Greetings, welcome to the NCR Voyix Corporation Q4 and Full Year 2023 Earnings Call. At this time, all participants are the listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I will now turn the conference over to your host, Alan Katz of Investor Relations. You may begin.

Good afternoon, and thank you for joining our fourth quarter and fiscal 2023 earnings conference call. This afternoon, we issued our earnings release reporting preliminary financials for the quarter and year ended December 31, 2023. 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 wwwncrvoyix.com and has been filed at the SEC. Joining me on the call today are David Wilkinson, our CEO; and Brian Webb-Walsh, our CFO. This call is being recorded and webcast 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 and 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 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'll be discussing or providing certain non-GAAP financial measures today, which we believe are more reflective of our ongoing performance. For a full reconciliation of the 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 to our Form 8-K file this afternoon and our supplemental materials available on the Investor Relations section of our website. As a reminder, you'll see the financials of the NCR Atleos business, which was spun off as an independent publicly traded company on October 16th, 2023 in the discontinued operations line within the P&L. With that, I would like to turn the call over to David.

Thank you, Alan. Welcome, everyone, to our fourth quarter and full year 2023 earnings call. I'll begin by saying that I'm proud of what our team accomplished in 2023 with the spin-off of the ATM business now behind us, we are laser-focused on driving growth from our software and service revenue streams. Our software solutions, which include our platform and physical point-of-sale technology and digital banking products enable restaurants, retailers and financial institutions to seamlessly transact and engage with their end user customers. Before commenting on our performance, I'd like to spend a moment on Slide 4 to remind everyone of NCR Voyix's market-leading position for each of our 3 segments. These reflect the global reach of our customer base, coupled with our products and services across restaurant, retail and digital banking. During our call today, I will discuss our strategy to invest in initiatives that support our sales and distribution networks, platform conversions and technology innovation to drive growth for the company. Turning to Slide 5. We've outlined the key strategic initiatives in place to support our long-term profitable growth. Today, we're a cloud-based platform enabled software and services company, providing end-to-end digital solutions to our global customer base. Placing customers at the center, we leverage our deep industry expertise and well-established sales and go-to-market engine to drive platform adoption and new customer growth. We will continue to invest in innovation via our commerce and digital banking platforms to deliver best-in-class products and solutions to expand our existing portfolio and drive growth. And we continue to focus on expanding our relationship with our customers across all segments, enterprise, mid-market and SMB through integrated merchant payment offerings. Turning now to our 2023 performance. For the full year, we delivered revenue and adjusted EBITDA results in line with expectations discussed at…

Thank you, David, and good afternoon, everyone. I will note that the spin-off of NCR Atleos has created some level of noise in our 2023 reported results due to discontinued operations. Therefore, we are providing normalized growth rates to exclude the impact of certain spin and divestiture-related items. Some of my commentary will focus on these normalized results. Please turn to Slide 12. Fourth quarter total revenue was $963 million, flat as reported and up 1% on a normalized basis. Full year revenue was $3.83 billion, up 1% as reported and up 2% on a normalized basis. This 2% is consistent with the range we gave at Investor Day. As David highlighted, in addition to total revenue, we will now report a new metric, software and services revenue, which includes software, services and payments revenue and excludes hardware. We believe this metric is a better indication of the strength and progress of our business. It removes point-of-sale and self-checkout hardware which, although important to providing our customers with a complete solution, fluctuate from period to period depending on refresh cycles and large rollouts. Software and services revenue also generates the vast majority of the company's EBITDA and cash flow software and services revenue increased 4% for the fourth quarter and 5% for the full year. For the full year, each of our segments contributed to this growth. Full year hardware revenue was $1.08 billion down 6%, driven by higher demand in 2022 as a result of COVID and supply chain dynamics. Q4 adjusted EBITDA was $134 million, down 19% as reported and down 24% normalized, largely due to the synergies and prior year labor benefits. Full year adjusted EBITDA was $618 million, up 4% as reported and up 2% normalized. However, these results contain certain prior year nonrecurring positive labor…

[Operator Instructions] Our first question comes from the line of Mayank Tandon with Needham & Company.

Dave and Brian, I wanted to start with your key growth metric ARR. Could you talk about how that trended across the various segments in 2023 and your expectations for what it might trend like in 2024, just to get a better gauge on the momentum in the business.

Yes, Mark, this is David. ARR, as you described, is an important metric for us and really reviewing the health of the overall strategy. We saw ARR grow 5% in '23, that's in total. And we saw digital banking was at 8%, restaurants at 12% and retail was at 1%. When we look forward into this year, we see that growing across the company at mid- to high single digits with that mid- to high single-digit growth rate across all 3 of the segments. So that's really a testament to the -- both the platform strategy and our acquisition of customers with payments. .

And if I could just ask about competition. So it's been obviously only a few months since the spin. But have you seen a change in your win rates early on in terms of how you're competing with some of the incumbents. Any change in the dynamics in the market that you could call out across your 3 segments?

