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 it receives during the meeting itself. However, the company can review all 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 you over to Milan Patel, CEO. Good morning, sir.

Good morning. Thank you for handing over, and good morning to everybody that's attending today's interim results presentation. I'll take you through some of the detail as we go through the presentation, but we'll start with a quick disclaimer. I'm sure you can all read it, and I don't need to read that out. But just going on to the business, I've seen quite a lot of people have joined today. Thank you very much for that. And there's quite a lot of existing investors as well as new investors. So I'll take you through some of the highlights of the business. And for the new people attending today's presentation, I'll tell you more around the platform, where we're focused and take you through the strategy of what we've seen in the last 6 months, but also what we think what we are doing into the future. So in terms of the business itself, very much a global business, centered out of 3 main hubs, U.K. being our hub into EMEA, our New York office has been our hub into North America, and our Sydney office is being our hub into APAC. Now when we describe hubs, it's having every small department within region to really continue scaling, whether it's new markets around the continent or continue to expand within the market that we operate. We've got about 500 employees across the globe, half of them within the product development, around about 50 employees within the back office and the rest within sales and marketing. In terms of locations, we operate within the Benelux market, the Nordics market, certainly in the North American market and within Far East Asia and Australia and New Zealand. And newer entry around about 18 months, but within the Japanese market, too. And I'll take you through some of the things we've been seeing over the last 6 months and where we see that going next. In terms of the platform itself, there are 4 main parts of the platform. You've got the customer data platform and where I use buzzwords or words that we would from a terminology perspective, understand, I'll try and explain it. So within the customer data platform, it warehouses all the information or data points across business systems that our customers want to use. Within that, effectively, you can start doing things like segmentation, data visualization and we understand who you're talking to, what their behaviors look like, some of the attributes of that recipient. You've got the middle layer of the platform, and that's the orchestration layer. That's where you can start creating the creatives. You can start automating your customer journeys, whether it's a customer acquisition, marketing strategy or a retention marketing strategy. And then you've got all the different channels that you can communicate on, whether it's e-mail, whether it's SMS, and you want to augment the experience of e-mail, all the way through so if you have that mobile -- if you've got a mobile application. But for us, it's about creating a platform that can deliver consistent -- or consistent experience across the different channels, but also use the data to become more relevant and targeted in your communications. What wraps everything together is the reporting analytics layer. And that's really about driving and testing campaigns and making sure you're ultimately driving that return on investment and also suggesting what to do next to continue improving that ROI statistic. We carried out a total economic impact study with Forrester or commissioned it and what we typically find customers using dotdigital for their spend generate 406% return over a 3-year period. Now quite a lot of the -- whether it was in November when we did our full year results presentation or so now, we've been really talking about the depth of the platform, attracting some higher-value customers, and Alistair can go into that in a little bit more detail as we go through the financials. But what we are not doing is moving away from that mid-market segment. We have seen an increase in average order value. We've seen very nice enterprise clients, whether we go into a single brand, single territory and then expand from there, land and expand strategy or also global brands that want to consolidate their tech stack. And we're seeing more of that around the enterprise clients that are looking for a more cost-effective platform, quicker to deploy and the ability to have more of their point solutions consolidated by an all-in-one platform. You can see from the clients that we help. But effectively, since listing, that's nearly 15 years ago, we've taken an approach for sustainable growth, driving profitability as well as top line growth and then really turning that into cash. In terms of our organic growth strategy, it's centered around 3 main pillars, whether it be from a geographic and continue to expand from the hubs that we operate, whether it's around our partnerships, and I'll take you through that as we go through the presentation, or around the product and continue to innovate and differentiate from the competitive landscape. We spent around about 12% to 13% of our revenues in R&D. And we have teams that are not only scanning the market for table stake functionality, we also take feedback from customers what would help the mid-market really drive further in their marketing strategy and working with the likes of Forrester, Gartner and our teams to really understand where the market is going next. So some of the key messages for the last 6 months, solid business performance over the last 6 months, and progress against all 3 of those growth pillars. In terms of product development, over the last 6 months, we really focused around the mobile channels. And you're starting to see the era of social commerce. What I mean by that is effectively consumers have lots of different mediums now to really transact with the business or consume information if you don't have a shopping cart attached to the end of your customer journey. So we've been doing quite a lot of stuff around social media and some of the newer channels that are coming and continue to educate the marketers on how to use that within their own marketing strategies. And finally, from a key message from the visibility that we have on our revenues to date, we see a momentum continuing in H2 so in line with market expectations. I'll pass you over to Alistair to take you through a bit more of the financials.

