Nayax Ltd. (NYAX) Earnings Call Transcript & Summary

Well, welcome. I'm glad you all are here today. My name is John Hall. I'm a Vice Chairman of Investment Banking and I've been a fintech banker for a long time. Very pleased today to have Yair Nechmad with us today. He's the CEO and cofounder of Nayax. As many of you know, Nayax is a global commerce enablement payments platform for merchants globally with what I say is like, say, a focus on intended retail, that's your roots, right?

Correct.

Company is headquartered in Israel, listed in Israel in May of '21. Dual list on the NASDAQ last year, last September. And before we jump into our conversation here, I just want to congratulate you and the team on a spectacular first quarter. You guys grew revenue over 50%, and you've guided to positive adjusted EBITDA for the full year based on growth and better expense management. So congratulations. Lots to be excited about.

Yes. Thank you for having me. It was a great quarter. And still, we are 9 quarter of public company, and we are performing quite well.

So talk to me about the vision. What is it that you're trying -- when you started the company, what were you trying to do? Where are you on that path, that journey today? And where will you continue to go going forward?

So we started the business in 2005, and we looked at the business of unattended business, retail. It's a big challenging problem for them to go cashless and we saw the problem in terms of operation excellence in terms of the payment side, acceptance of payment and delivering a solution that will be ease of doing business from their perspective. The idea of a one-stop shop, this was the strategy that we came to with the hardware, software, connectivity, billing, mobile app, all of the above.

Again, differentiated from what the rest...

And this is a big differentiator of other players that play as vendors and we play as a solution. And that's big differentiator that take us for this long rides from 2005.

So give you an example, when you say somebody acts as a vendor versus you providing a solution, just so the audience and understand that.

So what we're coming is a full solution. I'm always saying that just signed a contract with the customers, we'll deal with everything in terms of the hardware itself, the way that they install this without us being out of the office. It's like 10 minutes to install the unit. It's fully connected to the bank. We have more than 45 acquirers banks that we are connecting with and 45 alternative payments that we're connected with. So it's like a global-local solution, more than 70 countries. And all of this is a routing transaction and data to our data centers based in three location around the globe in Israel, in Germany and U.S.. So it's a full redundant mission-critical business that we're dealing with. Actually, this quarter, we are running on the rate of 150 million production a month. That means that we end up the yield potential of around 2 billion transaction. We're one of the largest in the world in terms of transaction base as a payment facilitator. We have a license -- facilitating. So we're dealing with all the aspects of, we call it, a friction and taking out the friction from the customer point of view, let him have this business -- to his business, increase sales and reduce operation.

So talk about your target customers and how that's evolved over time, right? Because historically, you were focused on unattended but you're broadening your scope. Maybe you could talk a little bit about that and how that's proceeding.

Yes. So with that, actually, just the context of unattended business on the global level. Most of them are part-time business. They're working part time of their life in terms of the unattended. They hold 10 to 50 machines. And with our strategy, we enable them to do this. When we look into global, we're seeing around 44 million to 50 million machines with more than 1 million customers like this, and we are running around 50,000 customers to -- so there is a long run on these aspects. Extending this on the full retail and EV and other segments is quite similar because they have the same friction. They have the same problem. The vendors are coming with a harbor potentially or processing potentially but coming all together in one-stop shop, it's kind of a significant change from most of the SMB market. And on a global level, we are running quite fast on this strategy.

So talk -- I mean unattended is the majority of your business today. You obviously have now got capabilities more broadly in the physical point of sale, retail, EV. You've got a whole bunch of -- talk about how much revenue those solutions are generating at this point? I assume fairly limited.

Yes, it is limited because the way that we're thinking is -- we established the company with three partners, two of us working in the company, David and myself. We're looking always long terms, and we're looking 10 years ahead, trying to see what will be the outcome of how we will grow the business and be dominating what we're doing in the business. So the unattended is a significant part, more than 85%, 90% of our business. 10% of the business is all what we call growth engines. Growth engines will become live more to '24, '25 and onwards, and they will be part of what we call the vision that we have a $1 billion revenue company in 2028. Potentially, this will be around 30% to 40% of our business, would be the growth engines. So this is how we are looking to bring ourselves into continuous growth 35% year-over-year. That's what we stated to investors and looking into a 50% gross margin and 30% adjusted EBITDA to 2028. Based on all of these activities that we have in unattended, which is now 90%, but it will be potentially around...

So when you say 10, you're looking 10 years out. What else do you have on your radar screen that maybe is not even in production yet?

