管理層發言
Hello, everyone. And welcome to Nayax's Fourth Quarter and Full Year 2024 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to 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 will be making forward-looking statements. All forward-looking statements on our call today are based on assumptions and are 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. The reconciliation between Nayax's 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 manner different from the industry standards. And finally, please note that all figures in today's call will be reported in US dollars unless stated otherwise. Yair will start the call with key financial and operational highlights. Following that, I will speak about our recent M&As and their progress. 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 to everyone joining us today. We had an excellent fourth quarter, stepping off an exceptional year in which we either met or exceeded our guidance. We advanced our strategic goals and achieved many significant milestones along the way. 2024 was a turning point for Nayax as we delivered record revenue, improved our recurring revenue mix, boosted profitability, achieved positive free cash flow and grew our leadership position globally. I'm very pleased with our results and proud of the entire Nayax team whose hard work and dedication has contributed to our success. I would like to start first with our key performance highlights for the year. I will then share a glimpse of some of the recent success stories and then will discuss how well Nayax is positioned for the future and conclude with our main areas of strategic focus for 2025. In 2024, we managed to increase our adjusted EBITDA to more than four times to $35.5 million exceeding our guidance.
As we consistently showed over the past several quarters how approximately 30% of our incremental revenue growth is scaling to adjusted EBITDA. Moreover, we achieved positive free cash flow generating $18 million for the year, converting more than 50% of our adjusted EBITDA into free cash flow and giving us more firepower to invest in the growth of our business. Continuing to scale our business with increasing operational leverage is key for us as we work towards our 2028 target. Our 2024 revenue increased by 34% to $315.2 million on a constant currency basis, in line with our guidance. Importantly, recurring revenue grew 47% for the full year and now represents 71% of total revenue. As you know, the shift toward high margin subscription-driven revenue is a key factor to our long-term growth and profitability targets. These numbers tell a bigger story about Nayax: our strategy and mission of simplifying commerce and payment for our customers is delivering results.
We are expanding our market presence, driving profitability, generating cash flow and building a brand that resonates with both customers and investors. Now, I'd like to walk you through three key performance indicators for the full year that we consider primary measures of our growth. First, total transaction value increased 36% to nearly $5 billion combined with a higher take rate of 2.73%. This drove strong processing revenue growth for the year. Second, our customer base expanded 32%, reaching more than 95,000 customers at the end of 2024, up from just over 72,000 in 2023. And third, our install base of managing connected devices grew 21% to 1,260,000 devices at the end of 2024. A strong growth in our customer base and number of managing connected devices reflect the success of our go-to-market strategy, which leverages a combination of direct sales, close relationships with distributors and resellers, OEM partnerships, and our vision.
Together these channels are driving our growth today and will continue to fuel our expansion in the years ahead. We are highly confident about the future. With a relatively low penetration of cashless solutions in both the unattended and attended end markets, we see a tremendous market opportunity for Nayax. Our TAM is large and growing, driven by the shift from cash to digital payments that is occurring globally. Consumers today not only accept but expect seamless automated transactions, creating strong demand for our end-to-end payment solutions, a trend that is only gaining momentum. Independent research analysts state that the number of connected devices globally is expected to grow from approximately 45 million in 2024 to 60 million by 2029. I'd like to now share some key development customer success stories from the quarter that highlight our continued expansion in the automated self-service space.
In the United States, we extended our partnership with CandyMachines, an OEM in the amusement industry, and we were chosen as an exclusive cashless partner for the Pelican Group, a large distributor representing thousands of operators managing more than 65,000 automated machines. In addition, Five Star, the largest of the canteen franchisees, successfully completed the integration to Nayax. We also strengthened our relationship with Minnesota Vending, moving beyond our flagship product to roll out Nova Markets in their micromarket operation. In El Salvador, we launched our automated self-service payment solution, accelerating our expansion into Latin America and improving access to secure cashless payment in an underserved market. In the UK, we deployed OTI PetroSmart Fuel Management System in Tesco's UK delivery fleet, helping Tesco cut costs, accelerate automation, and support sustainable operations across its fleet.
