Nayax Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2023

There are 7 speakers on the call.

Operator

Hello, everyone, and welcome to the Niox Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the speakers' prepared remarks. As a reminder, this conference call is being recorded. After the presentation, there will be an opportunity to ask questions.

Operator

I would now like to turn the call over to Ms. Virginia Stewart Gibson. Please go ahead.

Speaker 1

Thank you, operator, and everyone for joining us today on this conference call. With me on the call today are Yair Nakhmaag, NIAC's Co Founder and Chief Executive Officer and Sandeep Manur, 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.

Speaker 1

All forward looking statements on our call today all are based on assumptions and therefore subject to risks and uncertainties that may cause 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 the presentation released earlier today and our regulatory filings. In addition, today's call will include a management believes non IFRS results are useful in order to enhance our our ongoing performance. However, these measures should be considered as a supplement to and not as a substitute for IFRS financial measures.

Speaker 1

Reconciliations to Venera's IFRS measure can be found in our earnings press release issued earlier today. All key performance indicators are intended to evaluate our business and property measure factors we are in a 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.

Speaker 1

Dollars unless stated otherwise. Nair will start the call with key financial and operational highlights, and Deet will go through the details of financial results and discuss the outlook. With that, I would like to turn the call over to NIAK's CEO, Yair Nechmaj. Yair?

Speaker 2

Thank you, Virginia, thank you to everyone for joining us on our Q3 2023 earnings conference call. Before discussing our strong Q3 performance, I would like to take a moment to say how deeply hard working we are about the tragic events taking place in Israel. Our priority remains the safety of our employees and we will continue to give them the flexibility and support needed during these difficult times. We are thankful for the support and thoughtfulness that we have received from our customers, partners and the financial community. Based on the internal analysis that we conducted, we have not seen any material impact to our operation At this time, there has not been any material disruption to our supply chain, business continuity, sales of products and services, all the backlog or employee productivity.

Speaker 2

At least 7% of our employees are currently serving as reservists with a team at willingly working longer to maintain our productivity level, Nynix is a global company providing services and solution and generating revenue across all major geographies. Revenue derived from Israel is only 8% for our full year 2022 and 6% for the 9 months ended September 30, 2023. As I reflected on our performance to date, I'm incredibly pleased with the strategic direction of the company, the strong and consistent execution of our growth strategy, both near and long term, and the unyielding commitment of our employees to achieve our shared vision and mission. On today's call, I'm going to focus my comments on 2 areas. I'll briefly highlight key results of our excellent Q3 and some notable achievements during the quarter.

Speaker 2

Our strong Q3 performance was highlighted by exponentially strong recurring revenue growth, overall gross margin improvement and accelerated profitability. We delivered another record quarter with revenue of $60,300,000 The current revenue grew 48% year over year to a new record at $40,200,000 driven primarily by payment processing fees, which grew 57% over Q3 2022. SaaS revenue grew 35%. The strong growth in recurring revenue increased to a new high it's 67% of total revenue. Overall, gross margin was 38%, delivering another quarter margin expansion by the team Relentless focused on improving our hardware gross margin and optimizing our global operation.

Speaker 2

Building on Q1 and Q2 2023 improvement, we continue to execute our playbook on how the company cost management and operating expenses management across the business to further derive our profitability. Adit will have more to say about our profitability outlook later on the call. Adjusted EBITDA accelerated in quarter to a positive $3,500,000 more than doubling from the $1,300,000 reached last quarter. There is also significant improvement of $7,200,000 to adjusted EBITDA compared to a negative $3,700,000 in Q3 2022. This ongoing profitability improvement has been driven largely by the high operating leverage in our business model, which is further compounded from scaling our diverse global business and the added benefits from the past investments we have made to further automate the business.

Speaker 2

Let me once again walk you through the significant operating leveraging we continue to see in our business model, giving us confidence to achieve our profitability targets. Looking at year to date September 2023 over year to date September 2022, we've delivered an increase of $46,300,000 in revenue And an improvement of approximately $14,300,000 to adjusted EBITDA, representing 30.9% adjusted EBITDA as a percent of total revenue for September year to date, these results indicate that revenue growth continued to outpace expenses growth And has delivered exponential impact on our operating leverage and instantly flowing directly to the bottom line. Our strong performance to date and business momentum demonstrates how our scalable business model and our capital management decision are putting us well on track towards our targeted profitability. Let's take a look at 3 key operational metrics that are accelerating our scale and having a direct impact on profitability. 1st, customer expansion.

