Q1 2022 NCR Corp Earnings Call
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Good day.
And welcome to the NCR Corporation first quarter fiscal year 2022 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Michael Nelson Treasurer, and Vice President of Investor Relations.
Please go ahead.
Good afternoon, and thank you for joining our first quarter 2022 earnings call. Joining me on the call today are Mike Hayford, CEO Owen Sullivan, President and C O O and Tim Oliver CFO before we get started let me.
Mind, you that 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 26, 2022, 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.
Alright, I'm, assuming by now you've seen our numbers for the quarter and while the external macro impacts resulted in disappointing financial result, our teams continued to execute in the business segment and overall I would say our first quarter was very good with strong sales contributing to build order backlog.
Competitive wins strategic transformation momentum and execution on our keep yet.
Inflation interest pandemic and war all impacted us in the first quarter and caused us to Miss our expected number.
Tim will cover more specifics later, but let me give you a high level.
Acceleration of cost led by microprocessors fuel and shipping cost impacted us in the first quarter.
We think many of these impacts will be mitigated throughout the year I think we can control.
Andrew our cost actions.
Interest rates moved quickly in the first quarter, we don't see this improving during 2022 so we'll have to address cost elsewhere.
On a constraint caused impact to transaction volumes as numerous countries slowed down during the first quarter.
We have already started to see improved volumes in the second quarter.
And lastly, the war in the Ukraine has impacted our business in Ukraine, and Russia, Tim will cover the impact and actions. We are taking the bulk of the financial impacts were due to the inflationary cost pressures and the omicron impacts.
On slide four over the past three years, we have successfully bounce transforming NCR and our software led as a service company, while continuing to deliver on our quarterly financial performance. During the first quarter, we continue to focus on that balance.
In the first quarter NCI have made significant progress against our strategic initiatives with strong execution across our kpis.
Spike the significant challenges, we faced our teams executed extremely well and delivered to our customers in quarter, one NCI delivered 21% total revenue growth.
With recurring revenue growth of 35%.
Adjusted EBITDA increased 5%.
Importantly, we are experiencing strong customer demand for solutions across our business segments and continue to successfully transform NCR into a softer that as a services company with a higher shift to recurring revenue streams.
Now moving to the business update on slide five.
We have had strong momentum across our strategic growth platforms, which support our company transformation in payments and network, we are making progress against both merchant acquiring and the all point network.
We are seeing an accelerating number of merchant applications for integrated payments in the first quarter. We also extended at all point in network with key merchant partners, most notably circle, K, which expanded its relationship with NCI with the addition of more than 650 locations across 13 states.
We're also expanding NCR hates me 60, which provides nationwide hurdles to access to NCI cash endpoints and through strategic partnerships NCR Patriots sixth facilitates money transfer for nearly any business vertical.
<unk> hundred 60 also brings more transaction types, including digital currency solutions, and the ability to buy and sell crypto currency at MTR cash endpoints.
In digital banking, we continue to have positive momentum in the first quarter digital banking had twenty-three renewals and a new logo deal and the continued expansion of tariffs seen out with three new clients for online digital account opening platform.
In self service banking, we continued momentum in the trans transformative shift to software based solutions, which deliver recurring revenue. We also were seeing increased interest in our ATM as a service solution an integrated go to market model, combining the NCR anti China team's capabilities that provides a key point of compare.
The differentiation.
In the first quarter, we secured four new Atms in service customers, including Quebec since credit Union, which is embracing ncr's ATM as a service to enhance and modernize the member experience.
Saudi National Bank deliver a richer customer experience with our enterprise ATM software suite, providing targeted interactions and increased efficiencies.
In retail we have positive momentum in winning upgrade imperative for retail point of sale solutions NCR was named the world's largest P. O S software provider for the fifth consecutive year by RBI.
During the quarter, we became began deploying NCR fresh hop.
Big light to be used as a fan and a big lies micro fulfillment center. This.
Fast solution helped groceries implement their own e-commerce and delivery services through the NCR Commerce platform.
And self checkout. We also think continued adoption with our market leading solutions, including the supermarket retailer Kohl's based in Australia, who recently refreshed their self checkout at stake.
In hospitality, we continue to attract new customers and cross sell to existing customers, including first watch restaurant group, where we partnered on kitchen innovation technologies to better serve the staff and customers. We also continued to expand our strategic relationship with noodles <unk> company by adding additional services to our software platform.
