Q4 2020 NCR Corp Earnings Call
Please standby.
Good day, ladies and gentlemen, and welcome to the NCR Corporation first quarter fiscal year, 'twenty and 'twenty earnings Conference call. Today's call is being recorded and at this time I would like to turn things over to Mr. Michael Nelson Vice President of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining our fourth quarter and full year 'twenty and 'twenty earnings call. Joining me on the call today are Mike Hayford, President and CEO, Owen Sullivan and C O L and Tim Oliver CFO.
Before we get started let me remind you that our presentation and discussions will include forward looking statements.
Eight minutes reflect our current expectations and beliefs, but they're subject to risks and uncertainties that could cause actual results to differ materially from those expectations.
These risks and uncertainties are described in our earnings release, and our periodic filings with the U S E C.
And our annual report on today's call will also be discussing certain non-GAAP financial measures. These non-GAAP measures are described and reconciled to their GAAP counterparts, and the presentation materials. The press release dated February 9th 'twenty and 'twenty, one and on the Investor Relations page of our website.
This call will be available later today on our website NCR dot com with that I would now like to turn the call over to Mike.
Thanks, Michael and thank you everyone for joining us today from fourth quarter and full year, 'twenty and 'twenty earnings call and we'll begin with review of the fourth quarter and full year as well as provide and update on our shift to NCR, becoming a software and services focused company with a high level of recurring revenue.
Handled and review, our financial performance and an outlook into 'twenty and 'twenty, one and then Oh, and Tim and I will take the questions.
I'll begin on slide four with some highlights from the fourth quarter and full year.
NCR delivered solid performance. Despite the current environment that continues to be impacted by COVID-19.
Continue to experience incremental improvements across our business. However, there remains uncertainty regarding when vaccines will be available to the general population and when businesses will return to normal levels.
First we delivered strong free cash flow, we generated 149 million of free cash flow in the quarter and 448 million of free cash flow for the year.
Tim will discuss in more detail the drivers of our strong free cash flow production.
Second we expanded adjusted EBITDA margins sequentially for the third consecutive quarter. The 15, 8% in the fourth quarter, which represents an increase of 10 basis points from the third quarter.
As we discussed last quarter, we have taken actions to replace the temporary cash cost savings when the pandemic began with permanent expense savings.
And we entered 'twenty 'twenty, one with $150 million and cost savings that are expected to drive margin expansion outperformance and the fourth quarter is the result of some of these actions we have taken and those actions continue to drive margin improvement in 'twenty and 'twenty, one and beyond.
Third we delivered 6% recurring revenue growth in the fourth quarter, bringing recurring revenue 54 per cent of total revenue.
Hey, Bob 'twenty and 'twenty, we have made steady progress generating increased recurring revenue, which is consistent with our 80 60 20 goals.
And finally, we are very excited about the opportunity to combine with Cardtronics.
Post transaction and accelerate the NCR as a service strategy, we laid out at Investor day in December and further shifts NCR as a revenue Miss.
And the software services and recurring revenues.
We continue to expect the proposed transaction to close midyear 2021 and to be 20 to 25 per cent accretive to EPS and its first full year.
Now moving to slide five we have continued to progress executing our strategy, despite a challenging business environment.
And focused on their transitions and drive NCR as a service and achieve our $86 20 strategic goals.
For the full year, 'twenty and 'twenty soccer and services represented 72 per cent of our total revenues up from 65 per cent and 2019.
And 54% of our revenues were recurring up from 46% and 2019 EBITDA margin was $14 four per cent.
In banking, we continue to have positive momentum and our digital banking platform with five new customer signed and the fourth quarter, one of those and customers win Trust a $43 billion bank with 15 Grand and community Bank subsidiary that selected NCR between digital banking solution.
We have already started off 'twenty 'twenty, one strong with the signing of another new day, three customer and associate a bank, which is a $35 billion regional bank based in Wisconsin and.
And the fourth quarter, we also had cross selling success with existing clients and new products, including seven and business banking deals.
And retail we are gaining traction with our NCR Emerald offering which is our next gen cloud based retail point of sales solution as.
And as we discussed at our Investor day, the acceleration and digital transformation has been driven by consumer demand and retailers and needing to respond and we believe this is driving and upgrade cycle for retail P. O S soccer and NCR has the largest global install base.
We continue to be excited about the sales funnel for NCR Emerald and recently signed our biggest NCR and they'll deal to date with the largest cooperative in Canada with 1500 stores.
We are also seeing increased adoption of our self checkout solutions, we experiencing demand across customers geographies as consumer preferences.
Accelerate.
And hospitality and momentum of Aloha, Essentials, which bundle software services hardware and payments continued in the fourth quarter.
This model is proving itself and our ability to attract new customers as well as better service existing customers during the fourth quarter over 90% of all Aloha sites sold through our direct offices were sold as subscription bundles and the.
And the payments attach rate also strong at roughly 75 per cent of sales into new sites.
As we focus on executing our NCR as a service strategy, we continue to invest and our strategic growth platforms, both organically and Inorganically.
Recently close two relatively small, but very strategic acquisition, we acquired tariffs Sina a leading provider the customer account opening which is the digital finance lease and for digital banking.
We also acquired first shop digital online ordering platform, which provides retailers the ability to quickly deploy.
Online pickup and store capabilities.