Thank you, Milan. So I'd appreciate many people on the call are familiar with the stock and will have seen the profile of earnings over a long period of time. So I won't dwell on that too long. But in summary, since the business was floated, it has consistently delivered in excess of 10% more like kind of CAGR around 15% revenue growth. Earnings growth has grown alongside that, albeit at a marginally slower rate and this remain cash generative throughout. I'm talking about the structure of how we choose to manage it because I think that is as useful as talking about specifics of any single year. It's more of a guidance on how the business may continue to operate in the future. So we quite deliberately set out with a margin target in mind, and we build the cost structure so that we can deliver at least a 20% operating margin, 30% plus EBITDA margin. We normally exceed those numbers by a percentage point or 2. And then within that, the constraints to that, we try and balance short-term growth requirements by investing in sales and marketing, and the longer-term growth and the sustainability of the business by investing in research and development. You don't see operating leverage come through in the form of profit. But what we do is reallocate costs internally when we can achieve savings and achieve leverage on certain departments take finance or HR as obvious examples. Any savings that we make in those areas go back into either the product development or the go-to-market activities. And you can see that if you look at the amount we've invested in products and development, as a percentage of revenue that has gradually increased over the years. Looking at the revenue stat, the quality of revenue we have. It's -- we have a very predictable, very diversified revenue base. About 95% of our revenue is repeating or recurring and around 80% of it is actually contracted recurring revenues. The repeating piece is the high volume of SMS spending we have, which is from customers who technically pay as you go, but we have long established relationships with them, hence good visibility of their volumes and phasing of the spending that they will do through the year. You can see that our ARR, this is the contracted piece has grown in line with revenue, and that allows us to have the same quality of revenues going forward into future periods and gives us good visibility of revenue in H2 of this year and going into the following financial year as well. Cash conversion remained strong. Our cash conversion was 100% of EBITDA going to operating cash. We try and manage the business to stay at that level because of the typical working capital cycle of our customers, that's possible. There's always a few lumps and bumps through the year, in particular, around the H1 period end, which we do the timing and volumes of SMS supply and consumption. But that as a longer-term average, will remain at that level. There's been no structural change in the business that we would tweak that. I mentioned the diversity of the customer base. Now around half of our revenue comes from commerce customers, which are what -- what we describe as commerce is typically where there is a shopping basket at the end of the end user's journey. And then there's the other 50% comes from what we describe is engagement customers, which are -- could be any number of use cases, incredibly diverse range of use cases that continue to surprise me when I find out about some of them ranging from police forces or counsels communicating with their constituents to businesses, you want to do emergency communications to employees and have a way of seeing who has read what message at what time to know that things have been communicated appropriately and have an auditable record or charities who are communicating with donors to let them know what projects have been done and what's on the horizon upcoming. And then the likes of the ICAW, for example, the accounting body used the platform to communicate to various faculty members who specialize in tax or transactions or whatever. And that requires quite a high degree of personalization across a large customer base. So lots of different use cases. And what's good about that from our perspective is that we have very low concentration in any one part of the economy, which gives us a level of resilience when any one part suffers. Going on to the P&L for the half year, I'd say the shape of it is largely in line with prior periods. You can see slightly accelerated profit growth, relative to revenue growth. That's in part helps by the other income line, which I'll get on to do with change in tax treatment. But I think we're maintaining the margin profile that I described earlier in this period. We had good growth across all regions. Our growth in APAC continued to be around 20%. I think it was 19% in the half year, led in part by the young Japanese business we have, which is around just about 2 years old, I think since we made our first hire there. That's now got over $1 million of revenue, growing at 78%. Now the high percentage is achievable in part because of the small base. I think it shows that we are getting a return on the investment we put in there. And with that in mind, we're putting in an extra 2 to 3 heads over the remainder of this financial year to support that ongoing growth into next year. The North American business has recovered very nicely from a flat period around 2.5 years ago, we've taken that from flat to 3% to 10% from now we're up to 20% in the period. Now I would flag that we don't believe that's a sustainable level of growth for the level of investment we're currently making and the period has somewhat been flat by the timing of 2 particularly large deals. One very big upgrade with an existing customer and 1 I say new logo, really, it was a consolidation of brands. So