mdt Medientechnik GmbH (VERTB) Earnings Call Transcript & Summary

Hi, everyone. Welcome to this extra investor meeting with regards to the news that was published just an hour ago that Vertiseit acquires MDT Medientechnik GmbH, a German digital in-store company. My name is Jonas Lagerqvist, I'm the CFO and Deputy CEO of Vertiseit. And this is Johan Lind, CEO of Vertiseit. So we will be with you here for a short news update on this event. In the end of this presentation, there will be possibilities to ask questions in the Q&A, just use the raise hand function or write questions in the Q&A, and we will answer that by the end of the call. But please, Johan.

Yes. So we can start off with describing MDT a little bit. So I will walk you through some figures in short. So MDT is 1 of the real pioneers in the digital signage space, especially the software space in Germany. They were founded already 2002. They have 30,000 licenses in the market, an ARR of SEK 20 million. They have sales strategy which is Parter First, which fits us very well. And the SaaS revenue constitutes 80% of their turnover. They also operate with a high EBITDA margin with a margin of 35%, in line with our long-term goal for the group. So that's really nice. And as we now start to execute on more of like a roll-up agenda, we also focus a lot on key customers with high growth potential. And in this case, MDT have Deutsche Telekom with a large installed base, they also have McDonald's Germany, that's the 2 most significant accounts. This is just an example of how it looks in real life, but I think we can go to the next slide. So their Partner First strategy, as I said, it aligns really well with how we want to scale our business going forward. And they work with integrators like Cancom in Germany, but also different types of partner with in -- with different profile of -- with a different customer profile basically. Okay. So what was the investment rationale? Of course, it adds 30,000 licenses. It adds SEK 20 million ARR. It adds a pool of talented people to the group. It improves our profitability and cash flow. And it also strengthened Vision Arts already strong position at McDonald's in Europe. And altogether, this brings Vertiseit Group, about SEK 300 million in ARR based on the already communicated Q1 figures, and it also takes us above 250,000 touch points active today. Small update on just McDonald's stand-alone because that's, of course, a big portion of the rationale. So with McDonald's before, the acquisition, Visual Art, are present in operates; Sweden, Norway, Finland, Denmark, Belgium, Spain and also Georgia, 6,000 touch points, but the German market is huge. So German alone is 1,280 restaurants with almost 10 licenses per restaurant. So it brings it up to 18,000 licenses with McDonald's in total, yes. Next is, of course, the question. Will this become a stand-alone brand? Or will it be integrated into the group? And when we work with this, it's really clear that MDT fits perfect with the Grassfish offering. It's -- they offer platform and expertise. They sell through partner and the product itself has really been a main competitor with -- to Grassfish in the German market. So the Grassfish, one platform really covers for what the MDT have in place. So what we informed have agreed with the seller is a full integration. So MDT will become an integrated part of Grassfish DACH. We will run a really quick and smooth integration process in line with our new roll-up strategy, meaning that we will implement our management system, and we are working the ERP IT infrastructure and put the organization into play within 3 months. The development team in MDT and the holding, of course, will join Grassfish, but especially the development team will join the shared effort into the new real released Grassfish IXM Aqua development. And we believe that the full migration of their installed base will take up to like 3 years, but the shared efforts now go into the new product.

So the acquisition structure, it's a Grassfish acquisition and the valuation was on a debt and cash-free basis on approximately SEK 87 million, which is equivalent to an ARR multiple of 4.3x, which we find as very beneficial for Vertiseit, especially since it's a very well-functioning company with the documented profitability in line with the group's current long-term profitability targets. And we -- it is financed through Vertiseit's own cash in combination with our new credit facility that's in place and was communicated last week, together with Nordea to -- that was put in place in order to facilitate our growth and acquisition strategy. So I think everyone is familiar with this slide, but it shows that we are -- we have continued to grow our ARR sequentially each and every quarter for more than 10 years. And so we keep on doing. In Q1, the reported ARR was SEK 281 million and adding SEK 20 million through the MDT acquisition now takes us north of SEK 300 million. And the full Q2 numbers and Q2 ARR will be presented next week, along with the Q2 report. And altogether, this is 1 important step of many towards our long-term goals of having more than SEK 1 billion in ARR by 2032. So we're soon, we are around 1/3 of the distance to that. And simultaneously, we will increase profitability to reach 35% cash EBITDA profitability. And I think that is important to point out that there are very many like high-quality acquisitions out there, of which MDT is one, not only adding like high-quality ARR and top-tier customers, but also adding a profitable acquired growth to the group. So we really believe that this acquisition, it ticks many of the boxes that we aim for in our acquisition agenda and our growth strategy. And this takes us further towards our vision and our ambition to become like the global leader within in-store experience management.

