conversations, be able to store those conversations within the customer data platform to really be personalized in the campaigns that you're sending out. Now that will differentiate us. There is only one other competitor that can do that, and that's [Braze] from the competitive landscape diagram that I spoke about. But we're taking that one step further. And we already have -- so with WhatsApp, each brand has to have their marketing template that they're going to be sending out, approved by Meta before they can get them up and running. What we're doing, we already have templates that Meta have approved. So we're making it very easy to use WhatsApp as a way of marketing. So having those 2-way conversations differentiates us and having those preapproved marketing templates makes us unique in this [small] proposition. The other area, as we continue building around the customer data platform, it becomes increasingly important around identification criteria. So as more and more data comes in from different business systems outside of the integrations we have in e-commerce, whether it's into CRM or being able to bring your social profiles, it could be on TikTok, it could be on Facebook, et cetera. There are other areas and business systems, so points of sales, data, whether it's ERP, customer services, where you don't necessarily have an e-mail address or a telephone number. So we're going to be launching in the next quarter, the ability to have any unique identifier to really join all those -- all the data together, which expands the amount of profiles. So effectively, you are then able to de-anonymize more of the data that's coming in. De-anonymize through the use of whether it's Fresh Relevance and combining that with dotdigital traffic to site, but also be able to build a richer database of recipients and understanding whether it's behaviors or understanding more about that recipient. The third area, as we win larger customers, there are dashboarding tools out there, whether it's Power BI, whether it's Tableau, there are elements of customers using that. But we've always talked about democratizing enterprise functionality for the mid-market. So what we will be doing into the new financial year is around being able to build custom reports. What we feel from a KPI perspective is important to you, may not actually be important to you, and the ability for you to create your own reporting on the data that you have within this customer data platform or campaign level company level statistics. So being able to have a reporting -- an enhanced reporting studio within the platform is what we're working on. So just looking ahead and leaving time for questions. Strong performance in the last 12 months, whether it's from an organic standpoint or integrating Fresh Relevance into the business. The one bit we didn't mention, we focused our go-to-market in EMEA, really helping from an integration perspective. And then really productizing that to go into international markets as we look into FY '25. So we will be selling the web personalization capabilities into North America and into APAC. Lots of product advancements. We have talked about 3 areas that we feel excited about, but we continuously build on that product. We spent 12%, 13% of our revenue on R&D. Favorable market drivers, e-mail still generates the highest return on investment from all digital marketing channels, but you're now starting to see that increase in other channels being used as part of the overall experience. Also, digital marketing as a proportion of overall marketing budgets continues to expand, healthy pipeline as we go into the new year and strong visibility in recurring revenues. As already mentioned, 94% recurring, of which 80% is contracted, and a healthy cash balance. Thank you for listening to our strategy, our financial presentation as well as what we are doing over the next 12 months. So we'll turn to questions.

[Operator Instructions] But just while the company take a few moments to read the questions have been submitted today. I'd like to remind you a recording of this presentation, along with the copy of the slides and the published Q&A, can be accessed via your investor dashboard. As you can see, we have received questions throughout today's presentation. Milan, if I could just hand back to you to read out those questions and give responses whether it's appropriate to do so. I'll pick up from you at the end.

No problems at all. So one of the questions that's come in, are you anticipating that the next acquisition is likely to be made in this FY or it is likely to be made in the next FY? Unfortunately, I can't answer that. It is price sensitive. If we could tell you whether an acquisition is going to be made. But what I can tell you is what we are doing. So we've set out our acquisition strategy, what that looks like, the key verticals. We also look at the partnership network that we have and the propensity of our existing customers to be cross-sold or have appetite to buy more functionality. Also, we take all that feedback, which drives back into the acquisition strategy. From that, what we have done is set out our acquisition targets in each of those verticals that we want to potentially acquire in. And we do have a number of conversations that continue to happen. Obviously, acquisition -- from an M&A perspective, you do have to keep talking to founders. And you can't just say we have one conversation and we're going to be able to complete that acquisition. So the targets are there, matured acquisition strategy is there. We have the management bandwidth to do it. We have the cash to do it and we have a number of conversations just regularly on the targets that we talk about. Okay. In terms of -- one question for you, Alistair, what was the level of churn last year?

