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spk06: Hello everyone and welcome to the NIAC's fourth quarter and full year 2022 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the speaker's prepared remarks. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. As a reminder, this conference call is being recorded. I would now like to turn the call over to Ms. Virginia Stewart-Gibson.
spk07: Please go ahead.
spk02: Thank you, operator, and everyone for joining us today on this conference call.
spk01: 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 risk 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 supplementary investor presentation and our regulatory filings released earlier today. In addition, today's call will include a discussion of non-IFRS measures. Management believes non-IFRS results are useful in order to enhance our understanding and our ongoing performance. However, 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 of our 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 standard. And finally, please note that all figures on today's call will be reported in US dollars unless stated otherwise. Yair will start the call with a view of the business and then provide operational and strategic highlights. Sagit will go through the details of financial results and then discuss the outlook. With that, I would like to turn the call over to NIAC's CEO, Yair Necmad.
spk02: Yair?
spk07: Thank you, Virginia, and thank you to everyone
spk04: for joining us on the fourth quarter and full year 2022 Earnings Conference Call. 2022 marked a year of remarkable accomplishments. NIACS delivered a record revenue of $174 million and exceptional growth of 46% year-over-year that exceeded our 35 annual growth targets, driven primarily by our organic growth initiatives. the team executed on our strategic plan to achieve key milestones throughout the year that now lay the solid foundation as we head into 2023. In 2022, we continue to drive technology innovation, rapidly expanded our customer base, and further diversify and scale our unattended business. These outcomes, now give us a clearer line of sight to profitability. I'm especially pleased with the initial progress we have made towards our goal of adjusted EBITDA break-even in 2023. In Q4, we achieved an important financial inflection point, demonstrating this progress as both our operating loss and adjusted EBITDA improved for the first time during the year. Both of these Q4 metrics improved compared to last quarter. These progress reflect our effort to manage our business with greater cost discipline, as well as showing the operating leverage in our business. We have now established a solid foundation to build on these results, and in 2023, we plan to deliver further improvement. The GIT will provide more detail about our profitability outlook later on the call, but at a high level, we remain committed to and have been executing our path to profitability plan. We expect that with an annual mid-term revenue growth target of 35%, in addition to an improvement in hardware gross margin to meet things, combined with relatively flat year-over-year operating expenses, these results will flow through to the bottom line, putting us on a great path to profitability. Our dedication to simplifying commerce and payment for our customers while driving growth, optimizing operation, and enhancing customer engagement is resonating with the market. Our products are gaining market share and we are expanding our footprint across all verticals. Two metrics that I'm particularly proud of and pay close attention to are our net retention rate, as this is a measure of our customer loyalty and our churn rate as it measures customer satisfaction. We ended the quarter with a net retention rate of 131% in line with our expectations. reflecting the high satisfaction and confidence our diverse customers place the NIAX end-to-end platform and solution. Our churn rate remained low at 3.6%, so at NIAX, we are pleasing our customers, and they continue to stay with us and build deeper relationships and partnerships. New customer demand trends continue. The investment we made in our value proposition and go-to-market strategy led to exceptionally strong growth in new customer wins. We grew our customer base to 47,000 customers, nearly twice our size compared to 2021. Even with this spectacular new customer growth, our customer base remained diverse with 73% of our revenue in 2022 coming from SMB and across multiple vertical and industry. I would also point out that we do not have any major customer concentration, and about 85% of our revenue still comes from our existing customer base. In 2022, we scaled the business to a high trajectory, driven by the robust demand of our end-to-end platform and solutions. We added an additional 200,000 devices, bringing the total number of our devices to over 700,000, including 49,000 OTI devices. And we processed 1.3 billion transactions, an increase of 64% over 2021. We successfully completed the acquisition of OTI, adding new capabilities to our comprehensive product portfolio, and supporting our long-term growth plan to gain market share in under-penetrated international markets. We retain and deepen our relationship with existing Tier 1 customers, like Compass Group in the U.S. or 7-Eleven Group in Australia, as they grew the number of knife devices or purchased additional product offerings. and we expanded our global footprint in new emerging markets such as New Zealand and the UAE. Despite the intense market volatility, macroeconomic uncertainty, geopolitical development, and supply chain challenges, we deliver strong revenue growth each quarter