NCR Corporation

Good day, ladies and gentlemen, and welcome to today's NCR Corporation third quarter fiscal year 2020 earnings call. A quick reminder that today's conference is being recorded, and at this time I'd like to turn the floor over to Mr. Michael Nelson, the Vice President of Investor Relations. Please go ahead, sir.

Good afternoon, and thank you for joining our third quarter earnings call. Joining me on the call today are Mike Hayford, President and CEO, Owen Sullivan, COO, and Tim Oliver, CFO. Before we get started, let me remind you that our presentation and discussions will include forward-looking statements. These statements reflect our current expectations and beliefs, but they're subject to risks and uncertainties that could cause actual results to differ materially from those expectations. These risks and uncertainties are described in our earnings release and our periodic filings with the SEC, including our annual report. On today's call, we'll also be discussing certain non-GAAP financial measures. These non-GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials, the press release dated October 27, 2020, and on the investor relations page of our website. A replay of this call will be available later today on our website, ncr.com. With that, I would now like to turn the call over to Mike.

Thanks, Michael, and thank you, everyone, for joining us today. I will begin with an overview of our third quarter performance and an update on our progress executing against our strategic initiatives. Before turning it over to Tim, who we review our third quarter financial numbers, then Owen, Tim, and I will take your questions. I'll begin on slide four with the highlights from the third quarter. NCR delivered solid performance despite the current business and operating challenges that continue to be impacted by COVID-19. Our teams have continued to show resiliency in these unprecedented times and continue focused on taking care of our customers. On our last call, I noted that NCR would start shifting management attention from the pandemic and instead get more focused on growing our business during the second half of 2020 versus the first half of the year. In the third quarter, we have successfully taken steps down that path. First, one of the primary highlights of the third quarter was our strong free cash flow generation. We delivered $150 million of free cash flow in the quarter and $299 million of free cash flow through the first three quarters of the year. Tim will discuss in more detail the drivers of our strong free cash flow production. we expanded EBITDA margin to 15.7% in the third quarter, which represents an increase of 220 basis points from the second quarter and an increase of 10 basis points from the third quarter of 2019. As we discussed on our second quarter earnings call, when the pandemic began, we focused on reducing cash costs. In the third quarter, we began to execute the productivity improvement initiatives that were temporary sidelined by the pandemic. These initiatives are focused on reducing recurring costs to drive margin expansion, and our performance in the third quarter is the result of some of these early actions we have taken. Third, we delivered 7% recurring revenue growth in the third quarter. This marked our third consecutive quarter, delivering that level of year-over-year growth, which speaks to the steady progress we are making generating increased recurring revenue, which is consistent with our 80-60-20 goals. Fourth, we began taking steps to reduce our leverage and simplify our capital structure while also maintaining a strong liquidity position. Tim will speak to this in his remarks. And finally, while we don't expect a near-term end to the COVID-19 pandemic, we are adjusting to this new environment for both our customers and our NCR team. We continue to expect impacts to our business with hardware sales to be the most challenged. Now moving to slide five, we have forged ahead executing our strategy despite unprecedented market disruption. We have added new customers, deepened our relationship with existing customers, and continued to invest in our strategic growth products like digital banking, Aloha Cloud, Emerald, our retail cloud POS, and payments. We will continue to focus on our transformation to drive NCR as a service and achieve our 80-60-20 strategic goals. In the third quarter, software and services were 71% of our total revenues and 53% of our revenues were recurring. EBITDA margin was 15.7%. In banking, we continue to have positive momentum in our digital banking platform with six new customers signed in the third quarter. We've also had success cross-selling existing clients with new products, including 12 business banking deals done in the quarter. Also in the quarter, our digital banking registered users increased 12% to more than 24 million on a year-over-year basis. We are also having increased success shifting our banking software revenue to recurring revenues. Both software historically attached to an ATM sale as well as software unrelated to an ATM sale. In the third quarter, we signed nearly 250 banking deals to a recurring revenue model that previously would have been sold as an upfront software license. One example is a top five U.S. bank that recently agreed to a multi-year recurring software agreement to move to our Activate Enterprise next-gen platform to modernize their software stack that serves a multi-vendor ATM environment. In retail, we are seeing increased adoption of our self-checkout solutions. We are experiencing demand across customers and geographies as consumer preferences accelerate. We continue to be excited about the sales funnel of our Emerald offering, which is our next-gen cloud-based retail point-of-sale solution. In hospitality, the momentum of Aloha Essentials, which bundles software, services, hardware, and payments, continued in the third quarter. This model is proving itself in our ability to attract new customers as well as better service existing customers. During the third quarter, roughly 80% of all SMB Aloha sites sold through our direct offices were sold as a subscription bundle, with payments attached rate also strong at roughly 80% for sales into new sites. As we drive the transformation of our business, we will strive to be even more efficient and effective steward of our resources. We continue to focus on taking care of our customers, advancing our product capabilities with investments in our strategic growth platforms, and continuing to strive to improve our productivity. With that, let me pass the call over to Tim.