Nayax Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 8 speakers on the call.

Operator

Hello, everyone, and welcome to the Niox First 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. I would now like to turn the call over to Ms.

Operator

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 Nechmaj, NIAC's Co Founder and Chief Executive Officer and Sajid Menor, 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 Presentations 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 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 supplementary investor presentation released earlier today as well as our regulatory filings, which you can find on our IR website. In addition, today's call will include a discussion of non IFRS measures. Management believes non IFRS results are useful in order enhance our understanding and our ongoing performance.

Speaker 1

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 and or investor presentation issued earlier today. All key performance indicators are intended to evaluate our business and properly measure factors in the macroeconomic environment to guide and support our decision making. These key performance indicators may be calculated in a manner different from the industry standards. And finally, Please note that all figures in today's call will be reported in U.

Speaker 1

S. Dollars unless stated otherwise. Yair will start the call with key financial highlights and then provide a business outlook. Sajid will go through the details of financial results and discuss the financial outlook. With that, I would like to turn the call over to NIAC's CEO, Yair Nechmoud.

Speaker 1

Nayyush?

Speaker 2

Thank you, Virginia, and thank you to everyone for joining us on the Q1 of 2023 earnings conference call. On today's call, I'm going to focus my comment on 2 areas. I'll briefly highlight key results in our excellent first And provide an update outlook on the business. I'm pleased to say that we exceeded our first quarter expectation On both the top line and bottom line and continue to capture efficiencies across our global operation. This is a result of the investment in automation and infrastructure we made in 2022 to scale the NIAX business And from our disciplined focus on capital and expenses management as we communicated last quarter.

Speaker 2

For the quarter, top line growth remained strong as we delivered revenue of $52,400,000 And growth of 54% year over year that again exceeded our 35% annual growth target, driven primarily by our organic growth initiatives. Recurring revenue grew 44% To represent 62% of our total revenue, 1st quarter adjusted EBITDA continued to show strong improvement, Our focused effort to manage the business with greater cost discipline resulted in a $2,700,000 improvement with adjusted EBITDA Coming in at negative $600,000 compared to a negative $3,300,000 in Q1 2022, An improvement of $1,900,000 compared to Q4 2022. This ongoing improvement has been driven largely by our consistent revenue out Performance and higher efficiency capture across the business as we further automate and scale and with the diligence focus on moderating expenses. In reviewing our excellent Q1 results, it demonstrates how our scalable platform and our capital management Decisions are putting us well on track towards our long term target of 30% adjusted EBITDA. Looking at Q1 2023 over Q1 2022, we've seen $18,000,000 revenue increase and 2.7 $1,000,000 adjusted EBITDA improvement.

Speaker 2

This represents 14% of the growth cascading to the bottom line. With a significant improvement in adjusted EBITDA over the past two quarters, this outcome now give us a clear line of sight And confidence to reach profitability at an accelerated timeline. Last quarter, we provided initial guidance that adjusted EBITDA We've reached breakeven in 2023. I'm excited to report that we now expect to reach adjusted EBITDA profitability in 2023. Sagitt will provide more detail about our profitability outlook later on the call, but at a higher level, we remain committed to and have been executing our profitability plan.

Speaker 2

We expect that with an annual revenue growth target of at least 35% in addition To an improvement in hardware gross margin to mid teens, combined with relatively flat year over year operating expenses, These results will flow through to the bottom line, putting us on the path to profitability. Two 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. We ended the quarter with an increase in our net retention rate of 141%, reflecting the high satisfaction And confidence our diverse customers place on the NYX end to end platform and solution. Our churn rate remained low at 3.8%. Turning to our global footprint performance.

Speaker 2

In Q1, 39% of our revenue was driven from Europe, 38% from North America, 10% from Australia and 13% From rest of the world, we continue to see strong growth and demand for the NILE solution across all these regions. Finally, we reported gross margin of 34% for the quarter. This is a slight improvement from last quarter, which was 33%. I'm encouraged to see the modest improvement in hardware gross margin of 300 basis points this quarter compared to Q4 2022 As we previously communicated, last quarter, we announced that we had raised hardware price in the mid single digit And we started seeing the benefit already in Q1 2023 with full impact to be seen as we continue in 2023. We are also continuing to find ways to reduce component costs through dual sourcing and we are already seeing the benefit As we head into Q2 2023, we will see additional hardware gross margin improvement throughout the year.

