Nayax Ltd.

Pardon the interruption, ladies and gentlemen. Please stand by. We're currently experiencing technical difficulties. you Thank you. Thank you. Hello everyone and welcome to the NIAC's third quarter earnings conference call. At this time, all participants are in listen only mode. A question answer session will follow the speaker's prepared remarks. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. 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.

Virginia Stewart- Thank you, operator, and everyone for joining us today on this call. With me on the call today are Yair Nekhmad, NIAC's co-founder and chief executive officer, and Sageet 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 press release issued earlier today and our regulatory filings. 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 of the macroeconomic environment to guide and support our decision-making. These key performance indicators may be calculated in a manner different from the industry standard. 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 a view of the business and then provide operational and strategic highlights The GIT will go through the details of financial results for the quarter. With that, I would like to turn the call over to NIAC's CEO, Yair Nekhmad. Yair?

Thank you, Virginia, and thank you to everyone for joining us on our Q3 Early Conference Call. We achieved record results in the third quarter with consistent execution of our growth plans through 2022 as the underlying fundamentals that host our business remain healthy. Our Q3 results demonstrate the resiliency of our business model and the positive trends that continue to play out in our core unattended market as well as adjacent markets. While macro concerns are high, we have not seen any significant broad-based evidence of softness in the trends that drive our business momentum and growth trajectory. In Q3, we are busy executing against our growth plan as well as our strategic corporate objectives. In September, we successfully completed our direct listing in Nasdaq Stock Exchange, and it was an absolutely thrilling and exciting milestone for the entire Nasdaq team. This dual listing is a strategic opportunity to expand and diversify our shareholder base across the globe and align with one of our critical growth strategies to expand our global footprint. Additionally, it is a strategic move that reflect our relentless focus on extending our market leadership worldwide. Specific to Q3, we deliver outstanding results in third quarter, with revenue growth of 53% over the three-year quarter, reaching a record high that was driven primarily by our organic growth initiatives, including our investment in customer expansion, product innovation, and our strategic go-to-market initiatives. Esagit and I have emphasized before to the market, we run the company for the long term and make thoughtful action and disciplined decision about investment that will generate positive return and support our aspiration to become a much larger company. Year 3 was another quarter of strong results across many of our key metrics, demonstrating that our investment strategy continues to pay off and the underlying performance is consistent with our committed growth trajectory. As I have stated before and is worth repeating, Knives has differentiated itself and strengthened its market position because of our comprehensive proprietary platform, which addresses the entire unattended commerce value chain, including a global payment infrastructure, a commerce software suite, a consumer engagement platform, and integrated post device. This ownership of the entire value chain is one of the key pillars of our success that is enabling us to capture market share in large and attractive markets, including but not limited to the unattended retail where we are positioned today. NYX business continue to show great resilience in light of the current macro condition. However, we will continue to be watchful about how inflation and rising interest rates may impact our business going forward. In Q3, we did not see any significant adverse signs of inflation on our financial results. Our customer loyalty as measured by net retention rate was 127% for the quarter, in line with our expectation in the previous quarter, reflecting the high satisfaction and confidence our diverse customer placed on NIAC's end-to-end platform and solution. Another key pillar of NIAC's success and resiliency in different economic cycles has been our global and diverse footprint. This