that exceeded our 35% annual growth target. stabilized gross margin, closed notable partnership, and completed our direct listing on the prestigious Nasdaq Stock Exchange. Q4 was an incredible end to a phenomenal year. Let me now share some highlights of our excellent 2022 financial results. We ended 2022 with record revenue, which grew 46% from a year earlier, and recurring revenue grew 47% to represent 60% of our total revenue, both well above the annual growth rate target of 35% that we communicated through 2022. Even more pleasing was our organic revenue growth of 39% also for 2022. Our performance demonstrated our strategy is clearly working, and our business is in an even stronger position today than ever before. We have significantly grown the company revenue base by investing in our customer value proposition, expanding our global reach, and executing on our go-to-market strategy. Another key pillar of Nike'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 2022, 37% of our revenue was derived from North America, 41% from Europe, 10% from Australia, and 12% from the rest of the world. We continue to see strong demand for the knife solution across all these regions. Let me now discuss another notable partnership that we signed in 2022. I'm very excited about our expanded partnership with TIBA Parking. In Q3, we announced the signing of a partnership agreement between NIACS and TIBA to bring the NIACS solution to all of their North American parking operations. During Q4, I'm pleased to report that we expanded our partnership with TIBA by signing an agreement in which TIBA will distribute the NIACS EV meters charging technology through TIBA Distributor Network in the U.S. As a reminder, TIBA Parking is one of the global market leaders offering end-to-end hardware and software parking technology solutions. TIBA's broad market reach and network ecosystem enable NIACS to efficiently reach new businesses in the electric vehicle space and give us a competitive edge. Turning to macro environments as it's related to our supply chain, I would now like to provide an update about our hardware gross margin and some action we have taken to show improvement in 2023. The GIT will provide more detail as well as an outlook about our overall gross margin later on the call. As many of you might recall throughout last year, we communicated to the market that our gross margin had been impacted by the destruction from the ongoing global component shortage, resulting in higher component prices for our hardware. During that time, we decided to stay the course and not pass the higher prices on our customers. However, due to rising and sticky inflation costs, as of January this year, we have reversed the decision and have implemented a mid- to single-digit increase on our hardware and service offering as an offset to the higher input cost. This will have a positive impact on our overall gross margin in 2023. While the microeconomic and geopolitical environment remain uncertain, we are keeping a close eye on the evolving situation. In the meantime, we continue to focus on things we can control and stay focused on executing our strategic priorities. In January this year, the Nike sales team gathered for our annual sales kickoff meeting, and the energy and excitement about the future of the company and the many opportunities ahead of us was apparent. At the core of who we are as a company is our unrelenting focus on innovation and customer excellence. In 2022, we launch and introduce new products and services, such as the EV meter, CoinBridge, and IX Capital that will drive further growth in our core SaaS business, while allowing us to expand our use case in solving our customer challenges. We view this new unique product offering not as a standalone product, but part of our comprehensive portfolio offering to our global customers and the application of their diverse use case and additional opportunities to grow the IX business. This is our one NIACS strategy. Heading into 2023, innovation will be continued focus, but we also plan on focusing our effort on increasing scale and productivity across the NIACS businesses, which we believe will contribute to our goal of adjusted EBITDA breakeven in 2023. Payment is the center of gravity in everything that NIACS does. We define ourselves as an integrated payment company because we sell fully integrated solutions to the market. This means we can sell a payment solution integrated only with software. We can sell a solution integrated only with hardware, or we can offer both integrated software and hardware with payment. NIAX is a one-stop solution company. Our customers' satisfaction remains high because our customers trust us to provide everything they need from end to end. Our value proposition as a complete solution provider is our sustainable advantage, not only in growing the business, but becoming the $1 billion revenue company we aspire to be. To wrap up, Nike delivered consistent, strong results throughout 2022, and the team continued to effectively execute against our strategic priority and growth plan. I want to thank the team for their dedication and hard work throughout 2022, never wavering from their commitment to excellence for our customers and partners. We will continue to manage our business for the medium to long term, all while being very mindful of our current environment. I continue to see bright future for NICE as we look ahead to 2023 and beyond. And I believe we have the right strategy and team in place to continue to deliver great results. With that, I will now turn the call over to Sagit to talk about our financial performance and provide an initial fiscal year 2023 guidance.
