Dreamscape Networks Limited (ASX: DN8) First Half FY18 Results Presentation 22 February 2018

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Linda Sanders
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1 Dreamscape Networks Limited (ASX: DN8) First Half FY18 Results Presentation 22 February

2 H1 FY18 overview: a busy 6 months Revenue up 30% to $29.3m Bookings up 17% to $29.9m Adjusted EBITDA down 38% to $3.2m At 31 December 2017, Dreamscape had cash and undrawn debt capacity of $11.7 million Crazy Domains grows.au market share and continues to be Australia's #1 domain name brand Streamlining operations: relocating to Singapore to support South East Asia growth strategy 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 Our core strategy remains as we invest into new high growth markets in SEA, the fastest growing internet space in the world 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

3 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

4 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 $14.4M $17.0M $5.2M $3.2M Continuous growth of customer care and specialized product teams to keep up with the increased customer base H1FY17 H1FY18 H1FY17 H1FY18 4

5 Total Bookings H1 FY18 $29.9M $25.6M $29.9M $3.0 M $25.6M $29.9M $1.5 M $4.4 M $2.9 M $10.6 M $14.3 M 17% $25.6 M $24.1 M $12.1 M $12.6 M H1 FY17 $25.6M H1FY17 Domains Hosting Solutions H1FY18 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) 5

6 Domain Bookings up 4% to $12.6M $12.1M $12.6M $0.2 M $0.8 M Domains remains the key on ramp 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 H1FY17 $11.7 M H1FY18 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 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

7 Hosting Bookings up to 35% to $14.3M $14.3M $1.3 M $10.6M $10.6 M H1FY17 $3.4 M $9.6 M H1FY18 Continued focus on Hosting strategy Our highest margin pillar Bookings increase resulting from bolt on acquisitions in Australia and Vodien in Singapore 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 Underlying Business Acquisitions - SEA Acquisitions - Australia Acquisitions Australia: Net Logistics (6 months), and Enetica Group (2 months) Acquisitions SEA: Vodien Group (5 months) 7

8 Solutions Bookings up to 3% to $3.0M $2.9M $3.0M $0.1 M Significant opportunity to increase Solutions pillar 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 $2.9 M $2.9 M Dedicated and personalized business development specialists to partner with customers to deliver customized solutions H1FY17 H1FY18 Helping our customers achieve their online goals New products and bundling to drive increased engagement 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) 8

9 Cost of Doing Business H1 FY17 Cost structure based on being a private company $9.2M $13.7M $3.1 M $2.6 M $9.2M $13.7M $4.6M No provision for ASX listed company costs Low level of marketing spend focus was customer care Expansion of employee head count for growth in all business areas had not commenced $2.5 M $1.2 M $8.0 M $5.5 M H1FY17 H1FY18 Personnel costs Marketing costs Administrative costs $9.2 M $9.1M H1FY17 H1FY18 Existing business Expansion SEA - Vodien H1 FY18 ASX listed company structure static costs going forward ASX listed costs normalised Marketing costs in line with internal budgets but include spending for long term brand growth in South East Asia Head count expanded in Customer Care, Marketing (for SEA) Acquisitions Australia: Net Logistics (6 months), and Enetica Group (2 months) Acquisitions SEA: Vodien Group (5 months) 9

10 Strategic acquisitions consistent with growth plans Vodien Group (31 July 2017) Singapore s #1.sg Domain and #1 Hosting provider Accelerates growth through Singapore EPS accretive from first full year of ownership Vodien founders continue as key senior management Enetica Group (31 October 2017) Potential for significant cost synergies Expands DN8 s hosting footprint in Australia Expected to be EPS accretive in FY18, with full benefits realised in FY19 Quadra Group (31 January 2018) Potential for significant cost synergies Expands DN8 s hosting footprint in Australia 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 for six months of Net Logistics, five months of Vodien Group and two months of Enetica 10 Group)

11 Successfully integrating acquisitions to generate shareholder value Vodien Group (31 July 2017) 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 least three years in establishing a stand-alone operation at an estimated cost to DN8 of +AUD $13 million over the same period. Dedicated Hosting brand consolidation to Vodien to be completed by 30 June Launch of Vodien into Australia & NZ Enetica Group (31 October 2017) Cost synergies to be realised by FY18 to benefit from FY19 Closure of data centre Reduction in head count Eliminate other duplicated services Annualised cost synergies estimated at $350,000 Quadra Hosting (31 January 2018) Cost synergies to be realised by FY18 to benefit from FY19 Closure of data centre Reduction in head count Eliminate other duplicated services Annualised cost synergies estimated at $150,000 11

12 South East Asia is a growth market SEA # Internet Users ( ) 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 Japan # Internet Users Overtook combined # Internet Users Of Germany, UK and France M 460 M Est 2019 Source: WorldBank, Google, Temasek Report, Intranet Live Stats Courtesy of Catcha Group 12

13 South East Asia is a growth market Key SEA metrics: Estimated continued growth of 39% forecast in the next two years Huge ecommerce potential Alibaba recently acquired Lazada for U$1 billion Untapped potential online retail as a percentage of overall retail remains relatively low Lack of infrastructure and limited retail GFA (gross floor area) per capita are expected to lead to rapid e-commerce growth SEA has some of the highest penetration of social networks usage among internet users of anywhere is the world Size of SEA s E-Commerce market In Billions, USD $10 $13 $17 $22 $29 $38 $51 $67 $ Source: Google, Temasek Holdings,

Key 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

14 Key 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. 14

Business 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

15 Business 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 15

16 Business 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 16

17 Appendices 17

18 Reconciliation 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 18

19 Terminology and Calculations Item Active Members Adjusted EBITDA Description 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 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) Average Customer Life Bookings Cash Generated from Operations Cost Per Acquisition IFRS Lifetime value Renewal Rate TLD Total Members 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 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. 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 is a measure of our performance calculated as Adjusted EBITDA less capital expenditures and acquisitions of intangibles. Marketing costs divided by new active members. International Financial Reporting Standards are a set of accounting standards developed by the International Accounting Standards Board. Average lifetime of members multiplied by ABPU. Indicates potential Bookings of average member. Due for renewal status divided by domains/products renewed. Top Level Domain. E.g..com,.net,.org,.info,.au Members with cleansed and verified contact details within our database. 19

Disclaimer This presentation was not prepared for and should not be relied upon to provide all necessary information for investment decisions.

20 Disclaimer 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. 20

Dreamscape Networks Limited (ASX: DN8) Maiden Full Year Results Presentation Year Ended 30 June 2017

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