In France and in Italy, we secured agreement with a large buying group overseeing more than 300,000 machines, a deal that positions Nayax for long-term growth in the region. In Malta, we successfully installed our innovative market solution for a major international hotel chain, offering its new revenue stream without increasing labor costs and reinforcing the value of technology. With each of these customer success stories and key developments, we continue to establish Nayax as the leading provider of cashless payment and management solutions, driving innovation and growth across multiple industries and markets. Looking to the current year, our primary areas of strategic focus for 2025 will remain the automated self-service market, along with continued penetration within the retail and energy verticals. Now I want to take a moment to explain our vision for each of these verticals. First, we plan to drive growth in automated self-service through our robust and diversified go-to-market strategy, which includes special emphasis on OEM partnerships.
We maintain direct relationships with more than 2,400 OEMs worldwide. We embed our payment devices directly into their products, including vending machines, EV chargers, arcade machines, and more. For example, we announced a partnership with SECO to offer an IoT-integrated payment solution for OEMs, which combines secure payment with remote machine management and AI-driven business intelligence. With every new machine deployed through these OEM partnerships, our ecosystem expands, ensuring we remain deeply integrated into the next generation of automated self-service devices and positioning us for sustainable long-term growth. Operators adopting these machines are seamlessly onboarded and supported locally and can instantly activate our services, reducing friction in deployment and driving faster adoption. Moving to the energy vertical, we have continued our momentum as the premier cashless technology provider in the EV space by expanding our business with recognizable charge point operators, including Electrify America, Electrify Canada, and EVgo.
One of our significant innovations this year is the EV kiosks application, which utilizes the OCPI network and gives us a significant edge in our product portfolio for EV payments. By being a leading payment solution provider for the EV charger industry, a rapidly expanding vertical, we ensure our long-term recurring revenue while strengthening our role in a broader energy and mobility ecosystem. Regulators are increasingly requiring that EV chargers implement present payment systems to receive public funding, which we expect will boost the demand for our payment devices in this space. Finally, as announced in September, we intend to launch our e-commerce payment solution for EV charging applications in the coming months in partnership with Adyen, which will give us a complete omnichannel payment solution to sell to our partners globally. Another continuing area for focus this year is retail and hospitality.
We plan to continue expanding our footprint within retail and hospitality, providing customers with seamless solutions that address both their self-service and unattended needs. With our unified technology stack, we enable a single integrated solution that combines all transactions into one seamless checkout. Our platform replaces the complexity of multiple vendors and payment systems with a single solution, simplifying payments, providing real-time cash flow visibility, and ensuring a better guest experience. In Q4, we announced the expansion of our Nayax rated product in Continental Europe, and we started to gain an initial presence in North America at the end of the year. Accessing these markets isn't just about payment but offering a seamless all-in-one solution and providing a complete commerce ecosystem for our customers, fueling our growth and differentiating us from other players in the market.
As we enter 2025, I'm excited about the near-term opportunity in front of us. While we continue to pursue strategic M&A, organic growth remains our primary building block and will continue to be the main driver of our growth. We are building a scalable, profitable business, and everything we are doing today is about positioning Nayax for sustained success. We are confident that we can consistently expand our revenue and margin over the coming years to achieve our 2028 annual revenue growth target of 35% with 50% gross margins as we continue to grow our recurring revenue in general and such revenue in particular as a percentage of our overall business. We are also reaffirming our guidance for 30% adjusted EBITDA as we continue to drive operating leverage and efficiency. With that, I'll turn over to Aaron Greenberg, our Chief Strategy Officer, who will discuss our recent M&A and future inorganic growth strategy. Aaron, please take it from here.
Thanks, Yair. And thank you everyone for joining today. I'm excited to walk through our inorganic growth strategy, highlight the opportunities ahead and share how we're executing this part of our growth plan, which complements the organic growth of the business. Let's start with our global expansion. In 2024, we continued to build a unified end-to-end payment ecosystem centered around automated self-service machines. A key part of that strategy is expanding in high-growth markets, and Latin America is at the center of that push. Our purchase of VMtecnologia opened the door for us to Brazil, accelerating our position in Latin America. In Brazil, there are more than 200 million people, a rapid adoption of automated self-service, and strong demand for modern payment solutions. We're already seeing the impact, with it being one of our fastest-growing regions as we look into 2025. Another strategic acquisition in 2024 was Roseman Engineering.
