S4 Capital plc (SFOR) Earnings Call Transcript & Summary

Good afternoon from London. Good morning to those [indiscernible]. I'm here with Scott. He's based in Singapore, he's here for our planning meetings in Amsterdam. Peter in Amsterdam. DJ in Mexico, [ Lewis ] in Brooklyn, and the last day in Brooklyn before he goes to Raleigh, the center of the digital world in the U.S. or the new center. We've lost contact with our other presenter on IDFA on the West Coast, and we hope by the time we get to the section on that, Michael will be with us. He's on the West Coast. He's been up for -- as the others have been, all night. So maybe he's dropped off literally and figuratively. We've got a lengthy presentation for you. Firstly, a trading update with Peter. Scott will talk about clients, mergers and market trends. Then DJ will talk about technology services and the mergers entrance into S4 and Media.Monks. Lewis will cover the metaverse. Michael, if he's with us, will cover IDFA and cookies. And last, I'll do the summary and outlook. Scott has tried to put together an agenda of items that we think investors are particularly interested with. So with no more ado, over to you, Peter, for the numbers.

Yes. Thank you, Sir Martin. And good morning from Amsterdam, and thank you for joining us in our third quarter trading update. The group continued to progress very strong, with a very strong third quarter performance, delivering strong reported and like-for-like growth. And as a result, what we will see, and I'll present at a slightly later, strong 2-year stacks on gross profit in all quarters of 2021. And the number of people in the firm was over 6,900 at the end of the third quarter, up 52% like-for-like compared to the same period last year. And as we continue to hire aggressively ahead of our strong profit growth of 47% year-to-date. Now turning to the most important numbers on this slide, Q3 reported revenue up 106% to GBP 178.4 million. Q3 reported gross profit or net revenue, our most important measure, 92% up to GBP 144.4 million in the third quarter. And on like-for-like, revenue was up 56% in Q3 and 42% on gross profit up in Q3. And as signaled before, EBITDA and EBITDA margin continued to reflect increasing investment to prioritize top line growth given our success in building our whopper client base and structures, as well as emerging service areas and technology platforms to increase efficiency. The company is trading in line with external top line expectations, surpassing the third guidance we did in the middle of this year, guidance revision, we set to 40%, and we started this year with the 25%. So we're surpassing that 40% growth, as I will show you. Liquidity remains very strong in the third quarter. In average, we operated in the third quarter was a net cash balance of GBP 1 million to GBP 2 million, and more towards the end of the quarter. We were operating in GBP 20 million to GBP 40 million debt situation after significant merger spend. And that follows our GBP 375 million senior secured euro term loan we did and GBP 100 million revolving credit facility that we completed end of July, very early August. And the company's latest and fourth 3-year plan for 2022 until 2024 calls yet again for a doubling in size organically in top and bottom line. And on the next slide, you will see our quarterly and year to date performance compared to the reported and to the like-for-like numbers. So on that slide, I will address a few items. First of all, the Q3. So Content at GBP 129.5 million revenue, up 87%. And the Data & Digital Media practice was up to GBP 48.9 million, which was 186% up. And overall, 106% up GBP 178.3 million revenue in the third quarter. On a like-for-like basis, that's where we compare it on constant currency and in a like-for-like position with the mergers also treated in the same way in the prior period. We grew with 60% on Content, 44% on Data & Digital Media, overall 56% on a like-for-like basis in Q3. And then year-to-date like-for-like growth numbers, I want to point out, 61% on Content to GBP 328.8 million. Our Data & Digital Media grew with 45% to GBP 128.8 million, delivering GBP 457.7 million revenue year-to-date, which is 56% up on a like-for-like basis. Our gross profit or net revenue, if you wish, Content at GBP 95.7 million in the quarter, 64% up; and Data & Digital Media at 48.7%, which was 188% up, delivering a 92% increase on a reported basis to GBP 144.4 million gross profit in the third quarter of this year. On a like-for-like basis, again, if you compare that, Content practice grew with 41%, Data & Digital Media with 44% and overall, the group grew with 42% on a like-for-like basis in the third quarter. And finally, year-to-date, Content practice delivering GBP 252.7 million gross profit, 47% up like-for-like. And Data & Digital Media, 46% up to GBP 128 million, delivering in total a GBP 381.1 million gross profit again year-to-date. The gross profit by geography is on the next slide, with a growth on a reported basis between 86% and 115% in our 3 regions. And on a like-for-like basis, the growth is between 34% and 75%, as you can see. Strongest growth, as you can also see, was in the EMEA region in Q3, and a big part is now related to our BMW Mini win that was -- that we completed at the end 2020. Our most significant region is still the Americas with a 71% contribution in the third quarter and year-to-date. And EMEA is now at 19% in the quarter and Asia Pacific around 10%. And on the next slide, we included the 2-year stacks. This 2-year stack is simply -- this is a simple 2-year stack, so adding up last year's like-for-like growth with this year's like-for-like growth. And as you can see, Q1 was at 52% 2-year stack. Q2, with an exceptional performance in this year, was up 73% and Q3 at 65%, delivering a year-to-date 2-year stack of 63%, and it clearly shows that we are, as I mentioned before, prioritizing our top line growth. And then moving to my last slide. And as I just mentioned, prioritizing our top line growth, now we are even surpassing our third year -- our third guidance revision this year and now with 47% year-to-date growth on a gross profit basis. Client conversion at scale momentum -- sorry, the momentum continues with the 6 whoppers, we have now 6 whoppers secured, and we have in total 19 more potentials identified. Our EBITDA and EBITDA margin continue to reflect increasing investments to prioritize this top line growth. And as I just mentioned, the employee base grew with 52% on a like-for-like basis, whilst our gross profit was at 47%. So there, you see a part of the investment as we continue to hire aggressively ahead of the strong growth. And we also invested in client leadership to service our whoppers and growth teams, and we have been implementing tooling. And we are -- like the CRM and internal communication tooling. And then we are also investing in business areas where we see a lot of growth potential, such as connected TV, e-comm and digital events. And finally, we're further building our infrastructure on legal, risk, compliance, IT and HR talent. So this ends my part of my presentation. So I will now hand over to Scott to take you through client mergers and market trends. Scott, over to you.