No, most of it is what we know today, but we have a very broad solution on retail. And when you look at the retail market, which is trillions of dollars, TAM, we believe in the 70 countries that we are already operating and extending this country's footprint with our solution, we can create a very long run of growth to the company. In terms of what we have in our hands today is retail, the EV, a data-driven business of post solution and -- for activity. All of this is touching base, I think, to what we believe will be for the next 3 to 4 years as the growth engine. The EV is one of the key elements that we're looking very strongly, and we built the company around this business to capture the market, which is a quite complex market in terms of managing energy. It's a DC and AC chargers and you have to really manage this in...

Who do you view as competition in the EV space? I mean people are coming at it from different directions. Do you have a sense?

It is so chaotic today because the U.S. market is different because of the utility involvement. The European market is different in terms of -- because there is much more entrepreneur. DC market is catching up in terms of what we call the on the roads locations. We believe that the AC market will be very significant market because of the complexity to have the energy on the multi-tenant location and to manage all the policy behind this regard -- it's like a Netflix subscriptions. And this is like taking us to the B2B2C and putting this as a platform to a charge point operator, this is kind of what we call out of the box.

So you do B2B and B2B2C is what...

We try to serve only the B2B, but we always -- from starting -- even in the unattended business, we always provided what we call a mobile app. So it's actually creating a C level that we are serving. But we are not really influencing direct entities. So all the business of Nayax, which is the unique is the B2B2C. And all of this is a heavy task or heavy lifting that need to be till and the EV coming back to this, to this point is going to be a very, very heavy task because you have the utility, you have the subscriptions, you have to manage the energy behind this, you have to manage consumers. And then you have to manage what we call the unforeseen cars that coming with a different kind of a protocol or different kind of charging policy. So all of this is something that we are excited to deal with because we know that when we come in to this level of complexity and we solving the problem, it's created a lot of moat that is supporting us in this...

Let's go back to physical retail point of sale. There's obviously large global acquirers, merchant services providers. There's a whole industry there. You're really in many ways, trying to disrupt that. What -- how do you see yourself disrupting?

So it is depending on the size of the customers and the location. The SMB, we believe that we can keep ongoing what we call a one-stop solution. It's extending the unattended. We have also our customer base that needs also solution for retail. For example, the FEC, the [indiscernible] entertainment centers, they need also a solution of what we call attended or kiosk. And this is kind of I think that we're extending. When you -- we're going up the ladder to the midsized customers and the big customers, we are acting in a way that we are cooperating, will inquire as though cooperating with some kind of a channel to go to the market because we are using their customer -- or their sales business to really to create value for them and for us and for the customer, of course, by putting what we call a partnership behind it. So we're looking at the partnership with the acquirers that can go to the market with Nayax, which is ease of doing business for them and for the customers -- partnership will be very dominating into the future because we're coming with, we believe, a broader solution for them in order to sell the product and to really to maintain the acquiring part of the services.

So would you partner with the FDCs and the world base and the world -- and is that it basically in the middle market and enterprise kind of segments...

If we go up the ladder, yes, with the midsize and the Tier 1 customers, that's the thing that they need. We're coming with an extra value beyond all of this because we can deal with unattended outside of the premises, whether it is the EV or opening a door or opening the toilet or opening -- or self-service or self-checkout in the store and then the attended. So in a broader solution, we come into in let's say fault quote in much more relevant way to partner with an acquirer and to serve the location, potentially also pay on the pump, which is the same thing from our perspective. So we can take it what we call 360 degrees of solution with a partner. And we know that in this case, potentially our PF, what we call, solution will not be the one that we serve. It will be partly the acquired that we will do this.

Okay. Interesting. Let me ask a different question, but it goes as our -- the conversation we're having right now, which is what do you think investors don't understand or underappreciate about the company?

I think for investors, I tried to think it a lot around this kind of question that we are newcomers to the investment community. I think the model that what we're having is that is so unique in the way that we are performing this in the last 18 years that it's not always been realized quite obviously. And I said the following, okay? We are growing in a pace of 5,000 customers a quarter. So around 20,000 customers a year. We doubled ourself from 2021 to 2023. We are doubling ourself. We keep on saying that we're going to double ourselves. So what makes us such a sure that this is what we're going to do? I think the model of the visibility of what we see in the future is quite strong. Why? We have our own customers that actually it's a strategy of land and expand. So we're coming to a customer or he's coming to us all the channels that we're covering and accepting the customers, onboarding him. And basically, starting with five machines or 10 machines or whatever it is, but the size of the customer is around 50 machines. So the cohort that we see along the years is always at around when it's starting until, let's say, 4 or 5 years, it's like triple or 4x the size of...

