Vertiseit AB (publ) ($VERTB)

Hi, everyone, and welcome to this extra investor call that we host due to the announcement that was made last night that Vertiseit acquires Scala. So we are currently out of office, but did yesterday finalized the acquisition of Scala, which we will give some further information during this call. We will give a brief presentation on the background and about Skyla as a brand and as a company. We will go through the acquisition rationale of the structure. And by the end, we will also open up for questions. [Operator Instructions] And we who host this call today is me, Jonas Lagerqvist, I'm the Deputy CEO and CFO of Vertiseit. And on the other line, we have Johan Lind. CEO of the Vertiseit Group Please, Johan, go ahead.

Yes. So starting off with like a brief introduction to Scala for those who follow the advertising journey and the digital signage space. Scala is actually the pioneer in the industry. The company was founded already 1987 in Norway. It actually moved their headquarters to the U.S. and was then acquired by Strata Cash at the time, the largest integrator within our industry. So it's a company that are having a real global presence of customers and partners. They have a really strong brand since they are a pioneer in the industry. So I think it's fair to say it's the most well-known brand globally. And they have a large installed base. It's -- we will look through into the details. But for us, it means that we had a top line of SEK 200 million. We had ARR of SEK 85 million. We will have a profitability after synergies that we will realize throughout the year of 35%. And the company has 10 employees. But this is a share an asset deal, not everyone will join in. But the details on that, we will take after closing. I think this is also like why it fits in is that we know the Skava business really well because we found that were tied in 2008, we actually become a Scala partner ourselves. So we were a Scala partner until 2016. So when StrataCash joined in and they actually changed their go-to-market strategy with a mixed strategy of direct sales and partner sales. We said that this doesn't fit us so that we decided to acquire Gusan we and we basically copied the former Scala strategy for Dice. Since then, we have grown significantly and now eventually where we acquired Scala, that's EUR 85 million in ARR. But of course, they have -- since they have been in the industry for so long, they have a huge installed base of perpetual licenses. So their footprint is huge. We will look into a little bit of like how the ARR is made up, but we can come out later. So talking about the investment rationale. It significantly expanded international partner ecosystem. It adds 100 partners. It adds more than 1,000 brands to the customer list. It's strengthened our global position within store experience management. And most importantly, now we finally take after like 2, 3 years of exploration in North America. We take a significant step into the North American market since almost 50% of the Scala revenue is from North America. But it also adds other key markets, all of the world, especially like Middle East Asia, where we see a lot of demand. It adds an installed base with the untapped SaaS potential, meaning that is only a small, small portion of their installed base is on true SaaS today. Most of the installed base in a perpetual license model with maintenance fees. So that's what the ARR is calculated only on their existing SaaS revenue and their recurring maintenance fees. So of course, once we transform perpetual into SaaS, the potential is huge. And we have done exactly the same move with Dice at the time. So we know exactly the playbook on how to work this out, and it's something that will take 2 to 3 years to achieve. The profitability will be in line with our targets. So as stated in the press release, how this will affect the group, basically calculate with SEK 200 million top line and then a profitability of 35% cash EBITDA. And then you will have a pretty nice understanding of how it affects the group.

So the acquisition is made up out of shares and assets. meaning that in the European operations, we acquired the Scala companies. Scala in Europe is currently headquartered in Cedar in the Netherlands. And the non-European business, which is the majority is based in the U.S., we acquired the actual assets. So the IP and the new contracts and so on. And the combined purchase price for the whole the whole Scala global business, including shares and assets is SEK 265 million. And it's financed partly by expanding our current credit facility with Nordea Bank. And partly through a direct share issue to...

Price premium, yes.

Price premium to current and new investors. So SEK 182 million in the directed share issue, which was finalized last night after the stock market was closed.

Yes, going directly into the integration. So Scala, we will preserve the Scala brand. we will put a lot of effort into the Scala product because we need to catch up a bit. So Scalar will continue as a strategic software offering within the business brand Dice because we have scale and Dice have had very similar product offerings. They also have at least under our ownership, the same go-to-market strategy with Partner First paper only. And so basically, the Scala product, the Dice product will be brought to market within the Dice organization. And we will gradually, of course, transform the perpetual licenses into a true SaaS offering, and we will gradually move Scala into the IXM true like SaaS software stack, but that's like a 2- to 3-year project. We will have a device agnostic offering so that we open up for device partners again. That was the chorus call, we want to bring Scala into a true software play. Today, they have their own media players and more. So that will eventually change.

That was more or less it from like the side of from our side. And given the acquisition was signed yesterday, but is to be closed during the during May. We, of course, can disclose more information once that is -- once the transaction is finalized. But please, if there are any questions, we are happy to take them on.

And we have Fredrik Nilsson, analyst at Redeye. Can you hear us?

Yes, I can hear you. Can you hear me?

Yes.

I mean perhaps you don't want to answer on this one yet, but could you give any occasion about the growth rate historically in the ARR base in Scala.

Yes. So it's hard for us to say because we have another chance to look at those exact details of this process. So I think we need to get back on that one. But we are quite sure ourselves that from here and onwards, we are able to grow Scala like with the growth rate of the group. So I think that's the most important thing. And that's fueled of the opportunity to, of course, convert perpetual and maintenance business model into a true sauce offering.

I see, great. And regarding the migration, I mean, how fast do you expect that to occur because even if it's a good thing for the long term, in the short term, you also might get hurt from a lower share of upfront licenses.