global presence in key regions can be seen by our revenue mix. For Q3 2022, 43% of our revenue was derived from Europe, 36% from North America, 12% from the rest of the world, and 9% from Australia. We continue to see strong demand for the NIAC solution across all of these regions. Let me share some examples of key wins in Q3. to establish a new customer relationship with Atlanta Food and Beverage. This new customer will use Vensys as their vending management system and will place NICE cashless on all their machine requiring cashless. We also signed an agreement to partner with Tiba Parking to bring the NICE solution to all their North America parking operators. We saw some traction with our customer expansion effort in Australia. by entering in partnership with the 7-Eleven Group to supply Kestra solutions for their unattended go-to-market strategy. Europe will continue to perform well in the quarter. The quarter will fully consolidate OTI PNL for the first time since closing the acquisition in June. I would now like to provide an update about the ongoing global supply chain challenges. As we continue to communicate on our earning calls, the global component shortage is still ongoing, and we continue to manage through this challenge. Despite this challenge in Q3, we were able to report organic revenue growth from our post devices, which excluded the OTI contribution of 45% compared to the same quarter last year. This growth was driven by our ability to deliver orders from our backlog. while efficiently managing the shortage to meet our manufacturing schedule. Our revenue performance was even more pleasing this quarter as we were negatively impacted, like everyone else, by the foreign currency exchange rate fluctuation. The GIT will provide more color on our revenue and gross margins, including the favorable impact of OTI on our total revenue from our post devices and discuss the impact on our revenue and expenses due to the foreign currency exchanges. I would now like to talk about our product innovation with the focus of our unique solution called Colnbridge, allowing conversion of any virtual asset into real cash transactions and purchases across the world. We officially launched Colnbridge in August this year, presenting its compelling value proposition and game-changing dynamics. CoinBridge is a new payment method. It is a groundbreaking and first-of-the-kind solution for using digital assets as a payment method at any shop and website worldwide. CoinBridge patent solutions allow for real-time conversion of rewards, points, gift cards, vouchers, and other digital assets bearing financial value into a repurchase over the credit card scheme. The new payment method offers retailers a way to increase their customers' financial freedom by allowing the redemption of rewards points and vouchers into repurchases at any shop outside of their outlet, driving in return an increased visitation frequency and basket size at their brand store as well as higher brand loyalty. Our initial focus is the retail market. where CoinBridge sold retailers growing pain of increasing customer spending, engagement and loyalty while improving the bottom line. The underlying technology is based on a unique patent technology of issuing virtual prepaid cards to facilitate the conversion of digital assets using NYX MasterCard license. NYX currently has six patents and served as a token enabler as well as the issuer. Forest Marketplace solution requires lengthy, costly, and complex cross-platform integration with each and every merchant. CoinBridge solves this problem by providing a single technology suite, which easily integrates into retailers' loyalty platform and apps. CoinBridge allows for a quick service launch without any merchant integration. We are very excited about this game-changing technology and its innovative way of solving our customer challenges. I'm sure that the market will be able to appreciate and understand its potential impact. To wrap up, our Q3 results reflect some of the best performance in NICE history, and the consistent performance shows that the NICE team is executing exceptionally well on our strategic growth initiative. We are pleased with the ongoing business momentum and strong results we have seen throughout the year, giving us confidence in our differentiated market position and growth outlook. As we look ahead, we remain confident in our ability to execute against our mid-term and long-term growth aspirations. With that, I will now turn the call over to Sagit. Sagit?

