Greetings, and welcome to the NCR Voyix First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alan Katz, Vice President of Investor Relations. Thank you, sir. You may begin.

Good morning and thank you for joining our first quarter 2024 earnings conference call. This morning, we issued our earnings release reporting financials for the quarter ended March 31, 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.ncrvoyix.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 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 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 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 filed this morning and our supplemental materials available on the Investor Relations section of our website. With that, I would like to now turn the call over to David.

Thank you, Alan and welcome, everyone, to our first quarter 2024 earnings call. For the quarter, we delivered revenue and adjusted EBITDA in line with expectations. Normalized software and services revenue grew 5% and as we continue to onboard new and existing customers to our commerce and digital banking platforms. We executed on our transformation initiatives and saw the impact of continued growth within our higher-margin revenue streams. We achieved solid sales results across our segments, including signing nearly 300 new customers and expanding with existing customers. I'll provide more detail on our sales activity in our segment updates. We also continued converting customers to our platform and now have a total of approximately 61,000 retail and restaurant platform sites, approximately 18% of our total customer sites. The ongoing execution of our platform strategy, coupled with our increased investments in our global sales and services network drove total segment ARR growth of 5% and software ARR growth of 6%. Let's turn to our restaurants segment slide on Slide 6. In the first quarter, we signed more than 230 new customers and increased our platform and payment sites by 6% and 26%, respectively. Segment ARR grew 5% in the first quarter. In our enterprise business, we announced a new multiyear agreement with Prest, one of the leading fresh juice brands in the U.S. with more than 100 locations and a growing e-commerce and wholesale business. Under our agreement, we will provide a full suite of solutions, including point-of-sale, back office, e-commerce, loyalty and payments, which simplifies their operations and reporting across their physical and digital channels. Further, our integrated consumer marketing solution will run the Prest loyalty and marketing program, both in stores and online. Prest moved from a smaller provider to our platform allowing them to engage with their end…

Thank you, David and good morning. As a reminder, the spin-off of NCR Atleos created some level of complexity in our 2023 and Q1 reported results, especially when looking at year-over-year comparisons. We are providing normalized results that exclude the impact of certain spin and divesture-related items. My commentary today will focus on these normalized results. Please turn to Slide 11. First quarter total normalized revenue was $858 million, declining approximately 3% as expected, driven by a decline in hardware revenue as a result of the timing of customer refresh cycles. Normalized software and services revenue increased 5% for the first quarter to $662 million. Q1 normalized adjusted EBITDA was $122 million, which declined 2%, driven by $22 million of spin-related dissynergies and lower hardware revenue. Excluding these dissynergies, our adjusted EBITDA would have grown by 15% year-over-year. Q1 adjusted EBITDA margin was 14.2%, slightly higher than the prior year. Our Q1 adjusted EPS was $0.13 and our weighted diluted average share count was 162.7 million. Please turn to Slide 12 to go through the details of our segment results. Across our segments, we saw growth in software and services revenue, which was offset by declines in hardware. Adjusted EBITDA improved across all 3 segments. This performance was consistent with our expectations. Within our restaurant segment, software and services grew 3%, offset by hardware, resulting in a revenue decline of 3%. Software and services revenue grew as we increased the number of platform and payment sites and realized price increases. Restaurants had solid profit performance with adjusted EBITDA increasing 25% and margin expanding 600 basis points, driven primarily by mix and our transformation initiatives. In retail, software and services revenue grew by 5%, offset by hardware resulting in a total revenue decline of 7%. The software and services revenue growth…

Thanks, Brian. Before we move to Q&A, I'd like to note that this morning, we announced that Jim Kelly, the current Chairman of NCR Voyix, has now stepped into the role of Executive Chairman. I've worked closely with Jim following the spin of the Atleos business and he has been integral to the development of the go-forward strategy for NCR Voyix during his tenure at the company. I am excited about working more closely with Jim in his new role. He brings a wealth of experience and leadership expertise from public companies, particularly around strategic objectives, operational efficiency and payments. Given the many important initiatives that we have underway, having him in this expanded role will be invaluable to the Board and the management team. With that, I will turn it over to the operator to begin the question-and-answer session. Please open the line.

