Hi, everyone, welcome to this extra investor call that we host due to the announcement that was made last night that Vertiseit acquires Scala. We are currently out of office, but did yesterday finalize the acquisition of Scala, on which we will give some further information during this call. We will give a brief presentation on the background and about Scala as a brand and as a company. We will go through the acquisition rationale, the structure, and by the end, we will also open up for questions. If you would like to ask questions, you can use the Q and A function, or you can also use the raise hand function if you wish to join the call and speak direct. We who host this call today is me, Jonas Lagerqvist. I'm the Deputy CEO and CFO of Vertiseit.
On the other line, we have Johan Lind, CEO of the Vertiseit Group. Please, Johan, go ahead.
Yeah. Starting off with a brief introduction to Scala. For those who have followed the Vertiseit journey and the digital signage space, Scala is actually the pioneer in the industry. The company was founded already 1987 in Norway. It eventually moved their headquarters to the U.S. and was then acquired by Stratacache, at the time, the largest integrator within our industry. 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. I think it's fair to say it's the most well-known brand globally. They have a large installed base. We will look through into the details, but for us, it means that we add a top line of SEK 200 million. We add an ARR of SEK 85 million.
We will have a profitability after synergies that we will realize throughout the year of 35%. The company has 100 employees, but since it's a share and asset deal, not everyone will join in. The details on that we will take after closing. I think this is also why it fits in, is that we know the Scala business really well because when we founded Vertiseit in 2008, we actually become a Scala partner ourselves.
We were a Scala partner until 2016. When Stratacache 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. We decided to acquire Dise, and we basically copied the former Scala strategy for Dise. Since then, we have grown significantly and now, eventually, when we acquire Scala, that's SEK 85 million in ARR.
Of course, since they have been in the industry for so long, they have a huge install base of perpetual licenses. Their footprint is huge. We will look into a little bit of how the ARR is made up, we can come to that later. Talking about the investment rationale, it significantly expand the international partner ecosystem. It adds 100 partner plus. It adds more than 1,000 brands to the customer list. It strengthen our global position within in-store experience management, most importantly, now we finally take off, after two,three years of exploration into North America. We take a significant step into the North American market since almost 50% of the Scala revenue is from North America. It also adds other key markets all over the world, especially Middle East, Asia, where we see a lot of demand.
It adds an installed base with untapped SaaS potential, meaning that only a small portion of their installed base is on true SaaS today. Most of the installed base is a perpetual license model with maintenance fees. That's what the ARR is calculated, only on their existing SaaS revenue and their recurring maintenance fees. Of course, once we transform perpetual into SaaS, the potential is huge. We have done exactly the same move with Dise at the time. We know exactly the playbook on how to work this out, and it's something that will take two to three years to achieve. Their profitability will be in line with our targets. It's 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.
You will have a pretty nice understanding on how it affects the group.
The acquisition is made out of shares and assets, meaning that in the European operations, we acquire the Scala companies. Scala in Europe is currently headquartered in Sittard in the Netherlands. The non-European business, which the majority is based in the U.S., we acquire the actual assets, so the IP and the contracts and so on. The combined purchase price for the whole Scala global business, including shares and assets, is SEK 265 million. It's financed partly by expanding our current credit facility with Nordea Bank and partly through a directed share issue.
Price premium, yeah.
to a price premium to current and new investors. SEK 182 million in the directed share issue, which was finalized last night after the stock market was closed.
Yeah, going directly into the integration. Scala, we will preserve the Scala brand. We will put a lot of effort into the Scala product because it needs to catch up a bit. Scala will continue as a strategic software offering within the business brand Dise, because Scala and Dise have very similar product offerings. They also have, at least under our ownership, the same go-to-market strategy with partner first, partner only. Basically the Scala product, the Dise product, will be brought to market within the Dise organization. We will gradually, of course, transform the perpetual licenses into a true SaaS offering. We will gradually move Scala into the IXM true SaaS software stack. That's a two to three year project. We will have a device-agnostic offering so that we open up for device partners again.
That was the core of Scala, so we want to bring Scala to a true software play. Today, they have their own media players and more. That will eventually change.
That was more or less it from our side. Given that the acquisition was signed yesterday but is to be closed during May, we, of course, can disclose more information once the transaction is finalized. Please, if there are any questions, we are happy to take them on. Yeah, we have Fredrik Nilsson, analyst at Redeye. Can you hear us?
Yes, I can hear you. Can you hear me?
Yes. Hi, Fredrik.
Hi, Fredrik.
Great. Thank you. Perhaps you don't want to answer on this one yet, but could you give any indication about the growth rate historically in the ARR base in Scala?
Yeah. It's hard for us to say because we haven't had a chance to look at those exact details in this process. I think we need to get back on that one. We are quite sure ourselves that from here and onwards, we are able to grow Scala in line with the growth rate of the group. 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 SaaS offering.
