Vertiseit AB (publ)

Hi and welcome to this earnings call for Vertisit's Q2 report for 2025. My name is Jonas Lagerkvist, I am Deputy CEO and CFO of Vertisit and beside me I have Johan Lind, CEO of the group. So today we have disclosed the numbers and the outcome of the second quarter for 2025. And as we do every quarter, we meet for this earnings call broadcasted from Varberg. This is today's agenda. We will give you some details on the recently finalized MDT acquisitions. We will go through the financials for the quarter and elaborate on what we have done during this period. And we will finish off with a Q&A session where we will answer all the questions that will arise during the call. So please use the Q&A function to post your questions. Should you wish to join the call and talk to us live, then use the raise hand function and we will let you in during the Q&A session in the end of the call.

Yes, so for those of you who are new to the company, Vertisit, we are a SaaS company offering in-store experience management platforms to enhance the customer experience in stores. Our customers are leading brands and retailers that use our tools in their operations, particularly in store to operate all digital touch points, everything from where they run everything from brand communication to tactical sales to the sales support tools throughout the customer journey. In the Q2, just as we finished Q2, or the day after we finished off with the MDT acquisition, and I will go through some of the rationale and the highlights from that acquisition. MDT in short, it was founded already 2002. For us it means that we now take a leading position in the German market. We dominate like the Nordics, we have been strong in Daesh, but the German market is of strategic importance for the group, as Germany is one of the largest economies in the world. MDT have two main accounts which are of strategic importance for us is Deutsche Telekom and McDonald's and just to grasp the scope only McDonald's is 1200 plus locations only in Germany and it also adds to what we already have with visual arts in the Nordics and Spain and some other countries for McDonald's. In total, we had 30,000 licenses, 20 million in ARR, and that's not included in the disclosed numbers in this report. It's 15 employees and they operate with a very solid EBITDA margin above 35%. And their sales strategy is also in line with how we grow our business with sales through partners. This is just some examples of how it looks like in reality. So this is pictures from McDonald's and Deutsche Telekom. As we say, they already have a partner strategy with different type of partners. Everything from AV integrators like CanCom, DigMedia, Flyer Alarm, which is more of a long tail strategy, MIB. And they cover like different type of partners and verticals. Looking into our operations in the Vertizit group, we operate through Dice, GrassFish and Visual Arts. And MDT will be fully integrated into GrassFish. And I will give you some flavor on that one on the next slide. So MDT fits like 100% to GrassFish. GrassFish and MDT have more or less overlapping functionality from a platform perspective. Also from a strategic perspective they really fit. This time we will run a full integration where we aim to do it in three months. three months. So that's aligned with the strategy that we updated you all on in Q1, where we say we now aim for more of a roll-up approach, where we fully integrate smaller targets but with a higher frequency. So within three months, we should be able to integrate the management system, our way of working, ERP, IT infrastructure and organization. and join forces on the GrassFish Aqua development.

The acquisition was performed on a company valuation of 4.3 times ARR at 87 million on a cash and debt free basis. And we also made use of the previously communicated new financing structure that has been set up together with our main bank, Nordea. So we use these new credit facilities together with our existing cash in order to finance the acquisition. So moving into the financials for the second quarter of 2025, we continue to have a stable ARR growth, now exceeding like 13 years of sequential ARR growth every quarter. We closed the quarter on 290 million Swedish crowns in ARR. And as Johan pointed out, the MDT contribution of 20 million is not accounted for during the quarter as the acquisition was finalized after the quarter, but will be included during Q3. Compared to last year, ARR growth amounted to 66% and of these 66%, 16% was constituted by organic growth. and we think this is a stable outcome of the quarter and we're also performing in the range of 15 to 20 percent that we're used to and that we have communicated to perform on going forward in terms of organic growth. During the quarter, we had a 4% growth isolated in Q2. The NRR, the net revenue retention was 107%, meaning that we continue to see that half of our growth come from our existing customers and half of our growth come from newly acquired customers. And the churn rate is definitely under control on an annual basis. So MDT will in Q3 contribute with 20 million. So on today's levels or Q2 levels, we will be on 310 million. So we're almost a third of the way towards our long-term targets. And on the level that we are on now, we would require a 17% organic growth rate throughout 2032 in order to organically reach the long-term target of 1 billion in ARR. But we still have and we maintain our strategy where we are to grow organically together with selected acquisitions. But at this growth rate, we would reach the goal organically in 2032. Compared to last year, we have a sauce share of total revenue, which is somewhat lower than we had before. pre the visual art acquisition. And that is of course, one of our very important tasks in order to increase profitability is to work so that the revenue mix moves back towards having at least 50% SaaS component of total revenue. So the EBITDA margin came out at 13% on an adjusted basis, which is very much in line with our own expectations and our own plan, where we said that we would be on a somewhat lower level during the first half of the year, during the visual art integration, which was finalized in Q1. So during Q2, as we previously announced, we've been focusing on identifying, evaluating and realizing the synergies from the acquisition and in the organization. which has been both evaluated and realized by the end of the quarter. Thus, the EBITDA adjustments of just below 17 million.