We saw increased momentum with our distribution partnership for our SMB cloud with a large bank in America to their merchant services Division.
And finally I'll provide an update on our strategic review process, which is ongoing last call, we announced the initiation of a strategic review to enhance shareholder value during the quarter, we hired advisers from Bofa and Goldman Sachs. And addition to Evercore and began a process to review strategic alternatives available to NCR.
To enhance shareholder value.
We continue to evaluate a number of different paths and have made good progress to date with that let me pass it over to Tim.
Thanks, Mike and thanks to all of you for joining us today.
Oh, Mike our first quarter results represent a tremendous effort across our strategic growth initiatives, while simultaneously battling a surge in existing challenges compounded with new exogenous shocks.
As a reminder, beginning this quarter, we will report our results relative to five new segments described under December Investor Day.
And the legacy Cardtronics results are now included primarily in the payments and network segment.
So let's begin on slide six with a top level overview of our first quarter financial performance.
Because these results are significantly different than we anticipated I've added an additional chart that follows to provide a deeper cargo analysis.
Starting in the top left revenue was $1.9 billion up $322 million or 21% versus the 2021 first quarter.
Recurring revenue was up 35% year over year.
On a pro forma basis, including Cardtronics for the full year of 2021 revenue was up about 4%.
In the top right adjusted EBITDA increased $13 million or 5% year over year to $271 million.
In the bottom left non-GAAP EPS was <unk> 33 down 18 cents or 35% from the prior year first quarter.
The tax rate, while similar to prior year was much higher than our full year expectation due to the lower level of profit and the follow on effect on discrete items and deductibility.
Assuming profitability improves as we expect the tax rate will decline across the remaining quarters of 2022.
And finally first quarter free cash flow was a modest use of $10 million due to seasonal compensation expense that was not funded in 2021 and a one time adjustment to our annual 401k match.
This result was slightly better than our expectations.
Before I walk through the segment results I want to quantify the macro impacts to our revenue and EBITDA as the themes across all the segments will be similar.
This chart categorizes the impact on revenue and EBITDA for the results realized in Q1, and then projects the anticipated impact for the remainder of 2022.
For revenue supply disruptions late in the quarter.
And eastern Europe due to the war in China due to new Covid Lockdowns all caused our hardware revenue to be extremely back end loaded and caused us to miss revenue recognition for Atms in scope at the end of the quarter.
This accounted for a little more than half of the shortfall and we expect to recover most of this revenue as the year plays out.
The persistence of the Omicron Covid wave around the world and the resulting decrease in transaction volumes suppress revenue by more than $25 million relative to our expectations.
While transaction volumes are not backlog like hardware, we are seeing better volumes now in the U S and anticipate similar improvements in the crowd countries.
We expect volumes to continue to recover across the second quarter and have a strong second half.
And lastly on revenue.
C. R has suspended all operations in Russia.
In the quarter, we wrote down all of our receivables and inventory paid severance to a Russian employees and aided our Ukrainian employees relocation.
Direct revenue in Russia, and Ukraine would have been about $15 million in the first quarter and the full year. The direct impact is approximately $90 million.
We do expect another $10 million or so a follow on impact in other parts of eastern Europe .
Switching to EBITDA.
The first quarter hardware revenue Miss would have converted to about $15 million and should be mostly recoverable as we eventually ship that impacted hardware.
The payments transaction volume shortfall would have converted to a similar $15 million of EBITDA and we are still as I said before are seeing better trends currently.
Adding the impact of the war in Eastern Europe about 40% of EBITDA Challenge in Q1 was directly linked to revenue conversion.
The other 60% of the EBITDA Miss is attributable to significantly higher than forecasted inflation.
Component prices jumped well above 2021 levels, even with extended lead times and freight, particularly expedite costs continued to escalate with surcharges increasing.
These are direct costs of our manufacturing operations and pushed margin rates on some of our hardware products down to breakeven levels to.
The standard cost of some of our P. O S devices has increased over 35% year over year.
Fuel costs are pressuring the margins in our services businesses.
See our purchase is about 10 million gallons of fuel a year for our service fleet and spend significantly more through employee mileage and contractors.
