Q3 2019 Earnings Call
You are currently on hold for today's NCR Corporation third quarter fiscal year 2019 earnings call. At this time, we're still had many additional participants some fundamentally shortly please remain on the line. We appreciate your patience.
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Good day and welcome to the NCR Corporation third quarter fiscal year 2019 earnings call. Today's conference is being recorded at this time I would I turn the conference over to Mr., Michael Nelson Vice President of Investor Relations. Please go ahead.
Good afternoon. Thank you for joining our third quarter earnings call joining me on the call today or Mike He heard president and CEO <unk> Sullivan C O Andre Fernandez CFO .
Before we get started let me remind you that our presentation and discussions will include forward looking statements. These statements reflect our current expectations and beliefs, what they are subject to risks and uncertainties that could cause actual results could differ materially from those expectations. These risks.
Certainties or described in our earnings release.
<unk> filings with the FTC, including our annual reports.
On today's call will also be discussing certain non-GAAP financial measures. These non-GAAP measures or described and reconciled to the gap counterparts in the presentation materials. The press release dated November seven 2019, and on the Investor Relations page on our website.
The replay of this call will be available later today on our website NCR dotcom with that I would now like to turn the call over to Mike.
Thanks, Michael and thank you everyone for joining us today for our third quarter earnings call.
To begin with an overview of our third quarter performance and an update on our progress executing against our strategic initiatives before turning it over to Andre Who'll review, our financial performance as well as discussed the updated outlook for 2019.
Oh, one Andre and I will take a question.
I'll begin on slide four with the highlights from the third quarter.
Our third quarter results marked a continuation of several key trends, including improved execution in a strong topline growth.
During the quarter revenues increased 17% on a constant currency basis.
Well because once again led by our banking segment with 21% constant currency growth and ATM revenues up 60% constant currency, but it also includes a diversified sales go as each of our business segments generated double digit gains.
We are building on the momentum in our core business through the further advancement of our strategic growth platforms.
We remain in the early stage of our Rollouts customer response, thus far has been.
Yes.
I'll provide an update on a strategic growth platforms in a few minutes as well as our broader payments integration, which also remains on track.
We took multiple strategic steps this past quarter to simplify our capital structure and improve our liquidity and financial flexibility, including refinancing our debt to extend our debt maturity and retiring 57% of our preferred stock. This enhanced financial position is critical as we continue to invest in organic and inorganic.
Opportunities to accelerate our growth and advance our recurring revenue strategy.
Finally, we are again, raising our full year 2019 revenue outlook and reaffirming our earnings and cash flow guidance.
Andre will discuss this in greater detail during his remarks, moving to slide five and an overview of our financial performance in the third quarter.
Consolidated revenue was $1.78 billion up 15% ask reported an up 17% on a constant currency basis.
As I mentioned this strong topline performance is driven by diversified revenue growth across all of our businesses and all segments posting double digit gains.
Adjusted EBITDA increased 27 per cent compared to the third quarter of last year, and adjusted EBITDA margin expanded 150 basis points year over year to 15.6%.
non-GAAP EPS was 73 cents per share, which was up 26% as reported and 30% on a constant currency basis.
FX headwinds lowered EPS by two cents in the quarter Lastly, free cash flow was $57 million, which was up from a negative.
Cash flow up $22 million a year ago due to increased earnings we continue to remain confident in our whole your free cash flow guidance.
Now turning to slide six and an update on our strategic growth platforms.
These six areas, where we are increasing investment with a goal of accelerating our higher margin recurring software and services revenue. The execution of these strategies are critical to driving profitable growth in the years ahead.
We continue to make steady progress bundling or software.
With services and hardware and shifting from a onetime upfront purchase the subscription based relationships.
Starting with banking, where we have successfully shifted eight products from a perpetual license to recurring.
During the third quarter.
We also signed 29 deals on a recurring contracts that in the past would have been an upfront payments.
We also continue to improve performance in NCR digital banking solution as we introduced the new features that are driving sales to both new and existing customers, while improving retention rates. These features include business banking.
Xcel money transfer and market campaign solutions also shortly after closing the acquisition of de three technologies Nimbus, a leading financial services provider license de Threed digital banking platform told all financial institutions to rapidly deployed new digital bank brands consumers and business and.
