NCR Voyix Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2023

There are 10 speakers on the call.

Operator

Good day, and welcome to the NCR Corporation 2nd Quarter Fiscal Year 2023 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to conference over to Mr. Michael Nelson, Treasurer and Vice President of Investor Relations. Please go ahead.

Speaker 1

SECOND. Good afternoon, and thank you for joining our Q2 2023 earnings call. Joining me on the call today are Mike Hayford, CEO second question. Owen Sullivan, President and COO Tim Oliver, CFO and CEO Designate of NCR ATLIOs and David Wilkinson, President of our Commerce Business and CEO Designate of NCR Voyix. SECOND.

Speaker 1

Before we get started, let me remind you that our presentation and discussions will include forward looking statements. 2nd question. These statements reflect our current expectations and beliefs, but they're subject to risks and uncertainties that could cause actual results to differ materially quarter results. These risks and uncertainties are described in our earnings release and our periodic filings with the SEC, quarter, including our annual report. On today's call, we will also be discussing certain non GAAP financial measures.

Speaker 1

2nd quarter results. These non GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials, second question. The press release dated August 2, 2023, and on the Investor Relations page of our website. A replay of this call call will be available later today on our website ncr.com. With that, I would now like to turn the call over to Mike.

Speaker 2

Thanks, Michael. Quarter. I will begin with some of my views on the business, and I will also provide an update on our previously announced intention to separate NCR into 2 publicly traded companies. Tim will then review our financial performance and then Owen, Tim and I will take your questions. Let's begin on Slide 5 with some of the highlights from the Q1.

Speaker 2

First, NCR delivered strong performance that included solid recurring revenue growth and significant margin expansion and delivered over $150,000,000 of free cash flow, quarter, which has allowed us to delever prior to the spin. 2nd, we are on track to separate NCR into 2 public companies in the Q4 of 2023. Following Tim's comment on our financial results, I will provide an update on those separation activities. 3rd, in the Q2, we had slight year over year revenue growth on a constant currency basis and 5% recurring revenue growth also on a constant currency basis. It's important to note that the revenue growth would have been 4% year over year without the impact of shifting to description.

Speaker 2

4th, adjusted EBITDA increased 17% on a constant currency basis from the Q2 of 2022. 2nd quarter. Adjusted EBITDA margin expanded to 19.6% this quarter, which represents a 260 basis point increase from the Q2 of 2022. And finally, NCR generated $154,000,000 in free cash flow in the quarter. Over the past three quarters, we have generated over $550,000,000 in free cash flow, allowing us to reduce financial leverage ahead of the separation.

Speaker 2

Moving to the business update on Slide 6. We have strong momentum across all five of our 2nd segment with progress against our strategic initiatives across all of our KPIs. In retail, we continue to quarter. Deliver on our strategy to be the retail platform company of choice. During the Q2, NCR achieved multiple platform lane wins 2nd quarter.

Speaker 2

As retailers choose the best path for them to the platform, the Save Mart Companies, a California based grocery store operating approximately 200 stores, selected Emerald as their next gen point of sale. We also continue our market leadership position in self checkup. RBR announced that NCR once again was the market share leader in self checkout with more than twice the share of the next largest supplier. This marks the 20th consecutive year that NCR has been the market leader in self checkout solutions. 2nd.

Speaker 2

In hospitality, we continue to experience strong demand across our enterprise and SMB customers. In SMB, our payments attach rate for customers remains approximately 90% driving a 45% increase in payment sites. In Enterprise, Firebirds Wood Fired Grill 2nd question. Who chose the NCR Aloha for its point of sale. Aloha with the NCR Commerce platform will provide a cloud based solution to transform 2nd Connect all of Firebird's fine dining restaurants across 21 states.

Speaker 2

In digital banking, we continue to have positive momentum. 2nd quarter, digital banking sales activity was strong with 9 new customer deals and 18 digital banking renewals. Quarter. We also continue to experience strong cross sellupsell momentum. In the Q2, Synovus, which has over $60,000,000,000 in assets, quarter.

Speaker 2

Renewed its digital banking relationship with NCR and added the Terrapina Small Business Deposits module. 2nd. In payments and network, we are making progress in both merchant acquiring and the Allpoint network. North America ATM withdrawals and cash dispense During the Q2, we signed an agreement to deploy NCR's Cash Zone ATMs and provide access to cash for travelers in the Barcelona airport, quarter, which is one of the busiest airports in Europe. In self-service banking, we continued our momentum in our ATM as a service solution.