[Operator Instructions] Our first question comes from Matt Summerville with D.A. Davidson.

Maybe if you guys can maybe start by just talking a little bit more broadly around what you're seeing in the hardware environment today? Obviously, that's an important top line contributor, less so on the bottom line. I totally get that but it's still an important piece to your revenue. Specifically include some comments on what you're seeing with respect to self-checkout, some of the larger projects that you had thought maybe in late '23 would end up hitting in '24, maybe an updated view there. And then I have a follow-up.

Matt, it's David. So the -- as we described, that hardware business is largely project-driven for us and is pretty lumpy. And we are seeing, in the back half of the year, those projects coming back that were pushed kind of post COVID, the bubble that we saw. So we're seeing, again, some of those projects resurface in the back half of the year. In terms of self-checkout, self-checkout for us is really a holistic solution. So we're following the consumer trends of consumers looking for different ways to checkout. And a lot of that is, we'll call it, unassisted checkout, whether that takes the form of a mobile device, a kiosk or the standard self-checkout that you know and love in terms of the appliance that sits within a large grocery chain or a large big box store. So we're going to continue to see demand. It will show up in our business a lot in software and services because that makes up a big piece of that business as the hardware thins out a little in the lane, the average selling prices decline a bit. But we see, again, continued demand. And as we described in our prepared remarks, our next-gen self-checkout is making some traction, too.

And I would just add that based on the projects, we expect the hardware decline to moderate in the second half versus the first half.

So maybe as a follow-up then, Brian, along those lines, how should we be thinking about kind of the go-forward revenue and EBITDA cadence more broadly speaking, as we think about Q2 and the back half of the year relative to the $122 million of EBITDA you delivered in Q1.

Yes. So consistent with what we said on our last call, because our cost transformation initiatives are ramping as we go through the year and because the hardware rate of decline is expected to moderate in the second half, we'll see revenue and adjusted EBITDA sequentially improve as we go through the year.

Our next question comes from Mayank Tandon with Needham & Co.

Maybe just diving into ARR trends, Brian or David, could you talk about what we should expect there both on the software side and in total ARR, just in terms of trend line as you progress through the year-end? And maybe you could break it down by vertical as well.

Yes, I would say we're -- overall, we're pleased with the growth we're seeing in software ARR and total ARR that includes services as well. That for us is the, is what gives us confidence in the strategy of adding new customers, the customer growth we're seeing and monetizing our base of the -- largest install base in the industries that we serve. We'll continue to see, as Brian described, a similar trend in terms of sequential growth of ARR, as we look out over the quarters, that will be a trend in all 3 of the businesses, honestly.

And I would just add 1 point, we published for the first time a metrics file on our website, which has a lot of the financial data and KPI data, just encourage everybody to take a look at that.

Got it. Okay. Well, now I'll just turn to a separate question. We get this a lot from investors and I'm sure you do as well. The digital banking piece, obviously, is doing really well. And if we look at the valuations for other pure plays out there in the market, they have creeped up actually pretty meaningfully in the recent quarters. So any updates on your plans to potentially monetize the asset, just given the higher valuations in the market overall? And maybe that way, given that the synergies between digital banking and retail and restaurants, it doesn't seem to be at least obvious to investors that could be, obviously, very rewarding opportunity for shareholders over time? Any thoughts there?

Yes. The digital banking business, as you saw through the results, is performing really well. We're proud of what that team has done. As I described operationally, we've consolidated that into a singular team focused on execution and we're seeing continued strong growth in that business. So right now, I agree that the value of that business is underappreciated and that's the whole intent of what we're doing, is exposing the value of that and the new NCR Voyix. That being said, we always continue to explore opportunities to maximize shareholder value.

Our next question comes from Kartik Mehta with Northcoast Research.