And interest rates are in operating expense for us, we rent more than $4 billion of cash from our bank partners to supply our ATM fleet.
The cost of that rental goes through the EBITDA line is cost of goods.
We plan for three rate increases in 2022 we did not plan for six or more.
There are operational adjustments, we can make to offset some of the higher interest rates such as reducing the amount of cash in the Atms as well as passing through contractual protections triggered by higher rates.
The obvious offset to cost inflation or price increases and cost productivity.
We're actively working on both.
While we've been implementing price increases beginning all the way back in July of 'twenty, one we have not yet seen full realization of those increases hardware.
Hardware sold from backlog and longer term contracts with only annual escalators cause a lag in price realization that is particularly painful in an environment of runaway inflation.
The full year impact on EBITDA on the far right.
Captures our expectation for those exogenous factors that impacted our first quarter performance.
The ranges at the bottom of the page for mitigating actions described our ability to impact those things.
We can control like price and cost.
These actions are all reflected in the adjustments, we're making to our full year guidance.
Let's move to the segments on slide eight which shows our payments and network segment.
For the quarter. Please.
Please note that the results and key metrics on this slide are presented on a pro forma basis and reflect cardtronics historical results as well.
In General this was a very good quarter strategically for this business and a decent operating quarter.
Starting at the top left payments and network revenue increased $32 million or 12% year over year with all point growth more than offsetting the omni kron, driven shortfall and global transaction volumes.
Payments and network adjusted EBITDA increased 10% year over year, while adjusted EBITDA margin rate was a strong 33%.
At the bottom of the slide shows payments and network segment key metrics on.
On the bottom left.
End points increased 29% year over year.
These access points to the all point network and merchant acquiring terminals are increasing as we migrate them to an NCR installed base.
In the center bottom our transactions are kpis that illustrates that payments processed across our all point in merchant acquiring networks transactions increased 6% year over year, but fell slightly sequentially as I said before the global impact of the Omicron wave is evident in this metric for both Q4 and Q1.
And annual recurring revenue in this business increased 13% compared to the first quarter of 2021.
Turning to slide nine this slide emphasizes the continued momentum in our digital banking segment.
Digital banking had a very good start to the year with revenue increasing $13 million or 11%.
First quarter adjusted EBITDA was up 4% from the first quarter of 'twenty, one and an adjusted EBITDA margin rate of 41%.
Digital banking's key metrics on the bottom of the slide include registered users active users and a R. R. All of which were about flat in the quarter.
Remember that only about two thirds of the revenue in this business is driven by user count and that user counts can have some short temporal dislocations from revenue.
We expect all three of these metrics to be up about 10% at year end.
The air pocket in user counts is caused by two long known customer consolidation deconversion.
Which will be closely followed by the Onboarding of two of last year's major wins in Q3, when trust and associated Banc.
Slide 10 shows our self service banking segment results.
Self service banking revenue declined $17 million or 3% year over year with strong software revenue more than offset by lower one time hardware sales.
Self service banking, adjusted EBITDA decreased $25 million or 18% year over year.
The EBITDA margin rate declined by 350 basis points to 18%.
This business suffered the most from a backend loaded revenue quarter due to component availability and the dramatic inflation freight and fuel.
This business also had the largest presence in Russia.
The bottom of the slide shows our self service banking segment key results on the left we made significant progress increasing our software and services revenue mix to 72% up four points year over year.
We saw a six X increase in units served as ATM as a service compared to the same quarter of 2021 now.
We are ahead of our plan to get this metric to more than 11000 machines by year end.
The recurring revenue continues to gain traction with AAR are up 6% year over year.
Moving to slide 11, which shows our retail segment results starting the top left retail in our revenue increased $26 million or 5% year over year, driven by higher self checkout and point of sale solutions revenue.
Order activity in this business is very strong backlog is high and lead times are extending.
Retail adjusted EBITDA declined 32% year over year, and adjusted EBITDA margin rate was 12%.
This business was most impacted by the component cost inflation, particularly on P. O S devices, which accounted for most of the decline in profitability.
Retail did also have a presence in Russia.
The bottom of the slide shows retail segment key metrics on the left our platform lanes kpis that illustrates the success of our strategy to convert our retail customers to our platform based subscription model.
We increased our number of platform lanes by six X compared to the same period a year ago.
The implementation of software defined storage circle K describes this quarter's job.
