Nayax Ltd.

Hello, everyone, and welcome to the NAICS first quarter earnings conference call. At this time, participants are in a listen-only mode. A question and answer session will follow the speaker's prepared remarks. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. As a reminder, this conference call is being recorded. I would now like to turn the call over to Ms. Virginia Stewart-Gibson. Please go ahead.

Thank you, operator, and everyone for joining us today on this call. With me on the call today are Yair Nikhmad, NIAC's co-founder and chief executive officer, and Sangeet Manoor, chief financial officer. Following management's prepared remarks, we will open the call for the question and answer session. Our press release and supplementary investor presentation are available on our investor relations website at ir.niacs.com. As a reminder, during this call, we will be making forward-looking statements. All forward-looking statements on our call today are based on assumptions and therefore subject to risks and uncertainties that may cause actual results to differ materially from those projected. We have no obligation to update these statements except as required by law. You can read about these risks and uncertainties in our earnings press release issued earlier today and our regulatory filing. In addition, today's call will include a discussion of non-IFRS measures. These measures should be considered as a supplement to and not as a substitute for IFRS financial measures. Reconciliations to the nearest IFRS measure can be found in our earnings press release issued earlier today. All key performance indicators are intended to evaluate our business, and properly measure factors in the macroeconomic environment to guide and support our decision-making. These key performance indicators may be calculated in a manner different from the industry standards. And finally, please note that all figures in today's call will be reported in U.S. dollars unless stated otherwise. Yair will start the call with strategic and operational highlights. Then Segeet will go through the financial results for the quarter. With that, I would like to turn the call over to NIAC's CEO, Yair Nekmat. Yair?

