Q1 2021 NCR Corp Earnings Call
Yeah for me on hold for today's NCR Corporation Conference call. At this time, we are assembling today's audience sometime to be underway. Shortly we appreciate your patience. Please for me on the line.
[music].
Please standby.
Yeah.
Good day, everyone and welcome to the NCR Corporation first quarter of fiscal year 'twenty 'twenty. One earnings conference call. Today's call is being recorded and now at this time I would like to turn the call over to Mr. Michael Nelson Vice President of Investor Relations.
Please go ahead.
Good afternoon, and thank you for joining our first quarter 2021 earnings call. Joining me on the call today are Mike Hayford, President and CEO Owen Sullivan C O L and Tim Oliver CFO before we get started let me remind you that on.
Our presentation and discussions will include forward looking statements. These statements 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 S E C, including our annual report on today's call. We will also be discussing certain non-GAAP financial measures. These non-GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials. The press release dated April 27th of 2021 and on the Investor Relations page.
Of our website a replay of 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.
Thank you everyone for joining us today for our first quarter 2021 earnings call.
I will begin with some of my views on the business, including an update on our shift to NCR will be coming up.
Software and services focused company, but the higher level of recurring revenue.
Tim will then review of financial performance.
And an outlook into the second quarter, and then Owen Tim and I will take your questions.
Let's begin on slide four with some highlights from the first quarter.
NCR delivered solid performance that included accelerated of recurring revenue growth significant margin expansion and.
Strong cash flow production.
Although there remains uncertainty regarding when businesses return to pre pandemic levels in certain geographies. We are starting to experience green shoots of class parts of our business.
A year ago, we were facing unprecedented uncertainty over the DAP.
And length of the pandemic, we were focused on taking care of our employees.
We asked our team to stay focused on taking care of our customers I believe that that relentless okay.
It's starting to pay dividends and improve customer satisfaction and brand loyalty.
Although we still haven't fully recovered from the crisis, we're in a much stronger position today than we were of your though we are building momentum in of NCR and the service strategy and improving execution.
First we expanded adjusted EBITDA margins of $16 seven per cent in the first quarter, which.
Which represents an increase of 420 basis points from the first quarter of 2020.
Second we delivered 9% recurring revenue growth in the quarter that brings recurring revenue of 57% of total revenue.
We continue to make steady progress increasing our recurring revenue, which is consistent with our 80 60 20 adult.
Third we delivered strong free cash flow, we generated $98 million of free cash flow in the quarter, which represents the first time in many years that NCR has generated positive free cash flow in the first quarter of the year.
And finally, we are very excited about the opportunity to combine with Cardtronics. The proposed transaction will accelerate the NCR as a service strategy and further shift NCR as revenue mix to software services and recurring revenue. We have successfully completed the financing for the transaction and remain on track to close mid year.
<unk> 2021 subject of course, the regulatory and shareholder approval.
Now moving to slide five we have continued to progress executing our strategy and remain focused on the trend that transition to drive NCR as a service and achieve our $86 20 strategic goals. We have made significant progress against these goals, particularly as we accelerate margin expansion towards our 20% adjusted EBITDA margin entirely.
Net.
In banking, we continued to have positive momentum in our digital banking platform with the 11, new deals signed in the first quarter.
We also had cross sell success with existing clients.
With new products, including three business banking deals done in the quarter.
Banking South of continues with strong growth as we continue to shift the business to a weaker model. The first quarter saw strong growth in our end to end multi vendor ATM solutions as well as continued momentum with our digital first strategy integrating our physical assets into our digital banking solutions. In addition, we are beginning to shift.
Two multiyear of professional service engagements that are aligned with our software projects.
We are receiving increased interest in our ATM as the service solution and in the first quarter signed a key one of the leading retail banks in France to a 10 year ATM as the service agreement.
In retail we are gaining traction with our NCR Emerald offering which is our next gen cloud based retail point of point of sales solution. The acceleration in digital transformation is being driven by consumer demand and retailers will need to respond. We believe this the starting to drive an upgrade cycle for retail P. O S T.
Software, we recently signed a new NCR Emerald deal of Berkshares Gaucher, a Texas based superregional grocer with more than 180 stores across three states. We are also seeing increased adoption of our self checkout solutions, we are experiencing demand across the customers and geographies as consumer preferences accelerate.
In hospitality the momentum of the Aloha essentials, which the bundle software services hardware and payments continued in the first quarter.
This model is proving itself in our ability to attract new customers and better service existing customers during the first quarter over 90% of all Aloha sites sold.
Our direct offices were sold as subscription bundles.
Heyman attach rate is also strong at roughly 85% of sales into new sites.
NCR and steak N' Shake recently entered into the agreement for NCR to support stay can take for over 500 restaurants globally. The subscription base point of sales software.