With Roseman, we filled a critical gap in technology for gas stations, allowing us to launch our pay-at-the-pump solution. In Israel alone, we expect 3,000 connected points across 450 gas stations by mid 2025 with existing active customers, and we're already gearing up to expand this vertical into Europe and the United States. This is important because we can now address the entire fuel ecosystem: fuel pumps, EV chargers, air vacs, car washes, and in-store purchases, all with a single integrated payment back end. This isn't just about adding another revenue stream; it's about transforming how payments work globally, which traditionally has been fragmented with multiple legacy software and payment vendors and platforms. In the past week, we announced the acquisition of UPPay, which was designed to strengthen our presence in Brazil, a key market for us. This acquisition more than doubles our connected devices footprint in Brazil, adding over 25,000 connected devices primarily in self-service coffee vending machines.
UPPay manages the network for two of the largest coffee operators in Brazil and supports hundreds of other customers. By integrating UPPay with VMtecnologia, we're not just growing our network; we're creating a stronger, more scalable platform that accelerates our expansion across Latin America. Our intention is to quickly integrate UPPay under the management of VMtecnologia, which we are now planning. Finally, I want to provide a short update on the retail vertical. We have been successfully integrating Retail Pro into Nayax Retail, launching a wider offering at NRF in January. We integrated our payment gateway into Retail Pro and are working on penetrating our payment solution into our existing software customers. In addition, we are leveraging the wide distributor network of Retail Pro to cross-sell the Nayax Retail cloud solution as well as other products within the Nayax ecosystem. Looking ahead, M&A remains a strong part of our six-leg strategy, which will complement our organic flywheel effect.
We continue to evaluate and execute M&A prudently, and we are seeing many attractive opportunities in our pipeline. To wrap it up, 2024 has been a year of strategic execution. Latin America is booming with Brazil leading the charge. Our acquisitions are performing well, strengthening our platform and opening up new market opportunities. With a disciplined M&A strategy, we're staying focused on high-growth markets and high-impact opportunities. I'm excited for what's ahead and I look forward to sharing more in the upcoming quarters. I would now like to pass the call over to our CFO, Sagit Manor, to go into more detail on our financial results and provide our outlook for 2025. Sagit?
Thank you, Aaron. And good morning, good evening, everyone. We appreciate having our shareholders, analysts, and the entire Nayax team with us today as we review our results. I'll start by reviewing our financial performance for the full year and for the fourth quarter, and then I will discuss our outlook for the full year 2025 and finally, address our 2028 targets. Starting with our full-year results, revenue reached $314 million on a reported basis, an increase of 33%. On a constant currency basis, revenue reached $315.2 million, which represents a 34% increase and is in line with our guidance and consistent with our target growth expectations. This represents an impact of approximately $1.2 million due to foreign currency volatility. Organic revenue growth for the year was 23%. Our recurring revenue engine remains our powerful growth driver. Payment processing fees and SaaS subscription revenues increased by 47% year-over-year to $222.3 million, representing 71% of our total revenue.
Specifically, processing revenue grew by 45% to $133.8 million for the year, driven by three main drivers: first, the impressive increase of 21% in the installed base of managed and connected devices; second, a 36% increase in dollar transaction value; and third, a higher take rate of 2.73%. This processing revenue growth demonstrates our success as a scalable and valued payment partner for our diverse customer base as the market continues its cash-to-cashless conversion. For more visibility into our solid recurring revenue business model, we are providing for the first time our average revenue per unit, or ARPU, for the year that increased to $215, representing an increase of 12% compared to $192 in the prior year, driven by an increase in the cash-to-cashless conversion of existing machines with Nayax and high-processing verticals such as micro markets and energy. To be clear, our ARPU is calculated using our total recurring revenue for connected devices divided by the number of connected devices for the trailing 12-month period.
Hardware revenue grew 9% for the year with strong demand for our end-to-end automated cashless product solutions and technology, supporting both the unattended and attended markets, with managed and connected devices growing 21% year-over-year and reaching 1.26 million devices. We continue to see strengths and expansion opportunities in markets like EV charging, retail, and parking. Moving to profitability and margins, we drove significant margin expansion in 2024 through initiatives to improve efficiency in payment processing and optimize various cost factors, improving our gross margin to 45.1% from 37.5%. In terms of gross profit, we generated $141.5 million, an increase of 60% over the prior year. Recurring revenue saw strong gross margin expansion, which improved to 51.3% from 47.9%. Specifically, processing margin improved to 34% from approximately 29% as we renegotiated key contracts with several bank acquirers and improved our smart routing capabilities.
