Dreamscape Networks Limited (ASX: DN8) - First Half FY18 Results Presentation
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Dreamscape Networks
Limited (ASX: DN8)
First Half FY18
Results Presentation
22 February 2018
1
H1 FY18 overview: a busy 6 months
Revenue up 30% to $29.3m
Our core strategy
Bookings up 17% to $29.9m
remains as we
Adjusted EBITDA down 38% to $3.2m invest into new
high growth
At 31 December 2017, Dreamscape had cash and undrawn debt capacity of $11.7 million
markets in SEA, the
Crazy Domains grows .au market share and continues to be Australia's #1 domain name brand fastest growing
internet space in
Streamlining operations: relocating to Singapore to support South East Asia growth strategy
the world
Acquired Vodien Group, now Singapore's #1 .sg Domain and #1 Hosting provider
Acquired Enetica Group, expanding Dreamscape’s domestic presence
Premium customer care service satisfaction level at 92%, an all-time high
2
Strong Bookings and investing for growth
Shifting to high-margin products
• Evolution continues towards operating in higher margin hosting and solution pillars
• Increased Bookings in high-margin hosting pillar by 35% through strategic and bolt on acquisitions
• Improved renewal rates demonstrates stickiness and strong annuity revenue
Investing for long term growth
• Underlying Australian business faced challenging domestic conditions given flat Industry trend
• Importantly, Crazy Domains remains Australia’s #1 .au domain brand
• Vodien Group delivering results above expectations (5 month contribution H1FY18) – substantial establishment
savings achieved vs greenfield operation
• Integrating systems, people and infrastructure from domestic acquisitions to deliver significant cost synergies
(Enetica Group acquired 31 Oct 17 / Quadra Hosting acquired 31 Jan 18)
• Investing in customer care to deliver Best in World service to further drive renewals and retentions
3
Adjusted Gross Profit & Adjusted EBITDA
Adjusted Gross Profit Adjusted EBITDA
Australian headwinds
• A flat .au domain industry
• As Australia's #1 Domain Brand, this affected both the Domain and Hosting
pillars of the business
• Coupled with additional investment into new market expansion, we
experienced a reduction in Adjusted EBITDA
• We are building for longer term growth and this reinforces and accelerates our
core strategy to move into higher growth markets in South East Asia
Investing for long term value
• Sustained marketing efforts in Australia amidst the flat industry trend, to
maintain presence and dominance in the market
• Establishing a solid high level marketing team which will develop effective
campaign strategies for each target market
• Increased visibility and promotion of Crazy Domains and Vodien brands in Asia
to improve on-boarding, conversions and engagement
• Continuous growth of customer care and specialized product teams to keep up
$14.4M $17.0M $5.2M $3.2M
with the increased customer base
H1FY17 H1FY18 H1FY17 H1FY18
4
Total Bookings
H1 FY18 $29.9M
$29.9M $29.9M
$3.0 M $25.6M
$1.5 M
$25.6M $4.4 M
$2.9 M
$14.3 M
$10.6 M
17% $25.6 M $24.1 M
$12.1 M $12.6 M
H1 FY17 H1FY17 H1FY18 H1FY17 H1FY18
$25.6M
Domains Hosting Solutions Underlying Business Acquisitions - SEA Acquisitions - Australia
Acquisitions – Australia: Net Logistics (6 months), and Enetica Group (2 months)
Acquisitions – SEA: Vodien Group (5 months) 5
Domain Bookings up 4% to $12.6M
$12.6M
$0.2 M Domains remains the key on ramp
$12.1M
$0.8 M • Growth coming from acquisitions. Offsetting flat domain industry in Australia
• Remains the first step to getting online
• Introduction to additional online services
$12.1 M
$11.7 M
Focused on SEA expansion strategy
• New, emerging markets and the move into South East Asia
• Targeted marketing towards the 59% of Australian SMBs without an online
H1FY17 H1FY18 presence
Underlying Business Acquisitions - SEA Acquisitions - Australia
Acquisitions – Australia: Net Logistics (6 months), and Enetica Group (2 months)
Acquisitions – SEA: Vodien Group (5 months) 6
Hosting Bookings up to 35% to $14.3M
$14.3M
$1.3 M
Continued focus on Hosting strategy
$10.6M $3.4 M
• Our highest margin pillar
• Bookings increase resulting from bolt on acquisitions in Australia and
Vodien in Singapore
$10.6 M
$9.6 M • Launching our dedicated hosting brand Vodien into Australia & NZ in FY19
• Utilising Marketing, Sales and Hosting transfer teams to drive growth within
existing customer database
H1FY17 H1FY18
Underlying Business Acquisitions - SEA Acquisitions - Australia
Acquisitions – Australia: Net Logistics (6 months), and Enetica Group (2 months)
Acquisitions – SEA: Vodien Group (5 months) 7Solutions Bookings up to 3% to $3.0M
$3.0M
Significant opportunity to increase Solutions pillar
$2.9M $0.1 M
• As the life time of a customer increases, they generally engage in additional
products and services
• Leveraging cross-sell and up-sell opportunities within customer base
• Dedicated and personalized business development specialists to partner with
$2.9 M $2.9 M
customers to deliver customized solutions
• Helping our customers achieve their online goals
