NCR Voyix Corporation (VYX) Earnings Call Transcript & Summary

Good morning, everybody, or good afternoon, depending on your time zone. Welcome to the fourth day of the Stephens Fall Investment Conference. My name is Brett Huff, I'm the business services analyst here. We have a bulk of our companies that we cover reporting or doing fireside chats today. So our sessions, they have been good. I'm particularly excited to talk with the folks from NCR today, and I'll make the introductions here, Owen Sullivan, who's the COO, by way of Manpower, Metavante and IBM. And Michael Nelson, who's the VP of IR, and we welcome both of you guys here. I know it's crazy days. So we appreciate your time. We know you're both busy. So welcome to the presentation.

Great. Thanks, Brett. Nice to be with you.

I'm going to go ahead and ask a couple of just kind of intro questions. But before I do that, I wanted to see if you want to give a state of the state any sort of important topics or messages that we should be hearing and then we'll go into some more detailed Q&A.

Yes. Thanks. The state of the state, it kind of look at my watch and see what's happened today and what news has come out and where the vaccines are at. And I think all of us are kind of waiting on all of that input. But that said, I also think that over the last 6 or 7 months, life has certainly settled down for all of us. It doesn't mean we're not dealing with the reality at the moment. But from a business standpoint, I do believe that we're starting to see this stability in a cadence with our customers and therefore, with our own team as we execute. We came into 2020 with an awful lot of momentum, enthusiasm, confidence because as, Brett, Mike has really laid out a plan for the company that's centered on this notion of 80%, 60%, 20% that as we look at the business and the business opportunity and the opportunity to capitalize on the markets we're in, banking, the restaurants and the retail space, we believe we're exceptionally well positioned to be able to bring the technology to those specific industries to serve them wall to wall. So we talk a lot about running the store, running the retail self-service bank and running the restaurant. And we think with the product positioning, the investments we've made with our go-to-market strategy, and I'm sure we'll get into all this, we believe we can execute this 80%, 60%, 20%, which is 80% of our business being a mix of software and services, which I know everyone steps back into NCR is a hardware company. I didn't come to NCR because we were a hardware company. I came because I saw all these other assets. 60% recurring revenue. We have not been close to that. We were down in the low 40s, and we'll talk about the progress we've pushed into the mid-50s now. We're growing quarter-to-quarter on the recurring revenue. And that clearly mitigates risk for us as a company as for our investors as well. And then 20% of EBITDA performance. And we had been as low as the 14s. We're into the mid-15s, and we believe we can get to 20%. And we do believe hitting 80%, 60%, 20% creates a valuation for our company, for our investors that will get us well above where we're trading today, where we've been trading in the past. And so we came into the year very focused on that. We got hit like everybody else did with COVID. But I can tell you, we absorbed those body punches and Mike and I, Tim, the rest of the organization couldn't be more comfortable as to how we're cutting through that very tough period and staying on the commits to get to that 80%, 60%, 20%. We're going to talk about that today, I suspect. But we'll also -- as you know, we're having our own investor conference on December 3, and we're going to start peeling back that onion in fairness to everybody to get to the -- under the covers of this complexity and to really substantiate the 80%, 60%, 20%. So we come into the year feeling really good. We took our body punches. We're still taking a few. But I think overall, we're moving through and forward on the strategy that we embarked on 2 years ago. So challenged but excited feeling like we have put the suspension on the business that needed to be put there while we get through this and feeling good as we go into '21.

That's great. Thanks for that intro. Let me lead with one question that I'm asking everybody, and I think it's on many investors' minds. New spikes in COVID, both in Europe, U.K. and here, thoughts on impact on the business. Have we seen anything yet? Any changes in how do you all respond? Any thoughts on that topic?

Yes. When we look at it, I have a daily standup with my executive team, all the operations folks, the general managers, and that's a global call. And our pulse suggests that there is not anything that's shifted or changed dramatically. I think the economies, our clients have, I just used the term put suspensions on their own operation. And I think they're figuring out how to absorb this. We were chatting with Josh just before. The notion of the vaccine being on the horizon, I think, also people figure they can work through a 60-, 90-, 120-day window, if that is real, and I think there's a belief that it is. And I -- we feel that. So we're not seeing in the last spike across the globe any major shifts, no major deferrals. We're seeing prudence, but we don't see any major shifts occurring within the customer base across the 3 industries.

