Yesterday, where Vertiseit announced the acquisition of Visual Art. My name is Jonas Lagerqvist. I'm the Group Deputy CEO and CFO.
My name is Johan Lind. I'm CEO for Vertiseit.
Here today, during this brief call, we will give you an update of the acquisition structure, the thoughts going forward. We will, of course, be able to answer questions by the end of this investor presentation. Please use the Q&A function, and we will answer any questions at the end of the presentation. Johan, would you like to tell us a bit more about the acquisition?
Of course. So, Visual Art is one of the main players within digital in-store and digital signage in Europe, basically. They have a really strong market-leading position in the Nordics and is one of the pioneers in the industry. In recent years, they have started to work more towards software and through partners, which aligns really well with the strategy and path that Vertiseit Group are at. If we look at some key figures just to give you some sort of grasp of where they are today. So they had approximately SEK 75 million ARR. The last year revenue was SEK 348 million.
They have a demonstrated history of strong growth with a CAGR of 24%. And it's 120 talented people that make things happen at Visual Art. One obvious thing for us when we look at the match is that they're really strong in segments where we are not. So looking into QSR, quick service restaurants, looking into convenience stores, looking into groceries, typically areas where Visual Art has really dominated the market both in the Nordics, but they also through Europe and actually beyond in some cases.
So, to the right, you see some of the key brands that they bring to the group with McDonald's in many markets in Europe, Subway, the same, where they expand throughout Europe, 7-Eleven on actually on selected markets globally, and so on. So it's really a nice match where because QSR is really one of the largest segments on a global basis. Okay, and looking into investment rationale a little bit deeper. So, it's two pillars for us. This is really a premium acquisition that accelerate our growth. It's, and it also strengthen our SaaS offering, but I will give you a little bit of a glimpse within those two pillars.
They are a strong brand with a strong team, and they have really nice performance with their existing growth, and it's something, of course, that we think that we can develop even further with the partner network that we have in place. They add top-tier customers and brands with a global growth potential, and it aligns really well with the strategy that we have to work with international brands that we can expand on a global scale. They contribute with adding international presence in key markets, including existing partners in Asia, Australia, et cetera, and they also a local presence in North America. However, with a small footprint up to now.
They strengthen our SaaS offering, and they have an award-winning platform that they launched this year. It's microservice-based Azure technologies, and it fits really well into the joint IXM Grid backend that we invest in. It also reduced the time to market for the IXM Grid project as such, where we build all existing CMS platform, IXM platforms, onto the same backend stack. Next up is, of course, how do we look at positioning? Is it overlapping? And will the brand remain? Our strategy is based on that Visual Art is a standalone brand to really leverage from the momentum, the brand, and the performance that they have.
And we will focus even more on digital in-store concept creation, which is really where they are like the number one from our perspective in the market. Grassfish can then focus even more on platform and expertise, and Dise will continue like pure SaaS play sell through partners. So both Visual Art and Grassfish are direct sales, but they will work more and more together with partners to have a larger and larger share of revenue coming from the SaaS business.
Altogether, we have beneath this a joint IXM Grid, and Visual Art's current tech stack will be a fantastic contribution, both in terms of already existing technology, where most of their customers are already deployed, but also a very, very talented team of developers that will give us really a really strong addition to the IXM team to enhance the development speed, basically.
Going into the acquisition structure, the purchase price for Visual Art was SEK 457 million on a cash and debt-free basis. And this is financed partly through a directed share issue to one of our current shareholders, Bonnier Capital, who will invest another SEK 200 million in Vertiseit, making them the single largest shareholder in the company. And we've worked in parallel together with Bonnier in order to make this acquisition happen during this process. And we very much appreciate the collaboration that we have together with them, and looking forward to working very closely together going forward.