Hardware and end to end of it services in support of their restaurants.
As we focus on executing of NCR as a service strategy and drive the transformation of our businesses, we will strive to become an even more efficient stewards of our resources. We continue to focus on taking care of our customers advancing a proud of capability with investments in our strategic growth platforms and improving our productivity.
With that let me pass over to Tim.
Thank you, Mike and thanks to all of you on the phone for tuning in today as Mike just described the execution of a strategy that was locked the little over two years ago, it's starting to be evident in both of our competitive and financial results.
Turning to slide six of which presented the top of our overview of our first quarter financial performance.
Starting on the top left consolidated revenue was 1.5 dollars 4 billion of $41 million of 3% versus the 'twenty 'twenty first quarter.
Driven by solid growth in our retail and hospitality segments.
Revenue was down $87 million or 5% sequentially.
Although there is still some seasonality in our business and the Lumpiness that can result for major hardware orders, we were driving significantly improved linearity.
This year's Q1 sequential decline in revenue compares to an average step down over $300 million from Qs for to Q1 over the last for years.
Importantly, our strategy to shift to recurring revenue streams again accelerated recurring revenue was up 9% and comprised 57% of our revenue in the quarter.
In the top right adjusted EBITDA increased $70 million or 37% year over year, the $258 million.
Adjusted EBITDA margin rate expanded 420 basis points to 16, 7%.
This improvement is almost ratably attributable to three things the <unk>.
The cost productivity in our operations significant cost reduction in our indirect and overhead layers and revenue growth in the right more profitable places.
On our last call, we detailed the more permanent productivity improvements that accumulated to more than $150 million in recurring annual cost savings are.
Or we will judiciously add costs back the businesses the way, particularly high growth rates, we intend to preserve the productivity, we have already generated and to identify further efficiencies both of our current operations and those synergistic from acquisitions.
Similar to discussion of revenue, you're driving improved linearity in the adjusted EBITDA the floor.
The performance from fourth quarter of 2020 compares to an average Q1 sequential decline of <unk>.
Roughly $90 million in the first quarters of each of the last four years.
On the bottom left non-GAAP EPS was <unk> 51 cents up 20 cents or over 65% from the prior year first quarter. The tax rate of 28, 2% was higher than the 'twenty 'twenty Q1 tax rate of 13 in the half and our full year guidance of 26% up in both cases due.
For the higher income and a decrease in discrete tax benefits.
And finally, and maybe most importantly, we generated $98 million of free cash flow in the quarter. This compares to a use of cash of $20 million on the first quarter of 2020 and represents the first time in many years. The an NCR has generated positive free cash flow in our first quarter the.
The $60 million decline from the fourth quarter of 'twenty 'twenty compares to an average Q1 sequential decline of roughly $425 million in the first quarters of the prior for years.
Moving to slide seven which describes our banking segment results.
Banking revenue decreased $7 million or 1% year over year with more than all of that decline attributable to lower ATM hardware sales.
Software and services revenues, both increased despite the lower hardware pull through and the shift of recurring revenue.
This business extended its trend of replacing revenue that was traditionally recognized with the sale of ATM hardware with revenue streams and software and services that are more durable predictable and valuable.
Our banking sales funnel has improved to above pre COVID-19 levels with close rates also starting to trend more positively our sales funnel mix now has a much larger and richer recurring and subscription component.
Q1, 2021 total contract value signed was more than twice the value from a year ago.
Banking, adjusted EBITDA increased $14 million or 10% year over year, despite the lower revenue.
As a result, adjusted EBITDA margin rate expanded by 210 basis points the.
24%.
On a sequential basis revenue was down 5%, while adjusted EBITDA increased 17% on the adjusted EBITDA margin rate expanded 380 basis points.
The improved profitability both year over year and sequentially was driven by the favorable mix of revenue and lower expenses.
The bottom of the slide shows our key metrics for the banking segment on.
On the left while the conversion of current quarter wins that Mike described will have a typical nine month lagged the conversion of an eventual revenue generation prior period wins of digital banking drove a 6% year over year growth rate in the first quarter.
Digital banking registered users increased 13% compared to Q1, 'twenty 'twenty and despite the decline of total banking revenue. We did grow in the right places recurring revenue in the banking segment increased 8% year over year.
Moving to slide eight shows our retail segment results, which were uniformly strong.
Retail revenue increased $60 million of 13% year over year, driven by strong self checkout in services revenue.
Retail adjusted EBITDA increased $36 million or 97% year over year, while adjusted EBITDA margin rate expanded by 590 basis points to $13 seven per cent.
This first quarter performance demonstrates the impact of double digit revenue growth accompanied by cost discipline with the incremental EBIT. The conversion of 60 cents on the dollar.
