NCR Corporation

Good day and welcome to the NCR Corporation fourth quarter fiscal year 2022 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Michael Nelson, Treasurer and Investor Relations. Please go ahead, sir.

Good afternoon and thank you for joining our fourth quarter and full year 2022 earnings call. Joining me on the call today are Mike Hayford, CEO, Owen Sullivan, President and 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 will 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 7, 2023, 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. 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 two public companies. Tim will then review our financial performance and provide an outlook for 2023. And then Owen, Tim, and I will take your questions. Let's begin on slide four with some highlights from this past year. We closed out 2022 with strong demand and positive momentum in the business. Maybe a different way to say this is across all five of our business segments, our products are winning in the marketplace. We continue to make significant progress against our strategic initiatives to advance our strategy of becoming a software-led as-a-service company with higher recurring revenue streams. A key part of our strategy is to run the store, run the restaurant, and run self-directed banking. It is contingent on our ability to cross-sell and up-sell additional services to our clients. To do so, we have a maniacal focus on customer satisfaction, which we measure as Net Promoter Score, or MPS. When we initiated the strategy in 2018, our MPS was 14, which is not very good. Each year, we continued to improve. We went the following year to an 18 on our NPS score, then to a 36, then to a 48, and in 2022, I'm proud to say we improved to 52. So in four years, we improved our net promoter score from 14 to 52. That's quite a significant improvement. We now have happy customers, which is the key to executing our strategy and transforming NCR into a software-led as-a-service company. In 2022, NCR delivered 13% total revenue growth, recurring revenue growth of 20%, and adjusted EBITDA growth of 16%, all on a constant currency basis. These are strong results, particularly given the extraordinary macroeconomic and geopolitical challenges that we navigated throughout the year. Now moving to slide five, I thought it would be helpful to put our strong execution in perspective relative to the external macro headwinds we endured. Keep in mind, the headwinds in 2022 were almost all external uncontrollable impacts. Our revenues on a constant currency basis held up very well, and our teams did a great job addressing the cost impacts over the last three quarters of 2022. First, we began the year with a continued pandemic, this time the Omicron strain. For example, our NC offices shut down in January and February of last year. Unfortunately, we were not alone. In countries we operate, most businesses were shut down as well, which impacted our transaction volumes. Second, a war in the Ukraine impacted our business in the region and we suspended sales in Russia and exited that country. Third, supply chain disruptions resulted in significantly higher component and transportation costs, which adversely impacted our margins, particularly in the first quarter of 2022. While the supply chain impacts are easing, costs remain elevated. Nonetheless, our engineering and procurement teams have adjusted by designing alternative components and certifying more sources to reduce the impact. Fourth, inflation reached the highest levels in over 40 years. In addition to higher component and transportation costs, fuel costs increased and wage inflation escalated. And fifth, interest rates accelerated at one of the fastest rates in history. Finally, in the second half of 2022, foreign exchange rates represented an incremental headwind. For the full year, the stronger U.S. dollar reduced revenue growth by 300 basis points and adjusted EBITDA by 600 basis points. Despite all these external headwinds, NCR executed very well against our strategic initiatives with strong growth across our KPIs. although some of the headwinds we face in 2022 are beginning to abate, other headwinds like interest and inflation still persist. Looking into 2023, market expectations suggest at least a moderate recession in the U.S. and abroad. In anticipation of potential global slowdown, NCR has taken additional cost actions in the fourth quarter that we are expected to drive incremental savings in 2023. Throughout 2022, we had to take many actions to offset these headwinds. Some of those were temporal in nature. Others are permanent cost savings as we head into 2023. During 2022, we were able to reduce our headcount with attrition. Heading into 2023, we needed to reduce our costs even further. The total impact was to reduce our staffing levels by approximately 7%. Tim will provide some more details in his section later. Now moving to the business update on slide 6. We have strong momentum across