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Hello, everyone, and welcome to Nayax' Second Quarter 2026 Earnings Conference Call. 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 manner different from 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 flows through our platform. Our flywheel is working. Each new device installed compounds 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, 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 continues 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 opportunity 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 products 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 gives 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 licensed principal issuer. Combining those two gives us the opportunity to add loyalty solutions, introducing 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 captures more share sooner. While these investments do not change our expectation for revenue or adjusted EBITDA guidance for 2026, both of which we are reaffirming, they will impact our free cash flow in the short term. We believe this investment positions us to capture significant long-term growth opportunities and solidify our industry-leading position. Separately, five 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 five years, built around our 2028 strategic milestone and beyond. The vision is simple. Nayax is building towards a multi‑billion-dollar revenue company, and this plan ties our senior leadership to the strategic milestone we have set out publicly. Let me close with where I believe the company is heading. Twenty 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 others will follow. Each one is a new revenue stream for our new and existing customers, leveraging infrastructure we have spent years 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 detail. Aaron, please go ahead.
Thank you, Yair, and hello, everyone. I want to cover two 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 non‑depository 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 five years, we've built our own issuing infrastructure from the ground up. We're already a licensed 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 embedded financial services built in-house rather than stitched 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 than 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 six 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 end 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 at 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 two to three 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 using infrastructure we already own. We did it with Lynkwell in EV and with Tekapo in family entertainment. It 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 Nayax 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 managed 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, increase 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 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 take rate remained strong at 2.62%, representing a mix of both regional and vertical shifts. 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 two 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. This, in turn, increases the value derived from each device. 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 two‑thirds of the year‑over‑year increase in hardware 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 the New York area and seventh largest in the U.S. For card-present payment solutions 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 EV-related revenue. Moving now to profitability and margin for the quarter. Overall gross margin for the quarter was 47%, and 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. SaaS 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 the company's senior leadership stock-based incentive plan called the Diamond Plan. The total consideration from this plan is approximately $48 million over five years. In addition, the company awarded our CEO and CTO, our co-founder, with a long-term incentive plan tied to the Nayax total shareholder return with fully vesting at $240 per share. The total consideration from this plan is approximately $10 million over three years. This aligns the long-term future of our co-founders and senior leadership with the shareholders toward a common goal. This quarter includes several stock-based compensation items that are separate from the underlying operating performance of the business. Stock-based compensation totaled $12.4 million in the quarter compared to $2.5 million in the prior year period. The increase reflects three 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 award regarding the launch of our Diamond Plan, a new five-year long-term management incentive plan as mentioned above. Q2 specifically absorbed a higher stock-based expense related to a one-time fully vested RSU 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 for 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 one-time 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 equivalents 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 and 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 areas 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 to control 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 us to further strengthen our leadership position and create long-term value creation. I want to thank all of our Nayax colleagues for their hard work. And with that, I'll now turn the call over to the operator for a Q&A session. Operator?
分析師問答
Operator?
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 Lynkwell this quarter, but EV charging, I assume, has been ramping up pretty specifically. Also, if you could provide any commentary about specific geographies, whether it's U.S., Europe or Latin America and what you're seeing there, that could be helpful.
Thank you, Josh. We saw a strong Q2. As you said, 28% quarter-over-quarter and 30% since the beginning of the year. The growth comes from across geographies and all verticals. You can see that in the geography pie that we usually provide — a very strong quarter. Yes, EV is also growing strongly. 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 point management system that later on will bring the recurring 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 our payment solution with Lynkwell's OCP management solution. We're also starting to see more success year-to-date in Europe after the new payment media came live. In the past several months, we've won a couple of large RFPs in Europe recently because of the pay-on-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 take free cash flow conversion down a little bit. You also mentioned with Lynkwell some of the hardware margins were down, but you expect those to rebound in terms of timing. Are these mostly 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 investments, 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 free cash flow because of those investments. And it's actually three or four elements of cash investments. One is, as you can see, Lynkwell has a heavy cash investment to fund projects to later 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 is the second place in New York with their CPMS; they are third in the Northeast and seventh nationally. So with those investments, we have a great opportunity to capture market share and we do not want to pass that on. The second area of investment is the financial services area, where, as you know, we have been issuing through third parties and we have the financing through Nayax Capital. We also have loyalty and now through the bank charter application that we announced with the Connecticut Department of Banking, which will obviously take about six months. Those elements — issuing, financing, loyalty and banking — give us a full solution that is needed to provide our customers what they need most: an end-to-end solution that goes beyond hardware, software and payments. 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 potential memory supply issues. The memory supply issue might occur in the second half of 2027, which is some time from now. We are focusing on the present and we are able to manage cost and the margin expansions we showed, also in hardware margin. And lastly is timing, obviously, that we have every time between the money defined from our customers and the processing acquirers' money. So all of that influenced our free cash flow. We want to invest now in long-term growth initiatives and opportunities for the future.