Lower on the page we depicted the three key metrics for retail.
Self checkout revenue increased 31% year over year, driven by broad based demand both by customer and by geography.
Platform by an increased 51 per cent compared to the prior year first quarter.
We continue to see accelerating adoption and implementation rates of our next generation retail Pos software solutions and.
And importantly recurring revenue in this business increased 14% versus the first quarter of 2020.
Slide nine shows our hospitality segment results, which returned to year over year growth.
Hospitality revenue increased $10 million of 6% is really beginning to see restaurants, reopen rework existing locations and expand.
Our signed total contract value more than doubled from the year ago first quarter. Our sales pipeline is getting stronger and we're adding resources to our selling effort. The catalyze this improving trend for.
First quarter, adjusted EBITDA increased $18 million or more than tripled from the first quarter 'twenty 'twenty due to higher revenue and lower operating expenses.
Hospitality is key metrics include Aloha central sites and recurring revenue.
Aloha Essentials sites, which bundled software services hardware and payments into a single offering grew 61% when compared to the prior year first quarter and grew 21% sequentially.
Recurring revenue in the graph at the bottom right of stabilized is the attrition rate caused by restaurant closure has abated.
Recurring revenue on this business was down 1% from last year and was flat sequentially.
Turning to slide 10, we provide our first quarter results were $86 20 strategic targets that are now very familiar to you we strive to generate 80% of our revenue from software and services or described is the inverse less than 20 per cent of our revenue from the discrete hardware sales in the first quarter software and services represented 72 per cent of our revenue.
Which is an increase from 71 in the fourth quarter the.
The decline from 74 in the first quarter of 2020 was driven by higher school revenue. This year, we aimed for 60% of our revenue to be recurring the drive more resilient more predictable and more valuable revenue for.
Occurring revenue represented 57% of the total revenue compared to 54% in the fourth quarter at 53% in the first quarter of 2020.
And we aspire to a 20% adjusted EBITDA margin rate.
As I've already emphasized we made significant progress on this metric with an adjusted EBITDA margin rate of 16, 7%.
Impaired to $12 five per cent in the first quarter of 2020 and 15, 8% in the fourth quarter on slide 11, we present free cash flow net debt and adjusted EBITDA metrics the facilitate leverage calculations.
As I described earlier, we extended the trend of strong more linear of free cash flow through the traditionally challenged first quarter of the year free cash flow of $98 million in this quarter compared to free cash outflow in.
Last year's same quarter of $20 million.
Versus Q1 of 'twenty 'twenty all categories of inventory, we're down in aggregate the 17% with days on hand down seven days operationally risk.
Receivables were down 11% with a nine point improvement and those the those longer than 90 days and days sales outstanding improved by nine full days. The slide also shows our net debt to adjusted EBITDA metric with the leverage ratio of 3.2 times.
We ended the first quarter with $319 million of cash and remain well within our debt covenants.
We ended the first quarter with credit facility leverage of approximately three three times well under our covenant maximum of 4.6.
In anticipation of the Cardtronics transaction, we have augmented our financial position with two important debt transactions.
We amended and extended our senior secured credit facility, which provided an incremental $1.3 billion of new term loan a.
And issued new $1.2 billion in eight year senior notes the.
The weighted average interest of these transactions is about three 7%, which is significantly lower than our original model at the eventual close of the transaction. These funds will all become available on our total leverage covenant will widened the 5.5 times to allow us to execute our plan to delever rapidly from a forecasted post close level.
A 4.5 times these.
Of these borrowings are structured stood on the absence of of closed NCR would not be left with excess borrowing.
Greatly appreciate the partnership and strong support from our lending group.
And my last slide of Slide 12, which provides the outlook for Q2 of 2021 on it for NCR on a standalone basis.
While the successful completion of a proposed cardtronics transaction at mid year would complicate both your modeling efforts and our reported results. We intend to report the second quarter and our current format the facilitate that analysis.
For Q2 for.
For NCR is currently comprised in relative to 2000 Twenty's results, we expect revenue growth of nine to 10 per cent.
Strengthening demand signals from our end markets and improving competitive position will both support that growth.
We expect particularly strong growth on our retail and hospitality businesses and a growth rate on a recurring revenue streams that is similar to Q1 on profitability. We expect adjusted EBITDA margin rate to expand by 250 to 300 basis points to more than 16%.
And finally, we also expect free cash flow to be similar to Q1 of 'twenty 'twenty. One as we continued to drive improved cash generation linearity I expect our second quarter performance to be another proof point that NCR is emerging from the pandemic and more productive more competitive and more valuable company with that I will turn it back to Mike for his closing comment.
Thanks, Tim now turning to slide 13, I want to provide an update on the proposed transaction with Cardtronics cardtronics shareholders for a vote on the transaction at the shareholder meeting scheduled for May seven.