New products and bundling to drive increased engagement
H1FY17 H1FY18 • Prioritized introduction of new products and services
Underlying Business Acquisitions - SEA Acquisitions - Australia
• Expanding Solutions offering to enter new product markets
• Simplification and personalization of our product offerings to cater towards
customers needs
Acquisitions – Australia: Net Logistics (6 months), and Enetica Group (2 months)
Acquisitions – SEA: Vodien Group (5 months) 8Cost of Doing Business
H1 FY17
• Cost structure based on being a private
company
• No provision for ASX listed company
costs
$13.7M $13.7M
• Low level of marketing spend focus
was customer care
$3.1 M
$4.6M • Expansion of employee head count for
growth in all business areas had not
$9.2M $9.2M commenced
$2.6 M
$2.5 M
$1.2 M
H1 FY18
• ASX listed company structure… static
$9.2 M $9.1M costs going forward
$8.0 M
$5.5 M
• ASX listed costs normalised
• Marketing costs in line with internal
budgets but include spending for long
term brand growth in South East Asia
H1FY17 H1FY18 H1FY17 H1FY18 • Head count expanded in Customer
Personnel costs Marketing costs Administrative costs Existing business Expansion SEA - Vodien Care, Marketing (for SEA)
Acquisitions – Australia: Net Logistics (6 months), and Enetica Group (2 months)
Acquisitions – SEA: Vodien Group (5 months) 9Strategic acquisitions consistent with growth plans
• Singapore’s #1 .sg Domain and #1 Hosting provider
Vodien Group • Accelerates growth through Singapore
(31 July 2017) • EPS accretive from first full year of ownership
• Vodien founders continue as key senior management
• Potential for significant cost synergies
Enetica Group • Expands DN8’s hosting footprint in Australia
(31 October 2017) • Expected to be EPS accretive in FY18, with full benefits realised in FY19
• Potential for significant cost synergies
Quadra Group • Expands DN8’s hosting footprint in Australia
(31 January 2018) • Expected to be EPS accretive in FY18, with full benefits realised in FY19
Strong revenue generation
Vodien Group, Enetica Group and Net Logistics generated revenue in total of $6 million (includes revenue
10 Group)
for six months of Net Logistics, five months of Vodien Group and two months of EneticaSuccessfully integrating acquisitions to generate shareholder value
• Integration of new HQ in Singapore, combining Vodien and
Dreamscape, to be completed by 30 June 2018
• “Ready to go” land and expand platform, saving the Company at
Vodien Group least three years in establishing a stand-alone operation at an
(31 July 2017) estimated cost to DN8 of +AUD $13 million over the same period.
• Dedicated Hosting brand consolidation to Vodien to be completed
by 30 June 2018.
• Launch of Vodien into Australia & NZ
• Cost synergies to be realised by FY18 to benefit from FY19
• Closure of data centre
Enetica Group • Reduction in head count
(31 October 2017) • Eliminate other duplicated services
• Annualised cost synergies estimated at $350,000
• Cost synergies to be realised by FY18 to benefit from FY19
• Closure of data centre
Quadra Hosting • Reduction in head count
(31 January 2018) • Eliminate other duplicated services
• Annualised cost synergies estimated at $150,000
11South East Asia is a growth market
SEA # Internet Users (2001-2017) Overtook USA # Internet Users 330 Internet Population in SEA
Number of internet users in SEA increased by ~ 17x since
2001 – overtaking major developed countries
246
Overtook combined # Internet
219
Users Of Germany, UK and France
186
166
148
Overtook Japan # Internet Users 127
111
75 80
68
58
48
37
24 29
19 330 460
M M
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2017 Est 2019
Source: WorldBank, Google, Temasek Report, Intranet Live Stats
Courtesy of Catcha Group
12South East Asia is a growth market
Key SEA metrics: Size of SEA’s E-Commerce market $88
In Billions, USD
• Estimated continued growth of 39% forecast in the next two years
$67
• Huge ecommerce potential – Alibaba recently acquired Lazada for
U$1 billion $51
• Untapped potential – online retail as a percentage of overall retail
$38
remains relatively low
$29
• Lack of infrastructure and limited retail GFA (gross floor area) per $22
capita are expected to lead to rapid e-commerce growth $17
$13
$10
• SEA has some of the highest penetration of social networks usage
among internet users of anywhere is the world
2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: Google, Temasek Holdings, 2016
13Key initiatives for H2 FY18
Key actions for half year
• Closure of Perth and Dubai operating offices
• Relocation of functions and staff to new integrated HQ with Vodien Group in Singapore
• Consolidation of Dreamscape and Vodien teams in the Philippines into our new technical support centre by June 30,
2018
• Closure of Net Logistics Indian Support Centre and fully integrated into Dreamscape customer care operations in the
Philippines by June 30, 2018;
• Closure of Enetica Group data centre and migration to Dreamscape’s Sydney Facility;
• Closure of Quadra data centre and migration to Dreamscape’s Sydney Facility;
• Focus on forming strategic partnerships in SEA to accelerate market entry and on-boarding.