We expect to see these initiatives support our improved margins over the coming years. On the hardware side, margin exceeded our guidance of 30% plus as we continued to improve our supply chain efficiency and negotiate better component costs. We achieved positive operating profits of $3.1 million for the year, an improvement of $15.5 million from an operating loss of $12.4 million in 2023. The loss for the year was $5.6 million, an improvement of $10.3 million compared to the prior year. Adjusted EBITDA reached $35.5 million and was higher than our guidance range of $30 million to $35 million, rising approximately four times from $8.2 million in the prior year, highlighting the inherent operating leverage of the business. Just as importantly, we achieved cash flow from operating activities of $42.9 million compared to $8.8 million in 2023. We also achieved an impressive positive free cash flow of $18 million for the year.
This equates to converting more than 50% of adjusted EBITDA to free cash flow. Turning now to our quarterly performance. This was another quarter of solid execution of revenue growth, margin expansion, improved operational efficiency, record high adjusted EBITDA, and positive free cash flow. Revenue for the fourth quarter was $89 million, increasing approximately 34% year-over-year. Recurring revenue increased by 49% to approximately $63 million and represented 71% of our total revenue in Q4 this year. Processing revenue grew by 44.6% to $37.6 million in Q4. Hardware revenue in the quarter was $26 million, a 7% increase over Q4 2023. In the quarter, we added approximately 33,000 managed and connected devices. This impressive revenue growth highlights both our expanding market presence and the increasing adoption of our platform. Let's now dive into our profit metrics for the quarter. Gross margin was 46.1% for the quarter, up from 39.9% in Q4 last year.
Recurring margin increased to 53% compared to 49.3% in the prior year quarter, driven by a significant reduction in transaction costs. In addition, hardware margin reached 29.4%, up from 23.6% in the prior year quarter, reflecting the significant positive impact of our strategic efforts to streamline our supply chain in recent quarters. In terms of gross profit, we generated $41 million, an increase of 54% over the prior year quarter. Adjusted OpEx of $29 million decreased to 32.6% of total revenue, which again is a testament to our disciplined cost management. Adjusted EBITDA increased to a record quarter high of $12.8 million, representing 14.4% of total revenue, a solid improvement of nearly $9 million compared to last year's fourth quarter, highlighting the continuing scaling and the operating leverage of the business. Operating profit reached $3.6 million compared to an operating loss of $2 million in the same period last year.
Net income for Q4 was $1.6 million, an improvement of $4.9 million compared to a loss of $3.3 million in Q4 last year as we continue our journey towards sustainable profitability. Turning to our balance sheet. Our cash position remains strong with cash and cash equivalents and short-term deposits totaling $92.5 million while short and long-term debt stand at $47.9 million, maintaining a solid balance sheet and net cash position. Turning now to our guidance for 2025. I'm referring you to our forward-looking information and disclosures in our press release and in the annual report. We expect revenue growth of between 30% to 35%, representing a revenue range of $410 million to $425 million on a constant currency basis. This includes organic revenue growth of at least 25%. Our guidance for adjusted EBITDA for the full year is between $65 million and $70 million, driven by continued revenue growth, market expansion, the full integration of recent acquisitions, and continuous operational optimization.
We also expect at least 50% free cash flow conversion from adjusted EBITDA for the full year 2025. As for our 2028 target, we continue to project an annual revenue growth of approximately 35%, driven by a combination of organic growth and strategic M&A. We also continue to target the gross margin of 50% and an adjusted EBITDA margin of 30% as we continue to drive high-margin SaaS revenues and operational efficiency. In closing, we are proud of our Q4 and full-year 2024 overall performance and results, which included significant revenue growth and margin expansion, robust operating leverage, and cash flow generation. We are extremely well positioned for future growth in 2025 and beyond as we continue to grow our installed base globally and capture market share. We'll also continue to focus on scaling our recurring revenue streams, in particular our payment processing capabilities, which benefit from the conversion trend of cash to cashless transactions. I now turn the call over to the operator for our Q&A session.