We see accelerating momentum for the conversion of our traditional aged a platform lanes and having substantial lane convergent backlog in the center bottom self checkout revenue increased 8% year over year.
Recurring revenue in this business increased 3% compared to Q1 of 2021 Slide 12 shows our hospitality segment results and illustrates the momentum across this business with particular strength enterprise market caused by an uptick in new restaurant openings and technology refreshes.
Hospitality revenue increased $32 million or 18% as restaurants, reopen rework their existing locations and expand.
Our pipeline is strong our backlog is significantly higher and we continue to hire to increase our feet on the street and catalyze growth.
First quarter adjusted EBITDA was up 14% year over year, while adjusted EBITDA margin rate was 19%.
Hospitality is key metrics on the bottom of this slide include platform payment sites and a R. R.
What form sites increased 37% payment sites tripled.
On the E. R. R was up 14% year over year compared to Q1 of 2021 .
Before I move to free cash flow I want to remind you of our new reporting segments and the inclusion of a corporate and other and eliminations bucket.
They were comprised of three things.
Our T N T operating unit.
Our total corporate overhead.
And the elimination of the merchant acquiring business that is counted in both the payments and network segment that owns the technology and in the retail and hospitality segments that drive the customer growth.
On slide 13, we present free cash flow net debt and adjusted EBITDA metrics to facilitate leverage calculations.
As I previously stated we ended the quarter with with a $10 million use of cash due to typical and planned seasonal factors.
Receivable days outstanding in finished goods inventory both increased sequentially due to the lack of linearity in revenue caused by component availability.
This slide also shows our net debt to adjusted EBITDA metric with a leverage ratio of three nine times.
We ended the first quarter with $412 million of cash and remain well within our debt covenants, which include a maximum of pro forma leverage ratio of five five times.
We also have significant liquidity with over $860 million available under our revolving credit facility.
We have a strong balance sheet ample liquidity and the financial strength to support our growth strategy.
And finally on slide 14.
Summarize the adjustments down that we needed to make to our guidance to reflect what we just experienced and what we think we know about the remainder of the year.
Slide seven describes these causes for revenue and EBITDA.
And then I blow those same adjustments through to EPS and cash flow here.
So.
For full year 2022 we now expect revenue of approximately $8 billion down from eight to $8 $2 billion previously.
Adjusted EBITDA of one point for the $1.5 billion down.
Down from 1.5, the 1.575 billion.
And non-GAAP EPS of $2.70 to $3 20.
Free cash flow generation will be between 400 and $500 million, reflecting the decline in profitability.
With that I will turn it back to you Mike.
Thanks, Tim in closing on Slide 15, we have made significant strategic progress transforming NCI to a software led as a services company.
And while the external forces of inflation interest pandemic and war negatively impacted our financial results, we really feel good about the underlying business execution during the first quarter.
As we continue to transform the company, we will address the external macro headwinds with price actions.
Cost take out and efficiency gains.
And finally, we feel confident that we will find strategic actions that will unlock shareholder value.
That concludes our prepared remarks for today.
That we will open the call for questions.
Operator, please open the line.
Thank you.
I would like to ask a question. Please signal by pressing star one on your telephone keypad and if you're using a speaker phone. Please make sure. Your mute function is turned off to a lighter signal to reach our equipment again press star one to ask a question.
Just a moment to allow everyone an opportunity to signal for questions.
And we will go to our first question from Erik Woodring with Morgan Stanley .
Hey, guys. Thank you for taking the for taking the question, maybe you could just help us think or or or detail a little bit more about the linearity in the March quarter. Obviously, you know we spoke 90 days or.
You know I'd actually say less than 90 days ago, and you got it to the year in the quarter and and so it was was it was the once you Miss largely from March how did April trend versus March just looking to get a better understanding of when and where the impact wasn't perhaps how it was unforeseen when the last time we.
Spoke and then I have a follow up thanks.
Yeah sure. So the last time, we spoke was February the eight.
I haven't yet seen January results so.
We truly havent seen much in the way.
Results in Q1.
Yes.
As you know the war in Russia that accounts for most of the adjustment in revenue had not yet started.
Interest rates started to climb.
Gas prices climb even further and really because most of this has to do with cost on hardware.