we have [indiscernible] little digression and tell you about it. It was a business what we had. They have 9 global brands. We service them for 1 brand in one region, which was APAC. We then got another of their brands in the EMEA market and [indiscernible] into global center process and kicks out, I believe the sales force just got that wrong, Milan, and won their 9 brands on a global basis, that contract is now worth about $1.5 million a year. So really nice example of land to expand and leveraging the global capabilities that we have against like really strong enterprise level of competition. But anyway, the timing of that deal really helps us grow significantly in H1 in North America. So the 20% is probably not the sustainable level. That's probably low to mid-teens based on the current trajectory of pipeline and the level of investment we have there, although in the medium term, we do in tend to bring that up to the sort of mid- to high teens where it was prior to the issues around COVID and that period of time. Average revenue per customer has increased. It's supported by the Fresh Relevance acquisition, albeit Fresh Relevance customers that we acquired actually had a lower average value than that 1,916. The growth there is supported because where we sell fresh in conjunction with our core organic product, let's say, it tends to be around 60% or around GBP 2,000 a month to the ticket size. We haven't done a significant amount on pricing this year. We did last year because there was a high inflationary environment, there was an opportunity. This year, we've been much more measured in our approach to pricing with small price increases in EMEA and APAC, particularly focused where we had actually released new functionality to support and justify that change, I think that sets us apart from some of our competition who have been far more aggressive on pricing and see a level of disruption. If you look at sort of message boards feedback that you see in Twitter and so on, I think it's not unnoticed that some companies have been more aggressive on price, and we intend to try and capitalize on that goodwill we retain from our customers. Now one slight blemish on the P&L and the growth period over the last year or so over the last year in EMEA and our U.K. business, we have had a little bit more churn, which is driven by insolvency events. That was really noticeable in Q4 of last financial year so that's April through June and then Q1 of this financial year, probably increased churn by a couple of percentage points. That seems to be stable again when I look at the Q2 results and it's obviously too early to give you the update on Q3. But we believe that's trending in the right direction, and we'll provide a more stable base from which to achieve better growth rates in the future. The balance sheet is we've got a very simple balance sheet as far as we don't have any debt. We've got very -- we feel very consistent with capital position. We balance debtors and creditors to make sure there's no significant detrimental impact to working capital in the period. We tend to have a slight outflow in H1, slight inflow back again in H2, that's very normal for us. So I think that the general trend here is we're comfortable with even the slightly expanding balances of both the debtors and creditors. We're actually recently implementing a bunch of changes to our credit control process, not so much to reduce the debtor position, albeit I think that might be a good side effect to the changes we're making, but more to improve the customer experience further and try and take a level of work away from our customer success and account management team so they can be more focused on selling. Now the cash pile, yes, there's a cash pile, we're aware. This gives us a lot of optionality with regards to M&A activity. And I think Milan will go into more detail on that and some of the potential areas in which we would like to deploy that money. But if in the event that we are not having a high degree of confidence that we'll be spending the money on M&A in the medium term, we would, of course, look to return our shareholders in the most appropriate way. I won't spend a long time on cash flow to talk a little bit about the tax. So we have high cash tax in the period, part of that is in the phasing of payments and just as we calculate it. But I think more significantly, we've moved from the SME R&D scheme in the U.K. to the merged RDEC scheme. This isn't a choice, unfortunately, the government just merged the schemes, and it was relatively late in the process after a long period of consultation actually confirmed the exact structure that would take. That does have an adverse impact on us in total that the scheme is less generous than the previous scheme we're in, but it also changes the shape of the P&L. Now you remember that other income, you saw GBP 400,000, GBP 390,000 actually. That's now you get relief in the form of a credit in your overheads, which is the other income. And then you have a larger tax bill at the bottom of the page. So you'll see that significant increase in effective tax rate, partially offset by other income in the period. That increase in effective tax rate has been ongoing over a number of years as corporation tax first went up and then the R&D tax scheme has been diluted and then now it very significantly changed. And that change has been a drag on EPS growth relative to our PBT or revenue growth. And you can see that if you look at the results for this period, the PBT grew ahead of revenue whilst obviously earnings is not doing that. So we're conscious that we try and manage tax position as best as possible, but we are somewhat subject to the whims of whichever government is in power. And on that note, I'll pass back to Milan to talk about the growth strategy going forward.