Yes. I would just add, what we're seeing once COVID hit, call it, throughout 2020, is certainly just we have seen an accelerated shift towards digital transformation across all 3 segments, across banking, more shift towards digital banking, across restaurants, retailers, right, more and more consumers just feel comfortable ordering through their old device online. You see curbside pickup delivery. So that acceleration towards digital transformation really has accelerated across all 3 of our businesses. And that is something that we put in place a digital-first strategy at our last Investor Day 2 years ago. So in one aspect, that has been accelerating some of the trends that we've seen over the past couple of years.

Yes, Michael, I think that's a really good point. We did put digital-first into our strategy. When we talk about running the operation, the bank, the restaurant, the self-service digital bank, all of those are founded on digital platforms and software. It's tough to evangelize to a marketplace when the end user hasn't fully adopted. So when we would go out and sell to the retailer in the grocery store, we would sell to the restaurant all of this digital next and important investment. It was a little bit of a slow uptick on it, appreciation, that's where we'll go. But do I need to do it now? To Michael's point, the acceleration of the adoption rate from the end consumer, and I think every one of us can relate to it. I mean I'm an Instacart expert, like there is nobody else. I'm sure everyone else will brag about that to order online and do the online payment, to walk into a restaurant and get a QR code and look at the online menu order, get the payment all without interfacing and any touching is no longer a nice to have, it's a table stake. And so the end consumer adoption rate at -- and doesn't matter what demograph you're talking about has moved and accelerated their expectations, that's not going to reverse. So our retail customers, our restaurant partners and our bank customers are all stepping up to the demand that's coming from the consumer. So we need to do less evangelization, and I think the adoption rate is starting to really take hold, and that's been a huge driver for us as we move through the last 6 to 9 months.

That's really helpful. One public service announcement, for the bystanders on the call. If you have questions, there's two ways to get that to me, you can hit the little chat looking icon on the upper left side of your video console or you can just e-mail me directly brett.huff@stephens.com B-R-E-T-T.H-U-F-F@stephens.com. I'll give you that PSA, again, here in a few minutes. I want to talk a little bit about some of the pieces that are going to underpin getting to the 80% and getting to the -- and then getting to the 60% in recurring revenue. And as I think about digital banking, I think about the next-gen, Emerald and self-checkout, I think about the next-gen Aloha. So let's dig into those a little bit as the building blocks. And you can start with whichever one of those that you'd like and kind of tell us where we are and what we need to do going forward to get closer to that 80%, 20% or 80% and 20%.

