NCR Voyix Corporation (NYSE:VYX) Q1 2024 Earnings Call Transcript

NCR Voyix Corporation (NYSE:VYX) Q1 2024 Earnings Call Transcript May 9, 2024

NCR Voyix Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the NCR Voyix First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] It is now my pleasure to introduce your host, Alan Katz, Vice President of Investor Relations. Thank you, Sir. You may begin.

Alan Katz: Good morning and thank you for joining our 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.ncrvoics.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, 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.

David Wilkinson: 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% as we continued to onboard new and existing customers to our commerce and digital banking platforms. We executed on our transformation initiatives and saw the impact of the 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 and 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 5% and software ARR growth of 6%. Let’s turn to our restaurant segment slide on Slide Six. 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 multi-year agreement with Pressed, one of the leading fresh juice brands in the US with more than 100 locations and a growing Ecommerce and wholesale business. Under our agreement, we will provide a full suite of solutions including point of sale, back office Ecommerce, loyalty and payments, which simplifies their operations and reporting across their physical and digital channels.

Further, our integrated consumer marketing solution will run the Pressed loyalty and marketing program both in stores and online. Pressed moved from a smaller provider to our platform, allowing to engage with their end users and improve the guest experience, while also driving efficiencies for their organization. In addition to signing new customers, we renewed and expanded with our existing restaurant customers this quarter, including a leading restaurant conglomerate in the US who has been an NCR Voyix customer for more than 20 years. This customer has increasingly utilized our commerce platform across their footprint of approximately 600 restaurants to improve their digital guest experience and increase customer satisfaction. In 2023, we began providing real time data and menu cataloguing for this customer.

In Q1 of this year, we further expanded our agreement to enable this customer to better serve their patrons, ordering outside of the restaurant and deliver an experience that matches their brand promise of exceeding guest expectations. We’re seeing traction in our mid-market growth efforts, signing new logos and expanding with existing customers. We continue to execute against our payments-led strategy for new mid-market customers, demonstrated by our 90%-plus attach rate this quarter. We are growing our sales team, simplifying the sales and onboarding process and improving our pricing and packaging, which will accelerate growth for this business. Let’s move on to our retail segment on Slide Seven. This quarter, we signed more than 50 new small and mid-market customers and four enterprise customers, leading to more than 800 additional sites.

We also increased our platform sites by nearly 57% as we continued to convert on premise customers and onboard newly signed customers to our commerce platform. Segment ARR grew 5% and software ARR grew 10%, attributed to the powerful impact of attaching to the platform. One example of this is a multiyear expansion and renewal we signed with Sainsbury’s, one of the largest grocery chains in the UK with over 1700 store locations. For more than two decades, we have provided Sainsbury’s with our on premise point of sale software solution and self-checkout technology with related services. Last month, Sainsbury has implemented our data and analytics module as part of their expanded agreement. We’re on track to connect their entire store footprint, which operates more than 22,000 lanes, to our commerce platform.

As part of the contract in 2025, we will upgrade their point of sale and self-checkout software to our cloud based and in lane solutions. Sainsbury’s commitment to our cloud native platform solution will drive a payback on their investment in less than two years and drive incremental recurring revenue and adjusted EBITDA for our business over the life of the contract. We’re excited to continue our strategic partnership to eliminate in store complexity and deliver an enhanced guest experience. While platform conversions with enterprise customers often have longer sales cycles and take time to deploy, once implemented, they are accretive to revenue and margin and create a return on investment for our customers. Sainsbury’s is a great example of how a customer can realize a fast payback on its investment when converting to the platform.

Our retail customers are increasingly focused on providing choice as part of their guest experience, which is accelerating interest for our next generation self-checkout solution. For example, this quarter we expanded our self-checkout contract with the leading global Ecommerce retailer that I highlighted on our last call. We weren’t even finished with the initial rollout when this customer doubled the number of self-checkout sites and contracted to implement our next gen solution for the remaining installations. We also expanded our relationship with the Navy exchange, an existing point of sale customer, and will now be deploying self-checkout across 40 of their stores throughout the US, with the potential to expand to additional stores over time.