Hardware revenue was extremely back end loaded we could not get the chips, we needed. So we assembled the devices early in the quarter waiting for the last piece, which where the chips and got them out the door in December and in many instances in the last two weeks of December so the Miss on hardware.
In the quarter.
$45 million, let's say across Acm's exco together pushed from Q1 out into successive quarters.
Net debt.
We didn't see that coming we didn't know at the time, we wouldn't get chips in.
And order in sequence and so we scrambled to get hardware out the door at the end of the quarter.
Okay. That's helpful. And then you know when you talk about the the mitigation efforts I'm on I think it was slide six.
Maybe just maybe just help us detail those a bit further.
Beyond pricing what exactly what you know what efforts or actions are you taking when should we expect those to kick in and maybe just detail there would be great. Thank you.
Yes, So let me set that up and I'll hand over to Owen.
As project to drive we had pricing actions underway and those pricing actions will pay dividends in Q.
We also had cost actions underway efficiency, primarily around the Cardtronics acquisition those were on schedule and on budget.
That is the change in cost between <unk>.
January and now we have to act more proactively to go chase yet more price more cost my best guess is that we will have about $200 million.
The actions that we put through which we'd net about $100 million.
2022.
We will put through a couple of hundred million dollars of cost savings.
Likely net.
100, and a quarter of that.
As the year played out so we're going to try to over solved with internal actions against what we know today.
Anticipation of further deterioration in some of these.
Macro indicators.
Yes, I think I'd add a couple of comments.
Yeah.
It's Ben.
A while since.
Of us have dealt in a hyper inflationary environment would be an understatement.
It's been decades, and I think what Tim described in terms of catching the falling knife.
We had backlog built in third quarter that we actually put price increases in surcharges on as we came into the first quarter and dealt with this.
Back end loaded linear.
Linearity to our build plan.
Dan.
The cost escalation was extreme summit is inflationary and I'll be candid some of it's gouging in the marketplace I just give you a couple of examples that we dealt with chips that we were buying at $41.
In the second half of the year are now in the open market that we have to go to for almost $2900.
We have chips that were we were paying 42 cents for our power supplies I should say that we're now paying $114. Four so I will tell you that we wanted to meet customer demand we did that.
We missed on the escalation and acceleration of cost from our backlog in the third quarter to what we're building and delivering at the end of the first quarter. The lesson learned is the actions we're taking.
We have taken.
Everything in the second third and fourth quarter backlog, we have now gone and looked at the <unk>.
Selling price.
<unk> out what our costs will be and we'll continue to stay on top of that and we're taking corrective pricing action.
So.
You take the lesson learned and it wasn't.
Been a tough one.
We're going to continue to deal with hyper inflationary environment, we're going to be continuously dealing with some of the older market issues.
What we will continue to do now is figure out how best to take pricing actions to mitigate those.
Discrepancies.
So between those and cost actions that we're taking addressing the.
Fuel escalation, which as Tim described that happened within the quarter.
Sure of about 10 million gallons a year, that's a material impact we have now started to address that through.
We're charging and price increases so I think the action we understand the magnitude of the issue that we just went through we've done our best to project forward and we believe the actions that we're taking will mitigate the risk as we look out through the year.
Got it thank you guys.
Sure.
And well move to our next question from Matt Summerville with D. A Davidson.
Thanks, a couple questions. It would be really helpful. You know you I think mentioned across the number of the businesses how strong orders backlog you know the momentum you're seeing there is there any sort of numerical you know are you able to give us something more tangible for them a numerical standpoint that really can.
Underscore how strong the fundamental demand side is in the business other than to just say, it's strong and then I have a follow up.
So you can see in the kpis across the bottom most of those charts that strategically we made tremendous progress in the quarter and with those conversions to platform blades platform sites drives really nice conversion on revenue in future periods. When we talk about backlog, we're really talking about hardware.
Ed.
The backlog.
Go it has high historically high.
<unk> and <unk>.
It is high.
Actually I wish it was a little bit higher than that we delivered a lot of Pos devices to keep our customers happy in the quarter.
We probably were at breakeven or lifestyle as Owen described this chip escalations on a device it only costs $500 $400 increase in a chip it's pretty painful.
So we have not.
Broadcast our backlog numbers before but I think no.
That they only apply to hardware.