Speaker 2

Sajid will provide more detail about our hardware margin outlook later on the call. Before I wrap up, I wanted to share our thoughts on the remainder of the year. Let me start by saying that our business fundamentals remain strong and our diversified business model and our momentum with our customers and solution position us Well for the large market opportunity ahead. We will continue to watch the macro environment closely. And as we have demonstrated, capital management is a key priority.

Speaker 2

We have the flexibility to act nimbly in a rapidly evolving macro environment To adapt our cost structure and prioritize strategic investment while executing on our key strategic initiatives. To wrap up, NICE is off a great start in 2023 with another set of strong financial results highlighted By delivering improved adjusted EBITDA ahead of the expectation and accelerating the path to profitability. As we look ahead to the rest of These results give us the confidence that we are tracking in line with the revenue guidance we gave for the full year and the visibility to raise our adjusted EBITDA guidance for reaching profitability in 2023. This reflects steady progress against our long With that, I will now turn the call over to Sajid to talk about our financial performance and provide an update on our 2023 guidance. Sajid?

Speaker 3

Thank you, Bahir, and good morning, good evening, everyone. The Q1 of this year continued the trends we saw in 2022 With strong top line growth and our commitment to deliver balanced growth with profitability in mind, You will clearly see this in our Q1 results. We delivered revenue of $52,400,000 which was a 54% increase year over year. These strong top line results, combined with our cost management execution During the quarter and the ongoing efficiencies gained from our investments in automation and scaling the business resulted in a significant improvement to adjusted EBITDA of $2,700,000 compared to prior year quarter. We delivered an adjusted EBITDA of negative $600,000 compared to an adjusted EBITDA of negative $2,500,000 in Q4 2022.

Speaker 3

With this significant progress and additional progress we're projecting for the remaining of the year, We now expect to be adjusted EBITDA profitable in 2023 instead of reaching breakeven. I will provide more details during my outlook discussion. The significant improvement during the quarter was mainly due to strong revenue growth and capital management with improved cost structure. Now let's turn to some of the key factors that drove our strong Q1 results, Starting with an overview of the revenue performance. We continue to see a strong increase in recurring revenue, which is an important growth indicator of our underlying business.

Speaker 3

As a reminder, recurring revenue is comprised of our SaaS Subscription and payment processing fees. Recurring revenue for Q1 2023 grew 44% over Q1 2022 to reach a new high of $32,000,000 in revenue and accounting for approximately 62% of our total revenue. As a reminder for those new to the Niox revenue model, our 3 main revenue pillars are derived from Point of sale or POS devices, monthly SaaS subscription and payment processing fees. Excluding the impact of foreign exchange, revenue grew 50% over Q1 2022. Powder revenue in Q1 was strong, contributing $20,000,000 to our overall revenue.

Speaker 3

Now let me turn to the highlights of our customers' 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 54% over the prior year quarter as we expanded our customer base to 52,000 at the end of Q1. With the large market opportunity ahead of us that remains underpenetrated, customer expansion remains one of our key growth And it is an indicator of 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.

Speaker 3

Managed and Connected Devices showed healthy year over year growth of 39%, ending the quarter with almost 770 1,000 devices. We reported significant increase in transaction dollar value. In Q1, transaction dollar value grew 3%, reaching a new high of $796,000,000 compared to $489,000,000 in Q1 of 2022. This metric remains a key contributor to recurring revenue and recurring revenue gross margin, which was 48% in Q1 and mostly reflecting higher payment processing fees than SaaS revenue. Turning to gross margin.

Speaker 3

Q1 gross margin was 34%, a slight improvement from 33% in Q4 2022, Largely due to gradual benefit of how well price increases that were put in effect in January, but not yet having the full positive impact that is expected for the remainder of the year. Similar to last quarter, gross margin was impacted By the higher mix of processing fees, which had exceptionally strong growth of 57% year over year in payment processing fees and has lower margins relative to SaaS revenue. I will have more to say about the direction of our household gross margin during my outlook discussion. The significant improvement in the adjusted EBITDA results during the quarter was mainly due to strong revenue growth and improved cost structure as we continued to moderate our pace of expenses as communicated last quarter. As we have communicated previously, 2022 was the year of disciplined investment to drive Future growth and support of scale we anticipate is the business long term.

Speaker 3

2023 is the turning year On our path to profitability, we've continued focus on revenue growth with moderating expense increases, while capturing greater efficiencies and productivity across our global operations from strategic investments in automation and enhanced Infrastructure. With that, total operating expenses of $22,700,000 decreased 5% or $1,300,000 from Q4 2022. On a percentage of revenue basis, Operating expenses declined approximately 400 basis points to 43% from 47% in Q4 'twenty two. This highlights the operating expense leverage across sales and marketing, R and D and G and A. Should there be a recession or a geopolitical development that impacts our business, Showing revenue growth below our planning assumptions for 2023 or beyond, we will, of course, adjust our spending plan.