And with fresh hop NCR can now help grocery and capitalize on the growth and E commerce going forward.
These two recent acquisitions and consistent with NCR strategy to acquire early states Taco company and so on.
Hence product capabilities and extend our leadership and the vertical industries, we serve with that let me pass the call over to Tim.
Thank you, Mike and thanks to all of you on the phone for tuning in today.
Turning to slide six which presents the top level overview of our fourth quarter financial performance.
Starting at the top left consolidated revenue was $1.63 billion down $255 million or 14% versus the 2019 and fourth quarter.
But as we anticipated we extended our trend of modest sequential improvement beginning back with the onset of the pandemic.
Revenue was up $42 million or 3% sequentially from 2000, Twenty's third quarter with all three business segments showing increases.
As expected our fourth quarter revenue was negatively impacted by the broader economic pause and why.
And I'll dig into the more specific drivers of the year over year decline later and aggregate $203 million or 80% of debt decline was attributable to lower hardware revenue, which was down 30%.
And importantly, our strategy to shift to recurring revenue streams again accelerated sequentially.
Occurring revenue was up 6% year over year and 3% sequentially.
We shifted $32 million or over two points of revenue that previously would have been booked upfront as a perpetual sale to a recurring revenue stream.
This compares to just $9 million from last year's fourth quarter or $27 million and this years Q3.
And the top right adjusted EBITDA decreased $41 million or 14% year over year.
$258 million in line with the revenue decline.
EBITDA margin rate down only slightly from the prior year ending at $15 eight per cent.
On a sequential basis, adjusted EBITDA was up 4% and EBITDA margin rate expanded 10 basis points.
And similar margin rate results obvious gate, the impact of a tremendous amount of hard work on our cost structure.
The temporary cost reductions that were enacted at the outside of the pandemic were suspended in late Q3 and were replaced with cost actions savings finalized in Q4.
Because they were taken during the quarter that only a prorated impact on Q4 results.
Rodak pivoting improvements implemented in the fourth quarter were both more permanent and a greater magnitude and note that they replace.
These actions were upsized from $100 million per $150 million to allow us to sustain our profitability and pandemic levels of demand and.
Five further margin expansion as demand improves and our revenues Paul.
Similar to the discussion of revenue the shift to recurring revenue was also an important descriptor of our relative EBITDA results.
$7 million of adjusted EBITDA did shift out of the quarter accompanying the respective revenue ship.
This compares to $8 million and a year ago, Q4, and $21 million sequentially from Q3.
And in the bottom left non-GAAP EPS was <unk> 59 cents down 26 cents from the prior year fourth quarter and up four expense from Q3.
The tax rate of 20 per cent for Q4 decreased as a result, it would be lower than planned income, which causes play and discrete tax items time and outside effect on the overall rate.
And finally, and maybe most importantly, we generated a $149 million of free cash flow and the quarter and $448 million for the full year.
This compares to $302 million and the year ago quarter, but just $281 million for that full year lets say it differently more than all of 2019 and free cash flow is generated and the last quarter of the year, Weiland and 'twenty and 'twenty, we generated and much more linear free cash flow result, with approximately $150 million and.
And each of the last three successive quarters.
Our year over year improvement was due to a nine day improvement and days sales outstanding a reduction and bulk raw and finished goods inventories and a more efficient capital spending plan.
But more than offset the impact of profitability from the pandemic.
Moving to slide seven which describes our banking segment results.
Banking revenue decreased $149 million or 16%, mainly driven by a 36 per cent decline and ATM hardware.
Bank customer capital spending constraints continued into the fourth quarter, resulting in lower year over year hardware revenue, but consistent with Q3 and our expectations Express and then for Q4.
The remaining decline and revenue was driven by lower attached software.
Related to the lower ATM sales, excluding the decline and new ATM hardware and and the directly related revenues. Our service revenue has shown modest growth year over year.
Operating income decreased $57 million or <unk> 40 per cent and operating margin rate declined by 440 basis points to 10, 9%.
About 60 per cent of that decline was hardware related and included lower volumes of disadvantageous geography mix, resulting unabsorbed costs.
And a lower attached software sales.
The remainder was from the shift to a $17 million of software.
Period recurring revenue.
Operating expenses were only down 3% and will need to go lower in 'twenty and 'twenty one.
On a sequential basis revenue was up 2% and operating margin decreased by 180 basis points.
Sequential profitability declined due to the timing of vendor payments and a lag and new cost actions, replacing the old ones.
At our Investor Day in December we introduced some key metrics for the banking segment as digital banking revenue digital banking registered users and recurring revenue.
For digital banking revenue 'twenty and 'twenty marked an inflection point as the full year increased 4% over 2019.
Digital banking registered users increased 12 per cent compared to the fourth quarter of 2019 and.
And so a nice sequential growth over the last five quarters.
Despite the over the overall declines in revenue, we did grow and the right places recurring revenue and this business increased 8% year over year and 3% sequentially.
Moving to slide eight which shows our retail segment results.
Retail revenue decreased $40 million of 7% against a very tough hardware comparison.
That was partially mitigated by a year over year increase and services revenue.
That said operating income was up $7 million or 17% versus Q4 2019.
That increase was driven by a favorable mix of revenue book.
By product and by geography.
