NCR Voyix Corporation (VYX) Earnings Call Transcript & Summary

All right. Well, thank you to all of you who are hanging out with us this late in the day. If you haven't seen me yet, my name is Dan Perlin, and I head the payments, processing and IT services space here at RBC. And I'm delighted to be joined by the team of NCR. We have Owen Sullivan, who's the Chief Operating Officer; we have Michael Nelson, who's Head of IR; we also have Shama Lightwala, who's also part of the IR team. So hopefully, I got that right.

You did.

Good job.

Well done.

Okay. Cool. That was stressing me out there for a second. So what we've been doing is just kind of starting at a very high level and kind of funneling our way down. So Owen, I'll just start with you. If you could just kind of give an economic backdrop of what you're seeing across all of the organizations as you've been out traveling and speaking with people.

Yes, happy to. So we actually talked a little bit about green shoots in the first quarter. And I would say, we weren't seeing visions. There are definitely green shoots out there, and we're seeing them across all 3 industry groups. The momentum continues to pick up as optimism does. And just if I were to touch in each of the areas, the retail customer base right now is -- has some really strong momentum, at least from our sector, when you think about our retail space. The bulk of that comes from the FDMM, the large box retailers and food and drug folks. Momentum and spend has started to pick up. We are -- we had a really good first quarter. We're seeing that momentum carry into the second quarter and order activity is shaping up for the second half. So we feel really good about both the hardware and the software side of that. Our Emerald product has really grabbed the attention of the market. And we're getting some really good traction. The hospitality side right now is really on fire. A lot of activity as restaurants are opening up across the board, and we feel good about where our Aloha Essentials product is and the payments integrated into that. So it's competitive. We got a lot more feet on the street, and we're seeing pretty good response there. And on the banking side, we're seeing a lot more activity in digital banking. We had some really good wins at the end of the year and start of this year. There's a lot more capital investment and much more strategic conversation with our bank customers around how do they meet the consumer through the multiple channels. So I would say, we're coming in with the optimism we left the fourth quarter with and think that will continue throughout the year.

Yes. It's been a consistent theme, I think, across a lot of the companies that we've spoken to today that this pace of rebound is only seeming to accelerate. And I think as we were just talking about before we went live, there is a bolus of demand for people who want to get out and have kind of face-to-face conversations again. And that sales cycle seems to be accelerating. So that's encouraging to hear from you guys as well. The 80/60/20 strategy that you guys have outlined over the past, it seems like a long time now, like when that first actually got kicked off. I suspect it will evolve here as of late, but maybe you could just bring us up to speed as to what that looks like today and kind of what the strategy is to move that forward. And let's just keep this separate and distinct just for the next couple of days because I know you're going to have to update that when you close the Cardtronics transaction.

Yes, exactly. So it does feel like we've talked about this for a while. It has been a consistent drumbeat of Mike and mine with our team since we arrived here. If we looked at the assets of the company and thought how do we leverage them differently, how do we meet our customers in each of the segments at a different place and really serve them in a more robust way, we felt we could move the business. So just as a reminder to everyone, 80% of our business coming from software services, 60% was target for recurring revenue and then 20% EBITDA. And I think as we left the first quarter, we were at about 72% on -- this is across all industries, about 72% on the software and services target. We had gotten to 57% on the recurring revenue, and our EBITDA was at -- in the first quarter, it was about 16.7%. We gave -- I think we talked, toward the end of the year, would be in that 16% range. So from where we started on each of those numbers, we feel like we're really making good progress. I also believe -- we commented that as Cardtronics comes on board, we think their mix of revenue will take that 80/60/20 and accelerate it by a year or 2. So where -- we feel really good about the progress we've made and the effort that the team has put in.

Yes. No, it's been fun to be a part of, it's been fun to watch, and I'm happy that it's finally coming to fruition, I think, in and around the stock. So let's dive into each one of the segments a little bit, specifically around banking. And here, I just want to talk through kind of the strategic pivot that you've been moving towards this as-a-services model. And maybe you can just kind of give us an update as to where that is today and how that's been playing out, I guess, over the past several quarters, given you've had some, what I would consider to be, I guess, implementation issues in and around COVID. But as that's becoming increasingly solvable and has been probably for a little while, I suspect you're moving away from that.

