ZOO Digital Group plc (ZOO) Earnings Call Transcript & Summary

For those who don't know us, I'm Stuart Green, I'm a co-founder of the business, and I've been the CEO of ZOO since 2006. I'm also a large shareholder. I've invested my and capital in the business over the course of several years.

And I'm Phil Bundle. I'm the CFO of the business, been with ZOO for 4 years, and 24 years working with AIM listed technology businesses.

So that's who we are. So we're going to take you through our investor presentation for the full year FY '22. If you are watching this live, then you can ask questions of us, and we'll try to get through as many of those as we can at the end once we finish the presentation. To do that, you'll find a questions panel to the right of the screen. So at any point, you could enter your question there, and we'll just -- we'll answer them when we get to the end. Okay. So we're going to take you through this as an update to the progress that we've made in the business over the course of the last year. That means that people who are here in the story for the first time, we just have to wait a little while until we get to a bit more detail on ZOO, our strategy and how we go about doing what we do. But just as a -- just to frame this presentation, we're a technology-enabled service provider. We work in the home entertainment industry. Our clients are all of the big producers of feature films and TV series and also the distributors of those -- of that content through streaming platforms. And what we do for them is take usually finished programs and do everything that's necessary to prepare those programs so that they can be delivered on into streaming platforms. And that means we work in 2 broad areas. The first is media localization. So we take the content and we adapt it into different languages, which you do through subtitling in the link, and we also do provide a whole range of technical services that are necessary to get all these materials in the right formats and compatible with the right systems so that they will play properly when they go on to streaming platforms. So this has been a pretty significant year for us. As you will have seen, we delivered 78% organic revenue growth in the period, and we'll put a bit of color on how we achieved that in a moment. It's been a year in which we've established a number of international operations. That's an important part of our strategy to extend our reach and in particular, to build our resources so that we can build our freelancer community across all of the languages of our clients. We work in a market that is growing very strongly and is set to continue to grow. And again, we'll give you a bit of color to that in a moment. This has been a period in which new original productions resumed. So as you all know, during the pandemic, it wasn't possible to produce feature films and TV series because folks were in lockdown. And in fact, in the first half of last year, we saw very little by the way of new original programs. And most of our work in that time was on back catalog programs that our customers were asking us to get on to the streaming platforms. But in our second half, of last year, those new productions resumed and we -- and our second half was characterized by a lot of work that we did on our original productions that has continued through into the current year. It's interesting that there are a number of large streaming services, global streaming services that are available now. But a number of them, 3 of them, specifically from large media companies that have been launched in the U.S. are only just beginning their international rollout. So we also are looking forward to a very interesting period ahead as those companies begin extending their reach into countries outside of North America and English-speaking countries. So given the investment that we've made in our capability, in our technology and our capacity, we're incredibly well placed to be able to take further market share in our market and continue to benefit from the inherent growth within the -- within this industry and continue our growth progression in the period ahead. So let's move now to give you an update on the FY '22 results. Phil?

Thank you, Stuart. So first of all, just to restate our strategy. We intend on delivering superior revenue growth, that revenue growth will be through profitable growth. So we're not looking to deliver losses. We're looking to improve our profitability year-on-year with that superior growth. The way that we measure this is through our KPIs. And you can see from the revenue side of things, we're up 78%, as Stuart has already mentioned. We've improved our EBITDA margin from 11.5% to 11.8%. Worth mentioning that this is a year of investment. So we didn't actually offer this as a target at the beginning of the year, but given the revenue growth, we've managed to achieve some improvement, and we'll expect a greater improvement in years to come by. And then on the OpEx side, we've improved as a percentage of revenue from 33% down to 27%, again, a year where we have invested heavily in IT, in sales and marketing and in property. To achieve that superior growth, we have to have capacity and the capacity we measure through freelancers, which is up 20% in the year. And we have to deliver superior quality to our customers for them to give us a repeat business. And you can see that all [indiscernible] customer gave us a repeat business in the year. The reason the 1 customer didn't is they had no localization work to do in the year. So not down to ZOO. A little bit more detail on the financial results. That revenue growth, as Stuart has already mentioned, primarily came in the second half of the year delivered through the resumption of new productions. So in more detail about the revenue, you'll see that subtitling has been in the superior service, more than doubling in the year and dubbing has increased by 87% in the year. But adjusted EBITDA came in at $8.3 million, but we probably had about $4 million of investment in the period. So if we weren't looking for growth, we could have had a much higher EBITDA figure. But we feel that $8 million on $4.5 million is a good result and sets us up for the future periods. Operating profits, which is after amortization of R&D and depreciation of both property and fixed assets came in at $3 million, tripling in the period. And even with some big one-offs of finance charges to do with the fundraise and also the fair value charge that we had to put through the P&L, we still ended up with a positive profit before tax of $1.1 million. On the balance sheet side, we strengthened our balance sheet significantly in the year through 2 events. One was the $10 million fund raise that we completed in April '21, and the second one was the conversion of the loan notes into equity that reduced our borrowings by roughly $9 million from the previous year. And then finally, on a positive note, the cash balance at the end of the year with no net debt was $6 million. So in a very strong position for our future growth.