spk07: Sagit?
spk02: Thank you, Yair. and good morning, good evening, everyone.
spk03: It's great to be here to talk about our excellent Q4 and full year 2022 results, reflecting the strong tailwinds from the secular trends in our core unattended markets and the focused execution against our growth strategy that we communicated throughout the year. Our performance highlights the strength of our diversified business model and our commitment to deliver balanced growth and profitability. This morning, I will first share key highlights for Q4. Then I will spend some time focusing on our full-year performance, which is more aligned with how we actually run the company. Lastly, I will speak about what our 2022 results mean for 2023 and beyond. NIACS executed well across our key financial metrics that indicate our business model is working and remains strong. For both Q4 and full year 2022, we reported strong customer growth with increasing demand for our managed and connected devices and revenue growth that exceeded our 35% annual growth target. Let me start with an overview of the revenue performance. Total revenue for the quarter increased 48% over Q4 2021 to a record of $51 million. For the full year 2022, total revenue reported was $174 million, an increase of 46% compared to full year 2021. Excluding the impact of foreign exchange, revenue grew 56% over Q4 2021 and 53% over the full year 2022. We continue to see a strong increase in recurring revenue, which is an important growth indicator of our underlying business. As a reminder, recurring revenue is comprised of our SAS subscription and payment processing fees. Recurring revenue for Q4 2022 grew 42% over Q4 2021 to reach a new high of $30 million in revenue and accounted for approximately 60% of our total revenue. For the full year, recurring revenue grew 47% over the full year of 2021, $205 million in revenue, also accounting for 60% of our total revenue and consistent with 2021. I want to reiterate that we expect this revenue source to continue to drive the majority of growth going forward as we consistently grow and expand 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. Now let me turn to the highlights of our customer expansion and the growth of our managed and connected devices. These metrics are key indicators of the scale we are building in our business and our ability to execute against one of our strategic long-term growth pillars. Starting with our global and diverse customer base, we again reported strong customer growth of 60% over prior year quarter. as we expanded our customer base to 47,000 at the end of the year. 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 our successful execution in expanding internationally and entering key growth markets for cashless payment solutions, as well as growing market share. Turning to the growth of our devices, managed and connected devices showed healthy year-over-year growth of 40%, ending the year with over 700,000 devices. For the fourth quarter and for the full year 2022, we reported significant increases in transaction dollar value. In Q4, transaction dollar value grew 59%, reaching a new high of 680 million dollars, compared to $428 million in Q4 2021. For the year, transaction dollar value grew 66% over 2021 to $2.4 billion. This metric remains a key contributor to recurring revenue and recurring revenue growth margin, which was 51% in Q4 and 52% for the full year, mostly reflecting higher payment processing fees than SAS revenue. Turning to gross margin, I'm pleased to report that we were able to stabilize our hardware gross margin during the fourth quarter, mainly driven by actions taken to accept more available components from additional sources. Our Q4 gross margin was 33%, slightly below the previous quarter's gross margin, and tracking to what we have been communicating on our earnings calls throughout the last year. I will have more to say about the direction of our gross margin during my outlook discussion. Moving to adjusted EBITDA. As Yair mentioned earlier, we have made progress as planned in the improvement of our adjusted EBITDA, demonstrating our commitment to putting us on track to meet our target of adjusted EBITDA break-even this year and focus on reaching profitability in 2024. I'm pleased to report that for Q4, our adjusted EBITDA improved by $1.4 million compared to Q4 2021 and by $1.2 million compared to Q3 2022. Our adjusted EBITDA for Q4 was negative $2.5 million compared to negative $3.9 million in Q4 2021 and compared to negative $3.7 million in Q3 2022. The significant improvement during the quarter was mainly due to strong revenue growth and improved cost structure as we started moderating our pace of hiring and investment spend as communicated last quarter. Looking at the like-for-like comparison to Q4 2021 for historical yield comparison 2018 to 2020, when excluding product cost increase due to global component shortages and Bonus plan