On the regulatory perspective, the Hart, Scott Rodino waiting period expired.
On March 11th and the transaction is still under review in South Africa, and the United Kingdom.
We anticipate the transaction to close mid year subject to shareholder and regulatory approval.
We remain very excited about the transaction as the addition of Cardtronics will accelerate our NCR as the service strategy.
And is expected to be accretive to non-GAAP EPS for the first year by 20% to 25% it will enhance our scale on cash flow generation, while advancing our 80 60 20 strategic targets by roughly two years, we believe the combination of NCR Cardtronics will drive significant value for our customers and our shareholders.
It's a unique opportunity that's supposed to cheekily consistent and financially accretive to NCR now turning to slide 14 looking forward 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 and strive to build on the positive momentum.
Second we had momentum in the business and are well positioned to drive accelerated growth, while improving revenue and cash flow linearity as we shift more of our revenue two of recurring revenue stream third we expect the combination of a love of cost structure, along with positive operating leverage will continue to drive margin expansion for us.
We will continue to allocate capital to the highest growth and return opportunities with the goal of driving free cash flow and increasing returns for our shareholders and finally, we are preparing to hit the ground running and executing on the opportunities that cardtronics will bring us once the transaction closes that concludes our prepared remarks for today.
With that we'll open up the call for questions. Thank you for your time and operator, please open the line.
Thank you if you'd like to ask a question of simply press. The Star key followed by the day just one on your telephone keypad.
If youre using a speakerphone. Please make sure you're on mute function is turned off to a lighter of signals for each of our equipment. Once again the press star one at this time what Paul.
For a moment.
And we'll take our first question from.
Of the Morgan Stanley.
Yes. Thank you a couple of questions first Q guidance revenue guidance is it's strong, but if you look at it on a sequential basis at 5% is below pre COVID-19 seasonality of about 8% in into the Q is that just a function of the increasing recurring revenue Max or.
Is there something having to do with the timing of when you see hardware deals coming coming true this year.
No Youre exactly Katie this is kind of you're exactly right as we've gotten more linear on our revenue streams, we had a much better first quarter than would have typically been of happened in the historically happened the shift from Q4 to Q1, and so going into Q2, the sequential growth is there, but the modest the trend of modest sequential growth that we've talked about for the last several quarters continue.
On into Q2.
I would expect the growth in that quarter to be a little bit more hardware heavy in Q2, particularly when it comes to just go and.
The point of sale at the hospitality business.
Okay, and then I assume that's why EBITDA ex.
Spansion is up year on year, but it's down sequentially in Q2 is that because of the hardware mix.
So as we sit here now I'm not certain it will be lower I think we are we did demonstrate some pretty significant growth in Q1, I do see a little bit higher cost in the second quarter and my my revenue mix is a little less advantageous in Q2 so.
Oh look if we're able to hit the high end of that growth range Theres. Some opportunity will come on the right places, but for now I'd expect the margin rate to be just modestly below where it was in this quarter.
Okay, and then lastly, you commented on T V and pipeline for the banking and hospitality segments can you just comment on what you're seeing around the pipeline and in retail in particular.
Yes go ahead.
Yeah, Katy this is on the <unk>.
Retail business as a bolt on the software side of the house, which is what's driving the TCP.
We're seeing some really good momentum there we've talked about the.
A refresh cycle that we work.
Forecasting our talking about back in December for seeing that coming to fruition.
On the activity level is really strong show of the PCV number is a reflection of that coming along with that is the self checkout as we convert the number of lanes that are available to us. So it's a little bit of a hand in glove, but what we really like it goes back to <unk> comment about the mix.
We're getting the right mix out of the retail business, along with the others, but theyre going to drive the big hardware number they did in the first quarter, we probably will see that in the second quarter, but I think we're more energized about the software momentum there.
Okay, great congrats on the quarter. Thank you.
Thank you thanks.
Next we'll hear from Tim Willi of Wells Fargo.
Yeah.
Thank you and good afternoon everybody.
My first question and then a follow up Mike and Tony.
I think he built the restaurants numerous times through your comments talking about your improved competitive position and I know the you know product in People's been of focus of investment since you arrived Mike I'm wondering if you could just sort of.
Or is there a business line more so than the others, where you feel like there have been substantial improvements on your competitive position anyway to sort of think about one standout versus together are appreciating the probably all of them are better.
Yeah, Tim Thanks for question.
I'd say a little of it across the board again, we've been focused on all three lines of business.
And some very specific.
Initiatives.
Yeah, and I didn't see a little bit of the numbers I think.
You start with hospitality.
And what we've done in the SMB market with the Aloha Essentials.
To give you those metrics for starting to have the success. There was standard and have really good success of attaching payments to the bundled a little of that field in the until the market the <unk>.