Thanks, Phil. Operationally, there were some pretty574032 significant achievements in the course of the year. The first is that we secured another customer for our ZOOstudio platform. So for those who are new to the story, ZOOstudio is one of our cloud-based platforms that is saves ERP system that's designed for companies who are buying the very services that we provide that are essentially commissioning companies like us to get their content on to streaming platforms. So with a -- we already have been working for a number of years with a major player in the streaming market, so this is a second customer for that platform. ZOOstudio is a strategic initiative of ours. It embeds us within the organizations of our customers, and there are a whole range of benefits that flow to us as a result of that. As we mentioned, we grew strongly in the year and just to give a little bit more color to that, both Media Services and Media Localization, which are our 2 major segments, grew strongly, the former by 51%, and that was largely through the catalog work that we did in our first half. And then Media Localization grew actually by 108%, particularly in the second half as new productions resumed. And the reason why you have that difference there is that in the case of new productions, they're -- because they're brand new, they've never been localized before. There's work that needs to be done in many languages to get them ready to be distributed globally. Whereas, if you're working on back catalog programs as we were predominantly in our first half, then of course, much of that localization has already been done. So most of the work that we do is in our falls into our Media Services segment. As Phil said, we grew our freelancer network by 20%. That's an important metric for us that freelancer pool represents our capacity that we have. It's segmented by language. So those 11,000 individuals that we have now in our systems that we're collaborating with regularly around the world. They are -- each of them is a specialist in a particular language. And of course, we need to extend the number of people we have in those, particularly in the kind of low resource languages to make sure that we have capacity and capability across all those languages that are being required in the industry. We also strengthened our end-to-end offering by the introduction of a new service namely mastering, which is quite a technical service that we now provide. By offering that new service, that gives us an incremental revenue stream, but it also -- it also enables us to offer bundles of services to our customers. Since increasing what we're finding in this industry is that buyers prefer to work with customers like us that can offer a whole range of services rather than to use different vendors for different services. So that's a very important addition, one that generated revenue in our -- in the second half of last year after we put the team in place and which we expect us to grow strongly in the current year and beyond. And then finally, we launched our global growth initiative and have made some investments and 1 acquisition. So those who have listened to the story for a little while. We'll know that our strategy is certainly not to go out and acquire traditional dubbing studios in lots of countries as our competitors do. But rather to establish operations in key locations around the world from which we can then engage with talent in those regions and those countries and to bring them on board. So these are adding more voice actors, directors and so on into our systems so that we have more capacity to offer to our customers. So a lot of the work we've done over the course of the last year or 2 has been investment, as Phil mentioned. And this is all around scaling up our operation to be able to deal with more work in the future. So there's a good bit of our cost that we incur in the period that was really about building capacity for the future. And just to summarize that kind of key themes around our scale-up strategy. The first element is around international. I think not going out to buy or build traditional dubbing studios, we are making investments in some partners that we've worked with for some time in key geographies to give us feet on the ground, enabling us to work with the community there more effectively. We are -- we have broadened our services. I mentioned in the introduction of mastering and there are some 1 or 2 other things that we'll do as well to provide a very rounded offering to our customers. And as I mentioned, we increasingly see that those customers want to take the whole range of services from us. We continue to invest in our platforms. That's a very important part of our strategy. It's what sets us apart in the market. And in the period, we spent quite a lot of resources in further enhancing ZOOstudio. This is our ERP system that I mentioned in order that we can embed it more deeply and more broadly within the operations of our customers. Through the hubs we've established now, we're growing by building our network of freelancers and adding additional people across all the key languages. And as a result of these things, you will see in the accounts for FY '22, the operational gearing within the business is starting to kick in. We're seeing SG&A become a lower proportion of our sales as we move forward. And you'll see that continue in future periods. Phil?