He's -- with limited penetration and then you need to scale.

And that's kind of thing that the investor has to realize why we can see that everybody was talking about recession, everybody was talking about COVID, everybody was -- and of course, filling this and there is a 2008 crisis, and there is so many crisis around the globe. But if you look backwards about Nayax, Nayax is always growing quiet a straight line of a line. And the reason for this is because we have a customer base, very, very low churn, very high net retention and this kind of lenders is really making the difference.

And you don't think investors understand that...

They're not really -- I'm not so sure that they're getting this in the first time. But once usually, what we're trying to -- in order to cope with this we're saying to all the investors, please come to our office in Herzliya, in Israel. We'll tour you around. We'll show you what we're doing. And you feel that actually, it's a really one-stop solution. And then you can see the numbers and how we're growing. There is a -- we're actually a company internally, which is a number -- everything is under what you call the financial numbers. People can see all the numbers all the time around the...

Do you publish your cohort data?

Yes, the goal is published part of the presentation that we're giving to the investors, yes.

So you think that's the primary...

I think if this has been realized. So actually, it's like one of the analysts told us, actually, you're like a bond with a growth. So this is like kind of what you call...

Intrinsic to who you are.

Yes.

Which is a good play. Let's talk a little bit about products and platform, and we've kind of been alluding to it, but my sense as an outsider is innovation has been one of your differentiators. It's one of the things that is kind of who you are, you're constantly rethinking, re-envisioning that these products and services adding value to clients. Do you agree with that? Or is it -- or do you think that's an overstatement?

I think the way we're looking at -- everything that we're doing is basically on the vision statement and the thing that we're trying to create value for our customers. And based on this, with a strategy of one-stop solution, we're coming with a product that are relevant to the customers to create value that are helping them to grow the business and reduce the cost. So if you're listening to the customer based on the visions that you try to bring in, it's a full solution that we have a lot of products in between that eliminating friction or helping customers to really to scale up with our business. So I see a solution as one big thing that Nayax bring in. And based on this is a lot of what we call parts that supporting the customers to grow.

We don't have a picture here, unfortunately, but maybe you could quickly describe the platform and the elements of the platform because some of these businesses are obviously value-added services and extending the scope in the potential ARPU per customer. So maybe you could just kind of describe this visually if you can.

So as visual as I can from point of view of customer base, he's reaching out to the whole element of [ hardware ] solution that has engagement, what you call, a front screen engagement ability, so we can place his brand or he can place QR, or he can place whatever you want to -- or promotion or accepting any kind of a prepaid solution that he wants to [ unhold ] for the employees that he is serving. So this is the front end. And then, of course, there is all the certification behind this hardware. And then the back end is an IoT device. Actually, all the connection with the machines, we're doing this automatically seamlessly -- from the customer point of view, he's choosing the machine side, type and then need download parameters. So the 10 minutes of installation is one of the key elements that create value through our platform. And then on the back-end side, he has all the solutions regarding two elements of reporting and action. So we can take any action regarding what is the machine reporting, regarding which machine to reach out with the inventory level or what is, routing or what it is any kind of, what we call, dispatching to his employees and of course, all the reporting of the sales and the --. All of this is on the PC and also on the mobile side. On top of it, for his consumers -- customers, consumers, which is the consumers that are using the machine is a platform of a mobile app. He can white label the mobile. So he's getting a mobile app, consumer engagement, a full certification and commitment of the hard work connecting to IoT. It's outdoor unit. So you can place the machine outside in the -- in any kind of heat or cold location. Then the back end or the whole operations side is having a full control of his business. So he feel, to my understanding, what we know about customers' reaction that he is in full control at last. Now he has a consumer visibility and he has a full operational control that he didn't have before. And that's what we are providing as a platform. On top of it, and the part of the platform that we are payment facility we're accepting money on behalf of the customers. And we are sending a payout to the customers on a weekly or monthly -- a monthly basis. Part of the platform is also that we have a nice capital that enable him to really to is, what we call, extend the business with Nayax...

Working capital.

Working capital -- helping with the working capital.

Are you taking credit risk on the working capital or No?

