Nayax Ltd. (NYAX) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Nayax' Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to Mr. Aaron Greenberg. Please go ahead, Aaron.

Thank you, operator, and everyone for joining us today on this conference call. With me on the call today are Yair Nechmad, Nayax's Co-Founder and Chief Executive Officer; and Sagit Manor, 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.nayax.com. As a reminder, during this call, we'll be making forward-looking statements. All forward-looking statements on our call today are based on assumptions and therefore, subject to risks and uncertainties that may cause 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 and our regulatory filings. 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 of our ongoing performance. However, these measures should be considered as a supplement to and not as a substitute for IFRS financial measures. A reconciliation between Nayax' non-IFRS to IFRS measures can be found in our earnings press release issued earlier today. All key performance indicators are intended to evaluate our business and properly measure factors in a macroeconomic environment to guide and support our decision-making. These key performance indicators may be calculated in a matter different from the industry standards. And finally, please note that all figures in today's call will be reported in U.S. dollars unless stated otherwise. Yair will start the call with key financial and operational highlights. Following that, I will speak about some of our strategic initiatives in more detail. Finally, Sagit will go through the details of financial results and discuss the outlook. And with that, I would like to turn the call over to Nayax's CEO, Yair Nechmad. Yair?

Thank you, Aaron, and thank you, everyone, for joining us this morning to discuss our results for the second quarter and the progress we are making across the business. We had a strong quarter with revenue up 28% to approximately $123 million and adjusted EBITDA of $14 million. For the first half of the year, revenue increased 30% to approximately $230 million with organic growth of approximately 24%, in line with the full year guidance we outlined at the beginning of the year. Our business is performing extremely well, driven by our strong growth algorithm. We continue to onboard more merchants sell payment devices and then monetize every transaction that flow through our platform. Our flywheel is working. Each new device installed compound our high-margin recurring revenue stream. To this end, we increased our installed base to more than 1.55 million devices globally, and our customer base reached 125,000 and reflecting both our continued success and the significant opportunities in the market. Furthermore, the fundamentals across the business remain solid. Our net revenue retention remained around 120% with historically low churn. This is an indication that we are supporting our customers, and they, in return are buying more from us each year. As our business continue to expand into higher-value verticals such as EV charging, growth is increasingly driven by the number of devices we deploy, and also by the increasing value generated by each connected device as reflected in the continued growth in ARPU and ATV. This, in addition to the tailwind from the cash-to-cashless conversion trend, presents that we have the right strategy, the right product offering and the right team to execute against a large and growing market opportunities today. We see great opportunities in several key strategic areas across the organization, and we are accelerating these investments to support our growth and take advantage of our leadership position in unattended payment. Specifically in financial services, we are extending the platform into funding and card product for the merchants we already serve. As many of you have already seen from our announcement a few days ago, we continue to expand the strategic capabilities of the Nayax platform. Nayax Capital give us in-house lending and installment technology that we have been building for several years now. In addition, we have deployed our own card infrastructure as a license principal issuer. Combining those 2 give us the opportunity to add loyalty solution, intervening a complete financial product portfolio while bringing more value to the merchant. These services, coupled with our recently announced application for a U.S. bank charter, would give us a set of capabilities that few of our peers can match, which includes banking, loyalty, financing and issuing. Aaron will share more about this exciting news and what it unlocks in more detail in a moment. In EV, customers of the combined Nayax and Lynkwell offering are driving demand that is enabling us to deploy a higher rate of DC fast chargers at more than double the pace we saw for acquisition. We are intentionally not slowing that deployment rate as it directly drives both the growth rate of Nayax's future recurring revenue and our market share in the EV market. Every charger deployed faster becomes a source of recurring revenue and capture more share sooner. While these investments do not change our expectation for revenue or adjusted EBITDA guidance for 2026, both of which we are referring, it will impact our free cash flow in the short term. We believe this investment position us to capture significant long-term growth opportunities and solidify our industry-leading position. Separately, 5 years after going public, we have implemented a new long-term management incentive plan to recognize and reward our dedicated senior leadership team over the next 5 years, built around our 2028 strategic milestone and beyond. The vision is simple. Nayax is building towards a multibillion-dollar revenue company, and this plan ties our senior leadership to our strategic milestone we have set out publicly. Let me close with where I believe the company is heading. 20 years ago, we were selling a card reader for a vending machine. Today, we're the payment engine for more than 125,000 businesses across more than 40 verticals and most of them run their daily operation on our software. Every device we connect is a permanent touch point, running our software and processing on our platform. What excites me now is what we can put on top of the platform. Payment were the first service, software was the second, financial services are next and other will follow. Each one is a new revenue stream for our new and existing customers, leveraging infrastructure we have spent years to building. The investments we are making this year in EV and in our banking infrastructure are expanding the platform we've built and creating additional long-term recurring revenue opportunities. As a founder, I am more confident about where Nayax is headed than I have ever been. With that, I will turn the call back to Aaron to discuss some of our strategic initiatives in details. Aaron, please go ahead.