Yes. I think those hiccups that I think everybody was experiencing when COVID first showed up on our doorstep and ruined the party, I think we certainly have gotten through those issues. The conversation around ATM as a Service is a global phenomenon, right? We're seeing and hearing that conversation with our clients in the Asia Pacific markets, Australia, India. The Europeans are having that conversation on an increasing basis. We announced a deal that we just did in France at Arkéa. It's a 10-year deal to outsource their ATM. And the conversations here in the United States are picking up clearly in that area. We've had a couple of our own wins here. The pipeline is growing for that. And it's really -- I mean, I think there was a bit of an acceleration in the conversation, especially here in the U.S. as capital dollars became a bit more constrained with the banks. But beyond that, the banks are really thinking about the ATM network as part of their overall meet the consumer set of channel solutions in a very different way. And in doing so, they're really thinking about how do they be -- get less involved in the day-to-day operations and find somebody who will take that over. And so that's where the conversations are being driven from. We're excited about what we were putting together. We're even more excited about what Cardtronics will bring to that conversation.

Yes. I was going to actually ask you about that because the ATM as a Service, I think, was a fantastic long-term vision, but it came with some financing, so to speak, issues, right, floor plan financing, how do you work that into the model. And Cardtronics, I think, just given their business model as you overlay it would seem to help with that process. Is there a way to kind of flesh that out for us a little bit and make sure we understand what that really means?

Yes. So Cardtronics, they've come up with some ideas in terms of how do you handle the financing, that -- what do you do with the balance sheet, but they certainly have the other pieces of the solution. When you look at the totality of ATM as a Service, it's the hardware, it's the services, it's the ATM driving and terminal driving, it's the cash transit. It's all of those pieces that need to be brought to really outsource the function and the capability of the ATM network. All of those parts are now -- will be available once we close on the deal. In terms of the financing and the balance sheet issue, I think our view and Tim Oliver has talked about this before, we think that as we take on the ATM, we can syndicate and sell off pieces of that. I think there is an opportunity for us to be a little bit more creative in the financing side of that. But the answer at the end of the day for our customers is how do we make sure that we bring the entirety of the capabilities of the ATM, hardware/software services to them in a packaged deal and minimize the capital expenditures and turn this into a buy-the-drink solution.

Yes. Absolutely. I mean it clearly will resonate in the market, especially in the current environment, and I think more and more things have moved towards an as-a-service model. When we think about digital banking, in particular, we've heard a lot of this today. We've also heard a lot of this over the past couple of months. There have been major compression cycles that have been kind of brought to bear as a result of COVID and digital banking is certainly one of them. You have a very sizable asset there. And I'm just wondering we're starting to see, I think, some real growth, but it hasn't necessarily translated into what we maybe would see in the aggregate of the industry, especially given the backdrop of all of this demand. So can you help reconcile that? And then what is your expectation for when those things start to converge on one another?

Yes. So we're pretty, and have been, as you know, very excited about the digital platform. We believe we have the largest digital offering in the marketplace. We love the product when we came in. Unfortunately, there were some issues that we needed to address from a functionality from a quality, from a go-to-market. We absolutely believe we did that. We brought in new leadership with Doug Brown. Part of the consequence of the distractions that took place is you had runoff. And we clearly had lost customers during the process. And as a result of that, the deconversion activity that we were living with softened the -- impacted the growth. We believe the product is where it needs to be. The go-to-market strategy and the team is back in a fashion that we are comfortable with. And I think where we go from here is taking advantage of things like Associated and Wintrust. Those customers will be coming online toward the end of the year and into the first quarter, stabilizing the installed base, bringing new offerings like Terafina, which is the account opening product that we bought. The receptivity of that out of the gate has been fabulous. I think our ability to take the registered users and the gap to active users, which is more predominant in the SMB space, to work with our customers to close that gap. All of that suggests to us, we'll get into that double-digit growth that we talked about. First quarter, we were at 6% our users, and this may be what you're talking about, our active user growth was 13%. But the next, D3 is a little different. So our D3 is the offering for the larger bank market. They -- gets a lower ARPU number than -- so it's a little bit dilutive, if you will, in terms of the corollary we were seeing between user and revenue with the DI product. But when you add up all of those pieces, and we get it right and we are getting it right, I think we're going to be comfortable seeing the double-digit growth we're talking about. So we've said low double digit to the mid-teen growth, we'll see the...