Now what we see is like the mix that we communicated, the SEK 200 million on top line on new is when we start, it's made up from 85% -- SEK 85 million in ARR. The rest portion is perpetual license sales. and its consulting and it's hardware. And what we will do is, of course, that you gradually change that mix. And then for every license, also on the installed base that you convert from a maintenance contract to a true SaaS offering. Of course, there is a huge potential. So the math is quite simple that it's in a very short period of time, a license is worth so much more as a SaaS offering than as a perpetual and maintenance offering. But if you look at the size was, of course, we will take out hardware, and we -- maybe we will take out hardware like 25% per year or something like that from the mix. And then you -- then the consulting revenue, of course, we think some of that can be preserved in the group, but that will also decrease at some point. And then perpetual licenses, of course, we want it to decrease. But if it decreased quick, it means that we -- we also have moved not only new licenses, but also existing installed base to a SaaS offering and then you will see really nice upside on the SaaS side of the equation.

Okay. So you will basically continue to offer the on-prem solution for a while then, but trying to...

Of course, like you have the huge brands that work with Scala today with a perpetual offering. They host the servers themselves. I think it's more than 1,000 servers that are hosted within large retailers and brands today and they will need at least like a 2- to 3-year period for conversion.

Okay. And also, could you give us some more details about the sales mix, excluding the ARR?

Yes. I think it's -- if you divide it by 3, you are not far from the truth. So if you just say it's is 3 pieces and they are almost the same size. We will get back with more details later on. But if we start there. So out of the SEK 200 million communicated, SEK 85 million is is SaaS revenue from active SaaS licenses and pure maintenance. And the rest is in 3 equally large portions, perpetual licenses consulting and hardware from their own media players.

Great. That's clear. And lastly from my side, I guess you one or perhaps both of you are down in Munich right now at the event I mean what has the reaction been from the industry about this acquisition?

Yes, of course, it was the perfect place to be, like right in the heart of the European digital signage industry. So we are at the current in the digital signage Summit in Munich. We announced it basically yesterday evening, and we -- after closing, we went on to compare with the rest of the industry in Europe. So we had a chance to see like a reaction in real life, and there were line. I think everyone understands that this is really great for the partner community in Europe. And I think that it has a huge impact on like the trust for Vertis, the trust paradise in the partner ecosystem because Scale has really been a struggle since they have had a mixed go-to-market strategy.

Thank you. Now we also have Rikard Engberg from Carnegie.

Can you hear me?

Yes.

So my question is you partly answered it with your answers regarding the mix. But you state that once synergies are taken into account, Skala will be at a cash EBITDA margin level roughly similar to the Vertiseit's financial targets. What is it now given the current mix? Is it -- are we talking about doubling the margin? Or is it a more -- a smaller lift?

Good. It's a really nice question. So I think for you guys to work with predictions into the future and based on the communication that is out and publicly available for -- if you look into like after synergies realization end of the year, then it's 200 top line is 35% cash Until then, we'll almost from like a profitability level, we will almost have the synergies in place right after the closing. So of course, from a cash flow perspective, we will have full effect by the end of the year. Can you -- or Jonas, do you have anything to add to that?

No. And some of these synergies, of course, come through the fact that part of the acquisition is an asset deal and hence, some of the employees in the organization will, therefore, stay with the seller, and will not come along with the business -- with the rest of the business to replace it.

Okay, got you. Then I understand. Then I understand. And I guess that given the -- what you said about the mix, I can have some understanding about what the underlying margin should be in Scala?

Thank you so much, Rikard.

Thank you. Very good. And then we have some other questions from participants. And there is a question of how much of the SEK 200 million revenue is coming from hardware. And will you transfer that revenue to partners?

Yes, absolutely. Like the goal is, of course, that Scala should be a pure play a pure-play software offering. So the ambition is that like the promise is that all new business are only through the channel. Well, of course, transfer as much business as possible to partner and definitely transfer both hardware and consulting assignment to the channel. And as I say, like, if you take the SEK 200 million, you take SEK 85 million away for the recurring revenue, the rest of the revenue in equal pieces on perpetual licenses, consulting and hardware.

And the next question, how do you view further acquisitions in the near future? Like during this year and the next.

I think in our Q1 call, we saw that want acquisition this year, but now we will focus on this 1 and make it a fantastic fantastic deal, not only for financially, but also for the partners and the customers. So I think we will look at the integration -- look forward to the integration of 3 months, and after that, we can see when we are ready for the next one.

Yes. And I can answer the next one. It's how do you view the relatively high debt in ratio to EBITDA after the acquisition is this a big risk going forward. And I would say that this is...

Lower...

I mean it's actually lower. So this acquisition is expected to have like a significant positive impact on profitability and already from start. This is not an acquisition that we aim to gradually fine-tune during many years. It's rather -- rather that it actually will contribute with profitability more or less from day one. And also like a clarification on the 35% cash EBITDA on which level -- on which revenue it is actually calculated. Is it when the systems revenue is phased out? Or is it as it stands now?

Yes. So basically, SEK 200 million is our best guess for the full year 2027. So -- and that's also all my references to share of revenue on recurring revenue consulting, hardware, perpetual licenses. Actually, the turnover today is above the mark.

Yes. And yes, on Systems revenue, as John said, will be gradually phased out over a period of time. And I think that was actually it. We had good questions both from Redeye and Carnegie and also from attendees. And like always, if you have -- should you have any more further questions, you're more than welcome to reach out to me or to Johan. And now we will focus on closing this transaction. And after that, we will be able to communicate more details around around this acquisition. So thank you very much for attending, and see you soon.

Thank you, everyone. Bye-bye.