for non-sales employees that was introduced in Q3 2021 adjusted EBITDA for Q4 2022 improved to a positive 1 million dollar and 2.1 million dollar for Q4 2021. Total employee headcount ended the year at approximately 800 which was flat relative to Q3 2022 and an increase of 44% over 2021. Looking ahead to 2023, while enhancing our operational efficiencies and productivity, as Yair mentioned earlier, we would expect to continue moderating the pace of hiring. Let me now discuss the impact of the macroeconomic environment as it pertains to the impact of the US dollar in the fourth quarter. Since we asked folk on our earnings call in November, we have seen a straightening of the US dollar against most of the currencies where we operate globally. Regarding revenue, we had no impact this quarter from foreign currency rate fluctuations when compared to Q3 2022, as the euro strengthened versus the weakening of the Australian dollar, resulting in an offset. On operating expenses, we had a positive impact with a reduction of approximately $500,000 compared to Q3 2022 with the straightening of the US dollar versus the Israeli shekel. I would now like to provide an update about our investment spending philosophy and strategy. As we have communicated previously, 2022 was the year of disciplined investment to drive future growth and support the scale we anticipate in the business long term. As far as operating expenses go, we had a big step up in operating expenses as we had tremendous growth to capture in 2022. Heading into the new year, we view 2023 as the turning year on our path to profitability with a focus on moderating expense increases while capturing greater efficiencies and productivity across our global operations. 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 evolving environment. Should there be a recession or a geopolitical development that impacts our business, slowing revenue growth below our planning assumptions for 2023 and beyond, we will, of course, adjust our spending plan. Lastly, we ended Q4 with cash and cash equivalent of approximately $34 million in line with last quarter. The cash balance is a direct result of our focus on managing cash prudently and by adapting to a better cost structure. We also made progress with reducing our inventory by $1.4 million compared to last quarter. As we head into 2023, if needed, we have access to external funding to bridge any cash uses until the company becomes cash flow positive, which we expect in 2024. Moving to our outlook. So what do all of these 2022 takeaways mean for 2023? Importantly, all of the things that I spoke about that make up the strategy underlying our growth plan have created a foundation for our growth aspirations in 2023 as well as long term. First and most importantly, we expect the strategies that Yair laid out earlier to deliver continued high levels of revenue growth. Our 2023 guidance is based on what we are actually seeing in terms of behaviors from our customers around the globe. And of course, it reflects what we know today about the secular shifts in payments that continues to be strong tailwinds, our stronger market leadership, and the robust demand from both our existing customers and the large and expanding new customers for our comprehensive product portfolio. Now let's turn to the annual outlook for full year 2023. For the full year 2023, we expect our revenue to be in the range of $235 million to $240 million, representing year-over-year growth of at least 35% as previously communicated. Also, for the full year 2023, we expect operating expenses to moderately increase by approximately 5% from the Q4 2022 annualized run rate. Given the higher revenue levels, our hardware gross margin improvement expectations, and much lower increase in operating expenses, we continue to expect adjusted EBITDA to break even in 2023. We are also reaffirming our commitment to profitability in 2024. Moving to gross margins, we expect to see ongoing improvement throughout the year for the following reasons. First, as Yair mentioned, we raised our hardware prices in the mid-single digits beginning in January this year. This will have a positive impact going forward. Also, we have made several changes to our products to accept more available components, allowing us to shift to dual component sourcing from single. Given these expected improvements, as we head into 2023, we would expect to see household margin in the mid-teens. We will continue to update the market on our gross margins as we see development play out. As for long-term outlook, we are reaffirming our outlook and remain confident about reaching this target. We expect our revenue to continue to grow 35% year-over-year. Growth margin in the long term is expected to reach 50% by providing leasing options for IoT POS, growing SaaS revenue and payment processing fees from a core business, and services offering through our growth engines initiatives. Our long-term