Speaker 2

Interest in our offering is accelerating from both community banks and large FIs globally. In the second quarter, we signed 10 new ATM as service deals, including 2nd Q2. Kiwi Bank and Union Bank of the Philippines. UIP is transferring operational maintenance and management of its ATM fleet, which includes over 400 2nd quarter earnings call. The bank will increase operational efficiencies while strengthening compliance and security.

Speaker 2

And the Seacoast Bank, which streamlined operations with NCR's ATM as a Service solution also extended customers' access to cash 2nd quarter by joining the Allpoint network. With that, let me pass it over to Tim.

Speaker 3

Thanks, Mike, and thanks to all of you for joining us today. Quarter. I'll start on Slide 7 with a top level overview of our Q2, which were every guided metric we were at the higher end or above quarter guidance we provided back in May. As Mike summarized, in the Q2, we drove substantial growth in recurring revenue, expanded our profit margins, quarter, particularly gross margin and generated $154,000,000 of free cash flow. We continue to execute cost productivity actions 2nd quarter results that are and will generate incremental savings to offset any dis synergies arising from the planned separation.

Speaker 3

This quarter's results are demonstrative of the 2nd exceptional effort of our teams to simultaneously drive financial results, accelerate our strategic plans and ready the company for the pending separation transaction. Starting in the top left. Revenue was roughly $2,000,000,000 down 1% year over year as reported and flat on a constant currency basis. Quarter. The revenue composition consisted of a richer mix of software and services.

Speaker 3

Hardware revenue had a particularly difficult year over year comparison. Quarter. You'll remember that a year ago Q2, we recognized about $50,000,000 of hardware revenue that was pushed out of the Q1 due to supply chain and transportation issues. Most importantly, recurring revenue was up 4% year over year and up 5% adjusted for FX. We continue to have success transitioning from one time perpetual sales into multi year subscription based revenue streams.

Speaker 3

In the Q2, we shifted nearly $80,000,000 of high profit revenue from what would have been previously recognized upfront to recurring revenue that will convert over the next several years. This intentional deferral of upfront revenue to recurring revenue lowered total revenue growth by 4 full points. 2nd quarter results. The strong U. S.

Speaker 3

Dollar compared to the year ago period and an unfavorable impact of $18,000,000 primarily within our Retail and Self-service Banking segments. Quarter. If we were to adjust for FX and the shift to recurring revenue, total revenue growth would have been about 4%. Second. In the top right, adjusted EBITDA increased $50,000,000 year over year to $389,000,000 up 15% year over year as reported quarter and up 17% on a constant currency basis.

Speaker 3

Foreign currency exchange rates had an unfavorable impact of $6,000,000 quarter. Adjusted EBITDA margin expanded 260 basis points from the Q2 of 2022 to 19.6%. Second quarter. The increase in margin was driven by lower direct costs, such as reductions in fuel, shipping and component costs as well as the impact of indirect cost mitigation actions and a higher margin revenue mix. The benefit of lower direct costs similarly added 3 10 basis points to adjusted gross margin rate.

Speaker 3

Second. In the bottom left, reported non GAAP EPS was $0.94 up $0.03 or 3% year over year as reported and up 9% on a constant currency basis. Quarter. The strength of the U. S.

Speaker 3

Dollar reduced EPS by about $0.05 The non GAAP tax rate was 26.2% versus 19.2% in the prior year, and that impacted EPS by another $0.09 The prior year tax rate benefited from a favorable provision and a tax reserve adjustment. And finally, we generated $154,000,000 of free cash flow from both higher profitability quarter and the anticipated improvements in working capital. Back in October, we described our desire to generate at least $500,000,000 of free cash flow before the separation transaction to reduce our financial leverage. In the first three quarters of those 5, we have already exceeded that bogey, quarter. Under a strong financial position heading into the separation.

Speaker 3

Moving to Slide 8, which shows our Retail segment results. Starting in the top left, Retail revenue increased quarter. 2% year over year as reported and increased 3% adjusted for FX driven by growth in software and services. Quarter. We also shifted roughly $30,000,000 of high profit revenue that would previously have occurred upfront to recurring revenue that will be recognized over the next 4 to 7 years.