Not at all. It's a joint venture with the largest bank in Israel, Bank of Hapoalim, and actually, it's set aside as a risk under this company. And we have underwriters and we have all the ability -- the whole thing about this is integrated all of this to the system. So it's integrated to our [ Kiosk ] that actually create the ability of customers to do an [ Kiosk ] to buy it and immediately get a merchant cash in advance and all this flow of value that we are bringing in is creating a lot of...

Maybe you can also talk about some of the other capabilities in the platform. Tigapo, which I don't understand what that is. CoinBridge, Weezmo which is, I think, marketing and...

So one by one. Tigapo is a company that we acquire. We're holding a majority of this company. It's a FEC. It's the -- for like the casino, but for kids, as we all know. And for this, you have to have a very intimacy of a relationship with the consumers because he's winning prices and you want him to stay more. And then you -- so all of this gaming arcade is being managed by Tigapo which is a unique proposition. It's digitizing all the paperwork, all the things around the arcade gaming and it's creating -- we have a testimonial of more than 50% increase in revenue in this business. So we are now -- and we are the only one doing this around the world. And this is like a very old way of operation will paperwork and all the prices behind this, and the company has digitized this. The Weezmo is our data platform. It's a post driven data platform that enable any kind of post to engage through API, also sort of a DLL to the printer. So we are not being hold back because of the post. And it's enabled customers to hold a better understanding of the marketing activity between the online and offline. Usually, they're spending money on the online, but they don't see the result on the offline. And this post-driven data collection have them ready to realize the spending and the return on investment. So there's Tigapo, there's Weezmo. The CoinBridge is an initiative of a start-up that we initiate. Actually, it's a patent that -- we wrote almost 7 patents around this. This is a place where we're looking at the Tier 1 coming back to the retail initiatives that we're having. And what we saw -- what they are missing to our understanding is their ability to become a financial institution. Usually, what the big retailers are doing, they are doing some kind of a joint venture and they're really issuing, what we call, card, debit card or credit card. And then on the base of this, they're creating what we call value which is higher value spending money, not just in the premises, but outside of the premises. What about the 85% or 90% of the consumers that are loyal consumers, but they're not really engaged with all this kind of onboarding cards or new [ Kiosk ] card of loyalty system. They're really part of the loyalty system. The interest of the customer, whether it is Walmart, Tesco, whoever it is, in terms of the retail is to delight the consumers, to make sure that they are really using the cash back, whatever there are not just in the four premises of the outlet, but outside, and then they come back and they making a transaction more often and the basket is higher. So what we did on top of the raise that we already know, which is the network rail that are quite good, we initiate or issuing license with Mastercard that we have now in Israel, Europe, U.K. and Discover in the U.S.. And this enable us to be an issuer for the retailers. And how we're doing this is that we are asking the retailers, of course, with his agreement, consumers are updating their app. So Walmart app, Tesco, Morrison app, whatever it is, they already have their consumers. They're already using what we call engagement with their consumers. The update of this app is enable a token into the app. The token is actually empty token with card on file. And the policy to spend the points or whatever the digital asset that the customers want to spend is based on this policy. So if I'm Walmart, and I'm a consumer that are living in the U.S. and reaching out potentially into Israel and Walmart want to delight me with the point that I already earned, let's say, I have 100 points of Walmart that can allow me to spend money on MCC call -- let's call, Cafe or MID called one name that are based in Israel called maybe Aroma. And based of this, I can spend the money of my points, which is...

Your digital value.

Digital value. I can spend it outside of the rail. So imagine what is the surprise, and let's called it, happy.

Delight.

Delight consumer. They say, wow, look what I can do with my points. From a point of view of customer -- of the retailers, of course, the rate of the points value, you can play with this. You can say, okay, it's a cost -- so I can do it maybe 25%, not 100%. For me, as a consumer, just to have this kind of allowances with my points, I don't know what to do with my points anyway. I cannot really do a lot with my points. So it's play a lot of, what we call, win-win-win for consumer point of view, for a customer point of view, that creating a lot of value for the customers to repeat buy -- consumer repeat buying and increasing the basket. It's opened the door for huge market of just the digital assets as we call it, not just the cash back. It could be for crypto, it could be for a lot of other digital assets that need a solution that's taking the digital asset to [indiscernible] money.

And Nayax account, I assume, is embedded banking. Is that what that is?

Nayax account is the extended part what we're looking into the future is take rate and the ability for us to extend the take rate in the margin by also providing, let's call it, a ledger account because the money, we already received the money. So this ledger account, he can spend the money. We can issue him a card, he can spend the money from our account and the money actually stays in Nayax account, segregate account. And based of this, we can offer potentially a partnership with the insurance, with banks, with whoever it is in order to really to gain more value from our perspective into the Nayax account.