Sign of hospitality kind of pick up.
A little bit of that as you know the challenges that the large into the back of the had last year just because of the was so busy this year, we're starting to get a refresh and upgrade them and they are opening up new.
New stores, the new restaurants.
On retail.
The retail you've had a number of it.
As of now reinvesting back into the ml of that holiday retail P. L. As are we.
We believe and we kind of see that even with the pandemic and driving the need to really have a lot of out of multiple channels of.
All of that.
You need definitely to ease after the U S get it out of them or.
The current architecture. So we're starting to see success on that Owen mentioned that that's going quite well.
Seeing a little bit.
I shouldn't say a little bit of school, obviously coming out of the pandemic.
Drive the self service side of the pandemic now, it's driven by the ability to get labor and then the labor cost that all of our clients.
Thing is adding a lot of conversation around on this.
We have improved across the board not only on the product and the product investments and also on our service of NPS scores net promoter scores went up last year quite well and as the resolved a as you know on in the business that we're in.
One of our customer sat improves because we do better service, we get more sales.
See that and then lastly.
So did the banking came back last year, you had a good had a good 19.
Sorry, good 'twenty and it's continuing to show very well into 2021.
Kind of literally of course festival of retail hospitality.
The digital banking have had a really good start for the year.
Thank you and then my follow up was just on on hospitality and restaurants, we hear a lot about labor shortages and people not being able to hire and.
I'm curious if within your you know your product suite. There are there of definitive revenue opportunities that are really built for addition buyer of where you can really walk into that restaurant and.
Help them manage even if theyre under staff, whether it's check out at the table or some kind of other products and services and that Pls system that there's a real opportunity given the flavor of market to really get some cross selling.
You know the customer base around labor type products.
Well I mean.
Those are the two of your defenses to the bill.
The date of pay at table and of course, the village of order the table of the ability to order the table and Jive N. The straight through to the kitchen.
Again, the most times when you have the menu on the table, even just the wait for the late start.
System, because it's integrated with the little halfway back to the that kitchen.
If you're in a little higher.
First of all of our table and then you can have runners of taken them out of the drinks in the food.
Integrated with the front of and we've put some money into our current in online ordering system again that go through of the S. P. A is the service platform races of the kitchen. So you don't have to reenter, which mount platforms, where the kind of third party aggregators like on the hub.
E.
C C. It on the restaurant, they're reordering at into the P. O F. The high school of straight through into the kitchen. So we have some technology in the enterprise accounts.
You know a lot of interest in just having that that integration and having the capability of the minimized.
The staff interact interaction. So we think the police pretty well for that challenge of self service.
Excellent I appreciate the thoughts and all of the details on the call. Thank you.
Okay.
So I'll have for of Stephens has our next question.
Great. Thanks, guys. Thanks for taking my questions.
I might have missed this earlier, but I was hoping if you could talk more about the payments attach rates for the existing the hospitality customer base and if you were starting to win some of you know some of the acquiring business.
It's coming up for renewal.
And then I have a follow up.
Yeah, So where where are we talking about going on and putting up new Aloha essentials sites. So so a lot.
Potentially it could be to a new kind of greenfield client work of the upgrading of existing Aloha client.
Situations you can see the attach rates of very strong we actually have gone out.
And started to sell into larger accounts, whether its a still absolutely with the 10 restaurants, whether it's the larger enterprise.
And are starting to build the ninth pipeline with that I think will affect the C. Some of those convert into customers over time.
We've actually on payments.
The hospitality is head of retail the retail starting to get some momentum as well as the applying on with Emerald. So.
Has the board of payments are starting to get the attraction.
No I say the savvy call three months versus the long game.
We can attach payments for all of our point of sale.
But we started transaction, we want to complete the transaction and collect the fee for that and a little of keep moving keep integrating keep adding functionality that we can differentiate with the integrated pls to the merchant payment.
The only thing I'd add to that is the dark and his team as they have gone to market here.
Two things that they are very focused then on they are on the path to double the number of feet on the street in the hospitality space. So when we look at our our product functionality and feature we think we're very competitive we feel good about that this is of our feet on the street.
Battle.
In the SMB market in particular, so we are on the past the double the number of salespeople the.
The other thing is that they haven't really build the strategy until the need as a payment first our strategy with the yes in the marketplace and in fact, what we've done is with bundled the pricing to do of net settlement on the payment. So at the end of the day, we're bringing the whole how essentials with payments to the table and the.
All of it that's the settlement basis against the payments.
Volume so the message is loud and clear and I will tell you the receptivity and Mike talked about 61% growth on a low of sites, we're more than happy that were over achieving on the attach rate in that activity.
Activity.
Versus won't be on.
Yeah.