Great. Thank you, Peter, and hello, everyone, from London. So as Peter said, I have a few slides to go through to talk about our clients, what's going on there, talk about our mergers and then also update you on a few market trends, some of the areas that analysts and investors have been questioning. So the first slide is really around how strong a quarter we had in Q3, continuing the momentum that we've had all year in terms of new business. So excellent quarter in terms of growth with our existing client base, especially our large whopper clients or whoppertunities on the land and expand perspective. So we've seen great additional business from the kind of [indiscernible] here. And as you know, we had 2 offers last year. We came into this year predicting -- projecting 5 in total, so those clients of GBP 20 million of revenue or more. And we're very excited and happy to say that we're ahead of schedule on that now. So we've added HP to that list, so we're now [indiscernible] for 2021. And as the release said, we've identified 19 further clients where we think over time, through our land and expand strategy, will [indiscernible] great progress there. Also a good quarter from a new business perspective, so getting new clients on board. Great coverage geographically from Mexico, to China, to U.K., Australia. We have one of the mobile networks, M1, in Singapore. We've added Audible, which is an additional brand to our Amazon portfolio. Good performance from our fashion and luxury team who joined us from Omnicom here in London, and they've got off to a really good start in building continued traction with some [indiscernible] in trust and really leveraging the global network to deliver. So the next slide, if you look at our client portfolio, pretty consistent with where it was yet last year. So again, almost half of our business coming from the technology sector, which is great and something we'd love to retain that kind of level of exposure to. The slight change there, you'll see technology down a few percent and the gaming sectors are, as you would expect, also in FMCG, [indiscernible] large wins we had last year with BMW. Again, I'd call out the fashion and luxury, which didn't appear on the chart last year, but our team there is off to a good start and [indiscernible]. Next slide is really confirmation of the success of that land and expand strategy. This shows the growth we're having with our clients. So that first chart on the left is a graph that illustrates the growth in size of our clients. So top 10, top 20 and top 50, all of which pretty consistently have grown 80% in terms of revenue this year versus last year. And then the table on the right-hand side goes into a bit more detail, breaks it out into numbers of clients per revenue segment. You can see there on the top one, so these are the clients that are our whoppers, and so we had 2 last year that, at this stage, were above GBP 10 million and ultimately got revenue target. As you can see now, we have 6. So [indiscernible] in there. And then you can see the pipeline of what is coming through. So 8 in the GBP 5 million to GBP 10 million category. 49 in the GBP 1 million to GBP 5 million, clearly where a lot of our growth comes from, a lot of our effort is spent developing those client relationships, introducing new services and products to them, opening up new geographies where we have a lot of our success. If you look at that final band, the GBP 0.1 million to GBP 1 million clients, part of that is, again, sort of new assignments with potential whoppers of the future. But remember, although we talk a lot about our whopper strategy and how important it is to have big-scale relationships with enterprises, we do also have a large mid-market client base who are very successful companies, often high-growth companies, venture-funded, e-commerce companies, direct to consumers, where our service offering is very competitive for them. And it's a service offering really delivered around growth and performance and something that some of our larger competitors, that's really a client segment that [indiscernible]. So whilst we get a lot of attention to that whopper strategy, we certainly also focus on that [indiscernible]. Next slide is around our M&A activities. So as you see there, Peter led to team in securing our term loan in July and at the coffer, so to speak. And then since then, we've done 3 mergers. So the first one being Destined, which is a Salesforce agency-based in Australia and Asia Pacific. You'll see more around Salesforce, they're a really strong strategic partner for us. They have a lot of capabilities, often cloud, across CRM, across [ common cloud ], and it's an area we intend to do more. The second one is Cashmere, which is a fantastic [ rated ] agency, a cultural agency based in [Audio Gap] a really strong client base, they have great relationships with assets that are new to us. And they also have really strong relationships with a lot of our existing clients. So they're part of what BMW does in the U.S., Google, Amazon and [indiscernible]. And then finally, the most recent member of the family is Zemoga, and I won't go into a lot of detail on that because we have the Founder and CEO on the call, DJ, who's going to introduce Zemoga. And really, in general, the tech services practice area which Zemoga [indiscernible]. So moving on to the next slide. We've had some questions around certain topics. I really wanted to address a few of them in the presentation. The first one around the sort of addressable market that we have, it's something that evolves over time, and we're constantly [indiscernible]. So I think really what I want to get across here, the message is it's a massive addressable market with hundreds of billions, if not trillions, of dollars and it's actually growing really strongly as well. So the top left chart here shows that some of the projections around digital media spend. We're normally aligned with Moffett Nathanson. We think it's probably the smallest in the sector and does a bottom-up approach every quarter. So you can see a big bounce back in '21. But whilst that tapers off a little bit, continued strong growth in the sort of 15% level going forward. Almost the flip side of that chart is the next one on the top right, which is the growth in advertising revenue from the 3 main platforms. So this breaks out just advertising revenues from Google, Facebook and Amazon. And again, you can see big peaks in '21, but continued strong sort of 15% to 20% growth, even more for Amazon. And this is great news for us on 2 levels, essentially, because as Omar, the analyst at Morgan Stanley points out in his report on S4, this is going to lead to $750 billion to $800 billion of additional billings available for our industry. And obviously, as that transition from traditional media billings to digital continues the pace, that's great for S4 because we're entirely focused on that. The other thing to remember is all 3 of those companies are significant clients for us. So these are our largest clients, Facebook is a whopper and Amazon is a top 10 client. So as their revenues are growing at this kind of pace, they're obviously investing more in marketing and the kind of service offering that we provide. So that's great news. Bottom left chart really speaks to what DJ is going to introduce to you around technology services, digital transformation. So this is another chart from a different Morgan Stanley presentation, just showing the growth opportunity here. It's already a massive market, almost $400 billion of revenue there, services revenue, but that's growing at 20% plus for the next 5 years, and we'll get close to [Audio Gap]. So these are all really attractive addressable markets for us and all growing at strong paces. The last chart on the bottom right, this is a CMO study from Gartner, so a recent study for [ 2021 ]. And it really breaks down into 4 buckets where marketers consider their spend. It's spread quite equally, but essentially the categories are technology, media, in-house services and agencies. And you hopefully recognize those words because that's essentially the structure of S4. So we provide services around technology, around media and data. We provide in-housing capabilities. So consulting offer for us, and we help clients in enhance [ asset ] model, which is really core to our growth, particularly with tech companies. And then finally, obviously, we're an agency providing [ advertising ] services. So it really shows that we -- our service offering very contemporary and it really addresses the full scope of marketers' needs. And to the next slide. So all that growth that's coming through from digital markets, digital transformation, digital media, digital advertising, really means that it's essentially a 2-speed world that we see for service providers in this area. So you can see here -- what this chart shows is the 2-year organic growth stacked by quarter. So Q1 to Q3 is actuals and Q4 is [indiscernible]. So you can see that 2-speed world is completely evident there. We have the holding companies, some of them in negative territories, some of them slightly positive, but essentially growing at around 5% on average. And you see the -- what are -- what we consider probably more relevant, comparable for us and more similar peers, companies like Globant and [ Dove ] or EPAM, all delivering much stronger growth, probably averaging around the [ 60% ] growth. And then S4 on the right-hand side there with [indiscernible]. So that's sort of 2-year stack and really shows that 2-speed world. Another area of questions that we've had from analysts has been around supply chain impact. And I think there's really a false narrative building up here about -- obviously, there is supply chain impacts for many industries. But the follow-on knock-on effects for that, for the advertising industry, really aren't that apparent. And we are not seeing any impact. In fact, we only see it as a tailwind. And I think many of our competitors have said similar things. So the reality is that whilst there are sectors out there that have challenges, if you look at some of the quotes on this slide, you'll see some quotes from people in the industry, so from a logistics company, another from the Chief Economist at Jefferies, all pointing to the fact that the general consensus is that October was the sort of peak worst month for this is a crisis, and we're essentially past that now and we're on the recovery path, depending which industry you're in, what's the speed of that. But then there's a couple of client credits here as well from 2 of the world's largest advertisers, P&G and Unilever, from Alan Jope, the CEO of Unilever and from CFO of P&G, really talking to that point that despite these challenges on their supply chain and the logistics side of it, continue to see the marketing as a priority that they will back and invest behind. Budgets are growing, not shrinking. P&G is even going further than that to say how effective digital has been for them and how they continue to shift money from [indiscernible]. So we really don't see any impact at all here. A lot of time talking to our account people and to our clients directly, we do have that large exposure to tech companies, which [ Texas ] in some respects because many of them don't have physical supply chains. But even in sectors like consumer electronics, auto, FMCG, where we have client exposure, we're really not seeing any impact on that. Some of the things we're seeing with more of the midsized companies who are very heavily reliant on the direct-to-consumer e-commerce, they're talking about bringing forward some of their spend. So they're trying to balance it a bit more across the end of the year rather than have it really compacted into sort of 11/11 and Black Friday and Christmas. So that's good. That brings revenues forward for us. And where they are seeing issues around certain SKUs and products that they have, digital advertising is very dynamic, that allows them to shift the focus to other products or other geographies where they don't have supply chain issues and continue to drive commerce in that way. So again, no impact at all from a supply chain. So the next slide, and that's essentially handing over to DJ, who is the, as I said, the founder of Zemoga. And he's going to introduce the company and introduce what technology services is. Over to you, DJ.