Right. So a little bit more color on the P&L. We've talked through that revenue growth. So I'll move on to the cost of sales. For those of you who are new to the story, within cost of sales, we have 2 segments. The first one is direct costs, that's the freelancers and the actors and the directors. That grew by 117% year-on-year. That's a function of the services. So we had a stronger performance from subtitling and a stronger performance from dubbing in terms of the overall mix. They have a higher external cost than Media Services, which was revenues in FY '21. Also, as we've said, this has been a year of investment. So we have sacrificed a little bit our margins to give ourselves capacity to grow the business at the same sort of pace that we've achieved in FY '22. So we were recruiting our project managers, our QA, staff, an English team and mix is ahead of the curve. So those costs went up by 49% and give us capacity for a much bigger business than the revenues that have been achieved here. However, with all that investment, we still managed to increase the gross profit by 62% in the year to $22 million. It was also a year of investing in our operating expenses, so a 1/3 increase in our R&D. We took on 2 new office leases. We doubled our capacity in terms of IT. And we also spent heavily in recruiting business development directors around the globe to support our international rollout of services for our key customers. These costs are not going to occur in terms of the growth rate in future years. We now feel that we've geared up the business for the medium term. But even so with that investment, we still manage, as I said previously, to reduce our operating expenses as a percentage of revenue by 5 percentage points. And you'll start to see that move down steadily every year going forward to a long-term aim of around 15%. And that way, you get the operational gearing, so you'll see a significant increase in our operating profit and EBITDA, of course. The one last thing I'll mention because I've already mentioned the fair value and the finance cost is that we also wrote back $1.3 million of deferred tax, which relates to America, where we have $40 million of tax losses to use up, and that reflects our confidence in the profitability of the business going forward. A little bit more information on our different services. So obviously, the big growth was the subtitling and the dubbing and that has translated into a 7 percentage points improvement in margin to 22%. Again, that's plenty of room for growth. We expect that to move into the 30s over the medium term. And that's because, as it currently stands, we've been gearing up our dubbing function, which is our newest service to handle a significant more volume of business than it's currently generating. So it really didn't contribute anything to the gross profit in FY '22. Media Services was down in the year. That's to do with the first half of the year where we did a lot of metadata work, which is a lower margin than the normal Media Services, moving down from 65% to 58%. With the metadata reducing as a percentage of revenue as we go into the new year, we would expect those Media Services margins to improve back up to 65% and beyond, particularly with the new mastering service, which is very high margin. So again, for investors, you'll see a significant improvement in our gross profit as well as our top line revenue in the coming year. Just continuing the theme around investment. We obviously said we'd spend the $10 million, and we certainly have. We spent about $4 million on CapEx the first line the PPE line. That is to give us the capacity both for working conditions, IT, et cetera. That is a one-off $4 million. We would expect CapEx to drop to less than $2 million in the coming year. We took on a new lease in Sheffield, and we also extended the El Segundo L.A. facility as well, one for 10 years and the second for 6 years, and that has given rise to the right-of-use assets moving up from $2 million to $8 million. Obviously, there's a corresponding liability as it's an accounting treatment for IFRS 16 in the noncurrent liabilities. That's exactly what that is, nothing else. And as Stuart has already mentioned, we made some significant investments in the year in Turkey, Korea and also in India, and that has gone on the balance sheet at $3.9 million. And even with all that investment, we still had $6 million in the bank at the end of the period. Trade receivables and trade creditors both went up significantly, and that's really about the phasing of our revenue. We had an incredibly strong Q4 and that Stuart will tell you more about how that's translating into Q1 as well. And because of Q1 is obviously going to be reasonably well, the WIP in the year moved up by over $2 million because we were completing work ready for the new year. So -- and with the borrowings down in real terms by $4.4 million and in sort of noncash terms, $4.5 million, we now have a very clean balance sheet, one that's structured for growth and just to make sure that we can manage the working capital cycle. We have recently signed a $5 million invoice discounting facility with [ HSBC ] [ Technical Difficulty ] to manage the peaks and troughs in our working capital. Thank you.