Thanks, Alistair. So going back to the growth pillars around geographic, products and partnerships, growing up what we do, growing our customers globally. What we've seen in the last 6 months is very much on that land and expand as brands continue to consolidate. We've won very nice logos in particular regions over the last 6 months that we will be working on in terms of getting them to not only adopt more platform or functionality, but also work with their other brands and how we can make a difference. In terms of focus on cross selling, one of the things over the last 6 months we've been doing is really working on the go to market for the international regions on the Fresh Relevance capabilities that we acquired around about 18 months ago. So we've really packaged some of the pricing months of the Fresh Relevance offering and being able to really scale that from an enablement perspective across the international regions. And what's nice to see not only are we seeing a growing demand from our existing customers is attracting newer customers at a higher value, but also it's assisting with some of the attrition in region. In terms of expanding our product suite, we've done quite a lot of work around mobile and also enhancing some of our AI capabilities over the last 6 months and enriching for the customer data platform that we continue to build. For us, it's not just the technology. It's also our people from globalizing our talent. We've invested in more -- 6 months in some of our international regions, places like Japan, as well as into North America to support the customer success side of things. Exploring strategic partnerships or deepening our strategic partnerships, we can see as we go through the presentation, both in our e-commerce as well as our CRM connectors or customers using those connectors continues to grow in the double digit. And we'll talk about some of the newer areas that we are looking to go into as well as some vertical-specific technologies that will really help us drive value in that industry time. So one of the areas that Alistair mentioned was using -- from a capital deployment perspective, using some of our cash for acquisitions, and we have early-stage conversations as you would when you have an acquisition strategy. And there are some key verticals that really makes sense to broaden out our platform into more all-in-one and how we describe that all-in-one experience or all in 1 platform. And some of the areas whether we build it, whether we buy it or whether we partner around, I believe, 3 main verticals that really complete what we describe as the all-in-one definition. And as we play further into the web personalization space, and we have a customer data platform, the next logical evolution to that with research and merchandising. And that's about using data to really serve the right search results based on behavior, based on pattern, based on what they've purchased previously. The other area, there is a focus from marketers on retention and marketing. So loyalty platforms make total sense and being able to incorporate that further into their journey or automation journey, makes total sense, not only does it increase the number of contacts, which in turn increases the license fee, it expands the amount of data that's coming into the platform, which also increases the license fee and it increases messaging and the use of other channels. So in theory, increasing preferred recurring lever. Another area which is up and coming, as more and more people use social media to either transact or consume information is around influencer management and being able to not only manage our creators or influencers, but being able to tally that up with brands and then match them both together. So those are the 3 areas that we're looking at, at some point, what we've been seeing with the valuations not in terms of private company valuations, expectations are becoming a little bit more realistic in terms of completing the transaction. If we go to the geographic pillar, Alistair's already talked about North America. With the investment in customer success, we've seen early fruits in region that have the lowest attrition rate in the last 6 months from. And is probably looking more like where we were before we really changed the management team, and we saw some of that issues through COVID. So we're back on the front foot in region. We've got good visibility in pipeline, as well as the team's now been enabled to cross-sell the web personalization capabilities. In terms of EMEA. When a customer buys both the organic platform, I believe Alistair has touched on this as well as buys the Fresh Relevance capabilities, it adds an additional GBP 2,000 per month, but it's also helping attract newer customers that may start small with us and have the ability to continue growing as they -- as their marketing strategies continue to mature. The other area the web personalization technology is also helping on, which is quite hard to really drive have an inorganic value to the revenue that Fresh Relevance brings in is assisting with attrition across the business. So we had -- I'll give you an example. We had a customer that was spending GBP 13,000 per month with us. It's a fairly big customer for dotdigital. They were looking around. They were looking at a competitor who was telling them more about the web personalization element. Our customer success team said, well, we do that as well, which helps save the customer. But not only that, it increased the monthly value to GBP 31,000 per month, and only GBP 5,000 to that is actually directly attributable to that Fresh Relevance platform. So the capabilities have a lot more value than just the revenue it gets associated to the platform. Within stabling attrition levels. So Alistair also talked about Q4 and Q1 in terms of attrition and a more normalized Q2 of our financial year. And we continue to see SMS and adoption of SMS within the EMEA market, but also into the international regions continues to enhance. One of the things we will talk about on the next slide is how the other channels are doing, and we see the rise in that push and some of the newer channels that we'll be deploying for public