adjusted EBITDA margin guidance is set around 30%. To sum up, our 2022 performance shows that our strategy and business model is working. We have a great business and we operate in the most attractive growth segments and markets of the fast-growing unattended space. We feel good about the momentum we see in our business and remain committed to running the company with a focus on achieving our aspirations. I want to thank the entire NIACS team for all their hard work in executing our growth plan and delivering such great results in 2022. Two final remarks. I'd like to point out that we have made a strategic decision to discontinue the release of our quarterly preliminary results one month prior to the actual reporting results. Beginning with Q1 2023 quarter, we will only release the actual reported results. We have made this change as we have been making progress in reducing the length of time in reporting our quarterly results. Lastly, before I turn the call over to the operator, I wanted to let everyone know that we recently announced our plan to host a Capital Markets Day on Thursday, March 23rd, at NASDAQ Global Headquarters in New York. We will provide more details about our One NIAC strategy that Yehir highlighted earlier, provide an update on our strategic product roadmap, as well as our U.S. and international revenue approach, and we wrap up with our financial outlook. We hope you can join us and look forward to seeing you all. I would now like to turn the call to the operator so that we can take your questions. Operator?
spk06: 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're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, Please press star and then two.
spk07: We'll pause for a moment as callers join the queue. The first question comes from Dominic Gabriel of Oppenheimer. Please go ahead.
spk08: Hey, thanks so much for taking my questions and just a ton of great details. So thanks so much. You answered a lot of my questions right in the call. So thank you so much. I was just curious about the, you know, you provided 2023 guidance, and it's another expected strong year of revenue growth and, you know, EBITDA breaking even, which is excellent. I just was wondering if you could talk about the kind of upside and downside scenarios that you think about should the spending, you know, of the consumers change more positively and negatively that you have built into your models. And then I just have a follow-up. Thanks.
spk04: Hi, Dominic. Thank you for the question. Glad to hear you over here on the call. Actually, you know, we are looking always very, very cautiously regarding what's happening in the market. And we have the data that we can see every day regarding leading indicators from transaction point of view, from customer base, onboarding with knives, and from the whole volume of the new customers, what they're generating in our business and the existing ones. So we've seen that the macroeconomic and things that are being discussed in the higher level is not affecting our customers. And when we had the meeting early January with all the teams, like 60 representative people from all the countries came along, one of the key elements that I asked them regarding what do you see, what do you see with customers, how do you talk with the customers, what do you think about their investment and how they're looking into the future, I didn't see, I didn't hear anything that is really... disturbing or any kind of holdback from customer point of view. When I'm connecting this to the level now on the macro level of the employment on many of the customers that we are operating, it also reflects that the market is still very strong momentum in terms of demand and request for products. I think from what I see now, if I can see two, three, four quarters, that's what we put in our budget. I don't see any kind of way that will be pushing us back into a lower targeted what we had. If we will have these kind of things, I'm sure that I will discuss on this. But now the situation is quite constant good. And the momentum is great. And don't forget that we are improving ourselves as well. We are becoming more and more efficient. We have more and more customer and channels to go to the market. So we can mitigate a lot of what we call even bad situation. We can mitigate this with our own what we call power of improvement that we're doing along the last three, four years. and which is coming more evident into the bottom line that will offset all the negative adjusted EBITDA during this year.
spk07: Great. Thanks, Yair.
spk03: Hi, Dominic. Good to hear you. That exactly as Yair said, what we see is we continue to see strong business momentum and demand. whether it's the customer acquisition continues to be strong, we're expanding internationally, and our go-to-market strategy is working. So the combination of both, of all, gives us a strong confidence about the growth that we are committing to.