分析師問答
Thank you. Our first question is from Hannes Leitner with Jefferies.
I have a few questions. Let's begin with the guidance for 2025, specifically the minimum organic growth of 25%. Could you explain the various factors involved and the quarterly phasing for 2025? Next, let's discuss EBITDA. It performed strongly in Q4. Can you elaborate on how you plan to manage operating expenses to maintain cost efficiency, and how will this transition into next year? Lastly, regarding cash generation this year, your net cash position changed by 5 million, which aligns well with your free cash flow generation. You anticipate around 33 million in free cash flow. How should we view the overall cash generation for next year? I may have a small follow-up after that.
So generally speaking about our 2025 guidance, exactly as you said, we're excited about the 30 to 35% increase year-over-year that is comprised of continued expansion of our market share, the customer base, the recurring revenue side that is around 70% of our business, and the number of customers, right, the managed and connected devices, the number of customers that we are continuing to show the beautiful increase quarter-over-quarter. Specifically about the 25% organic growth, we wanted to be more transparent about our growth expectations or aspirations when we go into 2025. And we believe that this represents a healthy organic growth that is combined with the unattended and attended businesses that we are building in some cases already there. So your question about how the quarters will be progressed along the 2025, it will be more or less the same from a seasonality perspective as we saw in 2024.
So Q1 is a little bit lower than Q4 of 2024 then starting to grow beautifully to reach our guidance as provided. I believe you also asked about adjusted OpEx. We're really proud about exceeding the expectations on our adjusted EBITDA that comes from two main items. One, our ability to grow and expand our margins, both on processing revenue that grew beautifully as well as the hardware margins that again exceeded the guidance of 35% as well as OpEx efficiency where we show that over time, and if you look at it annually, over time, the percent of the adjusted OpEx from overall revenues is going down, hence the overall $35.5 million adjusted EBITDA that we've shown. Adjusted OpEx specifically for this year was affected by both organic and inorganic expenses that once we start the migration and we start the integration of those acquisitions, OpEx is supposed to go significantly lower as you can understand from our 2025 guidance.
And lastly, about the cash generation. Yes, we are very proud of the 50% free cash flow conversion that we already showed in 2024, this $18 million over $35.5 million, and we expect in 2025 to be in the same level of free cash flow.
I would like to follow up regarding the growth rate. When considering the M&A contribution for the quarter, Q3 and Q4 represented approximately 20% of growth. I'm not entirely clear on the factors that ensure confidence in organic growth accelerating to 25%. Even the 20% growth provides a solid foundation. Could you elaborate on those influencing factors?
I believe Nayax is creating a platform that addresses two main areas: aligning products with market needs and scaling the business through go-to-market strategies. We are particularly confident about our ability to scale, as we feel good about our product alignment and are continually improving in that area. However, we do face challenges in building channels that enhance customer visibility. We are optimistic about our original equipment manufacturer (OEM) relationships, as we have made significant progress in that regard. Our partnership with a strong subsidiary in China has already led to contracts with multiple OEMs. The benefits of these OEMs are substantial, especially in terms of customer reach and low acquisition costs. This gives us confidence that we can achieve a robust 25% organic growth through these OEMs. Additionally, we are also establishing connections with original design manufacturers (ODMs) that support OEMs, such as our agreement with SECO in Italy, which involves integrating payment systems into screens for smart machines like coffee machines. This progression strengthens our confidence in capturing more market share and achieving organic growth over the coming years.
The next question is from the line of Sanjay Sakhrani with KBW.
This is Vasu Govil filling in for Sanjay. I guess the first question I also had was on the outlook. Just based on the guidance you've given, it seems like you're assuming about $25 million of contribution from M&A. It would be really great if you could sort of parse out how much of that is coming from deals you've already announced versus deals that are yet to be completed and what the M&A pipeline looks like?