Okay. That's great. And it sounds like that cadence is -- well, some of the things we'll start to see in the back half of the year. So that's really good to hear. That's really good. Let's pivot a little bit and go to retail, if we could. So transitioning NCR to this NCR Retail platform versus kind of maybe this historical siloed area as to how you guys were structured previously. Maybe you can remind investors what is at the crux of this NCR Retail platform strategy. And then we can talk about maybe some of the things that are underlying that.

Sure. Well, consistent with what we've challenged the banking team and the hospitality team is to -- that whole 80/60/20, get the software and services, but really do so in a manner that delivers an as-a-service offering and a totally integrated offering to the marketplace. And on the retail side of the house, we sit in a heck of a position. Think about it, we're the global leader in self-checkout. We have over 50% of the global market. And on the enterprise point of sale, and I know we've talked about this at the investor conference, we are the single largest player in the enterprise software space for retailers in the big box food and drug merchandising across the globe. So as David Wilkinson, the President of the retail business tells us, I really don't need another logo. We've told him that's not acceptable but we understand his point. He can -- just growing -- and the footprint represents over 1.5 million lanes as we think about it. And so what our opportunity is, is to take advantage of what we believe is the front end of a refresh cycle for enterprise software in the retail space. And what's really accelerating it has been the last year or so. The consumer now is demanding a digital set of capabilities to meet them wherever and however they want to be interacted with. And that's online, it's curbside, it is virtual in every sense. It's contactless. It's integrated payments. And that's what our next-generation product Emerald is. It's our cloud-based next-generation point-of-sale software for the retailer, grocery stores, the food and drug and mass merchandise customer base. We built a product, we put it through beta test at the end of '19 fourth quarter and into last year. We left the year with, I believe, 8 new customers signed up. So our backlog to start moving them to that platform is -- had huge market receptivity. And so when we look at the opportunity to bring the integrated retail set of capabilities to our customers using the new next -- the Emerald product, the cloud-based product, integrating with our position in self-checkout, adding to it things like Freshop for the grocers, which is the alternative to Instacart. So if you think about what happened last year, when we all sat at home, even the old guys like me started ordering stuff, and we got to know Instacart. That was a great service, except what for our customers, the grocers, they started getting disintermediated from their customers. Freshop is a white labeling of that, that we've now bought and we've integrated into Emerald. So when we start thinking about bringing all that capability on a new platform to our customers, the receptivity has been really strong. The reaction, the backlog is reflecting that. And when we think about the growth that it'll generate for us, we just simply have to turn to our position with our enterprise software base and start converting those. And we talked about the conversion of platform lanes. This would be the movement of those 1.5 million lanes that we have on our legacy software moving on to our new next-generation offer. And we will start reporting that out as we go forward.

I think it was up 50% or something to that effect, I think, in the last quarter.

In the first quarter, it was up 50%. And we're seeing really strong momentum both in the hardware and the software side. Very excited about where the retail business is at in terms of its product readiness, its go-to-market readiness and the market receptivity for what we've got.

Yes. No, it sounds strong. I'm wondering when we think about that, is it the no-logo strategy, I understand that that's not a winning strategy. So we're going to have to continue to add those. But when we think about the growth algorithm for this strategy, is it truly a function of taking the existing base and migrating them to Emerald? Or do you really have to have new logos to kind of -- to, I would say, meet your expectations? Obviously, you're going to do both, but it sounds like you got a big enough feeder pool.

Right. We're going to -- we believe we have a big enough vehicle there, but I will tell you, one of the announcements we made was Brookshire, which is a 186-store operation in Tyler, Texas. That was a new logo back for us. So we believe we have the opportunity to go to win and take back logos. But we now have a migration path for our existing customers that take them to a platform that's cloud-based that has all the integrated capabilities that the digital platform that they believe they need to compete and win with their consumer has ready for them to deploy.

Yes. It's interesting to hear you talk about that because it is a much more cohesive strategy that had been in the place. And I can't tell you if I'm more excited about retail or banking based on what you just said about both of those 2 segments. But in either case, I won't put you on the spot. You love all your children.