Sequentially revenue was up 2% and operating margin expanded 50 basis points. This was our third consecutive quarter of modest sequential growth driving significant margin recovery on our lowered cost structure.
And at the bottom you'll see the three key metrics, we introduced for retail.
Self checkout revenue decreased compared to hardware rich fourth quarter, and 2019 was down slightly versus Q3, while this metric is somewhat dependent upon the timing of customer Rollouts. We continue to see broad based demand for both by customer and by Geography Force go.
We're actively managing both manufacturing and installation capacity in this business.
They're still at a more linear revenue.
And platform lanes increased 40 per cent compared to prior year fourth quarter, we continued to see positive traction and the implementation of our next generation retail solutions.
Recurring revenue and this business increased 11% versus the fourth quarter, and 2019 and increased 3% sequentially.
Slide nine shows our hospitality segment results.
Hospitality revenue decreased $50 million or 22% driven primarily by lower hardware sales.
As expected our hospitality segment and its customers have been most impacted by the pandemic with capacity of service limitations, and the Americas and Europe and changes in consumer behavior.
Fourth quarter operating income declined $8 million, mainly due to the flow through impact from lower revenue.
As was the case and Q3, we were able to partially preserve profitability by reducing operating expenses by 15%.
On a sequential basis, we continued to experience and incremental improvement in both revenue and operating margin.
While we wait for a more normal operating environment for our customers. We will continue to add functionality to help them acclimate managed our costs carefully and accelerate our transition to recurring revenue streams.
The key metrics added for hospitality or a low hot central sites and recurring revenue.
Aloha central sites, which bundled software services hardware and payments into a single offering grew 42% when compared to prior year fourth quarter and grew 9% from this year's third quarter.
We continue to see the adoption of our low how central is bundle as we convert our current installed base.
We're pleased to see a turn and recurring revenue graph at the bottom right well.
And while down 5% last year, it was up 6% and third quarter.
Turning to slide 10.
We provide our fourth quarter revenue results under our previous operating model for both continuity and added color.
Software revenue decreased 9% due primarily to the shift from one time recurring revenue, which represented approximately two thirds of the day quiet.
Lower sales attached to new hardware and challenging conditions for our hospitality business account for the remaining decline.
Services revenue remained flat.
And finally as I mentioned previously hardware revenue was the most impacted and the quarter by the pandemic.
Mining 30 per cent.
ATM revenue declined 36%, while the combination of self checkout and point of sales declined 23 per cent.
Software and services as a percentage of total company revenue increased to 71% from 64 and the prior quarter with lower hardware sales exaggerating or improvement.
Recurring revenues increased 6% driven by our programmatic effort to shift our sales away from single sales and Thats, what perpetual licensing to predictable and multi year commitments with relatively high certainty of revenue generation.
Recurring revenue as a percentage of total company revenue increased to 54 per cent from 44 and Q4.
2019 also benefiting from lower hardware sales.
We continued to experience sequential improvement with all areas, increasing compared to the third quarter.
On slide 11, you'll see the same revenue snapshot, but for the full year, 'twenty and 'twenty versus full year 2019.
The shift to recurring revenue had 100 million dollar impact to the full year of roughly 80% of that software decline.
Adjusting for that shift software and services revenue would've shown a modest increase compared to 2019.
Service revenue continued to show resiliency with two per cent year over year growth.
Recurring revenue increased 5% year over year living up to its title and validating our emphasis on it.
We ended the year with 54 per cent of our revenue as recurring.
While admittedly the increase was aided by the air pocket and hardware sales, we continue to see growth and all three of our segments with a positive mix shift.
On slide 12, we present free cash flow net debt and adjusted EBITDA metrics.
As I mentioned earlier, we continue to have impressive performance on the cash side free cash flow was $149 million and the quarter.
Although a decline from the prior year period, we ended the year with free cash flow of $448 million up nearly 60% from the $281 million and the prior year.
Our efforts to improve working capital and drive improved linearity and our annual cash generation are working well also during the fourth quarter, we made a $70 million discretionary contribution to the U S pension plan, which is expected to push our mandatory contributions out until 2023.
This slide also shows our net debt to adjusted EBITDA metric with a net debt leverage ratio of three three times.
We ended the year with $338 million of cash having paid down and both our outstanding revolver and our trade receivable securitization facility and having retired 132000 shares of preferred stock.
We remain well within our debt covenants and ended the fourth quarter with a credit facility leverage of approximately three three times well under our debt covenant maximum of $4 six.
Turning to slide 13.
Late in the third quarter, we released several of our temporary cost actions in anticipation of replacing them and the fourth quarter with more permanent and sustainable cost reductions.
And those cost actions and the related operational changes or product decisions resulted in approximately $200 million of restructuring charges in our fourth quarter.
Approximately $150 million of those were non cash charges, mainly related to excess inventory and software impairment charges related to strategic changes.
The remaining $50 million were cash charges for severance and the resolution of several legacy items.
We entered 2021 with an estimated $150 million and run rate cost savings.
Approximately 40% of those savings are from operating cost another 40% from SG&A.
And the remaining 20 per cent from the corporate functions.
And my last slide Slide 14, which provides and the outlook for Q1 'twenty 'twenty one.
Because our end markets are still being impacted by the economic drag of the pandemic.
And because it's a good successful completion of the proposed Cardtronics transaction at mid year will complicate reported results. We are not going to provide full year 'twenty 'twenty one guidance for Standalone NCR at this point.