Part of the reason you see us recovering the hardware revenue we missed in the quarter has to do with the fact that that backlog is still there it didn't get out the door because of chip availability, but the backlog is still there.
This is Mike I look I would ask you again just to go back.
I can look at our strategic Kpis hospitality platform sites up year over year, 37% retail platform lanes up 400% year over year Menasco.
Digital banking up 11% and bad endpoint.
And clients.
And if this is the all point as.
As well as merchant up almost 30%.
Yes, so across the board the strategic metrics did really really well, we got hidden hardware and we got hit in hardware late in the quarter and some areas we couldn't react to it.
Look at the full year.
Where we sit today, we have eight months to make adjustments to the congestion pricing just on costs, we didn't have an opportunity in the first quarter to make.
Adjustments so.
Again.
Strategic Kpis the strategic transformation, we were extremely excited about.
Really strong first quarter.
Just to try and give you something to grasp onto.
The backlog in hardware, particularly in retail and hospitality was up more than 30% year over year in the quarter.
Thanks.
Got it and then as a follow up did I effectively hear you correctly.
In that your repricing some of the backlog and then maybe just a little more context, where kind of a year into this you know inflation and I clearly understand whats gotten worse hands down no doubt about it every single company Who's got a report is going to say the same thing.
Is there a way in your business in Ncr's business to better align inbound cost versus how you're pricing the product.
As you guys are probably aware I follow some of the more industrial Tech type names. Indeed majority of them are actually in a favorable price cost spread position right now and I guess I'm trying to understand more around your business, maybe what makes it so much different thank you.
Yes, that's a very good question.
Yeah.
And I asked it ourselves as well.
When you sell is a solution and you sell long dated contracts for a five year contracts with only annual escalators, it's really hard to catch up in an environment where it.
<unk>, increasing so quickly we also have very long lead times on particularly because of availability of parts long lead times on our.
On our scope and ATM units I guess pass now as well.
When we sell those units to our customers. They we commit to a price and we'd get revenue recognition when they implement those devices.
And then the change in cost for us over that four month period of time when it step function.
Changes like you did in Q1.
Painful and so we need to find a way contracting with our customers. So we protect ourselves against that extension of implementation.
Yeah.
Okay.
Got it thank you guys.
Sure.
And we'll move on to our next question from Charles Nabhan of Stephens.
Hi, good afternoon, and thank you for taking my question given some of the visibility you have into consumer behavior through your businesses, whether it's all point or hospitality, just curious what youre seeing in terms of spending trends given some of the inflationary pressures and also I'm curious if stimulus.
The lapping of stimulus disbursements from 2021 has any impact on your on your businesses or the cadence of our results over through 2022.
Okay.
Yes on the first part whether we've seen customers impacted by spending trends, we have not seen that yet.
If you look at our commerce business retail and hospitality the two.
Biggest challenges.
The executive teams demand managers that those entities have.
The implementation of technology and the pace of some of the change, particularly around opening up new channels and integration of channels.
And by the pandemic quite frankly.
And then secondly.
Their second biggest issue is labor cost labor availability labor.
And so as you look at NCR that as they look at Astra Tech software technology in our self service equipment that allows them to deliver lower cost. So we actually talked about scale in the retail.
Okay.
Pretty active area, just as people try to rule that out.
I'll tell you that the labor cost I don't so hum.
On the stimulus stimulus that all hit all point some of that in 2020, a little bit that hit 2020, but you can see the months for that rolled through so that did have a little bit of.
Spikes in some revenue pick up the first quarter impact offline and transaction volume was really related to sure.
Australia U K, Canada.
South Africa, some of the other countries, where they did shut down and pay a little bit in the states, where some regions maybe slowed down too.
Thanks, Brad and I suspect as most of you know kind of can came out in late December early January and it's relatively shut down.
Of the business.
So.
I don't think the impacts in the first quarter relates to the impact of stimulus that we've kind of map that out we still if you look at it we still grew even with those impacts are payments.
Year over year quite nicely. So it was more of a we always thought we were going to begin to plan versus year over year growth. The segment grew Mike and so did the total transaction volumes.
The U S did grow better than others, but the aggregate payments volumes were up year over year, just not up as much as we would have thought.
Got it.
And just as a quick follow up on supply chain and I apologize. If you touched on this earlier could you speak to the Receptiveness of your customers in accepting.