Digital first restaurants, we have achieved early success with Aloha essentials, which bundle software services hardware and payments during the third quarter, 65%.
All SMB Aloha sites sold.
Direct sales channel were sold at the low how essential subscription bundle.
And digital first retail Emerald, our next generation cloud based retail point of sale solution includes all the technology required to run a grocery store.
This includes point of sale loyalty payments and fixing the shopping component.
Oh, you proposition Emerald offers is demonstrated by a recent survey customers with 90% thing they desired or required all the components of an Emil package.
During the second quarter, we signed bashes and Arizona based family of stores to deploy Emerald at all its locations.
In digital connected services, we continue to innovate in a three key areas of device connectivity process automation and data visualization, we have a group of strategic customers across banking retail and hospitality that are in the process of deploying digital connected services with many more in the pipeline.
Individual convenient and fuel we have successfully bundle the software services and hardware, we acquired to run it convenience and feel retail chain into one offering we have been rolling out our software defined storage, which enables a convenience in fuel retail chain to virtualize their in store technology and provide significant cost savings.
Yes.
And finally in digital small business essential.
All in one point of sale offering is complete with integrated payments in available in a monthly subscription package.
Overall, we are making solid progress deploying our strategic growth platforms.
Feedback in survey results from customers has been positive.
And should continue to lead to sustainable long term growth and increasing recurring revenues.
Now onto slide seven and an update on payments, we remain on track with our integration for a little how product with control deployments beginning in the fourth quarter, followed by general availability in Q1 of 2020. In addition, we have begun integration into our retail products. We initially starting with counterpoint retail solution that is targeted.
Untold deployment in Lake.
Quarter one.
And anticipate a general availability in order to that 2020.
Integration work is also underway on Emerald next generation retail platform with pilots being planned for the second half of next year.
Look forward to shake more about these plans in future earnings calls with that let me pass the call over to Andre. Thank you Mike Slide number eight shows our banking segment results.
Banking revenue increased 21% constant currency led by a 60% constant currency increase in ATM hardware revenue.
Driving ATM revenue this quarter was both double digit growth in ATM orders as well as a significantly higher backlog conversion rate as our manufacturing initiatives have resolved many of the supply and capacity constraints, we experienced last year.
While the fourth quarter will be a difficult comp for us on the ATM side due to a strong Q4 of last year, we exited Q3 with a solid backlog position.
Software related to H. Yens combined with growth in services revenue also contributed to the increase in segment revenue.
We continue to grow our hardware maintenance backlog, a future annuity stream both from the ATM revenue as well as from large customer wins this year to service non NCR fleets.
We continue to see a stronger than expected ATM replacement cycle. In addition to win 10 upgrades with strength in the quarter in the Americas and in Europe .
Finally, as Mike said in his remarks, we signed an increasing number of deals in banking software this quarter on which revenue and margin is being recorded over time compared with perpetual license deals in prior years via which revenue and margin had been recorded upfront.
As a result, we're growing both ACB and TCB in this segment and as we've mentioned on prior calls are working to determine the appropriate metrics to communicate our progress in 2020 and beyond as we shift to a higher recurring revenue model.
Wall embedded in the financial performance of our banking segment. This quarter and here is the success we've had in migrating from perpetual to subscription type deals. This shift to recurring is representing an increasing headwind to our financial results for 2019.
Operating income increased 47% constant currency, driven by higher volume and a favorable mix for our 18 ends as well as higher ATM related software revenue.
We also benefited from significantly improved performance in our hardware manufacturing business, which positively impacted all segments.
Moving on now to slide number nine which shows our retail segment results.
Retail revenue increased 13% constant currency driven by a double digit increase in self checkout revenue.
The acceleration self checkout growth was broad based in terms of customers and geographies.
Services generated solid growth driven by higher hardware maintenance activity as well as new managed service contracts.
In addition, our jet pay acquisition is on track and contributed approximately four points of growth year over year.
Operating income increased 28% constant currency, primarily driven by improved hardware profitability.
Slide number 10 shows our hospitality segment results.
Hospitality revenue increased 13% constant currency driven by an increase in cloud revenue from our NCR silver and Aloha products payments revenue from our Jetpay acquisition as well as an increase <unk> point of sale revenue.
Operating income was down 34% constant currency driven by continued investment in NCR, silver and NCR Aloha, partially offset by improved hardware profitability.