But for Q1 relative to the year ago, Q1, and so on a year over year basis.
We expect revenue growth of two to three per cent.
We expect particularly strong growth and recurring revenue streams.
And we anticipate persistent difficult banking hardware environment.
On profitability, we expect adjusted EBITDA margins to expand by 250 basis points.
15 per cent.
And finally, we expect free cash flow to be positive.
Which might seem to book a recent trend, but remember that we have had about $150 million of unavoidable payments and the first quarter related to benefits and compensation that occur and every Q1.
We know that you have a complicated modeling effort on your hands and hopefully be more prescriptive as we get closer to mid year and to the closing of the transaction.
With that I'll turn it back to Mike for closing comments Mike.
Thanks, Tim.
In closing I want to first commend the entire NCR team on strong execution in 'twenty and 'twenty.
Despite unprecedented challenges our employees have continued to take care of our customers and have shown resiliency and these very difficult times.
Looking ahead, our key priorities are clear first we will continue to accelerate our NCR as a service and 80 60 20 strategy. We have made notable progress this year. Despite some of the challenging conditions.
Second we will return to growth in 'twenty and 'twenty, one we expect to grow both top line revenue and expand margins.
Look we cutting costs out of the business and 2020 and expect a combination of a lower cost structure, along with positive operating leverage to drive margin expansion in 'twenty and 'twenty one.
We enter 2021 with positive momentum and are laser focused on execution.
Third as Tim discussed we are focused on improving the linearity of both revenue and cash flow, we made significant progress in 'twenty and 'twenty and seek to improve our linearity as we shift to more of a revenue to recurring.
And finally, we are preparing to hit the ground running and executing on the opportunities that cardtronics will bring it once the transaction closes.
Turning to slide 16, I want to close with the strategic rationale for our proposed transaction with Cardtronics.
The combination accelerates to NCR as a service strategy and expand opportunities and payments.
It will enhance our scale and cash flow generation, while advancing our $86 20 targets by roughly two years and.
Additionally, the proposed transaction is expected to be accretive to EPS by 20 to 25 per cent and the first full year.
We believe the combination of NCR and Cardtronics will drive significant value for our customers and shareholders. It's a unique opportunity that both strategically consistent and financial accretive and NCR.
And with that we will open the call to your questions. Thank you for your time today.
Operator.
Thank you and ladies and gentlemen, and to ask a question. Please press Star then one on your telephone keypad.
And he's not to share on a speaker phone to pick up your handset or de press your mute function to allow that signals from each of our system and again that is star one to ask a question.
And we'll go first to Tim Willi of Wells Fargo.
Hi, Thanks, and good afternoon everybody.
Couple of questions if I could first in.
And Charles and I.
<unk> overall is there a way to just sort of think about the average.
I guess transaction size, whether that be product attachment to our sort of annualized.
Revenue from from and from the new sales versus sort of prior experience just sort of almost day, because we got that whether you look at so as that continues to gain progress.
Yeah, 10 minutes, you're breaking up a little bit bell.
You're asking about our hospitality and Aloha essentials versus the way we used to sell.
Yeah, and just sort of like a way to think about the average attach rates number of products people and maybe buying or and I know that's a bundled product so web and even after just just again a way to think about like the delta of these new customers versus the existing base.
Wow.
And so first of all and.
We're gonna bundle everything and.
And essential package.
And then they get all the components and there so instead of mailing and youre going to get a bigger sale and he does that.
Thank you.
I appreciate it.
Wholesale and I don't know, if one X and.
I got one and a half two ex science bundles and they get a bigger share and most important thing is attaching payments. So he's had a patch and painless that revenue per account.
Goes up considerably and we don't have payments and honesty, as we get more scale and leverage and payments.
That's gonna debt margin on those accounts. So it really is that 75% attach rate and payments, which is important to us and getting those accounts and getting them up and running and turnkey.
Hey, don't stats and price each component.
And as a separate RFP to FERC and pricing competition.
Hi, and thank the margins will hold up better and.
Net revenue stream for us.
Great and then and then just a follow up I know you can't say a lot I guess about sort of the cardtronics given the merger hasn't closed, but I guess, it's been now I guess a couple of weeks since that formal announcement I guess I'm sort of curious any feedback you've gotten from your existing customer base within the banking industry.
And it's you know.
Conversations and you've initiated or just you know unsolicited feedback from existing customers that you have about how they think about it and your confidence about the deal.
Wow Okay.
We went ahead and obviously, we know Cardtronics flowers day there.
And to client and see our Oh.
And I can say.
So a day and part of what day salad and signed up Bob.
Tony that lead you alert and we saw them hard hardwood at Atms.
Services and tell them chocolate and they found out that they can deliver.
And I'm, a guy who added product and the marketplace.
Just wanted to meet and debt we were interested and this combination and we did not expect any.
Negative feedback from the market place banks, our industry and.
We just haven't seen any we haven't heard any and all.
Really know what tektronix as seen on their side, but I think we are we did not expect and we havent really heard negative Oh, what feedback we're getting from the macro places we don't really get engaged with what is kind of kind of it looks like the buying with us, but I think the general perception and feedback has been positive.
Yeah.
And we will now move from Ritchie like Katy Huberty of Morgan Stanley.