Thank you, Yair, and hello, everyone. I want to cover 2 topics today: The bank charter application we announced last week and what it means for our embedded financial services strategy as well as provide an update on our M&A strategy. Last week, we announced that we filed an application with the Connecticut Department of Banking to establish Nayax American Bank, Inc., a nondepository innovation bank under Connecticut's Innovation Bank framework headquartered in Fairfield County. The filing is not the beginning of the process. It follows a year of application drafting and direct engagement with the department and builds on the operational and regulatory foundation we began putting in place in early 2025. Let me start with why. Today, Nayax provides payment facilitation in the United States through partnerships with acquiring and processing banks under the agent to pay exemption. This works for what we do today, but does not give us the regulatory framework to expand our product portfolio. The moment we offer more financial services such as financing or card issuing, we would trigger licensing requirements across a large number of states, each with its own application, bonding and examination. Having a single Connecticut bank charter largely replaces that patchwork. So first, the charter strengthens the foundation under the business we already run. Second, it opens the door to embedded financial services, and that is the larger opportunity. Over the past 5 years, we've built our own issuing infrastructure from the ground up. We're already a license principal issuer in the EU, U.K. and Israel. Last year, we brought Nayax Capital fully in-house, adding lending and installment capabilities. Together, these give us a nearly complete offering in the embedded financial services built in-house rather than stitch together from vendors. With that, we can serve our customers better than a traditional bank. Our underwriting is based on the payments we process. We see settlement data from these merchants in real time every day on our own platform so we can make a faster decision on a lower risk loan that is possible from looking at financial statements or a credit file loan. Collections run through automated deductions from settlement flows we already control, which materially changes the recovery profile, and our acquisition cost is extremely low because these merchants are already on our platform. It's important to highlight that we intend to only extend credit to our payments customers. This is a value-added service layered on top of the core business, not a separate vertical with a different risk profile. And that will keep the loan book conservative and margins strong. The United States is our biggest initial opportunity when today, almost all of those merchant financial services are handled by someone else. On timing, the department's review, which includes an independent feasibility study and a public hearing is expected to take approximately 6 months. Approval is not guaranteed, and we cannot give assurance as to whether or when a charter would be granted or on what conditions. Assuming approval, our plan is for the bank to be operational in 2027 and to begin contributing incremental revenue by year with acceleration as we move into 2028 and beyond. On capital, we expect to fund the bank initially with $10 million using our existing balance sheet with approximately $1.5 million of capital restricted opening. Once we show proof of concept, we intend to minimize the direct impact on the balance sheet by utilizing off-balance sheet funding structures such as a warehouse facility. We believe this is a large opportunity for Nayax coming from capturing more wallet share from the merchants already on our platform rather than from adding new customers. Turning to M&A. Our pipeline remains robust, and our priorities are unchanged from what we have previously described. We continue to target 2 to 3 acquisitions a year. We are actively working on several opportunities and still expect to announce more this year. As we said in March, we will only guide on acquisitions once they have been finalized. Our playbook is consistent. We look for software companies and verticals where payments and software have to work together. We combine them with our payment stack and we take the results global and infrastructure we already own. We did it with Lynkwell in EV with [indiscernible] in family entertainment, is a repeatable model, and it is how we intend to keep scaling into new verticals. I would now like to pass the call over to our CFO, Sagit Manor, to go over our business and financial results and provide our outlook.