Yes. So churn last year, I think that's slightly above prior year's [sequential] retention was in the mid-80s, mid to high 80s. I'd say, churn for our core customer base is in that high 80s -- sorry, gross retention. So the flip side of that is low teens churn. Okay. And another question here, a presubmitted question around the margin progression since 2019. So in FY '19, we reported operating profits revenue, I may read every word. But margin in the mid-20s, and that's progressed to a margin of 15% this year. What's causing the decline? First off, I'm not sure that's like-for-like, I think one is an adjusted number, one's some of basic number. So if we do -- if you look at the like-for-like, yes, there is still a little bit of margin erosion and the primary reason for that is between 2019 and '21, '22, we have substantial growth in SMS revenue. So if you look at our gross profit back in 2019, it was also 90%, Last number 80%. It's been stable at 80% for the last 2 or 3 years. I think where we're at now is very sustainable. But that rapid growth of SMS and really accelerated in that sort of COVID period. We worked hard to sustain those levels so that we haven't seen a revenue drop off or a real decline in the underlying growth rates. But it was that slight change in mix that happened in the sort of first 2 to 3 years of the period you referred to has driven that change.

For the people that have been following the story, that was when we were doing the COVID vaccine messages that teach the schools, messaging, et cetera. That's where we see an elevated operating margin. But also, there was no travel and trade shows and marketing spend was a lot lower. So therefore, as you started to return back to normality, you're getting back to the margin profile on an adjusted basis to what we've seen in the past. So if you look before 2019, all the way through, that's been a consistent operating margin of around about 22%. We are now -- if we come out of the COVID period where we did see enhanced amounts of margins, we're close to that 20%. And we've always been talking about 20% plus operating margin. We invest the rest back into the business, and we'll continue to produce that.

Yes. So something I'd also [indiscernible] say. If you look at the -- I think in the back of [indiscernible] with employee numbers by function, for example, [indiscernible] sales and marketing and product and administration and so on and If you compare the business now with back in 2019, 2020, that sort of time, we have a more efficient business now relative to the revenue. The number of people involved in administration. But also if you could double click on those numbers, which you can't because that print's in a PDF. But if you could double click on those, you would see where we have those people. And we've put in a lot of work into moving some of our roles, which can be performed effectively into places where they're a bit cheaper delivery services. So initially, that was moving some development work to Poland, but now more recently, South Africa, and there's various functions of the business that we now operate out of South Africa, where it is more efficient to do so. So actually, from an overhead basis, obviously, the business has to [address] rather more efficiently than it used to. But yes, that change in gross margin has results in the overall shift in operating margin. Another question, moving on. North America put in a good performance. Thank you. What are you targeting for revenue here and how much bigger than EMEA could it be? I mean if you look long enough term it could be enormous really, but I think it's [indiscernible] plan too far ahead. What I would say is we can return to the kind of mid-teens growth rates that we enjoyed before we had a little bit of disruption coming out of COVID. With the current investment structure we have in place, it would require a dilution of our margins further to accelerate that growth rate significantly beyond that, but it's definitely sustainable in the kind of mid-high teens with the investment profile we currently have.

I'll take another question, Alistair, which geo region is likely to have the strongest growth potential over the next 2 to 3 years? Obviously, what we are seeing is international growth faster than our core growth. So we're excited about pushing further into Far East Asia. We are increasing the levels of investment that we have within that region. So we will see strong performance out of the APAC market. North America returning back to that double-digit growth. It is an 8x bigger market. But within the American market, we focus on specific niches, instead of just take on those competitors, which have deeper pockets than us. The other area that is growing from a demand perspective, is more intercontinental Europe, so areas like Italy, Spain. And if I look wider than that into EMEA, we are seeing good traction coming from the UAE into the Middle East or Kingdom of Saudi Arabia. So let's see, but international will grow faster than domestic. One of our strategies is to diversify more revenues outside of the U.K. There is another question that leads on to that. So I'll take that as well. Please advise any plans to expand into China. So at this moment, we don't have any plans to expand into China, from us selling out and doing GTM. There will be partners that may sell into China, but we don't have any intention at this moment in time to push further into China. The other question...