Congrats on filing the bank charter. I know that was some of 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 how should we think about hardware and SaaS and payments margins for the remainder of the year?
The hardware margins — I'll start from the beginning. We take any opportunities we have, especially when it comes to creating a strategic opportunity to capture market share. And that was the Lynkwell story this quarter. Almost two-thirds of the revenue growth came from Lynkwell. That's the reason why it had a higher weight 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 continue to keep our margins in the high 40s as we showed recently.
Okay. That's great color. Very helpful. And then I understand that you're reiterating your EBITDA guide while lowering free cash flow guidance because of accelerated investment. So are all of these investments going to CapEx? Why aren't they flowing through EBITDA?
Some of them are captured in EBITDA; some are cash investments that do not get capitalized. Financial services investments are not all capitalizable, and that's one of the reasons why our adjusted OpEx was a bit higher on top of the exchange rate impact. Having said that, from an OpEx and adjusted EBITDA standpoint, we are expecting improvement both in hardware margins as well as continued growth in recurring margins. Processing margin improved nearly 1% and that continued improvement helps where we can on margin expansion overall. We have also implemented several efficiencies within the company, including AI implementations to automate processes and improve productivity. So there are P&L initiatives to meet our targets. On a cash flow perspective, I've provided a bit more color where those investments are going and how that's impacting the 2026 free cash flow forecast.
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 providing a very detailed numeric frame at this stage. But I can say the following. We are serving more than 125,000 customers. I'm always saying that the payoff is part of what we call the business of acquiring that we're doing. You see the take rate that we're earning from it. But we can imagine that if everything goes well, pay-in and pay-out together will protect our margin, protect churn, protect the growth of the business and, for sure, create better working capital for the customer. The integrated services will strengthen our relationship with merchants and increase wallet share.
Cris, maybe I'll add that financial services are a value-added service to the payments and software we provide. We're not trying to become a bank-first firm. Payments are the core of our business. The financial services are to add additional value to our existing customers. That's a large part of what I discussed earlier: coming in with a low customer acquisition cost. Because we can underwrite at lower risk — we know their payment flow and day-to-day transaction patterns — we're able to underwrite more easily and make faster decisions at lower risk. Collections can be automated from settlement flows we control. That allows us to offer attractive terms to customers versus traditional banks. Looking forward, can it be an accelerant to the business? Absolutely. Do we think it will become the majority of revenues? Absolutely not. It will be a value-added service. We'll have more to discuss in upcoming quarters and once the bank charter is operational in 2027, we expect to provide more detail then.
Great. And then, Sagit, I know you affirmed full-year organic growth guidance. Can you just talk about the modest slowdown in the second quarter and the implications for organic growth in the second half?
Thanks, Cris. We never look at one quarter and treat it as a full trend. I look at it from a six-month perspective: 24% organic growth, that 30% growth for the first six months shows everything is working. The flywheel is working; the fundamentals of the business are there. We had a great Q4 and Q1 from a retrofit on the payment media. Q2 was great as well. I'm expecting the same 22% to 25% as we initially guided for the full year. We see growth across all geographies, growing strongly in Europe, the U.S., Asia and Latin America. I'm expecting to see Q3 and Q4 pickup, which are always higher — historically the first half is around 45% of annual revenue and the second half around 55%. So that's where growth will come from. All the verticals we built over the last 20 years with 1.55 million devices are powering growth and the strong recurring revenue of 72% — the flywheel is working.
I have a couple of questions. Maybe just on the banking charter: you gave quite extensive commentary here. Why is it now the right time, thinking about your scale, and why would you think you can do this better under your own charter than through a partnership? That's the first question. And then maybe thinking about the H2 outlook comparatives, especially in regions where comps get tougher; also geographies like Europe and the U.S. If I look at previous years, growth rates per region — maybe you can comment about the moving parts not only geographically but in terms of product.
Hannes, I'll take the first question and then Sagit will take the second. With regards to the bank charter, this is a process we started evaluating in early 2025, and we've been investing in financial services technology for several years. We've worked on issuing since shortly after COVID and on lending and installment capabilities since around 2022. Why now? Because we see a large market opportunity and the ability to leverage data and AI improvements to underwrite and service customers better than traditional providers. This is a multiyear strategic plan. Another key point: giving up these capabilities to sponsor banks means giving up data and customer control. We believe payments, lending and issuing are core to our business and we want to control the risk, underwriting and customer experience. Regarding the charter choice, Connecticut's Innovation Bank framework is a relatively new initiative designed for fintechs. Its uniqueness is that, unlike some heavily restricted state charters, it allows broad capabilities with one significant restriction: it cannot be used for consumer business — it is commercial by design, which fits our B2B focus. We chose to be considered a credit institution for now. The license allows for deposits, though we have opted at this time to avoid becoming a depository institution directly and instead work with partners for deposit functions. We chose a faster, pragmatic path to bring financial services to market while maintaining control over underwriting and customer data. Sagit, would you like to take the question on the moving parts for H2?