Thank you, Scott, very much, and thank you, everyone, for attending the call. This is obviously a very exciting time not only for us, but for the industry at large. Zemoga, over the last 20 years, has been servicing the U.S. and North America clients, but most especially, the last 7 to 10 years, focusing on digital transformation, helping some of our large enterprise clients turn the battleship in the bath tub. We have been fortunate enough to take advantage of the increasing spend and obviously, the worldwide digital transformation market, as you can see on Slide 17 that it's growing pretty substantially. The overwhelming majority of the work that we are currently doing, the long-term engagements that run the gamut from initial strategy and definition to managed services clients, and most of them are digital transformation long-term projects. If you're not familiar with Zemoga, a quick introduction. Going on 20 years, prior to this merger, we were an independent servicing design, engineering and delivery for a myriad of verticals of which we consider ourselves experts in the majority of them. We are leaders in the OTT space as well as having probably one of the leading QA testing facilities in Latin America. We're very proud of the services that we provide, and we feel that they truly complement what really Data.Monks brings to the table. It's incredibly exciting that we're this part of the technology services offering, and we're already seeing a lot of success there. With regards to the product development capabilities we have, as I mentioned, design, engineering and delivery. So everything from helping customers further define what it is that's going to bring their organizations a little further on in delivering for their customers, rapid prototyping, UX/UI visual design. We are a full stack engineering firm. The majority of our staff are engineers or creative technologists, as we like to call them, across a bunch of services and platforms that we are supporting our experts in. And then after actually executing the work that we do for them in the, again, overwhelming majority of the cases, we deliver those applications through constant improvement and manage them accordingly. And that turns out to be a successful model for us in extending the engagements with our clients, which are primarily all long term. The stack expertise, as I talked about, the logo is here, we consider ourselves experts in them. We are platform agnostic. We have seen that, that works well in especially the initial engagements with our customers so that we can bring to the table the technologies that work best for the challenges that they have. but it runs all the way from mobile app development because we are a mobile-first firm all the way through the quality assurance. DevOps is also a very, very important part of what it is we do. We've been doing this a long time. So the proven collaborative and frictionless delivery is something that we're known for. Usually, engagements start with us supercharging the client's existing team. But more often than not, we end up placing squads, on some cases, actually building custom development centers of excellence for our customers where we manage entire business units and the applications and products that we build for them. So that's also a very, very successful part of our business. And we're pretty formidable in especially the Colombian market. We have offices in Bogota, Medellin, Barranquilla and Cali, Colombia. If you would look on Glassdoor, we're probably the most respected firm -- place to work. Our rating is incredibly high. That's very important, especially now with a lot of the churn that's going on. We're very proud of the fact that since the transaction, we've actually organically grown approximately 10%. So attracting and retaining talent is an important part of what we do for our customers because these are long-term engagements. And so far, so good. We're really excited about that and our clients are as well, especially with what comes with this merger and the additional services that we provide. Those clients are pretty blue chip. We've won them all through reference and referrals. So having the muscle of Sir Martin and his team and the growth team here at Media.Monks has just expanded that even further. We're very, very excited about what we've done. There's a lot of our larger customers that we've targeted as potential whoppers. I'm pretty confident that, that will occur. And there's a lot of synergies that are so obvious not only to our clients but also to our staff. And so we're very, very excited about what has transpired over the last 45 days or so. I'm very excited about the future and the synergies that are to come, which I will then turn it over now to Scott to further elaborate.