Thank you, Yair, and good morning, good evening, everyone. Q3 was another excellent quarter in terms of execution and growth, and our outlook for the business remains strong. Let me start with an overview of the revenue performance in Q3. Total revenue for the quarter was $47.2 million, an increase of 53% from Q3 2021, and 15% compared to last quarter. Recurring revenue, which is comprised of our SAS subscription and payment processing fees, grew approximately 39% over Q3 2021 to reach a new high of $27 million in revenues and accounting for 58% of our total revenue. Recurring revenue on an annual basis, or ARR, reached more than $100 million, another great milestone in the company's history. I want to reiterate that 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 NYX revenue model, our three main revenue pillars are derived from point of sale or POS devices Monthly SaaS 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 a set of POS devices tends to be sensitive to cyclicality. The monthly SaaS subscription for connection allows for access to our telemetry and software management platforms. 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 SaaS and payment processing represent the core value our customers derive from our platform and the value add they see from increasing sales on the one hand and cost savings on the other hand. With every incremental device we sell and connect, we establish long-term relationships that help fuel highly profitable recurring revenue streams. Now let me turn to the financials highlight for Q3. Starting with our global and diverse customer base, we again reported strong customer growth of 56% over prior year quarter. As we expanded our customer base to 42,000 at the end of the quarter. With the large market opportunity ahead of us that remains under-penetrated, customer expansion remains one of our key growth drivers and it is an indicator for 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 48%, ending the quarter with almost 700,000 devices, with an additional 1%. of 47,000 generated by OTI, which was fully consolidated for the first time in Q3 2022. Another key highlight in Q3 2022 was the significant increase in transaction dollar value, which reached a high of $660 million compared to $407 million in Q3 2021. The metric remains a key contributor to recurring revenue and recurring revenue gross margin, which was 51% in Q3, mostly reflecting higher payment processing fees than SAS revenue. Turning to gross margin. Q3 gross margin of 34% remained at the same level compared to Q2 and tracking in line with the direction we have been communicating on our earnings call throughout the year. Our gross margin in the quarter was impacted mainly due to the mixed shift of higher hardware revenue and partially due to higher payment processing fees. Additionally, OTI had a favorable impact on hardware revenue this quarter of $3.7 million, while gross margin was largely in line with NIAC's margin. As a reminder, how well as the lower gross margin relative to the other two NIACS revenue sources, and as previously communicated, how the gross margins are temporarily impacted by the disruption caused by the global component shortage. Moving to adjusted EB down for Q3. Adjusted EB down was negative $3.7 million as expected. This is a result of higher cost of goods sold resulting from the global component shortage, as well as the increase in operating expenses from our continued investment in talent acquisition, customer-based expansion, and product innovation to support our growth trajectory and the long-term aspirations. Additionally, our operating expenses reflect 8% increase from the fully consolidated OTI in the quarter for the first time. We would expect to see a lower increase of operating expenses as we slow the pace of hiring while we absorb the OTI headcount addition. Looking at the life-for-life comparison to Q3 2021 and comparing that to historical years when excluding product cost increase due to global component shortages, and bonus plan for non-sales employees that was introduced in Q3 of 2021, adjusted EBITDA for Q3 21 and Q3 22 improved to a positive 0.5 million, respectively. Let me now discuss the impact of the macroeconomic environment as it pertains to the strengthening of the US dollar in the third quarter. Since we last spoke on our earnings call in August, we have seen a strengthening of the US dollar against most of the currencies where we operate globally. On revenue, we had a net negative impact, which means that revenue could have been higher by approximately $1.4 million from foreign exchange rate fluctuation when compared to Q2 2022. On operating expenses, we had a positive impact with a reduction of approximately $400,000 compared to Q2 2022. I would like now to provide an update about our investment spending philosophy and strategy. As we communicated previously, 2022 is the year of disciplined investment to drive future growth and support the scale we anticipate in the business. Our hiring is focused on key investment areas with the strongest ROI potential, and we're rigorously prioritizing those opportunities as we tightly manage expense growth. We will continue to manage the business for the long term and will invest in initiatives that also compelling returns and provide future growth opportunities. At the same time, we're closely monitoring the dynamic around macro uncertainties and maintaining the flexibility in our cost structure to be able to adapt quickly to the changing environment. We will continue to scale the business, make strategic investments while controlling costs. As we stated earlier in May this year, on our first quarter earnings call, we remain committed to achieving profitability as we enter 2024. NIACS is fortunate to have a resilient business with great momentum and evidence of strong long-term growth opportunities in our core unintended markets. and in our emerging adjacent markets, such as retail, EV, CoinBridge, and more, as we continue to innovate across the businesses. Lastly, we ended Q3 with cash and cash equivalent of approximately $32 million. We would expect to see a modest improvement in spend as we completed our investment of component inventory in Q2 and Q3 this year. We are focused on managing our cash prudently, and as mentioned previously, maintaining the flexibility in our cost structure to be able to adapt quickly as needed. As a reminder, our use of cash is part of our capital allocation strategy to reinvest in the business. In Q3, $4.5 million were paid to OTI's shareholders as part of OTI acquisition. Moving to our outlook. Based on our outstanding third quarter results, growing recurring revenue, and continued business momentum, we are reaffirming our midterm annual revenue of $220 million and our growth rate of 35%. We continue to expect the customer growth increased market penetration, and continued expansion of our platform will serve as the main growth driver. As for long-term outlook, growth margin in the long term is expected to reach 50% by providing leasing 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 a margin pressure compared to pre-COVID levels related to the set of POS devices as the global component shortages continues to play out. Finally, as an organization, we continue to thrive towards our path to profitability from capturing share in our attractive markets, expanding within our existing customers, and adding innovative products that our customers demand while prudently managing costs. I would like now 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 join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you were using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two.