Thanks very much. So I'll now just spend a few minutes just giving you an update on the market and give some context for the services that we deliver. So the first thing is to say that the consumer market here, we talk about Home Entertainment, as I mentioned. And we've now kind of arrived at the final destination in terms of formats, if you like, for that market. So streaming is really what the future of this industry. And what that means is that all of the big players in home entertainment are moving their focus into what they are streaming. We've seen sort of 2 phases of development of the market so far. One was led by Netflix, which was about getting platforms out there to make this content available to consumers. And the second phase has been led by Disney, which is a period of direct -- the introduction of direct-to-consumer propositions from big film studios. So where previously companies like Disney have been licensing their content to operators like Netflix. Now what we're seeing is that those large media companies are retaining their own IP to have exclusivity on their own streaming services. As I mentioned, Disney+ launched in 2019, that has made fantastic progress in his inertial rollout, whereas the other big players direct-to-consumer players, which are listed on this slide in Phase 2 are at the early stages of that rollout. The chart on this slide is really just illustrating the fact that those traditional sources of consumption of home entertainment, in this case, [ Pay ] TV are in decline and are being replaced by streaming. What that means is, of course, that they are -- these traditional sources of income for media companies through both licensing as well as advertising. And what that means is that these organizations have to focus their energies really around streaming because that's the future. Now when you think about ZOO and the market in which we operate, as I say, this -- the consumer market here is streaming. But our market actually is to do with content production. So the work that we do with the services that we're engaged to provide are in relation to original content. And predominantly, we expect that original content to be new titles that are being produced in the industry. And so when we look at that, based on some recent research, you see here that $220 billion was spent on original content production in calendar '21. And the chart shows you how some of the big media companies have increased their spend year-on-year. So we're seeing that trend continue. So this year, the global spend is expected to be $230 billion. And this is all a function of the fact that these providers of streaming services need to be differentiated and content is the way they differentiate their services. And that means they have to continue to invest in new original programs. Now core streaming is a global proposition. So gone are the days when a program maker would produce a show for the North American market. And then it was icing on the cake if they could license that out into other countries. Right from the very beginning now, those who are commissioning programs are thinking about global audiences. It's already the case. And as you can see from this chart, the majority of Netflix subscribers come from outside of North America. The North American market is quite mature now. 85% of households already have at least one streaming video-on-demand service. So the big providers of these services in the industry are looking geographies to see rapid growth and take-up of consumers. So Southeast Asia and India are amongst the fastest-growing areas in the world. When we look at the content that's reaching our screens, you may well have noticed that there's more of that coming from countries other than those that speak English. So not so many years ago, most of the content that traveled globally was originally English. But with streaming, again, this is untapped. This has allowed us to tap into the industry to tap into fantastic program making that is -- that takes place all around the world. And in fact, if you look at some of the most popular Netflix shows, for example, over the course of the last few years, they've been non-English original programs. So this is another element of the growth that's taking place in the industry. There's more of this content from international locations coming to our screens. And that, again, is driving the need for localization, including into English off course. So obviously, what we provide in this -- one of the things that we provide in this market is Media Localization services. So let me just say a few words about that. So Media Localization is a segment of the broader localizing. So if you follow companies on the London Stock Exchange, you may be familiar with RWS. So RWS is one example of a company that provides quite generalized localization services, most of what they do is to take content in one language, usually written content and adapt into different languages. And usually, the aim is to create literal translations of the original in each case. So if you're starting with the patents and you need to produce that in different languages, then obviously, you want to preserve the inherent meaning within the words and create a literal translation into the target language. Now what we do is media localization and it's a very different -- and because, of course, what we're doing with -- in our world is a spoken word. It's the dialogue that is being said in the program. And of course, dialogue is very nuanced. It can be very dramatic there can be cultural references, and all sorts of things that mean a literal translation is very rarely the thing that you need. You need to think in the whole context of what's been said and find ways to adapt into a different language that is culturally sensitive and meaningful and resonates with the audience there in the same way that they originally does in the speakers of its original layer. Media localization is a niche of the broader localization market, but it's actually a very large, high-value and fast-growing niche. And we have some stats on this slide just to illustrate that. So Netflix recently disclosed some information about how much subtitling and dubbing they commissioned in calendar '21, from which we have been able to estimate and it is our estimate, but it should be reasonably accurate. They spent about $0.5 billion in that year on media localization. And to put that in perspective, that represents just under 3% of their content budget for that year. So obviously, you've got -- this is a large player, clearly, but one player is spending $0.5 billion on these kinds of services. This is just media localization we're talking about now. So I haven't included the other media services that we provide as well. Now obviously, Netflix has been doing this for quite a while now, and they localize into more languages than most at the moment. but our expectation is that the other more recent entrants into the market over a period of time will need to extend the reach of their services into global markets such that the kind of spend that, that will -- is likely to entail might be of the order of 3%. So given that I've already mentioned that $220 billion was spent on media -- on content in current -- if we imagine a future date, 3% of that level of spend could be on media localization, that would point towards a very significant market and a fast-growing market from where we are today. So to say, for the benefit, particularly of those who are new to the story, I'll just say a few words about our proposition. The first is that where we fit in the value chain. We don't get involved in making programs at all. Our work starts when the program has been completed, it's delivered to us. And we do everything that's necessary to make sure that concept will play properly when it goes out on to a Netflix or Disney+ or whatever else and that it can be enjoyed by audiences who speak different languages because it's subtitle and dubbed to a high quality and a high standard in those languages. So those 2 segments that Phil has spoken about previously are Media Localization and Media Services, and that's where our bulk of our activity is focused. In the traditional industry that provides these kinds of services, and obviously, this is an industry that's decades old now. There is a -- there is a practice of being kind of very bricks and mortar about the way in which you go about doing this. So dubbing work, for example, is centered on dubbing studios that exist in territory. So you would have a dubbing studio in each country where, for which you want to provide a dubbing language. And the reason for that, of course, is that to do dubbing, you need access to voice actors. And if you're a physical studio base, those actors have to travel into your studio, and therefore, in France, you can draw on French actors, but if you got to do German, you will need to be based somewhere in Germany. So the traditional industry is very sort of physically based. It involves lots of equipment and technical specialists as well as creative specialists. It involves talent namely voice actors and others traveling to those studios to do their work. So the characteristics of it is that it's quite capital intensive to set up those businesses, which means then it's also quite difficult to scale because, of course, also business as defined by essentially how many rooms they have in which voice actors can operate. It generally takes a while to complete a project because voice actors have to travel into that studio one by one in order to do their work. So the elapsed time can be quite long. It's quite -- and it can be quite a narrow process. It can take some time to get a good result. So consequently, it takes a while to process projects. And it involves engaging with organizations across many different countries if you need to produce multiple language versions of your program. So in contrast to that, we've taken quite a different approach. As an innovator, we have developed some cloud software that essentially allows us to democratize this industry and provide a means for us to interact directly with talent wherever they may be located in the world without having to own and operate physical studios. So we have what's quite a disruptive proposition. It's based on this cloud software that we have created and which we retain exclusively for our own use in order to give us the differentiation in the market. That software actually is broken down in a number of different platforms, all of which are interoperable. Each platform providing some specialist capability in certain areas. So for example, our dubbing services are delivered through our ZOOdubs platform. One of those platforms, which I referred to earlier, ZOOdubs -- sorry ZOOstudio is our specialist ERP system, which we've developed in order to allow us to integrate very closely with the operations of our customers, which has the effect of making us very sticky. So in our strategic plan, there are 5 key pillars of that plan, which I'll cover very briefly, first, which I've spoken about already in development of these unique proprietary technologies. Secondly, our scalability is delivered through our network of freelancers. We have actually over 11,000 more than just on the slide. And they're located all around the world, collaborating with us on an ongoing basis to deliver these projects. We are actually a very collaborative business. We work with other operators in our industry as well as with research organizations with educational organizations, too. We are targeting the largest players in the industry. So we're working with companies at the moment, predominantly U.S. headquartered media organizations that are producing lots of content and are centralizing the buying of services to take that content into lots of countries. And finally, talent is absolutely crucial to what we do. Although we're a technology company, we still rely on people to do the translation, the voice acting, the dubbing direction and so on. These are skills that we think are humans are best placed to do. Our intention is not to displace those people with software, but rather to augment what they do, and we're active in a whole range of different research projects. We're looking at AI and other technologies that will give us productivity benefits and further increase our competitive advantage. Phil?