Thanks, DJ. So a great introduction to what the defined practice area for us now, Technology Services and great background for the company that DJ created. We do see really significant synergy opportunities. I think the first thing to point out is that this is not any kind of pivot for us. We already do a significant amount of what could be considered technology services, a lot of it within our Content business today. So what we're in the process of doing is working through how to reallocate some of that. So when we get to the end of the year and publish our annual report, you'll see free practice areas. So Content, Data & Digital Media and Technology Services, and there will be a bit of a reallocation that occurs there. Obviously, we share some client base with Zemoga's existing clients, and we've also shared our sort of business development pipelines and sort of consolidated that and seen some really great opportunities there to pitch business. Really, I think this is a very complementary service offering for us. So it essentially augments what we already offer and vice versa. Our service offering [indiscernible]. If you think about DJ's core proposition is building and creating digital products and services for clients. A lot of that involves design and UX/UI work, which obviously [Audio Gap] Media.Monks. A lot of these products and services have a data work stream for them. So they're either ingesting consumer data or using that to personalize the product. So again, we have a lot of expertise in that area. And then finally, once DJ's team delivered those products and services to the client, usually the client invests in some marketing campaign behind that to drive adoption, to promote them, to get downloads, whatever it may be. And obviously, that's the core sort of campaign-based capability for Media.Monks. So there's a lot of synergies there on complementary services. The initial production model that DJ outlined as most of his talent and engineers based in Colombia, something we're extremely familiar with. We have similar structures in Latin America, particularly in Argentina where we 400 or 500 people now providing delivery capabilities for the North American market, have similar capabilities [indiscernible], New Delhi, Kuala Lumpur and others. Very familiar with that way of working and it's [ so ] easy for us. I think the key thing for this is really what I was talking about before on addressable markets. This really opens up significant new addressable budgets for us, particularly the budgets that tend to sit with CIOs or CTOs, whereas traditionally, a lot of the Media.Monks budgets have come from CMOs or chief sales or revenue officers. But the reality is, if you're the CEO of the company now sitting on top of that, essentially, you're seeing marketing and technology come together. So you want those departments and those budgets to be shared. And you want service providers that can talk to both sides in their own languages and provide services across [indiscernible]. So I think this is, from that perspective, a great addition to us. Obviously, a big part of our growth strategy at S4 is around M&A. So if our access to capital and after the [indiscernible], we'll be looking to build on this capability over time. And then finally, we have had some success already. So there's -- at least 2 clients now, 1 on our side where DJ is sort of providing technical services and 1 of DJ's clients where we brought in some additional [indiscernible] great start. With that, I will hand over to another colleague of mine. So Lewis, who is a resident expert on everything metaverse, and he's unplugged from it for a little bit while to talk to you guys and introduce what we're doing in that area. So over to you, Lewis.