Speaker 3

Quarter. This intentional deferral of upfront revenue to recurring revenue lowered revenue growth in retail by 6 points. Adjusted for FX and the shift to recurring revenue, quarter. Retail revenue would have grown at almost 9%. 2nd quarter adjusted EBITDA increased 18% year over year and 21% adjusted for constant currency, resulting from improvements in component, labor and freight costs as well as other cost mitigation and pricing actions quarter and a quarter of 2020 2 and in 2023.

Speaker 3

The adjusted EBITDA rate was 21.4%, 2 90 basis points over the prior year. The bottom of the slide shows the Retail segment key performance indicators. Quarter. On the left, our platform lanes, a KPI that illustrates the success of our strategy to convert our retail customers to our platform based subscription model. Quarter.

Speaker 3

We increased our number of platform lanes by 28,000 lanes or 81% year over year. At the time of conversion, the platform lane drives an incremental $400 ARR or an increase of $11,000,000 versus last year. The platform lane increase was driven by rollouts at major convenience and fuel customers. Our platform lanes currently represent less than 5% of our total lanes, we see accelerating momentum for the conversion of our traditional lanes second half of the year. And once on the platform, the opportunity to cross sell and up sell new features and functionality drives further ARPU expansion.

Speaker 3

In the center bottom is our self checkout revenue. Self checkout revenue was down 2% year over year. Quarter. The timing of major hardware rollouts in the Q2 of last year versus the Q3 of this year caused that comparative temporal dislocation. 2nd quarter.

Speaker 3

And ARR was up 3% year over year. Similar to the impact on revenue, currency rates did modestly negatively affect the ARR calculations, including this one. Turning to Slide 9, showing our Hospitality results. Hospitality revenue declined $3,000,000 or 1%. Lower POS hardware sales were largely offset by an increase in services and software revenue, including cloud services and payment processing.

Speaker 3

2nd quarter. Adjusted EBITDA was up 30% year over year. Adjusted EBITDA margin rate expanded 6 20 basis points to a multiyear high quarter of 25.5%. A richer mix of software and services revenue, pricing and cost reductions, all help push margin rates higher. Hospitality's key strategic metrics in the bottom of this slide include platform sites, payment sites and ARR.

Speaker 3

Platform sites increased 9%, payment sites increased 45% and ARR was up 8% year over year quarter on higher ARPU at both new platform and new payment sites. The average conversion to platform sites currently drives an incremental $7,000 a year in AIR, quarter. While the average conversion of payment sites currently drives an incremental $4,000 Combined, the additional platform sites and payment sites 2nd quarter and a quarter of fiscal 2020. We continue to see strategic momentum in this business quarter as enterprise clients transition to the platform and expand their functionality and SMB clients attach payments. Turning to Slide 10, which shows our Digital Banking segment.

Speaker 3

Digital Banking revenue increased 7% year over year, driven by client wins, strong renewal momentum and cross sell success at Terafina and the channel service platform. We expect second half revenue growth in this business to accelerate to about 10%. Adjusted EBITDA was down 5% year over year due to an investment in sales, marketing and R and D to grow this business faster. Adjusted EBITDA margin rate was 37.9%. Digital Banking's key strategic metrics in the bottom of this slide include registered users, active users and ARR.

Speaker 3

Registered users increased 8%, active users increased 6% and ARR was up a similar 6%. On Slide 11, we do some easy math to help you evaluate the combined segments of Retail, and Digital Banking. These segments will form NCR Voyix at the separation transaction. This roll up is for directional indications only. The eventual financials for this company will be impacted by currently unallocated corporate costs, 2nd quarter results by revenue profit adjustments that reflect the planned perimeter of the transaction and by synergies or dissynergies that result from the spin.

Speaker 3

The combined revenue for these segments increased $20,000,000 or 2% year over year as reported and 3% adjusting for currency. 2nd quarter. The combined adjusted EBITDA was up 16% year over year, adjusted for FX, adjusted EBITDA margin rate expanded by 270 basis points to 24.8%. Let's move to Slide 12, turning back to our currently reported segments, in this case, the Payments and Networks segment. Starting at the top left, quarter.