We were able to expedite this expansion as a direct result of a recommendation from another government customer, the Army and Air Force Exchange, based on their experience as an NCR Voyix self-checkout technology and service customer. Let’s move on to Slide Eight. Our digital banking segment demonstrated strong financial and operational performance this quarter. Our registered users grew 5% to more than 28.5 million and the number of active users grew 3% to more than 19.7 million, while segment ARR increased 7%. In 2024, we have taken steps to now align the organizational structure and operating model of our digital banking business with our growth strategy. We’ve built out our senior leadership team and have consolidated our four business lines into a single organization, streamlining our operations and simplifying our go-to-market.

Although our realignment is in its early stages, we have already been able to drive greater sales activity and are realizing cost efficiencies. Further, we have reduced our capital investment without sacrificing research and development capacity, product innovation or speed to market in our platform, products and solutions. In the first quarter, we expanded our relationships with over 200 existing customers, selling additional products and solutions. We continue to unlock ARPU and ARR growth in the largest customer base in the digital banking industry. One notable expansion was with a tier one retail bank that will now use our platform to serve an additional portion of their customer base and further increase cost efficiencies for their business.

A supply chain employee using the company’s secure supply chain management software to update their customer’s records.

Today, 13 of the 15 largest retail banks in the US utilize our digital-first platform. In addition to expanding our existing relationships, we also signed five new financial institutions this quarter, further expanding our industry-leading client roster. For example, we signed a contract with Apple Bank, the largest state chartered savings bank in New York with over 80 branches and $17 billion of assets under management. Apple bank selected us, given the strong value proposition of our comprehensive digital first platform, our differentiated end user experience and the potential to drive efficiencies, leveraging our technology. I would now like to provide an update on our platform offerings. As we continue to invest in and improve our products and services, we will aim to strengthen our customer relationships and capture additional market share, beginning with NCR Voyix loyalty, our proprietary integrated customer marketing solution that allows better personalization and drives incremental revenue by combining customer data, offer management and direct marketing into a single application.

Pressed is a recent example of the increasing demand we are seeing for this solution. As mentioned earlier, our next generation self-checkout solution delivers a more seamless checkout experience to both new and existing retail customers. Retailers continue to focus on improving the guest experience and adopting operational efficiencies in the face of a challenging labor market. To that end, we have launched our next gen self-checkout with over 15 customers, including Sainsbury’s, to provide retailers more agility and flexibility to improve guest experience. Based on this initial demand, we expect a broader set of customers to accelerate their implementation of this advanced technology over the next several quarters, driving additional growth for our retail segment moving forward.

We also have agreements with several third parties that enhance our offering for our restaurant, retail and digital banking customers. These third party applications leverage the cloud based architecture of our platform and generate either transaction based or recurring revenue with healthy margins. For restaurants, we are leveraging technology from Sundae to expand our pay at table capabilities, enabling servers to manage more tables simultaneously. As you’ve seen in our recent press release, we have expanded our partnership with Olo to bring new capabilities and integrated offerings to our enterprise customers. In retail, we are partnering with Everseen to help mitigate shrink by offering AI-enabled EverCheck technology for self-checkout.

Within our digital banking business, we have partnered with MX Technologies to offer personal financial wellness tools and support. I would like to reiterate my confidence in our ability to execute on our growth strategy of signing new customers and converting existing customers to our platform, capitalizing on our unrivaled market position. We are prudently investing across our business to drive software and services revenue and enhance our products and services, further extending our runway for growth. With that, I will turn it over to Brian who will take you through the Q1 financial results in more detail and our outlook for the remainder of 2024.