Thank you, Aaron, and good morning, good evening, everyone. We appreciate having our shareholders, analysts and the entire a team with us today as we review our financial results for the quarter. As Yair and Aaron highlighted, we continue to execute well across both our core business and continue to invest in our strategic growth initiatives. The fundamentals of the business continue to strengthen. During the second quarter, we delivered record revenue as well as record total transaction value, while we continue to grow our customer base and installed base of management connected devices. We also continued to improve key operating metrics, including ARPU and ATV. These results reinforced the strength of our business model. The more customers we onboard, the more opportunities we create to expand payment adoption, increased transaction activity and grow recurring revenue across our platform. These quarterly achievements demonstrate both our ability to scale the platform and to deepen customer engagement across our installed base. Looking ahead, we believe we are still in the early stages of our long-term growth opportunity as our new verticals continue to scale and our OEM partnerships mature, we see meaningful opportunities to expand both our installed base and the value we generate across the base over time. Let me now walk you through to how our execution is reflected in our financial results for the quarter. Turning to the financials. Revenue increased 28% to approximately $123 million, including 21% organic revenue growth over the prior year's quarter. Organic revenue growth for the first half of the year is approximately 24%, in line with our guidance. Recurring revenue grew 24% and represented approximately 72% of total revenue. We ended the quarter with an installed base of more than 1.55 million managed and connected devices, while serving 125,000 customers globally. Total dollar transaction value grew an impressive 29% to $2.1 billion. Consistent with recent quarters, we continue to see a favorable mix shift towards higher-value verticals. Average transaction value, or ATV, increased to $2.52 from $2.20 and while take rate remained strong at 2.62%, representing a mix of both regional and vertical shift. Combined, these indicators show that our growth is increasingly driven by adding devices and also by increasing activity and monetization. We saw a continued increase in the revenue generated from each connected device. Average revenue per unit, or ARPU, increased to $251, up 13% year-over-year. This increase continues to be driven by 2 main factors. First, the ongoing conversion of existing machines from cash to cashless transactions. And second, our strategic expansion into higher-value verticals, such as EV charging, amusement and car wash. Turning now to hardware revenue. Hardware revenue increased 40%, increasing by approximately $10 million year-over-year to $35 million. This growth reflects continued demand across all markets, together with the contribution from Lynkwell. Approximately 2/3 of the year-over-year increase in other the revenue came from Lynkwell, reflecting the continued expansion of our EV platform and strengthening our position in this important long-term growth market as we continue to capture market share. Lynkwell is the second largest charging network in New York area and seventh largest in the U.S. In the cards present payment solution through Nayax LLC, we believe we are a leading provider in the U.S. By combining our payments with the Lynkwell platform, we have a differentiated solution that sets us apart and which we continue to scale. This success has shown with our first half beating internal estimates in the EV-related revenue. Moving now to profitability and margin for the quarter. Overall gross margin for the quarter was 47%, an the continued expansion of our recurring business remains the key driver of our long-term profitability with both processing and SaaS margins improving again this quarter. Recurring gross margin increased to 54%, up from 53% in the prior year quarter, reflecting continued scale, higher transaction volumes and broader adoption of our software solution across our installed base. Processing margin improved to nearly 41%, up from 39% a year ago, reflecting the continued benefits of our renegotiated acquiring agreements together with our enhanced smart routing capabilities. Stock margins also expanded to 76% from 74%, reflecting continued scale. Turning to hardware margin that came at 28.1%. The primary driver for hardware margin this quarter was product mix. As I mentioned, approximately 65% of our hardware revenue growth came from Lynkwell, which has lower hardware margin than our deepest product family. In addition, higher freight and logistics costs created modest pressure on our hardware margin during the quarter. Adjusted OpEx was $44 million, representing approximately 36% of revenue and consistent as a percent of revenue, both sequentially and compared to the prior year period. While we maintain an active hedging program, the appreciation of the Israeli shekel against the U.S. dollar resulted in an approximately $2.3 million headwind compared to the first quarter. Adjusted EBITDA increased 12% to $14 million compared to the prior year's second quarter. Adjusted EBITDA was impacted primarily by the appreciation of the Israeli shekel against the U.S. dollar, which increased our operating expenses in dollar terms. At the same time, as we enter into the second half of 2026, we continue to drive initiatives to improve productivity and