Vertiseit AB (publ)

Hi, everyone, and very welcome to this investor earnings call from Vertisit. We've just released our Q3 interim report for 2024. My name is Jonas Lagerqvist. I'm deputy CEO and CFO. And my name is Johan Lind.

I'm CEO of Vertisit.

Welcome. So today we released our interim report for the third quarter and we'll elaborate on this as well as a couple of other topics. So during the call you can ask questions in the Q&A function. in the video conference, and you can also use the raise hand function if you wish to speak, and you will be let in during the Q&A session at the end of the call. So, During this call, we will look into the financials found in the Q3 report. We will also elaborate on some business highlights during the quarter. And we will also go into a little bit more into detail on the visual art acquisition that was performed after the end of the third quarter on the 2nd of October. So in today's announcements with the report, we can reveal that we now have reached an ARR of 187 million Swedish crowns in the Vertisit group, which is an organic growth of 21% compared to last year. When including visual art, we are now well above 250 million Swedish crowns in ARR, meaning that we have ticked off our current long-term goal of ARR exceeding 200 million by end of 2024, for which we are both proud and happy. And during the quarter, we had a 21% organic ARR growth in terms of in fixed currencies. Net revenue was down 50%, which was fully attributable to lower system sales during the quarter, which is in line with our strategy to expand our collaborations with partners when it comes to hardware sales. And despite this, we did perform the most profitable quarter in the company's history, both in terms of absolute numbers and in terms of margins. So we have an adjusted EBITDA of 23 million, meaning an EBITDA margin of 28%. And for those of you who have followed our new long-term goals, which starts in 2025, we will be measuring our profitability as cash EBITDA, which for this quarter came in on a margin of 22%. And by the end of the quarter, we did repay all our financial external debt, meaning that we were cash positive, negative net debt, but we had somewhat less available liquidity than last year, but also no external debt. During the quarter, we had a strong annualized growth and a share level, which was very much under control on a low level. Our SaaS metrics is pretty much in line with previous quarters and in line with our own expectations. We had a low share during Q3 and a gross growth of just over 23%. Net revenue retention is 111% on an annualized basis, which is well above our financial target of 100%. And we keep increasing the average revenue per brand, which is also in line with our strategy to focus on larger customers with more growth potential.

Thanks Jonas. So we will also look into some highlights and as Jonas described, we have a net revenue retention which exceeded 111 percentage points, meaning that the majority of our growth is actually expanding on existing brands, especially the top tier brands. I write in the comments, the CEO comments that we have our normal strong contributors like our large automotive brands, of course, is a big contributor to our growth, grocery and also the QSR segments. But I also want to highlight some new wins and also in areas and in solutions where we see a big demand. And one big trend now is retail media, where we have been selected by Co-op in the UK. They actually plan to build the largest retail media grocery network in the UK. They operate 2,400 stores, and the initial rollout is 300 touchpoints. which will be run on the GrassFish platform with the Doe capabilities. The retail media is very much a blend of traditional digital out-of-home and in-store experience, which is our core. But it's also how you actually sell ads primarily to suppliers, which will fund the rollout of the network. And this is a trend where a lot of money is heading because the... A lot of brands want to be seen and have the opportunity to communicate with customers at the point of purchase where they can interact with their products, basically. Looking into Dexta in Dubai, our partner that we communicated a year ago. They have now done a big project together with a company within the group, Hypermedia. They roll out a huge, they get a lot of home network in Dubai and so together with their digital in-store initiatives their retail media initiatives their dough initiatives they are now reached over 1000 licenses in one year and grow their growth rate is really taking off so It's very interesting to see like how in a new market within such a short notice can grow a significant footprint and which is not like in the Nordics or in the dark region where we are particularly strong. But of course, the highlight happened just two days post the closing of the Q3, and that was the acquisition of Visual Arts. Just a brief intro to the company. They add approximately 75 million Swedish crowns in ARR, and they have a revenue of 300 48 million, meaning that they have larger component of both consulting, creative studio, but also the systems component. They have 120 employees, but one of their success have been a really clear focus on some core segments. So we can see QSR, where they operate digital menu boards, drive-through for McDonald's, for example, in many markets in Europe. They do all of the ICA formats. They run 7-Eleven on, I think it's three different continents and the Circle K also in a lot of markets and so on. Subway is a European company. framework agreement where they also have rollouts that cover a lot of markets. From a customer perspective, it's really complementary to what we have. And then it comes, okay, like what is the positioning? What is the offering? Will you go after the same customers type of questions? And the strategy as of now is that we should push visual art even further into the direction of being the best digital in-store concept creator. So it has always been their core and that's why they've been really successful in the competition. GrassFish have done the opportunity to take a clear focus on the IXM platform together with consulting expertise and Dice focus on the pure platform play basically. And as we have communicated before, what we do now is also that we ramp up IXM grid. So a lot of our development resources goes into building a unified platform to support the three companies. If you look at the investment rationale, one key driver is of course to accelerate our growth. It's a strong brand, a really professional, high performance team, which have had a historic growth that have been way above 20%. They add top tier customers with global growth potential. I think that was obvious when we looked through their customer list just now. And it strengthened our position in new key segments, you can say. So segments where we have been a little bit weaker in convenience and in QSR now become strengths instead. So that's really important. It also adds international presence in key market, both through their own presence, but also through partners. They have partners in Asia, Australia that we see are important for really having global coverage and expanding our footprint. And their technology also strengthened our self-suffering. So they were actually got the software award this year because they have They have just done a greenfield approach and rebuilt their whole tech stack on Azure in microservice-based architecture. And that's exactly the same fundament as we are building in Grid. So it will reduce the time to market for iXM Grid as we will take a lot of what has been built in visual art and bring that into the Grid project.