all five of our business segments. In retail, we continue to deliver on our strategy to be the retail platform company of choice. The consulting firm RBR named NCR the number one global point-of-sale software vendor for the fifth year in a row. We were also recognized by RBR as the global leader for self-checkout for the 19th consecutive years. During the fourth quarter, Love's Travel Stop and Country Stores extended its partnership with NCR and is connecting over 3,000 lanes to the NCR Commerce platform to enhance the omni-channel experience to their customers. We continue to have positive momentum in winning the upgrade imperative for retail point-of-sale software. Quick Trip, a regional convenience store chain with over 800 stores across the Midwest, turned to NCR to support their mobile ordering strategy and enhance the customer experience. In self-checkout, we continue to see strong demand across our grocery and big box retailers, as well as the expansion into new verticals such as convenience and fuel and department and specialty retail. Our customers are embracing self-checkout usage to help them mitigate increased labor costs. In hospitality, we continue to experience strong demand across our enterprise and SMB customers. Chuck E. Cheese, a 20-year customer of NCR's, committed to a new five-year agreement to partner with NCR to deepen integrations through NCR's platform, which enabled Chuck E. Cheese to enhance its ability to serve their customers through digital channels. Hot Valley, a 17-year customer of NCR's, is revamping their kitchens, deploying Aloha integrated tablets alongside Aloha Kitchen to improve operational efficiencies in handling online orders. We also continue to gain traction with our integrated payments offering for our hospitality customers. In the fourth quarter, Chicken Salad Chick, a 226-site operator, chose NCR as its merchant payment processor for all existing and future locations. In digital banking, we continue to have positive momentum. In the fourth quarter, digital banking activity was strong with 40 renewals, which represented one of the largest renewal quarters in the company history. During the fourth quarter, we also had 10 new logo deals, which were all competitive wins. For the full year 2022, it was a strong year for digital banking as we converted two large regional banks, Wintrust Bank and Associated Bank, to our digital banking platform. These two conversions added almost 1 million new digital banking accounts. We also had success with NCR's DFB, or our Digital First Banking Solution for Retail Banking, where we integrate a financial institution's retail channels using our CSP or channel services platform. NCR signed two of the top five banks in the US on our DFB CSP teller platform during 2022. In payments and network, we are making progress against both merchant acquiring and the Allpoint network. We are continuing to have success with our integrated payment offering for our hospitality customers including roughly 90% of our new SMB clients selecting NCR's payment solution. The AllPoint network continued its strong growth by delivering transactions to more financial institutions and cardholders than ever before. In the fourth quarter, NCR expanded a long-term agreement with Walgreens, making NCR the exclusive provider of ATM services across the majority of Walgreens stores. In 2022, P&C Bank partnered with the Allpoint Network, extending surcharge-free ATM access to more than 10 million of their customers. We now have over 70 million cards on the Allpoint Network. We also extended our Allpoint Network with key merchant partners, most notably Circle K, one of the largest convenience store brands in the U.S., which activated NCR's Allpoint Network on more than 4,400 Circle K stores across 30 states. In self-service banking, we continue the momentum in our ATM as a service solution. Interest in our offering is accelerating from both community banks and large FIs globally. In the fourth quarter, we signed 10 ATM as a service deals, including Santander UK. Santander extended its longstanding partnership with NCR, selecting NCR ATM as a service to transform, connect, and run its self-service banking network of more than 1,700 ATMs across the UK. The bank is shifting the operational management of a self-service channel, including software, transaction processing, cash management, ATM monitoring, help desk, and hardware maintenance to NCR. During 2022, we signed 46 ATMs of service deals, including Bank of New Zealand and Bank of Borado, which is one of India's largest retail banks. NCR's ability to provide the scale and capabilities of a full-stack integrated ATM-as-a-Service offering when bundled with the AllPoint network has given us a unique solution in the marketplace. And lastly, we are on track to separate NCR into two public companies by the end of 2023. Following Tim's comments on our financial results, I will provide an update on those separation activities. With that, let me pass it over to Tim.