operational efficiency as we scale the business. We expect adjusted OpEx to be roughly $42 million per quarter in Q3 2026 and in Q4 2026, excluding any impact from changes in FX. Let me provide some more details about where the improved productivity and operational efficiency will come from. The meaningful step-up from the first half will be driven by the continued mix shift towards recurring revenue with higher processing and SaaS margin as well as an expected uplift in hardware gross margin in the second half of the year. The balance will come from operating leverage, as we continue to implement AI in our day-to-day business and continue to integrate process automation. As Yair mentioned, in the second quarter, we initiated a company's senior leadership stock-based incentive plan called the Diamond Plan. The total consideration from this plan is approximately $48 million over 5 years. In addition, the company awarded our CEO and CTO, [indiscernible] founder with a long-term incentive plan tied to the Nayax total shareholder return with fully vesting at $240 per share. The solid consideration from this plan is approximately $10 million over 3 years. This aligns the long-term future of our co-founders and senior leadership with the shareholders towards at common goal. This quarter includes several stock-based compensation items that are separate from the underlying operating performance of the business. Software compensation totaled $12.4 million in the quarter compared to $2.5 million in the prior year period. The increase reflects 3 elements: First, stock-based awards related to employee performance in 2025, which under applicable accounting rules are recognized in the current reporting period. Second, a $5.9 million stock-based awards regarding the launch of our Diamond Plan, a new 5-year long-term management incentive plan as mentioned above. Q2 specifically absorbed a higher stock-based expenses related to a onetime fully vested RSUs of $4.5 million given as part of the Diamond Plan. And third, $0.7 million related to the new long-term incentive plan to our founders. We expect stock-based compensation to be approximately $27 million for the full year 2026, representing approximately 5% of the revenue for the year. Net financial expenses increased $4.3 million compared to the prior year period, primarily reflecting higher expenses due to FX and interest expense associated with the bond issuance completed in 2025. We reported a loss of $10.1 million for the quarter compared to net income of $11.7 million in the prior year period. The primary driver in Q2 2026 this change was a significant increase in noncash stock-based compensation expenses of $12.4 million, as mentioned above. The prior year net income included a onetime gain of $5.6 million related to the share purchase of the remaining 51% of Nayax Capital, which was previously held as a joint venture. Given the significant noncash stock-based compensation recognized during the quarter, we believe adjusted net income also provides a useful view of the underlying operating performance of the business. Adjusted net income for the quarter was $6 million compared to adjusted net income of $11 million in the prior year period, driven primarily by higher financial expenses. Turning now to our balance sheet. As of June 30, 2026, cash and cash dividends and short-term deposits totaled $304 million, while total short and long-term debt stood at $349 million, maintaining a strong balance sheet and significant financial flexibility. Cash generated from operating activities for the first half of 2026 was $2.3 million. For the quarter, free cash flow was negative $13.1 million, primarily reflecting Lynkwell project heavy business, securing sourcing of key components in costs, increased banking infrastructure investments and the timing of cash settlements from our processing activities. Turning now to our outlook and referring to the forward-looking information included in today's press release. As Yair mentioned earlier, we are reaffirming our full year 2026 revenue and adjusted EBITDA guidance. We continue to expect revenue of between $510 million and $520 million, including organic revenue growth of 22% to 25%. We also continue to expect adjusted EBITDA of approximately $85 million to $90 million, representing an adjusted EBITDA margin of approximately 17% as we continue to improve our margins and our operating leverage through AI implementation and process automation. The one element we are revising in our guidance is our free cash flow outlook. We now expect free cash flow conversion from adjusted EBITDA of approximately 5% to 10% for the year. This primarily reflects an accelerated investment we are making to support our long-term growth initiatives. The area of investments are in financial services, including lending, installment and issuing capabilities, capturing market share in the EV charging space and securing sourcing of key components in cost. Importantly, these updates reflect the timing of cash flow rather than a change in our underlying operating outlook. As Yair discussed earlier, these investments are aligned with our long-term growth strategy. Overall, we remain confident in our outlook for 2026. The fundamentals of the business remain strong, and we believe the investments we are making today position I to further strengthen our leadership position and create long-term value creation. I want to thank all of our Nayax colleagues on their hard work. And with that, I'll now turn the call over to the operator for a Q&A session. Operator?