That's super helpful and I appreciate the my follow up question is you know to the extent that you guys can any update on how customers of partners are thinking about the Cardtronics acquisition.
Yes, I mean, we obviously can't go on in market.
Together, we can't go on talk about at.
Cardtronics has an offering we do get in our inbound of.
The messages of others.
Calls are as we're out talking to clients.
And executives so it's literally more anecdotal I would say the vast majority of its been very positive.
Where whether it's the banks.
Or the retail.
On the Insulet around boy I guess some of these are the joint customers right. So some of the reach of clients are using on hydro season Cardtronics, none of the banks have.
Tips with nothing else until use use of the ethylene network or they use for other services from our training.
They come to us and say lot of together here of some things of that you guys could do that would really help us.
So it's again very antique bill at all.
But on the subprime.
So far it's been very positive.
Next we'll hear from current off of.
The benchmark company.
Great. Thanks.
Oh can we just go back for a second just on the hospitality doubling of feet on the street, if there's any way to kind of maybe parse out what you guys are seeing between let's call. It existing logos that were struggling and of reopening their doors versus navy new logos that have cropped up because.
Obviously, it depends on making package of the hospitality space.
In a more meaningful way than almost any other vertical is just you know kind of of the conversations that you're having there just so we can get a sense of of the trajectory there and then Mike.
Mike I guess, you know what kind of we haven't really touched on digital banking too much of it had a nice uptick in the quarter. Thanks for all of the breakout again kind of hear you.
Talked about seeing some green shoots integration of physical assets just any other granularity you can give us on sort of how you see that trajectory kind of improving over the balance of this year would be helpful. Thanks.
Sure so on the hospitality I wouldn't say that.
We certainly have absorbed a lot with our customer base I think Mike referenced there are net promoter scores.
Probably the most of materials are moving.
Moving that has been in the hospitality space of I think that was because with our existing customers.
We really collaborated with them in terms of of helping them absorb the the body punches it pretty well, so suspending payments and stretching things out. So the loyalty. There has has been very very strong of the the attrition has been coming from those day, just couldn't survive and stepped out but.
On the loyalty from that customer base.
Is it really good what we're seeing in the.
The vast majority of the step up in Aloha sites are new footprint. So some of those are existing customers that moved out of the street or reopen their shop for new stores.
But we're seeing a really good pick up in the and the receptivity to this approach that Dirk and his team have taken religious the bundles of Aloha essentials.
Minimal upfront capital the net settlement on payments has really made this tolerable because even though we're starting to come out of it we're not I'll get the volume is moving.
Directionally right, but the volume isn't there so the.
The cost of all of the.
Payment structure is volume sensitive which is exactly what these new folks are looking for so we're seeing really good performance and new footprints opening up and the loyalty of those customers that have survived it has been.
Really strong so.
I don't know if that's what you were looking for but that's kind of what we're seeing.
For the activity in the first quarter.
Sure.
Yeah, and then on the digital banking so we.
We attack on the time.
It's there at our Investor day that we.
You know with leaf Bill built back of the digital banking products that are not only with the product of each function on the investment, but also with a keen on the go to market.
How we are literally.
Interact with the marketplace.
So are we.
We aspire to get that the growth rate in the double digits. I think we said we believe we can get there I don't think that's going to happen in 'twenty, one, but we think.
Ladies and Tony <unk> 23.
We can approach double digit the the acquisition of <unk>, three which is paying dividends in the 25 billion of Bobby we announced.
The big deals you know the Soc.
The state of Bank, we announced the interest bank both of those banks are in the $50 billion range for some very large scale.
Hard of that was integrated with the tariffs we brought on caffeine at the heart of our business.
The partnership with them on the past day to Omnichannel and multichannel on opening it put it in kind of the the mobile they put it in kind of digital.
We can put that on the branch we can put that on the ATM. So we really have a differentiated product, particularly in the segments of the marketplace, where they are looking for the retail consumer starting with a digital experience moving through the branch of moving to an ATM or an ITM where compete.
On there with the Q2 for the alchemy, we believe we're winning our share against them.
And we're doing really well are the kors, particularly some of the core providers have some legacy platforms that have not been kept up the data on the mobile side and as you guys. All know the whole play for a bank and the retail.
Side of the business is all digital today. So it's so important to have a really strong digital partner and we believe the product is.
It is as good as anybody else out there today.
Perfect. Thanks for all of the color guys I appreciate it.
Paul Chung of Jpmorgan has our next question.
Hi, Thanks for taking my questions.
So just thoughts on free cash you know very strong generation of this quarters typically usage and <unk>. So anything on on working cap do you want to call out it looks like payables was a bit lighter so anything structural going on there you're gonna smoothed that out.
Across the year Q2 looks pretty strong as well so how do we think about for you now.
For Q as well you're going to see the bump there.