spk08: Excellent. Thank you. And, you know, I just – I mean, the proof is going to be in the pudding here, and it does feel like a turning point potentially, because if you can keep up the 35% revenue growth while you lower your expenses, I mean, that's what a lot of longer-term investors are really waiting for to see, and that's what the guidance is this year. Just maybe you could talk about, and you did touch on this a little bit in the call, but maybe go into greater detail of what gives you the confidence that your business is at a point where you can make that change and still see the really high revenue growth. Thanks so much.
spk03: So maybe I'll start with a little bit on the guidance and then Yair can comment about the revenue approach and growth. So three main points on how do we get to a break even in the adjusted EBITDA this year. Again, indeed, the turning year and the turning point. So one is indeed the continued growth that we just talked about in the revenue line from all aspects that we just discussed. The second thing is the improvement in the hardware gross margin that we also discussed. If we finish the year in the high one single digit range, of gross margin we are expecting in 2023 to achieve the meeting as we've communicated before and then continue from an OPEX perspective discipline investment and growing not more than 5% compared to the Q4 times 4 run rate. So all of those, right, again, but at the end of the day it's a numbers game of how fast you're growing on your revenue and how not so fast you're growing with your expenses. And specifically on the revenue growth, I'll let Yair speak about our approach in go-to-market.
spk04: Maybe I'll just state the following. It's very clear. I think from my personal experience from previous working, and we stated this from 2021 when we come public, We're building a platform, and the ability of platform is not just a word. It's the way that the platform can carry three, four times more of revenue without expenses that are growing with the growth of the revenue. And we're starting to see this by we saw this last year by R&D that is not going so fast as we're growing. We saw the SG&A was growing, but also now you can see how we slowing down the SG&A and the growth is continuing. This is like I'm saying always, you know, it's a very, very simple mathematical calculation that we know that we are building a platform that creating a one-stop solution services to customers. and it attracts customers because of the ease of doing business with. That's the beauty about what we're building. We took something very complex between IoT, payment, services, payment facilitating, all of this in one-stop shop, and we're creating what we call one contract that enables customers to keep doing his business, and he got what we call a technology partner solution on a global level. So that's why we're serving what we call the nano merchant, the small merchant, and recently, the last 18 months, also the tier one customer. And they're all enjoying from the same philosophy of one-stop solution, and we have to design ourselves really to put services around the specific customer according to the complexity within the customer, but it's not creating a burden in extra people or extra investment. that is heavy or running faster than the growth. So that's how we're calibrating all the growth around the NIACs as a one-stop solution.
spk08: Great, thanks. Actually, Yair, I got to ask you, the NIACs capital just seems really interesting, and it's just another example of you swiftly building out your new capabilities, kind of ties into what you were just talking about. Maybe just provide your long-term goal with this new opportunity? Thanks.
spk04: Wow. Oh, this is a, you know, my, my long-term goals. I don't know if I can speak about all of them. You know, my long-term goals are really, really, really high. So I would be very, very straight on this. Uh, uh, we built during the last, again, 18, 18 months, a e-shop, a B2B, and everybody knows that B2B business is much more complex to create because you have a lot of what are called channels and conflicts and pricing. We built it and we launched it in North America. The second layer behind it is the IoT capital, or we call it NIAX capital. And the idea is, again, to reduce the friction that customer, since we have 80% of our business with existing customer, it is much easier to broaden the relationship with the customer that don't have to put any conflicts in advance to buy units, so everything is like a login, put your account, and whatever you like, you can buy, because you know the cable, you know the hardware, you know all the aspects of . It's not a complex idea. In the past, it was a, the bottleneck was a cash flow, and today we're taking this out from the equation, and now we can, you can buy, instead of five units, you can buy 15 units, 20 units, so this is the first step that I'm looking for. and it will be brought into Europe and rest of the world. In the longer term, you can imagine the nice capital has a huge advantage against anyone else in the market in what we call merchant cash in advance, because as an acquirer or payment facilitator, we are actually having a risk mitigation on customer base, which is very, very high against any bank or any leasing company. because they're working already with us. So then we can expand also what we call the merchant cash in advance to other products of the customer. So we'll become much more embedded with the customer portfolio, whether it is their machine or any kind of protocol, a complex needed working capital that we can go and help them to mitigate the cash flow.