Yeah. Visual art was valued in this transaction at 457 million, which is around six times ARR. And it's a premium price for a premium acquisition that actually has a really strong momentum and will will add like significant growth potential significant customers and so on and a very strong organization to to advertise it In connection with the transaction, we made a directed share issue to one of our shareholders, Bonnier Capital, who played an important part in this transaction. And so after this, Bonior Capital will actually be the largest shareholder in Vertisit in terms of capital, which we are very happy to welcome them to being a major shareholder. And also Bonior Capital's CEO, Carl Backman, who has now joined the board. We are also very happy that former owners of visual art choose to choose to reinvest a large portion of the purchase price. So that was made through a direct share issue to some of the sellers of visual art amounting to 50 million crowns. And together with this one part of the purchase price was paid through issuing 1 million warrants to the sellers, which have a duration of three years and a strike price of 65 Swedish crowns.

Valued to 7 million.

Yeah. And the remaining part of the purchase price was financed through a bank loan with Vertisets main bank, Nordea. So, okay, now we go into the Q&A session. So please raise a hand if you wish to speak. Otherwise, you can post questions in the Q&A function. And okay, so I will read here. Regarding co-ops rollout of 300 touchpoints, how many stores are these are addressed? And what do you think about the number of touchpoints per location in retail media long term?

Yeah, so basically this first roll-up is in prime location. So it's their best locations basically on storefront. But what we see and see in Sweden, for example, is that retail media is so much incorporated into the digital in-store concept. So we don't see a future where that's the foundation for digital in-store, but it's important ingredients. Yeah. It can play a more important role in a shop window or when you exit the store, but then it also needs to be very well thought out how it should be incorporated and relevant in the customer experience in every part of the customer journey, basically. So I see... In a normal grocery store, there might be like 15 touch points in the future in most concepts. And that will be, of course, a combination of the digital in-store communication for the brand itself. And in some of those touch points, there will be large ingredients, large portion of retail media.

And we have a radar analyst, Fredrik Nilsson, who wish to join the call. Hi, Fredrik.

Good morning, Jonas and Johan. Could you give us some color on the new partners in the US?

Actually, we have decided for this quarter not to do so as we are really like early stage and we don't have any like actual licenses or rollouts. We want that to materialize a little bit further before we communicate that to the market.

Okay, I see. Then I want to continue a bit on the questions you just answered about retail media. And if you could elaborate a bit on your offering and also the offering coming in with visual art joining. Yeah.

So retail media is a huge trend where a lot of like FMCG brands, fast moving consumer goods brands are willing or want to invest in as close to the actual transaction as they can. And obviously the waste majority of those money goes into marketplaces, goes into the online platforms. But we see now a trend where there is also There's also a demand in the physical space as the capabilities of digital in-store becomes better and better. And the approach from Dice is that it's just an open architecture, open APIs to integrate booking platforms to Dice. So Dice can carry it out, but they don't do anything more. In GrassFish, we have both capabilities to connect to SSPs, which is actually where they bid for those audiences. There's also a module in the platform to handle retail media sales. And especially when it comes to retail media, the vast majority of the sales is for their current suppliers. So they need a tool for that. And when it comes to visual arts, as many of you might know, they actually sold their digital out-of-home business to Ocean Outdoors many years ago. But it means that there is a lot of know-how within the organization of visual arts. So that also means that they can be consultants and expertise for and assist retail brands in putting out the best strategy to capitalize on this opportunity.