So Brett, you know from where Mike and I came from at Metavante FIS, where we really outsourced the entire technology for our bank customers, front office, back office, branch. We believe that opportunity exists for -- within the markets that we're serving. So the SMB -- especially in SMB, restaurant market, the retailer, the self-service bank, we think we can walk in and partner with them and deliver them wall to wall. But it's predicated on making sure that we have the software and then the capabilities to back that up, both in terms of the technical, the industry and make sure we can bring the whole wall-to-wall capability at the table. We understood we had pieces, but we needed to invest in others. And so a little over -- almost 2 years ago, we put in place what we call strategic growth platforms. There were 7 of them. You mentioned a couple of them, Aloha next-gen, our Emerald product, which is our next-gen retail point-of-sale software product. It was ATM as a service. Our digital connected services, where we can go into a customer regardless of the logo on the hardware and take -- and enable IoT devices, and we can manage those through our services platform. Digital banking, which is huge, D1, D3 or DI and D3. And then our activate enterprise, which is our multi-vendor ATM software, which we've gotten enormous success in the marketplace where we are going in and getting banks from some of the very largest -- in fact, we just had 1 of the top 5 U.S. banks in the country commit to bring that product in to run a multi-vendor platform of ATMs. Those were the investments we put in north of $300-plus million into those products last year. Mike and I meet with those 7 teams every 2 weeks and have been doing that for 2 years. And it's about not only feature functionality, but it's about our go-to-market strategy, our support capabilities, the professional services rack we're putting around that, the services rack we're putting around that. And so we believe that we are starting with the right investments in the software, the services, the go-to-market strategy, and we're seeing great success. If we look at -- we mentioned DI and D3. DI last -- I think most people understood when we came in, we were having a runoff of customers. There was no question. We didn't have the focus on customer. We didn't have the focus on investment back into the product. We brought an industry veteran, Doug Brown in. He and his team have done a phenomenal job. First, as Mike said, we will not lose another customer. That's order #1. Order #2 is we had the most feature-rich product in the marketplace, we need to make sure we hold that position and extend it. And so our investment into the DI product has been significant. Last quarter, I think we had 6 new customer logos. We had 12 new business banking clients sign up, and we grew 12% year-over-year. So we have 24 million customers that we're working with today, and we'll get more into this when we talk on December 3, but we think digital banking is a huge growth opportunity for us. We acquired D3 for the larger bank, and we've gotten tremendous receptivity from the existing customer base, but I think, again, in December, you'll hear about some new logos that we have brought in. On the Emerald -- on the retail side, the Emerald next-gen is an enterprise point-of-sales software product. Here's the interesting thing, and this is -- this gets to why I'm here, why Mike is here, when we looked at this business, the retail business is the #1 enterprise software leader in the globe. We have a customer base of software products that run customers across the globe, whether it's -- when we look at a Woolworth or a Tesco or any number of customers across the globe, our installed base is phenomenal. What we needed to do was show a path to the next-generation cloud base, which is our Emerald product that we have now put out into the market. We are getting really good traction. We have a number of pilot sites. But our opportunity to leverage that #1 position, combined with us being the #1 self-checkout provider across the globe, is an enormous opportunity for us to grow retail. And we're really excited when we think about the core product that we've now built. We've built a platform that allowed -- has open APIs. So all of the digital capabilities that come from the ability to pick, do online ordering, pick up, et cetera, all of that technology is integrated in and built into Emerald. And then along with that is payments, which I know is something near and dear to you, as you've followed payments for a long time. So we look at retail and think, we're in one hell of a position to capitalize on a growth market. And as we look to '21, it's one of those growth areas, again, we'll peel that back further. And then let me just touch on Aloha. Aloha in the SMB marketplace has been the leader for a long time. Admittedly, like too many other things, Brett, when we came in, we were not focused on the customer. We weren't focused on being a software house. We have spent a lot of time, given Mike's background, my background, we had a real vision of what being a software house looks like. We brought a guy Tim Vanderham in. And I will tell he's brought a culture, a discipline, a set of hierarchies and tools that are really -- as he talks about a lot, it's about your say do ratio. If we're going to commit to a product and functionality on this time line against those milestones, we're going to hit those, and they're going to hit quality standards that withstand the market pressures. And I will tell you, the market has responded exceptionally well to what he's delivered. One of those areas is an Aloha Essentials, we've built the Aloha bundle. We now can walk into the restaurant and bring the point-of-sale software, the back office kitchen, the digital platform to do online ordering, digital menus, payments, et cetera, and rack that in a bundle. So when we think about this shift to digital, the investment we've put into the products, the investment that we've put into NCR becoming NCR as a service because we're going to have to deliver hardware, software and services in a way that takes that issue of coordinating all that, integrating all that off the customer play. And we're getting great traction. Two years ago, we talked about, this was our vision. We were going to invest and we were going to then accelerate. We came into the year ready to accelerate. We got a bump, like everybody else did. But as you see from second or third quarter and as we outlook, we're getting the kind of momentum that is really energizing the company.

I'd like to dig in a little bit on a couple of those, and I got a couple of questions already from some buy siders, too, a little bit on Aloha. There's a lot of -- Aloha has been, I think, a third share in that kind of middle white tablecloth restaurant. And so it's been dominant for years. You talk to servers and everybody knows it and loves it. It's almost a standard in some ways. But the new competitive set that's come out, venture funded didn't need to make a margin, SaaS -- fully SaaS of a -- SaaSified multi-tenant. Talk a little bit about how the Essentials bundle is responding to that? And what other changes you're making and how you're faring? And are you winning some of those share back? How are you competing with some of those folks?

