NCR Corporation

ladies and gentlemen and welcome to the NCR Corporation fourth quarter fiscal year 2020 earnings conference call today's call is being recorded and at this time I would like to turn things over to Mr. Michael Nelson vice president of investor relations please go ahead good afternoon and thank you for joining our fourth quarter and full year 2020 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 reports. 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 February 9th, 2021, 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 for our fourth quarter and full year 2020 earnings call. I will begin with a review of the fourth quarter and full year, as well as provide an update on our shift to NCR becoming a software and services-focused company with a high level of recurring revenue. Tim will then review our financial performance and an outlook into 2021, and then Owen, Tim, and I will take your questions. I'll begin on slide four with some highlights from the fourth quarter and full year. NCR delivered solid performance despite the current environment that continues to be impacted by COVID-19. We continue to experience incremental improvements across our business. However, there remains uncertainty regarding when vaccines will be available to the general population and when businesses will return to normal levels. First, we delivered strong free cash flow. We generate $149 million of free cash flow in the quarter and $448 million of free cash flow for the year. Tim will discuss in more detail the drivers of our strong free cash flow production. Second, we expanded adjusted EBITDA margins sequentially for the third consecutive quarter to 15.8% in the fourth quarter, which represents an increase of 10 basis points from the third quarter. As we discussed last quarter, we have taken actions to replace the temporary cash cost savings when the pandemic began with permanent expense savings. We entered 2021 with $150 million in cost savings that are expected to drive margin expansion. Our performance in the fourth quarter is the result of some of these actions we have taken, and those actions continue to drive margin improvement in 2021 and beyond. Third, we delivered 6% recurring revenue growth in the fourth quarter, bringing recurring revenue to 54% of total revenue. Throughout 2020, we have made steady progress generating increased recurring revenue, which is consistent with our 80-60-20 goals. And finally, we are very excited about the opportunity combined with Cardtronics. The proposed transaction accelerates the NCR as a service strategy we laid out at Investor Day in December and further shifts NCR's revenue mix to software, services, and recurring revenues. We continue to expect the proposed transaction to close mid-year 2021 and to be 20% to 25% accretive to EPS in its first full year. Now moving to slide five, we have continued to progress executing our strategy despite a challenging business environment. We remain focused on a transition to drive NCR as a service and achieve our 80-60-20 strategic goals. For the full year 2020, software and services represented 72% of our total revenues, up from 65% in 2019, and 54% of our revenues were recurring, up from 46% in 2019. EBITDA margin was 14.4%. In banking, we continue to have positive momentum in our digital banking platform with five new customers signed in the fourth quarter. One of those new customers was Wintrust, a $43 billion bank, with 15 branded community bank subsidiaries that selected NCR's D3 digital banking solution. We have already started off 2021 strong with the signing of another new D3 customer, Associated Bank, which is a $35 billion regional bank based in Wisconsin. In the fourth quarter, we also had cross-selling success with existing clients and new products, including seven business banking deals. In retail, we are gaining traction with our NCR Emerald offering, which is our next-gen cloud-based retail point-of-sale solution. As we discussed at our investor day, the acceleration in digital transformation is being driven by consumer demand, and retail is needing to respond. We believe this is driving an upgrade cycle for retail POS software, and NCR has the largest global install base. We continue to be excited about the sales funnel for NCR Emerald, and recently signed our biggest NCR Emerald deal to date with the largest cooperative in Canada with 1,500 stores. We are also seeing increased adoption of our self-checkout solutions. We are experiencing demand across customers, geographies, as consumer preferences accelerate. In hospitality, the momentum of Aloha Essentials, which bundles software, services, hardware, and payments, continues in the fourth quarter. This model is proving itself and our ability to attract new customers as well as better service existing customers. During the fourth quarter, over 90% of all Aloha sites sold through our direct offices were sold as subscription bundles, with payments attach rate also strong at roughly 75% of sales into new sites. As we focus on executing our NCR as a service strategy, we continue to invest in our strategic growth platforms, both organically and inorganically. We recently closed two relatively small but very strategic acquisitions. We acquired Terafina, a leading provider for customer account opening, which is a digital front-end solution for digital banking. We also acquired Freshop, a digital online ordering platform, which provides retailers the ability to quickly deploy, buy online, pick up and store capabilities. With Freshop, NCR can now help grocers capitalize on the growth in e-commerce going forward. These two recent acquisitions are consistent with NCR's strategy to acquire early-stage software companies to enhance product capabilities and extend our leadership in the vertical industries we serve. With that, let me pass the call over to Tim.