Yes. Thank you good afternoon, Tim just a clarification first and is it 2% to 3% revenue growth from the first quarter is that reported or constant currency and what do you expect the currency impact to be in the March quarter, and just to follow up on that guidance implies a about half the sequential decline.
And that you typically would see and that's first quarter does that speak to.
And more robust recovery and in demand and the March quarter or is that just changing shape of seasonality because of higher higher revenue and the extended and the past.
And that's probably about share.
Yes, so first of all on the growth rate.
On a reported basis and expect to be at the higher end of that range and and the currency effect and left ourselves some room.
Okay and adoption.
Currency happens to be.
And right now it looks like currency will be okay.
And.
And the linearity from Q4, and Q1, Youre exactly right and a week.
We did not view and the fourth quarter some of the things you've done in the past too.
And so let's say unnaturally move revenue into the full year and in June of last year.
Traditionally and vary.
Selling and the fourth quarter, particularly around hardware and we didn't.
And Austin.
Fourth quarter of last year, and so that leaves us and much better stead coming into Q1.
And with a better read.
And your expectation of better and better pipeline and a much more linear revenue pattern really for the full year. So we're very pleased to be able to show Germany. Your growth from Q1, because you'll recall it was not really a pandemic.
This quarter only mildly its back and be a little effect and you'll recall from a tornado, but still even adjusted for that impact we would be showing year over year.
That's great and you and Mike speaking of copper.
Capital and and hardware spending if you think about the three segments, which are wholly dependent on at full vaccine rollout versus where could you see a more robust recovery just as we get visibility into the vaccine, but not necessarily a full reopening.
Wow.
Well I'm not going to share a day per week.
And then they put a pandemic here at NCR, but I cant share Atlas and so.
That's a great question.
Say like this so that the price of the business, where consumers have to regain confidence and get out and feel comfortable going to restaurants and retailers brick and mortar retailers again, that's at least going to drive our hospitality business and a retrofit and.
And I'd say hospitality is probably impacted a little bit more debt and the high end of American place ability device can takeaway obviously us.
Survived and some cases right.
Hospitality should have a better impact from people can get out and about retail and have a bit and tech.
And I don't want it and if you.
You look at what's happening from the bank environment and the.
It makes it still operating but they've been a little debt concern, although because of the financial performance and margin net interest margin spread and tracking on them. This year with the fiscal policies and then also just not knowing for that and win win.
And its economic impact and we've seen them slow down a little bit and their capital spend so I.
I think the bank and the bank might be a little bit of a trailer with nice feedback and picking up but I think bill hospitality.
And when restaurants, and so I don't think out and start getting business and and then retail retail is a little bit more of a strategic push we think that they will have to retool their P. O S technology going forward.
And now almost try and next question and that will be with Brett Huff of Stephens.
Great. Thanks, guys. This is Joel on for Brett I appreciate you taking our questions.
So a couple of questions here can you talk about a low ha and maybe the competitive dynamics any color on win rates or pipeline Peter quarter.
And then could you provide any color on the debt pay volumes and maybe some of the trends that you've seen of late.
Would be great. Thank you.
Yeah, Let me start and Jeff May suggest a.
You know we've gone through the process of integrating into the low hydro.
Essentially yeah.
And it started to integrate it into ambarella.
And at some of our other retail products and then we've had the most activity and and and hospitality that are low huh.
And that is as we talked about based on attach rate, so thats, new clients going out to new clients and attaching payments and we started and twenties funny and the back half of 'twenty and 'twenty going out to existing clients.
And Upselling, our jet AG and it started to get some momentum and traction along those lines. So we feel.
Really good about not only wanted to go and attack, but also going back and go back in place and again, the arthritis and fairly simple if you and do you think I P O S.
And the point of the transaction and we tightly integrate our payments. We can we can have a smoother interfaces and integration are better and makes you better data flow and if you separate those two so that strategy seems to be working and that team continues to make solid progress.
Maybe I'll turn it over to O&M, and Hello, hard and success and I think we're tracking to where we want it to be and a difficult year and.
Competition I don't think it's really changed its just.
I wouldn't say that competitive landscape has not changed significantly.
And in terms of the major players and from our performance.
Second quarter I was clearly the low point.
Seen sequential.
Carlos and Aloha essentials activity.
Our book of third and the fourth quarter, So I would say that Paul.
The hospitality side as you feel like a modestly positive.
Mike's earlier comment and alike.
We see the vaccine and the pandemic a bit more and control work.
And a holding pattern, if you will albeit a.
Bill.
Positive momentum going into the year. So I think there's cautious optimism based on my left don't want to see and the last two quarters.
But I think we're still waiting probably until second late second and third quarter before we see.
And what.
Thank you.
Yeah.
And we'll now go next to Dan and Chris asked.
The benchmark company.
Thanks, and good afternoon and.
She was like Bill.
And just maybe like life on scale and it was probably the only real surprise in the quarter and thanks for the incremental breakout or any color there.
Just you know kind of those.
And those color on what's driving that success and sort of what you're seeing going forward and you talked about as part of your.
Increased linearity and that might be one area to focus on and then secondarily. If you want and died on the topline I think ahead of expectations.
And and being a pretty and my issue.