Brian Webb: 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 divestiture 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 three 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 reflects our continued success transitioning customers to the platform and expanding with those customers. As David highlighted, while the platform conversion cycle can be longer for enterprise customers, shifting our enterprise base to the platform will accelerate revenue and earnings growth over time. Adjusted EBITDA grew 4% as a result of revenue mix and our transformation initiatives. Within digital banking, Q1 revenue increased 7%, as we continue to demonstrate cross-sell momentum and onboard previously signed customers.

Adjusted EBITDA in this segment grew 10% and margin expanded by 90 basis points, driven by operating leverage and our transformation initiatives. I will now address the impact of separation on our corporate and other line. First, we have the dissynergies related to the separation. This amounted to 22 million in Q1. A portion of these dissynergies reflect both revenue and expenses net associated with the noncore spin related businesses, which we are in the process of winding down. We anticipate that this will extend beyond 2024. In the first quarter, corporate and other also included $8 million of revenue associated with our commercial agreements with Atleos, which has a lower margin contribution. For the full year, we now expect revenue related to commercial agreements to total approximately $11 million.

Please turn to Slide 13. We ended the quarter with 3.9 times net leverage, $2.7 billion of debt and $246 million of cash. As of March 31, under our $500 million revolving credit facility, we had drawn $196 million. As expected, our leverage was higher at the end of Q1, given the use of cash based on normal seasonality. We anticipate net leverage at year end will be approximately 3.4 times. There were a few other expected items that adversely impacted our cash flow this quarter, including $32 million of spend associated with our transformation and restructuring initiatives and $5 million related to separation expenses. These items include severance, professional fees and other exit costs related to rightsizing our cost base. We anticipate seeing our transformation initiatives positive impact to margin ramp up over the coming quarters.

Finally, I’d like to outline our 2024 guidance. As a reminder, our guidance does not reflect revenue or adjusted EBITDA associated with the delayed Atleos transfer countries. Given the first quarter performance and our current visibility for the year, we are reaffirming the 2024 guidance ranges that we communicated on our Q4 call. I’ll now turn the call back to David for some additional remarks.

David Wilkinson: 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 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 lines.

See also 20 Countries with the Highest Rates of Stomach Cancer in the World and 25 Safest and Cheapest Cities To Retire in Florida.

Q&A Session

Operator: [Operator instructions] Our first question comes from Matt Summerville with D.A. Davidson. Please proceed with your question.

Matt Summerville: 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 of 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. Thank you.

David Wilkinson: Yeah, good morning, Matt, it’s David. So, 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 check out 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’ll 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.

Brian Webb: 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.

Matt Summerville: 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 in the back half of the year relative to the $122 million of EBITDA you delivered in Q1? Thank you. Yes, yes.

Brian Webb: 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 rated decline is expected to moderate in the second half, we’ll see revenue and adjusted EBITDA sequentially improve as we go through the year.

Operator: Our next question comes from Mayank Tandon with Needham & Company. Please proceed with your question.

Mayank Tandon: Thank you. Good morning. 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?

David Wilkinson: Yes, I would say 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 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’ll be a trend in all three of the businesses honestly.

Brian Webb: And I would just add one 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.

Mayank Tandon: Got it. Okay, well, then 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 we look at the valuations for other pure plays out there in the market. They’ve 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 a very rewarding opportunity for the shareholders over time, any thoughts there?

Brian Webb: 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 all opportunities to maximize shareholder value.

Operator: Our next question comes from Kartik Mehta with Northcoast Research. Please proceed with your question.

Kartik Mehta: Good morning. David, 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 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.

David Wilkinson: Yeah, we see the same articles there. We also, there was one in the UK 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 check out, order or otherwise transact 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’re continuing 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.

Kartik Mehta: 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 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.

David Wilkinson: Yeah, we see a strong pipeline. 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.

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

David Wilkinson: Yeah, 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.

Operator: Our next question comes from Erik Woodring with Morgan Stanley. Please proceed with your question.