Speaker 3

Payments and network revenue was flat year over year as reported and up 1% adjusted for FX. Adjusted EBITDA increased 2% year over year as reported and 3% adjusted quarter, which more than offset higher cash rental costs. Because our cash rental costs are calculated using short term interest rates and are recognized as cost of goods, 2nd quarter results. That said, a hedging program, algorithm and operational optimization and pricing adjustments quarter. ATM cash rental costs increased $35,000,000 year over year on a gross basis $12,000,000 on a net basis after these mitigation efforts.

Speaker 3

The bottom of this slide shows Payments and Network key strategic metrics. Quarter. On the bottom left, endpoints increased 1% year over year. In the center bottom are transactions, a KPI that illustrates the payments processed across our Allpoint network and across our merchant acquiring networks. Transactions were up 2% year over year on a trailing 12 month basis, fueled by an ATM withdrawal growth rate of 7%.

Speaker 3

2nd quarter. The rise in both the frequency of cash withdrawals and the amount of cash withdrawn per transaction led to an increase the total amount of cash dispensed globally quarter to a level the highest we've seen in better part of a decade. Annual recurring revenue in this business increased 1% year over year. Slide 13 shows our self-service banking segment results. Self-service banking revenue was down 3% as reported and down 1% on a constant currency basis, primarily due to the intentional shift of recurring revenue, which resulted in lower ATM hardware revenue reported in this quarter.

Speaker 3

Recurring revenue was up 10% on an FX adjusted basis over the prior year. We continue to have success transitioning our self-service banking business quarter from onetime perpetual sales into multiyear subscription based revenue streams. During the quarter, we shifted roughly $36,000,000 in revenue quarter. The intentional deferral of upfront revenue from recurring revenue lowered revenue growth by 5 points. Quarter.

Speaker 3

Adjusted for FX and the shift to recurring revenue, self-service banking revenue growth would have been closer to 4%. Adjusted EBITDA increased 19% year over year and was up 22% on FX consistent basis. Quarter. Adjusted EBITDA margin expanded 4 70 basis points to 25.6%. The remarkable margin expansion from the previous year can be credited quarter.

Speaker 3

The reduction in direct costs, particularly in expenses related to fuel and components as well as the increase in higher margin recurring revenue streams. The bottom of the slide shows our self-service banking key metrics. On the left, software and services revenue mix increased 200 basis points to 69%. ATM as a Service units increased 304% year over year to 18,000 units, and the shift to recurring revenue continues to gain traction, quarter, driving ARR up 7% year over year. On Slide 14, similar to the review presented on Slide 11, With similar caveats, this slide showcases the combined segment results for Payments and Network and Self-service Banking, which are the segments that will comprise NCR ATLAS at the time of the separation.

Speaker 3

As I said before, the unallocated revenue and corporate costs are not reflected here. The combined revenue for these two segments declined $18,000,000 or 2% year over year as reported and 1% adjusted for currency. The reduction was primarily driven by the intentional shift to recurring revenue. Recurring revenue increased 4% year over year as reported and 6% adjusted for currency. And the combined adjusted EBITDA was up 14% year over year adjusted for FX.

Speaker 3

Adjusted EBITDA margin expanded 330 basis points 2nd quarter to 26.4%. Turning to Slide 15, which describes free cash flow, net debt and adjusted EBITDA metrics 2nd quarter. As we said before, we generated $154,000,000 of free cash flow in the quarter, quarter, driven by higher profitability and an improvement in working capital. Days sales outstanding improved by 3 days and days quarter. Our goal to generate $500,000,000 in free cash flow before the separation transaction to reduce financial leverage quarter.

Speaker 3

We have now generated over $550,000,000 of free cash flow in the first three of those five quarters. The slide also displays our net debt to adjusted EBITDA metric, which has improved to leverage ratio of 3.4 times, quarter, down for 4 times in Q2 of 2022, driven by higher profitability and higher cash generation. We remain well within our debt covenants and have significant liquidity with over $900,000,000 available under our revolving credit facility. Quarter. We have a robust balance sheet, ample liquidity and strong financial stability to support our growth and the spin transaction.

Speaker 3

And finally, on Slide 16, we reiterate our full year 2023 guidance that we provided back at the beginning of the year. That said, quarter. After a solid Q1 and a very strong Q2, we now expect to be at the higher end of all of these guided ranges for all financial metrics. And for those of you building models, we expect to further the trend of sequential quarterly improvement in revenue and profitability in each of the remaining 2 quarters of 2023. With that, Mike will send it back to you.