Dave, just if you could follow up on the self-checkout. There are a lot of headlines of stores wanting to reduce their footprint in self-checkout. There's even some legislation proposed in California that they'd like to get away -- do away with self-checkout. And I'm wondering, based on that backdrop, what you're seeing in terms of your conversations with retailers in terms of demand for the product and how you'd expect that to progress over the next couple of years?

Yes. We see the same articles. There -- we also -- there was 1 in the U.K., that was Simon, CEO of Sainsbury's, came out and said that their customers love self-checkout and they're continuing to deploy as we described in our relationship with them. So I'll point back, Kartik, to the consumer trend. This is really a consumer-driven trend. You and I, as consumers and shoppers are really driving the requirements for both retailers and restaurants to create unassisted ways to checkout, order or otherwise transact with their -- with these large retailers. So I think that we're going to continue to see a strong trend and what that looks like. They're all battling to differentiate the experience for both customers and they're in a labor battle for staffing stores for peak times or shifting labor to different value-added tasks as they offer new capabilities and new services. So we're believing that the trend will continue. As I described earlier, it will show up in our business in software and services as well, as the hardware will take on different forms from mobile to kiosk to the full service that you've seen accepting cash in some cases. So again, we continue to have a lot of conversations around how to create better experience, guest experiences in both restaurants and retailers and that will take the form of unassisted and technology-driven solutions.

And then just as a follow-up on the hardware business. I know you talked about a little bit about what's going to happen in the first half and second half. And in the past, you've kind of talked about how 2024 is a little bit of an anomaly because of what's happened in previous years. And in 2025, you'd expect the decline to be a lot more moderated. And I'm wondering, based on kind of your outlook and what you're seeing in the pipeline, if those comments would still apply.

We see a strong pipeline. I mean, Brian gave you the expected cadence of the numbers earlier on the answer to the other question. We're pleased with the pipeline. The pipeline is healthy and growing and it supports what we've described in terms of our reaffirmation of the full year guidance.

Okay. Yes. And so I was just wondering, Dave, so would your commentary in the past about 2025 being a more moderate decline, still be valid?

Yes, I believe so. Everything we're seeing right now gives us indications, as Brian said, that the projects are recovering the back half of the year at this point, I would still believe that, yes.

Our next question comes from Erik Woodring with Morgan Stanley.

Historically, you haven't always quantified customers signed. And so I was just wondering if you could put some of the metrics you disclosed this morning in a bit more context, again, the nearly 300 customers signed across retail and restaurants. Can you just give us some context of maybe how that might compare to historical quarterly run rates? Was this kind of above normal, below normal? Why would that be? What's driving that? Just a little more color on how to kind of put those numbers in context would be super helpful for us.

Yes, the number of customers we added this quarter, I would say, is consistent with what we expected and consistent with past performance. We have, as we've been describing, put an increased focus on investing more on the sales side and adding new customers. So it's a metric that we want to continue to expose you and the rest of the market to. Digital banking, the expansion is strong, normal seasonality in that digital banking business. We added 4 new customers, expanded relationships with 200 customers. So in addition to adding new customers, we're still seeing the strength and the expansion of the base but we'll continue to focus there and performance was in line with expectations.

Okay. That's helpful. And then I know your goal was -- or at least you just talked about getting to about 3.4x net leverage by the end of the year. I think the longer-term goal was to get to roughly 3x net leverage. Can you just remind us, is that the longer-term target? How long will it take to get there? And second, to that, just trends in terms of free cash flow conversion. I know you're talking about this year 25% to 28%. How does that look through the year? How do we think about maybe the linearity of that? And is that the long-term run rate we should be thinking about? Does that creep higher? Just putting all of this in context to help us understand the moving pieces on the cash side would be very helpful, both for this year and then beyond this year, for any color that you'd have. And that's it for me.