I'll add to this, Hannes. The tailwinds we see in the market are present across territories. We don't see headwinds in how we operate. If you look at our transaction and payment data, ATV growth has been remarkable: from around $1.37 in 2021 to roughly $2.50 now. We expect ATV to continue growing between 2% to 2.5% per year over the next five years. That secures revenue growth for the company. What we need to do is continue investing to access more segments and capture the long-term growth opportunities.
Sorry, I was on mute. Sagit, you mentioned some of the drivers of ARPU. Maybe you could give a little more on how you see it progressing over the course of this year and into next? What kind of growth can we see in ARPU going forward and what would be the main drivers?
Thank you, Sanjay. We're not providing specific guidance on ARPU, but there are two main factors that drive revenue per unit improvement. First is existing machines moving from cash to cashless. This is significant because most of our growth comes from existing customers. Second is the shift toward higher transaction-value verticals like EV chargers, car wash and family entertainment. This trend started several quarters ago and continues. We estimate approximately 70% of unattended machines still accept cash only, and the market for conversion is large. We have 1.55 million devices now and strong OEM partnerships. We will continue to drive cash-to-cashless conversion and expand in higher-value verticals. As you know, we're the leading global company in this space across more than 40 verticals. So we see ARPU growth continuing and we're investing to capture that opportunity even if it means short-term impacts on margins or cash flow in certain initiatives like EV deployment.
Okay. Wonderful. Aaron, maybe just one question on the bank license, the Connecticut state banking license. I'm trying to understand how it compares to an ILC versus a bank holding company structure and what it allows you to do and what it doesn't allow you to do in terms of banking. Also, can you utilize it to fund in other geographies? I'm trying to understand how it works through the model.
Yes, absolutely. When we evaluated options last year, we looked at all routes including federal charters and other state charters. Connecticut's Innovation Bank charter is a relatively new initiative intended to attract fintechs with an innovation-friendly framework. The uniqueness of this charter is that it's not heavily restricted: the primary restriction is that it cannot be used for consumer business — it's focused on commercial activity, which aligns with our B2B model. We applied to be considered primarily a credit institution. As you know, banks are defined by deposits and credit. We chose the credit path now. The license permits becoming a depository institution, but we opted, at this time, to partner for deposit functions to avoid the additional FDIC oversight and infrastructure requirements that would come with being a direct depository. We are working with Adyen for payments infrastructure and have launched our 'yellow accounts' product last week in that partnership. This has been a faster path to market for the features we want to provide today while preserving the option to expand deposit activities over time.
So my first question is about the M&A outlook for the rest of the year. Maybe can you share what you're seeing in terms of opportunities and valuations in different areas in the market? Are there any incremental areas to be thinking about for M&A? I understand you've been primarily looking at opportunities where there's interaction between payments and software, but any granular updates would be helpful.
Yes. With regards to where we stand, we've been successfully executing on a playbook of buying software-enabled companies where payments tie to the software but payments weren't always native. We've done that with Tekapo in arcade gaming and with Lynkwell in EV charging. Over the next couple of years, the verticals we are focusing on for M&A include parking, mass transit (think buses and trains) and laundry solutions. Those are three areas where payments and software must work together and where we see strong potential for verticalization and cross-selling. We are not restricted by geography, but bear in mind that roughly 80% of our business is in North America, Europe and the U.K., so targets that can fit into those core markets or where the technology can be exported to our core markets are prioritized. We remain active in M&A and intend to deploy capital this year. I hope to have updates by the next quarter.
Right. Awesome. I have another question on free cash flow conversion this year. I understand much of the investment is working capital-related and reflects timing. But to the extent there could be increases in capitalized R&D, FX impact and CapEx also ticked up a bit in the quarter, can you talk about what you're expecting for the full year or for H2 for those items? In particular, what's the split between working capital and capitalized R&D and CapEx for the incremental investments on the cash flow side?
Yes, of course. This quarter there was definitely an FX impact across areas; I mentioned the $2.3 million P&L impact earlier and FX also affects CapEx. CapEx increased as a result of several planned investments, both from an R&D capitalization standpoint and from infrastructure CapEx. If we see additional investments are required, that influences our free cash flow forecast. I expect the R&D capitalization and CapEx levels you saw in Q2 to continue into Q3 and Q4 — not a significant increase but sustained — because of the projects we're executing in a short period of time. I'm expecting free cash flow to improve in 2027 and we'll provide more detail as the year progresses.
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