Yes, we had a great quarter on receivables again in receivables of spend most of the story over the last Oh, let's say three quarters.
I think those were those.
The improvements to our processes aren't necessarily completely institutionalized jet they'd become the.
Let's let's call it more common across the organization will continue to work on that we still got.
Too much in the way of our receivables are still 90 days are.
Longer than 90 days of duration, we're going to work on that.
And I think the the.
Overall, our days right now or in the quarter 71 to 72 days of you've been as low as 63 of 64 days at year end I think we'll work that out as we go through the year on the on the inventory side really great performance typically this company ramps up inventory buys in Q1, and then dropped down that inventory pick on the raw side over the next several quarters.
Orders were buying and the more linear fashion to be more just in time or not just in time, but more just in time and you're seeing that are in or out of Ross and I are are we finished the quarter a little higher than it would've liked on finished goods that has to do with you remember theres. Some shipping issue. So as we closed out the quarter. So globally. So I think.
Well, we'll clean up a little bit of that going into Q2, but there's every reason to believe the dose as the year plays out that our free cash flow should continue to be.
On the $450 million range for the full year, which are if you play that out of linearly across the year it should get a little bit better in each quarter. As we go we tend to have a little higher in second half free cash flow and the burst, but I still expect the.
North of $200 million of free cash flow in the first half of the year.
Okay, well, that's great and then just to follow up on on tariff on a.
You know, what's kind of the respective contribution there and what kind of attracted you to that asset and then you know given the more kind of expanse of capabilities and full solution are you seeing more interest from fin techs in community banking.
And your thoughts there thanks.
Yeah.
And you don't care of feet until we are.
Oh, sorry, it was really like the proud of we like the ability to the account opening do account opening on the digital or mobile platform.
Second we like the fact that day and go to the other channels.
You know on it.
We can do the same opening than on an ATM of Nike on having more of the ITM interactive teller machines.
And then we can take that into a branch or a call center. So it's multi channel. We think that's really important and then the small type of products. So it does the deposit account opening the you'll do with the dominant opening it'll do it'll go to mortgage the small bid. So it has that ability to really serve the whole breadth of products and then lastly, it's bill for.
Customer direct it's bill really to be as opposed to back off of this is bill on average for for the customer. So it fits really nicely with our strategy, which is self service of self directed banking for retail clients.
It's fit in nicely its integrated its up and running and it really is helping to drive sales not only for care of feed them and also for our digital banking products.
Thank you.
Next we'll hear from Matt Summerville of D. A davidson.
Just a couple of questions first as your business been impacted in any way by all of the supply chain and logistical challenges of the U K.
Basically agreed about sort of every day, whether it has to do with microprocessors or again, just you know challenges of afraid of et cetera.
Yeah, Matt This is Owen I would say the date.
We have been really.
Comfortable with our position.
I think as you may recall over the last year or so we talked quite a bit above what we had done to reevaluate reevaluate our supply chain as we reestablish.
Reestablished our manufacturing footprint around the globe.
Moving more localized for the supply chain, but also creating redundancies and quite candidly over the last year of those redundancies.
We're tested as you know the COVID-19 hit certain.
The geography is in Brazil or China.
Chennai, So we were able to put the supply chain infrastructure that we put in place for the test.
We're pretty comfortable going forward the debt, we have what we need.
We've certainly looked and are aware of the microprocessor issues, but we believe that we have the supply chain and.
For them and see in the alternatives in place that we need and that's given the current conditions of the things really moved at a.
Materially Bad way, then we'd have to reassess where we're at the right now Adrian and his team have done a really good job getting us well position.
You raised the constant down about a blend of ship of stuck on the Suez now actually not just the families figure of how to get materials around that.
On a year ago the live at year ago, we were very challenged with China are we.
The plant in India right now as you all know and down the cause of hitting India that is any of it.
Entry on the globe. So we've been battling this for over a year. The team does a great job literally every single day kind of figure the south but it's still it's still a risk for.
Just going forward.
And then lastly can you talk a Tim what the impact was in the quarter on the top and bottom line with respect to the ongoing shifts towards more of a recurring revenue model.
Oh, yeah, so about one point of growth of it cost us about one point of growth this quarter predominantly still in banking for one more quarter, but probably two thirds in banking and in the third in the in the retail space.
Got it thank you.
As a reminder, star one to ask a question, we'll now hear from Kartik Mehta of N C. R.
Hey, Good afternoon, Mike just you talked a lot of about a T. M is the service I'm wondering what type of F. EIS youre seeing interest in.
The size wise of asset size wise and is it just domestic or are you seeing that demand internationally as well.
Yeah, We just announced the deal that we did over in our Europe.
Literally we announce the last week.
Where we're going to be more speed of bank credit Union, particularly with the states, they're going to be a little bigger overseas I look how your discussions.