So with regards to the M&A, we'll split it up between the existing that have already been completed and announced over the last week versus what's in the pipeline. With regards to what has been existing and is already done, Roseman and VMtecnologia were done last year, and then we did two M&As in the last week, one was an acquisition, and one was a consolidation that we did where we own about 54% of Tigapo. And then we've consolidated the majority of it now to about 85% and consolidated the financials. With regards to UPPay, we purchased the company in Brazil on Friday. Those four deals are about $10 million of contribution right now on the inorganic side. And as we look towards the rest of the year, we feel very confident with regards to the existing pipeline that we have to be able to bridge the gap of what we've targeted for this year with regards to the inorganic growth.
And then I know last quarter you guys had called out some certification delays on the POS side. Just any update on where we are with those and how you were thinking about the mix of POS versus recurring revenue going forward? Should we expect the POS mix to keep coming down slightly as we saw this year?
We're talking about the last, I think, two previous quarters that we talked about the EV certification. It's not regarding the POS; it's regarding the whole system. And we passed this and we'll gain what we call the sales of this customer within this year. So we tested this and crossed all the labs that needed and we're moving forward with the customer.
And it's also important maybe to mention to us that managed and connected devices grew 21%. So remember that we may have a low feature, low-cost product that we are selling as part of our OTI line of business. However, at the end of the day, we'll drive the recurring revenue, and we'll drive the flywheel as we like to call it. The growth machine is really the managed and connected devices that grew 21%.
And if I may squeeze in one last one. Thank you for the ARPU disclosure; that was really great. And it grew, it seems like it grew double digits, low double digits this year. Just curious how we should think about ARPU expansion as we enter '25 and the key drivers there?
This request came from many individuals, and we believe it’s crucial to demonstrate to investors the growth we’re witnessing with our current devices. It’s essential to emphasize that we’re not only experiencing organic growth from new devices but also expanding our existing ones, primarily through the shift from cash to cashless payments. Currently, a significant number of our existing machines are still cash-operated, but we are observing a gradual conversion to cashless transactions. Consequently, despite factors like price increases and inflation affecting vending machine prices, we are seeing a rise in cashless transactions from these machines. This is contributing to processing rates that outpace our overall business growth, and we expect this trend to persist. Another factor contributing to the increase in ARPU is the organic shift in our business mix. We are beginning to see higher ARPU from sectors such as micro markets, EV charging, gas stations, and car washes, which tend to have higher processing rates and volumes.
Our next question is from the line of Josh Nichols with B. Riley.
Great to see the great operating leverage flow through for the year, expectations for 2025. Just wanted to drill down a little bit, also echoing good to see the ARPU disclosures. As the company looks to kind of maybe move upmarket a little bit, expand the average connected devices per customers; how do you see that trending over time as we move through 2025 overall, how that could impact the business and the scale efficiencies?
I believe we have the same approach. Over the 20 years we've been in this business, our land and expand strategy has been very effective. It's important to note that up until 2021, the company was a decent-sized firm started by the founders. This strategy has been crucial to keeping the company thriving, and I believe we are enhancing it further. There is significant potential for growth among our existing customers. Our research indicates that at least 50% to 60% of customers do not have comprehensive cashless technology in their machines. We are quite confident that there is much more growth potential within our current customer base in the coming years. The growth rate remains steady and continues to climb. We are benefiting from the widespread consumer trend towards digital technology, which is expanding rapidly globally. Nayax operates in nearly 120 countries, providing ample opportunity for growth with a vast customer base, and our internal land and expand strategy is proving to be highly effective for Nayax.
And also the healthy cash flow conversion, 50% plus EBITDA to free cash flow conversion also expected in 2025. If we just kind of zoom out a little bit, there's still ample room for very healthy EBITDA margin expansion as you kind of outlaid in your long-term 30% EBITDA margin target. Can you talk a little bit about how you expect that free cash flow conversion could potentially improve as you start moving closer over the next few years to that higher EBITDA margin target for free cash flow?
I will start, and maybe Sagit will continue. First, the mix between the SaaS and the hardware is much more, of course, tending to the SaaS level. And as long as we're growing with the SaaS level, the cash conversion is much better as we all know about this. You can see in the past how it was like in 2021 and what's going on right now in 2024 and onwards regarding what we are focusing on for 2025. So, it's naturally that the cash conversion on the SaaS level will be better than the hardware by itself. You can see in the past how it was like in 2021 and what's going on right now in 2024 and onward what we are focusing on in 2025. So it's naturally that the cash conversion on the SaaS level will be better than the hardware by itself. And regarding the OpEx, we think that we are in what you call full control in terms of the expenses. And the second part of the equation is of course we are a volume company. So in terms of the margin, we can really control the margin that we are either gross margin on the hardware or gross margin on the processing. All of this is in a better shape regarding the position of Nayax to have a better cash conversion, and that's how we see the growth of the business to reach out to a 30% adjusted EBITDA in four years. Maybe Sagit would like to add to this.