We will pause for a moment as callers join the queue. The first question comes from Dominic Gabriel with Oppenheimer.

Please go ahead.

Hey, everybody. Thanks so much for taking the questions and some really great detailed comments here. I was looking at some Nielsen data, and it showed that the amount of sales that you had versus the unattended market in 2021 was really significant versus the peers, maybe even calculating about above 16% market share of sales, which is much higher than than I think your current overall market share. Can you just talk about what's bringing some of that level of success versus the peer group in the sales and where they're tracking today? And then I just have a follow-up. Thanks.

Thank you, Dominic. Thank you for the question. Just make sure that I understand the question. You're talking about the rate of growth in terms of the sales of POS.

Yes, the number of, I'm sorry. I was looking at the number of unit sales, I believe, versus the, you know, the annual unit sales of the industry and unattended. And it looked like yours were roughly 250,000 versus 1.5 million sales in 2021. And that's, you know, 16% market share of outstanding unattended sales. And I thought that was a pretty strong number versus your overall market share, which means you're probably gaining some share over time. So I was just curious about how that's tracking and what's creating some of that success over the last three to six months.

I think this is demonstrating the model that we are operating. We're growing significantly with customer base. I'm always stating the leading indicators of NIACS And you can track the customer base. If we're growing the customer base, it will be revealed in the future more and more because 60%, 78% of the sales are coming within the customer. Just to make sure that everybody understands, a customer, from my perspective, is a very small customer. It could be a customer that holds 10 to 15 machines. But in actual life, he's holding 50 machines. So we're seeing the sales at the beginning with a small amount, usually 10, 15, because he's implementing the cashless solution of NIACS on the high-value machines, the ones that are doing $600 or $700 per month. And then along the months, he sees the uplift in terms of the sales, and then the demand came that he understood that he was losing sales, and he's starting to implement more and more machines with the current machine that he has for the $500 and $400 machine per month. And when you're doing this, the multiple of this is like a magic. It's like the flywheel that we are aiming for, that this is what's bringing the business to such a resilience. And it's also an indication that we know the macroeconomic what's happening, but actually we know that within our customer base there is at least two to three times more value that we can sell in, and the tailwind of consumers that's really demanding for this cashless solution is all in our favor. So once he's starting to work with us, once he understands the benefit of the platform, not just the payment, also the operation, and he sees how easy it is to work with Max, it creates a lot of power to You know, the old theory is thinking about the platform, and actually we're executing this. This is the game. It's part of what we believe is in our favor. That's why the trajectory that we see in the future is quite good. You know, we try to see and look very carefully if there is anything that holds us back. And actually, no, there is nothing.

OK, great. And then, you know, on the on the financial side, you know, the year over year revenue growth was was really strong and obviously above your 35 percent guidance. I was just wondering what the puts and takes are. Why not? You know, if you're seeing that type of momentum in the business, kind of raise some of the near term outlook. And then on the gross margin side. it looks like it did tick down a little bit in the software and payments segment versus the connected POS actually ramped up a bit. I was wondering if you could just talk about the dynamics there as well. Thanks so much.

Sure, and thank you, Dominique. Good to hear from you. So on the revenue side, yes, we are actually even with – And taking out the impact, the positive impact that OTI gave us on the revenue side, there's still some organic growth. You're going to see that it's more than 35%. So exactly, as you've mentioned, we see the same as we've stated over and over again, the year-over-year growth of 35%. And that comes from the strong momentum that we have in the business with an increased market share, both on the hardware side as well as the service and the recurring revenue from processing fees. On the gross margin side, so yes, we are almost the same as last quarter. We did see some positive momentum towards the hardware gross margin. From a recurring revenue perspective, it went down from 55% to 51%, and this is, again, basically reflecting a shift with higher processing fees and SAC revenue. So that's always the mix that makes the difference. In between each of the verticals, As we said, hardware is slightly better, and in processing as well as in SAS, we're actually seeing the same.

Great. Thank you. Thank you all very much. Once again, if you have a question, please press star, send one now.

As there are no further questions, this concludes the question and answer session. I would like to turn the conference back over to Yair Necmad for any closing remarks.

Thank you very much to everyone for joining us on the call. I'd like to thank the teammates for the dedicated efforts. Our momentum and success are driven by their tremendous work and relentless pursuit of customer satisfaction. Thank you for the question, and thank you again for your interest in Linux.

And this concludes today's conference call. You may disconnect your lines.

Thank you for participating, and have a pleasant day.