Question about when do we expect to increase dividends? Our dividend policy is to increase dividends in line with our EBITDA growth, and we intend to maintain that policy. So as EBITDA grows, dividends will increase. AI capabilities and omnibus channel functionality which I like the sound off. How do you see these capabilities differentiating you?

So effectively, with the AI capabilities, I think we have made it very easy for customers to use. And that's one part of it and for customers to trust. So effectively, we've infused it across the platform. As they move through different screens, they can use WinstonAI as a digital assistant to them. It doesn't take over completely, but it will recommend what to do next as you start to build trust in AI. I think that's quite important from a differentiation point. But secondly, our AI capabilities, from what we've built, whether it's our data science teams, our building proprietary algorithms to help drive a higher return on investment or the use of natural language processing to help marketing efficiencies, we are learning -- offered their own data opposed to just having algorithms across an anonymous data set, and that can constantly continue to learn to optimize, and that's part of the differentiation strategy to some of those competitors.

Yes, yes. I think the differentiation is around having it tailored for the individual customer. So taking learnings from all we have from a data science facility all work we've ever done, but really applying that in a really bespoke way through for the customer. And secondly, is having a great UI around it. It has to be easy to use. It has to be a part of the normal workflow as opposed to something that standalone and a bit distant for the rest of the product, I think.

We'll take the last question, Alistair. You mentioned that several former smaller business customers failed during the year. Can you quantify any bad debts arising?

There was a small increase in bad debt, I would say not significantly. I mean you can see the slight movement in the provision. I think provision was pretty low in last year. We've increased it a little bit to cover ourselves for that. But it's a pretty immaterial movement in the grand scheme of things. I mean just to give a feel for our exposure to any insolvency, I don't think we have any more than 1.5% of our margin coming from any one customer. Our top 100 customers only represent about less than 17% of our revenue. And our customers are distributed between commerce and non-commerce in sort of almost equal mission, approximately 50-50. And within that, by vertical, I think we represent across pretty much every industry you could define, with no particularly dominant verticals represented in there. So whatever negative thing may happen in the economy, we are fairly well protected from it. And I think you can see that through the fairly consistent growth rate we've had, despite ups and downs in the economy over the years that we've maintained that consistent growth profile. So what I mean is we don't have huge exposures to our customer. We've got pretty tight credit control. We've got the ability to turn customers off, which really means the debt never gets out of hand. So it's not like we can have someone who owes us 3 years money and then goes bust. That just doesn't happen because it's pay in advance. And if you haven't paid within a couple of months, you're not using your platform anymore. So we're fairly well covered on that.

Perfect. Milan, Alistair might I jump in. Thank you very much for your time and for answering those questions from investors. Just before redirecting investors to provide you their feedback since it is particularly important to the company, Milan, can I just ask you for a few closing comments?

Yes, no problems at all. So from a closing comments perspective, firstly, I'd like to thank everyone for attending today. But from a strategy perspective, we have a clear and compelling strategy focused on organic growth, but complementing that with M&A around those 3 growth pillars, whether it be around geographic, product innovation or strategic partnerships. We have a highly scalable platform, whether it's within the midsize or larger enterprise space, attractive industry growth. We talked about some of the displacement of traditional marketing budgets being a higher proportion of overall marketing budgets. For us, we also have an experienced management team. So along with our strategy, average tenure within the business is around 9 years and sub 10% annual attrition. But for us, that visibility in recurring revenues gives us strong growth prospects as we look forward from an outlook perspective. Thank you very much, everyone. Really appreciate you [indiscernible].

Thank you, Alistair. Thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This may take a few moments to complete, but I'm sure would be greatly valued by the company. On behalf of the management team of dotdigital Group Plc, we'd like to thank you for attending today's presentation, and good morning to you all.