Just maybe one item as we're not providing the free cash flow in our 2028 target. However, just to show that even in Q4, if you look at our adjusted OpEx or even just OpEx as an overall that was around $40 million, and you look at the operating profit as it is, which was around $4 million, you already see that 10% conversion from an investment to operating profit. And that's what we like. And obviously that's an improvement that we've already shown in the last five or six quarters as we continue the progress from a company that is focusing on growth to focusing on profitable growth to focusing on cash flow and positive, and going towards net income.
And then last question for me, very healthy margin expansion, both on the hardware and also the recurring revenue piece. If you could just elaborate a little bit on expectations for how those could play out. Clearly, I think the recurring revenue piece is going to continue to scale from the levels that you kind of achieved, but also hardware margins were kind of above the company's target expectations for those throughout 2025 relative to 2024?
I will begin, and then Sagit will elaborate. We are in a strong position in the market regarding purchasing hardware and processing. We have significant leverage due to our volume. On the hardware side, we are also the product designers. This design ability has previously helped us navigate challenges, such as the COVID-related supply chain issues, allowing us to maintain production uninterrupted. As we scale, we are introducing more innovations into our hardware; we can redesign it effectively, something that others cannot easily replicate by simply purchasing off the shelf. We are fully committed to the hardware side, and it is yielding positive results for us. We see potential for further growth in this area. On the processing side, we are clearly gaining volume and improving our negotiation power with partners and vendors. Additionally, we can optimize transaction routing based on the size and type of transactions with different acquirers, which helps reduce costs. This enhances our volume and sophistication, positively impacting our bottom line. Whether in processing or hardware, we have a strong market position to increase our margins further.
Thank you for acknowledging the improvements we've made. We've put significant effort into expanding our margins. From a processing standpoint, we concentrated on two key areas: first, we renegotiated contracts with our acquirers, leveraging our strong purchasing power. We facilitated nearly $5 billion in transactions through our devices, a notable increase from $3.6 billion last year, which enhances our ability to negotiate fees for transactions. Second, we introduced smart routing, allowing us to optimally direct transactions while adhering to agreements with our acquirers, ensuring minimal costs for Nayax while providing instant service to customers. Regarding hardware, it's important to note that we have surpassed pre-pandemic household margin levels. We not only reached margins between 25% and 27%, but we are now exceeding 30%. As Yair pointed out, our in-house product design and development give us the flexibility to drive down component costs and improve the supply chain, ensuring our hardware remains top-notch and cost-effective.
The next question is from the line of Nik Cremo with UBS.
First, I just wanted to go back to the 2025 revenue outlook. Can you just discuss some of the sources of visibility that you have for the guided acceleration in organic revenue growth versus 2024, perhaps some of the partnerships that you signed in Q4, the Pelican Group or the large one in France and Italy? And then how should we think about the growth on a relative basis for the three revenue lines in 2025?
I will start, and then Aaron and Sagit may continue. We are showcasing our growth through partnerships, such as our agreement with SECO, and we are also exploring opportunities to drive revenue for both our customers and ourselves. We're working with resellers and existing customers like Five Star, which is helping us elevate our business. This effort is essential in building channels and nurturing our existing customer relationships. We have good visibility into our progress in this area. The land and expand strategy gives us confidence that our growth is embedded in our company. If I refer to the numbers, we generated $63 million in recurring revenue this quarter, with a potential net retention of around 25% to 30%. This could bring our revenue close to $300 million. Last year, we recorded about $80 million to $90 million in revenue. With our current setup, we could reach a potential of $400 million. Therefore, our goal of reaching $410 million to $416 million seems attainable, thanks to our team’s quality, the skills of our employees, and our brand recognition. All of this positions us to achieve our targets by building from the ground up.