Speaker 2

For the past 3 executive quarters, we have added roughly 4,000 customers each quarter across our large number of vertical and global footprint, including North America, Europe, Australia and Rest of the World. We ended 2022 with customer base of 47,000 customers and finished Q3 at 60,000 customers. While we have successfully launched Tier 1 brand names such as 5 Star, Primo Water, Canteen, our bread and butter loyalty customers remain SMEs who rely on NIAC's comprehensive technology and solution to increase their revenue, reduce their operational costs and most importantly, rapidly scale their businesses. In Q3, SMEs still represented approximately 70% of our business. As I mentioned, each quarter, 2 metrics that I'm particularly proud of And pay close attention to our net retention rate, which measure our customer loyalty and our churn rate, which measure our customer satisfaction.

Speaker 2

In Q3, our net retention rate increased to 145% from 139% last quarter, reflecting the high value and confidence our diverse customer placed on our NIAX end to end platform and solution, our churn rate declined to 3.6% from 4.1% last quarter. 2nd, our management connect devices. In Q3, we reached total number of 874,000 management connect devices by adding 50,000 devices, this total number of devices facilitated the processing of almost 500,000,000 transactions across 80 over the past 3 years from 2020 to 2022, we have grown the number of ManagenConnect devices by a compounded annual growth rate of 40% and roughly the same on a year to year basis. During 2023, the growth trajectory continued at similar pace, driven by robust customer demand. I'm incredibly pleased that as we approach the end of 2023, NICE is in a strong position to reach our growth aspiration of 1,000,000 Managed Connect devices that we highlighted is a key milestone during our 2021 PACE IPO.

Speaker 2

Lastly, our land and expense strategy is working as we continue to rapidly increase and retain our customer base by solving their pain points with scalable solution driven sales approach. This has led we are committed to loyal and satisfied customers who become long term partners and grow with NIFC from an increase in revenue organically For example, revenue from new customers in 2018 grew more than 5 times over the next 4 years. I would now like to highlight 2 notable achievements during the quarter of acknowledgment of the great work the team is doing in. During Q3, we made 2 announcements that strengthened both our core business and one of our key emerging growth engine. NICS received authorization from the United Kingdom Financial Conduct Authority establishing it as a financial entity.

Speaker 2

Recognition is a global financial institution that act as a fully compliant payment facilitator that simplifies processes for our customers and Thank you, NIAFTA's U. K. Operation in the long term. Colnbridge entered into strategic partnership with Gift, a global leader of loyalty technology solution. The collaboration marked a significant milestone for our loyalty industry we are introducing the world's 1st open loop loyalty payment solution, powered by Via PhoneBridge by NIAX Partner Technology.

Speaker 2

Lastly, on October 30, we announced that we have entered into a definitive agreement to acquire RetailPro International, A global leader in retail point of sale software for the attended retail market. We believe this transition is powerful deal that accelerates the next we are now in the stage of NAK's extended retail evolution. Rated4 brings a vast distribution channel of over 80 partners reseller, Immediately tripling our distributor network to over 120 partners per se. This will extend our scale and provide meaningful opportunity to cross sell our payment solution to RetailPro's large and growing customer base into their extensive distribution channel. So in summary, we delivered a strong Q3 and our performance to date has been consistent with what we have communicated, we have continued to execute our strategic priority and growth plan.

Speaker 2

Our results throughout the year demonstrated our business fundamental remained intact and resilient. Our differentiated growth strategy and value proposition as a global solution provider with a complete end to end solution continue to resonate with our diverse global customer base, we continue to benefit from the secular growth trend and consumer behavior shift, Driving the global and underpenetrated unattended market. We have accelerated the pace of our profitability again. We are scaling the business based on our strong customer expansion, rapidly growing our base of managing connected devices and creating long term we are taking this from our land and expand model. With that, I will now turn the call over to Sajid provide additional color about our financial performance and discuss our financial outlook.

Speaker 2

Agit?

Speaker 3

Thank you, Yair, and good morning, good evening, everyone. Overall, we had another great quarter with revenue growth outpacing expense growth and reflecting the strength of our operating leverage, accelerating profitability again. I'm going to walk you through some key financial highlights for the quarter and then share some color on our financial outlook. We delivered revenue of $60,300,000 an increase of 28% year over year. As we stated earlier, we more than doubled adjusted EBITDA in Q3 versus Q2 and again showed significant improvement compared both to Q2 2023 and Q3 2022.

Speaker 3

Our improved profitability trend continued in the 3rd quarter. We delivered an adjusted EBITDA we are confident that we will be able to achieve a positive $3,500,000 compared to an adjusted EBITDA of negative $3,700,000 in Q3 2022. Now let's turn to some of the key factors that drove our strong 3rd quarter results, starting with an overview of the revenue performance. We continue to see exceptionally As a reminder, recurring revenue is comprised of our SaaS subscription and payment processing fees. Recurring revenue for Q3 2023 grew 48% over Q3 2022 Similar to last quarter, the strength of our recurring revenue continues to be driven primarily by payment processing fees, which grew 57% year over year.