And the EBITDA, but you know, it's kind of impressive and it sounds like you're getting some momentum. So maybe you guys could just talk through what the drivers are for both Q1 and into the balance of this year and as you see them. Thanks.
Yeah sure I.
Let me take the.
'twenty and 'twenty one stuff first so.
It's tough right because we were only going to be NCR Aloha, and we hope for a couple of quarters and so I know, you're all trying to build model and I feel pretty good about Q1 momentum to be able to post growth year over year and yet.
And let's call the pandemic unaffected corners terrific.
And when we talked back in December that we talked about our growth rate and approximated five per set over the four year period. We've always described it and people beyond that number I think we stripped out and it's gonna be a linear work and just about it.
A hockey stick and we're going to work.
And all of that curve.
And I would expect that to be the case this year and I expect it to be as Owen just described.
The sequential improvement quarter over quarter every quarter, that's that's where we're headed for now and if.
Somebody just described we could get a pandemic Bob here at some point and we've not planned for it and that's not part of our forecasting and we've not planned for a significant recovery and and hardware, particularly the EPS.
Up modestly year over year, but the doctor.
And he knows how big book.
EBITDA. Similarly, we talked about moving from 14 and a half this year to 20% EBITDA margins out in 'twenty and 'twenty four.
And we'll make at least one year's worth of progress against that Delta, that's a little bit lower at 14, and a half and starting point and might have been so we'll have a nice margin expansion. This year and I think it won't be a 16% ish.
For the full year and exit the year at a rate.
And the fourth part of it is higher than that.
And on free cash flow.
I think it'll be very similar to what we generated this year and I think from pattern and the generation will be very similar as well.
Well have higher profitability and suggest we should get a little bit more free cash flow, but I do think that we're gonna have to reinvest back into some working capital as and when you start to grow up and.
We will use the balance sheet shrunk across 2020, and and when that happens quickly you harvest a little bit of working capital.
Goodness and free cash flow. So I think those two phenomenon to offset one another and for the year free cash flow look a lot like 50, regenerated and 2020.
And.
For the first part of that question, Michael you remember the first time.
Let's go and Cisco.
It's going to get very it was very lumpy and year ago period and it just.
And it can be dependent upon a major orders from from very very large retailers and our effort is to get back to look more linear as well and it's Paul. So you saw a very very hard comparison in Q4, and you saw year over year number that you probably didnt like that said and the first half of 'twenty and 'twenty, one you're likely to see a 50% growth rate and.
And so hardware because of the comparisons were super easy and so you'll see many of the revenue from us this year without it and say 15 percentage growth across the year and skull when it heavily.
Weighted to the from out in terms of growth rate and a more linear performance across the year.
And I would just add debt geographically and from a site.
And and standpoint.
Whereas Tim comment about a lot of enterprise Friday, and Lumpiness, we're seeing really good traction and the SMB markets.
We continue to work with customers and.
And they address their.
Point of sale software and look at their entire technology.
Technology footprint and that includes the self checkout. So if you look in Europe, if you live and the United States and across yes, there'll be we're getting very good traction so good Bob.
Backlog and pipeline development.
Michael Nelson just weighted it means that I need to go.
A little more guidance for 'twenty and 'twenty one modeling.
Here's a couple of other facts from out there our interest expense any interest expense will be just north of auto and $80 million on and NCR Standalone bottling basis GAAP.
$275 million to $300 million, which if you think about and depreciation and amortization number of Rio two or 305, and the first time and a long time and smoked underspending depreciation and tax rate of 26%, which is up year over year, we should be from profitable, which will cause more tax we're hoping to find some discrete items.
And just bring that number down.
And today I think 26 is a fair and conservative number and shares outstanding for the year about 143 now.
Got it that's super helpful and I sort of sorts and actually thought <unk> was a little better than I thought so anyway. Thanks for all the color really appreciate it.
Sure our pleasure.
Our next question will come from Matt Summerville of D. A Davidson.
Thanks wanted to talk about expenses, a little bit here it looks like SG&A up sequentially up year over year, the highest percentage of sales you've had in quite a few quarters there.
Can you talk about the level of spend that there's anything unusual in there I guess I was surprised to see and so on.
And there was some unusual spend in there.
We had the first of all we had.
Cost actions coming off and new ones going back on so we had and remember we had some salary reductions across the organization and Qs two and three it came back online and we started paying people to regular salary, except Mike and.
And Q3, and so obviously, there's a lift oh, there's temporary cost actions.
And we've talked before and replace them with permanent actions, but those are out of sync with one another so you'll see the impact of the reduction and cost in Q1, but admittedly those didn't sync up perfectly and Q4. So you saw that from a buck and cost.
And we had some one time items from settling up with some let's call them legacy.
Contracts.
Caused us to.
And higher.
Little bit higher and accordingly will not recur so that there's some nonrecurring.
Net interest and there maybe to the tune of 15 and 20 million Bucks.
Okay. That's very helpful. And then what what would you say it should be a realistic growth rate for the digital banking business as you see it for 2021 organically.
Yeah, I I know yeah. So we we share it on December 3rd at our Investor Day that we had felt bad debt and digital banking, we bottomed out in 2019, we got a little bit of growth in 'twenty, and 'twenty, and we expect and 2000 and trying to get additional growth.
Yeah, I think we're going to keep putting in place and the boy, we've got some solid organic growth and talked about to a night.