14Business outlook and FY18 guidance
Key expectations
• Vodien will show strong growth in South East Asia, the fastest growing internet space in the world
• The Australian market will remain flat and show limited activity
• The Crazy Domains brand will continue to maintain its market share
• Our dedicated hosting brand Vodien, will launch into Australia & NZ
Savings due to Costs Synergies
• Closure of Enetica and Quadra data centres and migration to Dreamscape’s Sydney facility
• Closure of Net Logistics Indian support centre
• Closure of the Perth office
• Closure of the Dubai office
• Consolidation of Dreamscape and Vodien teams in the Philippines into new technical support centre
15Business outlook and FY18 guidance
FY18 Bookings and Adjusted EBITDA guidance
• Adjusted EBITDA expected to be in the range of $7.2M to $7.6M
• Excludes one time provision for restructuring for offices, staff, relocation etc. of $1.0M
million to be taken in FY18
Growth Strategy
• Continued investment into South East Asia as a key part of our long term growth strategy
• Optimising and streamlining operational efficiencies to deliver on our strategic initiatives
• Focus on short term cost synergies and bedding down acquisitions
• Further enhancement of marketing activities to leverage higher margin pillars
• The Company will continue to pursue earnings accretive businesses
• Strategic partnerships through Australia and SEA
16Appendices
17Reconciliation for Adjusted EBITDA
($m) H1FY18
Statutory EBITDA $2.0
Adjustments to calculate Adjusted EBITDA
- Changes in deferred revenue movement net ($0.4)
+ Equity-based compensation $0.4
+ Foreign exchange loss – unrealised $0.6
+ Acquisition-related costs $0.2
+ Loan related costs $0.2
+ Restructuring costs $0.2
Adjusted EBITDA $3.2
18Terminology and Calculations
Item Description
Active Members Active Members are members who have a domain, product or service that’s current and has been paid for.
A Non-IFRS cash-based financial measure of DN8’s performance that aligns with the Group’s Bookings and operating expenditures to evaluate the core operating
profitability of the Group’s business. Adjusted EBITDA is calculated using the Statutory EBITDA calculation, primarily adjusted for the change in deferred revenue so as to
Adjusted EBITDA include total Bookings, the change in the deferred costs associated with the Total Bookings, and excluding the non-cash equity-based expenses including share-based
compensation and Unrealised Foreign currency exchange losses/gains and transaction expenses and non-core one off expenses.
ATL Above the Line – Marketing that is delivered in a mass media format such as TV, Radio, Billboards and Newspaper
Average Bookings Per User (ABPU) Total Bookings within previous 12 months divided by unique Active Members who had a product and made a payment within that same period.
Lifetime of members in years. 1 divided by churned rate, divided by 12. Churned members within month divided by total active start of month. A member is logged as
Average Customer Life churned when they no longer have a product or domain set to ‘Registered’, ‘Pending Setup’, ‘Renewal Due’, ‘Pending fraud’ or ‘Further Info’.
Total Bookings represents cash receipts from the sale of products to customers in a given period before effecting adjustments for net refunds granted within the period.
Bookings This provides valuable insight into the sales of our products and the performance of our business since we typically collect payment at the time of sale.
Cash Generated from Operations Cash generated from operations is a measure of our performance calculated as Adjusted EBITDA less capital expenditures and acquisitions of intangibles.
Cost Per Acquisition Marketing costs divided by new active members.
IFRS International Financial Reporting Standards are a set of accounting standards developed by the International Accounting Standards Board.
Lifetime value Average lifetime of members multiplied by ABPU. Indicates potential Bookings of average member.
Renewal Rate ‘Due for renewal’ status divided by domains/products renewed.
TLD Top Level Domain. E.g. .com, .net, .org, .info, .au
Total Members Members with cleansed and verified contact details within our database.
19Disclaimer
This presentation was not prepared for and should not be relied upon to provide all necessary information for investment
decisions. Some of the information contained in this presentation contains “forward-looking statements” which may not
directly or exclusively relate to historical facts. Although great care & diligence has been taken to ensure the accuracy of this
presentation, Dreamscape Networks Limited gives no warranties in relation to the statements and information contained
herein and disclaims all liability arising from persons acting on the information and statements in this presentation.
Due to the dynamics and changing risk profiles of investment markets, Dreamscape Networks Limited reserves the right to
change its opinion at any time. All investors are strongly advised to consult professional financial advisors whose role it is to
provide professional financial advice, taking into account an individual investor’s investment objectives, financial situations
and particular needs.
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