It's a lot going on, yes. Let's talk about the competitive front. What are you seeing from your major competitors? Can you make any generalizations?

If you come back to the initial -- starting of this discussion, we see what we want to deliver, and we're less of looking about competitors. We see the value that we're trying to bring in. We're seeing the full solution that we're trying to build in. We're seeing it working, that this model is working for us. So for competitive landscape, it could be anyone that really compete against this. But what we see is vendor that compete against what we're doing. Nobody is really doing from a global -- global solutions, what we're doing. I think we are -- I know potentially you know better than me regarding how many are really connecting to more than 45 acquirers, 50 acquirers around the globe in terms of card present. This is a quite task to accept card present solution in New Zealand, in Australia and Japan, all over Europe, different currency, but it's like-to-like. And then the U.S., Canada and bringing this solution to the SMB market. We don't see anyone coming near while this kind of...

Particularly the SMB market.

Yes, particularly in this SMB. So this is -- and there is an endless game from our perspective.

And in the U.S. in terms of -- who are your primary competitors these days in the U.S.?

So in unattended space, there are some players in the U.S., which is solely in the U.S.. We -- again, we're looking at this in the way that we're taking a lot of market share. We're growing quite fast. What we're growing customer base in 1 quarter is surpassing the 1 year of our competitors. It's really a testimony of what we're doing and how we're doing and how we're scaling our business.

But who are you taking share from in the U.S., everybody?

There are changes in the U.S. market where it is a crane and antelope and others. But we are looking at the market that even the U.S. market is not really full to the full extent or -- in terms of solution. I think the SMB market and the small market, nobody treat it like Nayax and there is still a lot of time to grow the business. The Tier 1 customers, some of them really approach Nayax and move to Nayax. So it's coming from competitors, yes.

Yes. I'm sure it is. What do you worry about in terms of the constraints on the business?

From 20 years of experience of this business, if I will not be me and my partner will be able to -- always paranoid, it will not work. So we always worried about the execution and the speed of delivery. We think that if will not run quite fast and be under a pressure of delivery, we will not succeed. So the growth rates that we're putting on to ourselves and also to outside world saying a 35% growth is a must-have from our perspective in order -- to really to succeed and grow the business. If we not grow this space, it will be -- something is wrong internally in the way that we're executing.

Getting to $1 billion in revenue by '20, what was it 2028, is that, yes? And as I think you said you're projecting 35% growth going forward, which is not trivial. I mean that's fairly significant for the next 4 or 5 years. What are the primary drivers of that growth? I mean, if you were to pick 3 things that you think will drive that growth more than anything else, what are they?

I think first and foremost, the market is huge. The unattended by itself is more EUR 120-more billion. If you calculate what we are doing and all the competitors are doing, I think we are less than 20%. So we have 80% of the market growth. Some people are skeptical say, say, yes, but we are all this market. So this market is quite complex with more than 44 verticals. If you take the massage chair, if you take the laundry mat, if you take kiddie rides and novelty machines coming in. I know bike washers, there's so many different...

Use case.

Use cases coming to life which are not served. They're actually accepting -- still accepting cash. And they all -- remember, we always try to remember, they're all under very nano-merchant like small merchants okay, we stay with cash if they can, right? Based on this, we see this is a very strong part of our future growth that will take us to, I don't know, 60% of the growth that...

So just penetrating unaddressed TAM, basically, which is the 80%.

Yes. So if we have 20,000 customers a year and these customers will grow 4x, these are the customers that are internally. And then we have the new customers coming in. And based of this, we believe that we'll have a very strong growth into the future. This is the major part of this because it is working for us quite significantly. The second part that we believe of the growth is the EV charger, the electrical vehicle charger because, again, there is a big tailwind coming in with government utility, what -- it's already decided that we...

And it's global. And it's global.

And it's global and sort of us in terms of this. And the last thing is actually the novelty that we talked about, the ability of us to be an issuer for the customers and enable them to become really control their loyalty engagement is a big part of what we're living into the future. So the retail side, we see unattended is strong pillar, the EV and then the issuing side of the loyalty part for the customer base, Tier 1 customer that we have here.

Well, it's pretty exciting. There's a lot going on and the business continues to improve. We just now need to improve liquidity and help the stock price. And that's what we're looking for.

That's what we are going to afford that.

Yes. Thank you very much.

Thank you very much.

Bye-bye.

Thank you. Bye.