Thank you, Virginia, and thank you to everyone for joining us on the conference call. I'm especially pleased to be on this call with all of you today. This month of May marks NIAC's first full year as a public company. Our results for the first quarter reflect the continuous strong performance that we have been delivering over these past 12 months. Demand for our platform and solution remained strong as we added an additional 36,000 devices, bringing the total number of devices to 553,000, and we processed 269 million transactions an increase of 87% over the three-year quarter. We reported a higher level of recurring revenue at $23 million. This excellent recurring revenue growth trend increased by 67% in first quarter over the same period last year, accounting for 66% of total revenue compared to 59% of total revenue in Q1 2021. Our customer loyalty, as measured by net retention rate, also hit a new high at 140% for the quarter. This is a result of our compelling solution and our commitment to constantly making them even better for our customers. This industry-leading metric also reflects the high confidence and satisfaction with our platform, solution, and the trusted partnership that we have developed over the past 17 years with our customers. As we previously communicated on our early calls, the destruction from the ongoing global component shortage remained a challenge and we saw an impact during the first quarter compared to Q4 2022. But a sequential decline in our post-device revenue. We continue to carefully manage the situation in order to supply the growing backlog of orders for our products and focusing on what we can control and mitigate as the situation evolves. Our strong results demonstrate the durability of our business model and the mission-critical nature of our technology in solving our customers' problems and their reliance on NIAX to grow their business. As we announced in April, our continuous strong results and the high visibility we have from the growing backlog of orders for the rest of the year give us the confidence in reaffirming our mid-term revenue growth target of 35%. It will provide more color on our financial performance and outlook later on the call. I would now like to talk about some of the recent partnership announcements and how they are advancing our strategy for sustained long-term growth and providing masks with efficient ways to scale our business even faster than our own. Let me start with our ongoing strategic focus on expanding our global footprint while establishing a presence in markets that are still poised for growth as they transition to cashless and accept more digital payments. Expanding into new markets and extending our reach globally has always been part of Knives' growth plan that we outlined and we have been delivering on that promise. Knives already has a global presence in key regions, as can be seen by our revenue mix. For Q1 2022, more than 40% of our revenue was derived from Europe, over 30% from North America, 12% from the rest of the world, and 11% from Australia. We are easing the results from this expansion strategy and seeing many more under-penetrated market opportunities. Let me give you an example of one of these attractive growth markets. We further strengthened our international presence with the announcement earlier this month about our market extension into the United Arab Emirates, or UAE region, through a partnership with Network International. Network is the leading enabler of digital commerce across Middle East and Africa. The collaboration will enable us unattended self-service solutions to be introduced to network's UAE merchants and enable seamless payment transactions with unattended self-service businesses segments, including vending machines, kiddie rides, car chargers, car wash, a laundromat, micro-market, and any type of smart machine or kiosk. The UAE NIAC solution will allow consumers to simply select their desired product or service and pay using their preferred payment method, whether it is debit or credit card. Working with Network International will enable us to reach various retailers in the UAE and other countries in the Middle East and Africa region, enabling growth for our customers with increased revenue and market opportunity, as well as access to tier one customer enterprise, a perfect win-win situation. We also announced an integration partnership with American Express. This is an extended partnership that we initially kicked off in Australia about a year ago, and we are now rolling out across the European region and UK market. NAICS UK will be the first office to implement these changes across all NAICS people's touch and ONIX cashless payment devices installed across unattended industries, including vending, self-service, laundromat, kiddie ride, office coffee services, automated car wash, and more. NICE has been accepting American Express cards in both the U.S. and Israel for many years through swipe only. This integration now offers payment acceptance through EMV. We expect to roll out to additional countries in the next upcoming month. This will enable NICE retailers to accept American Express cards for all purchases and services, giving them the opportunity for increased growth and revenue. The American Express card members now have greater choice of where they can use their card. With thousands of locations around the world accepting the American Express card, this partnership is a strong statement of confidence in having NICE as a key partner. A successful execution of our geographic expansion will help us acquire new customers and leverage our increasing scale. At the core of who we are, as a company is our unrelenting focus on technology disruption and innovation. This allows us to continuously add value to our customers' business and maintain a trusted partnership. During our participation at NAMA, one of the largest national trade associations of the convenience service industry, including vending, micro-market, and food service management, we introduced EasyFit, a bid validator kit allowing the acceptance of cash and cashless payments. EasyFit will work with Nike's proven award-winning cashless payment solution, Vipos Touch, used by almost 34,000 customers worldwide. With this solution, Nike simplified the acceptance of cash and cashless transactions from a single location on an operator's machine. Lastly, I want to remind everyone that the acquisition of OTI, a provider of smart payment solutions for unattended machines, remains on track to close in June. These acquisitions support our long-term growth plans to gain market share in strategic growth markets and accelerate our growth drivers in attractive regions such as Japan. We recently provided OTI a loan disbursement of approximately $6.5 million to repay its outstanding debt and support their current operations. the loan has maturity to NICE within two years. Once acquisition is approved and meets all statutory procedures and processes, NICE will invest $4.5 million and will assume full ownership of OTI shares. To wrap up, I continue to be pleased with our strong execution and the consistent progress we have made in delivering on our strategy and growth initiatives. With that, I will now turn the call to Sagit.