On the expense side, we continue to invest in programs to enhance our technology to improve customer satisfaction and to support the rollout of our new products.
Additionally, as Mike mentioned earlier, we received positive customer feedback on our bundled subscription packages via our Aloha Central's offering.
Although the financial impact during the third quarter from the move to subscription was minimal and significantly less than our banking segment. The shift is a strategic focus for us as we accelerate the investment in these programs.
Now to slide number 11, where we provide our third quarter revenue results under our previous operating segments.
Software revenue increased 7% constant currency, driven primarily from ATM related software revenue and still grew 3%, excluding our jet pay acquisition.
Services revenue increased 6% constant currency driven by increases in hardware sales and managed service offerings.
Our installation services and hardware maintenance backlogs both grew in the quarter.
And finally hardware revenue was the standout this quarter, increasing 42% constant currency and growing across all of our segments.
ATM revenue grew by 60% constant currency, while the combination of self checkout and point of sale grew by 22% constant currency.
On slide number 12, you can see free cash flow net debt and adjusted EBITDA for the quarter.
Free cash flow was $57 million in the quarter up from a free cash use up $22 million in the prior year due to increased earnings.
We exceeded our internal plan this quarter and remain on track to hit our free cash flow target for the full year.
As you know the majority of our annual free cash flow is typically generated in the fourth quarter.
Slide 12 also shows our net debt to adjusted EBITDA metric with a leverage ratio of 3.1 times for the third quarter of 2019 up from 2.8 times at the end of the second quarter.
The higher leverage was driven by the $302 million repurchase of series a convertible preferred stock previously owned by Blackstone.
$96 million repurchase of common stock from our share repurchase program.
And $74 million net from the closing of our acquisition of de Threed technology in the quarter.
Moving on now the third quarter was very active for us on the capital structure side, and we summarize our activities for you here on slide number 13.
First in order to addressing approaching debt maturity stack and 2021 and to take advantage of a very favorable credit market environment, we amended and extended our senior secured credit facility.
We maintained our revolver size at $1.1 billion and extended the maturity to five years and also issued a new $750 million delayed draw term loan b with a seven year maturity.
We also issued two new unsecured senior notes with maturities of eight and 10 years for a total of $1 billion.
We used a portion of the proceeds to call. The 500 million four and five eight senior notes and expect to use the remaining proceeds to call. The 400 million dollar five and southern <unk> senior notes by the end of this year.
Overall these transactions improved our liquidity extended our weighted average debt maturities and eliminated near term refinancing risk.
The improved our financial covenants and enabled us to lock in competitive rates on our debt capital.
As the average interest rate on the new debt is higher than the old debt refinancing represent an EPS headwind to both 2019 and 2020.
The third quarter. We also retired all of the outstanding series, a convertible preferred stock held by Blackstone, which represented approximately 57% of NCR as preferred stock.
We redeemed roughly half of the preferred stock for $302 million in cash and converted the remaining into 9.16 million shares of common stock.
This transaction is expected to be accretive to earnings per share in 2019 and 2020.
Driven by a 7.9 million share reduction in our diluted share count partially offset by interest on the cash consideration.
And finally as mentioned previously we repurchased $96 million of common stock in the quarter as part of our existing share repurchase programs to offset the dilutive effects of our stock based awards and increasing dividends at an average price of $31 in 55 cents.
Despite the repurchases in the quarter share repurchase remains a slight EPS headwind for 2019, due primarily to the timing of the repurchase.
Overall debt refinancing convertible preferred repurchase and common stock repurchase combined are expected to be dilutive to 2019 bps by approximately three cents and neutral to keep yes in 2020.
On slide number 14, we'll find our full year guidance for 2019.
We are raising or revenue growth guidance to a range of 5% to 6% up from the previous range of 3% to 4%.
The increase in guidance is primarily attributable to our solid revenue performance in all segments through Q3, largely driven by higher hardware sales.
Recall the margin on these sales is lower than the company average, which will limit the flow through to EEP, yes.
Also included in this revenue guidance, our FX headwinds of approximately 2% stronger than our estimate at the beginning of the year driven by ongoing strength in the dollar versus other major currencies. This year.
From an FX margin standpoint, we are also closely monitoring the currency environment in several emerging market countries, where we have significant operations.