Speaker 3

Let me now discuss the impact of the macroeconomic environment as it pertains to the impact of the U. S. Dollar in the Q1. Since we last spoke on our earnings call in March, we have seen a straightening of most currencies against the U. S.

Speaker 3

Dollar where we operate globally. Regarding revenue, we had a positive impact of $1,000,000 In the quarter, some foreign exchange rate fluctuation when compared to Q4 2022. We did not see any impact of foreign exchange rate On operating expenses, lastly, we ended Q1 with cash and cash equivalents of approximately $33,000,000 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. Our outstanding debt balance at the end of the quarter was $24,000,000 We used approximately $4,000,000 of cash during the quarter to fund inventory in anticipation of stronger device demand in Q2. Moving to our outlook for 2023.

Speaker 3

As a reminder, our 2023 guidance It's based on what we are actually seeing in terms of behavior from our customers around the globe. And of course, it reflects What we know today about the secular shift 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 We are reaffirming the revenue outlook provided on the last earnings call on March 1. For the full year 2023, we expect our revenue to be in the range of $235,000,000 to $240,000,000 representing year over year growth of at least 35% as previously communicated. We are also reaffirming our hardware margins outlook and expect it To improve throughout the year to the mid teens. As Yael mentioned, we are encouraged by the direction of how do our margins in Q1, And we expect to see ongoing improvement throughout the year for the following reasons.

Speaker 3

1st, we raised our hardware sales prices In the mid single digit beginning of January this year, this will continue to have a positive impact throughout 2023. Also, we have made several changes to our products to accept more available components, allowing us to shift to dual component sourcing from Singles and more. We will continue to update the market on our household gross margins as we see developments play out. Given our accelerated pace in moderating expenses and the ongoing efficiencies gained from our investments in scaling the business, We now expect operating expenses for the full year 2023 to be flat from the Q4 2022 annualized run rate. With the significant progress made on moderating expenses, particularly in this first quarter, Our consistent revenue outperformance and the expectation for housing gross margin improvement, we feel confident to raise our adjusted EBITDA Guidance to be between $3,000,000 to $7,000,000 in 2023 instead of breakeven.

Speaker 3

As for long term outlook, we are reaffirming our outlook and remain confident about reaching these targets. We expect our revenue to continue to grow 35% year over year. 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 engines initiative. Our long term adjusted EBITDA margin guidance is set around 30%. To summarize, We delivered another quarter of strong financials and operational results.

Speaker 3

And in 2023, we will continue to focus on delivering I would now like to turn the call to the operator so that we can take your questions. Operator?

Operator

The first question comes from Dominic Gabriel with Oppenheimer and Company. Please go ahead.

Speaker 4

Hey, good morning everybody and congrats on a really excellent revenue growth quarter. So if we just if we think about that as far as how fast The revenue growth isn't it actually that year over year revenue growth accelerated in the Q1 versus the Q4. And then we think about the guidance range of the $235,000,000 to $240,000,000 I guess it would expect some Moderation in that growth throughout the year. Could you just talk about why you would expect some of that moderation? And then I just have a few follow ups, if you don't mind.

Speaker 3

Hi, Dominique. Thank you for the question. Go ahead,

Speaker 5

Ian. Maybe I'll take a look at the slides. So, it will continue. I think in short, we are We're in a position that we don't see a slowdown, and we want to be on the track that we committed. And I believe that if we see a slowdown, it will be Something that we can work with on it and protect our revenue.

Speaker 5

I think in this case, we don't see any slowdown, but We are very, very cautious regarding unknown and unforeseen macroeconomic. For this case, What we see now is very strong growth. We believe it will continue. I think the update, if there will be an update, there should be more during the year The environment is not always macroeconomically clear to all of us. So we're very cautious around this.

Speaker 3

And just to add to your year, yes, there's no moderation. We are on track with the guidance of This 35% growth year over year on the revenue.

Speaker 4

Okay, great. And then Is it really it seems like the profitability coming in sooner than better sooner than expected, Is that really due to the stronger revenue growth that you saw in the Q1 in particular? Or Is there anything on the expense side that you believe has changed? I don't believe it's on the expense side, but if you could talk about the dynamics So why the adjusted EBITDA is coming in better than expected, that'd be really great too. Thanks.