Look, the reality is this is a space that has huge opportunity and upside. And it's not a wonder that we have a number of early stage, venture-backed companies that are in there. They don't make a lot of money. In fact, they made -- not make any money. Some of them have really been impacted, and we feel like we're in a position to capitalize just as a way of -- we've been hiring and really addressing our go-to-market strategy. So as you know, we bought a number of our channel partners back. So we have control -- more and more control over that channel. But 80% of our sales are coming through direct now, which is a total flip for us. We control that. We have hired up. Interesting, we've done 4 blitzes in the last 30 days into cities like Atlanta and Dallas. And I think we were in Nashville, we've got Miami, Boston, where we are hitting with dozens of our people and the receptivity and response to that has been enormous. And we can see it as we've seen a really strong rebound in orders in the Aloha Essentials acceptance in the market. And we think the value proposition, Brett, especially in the SMB, is being NCR is a huge strength. The brand, the size, if we do it right. And that's the message we've had all along. If we do it right, there is nobody who can bring the point of sale, the kitchen, the digital platform, the payments, the integration altogether and allow the restaurant tour to focus on their brand differentiation. And we think that bundle has been extremely well received. So we're doing everything on a subscription basis. And we believe that we're being competitive with the product and with the architecture of the product and with the functionality fully integrated in. And as we think about response from the last 60, 90 days, we came out and delivered a -- order a table and pay a table capability, and it's been delivered to the marketplace, our customers are using it. And it's interesting because I go into a restaurant today and people say, well, here's your mask and here's your QR code on the table. And I do the QR code. And what I get is a stagnant look at their menu, right? So then they have to bring the menu or the order. And our system is you bring up the QR code, it brings up an online menu, I can order my drinks. It goes right to the bar. I can sit and order appetizers. I can sit and order my meal. When I'm ready to close out, I can ask the payment and the bill comes directly and I pay it online. Yes. My -- here's my phone, right. That level of integration, that ability to respond to a market need this quickly. And back to my point about that's a push from the consumer. That's not going away. That's here to stay. And I think our ability to have responded to that really positions us well in that space. We have to continue to do well and meet and exceed the customer expectation, and that's where we've spent a lot of time beyond feature function is the service levels, the go-to-market strategy, ongoing support, but I think we're making really good headway there. Michael, any...

Yes, I'll just throw out an interesting...

In the Aloha...

Let me throw out an interesting data point on that. Regarding the traction that we're gaining with the Aloha Essentials. So in the third quarter, we actually signed more net new Aloha Essentials customers than was the plan set at the beginning of the year. I just think about that. Despite the COVID environment, net new customers on Aloha Essentials actually exceeded the original plan, that's the type of traction we're getting that bundled solution. Again, it bundles in payments, it bundles in everything to run the entire restaurant. It's sold on a subscription basis. That's a key part of our strategy of shifting towards more software services recurring revenue. And we feel like there has been some dislocation in the marketplace, particularly within the restaurant space with some -- maybe some of the smaller competitors being hit a little bit harder, not as well funded as in NCR. And we feel like the tide may have been starting to shift a little here and extremely pleased with the performance in the third quarter. And I think that, that's indicative of things to come.

And I think the last point I'd make, Brett, is, remember, our restaurant business, 70% of it is in the quick service restaurants, the McDonald's, Chick-fil-As, where we have a tremendous position and collaboration happening with our customers there. And some of those players, one in particular that you kind of referenced in general has walked from that enterprise space. So we think we're in a really solid position. As we shared with The Street, pre-earnings -- first quarter earnings, our exposure to COVID in the restaurant was not as significant as people understood it to be because of the enterprise makeup. And I will tell you, in that space, that same innovation and quick response to the marketplace, Chipotle talks about their digital kitchen, which is a -- they advertise that. That was our team that put that in with them. And Chipotle will -- I mean, they'll be talking or presenting or supporting in December, but that's a huge confidence from a pretty significant player. And we're seeing that with others, whether it's Chick-fil-A or McDonald's or whomever as they are looking at how do they deal with their online, how do they deal with their digital menus, how do they deal with queue busting, we're fully integrated into that segment as well.

That's helpful. Moving on to another component of one of the strategic growth platforms and sort of getting to the 80%, 60%, 20%. Talk about the enterprise point-of-sale self-checkout and Emerald? And I want to morph that a little bit also to talking to IoT as a tail of that because I know that there's a kind of next level beyond that, that may tail on with that. But as you mentioned, you're positioned in large multi-lane mass, and retail is really good. Customers are looking for the next-gen. I think you've delivered that with Emerald. Tell us more about how that's progressing, COVID and ex-COVID?

So there was clear momentum. Again, this is one of the phenomenons. If you look at that silver lining, the adoption rate from the customer base. So very early on, we heard from Walmart. One of the things they asked was, could we help them with a tap and go pay within their own -- we delivered that within, I think, it was 72 hours, Michael. It was sort of...