I would call any out due to the spin itself. I think for us, we feel like we're, I'll say, in fighting shape and the ability to get very focused on the segments that we serve. And what we've seen is that as we not only sort of our enterprise existing customers, but then move into mid-market on our focus areas, it really -- our differentiators are around the core tech platform and our ability to service those customers end-to-end. So as our clients have increasing complexity, we differentiate even further. So you'll see us continue to grow in the mid-market space. But I don't know that the dynamic has changed as much as we feel more focused on how we're looking for growth from new sites in the mid-market and connecting our existing enterprise customers to the platform for cross-sell upsell. .

Our next question comes from the line of Erik Woodring with Morgan Stanley.

This is Sabrina on for Erik Woodring. Our first one is you had previously talked about the business growing, call it, 1% to 3% in 2024, but now guidance implies that revenue is going to fall, I think, 1% normalized. So what are the drivers of this change in outlook? And more broadly, like what are the macro trends you're hearing from customers right now in terms of propensity to spend on larger CapEx purchases by segment?

Yes. So within the number and being flat to down -- the positive aspect of that is the recurring revenue is growing 6% to 7%, and the software and services is up growing 3% at the midpoint of the range. So that's the positive, and that's in line with Investor Day expectations, where we're having some volatility as with our hardware demand that we know is lumpy given our large enterprise customers and their projects and refreshed schedules. At the time of Investor Day, we believe some of these cyclical projects would be back and we would typically have visibility to these projects by now, and we're just not seeing it. So we're guiding hardware revenue to be down 12% at the midpoint. And if we exclude hardware, we would have been up 1% to 2%, which is in line with Investor Day.

I'll just add, Brian. I think that the hardware expectations we have are in line with what we're seeing in the broader market for harder demand coming out of the post COVID, I'll call it rebound from 1.5 years to 2 years ago and then some of the dynamics that we saw in the market last year. So we're seeing that in line with market. .

And then maybe just 1 more. You talked about wanting to better serve the mid-market in the restaurant segment. I guess, what are the pillars of your strategy? And what are you changing within that segment? And then how much of that is baked into your long-term guide.

Yes, I'll start with the end. It's all baked into our long-term guide. That's why we feel confident in that guidance. As I described our mid-market definition in restaurants, it's really 5 to 50 sites. So think about a multisite operator that is growing into more sites overall or trying to grow either in a geographic region or across the country. Our approach is payments led in that space. So as we build out additional payment capabilities, you'll see that show up in that space as well. And then it's really our service differentiation that also adds to what we're building on the tech side of the platform. We'll also simplify our product a little bit in terms of how our customers use it and think about it. And then really, the real change is our go-to-market focus, we are going to dose our go-to-market in that space with some additional salespeople.

Our next question comes from the line of Kartik Mehta with Northcoast Research.

Dave and Brian, as you look at the guidance and the outlook for the businesses, obviously, hardware is dragging a lot of dragging -- I apologize, dragging down a lot of revenue growth. But as you look at the digital banking piece, would you anticipate that, that will continue to grow as it did in '23? Or is it a little bit more difficult to grow at that rate considering the size of the business now?

Yes. So we anticipate Digital Banking being up 7% this year as we add new customers and continue to cross-sell. And EBITDA margin for that segment, we think we'll be flat at 38%.

Yes, Kartik. And I would add that as we described in our prepared remarks, we've had 39 net new wins in that space over the last 12 months. And we believe that's an undervalued crown jewel within our portfolio. When you look at the overall customer wins that we're seeing, we're taking share in that space, and we have a very competitive product. So we like the growth prospects in that business. And even though we are -- it's a large business for us, it's also very profitable, already breaking the rule in this space. So we feel really good about that business and the long-term growth prospects.

And then just, Brian, on the cash flow conversion, maybe I'm assuming 2024 obviously had -- you're separating from NCR, and there's probably lots of takes ins and outs associated with it. I'm wondering, over the next few years, what you would expect conversion to be.

Yes. So conversion is impacted this year by still some probably $25 million to $50 million of cash separation costs that are impacting us. We also have some restructuring associated with our cost takeout -- so those things are pressuring cash conversion a bit. But as we go forward, those things will come down, and we'll continue to improve margin and generate more cash flow. We have a working capital improvement baked in for this year as well. We think there's opportunity to continue that in the future years. So we see cash conversion improving in line with what we said at Investor Day as we go forward.

Our next question comes from the line of Dan Perlin with RBC.

It's Matthew Roswell on for Dan. Two questions. I guess, first, when you're looking at the SMB focus and what sort of either product or sales force investments are we thinking about for this year?

Yes. You say SMB, I'll just redirect a little bit to mid-market. We are focused on that 5%, that kind of multisite operator, both restaurant and retail. The product, we feel is in good shape. So -- we're going to work on process in terms of making it easier to -- for our sellers to quote and onboard those customers with the payments led offering. And on the sales side, if I look at it overall, we're investing about $15 million across the whole company and selling. And so when I think about where the growth will come across all 3 businesses, it will be in that mid-market segment across all 3 businesses. So we're going to make more investments in sales to get more feet on the street. And that's where we think the impact will show up. .