Okay, great. And lastly, what is driving the 12% increase in growth in average revenue per license in the quarter?

Mainly, it is that we actually keep growing on our larger brands, which we focus on. And the churned licenses and the churned MRR during the quarter is concentrated on smaller customers. That is the main driver, I would say.

So it's the biggest growth on the largest brands also means that it has been direct customers in the quarter, especially in automotive where average price per license when it's a direct sale, it's so much higher than, for example, if we resell a license through DICE.

Okay, great. That's all from me. Thank you very much.

Yeah, thank you, Fredrik. So a question which is related to like the split in the ARR growth between like price increases, more modules and volume. And here we can say that it is volume, which is the absolute major driver here in the growth during the quarter. Okay, John, in the CEO letter, you are confident to sustain current organic growth going forward. Does that include visual art as well?

The quick answer is yes, as visual art was in a really strong momentum and we see no signs of that slowing in. And we see a really, really stable demand in both dice and grass fish. So we see no signs of slowing in.

There are some questions regarding ARR development in visual art. As you can see, the number 75 million, which is stated in our reports and in our presentation, is the ARR as of Q2. meaning that we have not yet presented any numbers for Q3 from Visual Art and this is because in the integration work we now work with actually going through all the agreements, all the contracts and verifying all the SaaS revenue so that we can be certain which can be qualified and included in the ARR going forward. So that will be communicated in the Q4 report.

Yeah. And for those of you who don't know the split here, for example, in the verticit reporting, we want to be 100% sure that what's included in the ARR is pure SaaS license and support, and it should not be consultancy services, even if that is recurring. And one thing that we actually do in every acquisition is that we go through all the contracts and see if there are anything that should be put in the consulting retainer category instead of SaaS so that we keep a very, very high standard on our ARR. So if there is deviation on the 75, it should be on the upside. That's the only thing we can state right now.

And complementary to that, there can be a difference between SaaS growth and ARR growth. It is directly connected to the fact that we are very strict when it comes to what revenues that we actually do include in our ARR. And we constantly go through, especially like the acquired contracts and acquired SaaS revenue and to qualify what can actually be included in the ARR. A follow-up question on the US market. Even though you do not reveal any details on the US partners, can you elaborate on your plans for expanding on the US market?

Yeah, so that's actually work that is on the table right now as we are in the budget process for next year. And what we can say is that there will be more investments into the market. Now we're in the discussions like, We now have Visual Art presence in Chicago. We had plans to establish presence ourselves with GrassFish and now we have a really nice traction with Dice where we also need some sort of partner support. So we are just in the decision phase on priorities so that we don't run into many parallel streams here when we step into the markets.

Jan-Willem Wasmann, And one question that net revenue decreased for for the quarter, which was which was attributable to lower systems systems revenue what what can be what can be expected going forward from this revenue segments. From systems sales.

So systems sales was lower. And it's basically in line with our strategy that we want to have a bigger and bigger and bigger portion of SaaS revenue. And that comes from working more with partners that actually carry out a lot of the installations and act as full service provider in many cases. And when it comes to visual art, we will apply more and more of the same strategy so that they work, especially in their international business, more together with partners side by side, where you have integration partners that take care of hardware. So we work hard to... actually increase the share of the SOS revenue. And for those who have followed Vertisit since we listed a company knows that we had 25 percentage points when we listed a company and now we are way above 50. So it's the same recipe that we of course want to use for visual arts.

And the last question is, when can we expect a next acquisition?

Like, visual art is a large, important acquisition for us. And we will make sure that we integrate that fully and properly when it comes to management system, ERP infrastructure, licensing management, but also IXM grid and the the underlying technology, but also the strategic offering. So there is a lot on our table right now to work with. If you look at historic numbers, we have more or less done one acquisition per year. And so I think that is the best guiding going forward. But we want to make sure that the visual art is taken care of before we put more acquisitions in the making.

Thanks. And that was it for this earnings call. We will return in this forum when it's time to disclose the Q4 report, which we're looking forward to, where visual art has been integrated and consolidated in the group for the whole fourth quarter. So please check in with us next time. And thank you very much for watching today.