Erik Woodring: Super. Thank you so much. Good morning, guys. 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. Thank you so much.

David Wilkinson: 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 four 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.

Erik Woodring: Okay, that’s helpful. And then I know your goal was, or at least you just talked about getting to about 3.4 times net leverage by the end of the year. I think the longer term goal was to get to roughly three times 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. Thank you. Yes.

David Wilkinson: So starting with leverage, 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 three or under and 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’s certain payroll things that happen 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.

Operator: Our next question comes from Matthew Roswell with RBC Capital Markets. Please proceed with your question.

Matthew Roswell: Yes, good morning. Thank you for taking the question. 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. Thank you.

David Wilkinson: So all of our new customers, when we describe customer ads, 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 forms, some of the partnerships that I mentioned and the products and partnerships section of the prepared remarks, all of those capabilities are being enabled through the platform. So it starts with a platform connection and then we enable all new capabilities through that platform.

So not building it back into that, that legacy core base. We don’t require an upgrade of the legacy point of sale on Prem. We can connect our legacy’s 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 them to the platform and delivering those needs for them and a subscription for that new capability.

Operator: Our next question comes from Ian Zaffino with Oppenheimer. Please proceed with your question.

Isaac Sellhausen: Hey, good morning. This is Isaac Sellhausen on for Ian. Thanks for taking all the questions. Maybe just a follow up on the last point, on the restaurants 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. Thanks.

David Wilkinson: Yeah, 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 that market we’re in. On the small to mid-size, it’s a much shorter sales cycle. We’ll call it three to six months. On the larger side, that will expand out six months to nine months. Some extend out to 12 months. Really, the platform conversations are all about the API capabilities that we unlock with connection 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 it for a long time, we’re now making available to our mid-market customers. So you’ll see more traction — we’re seeing more traction. You’ll see us with some more wins like we announced with Pressed, and that we’ll call it that mid-market-ish space where, or 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.

Isaac Sellhausen: Okay, that’s helpful. And then just a follow up on the transformation initiatives that you mentioned during the quarter. Is that focused on any particular business and maybe you could just frame if we will see any incremental costs going forward.

Brian Webb: Yes. So the transformation initiatives we described, $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 three 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 solve. This is having a different skill set. Now that we’re separated as two companies, we don’t need the same skill set. Those are just two 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’s 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.

Operator: Our next question comes from Alex Newman [ph] with Stevens. Please proceed with your question.

UnidentifiedAnalyst: Hi, 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 twenties something that we should expect for that segment going forward?

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

UnidentifiedAnalyst: Okay. And then on digital banking as well, that margin also put positive after a couple years of investment, should we see some 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?

Brian Webb: Yes. So on margin, we expect margin 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.

Operator: Our next question comes from Matt Summerville with DA Davidson. Please proceed with your question. Thanks.

Matt Summerville: Just a couple of quick follow ups, Brian, to that $80 million to $ 90 million of cash related severance, etcetera, 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 have a follow up?

Brian Webb: Yeah, 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 work 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 help free cash flow. So those are the drivers that give us confidence that we can improve free cash flow as we go forward.

Matt Summerville: Got it. And then you talk — spend some time talking about customer ads in the businesses. I was wondering if you could 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 a year or two ago. Again with a focus on all three reportable segments, please. Thank you.

David Wilkinson: Yeah, 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% and that small side of the business as our restaurant customers go out of business. On digital banking, we continue to see very strong renewal rates.

We’re doing 90% plus of our contracts and then you look at 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 customer and expanding ARPU with our existing base by cross selling and upselling across the capability that we move to operationalize as a singular portfolio from the market into that market segment. So overall we’re feeling good about it, really normal kind of attrition trends that we’ve seen continuing.

Matt Summerville: And 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 three segments. Thank you.

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

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

David Wilkinson: Yeah, 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’ve 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.

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