And to give somewhat a flavor to that one, we can say that Before this realization of synergies, we have dual locations in the group in Oslo and Copenhagen and some other places. So we reduced the FTE with 20 people. We also reduced... many consultancy agreements that we have with consultants. So the total of this synergies and the actions that we now have taken will give us an EBITDA level above 20% the second half of the year.

So among the actions performed, worth to mention is that we further centralize group functions. We align on how we expand internationally, just like so that we... don't have any or have as little geographical overlaps in terms of organization going forward so that we can continue to scale our organization in an efficient way. We have also closed down like a third party warehouse to further rely on partners even more when it comes to system sales and and systems rollouts. So altogether, these actions, which will be implemented during the second half of the year, like fully enforced, they will improve both profitability and cash flow with around 25 million Swedish crowns on an annual basis.

But to be clear, all actions, all decisions are already in place.

Yes. And besides these efficiency measures, there's also an adjustment of M&A costs. So it's cost related to the acquisition, which was finalized after the end of the quarter. And in this there are also costs related to the establishment and the setup of this new financing structure. And with a new financing structure in place, which is a scalable structure that we can continue to grow with over a number of years. um including uh like a revolving credit facility which means that we can that we can be more efficient in uh in how we utilize uh the current the uh the current credit facility meaning that we we that we do not have to have larger like outstanding amounts than than necessary And that is, of course, also resulting in a much more efficient way of reducing interest expenses and so on going forward. And the reason for this financing structure to be implemented in the first place is, of course, to support the current M&A strategy, where we're looking into performing more roll-up acquisitions in somewhat higher frequency, but that can be smaller in size than the acquisitions that we have done the recent years, which all of them have been large compared to Vertise's own size. And we're really happy to do the first test run of these credit facilities with the first roll-up acquisition performed of MDT. after the end of Q2. So now we move into the Q&A. So please, we can see that Fredrik Nilsson from RedEye, analyst at RedEye, would like to join the call. Hi, Fredrik.

Hi Jonas and thank you. Could you elaborate a bit on what kind of rules you are reducing in addition to the offices that you mentioned?

The offices is more sales related where we don't need duplicates between GrassFish and VisualArts. The most other positions are related to group functions. So we now centralize even more when it comes to procurement, when it comes to HR, when it comes to finance. So I should say related to group capabilities are the rest.

Okay, great. And also, I think you mentioned, at least in the interview with Direkt, that you see a somewhat more cautious market than you have hoped for. So could you please tell us a bit, is there a difference among geographies and sectors? And why do you think the market is a bit more cautious than you expected?

So we can see that the growth rate is now in the lower part of the normal range between 15 and 20% organic growth. Q2 was a little bit slower than our own forecast for Q2. Q1 was pretty much in line and it was really clear when the tariff discussions in the US had the effect on us that a lot of decisions, even though we have a strong pipeline, that a lot of decision was postponed into the future. And so I should say that given that the sales cycles have been longer now, I think it was a solid growth in Q2. And I expect it to be more or less in line or a little bit better in Q3.

I see. And it might be a bit early, but it would be still interesting to hear any potential feedback from customers regarding GrassFish Aqua. And have there been any implementations or discussions with it so far?

Yeah, so that's correct. So we launched the GrassFish Aqua. It's the first really grid-based, pure cloud platform. We launched it at GrassFish Summit, which was a really great event. 200 attendees in during a three days event. The feedback on site was fantastic and we have a lot of demos with customers at this stage. But I should say that it might take half a year before we have any large scale implementation. of what we demonstrated on stage. But what Fredrik talked about is that the GrassFish Aqua have the first real agentic AI implementations where you can basically get the system to communicate for you based on your communication goals with really nice AI enablement in the product. so of course like ai enablements in the product is a key pillar now in our product development but i think it it will take take some months before it's a it's a real real driver in in growth okay i see and finally you have seen a very low churn for some quarters but also a slight negative trend in natural new retention what are your takeaways from that

I think the key takeaways is that we see that the growth from existing customers, it remains at almost exactly like 50% of the total growth. So I think it's quite natural that the net revenue retention reduces a bit when the overall growth is lower than previous quarter.

Yeah, it's the same. My analysis is the same. Activity is a little bit lower in the market. That's the fact we see.

But in the same time, we have a historically strong pipeline, but sales cycles tend to be a little bit prolonged when the market takes a little bit more cautious position.

Great. That's all for me. Thank you very much.