spk07: Excellent. Thanks so much for all the commentary. Thank you. The next question comes from Joseph Fabi of Canaccord.
spk06: Please go ahead.
spk09: Hey, everyone. Good morning and good evening. Thanks for taking my questions here. I thought I'd start off first on maybe tier one customers and how that pipeline is shaping up for 2023. You know, do you expect more Tier 1 growth in 2023 versus 2022? And then I have a couple more follow-ups.
spk04: So, hi. Thank you very much for the call, and thank you for joining the call. We see a backlog of customers. Of course, when we're talking about Tier 1 customers, new ones coming in. The cycle of sale is longer than what we are accustomed to do with the small and nano merchants. We do have global customers that are working with NAACS to onboard during the 2023 and onwards. Maybe in some granular level, if you just imagine the challenge of electrical vehicle charges, around the globe that now has to retrofit some of their machines to a car present solution and businesses that need the cross country solution, not just in the US and North America, but also in Europe and Far East Australia. And they cannot really find a company that would call one stop solution called present globally working like knives. So this is just an example of a funnel of customers. It could be on Ford Coat, on a global level. We do have what we call real tier one customers that are really eager and looking that will come working together with us.
spk09: Got it. Thanks, Nayir. And then on the decision here to, you know, up the price a little bit on hardware, you was there any, you know, how much price sensitivity do you think customers have to that, those higher prices at this point? And, you know, does it mean that perhaps they're purchasing less hardware or deciding not to purchase hardware from you at all? Have you, how did that decision come about in terms of how much to do it exactly relative to price sensitivity from the customer side?
spk04: So we're trying to mitigate this with a few options. One is, as I spoke before, is the NICE capital. So we're trying to ease up with the cash flow by NICE capital. And we're doing this not only by the automatic platform. We're opening this for what we call manual for bigger accounts. But if I'm going to the source of how we're thinking is always the take rate. And the ability of us understanding the take rate of the customers according to what we believe is the right thing and compare this to a benchmark, we see no reason that we cannot really increase price according to this metric that we are having. My belief that, and what we see, that it's not holding back customer from onboarding and buying hardware from NIAX. And the explanation around this for the customer and for all the market is we took only the measurement of a sticky inflation. We're not really taking any advantage of this inflation or price increase that we have what we call leverage on this. We're taking only very, very... cautious measurement regarding stick inflation that from the source of the origin of the product, we are not having any more power to reduce the price. We're still working very hard on this element and trying to hold back from any price increase because the philosophy is the long-time value of customer. We're not really trying to really to reap some kind of extra margin on the hardware. We're trying to help customers to grow their business and to stay with us for 10 and 20 years. And this is a way of view of a SaaS business organization.
spk03: Exactly. And hi, Joe. Thanks for joining. Maybe to add, we do not see any impact on the demand according to or as a result of this change. it is important to say that while everything got extremely more expensive in the last year and a half or two years, we have not raised prices for a while. And our customer loyalty to our platform remains high and we haven't seen any pushback on higher prices. So I think it makes sense. As you mentioned, it's the stickiness of the inflation more than anything else. And, and, um, And as you know, our cost of product is significantly more expensive than what we used to. So it's a combination of everything and makes sense at this point to make the change.
spk09: Sure. Thanks, Sageet. And then maybe just one more on the electric vehicle opportunity. Just thinking there, the average transaction amount could be higher than maybe some of your other end markets for other products with your unattended solutions. I was just wondering if you can provide any kind of color on what kind of economics you're getting on those larger transaction amounts relative to take rate, et cetera. Thanks a lot.