Speaker 2

Thanks, Tim. And I'm going to continue on Slide 17 with the NCR separation roadmap. Our go to market teams are organized by industry under General Manager Unit. These teams are ready and have been ready for the spin. Quarter.

Speaker 2

Additionally, there are areas of shared services functions such as legal, tax, HR, treasury, IT and others that are well underway in the process 2nd quarter. We continue to make progress in our process with the SEC and recently submitted amendment quarter to a Form 10 registration statement. We have already submitted a letter with the Internal Revenue Service regarding the tax free nature of the separation. Quarter. At this time, we are expecting the timing of the separation to be in the Q4.

Speaker 2

As disclosed in the Form 10, the timing second question. The separation is subject to a number of conditions, in particular being declared effective by the SEC and the state of the capital markets. At this time, we believe the capital markets are favorable to us completing a spin. 2nd quarter. In closing on Slide 18, looking forward,

Speaker 3

our key priorities are clear.

Speaker 2

First, we are on track to separate NCR into 2 public companies in the 4th quarter. Upon separation, we believe each company will benefit from increased operating and financial flexibility in pursuit of its respective and distinct opportunity sets. 2nd, we believe that spinning off NCR ATLIOs in the tax free distribution is the best path to unlock shareholder value. Should other alternative options become available in the future that could deliver superior value such as a whole or partial company sale of NCR, the Board continues to remain open to considering these alternative scenarios. 3rd, we have made significant strategic progress transforming NCR to a software led as a services company.

Speaker 2

Quarter results on the platform increasing their spend with NCR. 4th, we expect to continue our quarterly operating and financial improvements. And finally, I'd like to extend an invitation to each of you to participate in our virtual Investor Day for both debt and Equity Investors, which is scheduled for September 5 this year. We are looking forward to the event and intend to take a deep dive into our strategy and strategic goals for both NCR Voyix and NCR ATLIOZ. This concludes our prepared remarks for today.

Speaker 2

Quarter. With that, we will open the call for questions. Operator, please open the line for questions.

Speaker 4

2nd

Operator

question. And our first question will come from Charles Nabhan with Stephens.

Speaker 5

Hi guys. Thank you for taking my question. I had a 2 part question on free cash flows and leverage post spin. 2nd question. First on the free cash flow, it's good to see things trending seemingly ahead of schedule and I know you're guiding to the top end of that $400,000,000 to 500 $1,000,000 range.

Speaker 5

My question there is given the trajectory of free cash flows, is it presumable to potentially quarter. Upside to that $500,000,000 or are there any factors like that were pulled positive factors that were pulled forward? And then my second part of that question is just how to think about leverage initially post spin. I know you haven't recapitalized the business as yet, but any color around that would be helpful.

Speaker 3

Yes, sure. So on cash generation thus far this year, quarter. We knew that we had about $200,000,000 of cash flow that we should have delivered last year that we used to support working capital as we went through some supply chain issues in 2022. And we committed to harvesting that across Qs 4, 1 and 2. And so it's been a very strong cash conversion period.

Speaker 3

And we've for instance, quarter. A year ago, we're down $149,000,000 in inventory alone. Our receivables past dues are down. So we've done a great job of managing working capital and get us back to a level that's, let's call it, quarter. There's not a lot of cash to be harvested from excess working capital at this point for the remainder of the year.

Speaker 3

Quarter. So our conversion at this point will be more closer to profitability. I expect profitability to be higher in each of the next two quarters quarter. And I expect to generate around $100,000,000 or so a quarter over the next two quarters. That would put us through the high end of our range.

Speaker 3

Remember that there are going to be one time cash costs associated with this spin that we need to absorb. So I didn't take that range up quarter. Only to say we will need to invest some cash back into the transaction and pay all of our advisors and all the rest to get this thing done. Quarter. But even with that $100,000,000 or so outflow associated with one time cost during the spin period, we'll be at the high end of our guided range.

Speaker 5

Got it. That's

Speaker 3

And the other half was on leverage coming out.

Speaker 2

On low risk.

Speaker 3

Yes, we'll be in market right after Labor Day weekend to start to try to place the debt that we need. We think that it's going to be about $2,500,000,000 of debt on a net basis, quarter. So more like $2,900,000,000 on a gross basis for SpinCo. At Leos, that will have a leverage ratio 2nd quarter. North of 3.5% in the 3.7% range out of the gate, and we'll likely work hard to pay that down into the 3% range as quickly as possible.