As I mentioned previously as our business model changes and we bring new products to market that are subscription based while also shifting existing products away from perpetual licenses to more term or subscription based offerings. This is beginning to have a dampening effect on our overall revenue and margin.
And has grown sequentially this year.
While this shift was immaterial to revenue in the third quarter.
Impact to operating margin is growing due to higher margin software sales that are now being recognized overtime.
As we enter next year and rollout our new offerings will update you as to our progress as well as the impact of this shift on our financials along with the metrics we are using to track.
We are reaffirming our full year earnings and cash flow guidance. We're also seeing the benefits of cost actions taken the last several quarters, including the 100 million dollar cost savings action, which has now essentially completed as well as improvements in services productivity and in our hardware manufacturing.
We are on track to reduce the loss in our hardware manufacturing business by more than half compared to 2018 and have reduced the ratio of operating expenses to revenue for the first nine months of 2019 versus the same period last year, despite higher employee related costs and real estate expenses.
And as Mike outlined we continue to invest in new offerings, and an efforts that improve customer satisfaction.
Our 2019 adjusted EBITDA guidance remains unchanged at 1.04 billion to 1.08 billion.
Our non-GAAP EPS is expected to be $2.75 to $2, an 85 cents for the year.
We have assumed a tax rate of 23% to 24% and the share count of 150 million shares.
We enjoyed a lower tax rate in the first three quarters of this year due to several discrete tax items that are not expected to repeat in the last quarter of the year.
Again, we expect free cash flow for the year to be in a $300 million to $350 million range.
We expect a linear parity of our cash flows to follow a similar pattern to previous years with most of the free cash flow generated in the fourth quarter.
And as I mentioned before the fourth quarter will be a tougher revenue come for us due to the revenue strength, we recorded in the fourth quarter of last year.
With that I'll turn it back to Mike's for closing comments.
Thanks Andre.
In closing, we delivered solid third quarter results that included a number of financial strategic and operational highlights.
First we continue to execute at a high level and have increased our outlook for the year given the strong topline growth we generated.
In quarter three at the same time, our targeted investments in our strategic growth platforms remain on target and early response from our customers has been very positive. The progress we have made with our strategic growth platforms and our broader integrated payments offerings are clear indication of our commitment to driving increasing recurring revenues.
We are in the early innings of a multiyear journey the shift revenues to recurring model and continued to be pleased with the progress we are making.
In addition, the execution of our growth plan will be supported by increased strategic flexibility provided by improved capital structure, we entered the fourth quarter with momentum across all of our business and a clear commitment to further executing on our strategy and driving accelerated growth.
We will continue to allocate capital to the highest growth and return opportunities with the goal of driving free cash flow generation and increasing returns for our shareholders.
Thank you for your time today, and with that Andre own and I will take your questions.
If you would like to ask a question. Please take note by pressing star one on your telephone keypad.
Do you see a speaker phone. Please make sure your mute function has turned off till now your signal to reach our equipment again press star one to ask a question.
I'll pause for just a moment to allow everyone an opportunity to signal for questions.
And we'll go first to Dan Perlin with RBC capital markets.
Thanks, Good evening and nice progress I.
I wanted to start if I could on the shift towards subscription.
Thank you outlined a lot of.
A lot of meaningful transitions in these products that you're you're bringing the market. This one I really want to hone in a little bit more on it is in the banking side. So the first part of the question did you talk about signing 29, I think new deals that would have otherwise been upfront license and trying to make sure I understand what that.
Piece of software is this more branch related.
Or is there something else that's happening, it's clearly not digital insight. So I'm, just trying to wonder where's that coming from.
Right I mean, obviously digital insight somebody a SaaS based.
Oh Pratik.
The other products that we were selling in banking that might have been.
Some of the transaction switching products quite a bit branch products might have been studying at.
NTM cradic fraud product.
We did it started here as we said we would prefer not to.
Oh licenses anymore.
We would like to move to.
Hopefully subscription subscription so to a term based licensing occurs over a period and the team has actually done a very nice job getting out and marketing to that.
And so that's what we're just leave a reflecting in the third quarter that we've had very strong access that that you're going to team has really much to older product set and asked to go to sell that.
That's the it the way that they're selling.
And third quarter I think that was what we did on every transaction we did so.
We just want to call out that were moving probably a little bit faster than we had anticipated beginning of year kind of my close yeah. This is a multiyear journey to get shifted to all of our product.