I see. Great. Regarding the migration, how fast do you expect that to occur? 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.
What we see is the mix that we communicated. The SEK 200 million on top-line revenue, when we start, is made up from SEK 85 million in ARR. The rest portion is perpetual license sales. It's consulting and it's hardware. What we will do is, of course, that you gradually change that mix for every license also on the installed base that you convert from a maintenance contract to a true SaaS offering, of course, there's a huge potential. 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.
Yeah.
If you look at the size-wise, of course, we will take out hardware and maybe we will take out hardware like 25% per year or something like that from the mix. The consulting revenue, of course, we think some of that can be preserved in the group, but that will also decrease at some point. Perpetual licenses, of course, we want it to decrease, but if it decrease quickly, it means that we also have moved not only new licenses, but also existing installed base to a SaaS offering. You will see a really nice upside on the SaaS side of the equation.
Okay. You will basically continue to offer the on-prem solution for a while.
Yeah
Trying to increase the SaaS offer.
Of course, 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. They will need at least a two to three year period for conversion.
Okay. Also, could you give us some more details about the sales mix, excluding the ARR?
Yeah. I think if you divide it by three, you're not far from the truth. If you just say it's three pieces and they are almost the same size. We will get back with more details later on. If we start there, so out of the SEK 200 communicated, SEK 85 is SaaS revenue from active SaaS licenses and pure maintenance. The rest is in three equally large portions, perpetual licenses, consulting sales, and hardware from their own media players.
Great. That's clear. Lastly, from my side, I guess you, one or perhaps both of you, are down in Munich right now at the event. What has the reactions been from the industry about this acquisition?
Yeah, of course, it was the perfect place to be, right in the heart of the European digital signage industry. We are at the conference in the Digital Signage Summit in Munich. We announced it basically yesterday evening, and after closing, we went down and took a beer with the rest of the industry in Europe. We had a chance to see reaction in real life, and I think everyone understand that this is really great for the partner community in Europe. I think it has a huge impact on the trust for Vertiseit, the trust for Dise in the partner ecosystem, because Scala has really been a struggle, since they have had a mixed go-to-market strategy.
Great. Thank you very much.
Thank you, Fredrik.
Thank you so much.
Now we also have Rikard Engberg from Carnegie. Hi, Rikard.
Guys, can you hear me?
Yes.
My question is, and you partly answered it with your answers regarding the mix, but you state that once synergies are taken into account, Scala will be at a Cash EBITDA margin level roughly similar to Vertiseit's financial targets. What is it now, given the current mix? Are we talking about doubling the margin, or is it a smaller lift?
It's a really nice question. I think for you guys who work with predictions into the future, and based on the communication that is out and publicly available, if you look into after synergies realization end of the year, then its SEK 200 top line is 35% Cash EBITDA. Until then, from a profitability level, we will almost have the synergies in place right after the closing. Of course, from a cash flow perspective, we will have full effect by the end of the year.
Okay
Jonas, do you have anything to add to that?
No. 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 rest of the business to Vertiseit.
Okay, got you. That I understand. I guess that given what you said about the mix, I can have some understanding about what the underlying margin should be in Scala.
Great. Thank you so much, Rikard.
Thank you, Rikard. We have some other questions from participants. There's a question of how much of the SEK 200 million revenue is coming from hardware, and will you transfer that revenue to partners?
Yeah, absolutely. The goal is, of course, that Scala should be a pure-play software offering. The ambition is that the promise is that all new business are only through the channel. We'll of course transfer as much business as possible to partner, and definitely transfer both hardware and consulting assignments to the channel. As I say, if you take the SEK 200, you take SEK 85 million away for the recurring revenue, the rest of the revenue in equal pieces on perpetual licenses, consulting, and hardware.
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 said that we aim for two acquisitions this year. Now we will focus on this one and make it a fantastic deal not only for financially but also for the partners and the customers. I think we will look forward to the integration now three months, and after that, we can see when we are ready for the next one.
Yeah. 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?
Lower. Yeah.
It's actually lower. This acquisition is expected to have 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 that it actually will contribute with profitability more or less from day one. Also a clarification on the 35% Cash EBITDA on which revenue it is actually calculated. Is it when the systems revenue is phased out, or is it as it stands now?
Yeah. Basically SEK 200 is our best guess for full- year 2027. That's also all my references to share of revenue on recurring revenue, consulting, hardware, perpetual licenses. Actually, the turnover today is above the SEK 200 mark.
Yeah. Systems revenue, as Johan said, will be gradually phased out over a period of time. I think that was actually it. We had good questions both from Redeye and Carnegie and also from attendees. Like always, should you have any more further questions, you're more than welcome to reach out to me or to Johan. Now we will focus on closing this transaction and after that, we will be able to communicate more details around this acquisition. Thank you very much for attending and see you soon.
Yeah. Thank you, everyone. Bye-bye.