I love all my children as the same right now. So it's interesting because one of the things I'm sure you'll ask about is Cardtronics, which is a very heavy play into the banking space with ATM as a Service. I think you probably have heard me and Mike and Tim and others say this, we're as excited about what that does for us in the retail space for cash management offerings or taking kiosks in here as we are about the banking opportunity. And so yes, we think both places or spaces are really ripe for taking advantage of the opportunities.

Yes. Well, hospitality has got a lot...

And we've got a lot of hospitality -- yes.

I'm going there. You're just like feeding me. But I guess...

One soft pull after another, Dan.

Yes, this is how we work. So the question here is where do we stand within hospitality as it pertains to reaching that crossover point, right? There had been this huge shift that you guys started to pivot on early away from the legacy license and hardware model over to more of a SaaS-like model. And that was painful for a little while in the early days. I think as investors have come to appreciate it, it's become less of an issue. But you got to be getting close to the crossover. And so any insight there would be helpful.

Yes. That had been painful. I think we were -- it's one of those blindfolded trapeze acts, right? You know it's the right thing to do, it's hard to do just on -- but the banking guys led. They got out there very fast. They'll cross over this year. We think the hospitality and the rest of the business will be midyear '22.

Okay. Got it. All right. So let's talk about some of the demand environments that you're seeing within the hospitality space. I mean you've got SMB, you've got large QSRs, you've got table service. They're all kind of throttling up a little bit in aggregate, but seem to be moving at different paces. I'm trying to figure out where the product set that you're bringing to market today is really resonating within that group?

Yes. Yes. So 70% of the hospitality business is made up of our enterprise customer base. That's the customer base that did pretty well last year given all situations. They spent a lot of time on queue busting with their drive-thrus. They spent a lot of time on curbside. They spent a lot of time looking at their menus and making sure that they were adopting to a different consumer drive up, pick up. So Chipotle. We spent a lot of time with Chipotle, helping them design their digital kitchen for their regular customer, loyal customer base. So we're seeing those enterprise customers who are spending and investing in those capabilities in that technology, and we were collaborating with them. They were a bit paused on -- not a bit, they were paused in terms of new store openings and refresh cycles. We're seeing them start to get back to that. And so on the enterprise side, the activity level has picked up significantly, lots more conversation, lots more order conversion. So we feel pretty good that we're in lockstep with them. In fact, I was in Chicago last week with the CTO for McDonald's, and we feel like we're in the right conversation and working on the right things. And so I think that's all good. On the SMB side of the house, it's all about the rolling -- opening of new restaurants. There were about 100,000 that were shuttered. I think that's the number that we have heard and kind of operate against. There will be about 50,000 that will get opened up. We have been very aggressive with our Aloha Essentials package. We have bundled that up to be an as-a-service offering, hardware, software and services capabilities. We have integrated the payment capability in there. And we think, as we've talked in the past, for the SMB market, grabbing that payment business is a huge opportunity for us. It changes the TAM by three- or fourfold. And so the opportunity for us to grow in that space with an integrated offering and payments being a critical part of that is huge. At the beginning of this year, we actually took our go-to-market strategy, and it's now a payments-led strategy to go after that SMB space. And in fact, to the point that as we deliver the offering and we charge the customer, it's on a net settlement basis. So all of the capabilities of Aloha Essentials netted against the payment, and that's how they pay us. So the mindsets there, we're getting about 85% attach rate right out of the blocks for new Aloha Essentials customers, which is great. The balance is usually because of longer-term contractual commitments that they can unwind, but we're getting back in there with great success. And we're seeing some really good strong numbers both in the fourth quarter. Sequentially, we're growing those numbers very aggressively. We had a great first quarter. I think we've almost doubled the number of Aloha Essentials sites that were standing up every week as we came through the first quarter. And that momentum and that order activity is continuing in the second quarter, and we think that will be true throughout the balance of the year.

That's awesome. Is there a strategic imperative to take payments into some of the enterprise clients? I mean I know the SMBs, that's a much, much easier conversation to have, especially under a bundled solution. I suspect some of the larger ones are potentially a little more reluctant, but also maybe just more tied in longer term.

So when we first came out, we said, look, we're going to focus on our own customer base. It's the SMB hospitality as the first priority. The receptivity has been great there. We are moving up that -- to the enterprise. We will never play in the mega enterprise. That's not the volume that we can deliver nor the -- therefore, the price point. But we are clearly moving upscale -- up the value chain into the low-end enterprise. I think we'll have a couple of good new stories there shortly, but the receptivity has been really good. And then the other space for payments is within Emerald. And by year-end, we'll have payments generally available in the GA for the Emerald client base as well. So I feel good. I think we said it was about $100 million business. We felt we could drive that 20% to 30% type of growth rates. And that's...