And nice size deals that we signed and the last quarter and then into early this year.
And.
And then we've continued to add products, so and we added product like Pasadena, What's the online account opening and it gives us another.
And it that we can go cross sell to our existing digital banking clients. So that'll help our organic growth and then we'll continue to look for bill.
And so Oh, we're going to get that business back on track in terms of and driving growth and took a step forward and funny and and 21.
And that next step.
Our next question will be from Paul Channel with J P. Morgan.
And Paul Your line is up and if he can take kidney function. We're not hearing your question.
Hi can you hear me Bill.
Thompson.
Great.
So just on the restructuring charge and that was quite material. This quarter can you just expand on where the majority of that charge came from what kind of drove the decision and can clean up some of the legacy costs and you know how this ultimately and instead it fits your cost base next year.
Paul.
Yes, so $200 million 150 million of it are noncash and 50 million cash the cash side was really severance of four and the cost actions. We took in Q4 so.
Paul will be about 1800 people later.
And then we work this.
This year and then we were last.
On the non cash side.
Made some changes to the way, we're going to operate our services business Adrian and his team. They can we can take cost out across the system.
And bring our inventory levels down.
By having fewer.
And parts of the truck and we make when we make our fronts.
The cost to treat our inventories of those parks differently and so we wrote down.
From parts associated with that business and the quarter and so on that work.
And obviously and some that are where you have to be repaired and therefore, we may not bother to repair and sort of the thing I'm. Most proud of course and of course wait and repaired.
And there also were some other.
Software product and hardware product onto the balance sheet, we don't intend to sell any longer as we look forward and those products were not as profitable as we'd like them to be and our new product offerings better and so we took those debt off the balance sheet as well.
And then we had a couple of other and what's called contract.
And I can see contract situations.
We wanted to address the work driving value for us we've got the we'd accelerate thus far and get them get them off the <unk>.
Off the books, so yes with those charges from you'll see the savings, particularly and the services business over time.
And as we make better decisions on whether to use and repaired part or a new park.
You'll also see obviously less inventory and the balance sheet to start the year and therefore, we hope we can keep that lower.
And obviously from a severance perspective, we've talked about the $150 million of cost out of 800, and you got to 600 and kind of it is going to be people related so.
And we've seen that in 'twenty and 'twenty, one as well.
Got you and thanks for that and.
And then as you think about your free cash flow for 'twenty. One you had a nice finish for 'twenty you mentioned, some working cap headwinds probably in 'twenty, one yet and a nice benefit this year, but if.
If you see growth and the top line for the year why can't we exceed kind of $450 million pretty handily.
And he puts and takes there. Thank you.
Yeah. So.
I don't know if we get that top line growth of course, my receivables balance is going to grow.
And so well have some pressure on on working capital My assumption right now is that.
We will not improve our days by another 90 days next year and it will.
And we would take our past dues down by a full six points or six percentage points next year I do think theres still some room.
On inventory or not and the services business, where you just have debt right.
Maybe and then.
And as goods.
And as we go through the year. So I'm hopeful that we'll have some pick up and working capital and people to offset some of it and necessary investment and working capital.
And for that growth.
So I.
I would tell you you're wrong.
And I think the.
You know you should start thinking about our conversion rate of net income to be in that 95 to 105 per cent range going forward and like we are probably at 110 or 12 last year and that's a that's just not a non sustainable overtime and not the deep water.
Yes.
We will now move to Ian Zaffino of Oppenheimer.
Hey, good afternoon guys.
Controversy and thank for taking our questions. So I guess, what keeps you from them from us.
And all the moving parts on cash flow and that's part of the volume would just go into 'twenty and 'twenty. One can you just give a sense of what capital allocation priorities are and for those on and you know what the I guess, Mike you know appetite for M&A, and you know where do you sort of and.
And then they categories are you interested in going forward. Thanks.
So you can answer that after I take first of all we were going to delever after the transactions.
Yeah, So again, it's a little bit.
And after it.
Ah Cardtronics, we shared and I think we announced it early and.
The transaction back and.
A couple of weeks ago that.
And I are typical capital allocation and the buyback a little shares and they got.
And we would not expect to do that and 'twenty, one and we will continue to invest.
Organically.
And then a castle Dallas to build out our products further differentiate them and them back in place. We will continue to do that Tim talked about the Capex and we're going to continue to spend and channel, we will do that and 21.
And we would like to see the tuck ins, you've got and a couple but you can expect that that may slow down a little bit as we go forward and preserve our cash.
Cash and as Tim said, our priority going forward, then will be to reduce our debt level, particularly as it relates to putting out and the debt I think I'll take the tektronix acquisition and so that that's how you think about in 'twenty, one and really for the next and.
And I'm sure of that.
Good day announcement 18 months to really focus on Delevering, the balance sheet and I think because of that COVID-19 like we're going to be able to borrow at a rate and it makes good sense, we've got tremendous interest and support of our banks from a terrific and supporting this transaction and that's because.
Our commitment to get back to three times leverage from before and after going to be and we've had a great response and so we tend to think of that.
And now we'll take a question from Kartik Mehta of Northcoast research.
Oh boy he talked a lot about ATM as a services, especially now with the.
Combination with Cardtronics coming up I'm wondering.
What you have if any from your backlog for financial institutions are looking for that service and kind of what the characteristics are the credit unions are their community banks regional banks.