Speaker 3

It is worth repeating that NIAC's revenue model consisted of 3 main revenue pillars, which are derived from point of sale of POS devices, monthly SaaS subscription And payment processing fees. Turning to POS hardware revenue. Revenue in Q3 was in line with last quarter's revenue, contributing approximately $20,000,000 to our overall revenue. The impact of foreign exchange on revenue in Q3 was in Ateria. For the 9 months ended September 30, 2023, we delivered revenue growth of 38% over the 9 months ended September 30, 2022.

Speaker 3

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. Customer expansion continued in the 3rd quarter with 4,000 new customers added to our global and diverse customer base, we reported strong customer growth of 43% over the prior year quarter as we extended our customer base to 60,000 at the end of Q3. With the large market opportunity ahead of us that remains underpenetrated, customer expansion remains one of our key growth drivers as it is an indicator of our successful execution in expanding internationally turning to the growth of our devices. Managed and connected devices showed healthy year over year growth of 28%, ending the quarter with 874,000 devices, we reported significant increases in transaction dollar value.

Speaker 3

In Q3, transaction dollar value grew 61%, reaching a new high dollars $989,000,000 compared to $616,000,000 in Q3 2022. This metric remains a key contributor to recurring revenue and recurring revenue gross margin, which was 47% in Q3. Recurring revenue gross margin was stable relative to last quarter and in line with our expectations. Turning to gross margin. Overall gross margin continued to trend higher.

Speaker 3

Q3 gross margin of 38% was higher compared to Q2 2023 of 37% and Q3 2022 of 34%. The improvement it's mainly due to ongoing hardware margin improvements. In Q3, hardware gross margin improved to 21% for the 9 months of 2023, we were able to report how the gross margin of 17%, in line with our annual target and as previously indicated. As communicated last quarter's earnings call, we were expecting to see ongoing out of gross margin improvement to the mid teens throughout the year. I will have more to say about the direction of our gross margin during my outlook discussion.

Speaker 3

Moving to operating expenses. Operating expenses include research and development, share based compensation expenses depreciation and amortization. Total operating expenses of $23,900,000 decreased 1% from Q2 2023 and reflects lower SG and A costs. On a percentage of total revenue basis, operating expenses improved accounting for 40% this highlights the operating expense leverage across sales, R and D and SG and A, resulting in our strong operating leverage acceleration and flowing directly to the bottom line. Q3 operating expenses did not have a material impact from foreign currency exchange rate fluctuation compared to Q2 2023.

Speaker 3

Net loss improved significantly and was $3,100,000 Turning to the balance sheet. We ended Q3 with cash and cash equivalents and short term deposits of approximately $40,000,000 The increased cash balance is reflected from the additional credit facility secured to fund the proposed retail proposition with the expected closing in Q4 and which was announced on October 30. Our outstanding debt balance increased at the end of the quarter to $33,000,000 as mentioned, we announced the proposed transaction of RetailPro on October 30. We would expect to see a lower leverage ratio given the large profit base post acquisition. Retail price is profitable on a stand alone basis and generated approximately $4,000,000 of adjusted EBITDA in FY 'twenty two.

Speaker 3

Let me finish with our outlook for 2023. As a reminder, our 2023 guidance is based on what we are actually seeing in terms of behavior from our customers all around the globe. It, of course, reflects what we know today about the secular shift in payments that continue to be strong tailwind, our strong market leadership and our vast demand from both our existing customer and the large and expanding new customer for our comprehensive product portfolio. Today, we are reaffirming the revenue outlook on a constant currency basis provided on our last earnings call on August 9. For the full year 2023, we expect our revenue to be in the range of $235,000,000 the $240,000,000 representing year over year growth of at least 35% as previously communicated.

Speaker 3

We are reaffirming our How to our gross margin outlook and expect it to continue its improvement throughout the year to the mid teens. As Eyal mentioned, we are very pleased by the direction of household gross margins throughout the year, we expect to maintain this ongoing improvement. Given our focus on moderating expenses and the ongoing efficiencies gained from our investments in scaling the business, we continue to expect operating expenses for the full year 2023 to be flat from the Q4 2022 annualized run rate. For adjusted EBITDA, we are raising our guidance range to be between $4,000,000 to $7,000,000 in 2023 from $3,000,000 to $7,000,000 This reflects our strong operating leverage from revenues growing faster than expenses we are reaffirming our outlook and remain confident about reaching these targets. We expect our revenue to continue to grow 35% year over year.

Speaker 3

Gross 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 our core business and services offering through our growth engine initiative, our long term adjusted EBITDA margin guidance is set around 30%. Our focus on delivering strong revenue growth and improved adjusted EBITDA remains a top priority, I'm pleased with the consistency of our execution. I would like now to turn the call to the operator so that we can take your questions.