[Operator Instructions] Our first question is from the line of Josh Nichols from B. Riley Securities.

My question. Good to see another strong revenue post for the quarter. Maybe you could provide a little bit more granularity on a little bit of the insights, particularly what's driving that top line. You obviously had Link well this quarter. But EV charging, I assume, has been ramping up pretty specifically, but also if you could provide any commentary about specific geographies, whether it's U.S., Europe or Latin America to what you're seeing there, that could be helpful.

Thank you, Josh. We saw a beautiful Q2. As you said, 28% quarter-over-quarter and 30% since the beginning of the year. The growth comes from actually from oral geographies and all verticals. You can see that in the geography pie that we usually provide, very strong quarter. Yes, EV is also growing beautifully. Through Lynkwell, we were able to secure several large deals that are growing nicely. And as you know, the hardware is just the beginning. It's the lock-in and the enabler for the CPMS, which is the charge poit operating system that later on will bring the recurrent revenue, including payments.

Sorry, this is Aaron. Maybe I'll just add on the EV side. We've had an acceleration in the U.S. because of the Lynkwell acquisition, and we're seeing a lot of success now with bundling the payment solution, our payment solution with Lynkwell's OCP management solution. We're also starting to see some more success year-to-date in Europe after the [indiscernible] media came live. In the past several months, we've won a couple of large RFPs in Europe recently because of the Pennon Glass device, and we expect to see more acceleration in the rest of the world for the EV side going forward.

I do see the context there. And then just to touch on it, you reaffirmed the guidance for the revenue and EBITDA. It makes sense that you're doing some more investments in the near term that taken free cash flow conversion down a little bit. You also mentioned it like with Lynkwell, some of the hardware margins were down, but you expect those to rebound in terms of timing. Are these mostly like 2026 investments? And do you think that things revert to a little bit more traditional conversion for next year in hardware margins? Or is this going to be something that takes a little bit longer.

