NCR Corporation

Good day, ladies and gentlemen, and welcome to the NCR FOIC's third quarter 2024 earnings call. Our host for today's call is Alan Katz. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would like to now turn the call over to your host. Mr. Katz, you may begin.

Good morning, and thank you for joining our third quarter 2024 earnings conference call. This morning, we issued our earnings release reporting financials for the quarter ended September 30th, 2024. A copy of the earnings release and the presentation that we will reference during this call are available on the investor relations section of our website, which can be found at www.ncrvoyages.com and have been filed with the SEC. With me on the call today are David Wilkinson, our chief executive officer, and Brian Webb Walsh, our chief financial officer. This call is being recorded and the webcast is available on the Investor Relations section of our website. Before we begin, please be advised that remarks today will contain forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our earnings release and our other reports filed with the SEC. We caution you not to place undue reliance on these statements. Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them. In addition, we will be discussing and providing certain non-GAAP financial measures today, which we believe will provide additional clarity regarding our ongoing performance. For a full reconciliation of non-GAAP financial measures discussed in this call to the most comparable GAAP measure in accordance with SEC regulations, please see our press release, furnished as an exhibit on Form 8-K filed this morning. and their supplemental materials available on the investor relations section of our website. With that, I would now like to turn the call over to David. David?

Thanks, Alan, and good morning, everyone. I would like to welcome all of you to our third quarter 2024 earnings call. Before I begin, I'd like to welcome our newest executive vice president, Darren Wilson, to NCR Voice. As you saw in our press release, Darren has joined to lead our international retail and restaurant businesses primarily in Europe and Asia Pacific. This new leadership position will allow us to focus on expanding our international presence in restaurants and retail. I will now spend a few moments discussing our recent progress on the digital banking and hardware transactions announced in August, before commenting on our recent business performance and the company's go-forward objectives. Brian will then review our financial results for the quarter and our outlook for the remainder of the year. Beginning with digital banking, we completed the sale on September 30th, ahead of expectations. This was an important step in our plans to simplify the business and significantly improve our balance sheet with $2.45 billion in gross sale proceeds. After estimated taxes and fees of $437 million, we utilized approximately $1.8 billion of proceeds to reduce our indebtedness. Positive impact of these actions reduced our annual cash interest expense by approximately $95 million. Of the remaining proceeds, the company intends to utilize approximately $100 million to complete repurchases of common stock under its existing share repurchase program, which is an aggregate repurchase authority of up to $153 million and has been previously outlined in our public filings. We believe this is the best use of proceeds given our current valuation. Brian will discuss the details of the remaining proceeds allocation later on the call. For hardware, we anticipate the agreement to become effective by year-end and will provide Anacon certain transitional services until they are fully operational in 2025. In connection with the transaction, we have jointly notified our affected employees who will be part of the new organization. As a reminder, we will continue to sell hardware to our customers as a sales agent and earn a commission on the sale. But all other aspects of the contract, including design, manufacture, delivery, and warranty, will be fulfilled by Enercon. Starting through our third quarter performance, on a normalized basis, total revenue for the quarter was $708 million, a decline of 11% driven primarily by lower hardware and hardware-related install services. Software and services revenue was flat, when excluding the adverse impact of a one-time software true-up from the prior year. Normalized adjusted EBITDA for the quarter was 101 million, driven by cost actions taken in the second quarter, coupled with sales mix. As of the third quarter, we had approximately 70,000 sites on our cloud native commerce platform, an increase of 25% from the prior year. Software ARR and total segment ARR increased 2%. in the quarter. Turning to our restaurant segment, in the third quarter, we continued to demonstrate momentum, signing more than 230 new software customers and increasing our platform and payment sites by 4% and 12% respectively. Software ARR and total ARR both increased 1% in the quarter. Within our enterprise division, we executed 11 renewal and expansion agreements for both software and services solutions. These included converting existing software customers representing more than 350 sites to our cloud native commerce platform. For example, we converted Cafe Rio, an Aloha user, to the platform at the time of renewal. We also expanded our platform contract with Hungry Jacks to now include our value-added solution. Under our new agreement with Hungry Jacks, we will provide loyalty solutions for nearly 500 sites across Australia. For services, we renewed and expanded our long-standing health desk contract with a