Operator

We will pause for a moment as callers join the queue. Our first question comes from Trevor Williams of Jefferies. Please go ahead.

Speaker 4

Thanks. Good morning and hey, guys. I was wondering if you could just give a comment maybe more broadly on what you're seeing from the demand environment overall, I mean, we look at your net new device adds have still been very consistent. If anything, it looks like you're at kind of a stepped up quarterly pace from what you've been at in the last couple of years. Maybe you guys could speak to just the level of visibility you have into that persisting through 2024, I know you guys have commented on historically on the level of macro sensitivity and the durability of the business, but just thinking from a net new device add standpoint, kind of what you're seeing in your conversations with and how good the visibility is into the current level of net adds persisting kind of through regardless of the macro climate.

Speaker 4

I'd appreciate it. Thanks so much.

Speaker 5

Hi, Trevor. It's Yael. Thank you for the question. I think the leading indicator is customer base And it's a trend that keep on going, the 4000, 5000 customer base, and you see this also in this quarter. And we don't see any kind of hold back in terms of demand from customer.

Speaker 5

Actually, we are overwhelmed with the demand and the idea is how we can scale it into what we call quick wins and quick close of sales, we will work very hard in order to really to push this. We don't see from our point any kind of delay in terms of demands all over the world. Besides, of course, sorry to say, besides, of course, the

Speaker 3

And maybe to add several to this and thank you for the question. A couple of things. One is that we are set to reach the million dollar the million sorry, manage and connect the devices at the end of 2024 sorry, at the end of 2023, as we've communicated in the IPO. So that's one. And second, I think it's important to look at the 9 months ended September and you'll see that Houser revenue actually grew to $60,000,000 from $47,000,000 last year for 28% year over year growth.

Speaker 3

And as you know, we are looking at the year

Speaker 4

That's great. Thanks so much. And then my quick follow-up, this is just for you, Suji, a clarification for 2020 For the full year for this year, sorry, I think you've been assuming hardware revenue was going to be about 40% Of total company revenue, I just want to clarify whether that assumption still holds. It does imply a pretty good ramp in Q4, if that's the case, I just want to clarify. Thank you.

Speaker 3

Of course, it will be around 40%. We always talk about between 35% to 40%.

Operator

Our next question comes from Chris Kennedy of William Blair. Please go ahead.

Speaker 6

Thanks for taking the questions. Can you talk a little bit about the net revenue retention rate 145 percent year to date? It looks like

Speaker 5

We invest a lot regarding digitization of all the support and all the operation behind the scene. It's something that usually Nobody see it and we now what we call cultivating the fruits from this investment and it's ongoing improvement that at the end of the day we are competing in 2 folds. 1 is As I sit on a global level, we're competing against cash and the other one is we're competing against time. And the more that we can reduce the time of resolution for any kind of issues or any kind of request from customer base, we see immediate return around this. So we are in a pace of, what do you call to hold a very successful customer support and onboarding and it's a lot of what you call friction regarding the whole payment industry as I'm sure that you know there's a lot of friction behind this and as a one stop solution strategy, MAX is trying to excel on this And that's where the investment coming and that's the fruits of this investment.

Speaker 6

Got it. Very helpful. And then just for a follow-up, you announced a large partnership in the U. S. For EV chargers.

Speaker 6

Can you just talk about your competitive position to capture the growth of the EV market? Thank you.

Speaker 5

This is a short question with it's a big session, the Energy market as we call it, because we're looking at all the energy as a whole and But focusing on, let's say, DC charger and AC chargers, there is a lot of players and stakeholders need to be served. And we're trying to build a full solution of multiple stakeholders for multi residential location, for DC charger stop shop or stop stop location On the parking street, so there is a lot of initiatives that we're doing around this domain because we believe in 5 to 7 years, it will be potentially more than double from the unattended, purely unattended. It is unattended, but it is energy unattended. So there is a lot of potential that we see over there and we're working from A lot of angles to cover this from OEM, from specifically in the U. S.

Speaker 5

Or Europe, multiple angles that have been built to support this market and to come to a solution that At the end, bring a seamless result or seamless process for the consumers while he's charging his car.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Yir Nechmaat for any closing remarks. Mr. Nechmoud, your line is live.

Speaker 5

Thank you, operator. Thank you very much to everyone for joining us on the call. I'd like to thank the Global Max team for their unyielding commitment to executing our MAX vision and mission and to our partners and customers who continue to be an important part of our success as a leading integrated payment company. And again, thank you very much.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

Powered by Quartr
Earnings Conference Call
Nayax Q3 2023
00:00 / 00:00