Thank you so much, Scott. If you go to my first slide, I think I want to establish where we're at today. And I think one thing that's really important to indicate as well, the metaverse is a very hype-y term and it's a very covered and discussed term, and we're all aware of hype cycles. There are parts of this that are very much a real part of today, and there are parts of this that S4 has been a huge part of to date. So to give you an idea of just the sort of landscape overall, we're looking at a combination. There are many more parts in this, but these are, to us, the primary areas. So you're looking at XR, VR, MR. Those are the sort of obvious things and you're doing a ton of work in all those spaces, whether it's 3D avatars or VR broadcast or creating worlds. It's looking at gaming overall. Gaming, we all are looking at as one of the largest media landscapes in the world right now. When you look at an event, so Fortnite, for example, which was -- who recently had a broadcast with Ariana Grande in VR -- or sorry, not in VR, in the game, if that was a national event, it would be 1 of the top 3 physical events in the world. So that's the size of that market right now. We're looking at shared experiences like virtual events. We're looking at creating virtual locations, large geo-enabled or potentially geospatial AR in that context. We're looking at virtual commerce like NFTs. Looking at the way that materials can be tracked through NFTs and things like that. I mean in a very real world, and we saw this yesterday with NVIDIA's keynote, which we were actually mentioned within the plumbing of the metaverse, finding ways that all these 3D assets can be virtualized and connect and interact with each other. That's very, very important when you start looking at some of our clients like BMW, or some of our pieces with some of our more consumer clients. Now if you move on to the next slide, what I want to establish here is that Media.Monks understand the ins and outs of metaverse platforms, gaming world, virtualization and the intricacies of creating virtual experiences for the world's biggest brands. In the bottom right-hand corner, you can actually see we've had our own Board meetings actually in VR for quite a few months now, which has been really interesting. And there's an interesting moment where you're able to feel more present and connect and interact by being in that space together. If you move on to the next slide, and I think I want to establish that S4 is the company in this industry to double dip on the metaverse, because we're already seeing that. If you move on to the next slide, our S4 Metaverse Group was founded in April '20, which we've probably been actually doing it a lot longer, but formally, we started taking a stab at it in April of last year. We've seen since then a 112% increase in revenue in 2021, with major projects across all client groups, and this is specifically in the metaverse area. With pro forma projections for next year, we're looking at somewhere in the range of GBP 29 million to GBP 44 million, all coming from metaverse and virtualization revenue. So it's covering a wide gamut of skill sets, whether it's tech consulting, to NFT, to full 3D worlds, we're sort of pouring the concrete right now and building the foundation of the metaverse. On this slide, you can see a couple of examples of the sort of stuff. So whether it's looking at working with Mondelez and Oreo to create a 3D visualization of what an Oreo would look like and how that plays into supply chains, and even engaging with really interesting things such as representative viscosity properties within the cream filling. Or whether it's working with HPV and NVIDIA to build out large-scale virtualization data center pipelines. Or just doing the NBA in VR, as you see here working with Post Malone and Pokemon to build a large-scale virtual broadcast. If you move on to the next slide. And what's interesting is not only are we advertising and creating media with this, but we're also partnering to build it. And we're partnering with the people who are directly building the metaverse and building this next phase in virtualization. So whether it's the large-scale telecoms like Verizon, the compute companies, the GPU companies, Epic Games or Meta directly, we're a large part and at the development layer for all of these things. And to address Facebook or Meta, as announced last week, we've been a big part of that as well. We're super excited about the fact that Boz has stepped into the role of CTO. He's a huge technologist and we're really impressed and excited with the sort of work he's been doing. We actually launched -- we're part of the launch for the Meta brand at Facebook Connect this year. It was our second year in a row doing it. And we're about to launch our third season of the NBA in VR, and there's some cool surprises that come on later in the season related to that. And again, I want to take -- I want you to take away from this, this is happening. This is very real. And if you move on to the next slide, there's a little case study around a particular brand that we worked with in the metaverse, creating a metaverse event. So this is a multi-platform, whether it's live streaming, in-game engine, on Twitch, all sorts of different platforms and different ways of engaging with an interactive brand or with a brand in an interactive way. What's interesting is you take a show that some -- that had about 14,000 concurrent viewers, which is a nice number, but not a huge number, 40% increase over the year. But from that small number, the brand was able to actually net and track back $4.5 million in sales, with 20% of those sales coming completely virtually, having the acquisition of 1,300 new premium subscribers. So these ways of connecting are much more direct and much more interactive and what consumers are demanding. I think the final thing, and if you can step on to my next slide, we need to look at -- I believe we need to look at virtualization as the next obvious step in digital transformation. This isn't something that's going to happen in 10 years, it isn't something that's going to happen in 5 years. We've already taken these gradual steps. And when you look at -- it was referenced earlier, supply chain issues. When you look -- part of why those supply chain issues aren't as bad as they are is because of the virtualization of pipelines and how we've been working with brands to build those sort of pipelines. And I know Sir Martin doesn't love this, but I really believe that this is a fifth industrial revolution of sorts. And if you don't have a strategy around virtualization, you don't have a strategy around metaverse like we do, you're probably basically a brand in 1999 without a web strategy. And to that end, I'll pass back to Scott. Thank you so much for your time.