Speaker 3

RemainCo then or Voyix will be about to be north of 3, 2nd. But south of 3.5 percent, I'm thinking 3.2%, 3.3 percent at that business as we exit. And they will remember they'll keep most of the existing debt that's already outstanding, which has very favorable coupon. And so their interest expense will be somewhat lower. I think that business will also quarter.

Speaker 3

Likely delever a little bit more post spin and get safely down below 3% and then probably move toward 2.5% over time.

Speaker 5

Got it. Okay. And as a follow-up, one of your peers and I guess customers as well in Euronet noted some A slowdown in cash withdrawal activity in Europe. And I know you're not as exposed to DCC and cross border as they are, but question. If you could just quickly comment on some of the trends you're seeing across Europe in terms of cash withdrawal activity.

Speaker 3

Yes. So globally, our cash withdrawal activity was up. And as I said in the discussion earlier, not only were the number of quarter cash withdrawal transactions up, but the amount of cash being withdrawn is up. That's true in the U. S.

Speaker 3

To a larger degree than it is in Europe, quarter. But in the UK, we still saw more cash dispensed and more transactions.

Speaker 2

And I would say our new markets, Portugal, Greece, some of the Southern quarter. European markets where we opened up new endpoints, we're seeing actually pretty good growth activity in those markets, so Contrary to what you raised.

Speaker 5

Got it. Appreciate the color guys. Thank you.

Speaker 3

Sure. Our pleasure.

Operator

And our next question comes from Matt Summerville with D. A. Davidson.

Speaker 6

Thanks. Good evening. Just a couple of questions. First on the retail business. Tim, quarter.

Speaker 6

In your prepared remarks, you mentioned a little bit of a timing dynamic. Could you touch on that again? Because it sounded like it may impact the Q3 of this year, if I heard you correctly. Could you just talk

Speaker 3

quarter. Yes, I should have been clear. We had a very big second quarter a year ago in 2nd fiscal shipments. We had a large rollout for 1 of our major customers. We did not have that in Q2 of this year, but we'll have a similar rollout in Q3.

Speaker 3

Quarter. And so it made the comparison in this year's Q2 easy, I mean, harder and should make the 1 in Q3 a little bit easier.

Speaker 6

Got it. Okay. And then just with respect to the self-service banking business, can you maybe comment just globally quarter on what you're seeing overall in terms of ATM demand. And I thought you did a great job in hospitality talking about how adding an incremental site for platform and payment is worth X and Y. Could you do the same thing?

Speaker 6

What does that math look like for ATM as a service? Thank you.

Speaker 3

Yes. The ATM as a Service business, if you take the revenue stream over the 1st 7 years of the life of that ATM, quarter. It's going to be about 2.5 times the revenue that you would have gotten from an upfront sale with perpetual license and a service agreement. Quarter. When we wrap the totality of the eTM as a service business around a unit, you should expect 2.5 times of revenue over that 7 year period.

Speaker 3

Quarter. As you know, as in a traditional sale, our current model, much of that revenue occurs in year 1. In the new ATM as a Service model, that new 2.5 quarter. We'll

Speaker 6

And then just overall comment on global ATM demand, maybe add some regional color as well.

Speaker 3

Good, good, everywhere. As we said in the Q1, we anticipated coming into the year that our revenue in this business would be down 3% or 4% for the year entirely driven by so flat units, entirely decline driven entirely by the shift to recurring revenue or ATM as a Service. Quarter. We're going to hit or exceed our A Team as a Service numbers for the year and in fact this business will have revenue close to flat or up slightly for the full year. So quarter.

Speaker 3

We are 3 or 4 points better from a growth dynamic in this business than we thought when we started the year and it's everywhere. The demand is very good everywhere. Quarter. We enter Q3 with a little more backlog than we entered Q2.

Speaker 2

I'm going to add Tim's comments. We think the demand environment is still good out there for ATMs, but we're also benefiting from maybe the challenges one of our close competitors is facing right now. And then I think the other big part is Tim talked about AT and T service. I think we hit that market just about right in terms of when we came out with an offering as quarter. The demand side has shifted to have more full service, full stack outsourcing.