Speaker 3

Of course. So it's a combination of 3. And as we communicated all of last year with our Path to profitability, 3 main pillars. One is the revenue growth. And as long as we continue to grow at least 35%, we knew year over year or quarter even over Quarter, we knew that would have a significant impact on the bottom line.

Speaker 3

In fact, if you look at Q1 'twenty two versus Q1 'twenty three, we grew $18,000,000 on the revenue and the adjusted EBITDA improved by $2,700,000 14% cascading to the bottom line basically. So one is the growth of the revenue, but for sure impacted. 2 is the gross margin, both on the Howwell, where we're going to see additional even improvements As we've communicated, reaching gross margin on the high growth of the mid teens And both on the fact that we've increased the selling price on the hardware, so both of that will Improve the hardware gross margin as we've communicated. And lastly, and it is also about the OpEx. So if you look at quarter over quarter, Q1 of 2023 had $22,700,000 OpEx, including everything, compared to $24,000,000 in Q4 of 2022.

Speaker 3

So all of these combinations Cascade it to the bottom line and will show and that's where we actually said that we are Positively updating our guidance from Q4 annual run rate of 2022 plus 5%. That's what we've initially expected that the OpEx in 2023 will be. Now we're talking about flat year over year. So I hope I answered you. It's a combination of yes, the revenue, yes, the gross margin and also the OpEx.

Speaker 4

Right. Really great execution. I just one more, if I may. The average transaction size was 194, I believe, in the quarter. And that's up pretty significantly versus the average of 20 22's Roughly 182 average ticket transaction size.

Speaker 4

Could you just talk about what you're seeing that's creating such an uplift Even from the Q4 to that 194

Speaker 5

I think Dominique and I'll start maybe to give more color on this. But NICE is operating more than 42 verticals. One of the verticals that taking more place in some areas is the electrical vehicle charges and the car wash And the transaction size is higher. So it's basically on the growth of verticals that's coming in Not to decrease the importance of vending. Vending is also the soda operators are Also increasing their prices and not in such a high rate, but they're also reacting to the inflation.

Speaker 5

So basically, it's a vertical combination and with slightly higher pricing that the operators are imposing

Operator

The next question comes from Trevor Williams with Jefferies. Please go ahead.

Speaker 6

Great. Thanks. Good morning, guys. Yair, I wanted to ask on Coinbridge. It looks like there were a couple of callouts In the presentation, if you wouldn't mind just giving us an update there?

Speaker 6

And then how should we be thinking about thinking kind of markers of progress over the next 6 to 12 months and then when we might start to get more visibility into P and L contribution? Thanks.

Speaker 5

The Converge is not yet live. We want to make it live very quickly in Israel first To make sure that everything is in the right place, we are very encouraged regarding the future of Quandrant and what it is bringing From customer point of view that are in line to wait to onboard with the ConVij share, we have A full line of Tier 1 customers that are waiting for this coming together. We got The license also in the U. S. Of fishing with Discover.

Speaker 5

So currently now, we are covering Israel, Europe, U. Okay. And the U. S, so we have a full line of customers all over the countries. But first, I have to admit, I want to see this It's happening in Israel to see that everything is correctly done.

Speaker 5

And then we'll scale Towards the end of the year, we'll scale it outside of Israel.

Speaker 6

Okay, great. Then that's helpful. And then Sajid, on gross margins, it was great to see the hardware gross margins improving sequentially. I know you were calling out The mix of revenue within the recurring piece with the payment processing revenues growing faster this quarter, as we put all of those Three pieces together hardware gross margins continuing to improve. How should we think of the consolidated Gross margin for the full year, at least with what's embedded in your full year outlook, which is, I guess, a question around kind of how you're expecting the mix of payments and software revenue To progress over the course of the year?

Speaker 6

And then just any help on kind of cadence of gross margins at a consolidated level for 2Q and beyond? Thank you, guys.

Speaker 3

So thank you for your question, Trevor. As we've guidance, we've particularly We provided guidance on the Hawa gross margin. We have not provided guidance on the recurring revenue margin. So I can speak on the what we see in Q1 and what we are expecting in the remaining of 2023 From the mix, so we talked about around 40% of how the revenue we've spoken about 60% -ish On the recurring revenue, indeed, if you look at 2022, you will see that processing revenue grew twice as much Faster than services. And this is the pace, as you can see in Q1, that we're seeing here also.

Speaker 3

So with that taken into account, you can figure out 2023. Both recurring revenue from a processing perspective as well as from services stayed more or less in the saying a range of gross margin. Hope I answered your question.