And, subject to approval on the Extraordinary General Meeting , Bonnier Capital's CEO, Carl Backman, will also join the Board of Directors for Vertiseit. And, the remaining part of the purchase price was partly financed by a directed share issue to the management, former owners and founders of Visual Art, who we are also looking forward to for them joining us on the joint Vertiseit journey together. And, the remaining part was financed by our main bank, Nordea, the bank loan, amortizing this over the coming five years.
The sellers have also received one million warrants, which means that in three years they will have the possibility to acquire new Vertiseit shares at a strike price of SEK 65.
This also means in short that we also reach and exceed the goal of SEK 200 million ARR by the end of this year. So we were really on a good path. We said that even the organic with an organic growth we were in line with our target, but now we exceed SEK 250 million in ARR. It gave us a head start into the new goal period because those of you who know the company well knows that we had a Capital Market Day this spring, where we set a new target for SEK 1 billion ARR for the next goal period.
Looking into the pro forma for the new group on the 2023 numbers, we will give a more detailed update to the new consolidated group when we disclose the Q3 report in just about 30 days. Looking at the 2023 numbers, the group together would have a net revenue of almost SEK 700 million , which is twice the size of Vertiseit today, top-line wise. As you all know, we focus on the software revenue and on the annual recurring revenue, which will increase by just over 40%, given the addition from Visual Art.
So the revenue mix in Visual Art is somewhat different from Vertiseit's current revenue mix, with a larger portion of systems revenue, which on the EBITDA profitability level on day one the profitability will somewhat decrease. But we today now start the work with making sure that all revenue streams in Visual Art will of course have at least the same profitability as the rest of the group. And we believe that work will take year, will take some time, but we can...
That we will also be able to come back with more detailed update on, on how that will play out later on.
Yes, and of course, this, as I said, this gave us a good starting point for the next goal period, where we aim to reach one billion in ARR by 2032. As Jonas said, profitability-wise, with the EBITDA level is something we need to work with. We need to work on each revenue stream profitability to keep up with the group. And also we need to look at revenue mix going forward with more focus on working together with partners outside of the Nordics, use the same recipe as we have done before. And then, the financial targets, we really believe that Visual Art is a strong contributor to growth, delivering on the growth target.
Profitability-wise, we think that if you just look one, two years into the future, they will contribute really much to the profitability. And then revenue retention, Visual Art is really a brand which have always delivered quality and have been appreciated from both competitors and customers. So we see no, no risk that it will have a negative effect, probably on the other side.
Okay. So, now, please feel free to post questions in the Q&A function, and we will do our best in order to answer these. So, one question is about the US, and it's "When and how do you expect to focus on the US expansion?
We actually put quite a big portion of our time already on the North American market right now. And having people and a local office there will of course give us an even better position in landing new both customers and partners in the market. But until it's a big portion of the revenue will take years. But I think we're getting there. I see that we have a raised hand there on the screen from -
From Fredrik.
Yeah.
Fredrik Nilsson at Redeye. Yes.
Hi, can you hear me?
Hi, Fredrik.
Nice. Thank you.
Yes, we can hear you.
Just one question on the strategy on the Visual Art brand outside of the Nordics. You mentioned that you want to utilize their strong content creation skills. Will that also be outside of the Nordics, and how will that work with the partners and the partnerships, if so?
I think you need to distinguish between content and concept. So, actually, the pure content studio is quite small. It's really an edge, especially in the Swedish market. But where we believe that they can exceed even outside of the Nordic market is really in concept creation. So, you can say, like, from an- it's how you actually design the digital in-store solutions based on the service blueprint, the customer journey, how you integrate it into the actual physical store concept, et cetera. And, so that's the part where I think they can also work together with partners on a global basis, to...
It's an edge that they have compared to all other players in the market, I can say.
Okay. Thank you very much.
Thank you, Fredrik. We also have Rickard from Carnegie. Hi, Rickard.
Can you hear me?
Yeah, we can hear you.