Speaker 2

We just have to be there with, we think the best offering. So quarter. I think those two things combined have created a much stronger year in self-service banking for us than we anticipated.

Speaker 6

Great. Thank you both.

Operator

And the next question will come from Kartik Mehta with North Coast Research.

Speaker 4

Tim, you alluded to this a little bit, but I want to make sure I understood. You had a fantastic second quarter, but You didn't increase your guidance. You kind of said the higher end of the guidance. And I'm wondering, is that strictly because of the separation of the company, Concerns about the macro environment and one of being cautious in the second half or something else completely?

Speaker 3

No reason to be cautious. I think, look, we're well ahead of our budget for both revenue and profit at this point in the half. We're quarter. We're about $25,000,000 ahead from where we thought we'd be from an EBITDA perspective and somewhat ahead on revenue as well. If you project those forward, we will quarter.

Speaker 3

I would have raised our guidance, but I don't believe that's the case. I believe that we're painting the high end of that range is a likely outcome for us. So quarter. We left it in place, but that wasn't meant to just to caution the excitement on this quarter. It was a terrific quarter.

Speaker 3

It came in much better quarter. In every regard than we thought, we made great progress nearly everywhere strategically. And what's really important is the cost actions we've taken. You can see it in gross margin up some 300 basis points quarter. And we're keeping all the let's call it indirect cost out that we took out last year, but it was a little harder to So I feel very good about where we are.

Speaker 3

We're going to have a great year and the second half will be better than the first. I think we'll post second half that looks relatively similar to the second the first half will look relatively similar to the second half. We'll defer more money, quarter. More revenue to end profit to recurring revenue streams, but still grow through that. And our margin rates were up about 2.40 basis points in the first half of the year.

Speaker 3

That's primarily driven by good cost productivity and the absence of some negatives that occurred in the Q1 of last year. Quarter. We're still going to expand margin in the second half of the year close to 2 points as a company. So I think all the goodness we're seeing in the first half will continue into the second and allow us to deliver some really terrific results.

Speaker 4

And then David, just on retailhospitality business, Toast and the companies like that are making a lot of noise and seem to be gaining share. And I'm just wondering how you think your product is positioned and how you would portray kind of market share quarter. And what's happening with NCR's products?

Speaker 7

Yes, sure Kartik. So I agree that we see Toast 2nd quarter. Growing their share in the market and adding sites. We too are adding sites. As we look as Tim described, we're adding both payment sites and sites connected to our platform that allows us to expand the recurring revenue.

Speaker 7

It's not a zero sum game in that space either. So quarter. They're playing in a slightly different segment than the core enterprise segment that we play in as well. So from a product side, we're very well positioned. We're seeing 2nd question.

Speaker 7

Good feedback from our customers in terms of what we're hearing on net promoter score and net new wins. So we're continuing to win. We're continuing to win against the competition and quarter well positioned.

Speaker 4

Perfect. Thank you very much.

Speaker 3

And our next single digits and moving toward the high single digits as you exit 25 and go into 26. So but that will be entirely dependent on how quickly the ATM as a Service quarter. And we'll communicate that very clearly. To a certain extent, the short run will have more revenue growth early if we

Speaker 8

quarter. Awesome. That was really helpful color. Thank you. Thank you for that.

Speaker 8

Second scenarios beyond the current spin if they emerge. But can you maybe share if you've had any of those conversations or separately 2nd question. At what point is it too close to the proposed spin where you'd kind of have to shut the door on any alternative options?

Speaker 2

Quarter. Yes. I mean, I'll just start with quarter. And I share that it's a little bit of a rhetorical statement to say that a public company or a public company CEO or public company Board is open question. Two ideas that would create more shareholder value.

Speaker 2

So I'll start with that. We make it explicit as we've gone through a process over the last 18 months. Having said that, we embarked on the spin almost a year ago, at the end of September. Quarter. We felt that that was a path that we could execute on, that we could control.

Speaker 2

And most importantly, we felt that this is a path that will create quarter. More shareholder value by separating the 2 companies. And so that's the path we expect to execute. Having said that, if People come knock on the door and people come knock all the time, not only the last 12 months, but literally if you're a public company, quarter. People are always talking to you about optionality.

Speaker 2

I think right now, the whole group here is heads down on a spin and I anticipate we'll get to that spin quarter as we've talked about in the Q4. And so that's we're planning to execute on. Awesome.