release shortly. In terms of APAC, very strong growth led by Far East Asia, which grew 45%. And within Japan, that was a standout performer albeit from a smaller base. That's now running at about USD 1 million of ARR in a relatively short period, a strong partnership network within the market. And we're looking in H2 to add further headcount to really support our direct marketing activities in the region. So talking about products, just very much on that increased channel usage. We've seen 877% increase, predominantly led by in that push as more and more customers build their own mobile applications. But we've done quite a lot of work around integrations into TikTok, integrations into LinkedIn for more of our B2B customers who want to enrich the data profiles on who they're speaking to as well as around the WinstonAI continue to build further on our strategies. We have 2 main strategies around AI. So we use ChatGPT from an NLP perspective to really drive content creation, using a knowledge base to then try using the algorithms from the knowledge base to then drive further enhancements to making marketing departments more efficient. We also have our base client teams that are building proprietary algorithms for predictive capabilities. And that could be things like predictive next purchase. If you have a shopping basket attached to the end of the journey, predictive engagement, predictive churn et cetera. So we'll continue on that path from a product road map perspective. In terms of some of the things we've been doing around the customer base platform, things like being able to use customer identifiers to join all that data. What that effectively means is not just e-mail address to join all the different business systems data together or telephone number. You can now have your own, could be TikTok ID, it could be a variety of different ways of really joining profiles together. Lots of work has been done around cross account reporting, so quite a lot more enterprise features as we attract higher-value customers as well as we're excited around WhatsApp and what that mean, what's coming down line. In terms of WhatsApp, they have significant uses around EMEA, around APAC. And what we've seen from the beta program is our customers get a higher return on ad spend generally as well as strong open rates. And that's about really having those conversations being able to take a transactional conversation into a marketing conversation as well as the ability to have global template approved by Meta to really drive marketing across the WhatsApp user base. So as we go to the partner network, if we showed you this or when we came out in November, there's about 650 partners. We now have 850 partners globally. We've really been focused in our partner program in terms of partner enablement, being able to serve up Academy for partners to be really certified as well as them understanding more of the value proposition as the depth of the platforms continue to expand. However, looking back at the strategic partners, one of the things we did in early stages of our life is really build strong integrations into e-commerce or CRM that would allow us to address at least 70% of the mid-market e-commerce merchants or mid-market CRM users. And that's really working well. Adobe Commerce, which used to be Magento, still very much the largest partner, but a fast-growing partner from an e-commerce perspective is Shopify in the period. Along with that, CRM for non-commerce customers, that continues to grow. So it kind of shows that the customers, 50% of our customers continue to be in that non-commerce, 50% of our customers continue being commerce, and that continues to grow double digit. Some of the newer partnerships that we're really excited about, one, being Oracle NetSuite, that could move over to left. We describe strategic partners as having 10% or we have 10% of our revenues with that particular strategic partner or have the opportunity to be 10% of our group revenues. So we're excited about Oracle NetSuite that paves the way for ERP and integration into ERP. So that's all about making it very easy for customers to bring data into our platform. The other area -- we've done integrations into places and technology partners like Donorfy, Blackboard, Blackboard is a CRM product not for profit. We have a strong vertical expertise within that, and we continue to see some of these progressing and expanding as we look forward. So looking ahead, solid half year performance across all 3 of our growth pillars, whether it be around geographic, whether it be around product or whether it be around our strategic partnerships. In terms of market drivers, depends what research you look at. The TAM approximately is around GBP 8 billion and dependent on where -- which analysts report you read is somewhere between 10% and 15% growth in its own right. And what we're seeing is displacement of some of the traditional marketing activities as well as customers doing more from a digital marketing strategy perspective. The other areas we're seeing is from that higher recurring revenue, we have very good visibility in terms of the second half, which gives us comfort in terms of meeting consensus numbers. So some of the priorities. I'm very focused on driving platform adoption within our existing customers. And as I mentioned earlier in the presentation, working on the customers that wanted to start small and continue to grow with us and making sure that they are using the platform to really achieve their objectives, driving more of the Fresh Relevance capabilities in our international regions, whether it be from a cross-sell or new business perspective as well as launching. So our WhatsApp channel launches in April. So the beta program has been a success, both from our customers driving a higher return on investment, but also a channel demand perspective. I'm very much working with our strategic partners from a brand awareness perspective across the user base, but also the technology ecosystem that works around our strategic partners. And as mentioned earlier that some of the capital deployment around our acquisition strategies, we continue to actively explore acquisitions. Lilly, over to you.