Price actions from inflation for example, obviously nobody is happy about it but are you seeing any orders just delayed indefinitely or are the majority of our clients accepting and I guess as a parallel to that if I think about the the difference between the 50 and $100 million in.
Mitigating actions, if you could speak to what would lead us to come.
At the low end versus the high end of that range.
Yes, let me take from the customer.
Perspective.
There isn't a customer who's not dealing with it on their end of things.
I think if you well.
Listen to many of our customers as they have reported talked about the issue.
They are trying to stay out ahead of this cost curve as well so.
We have been as transparent with our customers as possible.
Regarding the cost escalation.
Fuel costs, the hardware cost of freight costs, which if all escalated.
And Thats to know what surprised that were having the conversation most of our customers are understanding it and I think there is to this point a tolerance.
I think all of us are going up.
Yeah.
We'll be taxed on the level of tolerance, but thus far.
As we've got back to our customers and explained and that their need and I think that's a hugely important issue we have met the needs of our customers.
Throughout all of this.
They have expanded as they've opened up is there a refreshed and I think that's a really important element of our commitment to support our customers and in that conversation, especially in the last 30 45 days, we have been very clear about our need to make sure that we're regaining.
Pricing because of the cost escalations.
Yeah I agree.
The 50 versus 100.
I think we need to look at all of those that whole patient in aggregate are we tried to estimate where we think that the.
The macro environment is going to take us over the next three quarters and I think were reasonable in our expectations. We don't know, whether we're right, but we think that the right expectations.
I also said, we're gonna oversold against that because we're not sure the world might not deteriorate further and so when I talked about a couple of hundred million dollars of cost or a couple of hundred million dollars if pricing actions to try and net yes, two two and a quarter. This year that would be over and above the 50 to 100 I described here, we need to get 50 to 100.
To get back to the guidance, we provided I feel very good about the guidance range. We provided and these are the actions necessary to get there when and if we overachieve. This 50 to 100.
It should be accretive presuming the world.
Does it continue to get worse.
Got it I appreciate the color. Thank you.
And well go next to Kartik Mehta Northcoast research.
Hey, good evening.
Mike or Tim or even.
You've talked about obviously delays because of what's happening in the marketplace.
Any of your customers canceling orders, maybe because of the price increase or.
Maybe not being able to get the product on time.
Yeah again, I you know.
You if you think about what we're delivering so think about a restaurant where we're delivering.
So it's a device, but it's also all the software and the technology.
They need that to open a store or in some cases refresh to start your first the restaurant, it's the same with a store.
And again, it's the same with their banking business. So I think our challenge has been getting the price increases and then another one is just getting the surcharges for expediting orders pushed to the customers and I think the team is confident we can get that done.
And I think the profile of the customer relationship is.
Dramatically different because it's not hardware focused independent to Mike's point and I'd go back to the strategic Kpis.
These are about.
Installing systems to run the restaurants to address the conversion to the latest version of Pos for our retailers coming along with that is the hardware. So our customers are not backing off.
These are strategic initiatives on their part which include our hardware.
It's why we work so hard to make sure we're getting the hardware product to them and in the total scheme of the.
The imperatives that they're trying to gain.
I think that's where right now the cost discussion with them.
Is holding up so.
They're not backing off because it's not a single hardware transaction is more most of these are part of a bigger imperatives.
And then just.
One last question just on the merchant acquiring business I know.
You've talked about integrating that business to at least NCR silver.
And obviously Aloha and I'm wondering how that's progressing and what the uptake might be from a customer standpoint.
Yeah.
So for our S&P market.
Silver product and the Aloha and then again again, we go to market level of unless it's Aloha essentials, where we bundle it for for new installs was running about 90% attach rate on payments. So we're actually doing quite well.
We've continued to make progress with larger.
Fatality sites and enterprise sites Upselling, a payment into the sites as well and then.
This year, our goal is to get up and running in the retail side as well with attached payment.
Okay. Thank you very much I appreciate it.
Sure.
And we'll go next to Paul Chung of Jpmorgan.
Hi, Thanks for taking my question so.
Just on digital banking, you saw EBITDA growth coming.
I had a relatively kind of a slower pace than revenues.
But at 11%, which was quite strong.
It is mixed driving some of that or.
Assuming the overall macro headwinds you mentioned or some of the consolidation you also mentioned.