That particular segment, we did a good job.
Okay in and just an order of magnitude I was always kind of under the impression that a low hall in particular, just hospitality in general is gonna be the big area that we needed to focus on in terms of this shift but again you got to you you can outlined its very broad brush of products. So.
Wanna get away right to assume that that we need and maybe say more focused on a low on that transition or are there other things that you'd point is too I suspect you're not going to give us any insight yet in terms of 2020 I'm kind of just as a first look there if you want to that'd be great, but if not.
Just points and the right direction there. Thanks.
[noise], yeah, but you're correct about that Dan.
We probably won't talk what 2020 per se, but with respect to 29 casino ever going to see what what we're starting to see in terms of transition to recurring we will move and we are moving you know we referenced that the bulk of the Hello.
Hi deals are being sold at the lowest essentials, which is the bundling of our software.
Our hardware our service footprint the support footprint.
It's about payments attached to that and so we've actually had a lot of success in the markets, where we control the direct channel.
65% of those sales although essential.
Next week.
To help those numbers.
At a tick up.
The only the only caveat to that so each one we do we've already historically the west component below what it was sold to the cloud.
Service side was already done it's a subscription so there's a piece of that that is now shifting from an upfront fee to a subscription based fee. So that it's actually having a having effect the stretching out revenues as opposed to take an upfront.
The banking side those are coming in it upfront license.
And although those numbers.
At a macro level in terms of revenue numbers are huge.
Those members typically would drop both bottom line. So they do have a dampening impact.
On earnings as we go through 19 and Uh Huh.
Yeah, we we talked at the beginning here that we had planned it has some level of transition.
We're seeing that transition, it's going a little better than we had anticipated, but it's still <unk>.
A bunch of small transactions that eventually that add up to the big numbers, but I don't think take literally years together.
Okay. Thank you.
[laughter] and we'll go next to Matt Summerville with D.A. Davidson.
Yeah. Thanks couple of questions with respect to the hospitality business can you talk about in Q3, and maybe on a year to date basis, the dampening impact.
You are seen as it relates to the investments you're making in silver the investments you're making.
In the Aloha product and when we start to see that taper off and therefore margins and profitability and to the upside.
[noise], Yeah, I think the say late third quarter is the third quarter, obviously, you're down a little but year over year. There were a number of things that it's I'm somewhat coming up the balance sheet in terms of.
Actually some receivables.
Rather spend that we had done Oh, we came off the balance sheet and then others were direct expenses in the quarter to really improve service service delivery.
You know again.
Hi, Thanks for the silver was was it related to marketing marketing spend.
So had we not had some of those items, we actually would it would have been pretty decent corridor.
Tony.
Fourth quarter, I'd say, we still continue.
And just put us perspective, but we are still very bullish in hospitality. So we're actually what I would say its investment mode. That's a product. So we're building out Aloha Nexgen Oh, we're already have clobbered as she goes from the other products and putting them cloud based subscription subscription product, we talked about rolling out a little essentials.
Just going to market bundling.
Oh the products so one of the payment and that's been very successful.
Spending money to buy service quality of the product because now we're out there competing with a lot of small competitors had quite frankly don't have to make earnings and we want to make sure that we can pick up market share up and compete in that market. So I think fourth quarter I wouldn't see the inflection point, yet bouncing back up.
As we head into next year, we talk about our outlook into 2020 at the beginning of the here, but what kind of share what we think hospitality is a going into next year.
And then as a follow up just with respect to digital insight in the past couple of quarters, you may be talked on the call about.
No what you've done there in terms of new wins or any attrition, maybe some commentary there and if there's any initial successes that you can talk about with respect to de three realizing it was only acquired a couple of months ago, but nonetheless.
Looking at that as well.
[noise], Yeah, I'll start with deep three we talked about the one.
Anyway. After we close that deal we signed up a provider you know that goes out so well Oh solutions.
Oh. Thank you. Thank you.
Products.
The marketplace.
Embedded.
And they signed up to use a de tree as their digital banking platform. So we completed that transaction and D. I.
Okay on has some numbers on deal.
I will say that in 19 and again a lot of Scott here kind of mid 18.
Night, and 18 and 19, we've been very focused on retention and we feel really good about 19, I don't we're scratching their heads the other day week or single name.
[laughter].
For our customer base 19.