And now we move into the Q&A. And please let us know, should you have any questions. I know that we have raised hand, someone would like to come into the call. Fredrik Nilsson from Redeye.

Yes, so I get the numbers right here. Is it SEK 20 million that's ARR, and that's -- and another SEK 5 million in other revenue. Is that correct?

Approximately that. Yes. So the absolute majority of the turnover is SaaS revenue in the company.

Okay. And I assume that the remaining part is mostly consulting? Or do they have some kind of system offering that's...

More or less an equal split between consulting and that they also have a line of their own media player.

Okay. Great. And also, I assume this is not the main point of this acquisition, but is there anything useful in the technology that you can use in your Aqua platform going forward?

I think the product itself is -- has been developed for many, many years, and they have been -- had a leading position in the market for many years in Germany. So there are like some really, really strong concepts in their platform and software stack. But what we will do is that we will bring them with new technology into the Grassfish IXM Aqua products as we go. More or less rebuild with new technology into the new product.

Okay. I see. And could you tell us anything about the growth rate in this company in the last few years?

It varies a lot because they have had like really dominant customers for them, for us, McDonald's and Deutsche Telekom will not be that dominant of course, but in their business, they have been. So it has varied a lot depending on how those 2 customers have acted. But you can say that the average growth rate has been between 5% to 10%.

Okay. Great. And just lastly, also a clarification question. I think in the press release, you mentioned a profitability in line with your target of 35% cash EBITDA, and I think in your presentation now, it was 35% EBITDA. I mean, is there a difference there? Or do they basically...

It's the same number in the company.

For this company cash EBITDA is EBITDA. And I think we also have [ Rickon ] from Carnegie. Is that correct?

Can you hear me?

Absolutely.

Okay. Great. So the question is, I've noticed there has been a lot of M&A activity within digital signage. And have you experienced any competition for this acquisition? And do you think that it will be more consolidation in the industry going forward?

We absolutely think there will be more consolidation. And as you say, there is a lot of activity in the market. But in this particular case, we have had a relationship with and talk to this to MDT for like at least 5 years, Jonas? Am I correct?

Yes.

And when -- and they have also had dialogue, of course, with other potential investors. But in the process, they shows us as the preferred acquirers, we were alone in the process.

Great. And are there like any overlapping clients that are -- that you're serving on the same market? Or is it mainly clients that are -- do you mainly have local German clients?

Except for McDonald's, which really we hope that 1 plus 1 equals 3. There are no obvious overlaps in customer base.

Okay. So we've had a couple of text questions here. I will direct them to you, Johan. How does this acquisition align with the strategic objectives of the IXM Grid?

Yes. So what we have communicated before is we build now a core tech stack on Azure, where we aim to have the same playout technology and edge for all platforms. And in this particular case, we will not integrate that back end into the MDT product. We will have a longer period of conversion instead. And the team will join forces with Grassfish in developing the next generation of Grassfish product. So that's -- so eventually, that's how we benefit. We benefit from the resources, and we will then convert the customers -- customer by customer.

The next question is how many similar acquisitions do you anticipate being able to execute on an annual basis?

Yes, that's a good question. Like before, if you look on the track records, we have done like larger acquisitions than this, and we have managed to do approximately 1 per year. But we have also described this new phase where we can do more of like roll-up acquisitions that we can fully integrate into existing business brands as the next step of how we evolve. And the aim -- and let's see if it works, but we aim to have it fully integrated from an operational perspective within 3 months. And if that succeed, we can definitely manage to take on like 2-, 3-year in this -- with this perspective, yes.

Yes. And 1 key success factor that we've identified in our acquisition and integration processes have been to perform them sequentially. So do 1 acquisition, do the full integration before we move into the next one, which we aim to continue to do. But with these smaller acquisitions, we can integrate them much quicker, meaning that we can like uphold a higher -- somewhat higher frequency than before. But we will still, of course, always be ready to evaluate the larger acquisitions once they appear. But like in their characteristics are that they -- of course, they materialize when they materialize. So in the meantime, we are working with the roll-up side of the acquisition agenda as well.

And I also want to highlight that it still means that we are doing the actual work, so you and I have been on site together with Oscar. So it's the 3 of us that performed the acquisition together with, of course, CMS Wistrand and Johannes Wårdman.

Yes. So we are very much hands-on in the whole acquisition and integration process. And of course, this has no effect whatsoever on our organic growth targets. So just like before, we do -- we have a solid organic growth during profitability. And in parallel, we performed these selected acquisitions. And I think that was it for today. And we will meet in this form again shortly when we present the Q2 report in the middle of July. So until then, thank you very much. See you.

Thank you so much. Bye-bye.