Thank you, Yair, and good morning, good evening, everyone. The strong business momentum we experienced in 2021 carried into the first quarter of 2022. Q1 results were very much a continuation of the trend we highlighted over the past few quarters. We continue to see broad-based customer demand across our diverse verticals and markets, demonstrating NIAC's value proposition and our focused execution. As Yair stated earlier, we deliver strong Q1 results despite the elevated global uncertainty and the ongoing disruption from the global component shortage. Let me start with an overview of the revenue performance in Q1. Total revenue for the quarter was $34.1 million, an increase of 50% from Q1 2021. Recovering revenue, which is comprised of our staff subscription and payment processing fees, grew approximately 67% over Q1 2021 to reach a new high of $23 million in revenues and accounting for 66% of our total revenue. We expect this revenue source to continue to drive the majority of growth going forward as we consistently grow our customer base. As a reminder for those new to the NIACS revenue model, our three main revenue pillars are derived from point of sales or POS devices, monthly staff subscription, and payment processing fees. The POS revenue for the device itself has a one-time fee recognized when the device is shipped. The devices we sell are the enablers, the engine for growing the number of our managed and connected devices, and in turn, create recurring revenue from SaaS and payment processing. The revenue generated by sales of POS devices tends to be sensitive to cyclicality. The monthly SAS subscription for connection allows for access to our telemetry and software management platform. This includes the management suite, connectivity, telemetry, and support services. Payment processing services are determined by the percent charged from the total transaction value per month. So recurring revenue from SAS and payment processing represent the core value our customers derive from our platform and the value add they see from increasing sales on one hand and cost saving on the other end. With every incremental device that we sell and connect, we establish long-term relationships that help fuel highly profitable recurring revenue streams. Now let me turn to the financial highlights for Q1. Starting with our customers who drive everything that we do, we reported strong customer growth of 62% over prior year quarter. As we expanded our customer base to 34,000 at the end of the quarter. Customer expansion remains one of our key growth drivers and is an indicator for our successful execution in expanding internationally, and entering key growth markets for cashless payment solutions. Turning to growth of our devices, managed and connected devices showed healthy year-over-year growth of 38%, ending the quarter at over 550,000 devices. Another key highlight in Q1 2022 was the significant increase in transaction dollar value, which doubled to almost half a billion dollars compared to approximately $246 million in Q1 2021. This is another catalyst driving a growing contribution from recurring revenue, showing the strong tailwind and providing healthy recurring revenue gross margin, which remained strong and stable in Q1 at 55%. Turning to gross margins. For Q1, growth margins were 38% compared to 35% in Q4 2021 and tracking in line with the direction we have communicated on our last earnings call. This is an improvement successfully achieved by various actions we're taking thanks to the excellent execution done by our purchasing and engineering team. The gross margin improvement was largely due to a better cost structure we were able to achieve in Q1-22 compared to Q4-21. However, the disruption caused by the global shortage in components is still ongoing. Moving to adjusted EBITDA for Q1. Adjusted EBITDA was negative $3.3 million. This reflects the temporary increase in our product costs as well as the increase in operating expenses from investments in talent acquisition, customer base expansion, and product innovation. Additional investments also include higher go-to-market expenses and enhanced infrastructure to support our global growth as we become a much larger company. However, on a like-for-like comparison to Q1 2021, adjusted EBITDA excluding two items that were introduced later in the year of 2021. First, a bonus for non-sales employees that was introduced in Q3 2021 for the first time. And second, excluding product cost increase. On a comparison basis, the adjusted EBITDA improved to negative $300,000, basically close to break even. As we discussed last quarter, 2022 will be a year of disciplined investment to drive future growth and support the scale we anticipate in the business. In an effort to continue capturing a larger market share, we are making focused investments in these critical areas today to accelerate our customer acquisition and expand our global reach with the ultimate goal of reaching the scale and efficiency to become the company of choice that we aspire to build. Lastly, we ended Q1 with cash-in-cash equivalents and short-term deposits of $71 million. These strong results further reinforce our conviction and plan, as we've previously stated, to achieve profitability as we enter 2024, if not before, while we continue to take advantage of the significant market opportunities in front of us. With our strong results over the past several quarters and the continued tailwinds we see from the transition to cashless and the broad acceptance of payment digitization, we feel confident in our long-term growth aspirations. Additionally, based on the high visibility we have from growing backlog we see today, we are reaffirming our mid-term annual revenue of $220 million and our growth rate of 35%. We continue to expect that customer growth, increased market penetration, and continued expansion of our platform will serve as the main growth drivers. As for long-term outlook, Gross margin in the long term is expected to reach 50% by providing listing options for IoT POS and by growing the recurring revenue. Our long-term adjusted EBITDA margin guidance is set around 30%. In the near term, we expect to continue seeing margin pressures compared to pre-COVID levels related to the sale of POS devices as the global component shortages continues to play out. With our rapidly expanding and diverse customer base across verticals and geographies, multiple growth opportunities from the strong secular tailwind, and with our industry-leading net revenue ascension rate, we remain confident about the NYX business and our ability to deliver on our growth trajectory. Before I turn to the operator for the Q&A session, I want to let everyone know that we will be hosting our first Capital Markets Day at the New York Stock Exchange tomorrow, beginning at 8.30 a.m. Eastern Time, and we look forward to sharing a growth journey with all of you. I would now like to turn the call to the operator so that we can take your questions. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you say press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question today comes from Dominic Gabriel, an analyst. Please go ahead.