And Oh people that gets you a year. So I think we'd have to first quarter about picking up about a seven new deals right.
And we didn't give you all the the business banking add on.
New flagship we're planning to customers.
I think its second quarter and third quarter I don't know I want to be up the numbers, but we we continue to see momentum.
Building, we had or.
Digital banking client conference in Atlanta and.
And the third quarter and had a record crowd a town and I disagree reception for.
Not only that only biotic, but all these enhancements we've done specifically focused around adding business banking. The Oh, we've opened up all the guy so people could extend customize on there and.
He said, we should prove to the delivery on the mobile side and have the but we think it's the best mobile platform out there. So we're still very excited about the guide yeah. The only thing I'd add to that is charm. So far renewal rate, we had no losses. This year south substantially from a number that we had last year and.
On average our renewal rate was up.
<unk> percent increase.
On revenue.
Under these so we're seeing good.
Organic growth within the customer base as they add.
Users and we're able to capitalize on that so.
Really good momentum our customer satisfaction level, it's Mike reference our conference, but we do a net promoter score and it was materially improved year over year. So soon a nice job.
Thank you guys.
[laughter].
Well go next to Katy Huberty with Morgan Stanley .
Thank you and congrats on the strong quarter.
Questions on on guidance, the new full year revenue range implies.
I think 4% decline in December what what drives the this slow down which is little bit worse than than prior guidance would've expected would have implied and then you're raising the full year revenue, but not adjusted EBITDA of why not why arent you seeing that the margin flow through which which seem to come through some and.
The third quarter.
Yeah, Let me let me just starting then.
Furthermore, a little more detail.
Yeah, So where you know as we look at Ah We had revenue beat second claim it written to be there of course.
We bumped up her revenue outlook keep in mind, Yeah, we did a little bit using a constant tick up there quite a fourth quarter last was very difficult comp because a lot of backlog, particularly on a on the hybris side asynchronous go side.
If you remember last year third quarter, we had lot of challenges in the manufacturing plant. So this year. So quite it was very strong as you can see and so as we look at going into fourth quarter a year over year.
Last year, we had the shift third quarter or does it ended up being shifted booked in fourth quarter. So we don't have that phenomena. This year I.
I mean, we still feel really good about we're going to end up here, but as you look at the math, maybe its or outlook came back.
Like you said.
On the earnings so with revenue going up a lot of revenues going up the hardware, which.
About the past the hardware at that has been running at a negative.
The margin so we don't pick up a lot of margin there, but just maybe a little color around.
Earnings for the year, we we really if you think about three different buckets.
And I'll I'll go to the three so.
Together, all the time of transactional thing so that we.
I had a negative effect a we did we did the Blackstone preferred we took that we had a negative FX and they're talking about it on a full year basis as you look at the full year outlook.
Keeping our EPS guidance, the same and racing.
And then some of the M&A, we did is dilutive.
Yeah. So that is one bucket second bucket as the shift to recurring I referenced earlier, our movements, so little bit faster than we had anticipated at beginning of year. So the full year intact. The shift to recurring has a dampening impact on earnings. An example would be a if we bucket million dollar perpetual license.
Oh drops to earnings, but we stretch said over a five year agreement on a monthly subscription very little drops to earnings and a in 2019 and then the third bucket. It's just the investment a bit Jonas specifically hospitality, where we've talked about continuing to put more money to work.
Im going to quality living implementation.
Thanks to more sales and marketing cost.
And in that business, so those three buckets.
Grassley total up about 20 530 cents for 2019 is kind of the range. So we're looking at and there are about equal not exactly equal, but you think about a third of there that there. So that's the magnitude of why if you look at the revenue be why the earnings are being a pull through.
That's very helpful. Thank you.
[noise] and we'll go next to Tim Willi with Wells Fargo [noise].
Thank you good afternoon I have two question on it.
Rubber and strength in Europe , and I'm sure you're aware that you have a competitor that.
Seem to point to some weakness in that market I guess sort of curious any.
Color or contracts as to why am I guess degree and different outputs during the third quarter around that reach and I had a I put carla.
Yeah, I, yeah, I want to try to.
It's been a predictor, what what what about competitors.
You know looking at some of the points. They raised we just haven't seen some of those things you know, we look at challenges and different marketplace, whether it's a me a Europe or Asia Latin America.