Great. Thank you. Thank you very much for that, Lewis. We'll let you go to bed now maybe. So we're now going to pass over to another colleague, Michael. And again, thanks, Michael, for staying up all night. And so one of the other areas we get a lot of questions on is around the impacts of IDFA and cookies and it's a very technical area. It's an area that a lot of investors and analysts don't necessarily fully understand. And again, there's a bit of a false narrative out there, I think, around why this may be negative for us or for our industry and our peers. So I'll hand over to you, Michael, to tell us a little bit about what's going on there and why actually we, again, believe that this is a tailwind for us.

Absolutely. So I'll go through the details in a moment, but the real headline here is that because of the services that we offer, changes within the industry, disruption, it is something that we actually benefit from. People come to us for leadership, they come to us from guidance. We have a strong consulting arm. And this is actually where we actually make most of our headway in the space. So if we go to the next slide, please. All right. So this is the biggest change in a decade since 2018. This has been going on. It's been led by the industry, by the public and the government. So some large forces at play. The good news for S4 is that first-party data and walled gardens via clean rooms are exactly where we play, and we have no direct revenue loss tied to cookie deprecation itself. So we're the first party to -- sorry, first party data becoming the gold standard. This is our specialty. And it does require a multi-disciplinary expertise centered around media, data and content. This is not a data expertise found in most other locations. Most people are actually very, very embedded in leveraging the third-party compute at scale. We use it within our media tools, but it doesn't affect the overall spend or the other focus we're using. And our main focus is on providing management within these tools, use of data and content, especially in this changing environment. So the very nature of the cookie and the IDFA deprecation and the resulting difficulty to targeting is created by that. It does create an increased reliance on our services. So consumer attention to detail continues to grow -- sorry, to digital continues to grow. And this has been something that's been accelerated by COVID. We continue to see that. And so as this need for privacy increases for our services, it's increasingly for our services around privacy. This includes data consulting, outreach using first-party data and higher quality outreach through improved content and targeting content, particularly on people's owned and operated progress. Next slide, please. So third-party cookies have been removed from Apple Safari and they're scheduled to be removed from Chrome as early as 2023. Other tools are starting to fill the ecosystem and S4 does not create or manage large third-party data sets that leverage these lost functions. If anything, it's actually been seen to increase demand for our privacy consulting, help guidance as far as using some of the new media tools that are in existence and the ones that are coming out and for our measurement services. So IDFA is limited to what's based upon consent in the new system. That's something Apple's done, but Apple's ATT and MMM options will be -- they [ are options that are close enough ]. Those are both coming in to fill the ecosystem as far as people measuring what is available. These lead to specific needs for our services. Again, that's MMM, people want to know where to spend their new media dollars about IDFA. And we actually have a number of plans based on models that we've seen work. And so from a media perspective, we've seen people continue forward. And if anything, any more of our services to help measure and then place the information that used to be provided by IDFA. The death of the third-party cookies and the removal of the identify unless you have consent has also pushed people into large walled gardens of data. So this includes Google, Facebook and Amazon. So this is requiring people to get used to using the new media and measurement tools that these new walled gardens are leveraging because they have to change how they're doing their practice as well. So again, this disruption requires leadership, this disruption requires people to consult and have guidance. And this is a place where we've been able to very, very readily step in. This also requires people to look at new platform integration, the new technical support. Again, this is something that we support. And these walled gardens are using something often referred to as a clean room to allow people to access the data in a private usage manner, so that they can't directly access the data in a way that they're typically used to. And there's clean room skill set or something that's specialized that the S4 team has in particular as well. So again, it's a confluence of skills. They're not readily found in other sources. Next slide, please. One more slide please. So as you can see from our different offerings, we are directly designed to focus on use of first-party data [ we didn't know ]. We got content for testing and more target outreach. We are providing leadership on platform management for optimization. This includes tech tool selection, testing of those tools. I mean, again, it's a disruption of change, people want to know which tools will help work for them. It's not necessarily a single answer for everybody across the board. People need learning, management and they need whole new structures for these [indiscernible]. Again, it's a perfect fit for our media experience and our consulting. Data and privacy along those lines, we also support that. The over reliance on third-party data that has been used by the advertising industry as a whole, stitch data together has left many advertisers with very atrophied data practices. And so it's a very large opportunity for us. We've been able to step in and help them implement first-party data practices that are great for the privacy era. I'll be talking about one of those opportunities in a moment. And then the last is also we do have a very strong measurement arm, whether it's data science for mix media modeling, both of which are highly needed if you want to have measurement that is not based on some of these deprecated technologies. And so we can also help people understand if the ROI that they're spending their money towards is returning what they would like to see. Next slide, please. I think you want to go to the next slide, the Mondelez one. Thank you. So within this, we've got 2 success stories. The first is Mondelez, which is a CPG. It is a story where we have helped people build a first-party data foundation, a measurement cycle, a cycle of action upon that measurement for their media and the integration of that feedback to make some investments to understand exactly [ where we term statement ] time to spend their money. This has allowed them to increase the ROI at 70%. And overall, Mondelez intends to increase spend in the space based on our efforts for them. So this has been very, very successful. As far ACE Hardware, which is a direct-to-consumer example, this is a showcase of success in integrated experiences. So as people have been leaning towards digital, many brands even wanting to try to offer a more helpful and more streamlined and digital experience. So in this case, this has been an ability to show increased value, which has allowed them then to get more data, which has allowed them to have a sales feedback cycle because they can adjust based on what they're seeing through people's digital behavior, which then allows them to add more value. So it creates a really powerful full circle experience. These experiences, with the death of the cookie, are actually becoming more difficult to create. But because of people's demand for privacy and the changes in the space for more digital effort, this is, in fact, making it something that's more important than ever. So this is a place we've also found increased demand for our service as well. Next slide, please. So S4 is ideally situated to deliver on privacy needs. So this turbulence creates more disruptive opportunities for S4 and Media.Monks, which is a place that we can [ see ] these people looking for the exact skill sets that we've built out as a team, where we understand not just the data, but also the media and how to use it. And so this is where we can offer a privacy-first party data consulting, which is something that a lot of our peers are not able to do, especially from a media hands-on knowledge, where we run media and we know exactly what's needed by advertisers. We are able to provide award-winning content. So this is something that allows us to reach out to first-party data and to actively engage with users and add that expected value. We can provide measurement that other media companies and teams along those lines cannot provide. We could also go through and offer post cookie digital advertising media. So this allows us to go through and then help people compare for the price share, the whole space around that. It's something that's a very critical need by advertisers across the board. We can help people advance target segments, again, with content, but also identifying which users expect which experience, to run tests to make sure that the most optimized data and message is being shown at the right time to the right people in the right place. And then also, we have the high-level and direct relationships that are needed to properly access these walled gardens to negotiate these spaces and to create direct deals for using data within the space. As said, we are the industry's go-to player for digital ideas, and that has been true. And that is something that is showing that privacy is actually going to S4 as a benefit. Because we believe in privacy, we like users having their privacy, we see this as a maturing in the industry. And what it's allowing people to do is if you can get some of this maturing, you can position yourself to win in the next decade. And so we're in a great spot to help our clients evolve in the space and can benefit from these changes instead of suffer them. All right. Thank you very much. And with that, I'm going to hand the floor back to Martin Sorrell. Thank you .