Hey, good morning, everybody. Good evening. I guess, you know, can you just talk about the demand for your unattended and your in-person point of sale devices and how that demand may have changed over the last, let's say, six months between both of those? And then I just have a follow up. Thanks so much.

Hi Dominic, it's Yair. Sure, the demand that we see is increasing. The signal for this from our perspective, of course, is internal data that we have in our backlog. And even if we'll provide and supply all the units, we are seeing the increase. And more than that, the team have been presenting in shows. The last show was in Bend, Italy. It was last week. And we saw a very, very, very good increased demand from customer base. So it's not just that we have in-house demand. It is something that's approaching us and being presented to us all the – potential that customer wants to have. And we're seeing this coming mainly to Knives at the shows. There are many, many customers with different kind of processes that are requesting from Knives to achieve their goals. So we are very much in terms of optimistic regarding the demand in the market.

Great. And then, you know, the gross margin looks like it actually stepped up. from the fourth quarter level, if I'm looking at this correctly. And so do you think that, I know that there's been some pressure from the various factors that you discussed on the call. Do you think we've seen the likely bottoming of the gross margin, given some of the initiatives you're making around cost cutting and the various things? But if you net all of them together, do you think we've seen the kind of trough in gross margin? Thanks so much.

Hey, Dominic. Great to have you with us on the call. So, yes, we do, as we said, our team between engineering and purchasing and the entire R&D team working day and night to find creative solutions to specific components that we see a shortage there. we saw, as you see, an increase in the gross margin or improvement in the gross margin. It's not yet the pre-pandemic percent that we were so lucky to have for many years, and working towards that is very digitized. The point that I wanted to mention is that The uncertainty is still there. It's an ongoing pressure. And, you know, time will tell what the gross margin for household would be or how long that will take. But as you said, we're doing all kinds of different cost structure initiatives to reduce the price.

Great. And then actually just maybe one more here. The And then I know you've talked over the quarters about, you know, about kind of leaning away from increasing the pricing given some of the margins that your customers have. But we do see some fairly significant price increases at some of the, you know, retail providers today. I was wondering if you've evolved on your pricing structures or if there's ways to structure your pricing differently for your customers that help capture some of the supply chain pressures. Thanks.

I think we're analyzing this on a daily basis, per customer, per region. We are very much sensitive to the customer base of what they can do as well in terms of increasing the prices. We did some mitigation regarding no promotion, no discount that we used to do for some bulk buying. But again, I believe it is something that we can overcome and the customer will appreciate. And the target of growth as the number one globally in the market is very much appealing to what I think is the right thing to do and reaching out to the level that when we go out from the bushes of this supply chain issues will be revealed as much stronger company in terms of what would be perceived by the customers. And let's call it the midterm is much more important, in my opinion, to reach out to a very long term of growth, 35% year over year. It's kind of a mission that we think that can be achieved by NIACS and extend the gap between NIACS and anyone that wants to come to the market will be Now we have 34,000 customers and we're growing on a 4,000, 5,000 customer a quarter. It's extremely important, in my opinion, to be on this level of fair growth. So we do take care of what we call small and accurate ways to mitigate any kind of fair price. but we're not really taking general mode of increasing the price all over the customer base.

Great. Thanks so much, and see you in New York tomorrow.

Yes.

Thank you, Dominique.

Again, if you have a question, please press star, then one. Since there appears to be no further questions, I would now like to turn the conference back over to Yair Neshmed for any closing remarks.

Thank you very much, operator. Thank you very much to everyone who joined us on the call. We remain committed to executing, again, our growth plan and running the company. We are focused on achieving our long-term growth aspirations. We look forward to talking to you tomorrow at our Capital Market Day. Thank you for the question, and thank you again for your interest in NIOX.

This conference has now concluded. Thank you for attending today's presentation.