Over the last 18 months and again, we're still fairly early stage in the wrong on the ATM as the service, but we thought it would be smaller banks, maybe a few midsized banks, we had larger banks very interested.
And of dialogue and in some cases it off Prem only the name on it to figure out the cram fleet and out of cases is exploring on maybe a little bit broader opportunity, where we can bring value to them.
Again, we're early stages of our focus right now on to do it on a smaller scale.
That is an area that we've called out as we can.
Combined if we get through the merger passes with Cardtronics, we will have a very compelling offering in terms of the capability to operate and run the they probably run is the largest fleet as anybody on the glove in terms of driving Atms 20 for my seventh zone.
Today, it's on smaller we think that'll upscale quickly.
And Mike just last question as you look at the Aloha offering how do you. How do you think youre comparing in terms of competition are you, maintaining gaining or losing market share of how would you.
Kind of characterize what's happening on that side of the business.
Yeah, So that's sort of.
The two markets.
And then it's very small on them, we use of private health silver.
Alex It's pure cloud base of low ha Ah is a is the cloud.
The cloud components to it and as you know, it's not really going out of the car, it's really about the ability to install of the about the ability to support the ability to drive upgrades and we kind of have the capability a little hot in the enterprise side. We still think is by far the best product out there is continuing to be validated so on the enterprise side.
Good.
We do very well on the SMB side Owen talked about at least.
We built our channel and some of the marketplaces.
We've been adding feet on the street and continuing to drive success, you can see that in a little bit of essential numbers, we've got I'd take some stronger competitors and one in particular in the SMB space.
The phase, but I think the product if you look at the product and you talk to people using the product.
They loved the product Theres more weighted staff, there's more servers in the industry, who know I'm proud of in any of the product down to if you look at labor challenges and you want a product of somebody can walk in the us. It's aloha. So I think our biggest challenges of men distribution Ah.
The channel our ability to install our ability to get it out there.
We've been addressing those over the last 18 months.
And well now hear from Ian Zaffino of Oppenheimer.
Oh, Hey, guys thought of as more countries and thanks for taking my questions on just actually a quick one on the the Oh can you get the sense of where the attrition rate is and then it seems like all of attrition rate has been caused a lot by restaurant closure of that.
I guess like the majority of the reason of what's the driver and if so it's like if not is there anything else that's driving the attrition or where do you see going forward. Thanks.
Yeah, I mean, we track attrition of hopefully, it's a little hard, particularly for 'twenty 'twenty a is it a SMB you know the the enterprise one of you see those that's really take Florida and again, we were very strong on the enterprise and we've picked up market share and client and enterprise.
As opposed to losing in the S. M. B. It was hard to tell last year why they went away on it.
GAAP hang or stop connecting to our system.
It's been it's dramatically better now than it is on track for that quarter to quarter first quarter. This dramatically lower on attrition.
But he has been tracking that filing that I, our view on that space, though you had take your pick read in the industry.
That's the 25 to 30 per cent of the restaurant closed up not to reopen.
The markdown on your street, the thesis that closed up in the restaurants on our business somebody's going to reopen in that space because the demand is going to be so high for coming back out of eating on the pandemic and our goal is to be there and to win back when new those entities that it'll come back up in literally the same on.
Patients so.
We think going forward, our numbers will continue to get better than the about 'twenty one.
On net adds versus losses.
Great. Thank you very much.
And it appears there are no further questions at this time I'll turn the call over to Mike Hayford for any additional or closing comments.
Thanks.
Thanks for all of you for joining us again today.
Let's say, it's why we don't think we're fully out of the global pandemic, yet obviously, we're seeing it it moves so depending on where you are or you feel better about.
Where it's at obviously are the.
Compatriots in India, we are the large step of India, and Brazil are still feeling the brunt of it.
But we do feel really good about the progress in the first quarter.
In 2020 throughout the rest of that all of your during a difficult year independent of if we asked the team to stay very focused on the customer and our goal is if we take care of the customers to the difficult year coming in the back end of that they'll look at NCR as a partner.
And they'll buy more from us it's pretty simple formula. We believe we are starting to see that that is starting to pay dividend.
And the customers are buying and theyre buying a strategic.
Since you're buying or initiatives.
And the Brookside.
Brooks that we've been doing the last two and a half years of starting to pay dividends.
These green shoots as we call them all of them in my script. These green shoots of success that we started to see in the first quarter of a given some optimism in the may a little more optimistic on our call today based on our numbers on our performance, but the.
The optimism is that our strategy is working our execution of starting to come through.
And that makes us feel a little bit better about 2021 going forward.
Thanks for joining us today, we'll see you in three months.
That does conclude today's conference. Thank you Paul for your participation you may now disconnect.
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