Yes. So no change?

No change. Yes.

Yes, that's good to hear that it's going to go into the Emerald solution. So let's go ahead and talk about Cardtronics. I tried to push it off as long as I could, but I can't resist.

And you had to go there. Didn't you, Dan?

I just can't resist anymore. So you announced recently, your planned closing is like next week.

Monday. Yes.

Monday. So there's a whole new world that's going to open up there. Maybe since it is right around the corner, you can just remind us the strategic importance of having this asset combine with your business and maybe look through the lens of some of the synergies that we might come to expect. I know you've talked about the cost synergies a lot, but really haven't articulated as many on the revenue side. So if you're willing to share a little insight, that would be fantastic.

Sure. It's been -- you commented it's opening up a whole new world. I will tell you this process opened up a whole new world for us. And it is a very different process than the traditional U.S. since this is U.K. based. So we'll have a legal closing on Monday. They will become a wholly-owned subsidiary. We have to continue to operate until we get through some regulatory gates. All of our -- we knew this was the process. We knew it would be a little bit more cumbersome. Nothing that we're seeing, hearing, being told, tells us there's anything unique here other than you got to get through the gates. So we'll get through the gates, and then we'll start to collaborate and work together. So we have not been able to sit and look at our respective customers or sit in a room and talk about our product offerings. But again, Cardtronics is a customer of ours and has been for a long time. So we know what they do. They know us. We have a lot of common customers. And so the clear excitement for Cardtronics was, as we move down this opportunity called ATM as a Service, and we touched on this at the top of the conversation, it is a trend that is undeniable. It is coming at us, and it's coming at us quickly. The more robust your capabilities are to bring all of the pieces together, the higher the probability of success is. We think with our position in the -- and I'll stay on the bank side right now, the NCR position opens up almost every door. I mean we've talked about the brand power and the brand access that it creates. Having all of the capabilities that -- driving the terminal, managing this asset operations, as we've explained, had to explain to some folks, Cardtronics doesn't build a product. They operate it. Day in, day out, they keep the network going. They keep the cash in. They are all about delivering day in and day out the ATM as a piece of the strategy, the distribution strategy for the banks. That's a different DNA. That's a different set of processes. It's a different set of competencies than what we have at NCR. We were building those. This just accelerates it by years. So the excitement to have that team, those skill sets, those processes, all institutionalize, scalable and ready to go along with our distribution is huge. There's -- we talked about some of the cost synergies, but the ability to walk into our combined customers on the bank side and talk about this as an alternative that is now top of mind with many customers just -- it's going to be an enormous play for us. On the retail side of the house, we think has maybe even more revenue opportunity for us. We continuously hear now from our customers who may have Cardtronics, know of Cardtronics, know we're in there, boy, this cash management opportunity that you could help us out with would be enormous. Cash is still extremely prevalent in the retail environment, the handling of it, the managing of it, the -- having -- getting credit for overnight funds as a value, being able to deliver a kiosk into the retailer where you can distribute cash, convert currency, provide a digital wallet are all the opportunities area that our customers are talking to us about, and that would fit in perfectly to our run the store strategy. So we think on the revenue side, there's just an enormous amount of opportunity for us to leverage the combined capabilities, the combined offerings on the business -- on the revenue growth. It was not part of our business case. We looked at it pretty conservatively. We think the cost outs are going to be there. We'll be fine. We think the synergy, obvious ones on the ATM as a Service are there. We got to work through with the team once we are able to sit at the table. But as I said, the excitement on the retail side is something that our customers are really pushing to have the conversation about.

Yes. No, we definitely see it as well. So unfortunately, we're out of time. 30 minutes with you guys is pretty quick. And there's a lot of other things we could chat about. But in the interest of time, let me just say thank you very much for being here today. I know you have a very busy schedule, and I'm looking forward to seeing everybody in person hopefully in the not-too-distant future, so thanks.

Yes, likewise. Thanks, Dan.

Thank you, Dan.

Thank you again. Really appreciate it.

Thank you. Bye-bye.