Thank you very much. Thanks, Michael. We thought we'd lost you. Cyrus must have woken you up and...

Actually, you know what, he had and you're going to laugh. I rocked him to sleep. And then I put my head down and then I suddenly woke up going wait a minute, I have somewhere I have to be.

If not for Cyrus, we wouldn't have had you here. Anyway, thank you and Lewis as well and DJ for literally staying up all night for this. So just to summarize. Top line like-for-like growth, 45%, continues to -- so more like technology service companies and the platform companies than others. And the top line growth has been prioritized in our approach over margin growth at this stage in our development. We're focused on growth for the future. Our EBITDA margins continue to reflect an investment in a number of areas. Firstly, in building our whopper clients and whopper client structures. Secondly, in those capabilities as connected to [indiscernible]. Last but not least, building out our technology platforms to improve our own [ internal ] capability. We've achieved 6 whoppers in '21. I remind you, we had 2 in 2020, up to 6. We've identified 19 more as potentials. Running currently in the area of $5 million to $15 million. Remember, a whopper is defined as $20 million [ plus ] of gross revenue. And so in a way, we've already expanded our target beyond when 20 squared by starting to examine 25 clients, including our existing large accounts. Our total addressable market, as Scott pointed out, it's really in 4 areas: in digital media, marketing -- digital marketing services, trade budgets and digital transformation. And that's a market that's [indiscernible] forecast to grow by 15% to 20% over the next 5 years, probably in most of those categories, with the exclusion of digital transformation. In most of those categories, around 70% from the 55% they are at the moment. Advertising as a percentage of the GDP has actually fallen from about 2% to 1% over the last 5 to 10 years. Our schedule to rise back to 1.75%, but only driven or primarily driven by the rise in digital media. Traditional media is stagnating or in fact, in some areas, declining. In addition to our organic growth, there's a strong pipeline of merger opportunities. We signed a number of LOIs across all the practices in all the regions. And so you can expect similar levels of growth through deals we have at the moment. At the moment, we're expanding by about just under [indiscernible] organically and about 50% through deals. The fourth 3-year plan, which we'll finalize in Amsterdam later this week, that's for '22 to '24, follows the same pattern as the first 3 plans from '19 [ to 2023 ]. That is a doubling of the company, the top and bottom line over 3 years, which implies an organic growth rate of 25%, and that's what we will be building into our budgets. But just as we did in '21, when, to remind you, we started at 25%, we [indiscernible] then 35% and 40% and have delivered through Q3 [indiscernible] that guidance so far at around 47%. [indiscernible] and into background to growth next year, and in fact, to the back end of the strong GDP growth. So with that, we'll open up for any questions.

[Operator Instructions] And our first question comes from Julien Roch from Barclays.

Yes. My first question is on the 3-year plan. So you're rolling your doubling of a 3-year guidance to 2022, 2024. So there's no slowdown because you have the same guidance for your kind of 3 previous 3-year period. So that's the fourth time you do that, but -- which is about 25% organic. But what about M&A? If you look at my model on the 3-year cycle, you have contribution of 96% in '19, '21, then 38, 28 and 16. I know it's hard to guide. It's based on opportunities, but any guidance you could give us on M&A would be great for the '21 and '23 cycle, and then '22 and '24 cycle as most people model the company, including the M&A roll up. That's my first question. The second one is on EBITDA margin guidance. You said it was about growth in the short-term, not margin. I think, Peter, you said 18% this morning for 2021. So if you could confirm? And then you say going back to 20%, 22%, so I assume it makes sense to put 20% in '22. But I think when do you think you can reach 22%? And then last question, you've expanded from 2 practice to 3 practice. Do you think that's it or we could add another one in the next -- well, next years?