Thank you, Stuart. So just a quick slide on our business model. And this is one of the key differentiators from us to other companies in the industry. The first bit is that we are paid by the minute, and we also pay the freelancers by the minute of the asset, whether it's film or a TV show. Those are all built into framework agreements with our customers. And it take years to get on to the preferred partner list of these large U.S.-orientated streaming and content providers. And that acts as a real barrier to entry for other companies trying to enter the market. The rates are reviewed every 6 months. We're in an industry at the moment where demand is outstripping supply. So our customers know that they can't be looking to gauge pricing. In fact, it tends to be the opposite that they need to make sure to secure the freelances for the business that needs doing in the short term that they have to keep moving those rates up, and we have that natural hedge between the revenue and the cost of sales. In our industry, at the moment, projects are allocated based on your availability and your quality. So as Stuart probably mentioned, already, we have superior quality to our competitors. And that means that we tend to be offered the work from our customers first, and we only take it if we have the capacity to deliver it on time and to the right time frame and quality. And then the final point on this really is that, as I've already mentioned, we are investing for the future. So the margins you're seeing across our business which includes those external costs and those internal project management costs are lower than they will be in the long term because we are investing ahead of the curve. So the 31% that we -- contribution that we achieved in FY '22, you can expect to see that move over the long term to a figure closer to 37% to 38%. So plenty of opportunity for margin improvement as we go forward. Two years ago, we set a [ medium-term target ] [ Technical Difficulty ] of $100 million of revenue. At that time, we were turning over $30 million A few people in the industry felt -- or certainly investors felt that maybe that was a bit too ambitious. But what you can see from this chart is that after 2 years, are significantly ahead of the run rate. In fact, we have achieved year 3 already. So it's pretty certain that we're going to hit that $100 million stepping stone quicker than we originally envisaged. And it won't be long before we will be coming back to you with a revised medium-term target, which obviously will be significantly higher. And the final point I'd like to make is that we're growing rapidly, but we are the newcomer to this industry. And our market share currently is less than 5%. So we have significant opportunity to grow that market share over the medium and long term.