Milan and Alistair, thank you very much for your presentation. [Operator Instructions] I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via investor dashboard. As you can see, we have received a number of questions at today's presentation. I please ask you to read out the questions and give responses where it's appropriate to do so, and I'll pick up from you at the end.

Thank you, Lilly. Alistair, do you want to take the first one?

I'm not going to read all of this because it's quite a long question, gives a level of hypothesis as a base question there. But I think it boils down to why is earnings growth or when can we get earnings growth back into double digits as opposed to maybe revenue growth. And I think that the answer to that is twofold. One area I touched on while I was presenting, which is we need a stable tax environment to be able to get there. And that will help as we have some successive adverse changes in tax. It seems really difficult to maintain earnings growth in line with revenue or PBT growth. And I think the other thing which can help with that is as we start to see the commercial leverage we get from acquisitions coming through as well. I think while absorbing an acquisition, it is necessarily -- well, not necessary, it isn't the case of most targets we're going to look at in the short term going to be earnings dilutive, but in the longer term, earnings accretive. And I think we're still at the short-term phase post the acquisition of Fresh Relevance. So a few of the stability base acquisition had a period of stability in tax would allow that for question.

Thanks, Alistair.

Say, given -- I'll just carry on. [indiscernible]. Next question, given the cash on the balance sheet, what are your thoughts on buybacks? I think we touched on, I think, buyback, probably based on the way the market at the moment, our current thinking, if we were return cash to shareholders, that's probably the route we would choose, but first priority is to identify good M&A options. So not yet, but yes, that is the route we would choose if we get to that point. On the last call regarding the WhatsApp integration, you said that this will differentiate you with only one other competitor able to do this, which is Braze. Why is no one else doing this? Or do you expect competitors to follow?

Yes. So at some point, the competitors will follow. We've obviously got USPs against Braze as well with global templates being approved by Meta. At this moment in time, Meta have made this a close program or more close program, until they see what the effects are from their user base.

Great. In recent years, you've also pointed further innovation investment in the innovations team. Are you expecting a meaningful uptick in R&D costs? No. I think we'll continue to grow R&D in the next year or so, broadly with inflation, maybe slightly ahead to get back to around 12% of revenue in R&D, we're slightly ahead of that at the moment, having bought Fresh Relevance, which had a higher proportion. And once that's sold back at 12% we'll then grow R&D in line with revenue, assuming, and I think it's a pretty safe assumption. We continue to have visibility of a good range of options, which we believe could give a positive return if we see them.