I would add that I think that one of the key areas that we've been focusing on over the last year has been pushing into the OEM market, which we've mentioned a couple of questions ago. But I want to stress that a little bit more, because as you can see, we're growing in the 20s right now just on the managed and connected devices side, and that's been part of the acceleration of the flywheel effect. At the end of the day, the managed and connected devices drive the processing. We see 70% to 80% of our revenue on a year-to-year basis, coming from the existing customers with a nearly 130% net retention rate. That's the initial flywheel effect. But what we're seeing is that as historically over the last 20 years we've been focused more on the retrofits. What we're starting to see is that we can get all the way to the beginning and get into the OEM machines from the factory level. That's where we're really starting to push a lot of our sales people into.
We're expanding our China team, which is with the OEM manufacturers who are exporting to other countries and actually embedding our devices into the machines at the beginning, which gives a level of stickiness and scale that we didn't necessarily have all the time in the past where we have all these small businesses; you have to sell one and twos to each person. Now we're selling from the OEM level. When the small business comes in and says they want to buy a vending machine, they're buying it already with the Nayax device in it. We don't actually have to sell it to the end customer, which is a much stickier way to fill with a much lower customer acquisition cost at the end of the day. That's what we're really starting to see some momentum.
And I think to add to this, the tailwind of verticals that are growing quite nicely. We don't see it, or potentially the market doesn't see it yet, but we see what will happen in the next few years in the electrical vehicle sector. Adding to what we say about the OEM, one of the key players on the OEM channel is the EV OEM. Over there, we have a very strong hold in terms of our China office to build OEM device payment systems that manage the whole A/C charger. We see this kind of thing happening in 2025 and onwards in 2026; it will be a very strong part of the channel for the growth of the new devices coming into the market.
For my follow-up, I just wanted to ask about the strong improvement in the payment processing gross margins in the quarter. Can you just put a finer point as to what they were in Q4, and where you see them going in 2025?
So the payment processing margin improvement was due to two reasons. One, it was about renegotiating with our existing acquirers and being able to improve the cost structure that we have with them. The second item was about the smart routing that, as I mentioned, is helping us to route the transaction where it makes more sense for Nayax, and yet the customer can get the product very fast. I just want to make sure that I address the question about the processing margin expansion.
Understood on the drivers of the margin expansion. I'm just curious as to like what the margin was in Q4?
It was 36.3% in Q4, and it's in the press release. We split it up.
And where do we see this going in 2025, because that's a big improvement?
So I would say that in the year, it was around 34%, and we are expecting that to continue around that area. Obviously, we will continue to work on expansion as we showed this year. But in the outlook, you should assume similar margins that we were able to show improvement. I think it was more than 700 basis points from last year.
The next question is from the line of Cris Kennedy with William Blair.
Just wanted to go back to the ARPU; really appreciate you disclosing that. Is there any way to think about the ARPU between different categories, whether it's micro markets, traditional vending, energy, retail, or whatever you want to talk about?
With regards to the ARPU, this is the first quarter that we're mentioning it and giving this disclosure. There's a mix of where the ARPU is coming from; obviously, with most of it still coming from the traditional unattended segment, which is the majority of our business right now. While we're not going to split up the ARPU by vertical, it's important to mention that things like micro markets and EV, which I mentioned before, are starting to drive the ARPU up, in addition to, again, the existing devices and seeing more processing coming from those existing devices.
To add to this, Cris, Nayax is a payment company focused on volume. We believe that as we attract more customers and simplify the business experience with Nayax, we will benefit from consumer trends. The payment aspect plays a crucial role in our expected ARPU growth, which is evident in our quarter-over-quarter improvements. Our goal is to be efficient and effective for our customers, capitalizing on the natural growth in processing while ensuring our acquisition methods remain highly effective and efficient.
And at this time, we've reached the end of our question-and-answer session. Now I'll hand the floor back to management for closing remarks.
Thank you all for being here today. This year results reflect our strong momentum and achievements fueled by our commitment to sustainable and profitable growth. We remain very confident in our ability to create lasting value for our customers and shareholders. I want to extend my gratitude to our employees and partners for their dedication, which has been instrumental in reaching this milestone. As we step into the next phase of our journey, we are excited to build on this foundation and drive even greater success. Thank you all for joining us. Have a nice day.
And this will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.