Thank you. Thank you, Fredrik. We also have Rickard Engberg. Rickard, are you with us?

Hello, guys. Can you hear me? Hi, Rickard. Hi. So, great. I have a few questions. First of all, are there certain industries where you see a high pace in the, so to say, slow diamond conservatism? For example, how is the automotive industry compared to QSR?

Our automotive customers are on that scale. So the implication in their activity is lower than you would think because their rollouts is multi-year plans. So it doesn't change that rapidly. So I think we don't see any like real sector specific differences right now I think it's a climate where people focus on what will happen with tariff how will that affect them and in that climate it's always a good choice to just wait with new investments but that said I think delivering 16% organic growth in that environment is still strong okay great and also I mean

In the start of the year, you talked a lot about the US, given the current climate around terrorists, especially for screens. Has this planned expansion been put at a lower pace now than at the start of the year?

Yeah. So, of course, it affected a lot in the U.S. market. Even though we don't sell equipment there, there needs to be equipment from our partners sold and imported. And they don't produce any displays in the U.S. market. So, of course, U.S. market was affected. But U.S. market is still a very small portion of our current business. So it's have...

not that big of an effect and i think they will the we believe they will sort it so it doesn't change our future view on the us market as a important market for growth going forward okay great and just one question for for clarity when you when you discuss that the ar growth rates will be above 15 that is the organic so to say on a year basis yes okay good and uh my last question is regarding MDT, they had a quite high EBITDA margin when you acquired them. Will it be possible to see any like synergies on the cost side there? Or do you think that we will continue to operate on these quite high margins?

As you say, they step in at a level that is in line with our long-term goals of 35% cash EBTA. So we don't aim to do any cost reductions short-term there. We think they're on a good level. Long-term, of course, there will be synergies, but short-term, no.

Okay. And finally, just a question regarding your M&A strategy going forwards. Are there, like, the targets that you're looking for, are they, like, similar size to MDT and of similar characteristic, i.e., that they have certain key customers that you would like to get closer to?

Yeah. I think MDT is a perfect example of our new strategy. It's an 80% SaaS, a sale-through partner. They have some key customers with large volume in markets where we want to grow. So I think they're really in line with what we are looking for at the moment.

Okay. Thank you. That was all for me. And I guess happy summer.

Yeah, thank you. We have some more questions on the MDT acquisition. One regarding McDonald's. You have McDonald's in the Nordics, Spain, etc. How come that you want to buy customers on older software instead of organically winning this market yourselves at a seemingly lower price?

Yeah.

What's the dynamics?

The dynamics is that the sales cycles of winning like huge installations like the Deutsche Telekom and McDonald's, it's multi-year. So it's like a really good rationale to buy accounts of that size because you only manage to bring a few of them yourself at the time. And also actually visual art lost against MDT on the software side in the last run. So I think Building really strong position at large brands where at the end of the day we want a global framework agreement with those brands. I think it's important to take key markets.

A software related question regarding MDT. Okay, how come that the MDT software integration takes three years? Is the backend also expected to take three years?

Good question. So what we see with MDT is that they have a lot of complicated integrations done for many, many years with especially Deutsche Telekom. where there is a lot of functionality in their software that we have in the roadmap of Aqua, but one year from now. So we need to catch up with the roadmap in Aqua to meet some of the key features that they have for especially Deutsche Telekom before we can start the migration. So if everything goes as we expect, I think we will start those migrations 12 months from now. And if in a good scenario, we are done in two years. But I'm not afraid if we take up to three years, which is also the end of life for the old GrassFish One platform that we run with BMW, Porsche, etc. It's the same scenario there.

Okay, and some efficiency measures related questions. I think we've already gone into the components of the measures that was done. And then we could clarify that of these measures, approximately half of this cost that was accounted for in Q2 was cost of staff related costs. And the type of positions that was affected were mainly group functions, where we centralized these even further, also geographically. And also overlapping positions in markets outside of the larger markets, in the smaller remote offices. If you compare the costs related to the MDT acquisition with the costs from the visual art acquisition, they seem quite high. Why? And yeah, that's absolutely correct. But then we should bear in mind that like a portion or a quite large portion of the M&A related acquisitions, M&A related costs are also related to the establishment and the setup of the new credit facility. And that will serve us for many years going forward. So that's that explanation. Lastly, if there are no further questions, you described the market as more soft than before. What's your view on the second half of the year?

So as we say we tend to grow organically between 15 and 20 percent and Q2 was a little bit softer close to the 15 and I should say in the range between 15 and 20 we will be closer to 15 the second half of the year even though we have a really strong and super interesting pipeline but we see that decisions now take longer and sales cycles are slower.

And that was it for today. We would like to wish all of you a really, really good summer. And we will see each other again when it's time to present the Q3 report. Thank you very much. Thank you so much.