I'll take the next question, Alistair. So it's a question from one of our investors. I can see from the Cavendish website that you all valued at about 2.7x EV over sales compared with the Cavendish Tech 40 index at 3x. That equates to 13.6x EV over adjusted EBIT compared with the Cavendish index at 15.1x. How do you think your valuation compares with private companies? So whilst I mentioned at the start of the presentation, valuation expectations have come down from private companies. They are still a lot higher than public company valuations. You can buy corporate turnarounds or businesses that are subscale at probably 1 to 3x revenue. None of these businesses that we've seen from a tech perspective, make the similar levels to operating profit that we do. Most of them are at breakeven at this moment in time. However, there are good companies within that, that are either growing fast, but are sub GBP 5 million in revenues, sub GBP 10 million. And then you've got some companies which are reasonable growth, and are good companies but with them, they are typically valued between 3 and 5x ARR, goes that full running at breakeven. I think for -- if anybody does want to actually look at some of our analyst notes, Cavendish, very kind. If you self-certify as a sophisticated investor at cavendish.com, you'll be able to see the notes and tech index valuations. Next one, I think, is for you, Alistair.

When do you think your R&D investment will translate into higher product growth? Sorry, higher growth product revenue and could you better spend more of the cash in the bank on R&D? I think as a level we spend out at the moment, if we are selective and we are efficient, we are able to grow our product suite in a way which is competitive with, but not ahead of some of our very well-funded competitors. I think it enables us to hold our competitive position with that level of investment to create step changes through acquisition or through occasional new products work, such as the work on the loyalty platform that we're doing at the moment. We could spend more definitely, and it would be beneficial in the longer term. However, it would also require to compromise our margin in the shorter term or compromising the amount spend in other customer-facing or go to market positions, which I think would also be detrimental. So we'll continue to try and balance that as things stand, sort of the ratios that I mentioned. But yes, there is a long list of things our products and development team would love to work on if they were given the budgetary freedoms detail.

Let me add to that because it's not just the R&D spend that gives you product differentiation than the competitors. We would also need to spend on marketing to really drive brand awareness across the regions as well as educate within our existing customer base and new customers on the expanded offering. So whilst you could spend in R&D, you need to support that with your marketing efforts to drive the value proposition as well as brand awareness across the different regions.

Milan, you can take the next one. When do you anticipate the 3 new products of loyalty, et cetera, to be live and revenue generating?

I think we've got to look into the medium to long term to have all 3 because some of these will be acquisitions, some of it might be built. We've already got partners in these different categories. As always, we will continue to talk to targets in these different categories. So it's difficult to give you a complete timing. However, we are testing with the innovations team, where we put in about GBP 0.5 million, which would be working on bit like skunkworks working on new products around our platform. We'll be testing some of the verticals and building some of the capabilities out ourselves.