Thank you, Phil. So our ambition then is to be one of the biggest, if not the biggest player in our industry. And the biggest participant has reported sales of about $450 million. So we've spoken about that medium-term target of $100 million. For us, we see that as a stepping stone towards our ambitions to be a very significant player in our industry. So I'll just take you through the outlook that we included in our prelim statement, our first quarter of this year, which we've just wrapped up, so our year-end is to March has been a record period we've delivered sequential growth over the final quarter of last year, and we're significantly ahead of the same period last year. We now have visibility through to the end of our first half. And as we've indicated, we expect that in our first half will exceed the second half of last year. So again, sequential growth there. And again, that will propel us further $100 million sales target. I talked about ZOOstudio and the fact that we added further customers in the course of last year. We're increasingly optimistic that we will be able to secure further customers for ZOOstudio in the period ahead. So we've been making a lot of investments in building out this multilingual dubbing capability, in particular, and including investing in more capacity across all of these languages that are being ordered, and we fully expect that, that will enable us to continue to deliver a strong growth in FY '23, and we remain very confident of doing that and doing it profitably. So I'll just leave you with 4 key points in our investment thesis. The first is that we are growing significantly year-on-year and expect to continue to do so. As Phil has taken you through, we have a strong balance sheet, and we're in a great financial position to be able to capitalize on the opportunity that we face here. We've been investing ahead of demand. We've obviously created our platforms and have further developed those platforms so that our proprietary technology gives us the scalability that we need in order to become very quickly a significant player in our market. We're investing, as we mentioned, in international capability and through investments, acquisitions and other activities building out our international network that will facilitate us growing that freelancer community and more rapidly across many locations. And finally, we are working in a market that is showing incredibly strong growth. This is a very large and expanding market and the spend on new original content and the proliferation of that content on a global basis will lead to even greater demand for the services that we offer, and we are uniquely placed to capitalize on that. So thank you very much.