Color around the types of customers, you're seeing that demand from.
Yeah, Let me, let me just being hired and get it at a.
Any more of a macro level, what kind of ladder and we start looking at our strategy and the last couple of years and and again, we've laid this out and the last and.
And a half we've talked about are.
And really moving upstream to full stack.
Call It ATM and the service others, others call it.
And one managed services, but the ability to deliver a transaction where I felt function.
ATM.
And quoting driving and the operating and switching and routing it along with the hack of software and service. So we've looked at that we've seen around the globe and.
And in different countries and to actually move faster than we've seen it and and the U S.
And generally stay for the off premise Atms and and the desire and the tender.
Moving to bags to move that to a standalone footprint, that's somebody else and operate and subject to somebody else owns.
We've also seen banks.
And Sheila and midsize and smaller and.
And then I would include the U S and the category, including credit unions, where they looked at the cost.
I'm afraid and Ryan that somebody and at scale and scale provider and a better position to do that for them.
Yeah.
And that service levels really simplify their.
And their life in terms of really delivering net ATM transactions and their clients. So.
The off premise or like although we expect that's going to actually take place and the U S. As well it hasn't really moved that much yet, but then we do think midsized and smaller financial.
Financial institutional book literally looked at outsourcing the ATM operating model and find a partner that can do it cheaper.
And then just.
One question and then jet they like what are we what kind of volume growth have you seen if any and.
Chip in 'twenty and 'twenty versus 2019.
Well, it's a it's kind of a difficult you have the magic and the deal.
Our wireless and then and hit really in mid March into April.
Jet pay along with all the other like arm panic buyers had a fairly challenging second quarter. So we had it.
Second part of that transaction volume and as per quarter.
He started to recover and people get out and about the 'twenty and 'twenty, a little bit of rocket on and equalized basis, I think we book at.
Sales and we've done, particularly as it relates to going out and adding a law and central bank.
And then we've looked at as I mentioned and the second half and he is running out and Upselling.
And clients.
And at payment and so if we look at clients and doing apples to apples, we feel good about the 'twenty and 'twenty numbers. If you look at the numbers, it's tough because of the pandemic effect.
Probably moving down in the high single digits for the full year, but of course debt was very isolated to the second quarter and has recovered surface would believe from a year at a rate very similar to where we entered the year.
We will now go back to Tim Willi of Wells Fargo for a follow up.
Hey, Thanks Peter.
And our opportunity, Mike just going back to the wind and <unk>.
And so that's that's two sizable banks, obviously those are competitive takeaways and I I mean is there any way you could just.
Characterize what you think the differentiators are and those wins.
Functionality price.
And also maybe NCR just like timing.
And so that's a nice strength and got go on and controlling that business round and the sales or something something there that you think you can build upon and.
And to add the large enterprises like you have.
Yeah, and that's really good question and I said it.
Two distinct aspects of her assistant feature and function capability, a digital banking or mobile banking and again you have to remember that's what we tell that can beat or banks of all sizes. Now. So these are a nice sized banks you know 30 and have you seen a $40 billion a lot of ranch and a lot of retail client.
And they have to have to keep it.
Bill I used to compete with the top five are money center banks that go out and.
And a lot of money so.
It's a great win for us because it demonstrates our capability allow those banks that compete.
And with the wells with a b and as the day pounds that are out there all the cities investing a lot of money.
And that digital front and I think the other aspect as we compete with other providers right.
And so I can try and delivering a differentiated product and that we horizontally go into her platform solution, a CSP and client services platform that will then net what you do on mobile and digital.
And so.
And what you can do on an ATM or or nine him.
And then we've done that with some day life and institution into their branch footprint and so now you have to sell it and kept client.
Literally across the day.
From a channel that they might use and we think that product and.
And a differentiated we think and make it simple for those bank and roll that out and we have found that a lot of our competitors from that space aren't really looking horizontal like and we are so I think that's what allows us to win.
And with that ladies and gentlemen that does conclude today's question and answer session and I'd like to turn the call back to Mr. Mike Hayford for closing remarks.
Alright, I just want to say.
Thank you everybody for joining us today.
It's kind of closing comments and the year 'twenty, Tony was a very challenging year for NCR.
When the global pandemic hit us sitting here and Max 20, it's funny and we actually started to feel that around the globe are even a little early but by March it was really a stat and because a global pandemic are the management team and NCR and funding can be simple priorities number one.
Nevertheless, and take care of our employees and so we focused on taking care of our plate number two at least and protect our company from the uncertainties ahead and allow sitting here today, you look back and say Wow, those things and then I'll come to fruition hitting and Michael plenty plenty.
A lot of uncertainty that we did not know about what's going to hit our best and so we took a number of steps to protect the company and number three and take care of our customers.
And we said to our team we sat.
Let's take care of our customers better than anyone else lets take care and our customers better than anyone else from the industry.
And less accidents and dynamic as a better company.
And when it started.
And I'd say, thanks to a unbelievable hardware are the efforts there.
85000, and pass those shifts around the world, who do and dental health environment execute it each and every day and I can truly say today and.
We will be we will be a better company after the pandemic.
Thanks for joining us today, and we'll talk to you next quarter.
And with that ladies and gentlemen that does conclude today's call we'd like to thank you again for your participation you may now disconnect.
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