Okay, great. So, it's about the Visual Art, basically the mix. I can see how much SaaS revenue they have, and where, and your recurring revenue. But the rest of the part, is that mostly hardware, or is it related to more consultancy business?
Yeah. Maybe you can give a split.
Yeah.
We also have a question why ARR is reported below SaaS. I know, so maybe you can take those questions, Jonas.
Yeah. Looking at the whole revenue split, I would say that half of their current revenue, if we look into the 2020 to the 2023 numbers, half of the revenue is systems. If we use the same terminology as we do in Vertiseit, half of the revenue is systems, 25% is consulting, and 25% is SaaS. Those of you who know that we always evaluate our ARR revenue, and we're very strict when it comes to the recognition of what can actually be defined as being ARR.
That means that even though the full SaaS revenue might not be at the starting point defined and qualified as ARR when we put it into our books. We need to qualify that it is actually only like software revenue, meaning license and support, and that there are no services, which is dependent on like too much like a manual labor or manual effort.
Yeah. That's why it's adapted to the seventy-five million in ARR. So that's with safety margins for contracts that we have looked into during the due diligence process, where we have identified, for example, service... What we should consider being-
is to go through all contracts and qualify all SaaS contracts, so that we can actually decide on what the
Yeah.
What the actual ARR will be.
Yeah, but the risk, the... We feel that we have a safety margin when with the state at seventy-five, so there is no risk on the downside.
Exactly.
Okay.
Did that answer-
Thank you.
- your question, Rickard?
Yeah, really well.
Thank you. Continuing question on the revenue mix. Could you elaborate on the margin profile on the revenues which are not SaaS?
Yeah. Well, what we have seen is that the margin from systems is, I think, five percentage points or something below what we perform in the group today. And I think when we actually bring this together into our existing capacity in the purchase department, it will take less than a year to reach the same level as we have in the rest of the group today.
In Vertiseit, we have a strict NRR target, net revenue retention, meaning growth on existing customers. Could you tell us something about the growth in Visual Art split between existing customers and new customers?
Yeah. I think it follows basically the same patterns. They haven't tracked that the same way as we have done. But if you look at the largest, like, 20 accounts, there have been no churn. And they add like one or two really large brands per year, where we have seen strong growth, take Subway, for example, but it follows the same pattern as the rest of the group. It takes years before you reach large volumes, so I think you can have the assumption that it follows the same pattern as our existing business.
A question regarding the acquisition structure and the warrants and to which sellers these were offered. The one million offer warrants that was offered to the sellers were distributed pro rata, meaning that all sellers were given warrants in proportion to their share of ownership. The warrants, the construction is really simple. They have a duration of three years, and in three years, they give the holder the opportunity to buy one new issued Vertiseit share for every warrant held at a share price of SEK 65, meaning a premium of approximately 50% of the Vertiseit share price pre this acquisition.
And could you elaborate a little more on the systems and the gross margin profile?
Mm-hmm.
And the-
Yeah.
Yeah, on the-
Approximately, the margin in the group pre this acquisition is 30%, right?
Yeah.
I'm right in rough numbers? And what we have seen, basically, give or take, is that the margin is 25% in Visual Art.
Yeah, and looking ahead, we don't see any reasons for like a deviating margin profile in Visual Art versus Vertiseit. The U.S. presence. Could you elaborate on the U.S. presence and the prospects for that going forward?
Actually, what we are seeing is that the Visual Art have started to roll out on a number of brands in the U.S. Quite the small footprint so far. They have established an office in Chicago, right?
Mm.
Yeah, and Chicago is also like where McDonald's headquarters is located. So of course, the strategy had been to focus like especially on QSR and convenience stores like Circle K, for example, have been customers where we're focused a bit.
Thank you. That was all the questions for now. And thank you for watching this brief investor presentation with an update on the Visual Art acquisition. We will, of course, include more detailed information in the earnings call for the Q3 presentation, which will be on the 30th of October. So, until then, thank you and goodbye.
Thank you so much. Take care.