So I can see that we have some questions that have been submitted. Thank you very much for those. So we'll go through those now. And I'm going to field them in the order that we've received them. So it's a first come, first serve. So the first one. In the report, you mentioned that for some services and languages, the record levels of investment are exposing shortages in capacity that are prompting buyers to place orders with extended notice periods. Could you elaborate on this? And how does this translate to improved revenue visibility? So as we mentioned, because of the enormous growth in the industry, the enormous spend on original content, more players taking that content to global audiences. There is a demand for media localization of a level that's never been seen before. And the traditional supply chain of those physical studios is certainly for some of the languages is reaching a point where there is actually limited capacity to extend further. So what that means is that some buyers are coming along and finding that there isn't the capacity there for them to actually place their work and have that localized in the time frame they would like. So we -- one of the -- one of the consequences of that, that we are starting to see is that the buyers recognize that they need to give more visibility to their vendors so that those vendors can plan ahead and make sure they have that capacity in place in order to be able to deliver on those projects. So over the course of the last year, we've seen our visibility extend quite a bit already, and we think there's every chance that, that will extend even further in the year ahead as we get that forward visibility from our customers. That in turn enables us to be able to forecast further out, and you'll see that translated into the nations that are published by the analysts who follow us. The next question. Has ZOOstudio's new client taken on all aspects of the software, as to the same extent as the first major media client? So that -- so that customer has basically adopted ZOOstudio and now has it within their business to manage this process. And in managing that process, they are engaging with us as a service provider to actually fulfill those services. At the moment, most of the services that are being commissioned, I believe, are Media Services and subtitling. But our reasonable expectation is that they may well extend to include dubbing as well in due course. The next question is. Is your market driven more by the number of translated titles rather than production budgets. If so, how much faster would you estimate the number of translated titles is growing versus production and budget growth? Okay. That's -- that's a great question. It's a good observation. And it's true that there will be in that $220 billion. I'm sure that there is content there that really is never going to travel internationally. Something that's produced locally for local consumers that would have limited appeal on a global basis and therefore, probably wouldn't get localized. What we have seen in the market and what market commentators have mentioned more recently is that because of the need to differentiate themselves through content, which is a costly thing to do, the -- those who are commissioning new titles are increasingly looking at the international appeal of projects before they press a button to go ahead with them. So I think what we will see as we move forward is that increasingly, most of the -- with annual spend in the industry on [ new original ] content will be directed towards project where there is some international appeal. So I think it's true that at the moment it's $220 billion. Not all of that will get localized globally. But I think a very large proportion of it will. And I think that proportion of the time will increase. The next question. I assume the biggest challenge in scaling up operations is attracting high-quality freelance voice actors and cause the assurance and dubbing directors. Are you getting resistance from them in adapting the new way of working? Okay. Great question. So in all honesty, what we found is that there are some voice actors, for example, who have been in the game for a long, long time, who are quite reluctant to embrace a kind of a new technology approach. And those people tend to be in the countries where dubbing has had a long tradition and in particular, in France, Italy, Germany and Spain. Now essentially, what we provided is an ecosystem with a software -- cloud software platform, that enables us to work with wherever they may be located. So that does not preclude individuals who are working in traditional settings if that's what they want or the client wants or is appropriate given the circumstances. So when we're working on a project in our platforms, typically, we may have voice actors recording from different locations, some of you whom could be in a traditional setting. And when they are in a traditional setting or indeed, even if they're working from kind of a satellite location, there the whole experience of working in our platform can be remotely controlled for them. So it's not like they have to be technological wizards in order to be able to use our system. Our system is already very easy to use, but it can be remotely controlled where that need arises. So we've -- so to the extent that there have been some people who've been a bit reluctant to embrace our technology, that's not been an obstacle for us in engaging with them and working with them more broadly. And indeed, certainly the new and younger talent is actually tends to embrace our technology-powered approach. Next question. Will customer concentration risk reduce substantially this year? Phil, do you want to take that?

Thank you, Stuart. It won't reduce substantially this year. The reason why our #1 client is so large is that they were the first to go international after Netflix at real volume. And so therefore, they have about a 3-year march on the competition. And obviously, they have the biggest budgets in the industry anyway. So it will reduce this year because we are already working with 2 other major U.S. production content providers who are launching across the globe. And so therefore, the revenues from those 2 clients will grow in the year. So I think it will be a gradual reduction to probably a long-term aim that the customer will probably reduce from 78% down to maybe 50%.