The next but strong, but I don't we clearly haven't seen a dampening impact either in the third quarter as we look forward, we don't have any.
Any less optimism about the future than we'd have going into any other here. So.
Hi, you know, we we felt really good about a third quarter as you probably tell by the numbers that we invented.
And just haven't seen some of those things impact us.
Hey, we feel.
Better product because the ATM Secretary day product is winning in the marketplace against our two major competitors and that's probably what we're starting to see.
Flow through the numbers in the third quarter. We also think our service delivery out or on our global services that we deliver along with the ATM to ASCO is.
Turning to differentiate in American picking up some market share there, we're starting to see that impact positively so.
I I can't really tell you anything.
Relative to how does this other than we we we're continuing to have a really good success.
And I'll hop.
[noise], Chuck and I know.
People.
Sure.
I can.
Sure.
Okay.
Are you break you're breaking up there.
You didn't come across better now I apologize.
I couldn't hear me.
Yeah, I try to get.
Yeah.
Just talk about the [laughter] with your current filtering and improving sort of coal.
At the HR the personnel will lessen feeling right now that things you start work on you know will be wherever and any thoughts around [laughter].
Uh-huh any future goals for it.
Aspects Carnegie enterprise.
[noise] did you guys I can't really did not give us a like a subject area that you're you're trying to get us to respond.
[noise] and we'll go next to answer for you know Oppenheimer.
[noise] intervene and your line is open. Please proceed.
Hey, guys. This is mark on for you. Thanks for taking our question.
Just a quick one on the balance sheet seems like love the trust ticked up a bit this quarter I guess comfortable here or is there a target you guys are looking to get too and are there any changes from your thinking around capital allocation.
Let me hit you know yet it ticked up slightly and again, we exceeded the transaction to take the preferred.
That that Blackstone handheld so oh, we had an opportunity in talking with them and from my perspective, we.
We were not at least this management team that that all that part of that occurred in a capital structure. So we saw an opportunity to take it out at we thought of it attractive price and as part of that we had to.
Taking a little debt to buy them out.
But I don't know, we're not changing or the range of debt that we plan to be in a we are a little ahead of their share repurchase because of that transaction.
The kinda Andre just give a sense of where we expect to be yeah, I think I touched on it in my prepared remarks remember thats picked up on all we bought back shares that $96 million. There was a de three acquisition, which was 74 Nash and then the 300 <unk> preferred so but you can see on I think slide 12 were only at 3.1, that's got to EBITDA.
And even within the cost structure that we played out beginning of the year and continue to Paul that and we generate recall most of our free cash flow in the fourth quarter Act should put us under three times net debt to EBITDA here.
And well just so what we have said and Oh, we still show, we we'd like to be around three will flex up to three and a half if needed, which we did a little bit here to go above three.
We are our capital allocation policy has been to take out at least.
Stock issued as compensation plans or stock issued as part of the pick other hurt we've done that we did it would be the buyback we did about the 96 million.
How did that a little bit because of the preferred buyback, so I share repurchases, a little bit higher than that.
Eight or would plan to do.
We're gonna look to do M&A Ccs doing M&A at a level and then we'll always look and see a if you don't have M&A. We don't have other opportunities we wouldn't we would pay down debt if appropriate, but we haven't really changed how we're going to treat capital allocation.
Okay terrific. Thank you very much guys.
And we'll go next to Paul Coster with JP Morgan.
Hey, guys, it's a pull something on for cost or thanks for taking our question. So I'm just on ATM to can you talk about no growth drivers in the quarter.
You know where do you see some.
With strength in regions did you have any kind of.
Large deals in the quarter.
And can you share you know how regional bank demand is trending.
And you know finally <unk> you know is there any kind of is she lift you're getting relative to last year.
I mean, all of the on kind of walk in the regions and again so we.
We still.
I believe that we're continuing to up.
See outsell our sales teams for doing a phenomenal job this year, but we think our product or is any product, which really tried to rollout at scale 18.
As a is waiting in the marketplace literally around the globe. So.
Yeah that that helped drive a lot of our sales obviously your manufacturing plants is up and running versus last year, which is doing phenomenal the teams done a great job.
When you want to kind of covered regions.
Yeah, I would say across all of the regions.
Yeah.
North America and.
South America.
Oh all teams fired.
Early well.