Okay. And then on the digital banking piece, you had a number of net new wins in the quarter in the year. And I was wondering, who are you taking share from? Is it mainly legacy players or homegrown solutions?

It's mainly the legacy players that we're seeing the -- I'll call it as the donor pool.

Our next question comes from the line of Ian Zaffino with Oppenheimer & Company.

This is Isaac Sellhausen on for Ian. My first on the cost side, can you talk about labor and component hardware costs and your expectations for the year? The EBITDA margin guide is certainly strong. So just trying to understand the cost saving measures you talked about and you've already taken and maybe how that flows through for the year. .

Yes. Thank you. $100 million is the annualized costs we're taking out this year, and it's split between the 3 areas I talked about. The first being hardware, which is simplifying how we design our products, and those changes have been made -- and as we go through our inventory, that will start to impact the P&L and is starting to impact the P&L. So we'll get most of the savings in this year, and that's worth $25 million. The next area is services, and that's around using our remote self-capability more, hiring skill set that matches the entry skill set need versus the overall NCR need and also structural changes to get rid of overlaps between organizations that. We're about halfway through $50 million is what we're targeting there, and we've taken about $25 million of actions. We anticipate taking more before we end this quarter. So a lot of that will be behind us. And then the last area is our real estate footprint and our corporate footprint. And there, we're focused on reducing resources, shifting to lower-cost strategic value centers and closing down some facilities, and that's underway. We have probably 60% of that behind us. So this year, we expect at least $70 million of in-year savings related to this program, and we're trying to drive more.

And I would just say that on those cost savings, those are the net numbers. We're going to reinvest some of that if you look at the Q4 exit run rate, that's what we're reinvesting back in go-to-market in sales, just to make sure we can continue to grow the business. While we're making the strategic savings in certain areas. They're -- I'll say a little more surgical as we look at the foundational elements that Brian described, where we're not making cuts is things like customer support, product innovation and investment and sales and go-to-market, we're continuing investment there.

And then just as a quick follow-up regarding free cash flow for the year. Maybe if you could talk about your capital allocation priorities at 3.7x. What's the pace you'd like to move down to the 2 to 3x long-term net leverage target?

Yes. So for this year, it's going to be investing in our CapEx, which is $250 million. And then from there, laying the free cash flow, add to our cash balance to bring down net debt. And we think we can get net leverage to 3.3 to 3.4 turns by the end of the year, and that's our focus for this year.

And our next question comes from the line of Alex [indiscernible] with Stephen.

Just within the retail business, can you just give us a sense of how much the platform sites are contributing to that segment? And then when we could see that moving the needle just from a growth standpoint?

Yes. We're seeing good growth in the platform sites. I mean, you saw the numbers, and they are contributing to overall growth. So if I take Mayank’s original question around ARR. And I look at that ARR growth that we're expecting to see in the mid- to high single digits. -- in '24. That's all coming from platform connected sites. If I break that down even further and think about software-specific related ARR in that business, we'll see software-specific ARR get into the low double-digit growth in '24, and that's all about connecting these sites to the platform. So if you remember, when we connect these sites to the platform, we're getting an uplift in ARPU when we make that connection and it allows us to cross-sell and upsell. So as these cohorts are aging, we're starting to see that benefit our recurring revenue streams, and that's what you'll see in these growth numbers. Again, the overall numbers are a little muted because of hardware and retail, but the rest of the software business and recurring revenue streams are growing nicely.

And then just given some of the lumpiness associated with hardware, if you could provide any color on the expected cadence in revenue in '24 within the retail and restaurant segment would be helpful.

Sure. So for restaurants, we expect to be flat to up 1% overall, but that's made up of software and services growing 5% and hardware being down. And then in retail, the decline is declining roughly 4%, and that's due to hardware, software and services is growing 1%. And if I adjust for the $25 million nonrecurring software payment that I mentioned, it would be up 3%. So we're seeing growth in all 3 businesses on the software and services line. It's just hardware is putting pressure, especially on retail.

Thank you. And we have reached the end of the question-and-answer session. And I'll now turn the call back over to CEO, David Wilkinson for closing remarks.

Yes. In closing, I'd like to thank our customers, again for the trust they put in us every day to help them achieve their strategic objectives. I'd also like to thank again our NCR Voyix colleagues for their contribution to our success up to now and our investors for their ongoing support. As I stated earlier, we remain committed to serving our existing clients and bringing them all on the platform journey. Our platform investments over the past years have provided real value to our customers, and we're going to continue to connect them to the platform. We've built a solid foundation for growth within our base and growth of new customers, specifically in the mid-market. While we're proud of where we are, we need to do better at turning this foundation into growth, and this focus will show up in our results. I believe in the plan we have outlined today, and I believe in this management team to execute. Thank you all for joining the call.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.