Okay. It is clear from the data you share with investors the ARPU is rising, which is clearly good. But it's hard to see customer numbers growing. Can you share any KPIs with us to help us understand the change in customer numbers? So they are substantially flat. You're right. I think there is still a tail of a few hundred very low-value customers, very low revenue customers, should I say, who we, for the most part, probably required when the platform is a much simpler e-mail solution. And they tend to -- or they often churn at a higher rate, should I say than our larger customers who take a much more integration, more functionality, more of the sort of multivision benefits to the product. And although they churn at a high rate by number, but obviously, has a relatively low impact on revenue. Meanwhile, we win a smaller number of larger contracts, which offset it. So overall, we achieved revenue growth with a flat customer under base. And I think if you sort of backed all the numbers that we provide, you'll see that trend fairly clearly for the last few years. Next question, do you ensure against bad debt? No, simple answer. However, we do go through a lot of lens to minimize our exposure to bad debt. And I would say it's very little -- we're well provided for those debts in our financial statements.

The other bit to add there, Alistair, is quite a lot of collection gets done direct debit, ACH collection and customers pay 1 month in advance.

Exactly. We invoice in advance. We have the ability to turn off the product to a SaaS platform. So customers can't keep benefiting from it if we don't allow it. So they have to remain in terms and so on. So we have a pretty good control which stops us getting into any really tricky debt situations. Final question, how will Alistair leaving the business affects the ability to execute acquisitions? I think it's really a fair question for you, Milan. I can say -- I will add although it has not been asked. So I'll just try to give some comfort around the ongoing operational side of it. And I got a very competent, very experienced Finance Director, he's been working for me. He was covering the role before I joined the business and is more capable of continuing to do that as I leave from a day-to-day operational perspective, there's nothing around running a good finance team or the treasury management, which absolutely requires me. And with regards to high-level executive oversight, obviously, Milan was previously the CFO, and is a chartered accountant and is more than capable of providing the oversight that [ George ] required to kind of finish the job, if he likes. So from an operating perspective, I didn't see any short-term risk. And Milan, maybe you can...

In terms of the ability to execute acquisitions. I don't think it would affect the ability. We've got quite a lot of experience now around the leadership team to not only start sourcing all the way through to negotiation, but also doing the integration planning across our business. So hopefully, we get a CFO in short order. But that wouldn't affect our acquisition strategy as we look forward.

Milan and Alistair, thank you for answering all those questions you have from investors. And of course, the company can review all your questions from later today, and we'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide with their feedback, which is particularly important to the company, Milan, can I please just ask you for a few closing comments?

No problems, Lilly. So just to be going to go back to our 3 organic growth pillars. We're really moving in the right direction. From a geographic standpoint, we see the opportunity of driving some of the cross-sells within the international market through the newly enabled sales and customer success teams so a lot of work has been going on in there. We're seeing continued momentum in Far East Asia for our APAC market as well as higher value customers coming across 3 different continents. If we look at the product innovation part, we continue to be excited about some of the product -- sorry, some of the functionality that we've launched to date, but also some of the newer functionality like WhatsApp being able to connect into social media channels, a focused approach around in that push, but also the channel usage across the platform. So in terms of strategic partnerships, growing very much in line with where we expect as well as some of the newer partnerships with NetSuite and Blackboard coming down the line. And we continue to look through -- look at capital deployment from an acquisition standpoint, early-stage conversations, but we're really building a pipeline behind that. So in terms of final remarks, the market continues to move in the right direction for us. We are seeing increases in consumption as well as customers becoming more sophisticated in their marketing strategy, which increases the platform adoption within our business. On that note, thank you so much for everyone that attended today, and look forward to speaking to you soon.

Milan, Alistair, thank you for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This is going to take a few moments to complete and I'm sure it'll 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.