We we saw contributions from all of those markets.
In the segments.
Your end to end the U.S., the large banks, Jamie to to refresh a lot of them [noise].
Driven by when 10, but not all of that activities 10 base, we're clearly seeing the community bank market response.
And I think what we're seeing across the board has response to the series 80.
Bottom line.
It's the receptivity was tremendous last year is only continued to improve so.
You know, we're seeing all the geographies Asia Pacific is we've talked about passes is not been a growth market for us for a while since we stepped out of China, but all of our other markets.
Attributed contributed well in within those markets all the segments continue to.
Sure well for us to Mikes point, our sales team has done a great job capitalizing on opportunities.
Working with our own install base and looking at opportunities.
In other install bases to capitalize on so.
Great and then as we kind of.
Think about in shape next year, you know you're hitting some tough comps in Fourq you as we move forward, but how should we think about kind of the momentum.
Heading into next year I know, it's it's early but you could give any kind of.
Color there that'd be great. Thank you.
[laughter].
Yeah, and again and again I don't want to really get into ER.
Now, let's say 2020, but.
As we look at our business a really good second quarter, we ought to even better third corridor.
Girls. Your view is 60%, we had somewhat easier comp, but we still had.
Outstanding or ATM numbers in the third quarter.
As we start to look forward.
You know we caught people talk about when 10.
We still look at our footprint and we still see about two thirds of our installed fleet and so nothing when 10 ready. So we don't think everybody's address and yet.
Those tend to come in sometimes you know specifically when 10 order because its core upgrade but many times, it's hard for us to differentiate when somebody or as a new box president, replacing it to get ready for a winter.
But whether it's just a normal upgrade cycle so.
You know, we we have a headlights to look for it.
A few quarter incident in its own owned restaurants are really all the geography is all the lines of business. So many banks that regional banks larger banks continue to look positive for us.
Thank you.
And we'll go next to run Wild Heck with autonomous research.
Hi, guys wanted to ask about the most recent acquisition, which was Midwest Pos that follows on from Texas Pos earlier in the year.
Can you remind us the strategy around these smaller regional type deals and do you think theres a long list of potentially attractive targets here such that you keep pursuing these types of acquisitions.
Yeah. So.
So effectively were teaming up with.
I mean, there's a partner said had been sitting in a region.
I point of sale. This is high so for hospitality for the restaurant restaurant space and.
We look at it from a couple different aspects.
Yeah, one is quite frankly, these deals generally or create a very quickly. So certainly a in year and sometimes quickly the same corridor.
Financially, it's good transaction for us, but more importantly, as we look at how we go to market with hospitality products, specifically with the low whereas in the past we are selling hardware and software stack. We're now going on selling a bundle we're selling high receptor service. It's all together, we're selling it as a subscription and reselling with payments so the aloha fraud.
That we're going out the market and we talked about where we have a local channels, where we actually own the local market, but we're going on marketing a bundle, we're seeing a 65% success rate selling a little essential versus the traditional way of selling point solutions, what do we don't control that channel the numbers I watch.
Or just more difficult to get a channel partners, who are doing a good job at just getting them scale, the knowledgeable and get into that go out in market.
Finally, a bundle that subscription and also payment.
To that so for business strategy, we'd like to do that and then lastly, you know defensively.
We've seen competitors particular somebody I suppose go out and gobble up payments dreamed up into the Pos. So we feel it's a strategy that we can make money out very quickly.
To strategically it helps us grow that business three helps us defensive position. So I guess a quick answer is yes, we would.
Yeah continue to look when there's opportunities, sometimes we approached a distributor sometimes they approached us, but we would continue to look.
And try to do more of those.
I think we have.
At this time I would like to hand, the call back to Mike Hayford for any additional or closing remarks.
Thanks, Thanks, everyone for joining today just to close we're pretty excited and proud of the progress that we made the first three quarters of this year as I mentioned before where in the early innings of a multiyear strategy.
Due to shifts to recurring revenues under under subscription model, but we continue to remain confident that strategy will pan out and create long term shareholder value.
I want to thank everybody for joining us today.
Speaking, if you have waited fourth quarter call.
In early next year, and then hopefully you can I will join US in early May we're planning in early may to all the Investor day, we're going to do that here in Atlanta at at our headquarters.
Thank you again.
That does conclude today's conference we thank you for your participation.