global coffee chain this quarter. We have extended our monitoring assistance services to their shops in Latin America, while continuing to service their existing site base in the US and the UK. Finally, we continue to execute against our payments attached strategy, both for enterprise and mid-market restaurants. This quarter, we expanded agreements with two existing enterprise software customers to provide end-to-end payment capabilities across nearly 40 sites. In our mid-market business, our payments attach rate remains strong, with 97% of new customers attaching payments to their point-of-sale contracts in the third quarter. As we move into 2025 and implement our new sales strategy to drive growth, we will focus aggressively on cross-selling payments into our existing base. Turning to our retail segment, this quarter we signed two new enterprise customers and more than five mid-market customers, leading to nearly 3,000 additional sites. We increased our platform sites by 47% as we continue to convert on-premise customers and onboard newly signed customers. Software ARR increased 2% and total ARR increased 3% in the quarter. At Enterprise, we signed a new multi-year software and hosting services agreement with Endeavor Group, Australia's largest retail drinks network. We will deliver our cloud-hosted point-of-sale software, hosted loyalty solution, store insights, and edge infrastructure via our commerce platform for over 4,000 lanes across more than 1,600 sites. In addition, we will provide professional and implementation services for Endeavor Group. We also demonstrated traction in our mid-market business this quarter, signing a new multi-year software and services agreement with SpeedyStop, a regional convenience and fuel chain in the U.S. Under the agreement, we will deploy our point-of-sale and self-checkout software in addition to our edge infrastructure on SpeedyStop's existing third-party hardware devices, which will be able to significantly reduce their downtime and improve reliability. This win reflects our early success in our new go-to-market strategy. Lastly, we renewed and expanded our agreement with a large US specialty clothing store. In addition to converting this point-of-sale software customer to our cloud native commerce platform, we will also provide our loyalty and marketing solutions for their entire store footprint, which spans more than 1,500 lanes across 400 sites. Before I turn the call over to Brian, I would like to elaborate on my comments related to our go-to-market approach for next year. While much of the first half of 2024 was consumed with executing two major transactions for the company, the sale of the digital banking business and our hardware-to-DM agreement, a parallel restructuring effort was also underway to address top-line software and services growth. Prior to 2024, the company's sales strategy was partial toward cross-selling and upselling the base versus attracting and signing new software and services customers. We have now aligned our focus to drive balance between upselling existing customers and capturing market share through new customers. Additionally, we have taken various steps to better align our organization to drive long-term growth in 2025 and beyond. The five key revenue growth actions underway are as follows. First, beginning in 2025, we will have restructured our sales teams and implemented a revised incentive compensation plan to address new customer growth and to expand market share across our channels. Second, to support our go-to-market sales efforts, we are using a portion of the digital banking proceeds to invest in our solution sets for both restaurants and retail, which will accelerate our speed to market for our enhanced cloud solutions and enable us to capitalize on growth opportunities. Beginning in Q1, we will expand Aloha Cloud to a broader segment of the domestic restaurant market. During the year, we will continue to add feature-rich capabilities to our Aloha platform. In retail, we are investing in Edge, a next-gen point-of-sale and sub-checkout software solutions to acquire new customers and accelerate our efforts to migrate our existing customer base. This acceleration will free up engineering resources managing legacy solutions to be redeployed elsewhere, lower our future capital spend, and enable stickier customer relationships over time. Third, We're launching an aggressive program to expedite the contract renewals for existing customers while also converting their legacy software to our market-leading cloud solutions. This will be a multi-year initiative, which has been well received thus far. The fourth and fifth pillars of our growth strategy relate to changes we have made to strengthen our senior organization, which will be critical to our sales execution, product delivery, and customer satisfaction. Beginning with executive leadership, As I stated earlier, Darren Wilson has been appointed president international. With Darren leading our businesses in Europe, Japan, and Asia-Pac, it will also allow us to have enhanced attention on our largest market, the Americas, as we focus on driving growth and expanding market share. And finally, we've attracted additional proven leaders to fill key roles across the broader organization. Since Q2, we've replaced the three sales leaders in our U.S. restaurant segment, hired a proven head of development for our retail product group, and most recently, added a seasoned payments professional to lead our expanded payment initiative next year. In summary, while work remains, we have advanced plans to align our resources, products, and incentives to position the company to return to growth.