Thank you, Phil. Next question. ZOOstudio has been highly strategic to entrenching ZOO into clients. What adjacent software could be added to further enhance the attractiveness of the platform to future customers? A great question. So what ZOOstudio does is make the lives of our clients very easy in managing these very complex projects and placing the work associated with those projects with their vendors. It kind of knows and understands all the dynamics, all of the elements that need to be ordered and literally thousands of individual deliverables that result from just one engagement of these services. So what we're doing actually is we are extending the question is about whether there's other software that we could deploy in the same way. Actually, our plan is to broaden the scope of ZOOstudio, and we've done that over the course of the last year to include other functions and capabilities that continue to enhance the lives of our customers who are working in this field. So for example, in the course of last year, we added functionality to deal with financial modeling and planning, allowing this system to then be integrated with third-party finance systems to manage purchase ordering and all sorts of kind of financial administration. So our intention there will be to continue to broaden the scope of ZOOstudio. What that does, obviously is create a greater dependence of our [ Technical Difficulty ]. It obviously makes their lives a lot easier, and it makes us more attractive as a vendor to then receive the work that go through those systems. Next question. What is your level of penetration of your largest client based on readily addressable revenues? And approximately how much growth do you expect from your largest clients in the current fiscal year? You want to take that as well, Phil?

Yes, sure. So that particular client hasn't given us the exact localization budget. But based on sort of informal conversations we think currently, we are about 10% of their localization budgets. And we would expect, as they integrate us into more of the divisions that, that 10% will grow in the current year, will definitely growth, particularly because of the dubbing work that we're expecting from that client. So there's plenty of growth to go after in that client over the short and medium term.

So the next question. I think there are a couple of parts to this question, so we'll take them one at a time. So the gross margin did decline year-on-year due to the mix where localization growth is greater than Media Services.

Correct. That is true. And also the Media Services margin fell, which was the second part of the question. That's true, too. That's because there was a large percentage of the media services was metadata, which requires a lot of freelance work. whereas pure Media Services that we normally do has very little external cost and has a much higher margin. This trend will not continue. I think about reasonably clear in the presentation, but we see a number of factors working to ensure that in the current year, the margins will improve. And that's, first of all, we expect to start making margins on dubbing. We've put the investments in for the future in last financial year. So we'd expect to see a positive contribution from dubbing. We'd expect to see an increase in the margins from the Media Services because metadata will be a much smaller percentage. And we also expect that the current mix won't change dramatically. So therefore, just by continuing with those trends, you'll start to see that 31% move back up towards the 34%, maybe not in this year, but certainly in the year after. So we'd expect definitely an improvement in the current year.

Great. And this next question has your name written all over it. You're achieving good growth of the business but yet to generate any cash returns, free cash flow for shareholders. Please, can you comment on when you expect to start delivering cash returns from all of the investments you've made?

So you're right. I mean we raised $10 million in April '21 with the intention of expanding the business and transforming it so that we can start to compete with the big boys in the industry. And in the current the year just completed, obviously, we spent a lot of that money upgrading our infrastructure, property, IT, sales and marketing, et cetera. So in the current year, I would expect to start to see that we will generate free cash flow. Obviously, we want to grow the business at a superior rate. So there might be a bit more of working capital that we have to absorb. But I see that being offset by lower CapEx and lower investments in SG&A in the current year. I'm not sure whether that question is asking, are we thinking of paying dividends because the answer to that is we're not. We still believe that we can go from $70 million to $400 million, and that will need some investment. But certainly not in percentage terms, what we put in, in FY '22.

Thanks, Phil. Another one for you, I think. Clearly, from the closing receivables of $26 million, it's evident that you had an exceptional Q4 and Q1 this year is even stronger. Were there any significant one-off sales benefits in either of these quarters and is revenue lumpy in any way?

The simple answer to that question is no. It is just the sheer volume of work that has resulted from the resumption of new productions. So not only our biggest customer, but also there's other customers who are looking at international launches means that the demand in the industry probably over the next year or 2 to get those launches through the pipeline, means that we can expect very strong revenues across all 3 services. So I wouldn't say as it currently stands, we've got lumpy. We're working really to our capacity, and it's about how we increase that capacity as quickly as we can.

Thanks, all. This is, I think, the last question. You previously mentioned hiring ahead of the curve, an additional 115 employees joined in FY '22. Do you anticipate any significant change to headcount in FY '23? And if so, to what extent?

Right. Okay. So I think we will be looking to recruit in the current year. As I say, our stated ambition is to grow the top line, and that will need additional head count. What I would say is that I don't anticipate and certainly, we have not budgeted to recruit 115 people in the current year. If we did, it would mean that our confidence in growing the revenue at the same levels as last year, it would be very high. So I think now additional headcount really is linked to superior revenue growth.

Excellent. Thank you very much, Phil. So that we've exhausted all the questions. I'm glad we're able to get through them all. So thank you all very much for joining us. I hope that was helpful, and we'll see you all next time. Thank you.

Thank you. Take care.