Okay. So let me just go to the last one and then ask Scott to talk about M&A contribution. And then I doubt, Julien, whether we'll go into anything else. I think certainly in the short [indiscernible] I'd like to alter the balance in Content, DDM, as we call it, more evenly balanced. I mean at the moment, it's running about 2/3, 1/3, and then with the injection of Technology Services. I mean in an ideal world, I'd like to get to 1/3, 1/3, 1/3. But I think the reality is that given the opportunities out there, both organically and through deals, it's probably likely to be more likely sort of a 50, 25, 25 sort of split between [indiscernible]. But I think, as I say, in an ideal world in the longer term, we'll try and get it 1/3, 1/3, 1/3. And on the geographic side, we're at 70, 20, 10. We really should be -- I think it really depends on where we go on China or [ India ] where our [indiscernible] LOIs is in...

Sorry, Martin, the line is cutting. You said ideally 30 each, but in reality, it will be 25, 20, and then you cut. So...

So in terms of just so the practices, ideally, it will be 1/3, 1/3, 1/3. But I think in reality, it will be 50, 25, 25. And then geographically, 70, 20, 10 at the moment. Ideally, it will be 40, 20, 40. But that really depends on our ability to expand our business in China and India. We do have some specific opportunities in China at the moment, and we'll see how they mature over the coming months. But I think that's the pattern. Scott, do you want to talk a little bit about M&A contribution?

Yes. Just to be clear, Julien, on those 3-year plans, that's like-for-like organic growth, right? So we're back in the previous year's M&A. So it's not like M&A is adding to that in our reported [indiscernible]. But yes, in terms of M&A, so we've never had a -- we don't approach M&A -- we're not buying revenue or EBITDA and sort of the expenditure perspective. We're very clear that what's driving our M&A strategy is capability expansion and geographic expansion and ideally both of those. So all I can say is we have a fuller pipeline as we've probably ever had. We have 6 whoppers, and actually [ 15 ] right now and several others that are sort of close to it. There's still lots of opportunities for us out there. Some really interesting companies across all 3 service areas, across all 3 geographies. So it will continue to play an important role in our growth, but it's not something where I can tell you we're going to spend sort of 300 or [indiscernible] on.

Okay. Sorry, the line is cutting. Sorry, the line is cutting. So Scott, did you say, how much did you say were in the pipeline in terms of exclusive?

Both in the pipeline right now and several others, sort of not at that stage yet, but in discussions.

Peter, do you want to talk about margins?

Yes , sure. Sure. So indeed, Julien, as you just quickly summarized, I will take a little bit longer answer. But so last year, to start with that, we were at 21% margin. First half 14.5%, and second half, somewhere over 25%. In this year, it was also a 14.5% EBITDA margin in the first half. In the second half, I would estimate it as sort of slightly lower, and that's the result of our prioritizing growth, as we just explained, and the growth themes and the implementation in the new business. So I want to repeat that. But all in all, that would bring us indeed us or that's our current expectation around 18% EBITDA margin as a percentage of gross profit. And one of the things, as I also mentioned in my part of the presentation, we grew with 52% on a like-for-like basis in headcount, whilst gross profit was 47% up. So here, you see a little bit of the, I wouldn't say discrepancy, but at least us aggressively hiring against our expected growth. That will most definitely continue going forward, but I guess not in the same volume. So long story short, I would expect us to be, next year, indeed back in that 20% to 22% range. I'm always a little bit prudent because I want to have something substantiated with numbers. So I would now put it sort of in the sort of the lower end of the 20% to 22% range for next year. And then going forward, it's not so much that we have sort of -- then it's going to be another additional 100 basis points and then an additional 100 basis points. I would expect us, in that 3-year plan, to deliver that 20% to 22% range because that's what we are. I think we addressed it earlier. We're a service company. So every incremental dollar of revenue creates also -- as we have to attract human capital, of course, there is always some economies of scale. There is some sort of slight automation or automation in certain work streams that we can use. So it can be more efficient. But when I look at our business, it's a 20% to 22% EBITDA range. And again, I'm expecting that or I see that in our 3-year plan, at least for the '22, '24 period.

One other thing I'd say, Julien, I mean, most of the deals we look at are in, I would say, the $25 million, $50 million, $75 million gross revenue or net revenue range. And that's -- and these are companies are looking -- I mean Zemoga would be a good example of it, Cashmere would be another, Jam3 would be another, looking for expansion opportunities through our geographical network, which is now in 33 countries. Talent, now 7,000 digital specialists. Capital, not unlimited, but access to that main geography where we're covering 33 countries. So I think that's the current pattern of what we look at.

There are currently no further questions in the queue.

All right. Okay. So we can terminate the presentation then. A big thank you again, DJ, you're still awake. Lewis, you're still awake. Good luck in Raleigh. And Michael, love to Cyrus. Obviously, the Cyrus presentation, right? Thank you very much. Thanks for staying up all night. Much appreciated. Thank you.

Thank you.

Thanks, everybody. Thank you.