Yes. So starting with leverage. We -- as I said in my prepared remarks, we still expect to get to about 3.4 turns of leverage by the end of the year. And then from there, we continue -- we'll continue to focus on improving leverage to get under -- 3 or under and that, that's what we need to do and plan to do with our free cash flow generation. The cadence for free cash flow this year, we used cash in Q1 as expected. That's normal seasonality. There are certain payroll things that happened in Q1, typically and that drives cash usage. And then we're still maintaining our range of free cash flow and conversion percentages for the year and so we'd expect to see that play out balance of the year. As we get into the future years, we do think we can improve free cash flow from where we are today. We've described that before and we still feel that way.

Our next question comes from Matthew Roswell with RBC Capital Markets.

I was wondering if you could expand a bit on the platform conversions and what you're seeing in terms of new clients coming on to the platform. And also, how are existing clients coming over, whether they're waiting for renewals or sort of stepping up ahead of time?

So all of our new customers, when we describe customer adds, all of those new customers are coming on to the platform. So that's one thing I just want to ground everybody on. We did see an increase in platform sites up to 61,000, about 18% of our base. So we're seeing conversion as expected in that base. We're seeing also customers do that ahead of refresh cycles. So when you think about the demand that's out there for new capabilities, digital capabilities or guest experience, loyalty, new payment form, some of the partnerships that I mentioned in the products and partnership section of the prepared remarks, all of those capabilities are being enabled through the platform. So it starts with the platform connection and then we enable all new capabilities through that platform. So not building it back into that legacy core base. We don't require an upgrade of the legacy point-of-sale on-prem. We can connect the -- our legacies' products to our platform to deliver those new capabilities. So right now, we're doing it based on customer need as they're finding new capabilities that are required, we're connecting to the platform and delivering those needs for them and a subscription for that new capability.

Our next question comes from Ian Zaffino with Oppenheimer.

This is Isaac Sellhausen on for Ian. Maybe just a follow-up on the last point. In the restaurant business, there's been a number of renewals and expansions that you've called out with customers, are the expansions pacing the way you'd like and expected? Maybe you could touch on how conversations have gone with customers, maybe how long the sales process generally takes with expanding the platform specifically within restaurant chains.

Yes, I'd say we have been really pleased with the conversations that we're having with our existing customer base, both in the small and mid-market segments, as well as the enterprise customer base. The sales cycle is different depending on which segment of the market we're in, in the small to midsize, it's a much shorter sales cycle. We'll call it 3 to 6 months on the larger side, that will expand out 6 to 9 months, some extend out to 12 months. Really, the platform conversations are all about the API capabilities that we unlock with connecting to the platform and driving some of the enterprise functionality that we've been able to deliver to the enterprise customers and pushing that down back into the mid-market. So some of the things that the enterprise scale players have had access to for a long time, we're now making available to our mid-market customers. So you'll see more -- we're seeing more traction. You'll see us with some more wins like we announced with Prest in that -- we'll call that mid-market-ish space where at the lower end of the enterprise where we're seeing a lot of demand and a lot of traction. So positive trends, good discussions with new customers and a lot of positive feedback from our existing base.

Okay. That's helpful. And then just a follow-up on the transformation initiatives that you mentioned in the quarter. Is that focused on any particular business? And maybe if you could just frame, if we will see any incremental costs going forward?

Yes. So the transformation initiatives, we described a $100 million cost out program, of which $70 million benefits this year and $30 million flows into next year. That program is underway and we're doing well. And it's really 3 major buckets. One is hardware design and optimization on the hardware side. The second, which is the biggest piece, about 50% is within our services business and this is doing more remote [indiscernible]. This is having a different skill set. Now that we're separated as 2 companies, we don't need the same skill set. Those are just 2 examples. And then the other category, about 25% is corporate expenses and real estate expenses. And so that cost program is going well. The transformation and restructuring costs to achieve those cost savings that you saw in the quarter, that severance, that's -- exit costs related to rightsizing the real estate portfolio and the IT portfolio. And we expect -- if I take the separation bucket plus the transformation bucket, about $80 million to $90 million of spend this year in total, including what happened in the first quarter. And that's in line with the free cash flow guidance that we've given.

Our next question comes from Alex Neumann with Stephens.