Speaker 6

Yes. No, that makes perfect sense. All right. Thank you, guys.

Operator

The next question comes from Mark Feldman with William Blair. Please go ahead.

Speaker 7

Hi, guys. Thanks for taking the question. Really appreciate it. So just more a general question. Could you go over the key components that drive the strong NRR that you guys are seeing and continue to see?

Speaker 7

Thank you.

Speaker 3

Diego, would you like to talk about the net retention rate?

Speaker 5

I'm not sure that I have the question. Karl, can you repeat the question?

Speaker 7

Yes. Just want to see what you guys think the key components that Drive the strong 141 percent NRR is and then I guess also that low revenue churn that you have.

Speaker 5

Okay. So this is a model that we are I think we're mastering the last 20 years. This is how we became to be a good start until 2021 before we went to the IPO. We I strongly believe that the way that we're operating in terms of getting customers, I'm going to call them the small and narrow merchants And delivering them a full solution, which is the strategy of MAX to have a full solution all in one, I created a lot of the call higher satisfaction from customer point of view. While we know that we're taking a small We're part of the customer full line of operation of 5 machine, 10 machine at the beginning.

Speaker 5

We also know that these carry around 20 to 40 to 50 machines. This strategy is delivering us The trajectory into the future to know that how we're going to grow the business because each year, the same customer is buying more and more units, Consumer driven driving the demand on all the usage from cash to cashless. So once we hooked with the customer, we continue to buy more and more units to cover all these fleets. So we must start them with A full coverage of the customer fleet. We are starting with the 5 machines and it's growing.

Speaker 5

We have the cohort that presents this that shows how it is happening. So the customer that 4 years ago was starting with Max Having more than 4, 5 times recorded revenue in ours, this is the model that we've been operating for many, many years. And it's still alive. It's still kicking. We believe the market is huge, and we know how to capture this market, and we demonstrate it.

Speaker 5

We see the More than 50% growth year over year because of this excellence in operation delivering. And I think we are the leader in the global world that doing this kind of operating for unattended markets.

Speaker 7

Great. Thank you for that. And then I guess another question is, now that we're out of the 4 gs EMV upgrade Can you talk about how the competitive environment is looking there? I know obviously the U. S.

Speaker 7

Is a big focus for NYX. And then additionally, Any headwinds you may be facing as you try as you're lapping some of those upgrade cycle wins this year or I guess going into 2024 as well too?

Speaker 5

So I can say that U. S. Is important. It's 40% of our business, But we have also rest of the world, Europe, Israel, U. K.

Speaker 5

And rest of the world, Australia. There are Some major initiatives that we're doing to increase consumer behavior within the unattended business to increase the revenue for Customers, we have a lot of novelty that we're going to present. And we're covering, as As I stated before, 40 verticals, 42 verticals, these verticals are growing in a different pace in different territories. I don't see a slowdown in the U. S.

Speaker 5

On top of it, we are reaching to the Tier 1 customers. We're doing this currently today also proactively. We're With the Q1 players that support Mark's, and I don't see a reason why there will be any slowdown in The driver of the 4 gs or any changes that or the EMV that was imposed in the U. S. Market, I don't think that it will slow down the margin in the U.

Speaker 5

S. There's a lot of what we call dry powder We have to continue to think the market and we believe that we are in a stronger position to scale up more and faster than anyone else.

Speaker 7

Great. Thank you for that. And if I could just sneak in one more on the outlook For EBITDA profitability for the full year, how does that impact The outlook for free cash flow, I know in the last call it was mentioned that the company would have would be free cash flow positive In 2024, does the earlier than anticipated EBITDA profitability have any impact on timing of cash flow?

Speaker 3

Thank you. The cash flow positive still tends to be in 2024, And we will provide more information about it as needed during 2023.

Speaker 7

Great. Thank you, guys.

Speaker 3

And keep in mind that we're talking about cash flow positive in 2024. We've never discussed free cash flow.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Yair Nikmad for any closing remarks.

Speaker 5

Sorry. Thank you. Before ending the call, I wanted to point out that NICE would be displaying Leading comprehensive solution for vending operators at the Namaskar in Atlanta this week. And if you are in the area, Please stop by and our booth to see our innovative solution. Thank you very much for everyone for joining us on I'd like to thank our teammates for their endless dedication to our customers and partners and for their Continued commitment to making NICE a great integrated payment company.

Speaker 5

Thank you very much for all.

Powered by Quartr
Earnings Conference Call
Nayax Q1 2023
00:00 / 00:00