Speaker 8

Thanks so much for the color guys. Congrats again.

Speaker 3

Thank you.

Operator

And we have a question from second question. Ian Zaffino with Oppenheimer.

Speaker 9

Hey, good afternoon. This is Isaac Salazar on for Ian. I just had one question on the cost side. 2nd question. I know you mentioned in the prepared remarks, but I guess what are you seeing as far as component labor and freight inflation?

Speaker 9

It sounds like things are trending in the right direction. But just curious What does guidance assume? Does it assume about continued normalization or for inflation to sort of stay in the same range? Thank you.

Speaker 3

Yes, the guidance for the full year always presumes that we would lap those difficult environments as we started this year. We've seen the savings in premium freight 2nd quarter and premium labor such as the lack of linear manufacturing and the need to ship product much more quickly quarter. Last year, we've lapped that now. The component shortages that we experienced have been solved not just because there's more availability, but because we went and requalify a bunch quarter of new vendors and new designs to make sure that we were insulated or somewhat more insulated from that dynamic going forward. So good old fashioned hard work quarter.

Speaker 3

From a productivity perspective, better work from our supply chain group and the elimination of some of the premium freight is all coming through as we expected. Quarter. It will continue in the second half of the year. As I said earlier, we'll expand margin in the second half of the year about 2 points and we were able 2.5 points of margin expansion in the first half of the year. So it's a very similar improvement.

Speaker 3

It continues on quarter and the cost saving actions that we're taking in taken in Q4 of last year and in Q1 of this year are also showing nice returns.

Speaker 9

Okay, great. Thank you very much.

Operator

Thank you. And that does conclude the question and answer session. I'll now turn conference back over to Mike Hayford.

Speaker 2

Thanks. Thanks everybody for joining us today on NCR's 2nd quarter earnings call. As you can all see, the NCR team delivered on an outstanding quarter, literally quarter. And we exceeded all the expectations, that we came into the quarter to deliver. Quarter.

Speaker 2

I would say given the potential for the distraction across our entire company during this time of driving towards 2nd question. Ben, especially proud of the way the team kept the focus, kept the focus on the customers, kept the focus on execution, kept the focus on delivering 2nd quarter. So I want to thank everybody on the NCR team for making that happen. As we get closer to the spending reflected in the last 5 years at NCR. Our team here is very proud of the fact that we have been able to transform NCR 2nd quarter.

Speaker 2

We've increased our recurring revenues close to 65%. That was in the 40%, 45% range to start with 5 years ago. Quarter. We've expanded adjusted EBITDA, as you saw this quarter close to 20%, which is about 500 basis point improvement from when we started quarter. We were a more hardware centric company and we continue to approach almost 80% of our revenues coming from software and services.

Speaker 2

We started about 5 years ago with the customer first strategy. In 2018, we rolled that out. Quarter. When we did that, our net promoter score was 14. And for those of you that follow net promoter score, 14 is not very good.

Speaker 2

Each year, we've continued to improve. Whole team has put a focus on it and I'm proud to say in our most recent survey we scored a 61, Which is quite an improvement over a 14, 5 years ago. If you think about the future of NCR, I could quarter. I'd say that that indicator of strong customer set and that strong improvement over the time period quarter. Happy customers are key to executing the strategy, accelerating the growth and transforming NCR into software services life company.

Speaker 2

That success is driven by the efforts of every NCR team member each and every day as they take care of our customers. Over the last 5 years, quarter. And when you get out in the field and see that and you see what makes NCR special, it really is the 35,000 plus NCR employees, Literally in every corner of the globe that work every day hard, work hard to make NCR, a better company, put us in strong position and put us in a real good position to create this 2 great companies out of 1. I know Owen sitting here would agree with me that we're very excited to be turning over the reins to Tim and David at NCR Voyix 2nd consecutive quarter. We continue to execute the strategy, take care of our customers, take care of our employees quarter.

Speaker 2

I'm confident that both will do great, running their respective companies quarter call. And that both

Speaker 3

new companies will create long

Speaker 2

term shareholder value. I'm going to thank everybody for joining us today on our Q2 call.

Remove Ads
Powered by Quartr
Earnings Conference Call
NCR Voyix Q2 2023
00:00 / 00:00
Remove Ads