This is Alex on for Chuck Nabhan. Just on the restaurant segment, we had 600 basis points of margin expansion. I think you attributed that to some transformational costs. Is that margin in the mid- to high 20s, something that we should expect for that segment going forward?

It is. We would expect that segment to be at 26% to 27% for the full year. So it is something that we'd expect to continue.

Okay. And then on digital banking as well, that margin also was positive after a couple of years of investment. Should we see similar margin expansion going forward? And then just how I think about revenue, could you maybe balance what the mix of ARPU versus year growth will be for that segment?

Yes. So on margin, we expect margins to continue to improve for digital banking, roughly 39% for the full year, which will be up about 1% year-over-year. So we do expect EBITDA to grow faster than revenue. And we expect the revenue growth to be a combination of both the user growth and ARPU expansion as we go through the year, like we saw it was pretty good split in Q1. We'd expect that to continue.

Our next question comes from Matt Summerville with D.A. Davidson.

Just a couple of quick follow-ups. Brian, to that $80 million to $90 million of cash related severance, et cetera, costs you expect to encounter this year, I realize it's early, what does that number roughly look like, as you're thinking about '25, I guess how much can that tail off and therefore, accrete to the company's free cash flow profile? And then I have a follow-up.

Yes, that definitely does come down over time. Separation is a component of that, that's separation-related, which goes away completely. And then the part that's around rightsizing the cost base, we'll always have incremental cost [indiscernible] to do as we go forward but we would expect that number to come down and that would be a help to free cash flow. In addition, as we improve our leverage and reduce our debt, the interest reduction would be a help to free cash flow, holding CapEx steady as a percent of revenue -- or would help as we go forward or actually holding CapEx steady and improving it as a percent of revenue with free cash flow. So those are the drivers that give us confidence that we can improve free cash flow as we go forward.

Got it. And then maybe talk -- spend some time talking about customer adds in the businesses. I was wondering if you can maybe touch on what your attrition rates have been looking like in retail restaurants and digital banking and how that maybe compares to even just 1 year or 2 years ago, again, with a focus on all 3 reportable segments, please.

Yes. I would tell you that -- we'll run through all the segments. So we're focused on adding net new customers and we feel like we're making traction there. On the -- we are pretty enterprise-heavy focused. So we see strong retention of our enterprise customers, specifically on the retail side. When I get to the restaurant business, again, enterprise side, we see strong retention of our customer base, adding net new customers, so taking share. And then on the smaller end of that, we see the normal -- some of the normal churn happening at that small base. We could see that up to 10% in that small side of the business as customers -- as our restaurant customers go out of business. On digital banking, we continue to see very strong renewal rates. We're renewing 90-plus percent of our contracts and then if you look at the net retention rate on revenue and actually, we're seeing some strengthening of price and then we're expanding, like we did with the 200 customers, expanding ARPU with our existing base by cross-selling and up-selling across the capabilities as we move to operationalize as a singular portfolio from the market into that market segment. So overall, we're feeling good about it with really normal kind of attrition trends that we've seen continuing.

Then just lastly, that comment on price. Is that sort of new on the digital banking side? I guess I was under the impression last quarter, maybe with all the renewal activity you were seeing a maybe slight amount of price compression. And then just broadly speaking on price, are you net positive price capture in each of the 3 segments?

So with digital banking, on renewal, we do typically see price compression but that price compression has been improving over the last 3 or 4 quarters. And then outside of price compression at renewal in all 3 businesses, we go after capturing CPI-related price increases and so we get benefits in each of the 3 segments around that.

There are no further questions at this time. I would now like to turn the floor back over to David Wilkinson for closing comments.

Thank you. In closing, I'd like to thank all of our customers again for the trust that 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 contributions to our successes up to now and our investors for their ongoing support. As I stated earlier, we remain committed to serving our existing customers and bringing them on the platform journey in addition to adding new customers. 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 built a solid foundation for growth within our base and growth of new customers, specifically in mid-market. And 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 that we've outlined today and I believe in this management team to execute. Thank you and look forward to updating you on our continued progress on our Q2 call.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.