spk04: So the idea of our business model, which has three pillars of hardware, service, and processing, when you're talking about a vending operator with a $500 per month transaction, so the ratio, as you can see in the report, that the payment and services are playing around the 50-50, as we say. When we move into retail or EV, of course, processing will be much more prominent than the services. And you can either benchmark this against any kind of retail provider. And EV specifically, it depends not just on the ticket value, the transaction. It also depends on the total volume of the transaction. And still today, we don't see, you know, it's not really crossing a substantial amount from the regular vending machine. So there are transactions. The transactions are bigger, but in terms of the volume, in terms of the volume of transaction, is much less than the vending machine. So now, still today, the EV is not really representing more towards what we call, from our business model, more payment than services.
spk07: Thanks very much, Sayer. The next question comes from Trevor Williams of Jefferies.
spk06: Please go ahead.
spk05: Great. Thanks. Good morning, guys. I wanted to revisit the outlook for hardware gross margins. Sageet, the detail you gave in the prepared remarks is very helpful. But if you could just walk us through the level of visibility you have in getting up to that mid-teens level with the pricing initiatives. It sounds like you're using a broader SENA approach. component parts, and then if you have any updated view on when hardware gross margin should fully normalize that to the mid-20s or above level. Thanks.
spk03: Thank you, Trevor. Great to have you here. So a few things that... Let's start with why we feel comfortable with that. When we went into 22, The uncertainty was high and the level of visibility was low. When we go into 2023, there's a much better visibility. As I mentioned, I think in the last quarter and a half, the availability of the components has significantly increased, which by definition indicated that the price will get better. So that's one, existing components we can buy now in a much better price, sometimes from the original supplier versus the job that we used to in the last year and a half. And the second thing that we have done, and I've mentioned that as well in the past, is that we looked at every single source that we have and made sure that we have a dual source for any components. The combination of two gives us a very high level of visibility. and confidence that we can get to the mid-teens hardware gross margin as communicated. As for when are we going to go back to the 25% to 27% hardware gross margin as we used to have before the pre-COVID, it's hard to say. I'm assuming that that's going to get towards the mid-year of 2024. And believe me, we are pushing for that as hard as we can.
spk05: Okay. No, that's great. Thanks. And then in terms of some of the newer verticals, retail, EVs, parking, you called out the prepared remarks on the parking side was interesting, but just any broader updates you're able to give on progress in those new verticals, and then how much of a ramp, if any, you're building into the outlook for 2023. Thanks, guys.
spk04: So we're looking very, very carefully. We believe strongly on the EV globally. We think this is a very strong momentum with a lot of support from governments. And we don't want to miss this. We still have customers to gain, big customers to put on board with NIEX. We do have our own solution as a full solution, and we built a platform of operational services around this. This is a major, major task, and all our team, business development, and the division of EV NIEX, ED Meter, is concentrating on this. We believe that we are running very fast on this. We do have OEM part of this value chain that we are in contact with and selling NIAX. Just to remind everyone, Electrify America in the U.S., the whole DC charges are working with NIAX. EVGO is working with NIAX. And we think it's coming very, very strongly. The rest of the segments, retail is a very strong part in the Israeli market. We didn't push it very strongly outside. We have a product fit that we're looking carefully how to do it. But we do serve a combined customer that wants to have a solution between unattended self-service and unattended. In the full court, we do have customers like this. In the U.K., we do have customers like this. So it's not something that we are pushing into a specific segment, but we are serving our own customer base on a full-blown solution of a one-stop solution.
spk07: Great. Thanks. Appreciate all the detail.
spk02: Thank you.
spk06: Once again, if you have a question, please press star then 1 on your telephone keypad.
spk07: Please press star then 1 now. Once again, if you have a question, please press star then 1 now.
spk06: This concludes the question and answer session. I would like to turn the conference back over to Yair Nakhmad for any closing remarks.
spk04: Thank you, operator. Thank you very much to everyone for joining us on the call. I'd like to thank you. I would like to thank our teammates for their endless dedication to our customers and partners and for continuing commitment to making Max a great integrated payment company. Thank you for joining and thank you again for your interest in us.
spk07: Looking forward to another great year ahead of us.
spk06: Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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