Yes. Thank you, Josh. So with respect to the investment, we expect that to be mainly in 2026. We've mentioned that, and this is really the reason why we have reaffirmed our guidance on the revenue and adjusted EBITDA because it doesn't really affect that, but we revised our guidance on the free cash flow because of those investments. And it's actually 3 or 4 elements of cash investments. One is as, as you can see, Lynkwell has an heavy cash investment of the fund to later on receive those cash rewards from the government as we get those funds back. This is really to capture market share as we do right now. Lynkwell the second place in New York from -- with their CPMS, so management system. They are third in the Northeast. And they are seventh nationally. So with those investments, and we have a great opportunity here, right, to capture market share we do not want to pass on that. The second area of investment is the financial services area, where, as you know, we have been issuing through Coin Bridge and we have the financing through net capital. We also have the loyalty and now we have the through the bank charter and through the application that we just announced in the Connecticut Department of Banking it obviously would take 6 months, but those 4 elements, again, the issuing financing, loyalty and banking really gives us a full solution that -- solutions that are needed to provide our customers what they need the most, right? One, end-to-end solution that gives them not just the area where we built at the beginning, which was the hardware, the software and the payment. Now we actually have those financing services. And that's the second area of investment. The third area is securing a few key components from a sourcing and cost perspective. we were able to really manage our costs despite the memory issue. The memory issue might come in 2027 to the second half of 2027, which is a long time from now. We are focusing on the now and we are able to really focus on how do we manage the cost and the beautiful margin expansions we showed also in the hardware margin. And lastly is the timing, obviously, that we have every time between the money defined from our customers and the processing acquires money. So all of that created that really looking at our free cash flow, what do we want to invest now that has a long-term growth initiatives and opportunities in the future.

The next question is from the line of Rayna Kumar with Oppenheimer.

Congrats on filing the bank charter. I know that was some the work, so congrats. I just want to start on the hardware margin. So was that decline in the hardware gross margins anticipated in 2Q? And -- like how should we think about hardware and SaaS and payments margins for the remainder of the year?

The hardware margins -- well, we're I'll start from the beginning. You're going to take any opportunities we have, especially when it comes to create a strategic opportunity from our perspective to capture market share. And that was Lynkwell story this quarter. Almost 2/3 of the revenue, the growth of the revenue came from Lynkwell. That's the reason why it has a higher weight, if you will, on the margin. However, as we step into Q3 and Q4, I'm expecting the margins to go back to more or less where they were in Q1. And so that will help us in that sense to continue and keep our margins in the high 40s as we showed recently.

Okay. That's great color. Very helpful. And then -- so I understand that you're reiterating your EBITDA guide lowering free cash flow guide because of accelerated investment. So are all of these investments going to CapEx? Like why isn't it flowing through EBITDA?

Some of them are coming through EBITDA once -- some of them is like the financial services, not everything can be capitalized. And that's one of the reasons why our adjusted OpEx was a bit higher on top of the hedging -- of the exchange rate impact. Having said that, let's start from an OpEx standpoint or adjusted EBITDA standpoint. We are expecting an improvement both in the hardware margins as well as continue on the recurring margin. But as you can see, processing margin improved almost by 1% and that even improved to continue to push where we can on the margin expansion overall. We also implemented a few efficiencies within our company, both from AI implementation, looking at our customers and what we can and make the smooth transition and reduce the friction with them and whether internally how can we do more with less, especially that we've implemented AI almost across all of our departments. So there's a lot of things that are being done from a P&L standpoint to meet what we said we're going to do. On a cash flow perspective, I've provided the kind of a bit of more color where those investments are going and how that's impacting the 2026 cash flow -- free cash flow forecast.

The next question is from the line of Cris Kennedy with William Blair.

Yair mentioned how financial services could represent the next leg of growth for the business. Is there any way to frame the opportunity there relative to payments or software?

Cris, it's Yair. We're not putting now some kind of what I call more color to this right now. But I can say the following. We are holding more than 125,000 customers. Basically, I'm always saying that the pain was a part of what we call the business of the acquiring that we're doing. And you see the take rate as we're having out of it. But we can only imagine that if everything goes well, the payout will be out of it. So you can imagine that pay in and pay out altogether, both sides is protecting our margin, protecting the churn, protecting the growth of the business and for sure, creating working capital better for the customer.