No digital banking doesn't inflation doesn't impact this business nearly as much as the others I think it's just a.
A temporal a mixed shift in the in the quarter. There was not a noticeable there nothing to worry about in that margin rate is still very high.
Yes, it's very high Gotcha, and then what are the features active users are using the most.
How's the firm kind of driving higher active users there what are some main reasons clients.
Don't become active.
<unk>.
Okay.
Yes, I mean digital banking pass the board for the whole regional enterprise with the tech clients.
The broader market.
Most everybody uses.
Digital device payments as a retail client is consumer so payments very active I mean do you think.
Transferring money.
The big movement.
Digital banking is account origination.
Our testing of products is actually doing really strong as we go back and cross sell into banks and credit unions Kras.
Our customer base.
So we actually kind of competitively and.
The digital banking products space.
Really doing strong this year.
Depth is really.
We got acquired by you and a half ago.
Large size client that got merged mentioned equal and then another one that had notified us I think four years ago that they were linked to go in house quite frankly, which is very hard we havent really seen one of those and as Owen mentioned or I mentioned that the early early third quarter.
In July we anticipate bringing on two new clients. So it's really a slight dip in the calpine.
Registered reps is active we look at that Delta is a great opportunity to add new active accounts, we can paint an accurate. So the team has a very strong program to go back to your work with the banks either branded exercise with the bank that we believe with NCR to go back to existing clients and say did.
Did you know you could do your bill pays using your digital advice did you know you can open your costs did you know you can transfer money and try to get people back east in that account. So we get paid.
That's it and then.
Lastly on self checkout, if you could give us an update on how the bed Bath rollout is progressing are you seeing kind of more traction with other key retailers here beyond grocers in home improvement and you know what are your kind of expectations. There as we lap some tough comps we are moving forward. Thank you.
Yeah.
Yeah, it's really so that that's the honest going great teams really again at scale, we have a great product both hardware and software it right its usability and we clearly lead the marketplace in that regard.
So the big boxes that moved down market to grocery stores last questions. You changed now to mid size and then very strong in the CFR convenience feel space, where they're starting to be challenged by labor cost labor and availability of labor and really moving.
Lastly to rollout self checkout.
Thank you.
Thank you.
And with no further questions in the queue I would now like to turn it over to Mike Hayford for closing remarks.
Thank you.
You know the team here is obviously disappointed in the numbers. It is a resolved things moving at a pace that someone hadn't seen before in terms of multiple external factors. So that the pace of the cost moving very aggressively in the first quarter.
Pace of.
The interest rate that we anticipated changes this year, but they moved very aggressively in the first quarter.
The pandemic, which I know, we're all tired up to your essential that the omicron wave.
We had not expected that those kind of impacts I don't think anybody did having businesses cycled back through a little bit of a slowdown and then lastly, we did not really predict lore and the impacts that it would have on our business in Russia and Ukraine.
While our numbers are disappointing.
Performance during the quarter. It was not we feel very positive about our performance.
We had good momentum and good execution across all of our strategic initiatives.
You know our whole team worked really really hard in the first quarter. We continue to win in the market we continue to drive.
Execution platform Lane.
And the retail business dramatically out of digital banking strong growth again customer wins again.
<unk> sell as well as new.
With hospitality sites are hospitality is on a great care in the last number of quarters and this quarter was no exception so number of sites, particularly in some of the SMB market with the relaunch of <unk>.
Our SMB product in a cloud based product that we're excited about the payment attach.
Revenue payment attach in hospitality, a very strong year over year and then what we're doing in the Patriot 16, Liberty X rolling out new products enjoy endpoints in all foreign exchange. So we looked at strategically and you can see the strategic metrics, we had a really strong 'twenty.
2020 to first quarter.
The difference I would tell you the cost, whereas the first quarter, we didn't have the time.
Can you make the adjustments that we needed to the impact for this quarter. We have the time to make those adjustments and I think Tim did a nice job of laying out your desired actions, we will oversell and we feel very confident we can hit the numbers that we have identified four impacting our cost structure.
The rest of the year.
Our teams again have continued to see great shot out to everybody performing in a very difficult environment not only some of the external forces that we talked about but still continued work in this hybrid environment, where we're not all sitting.
Arm and arm.
Shares.
We continue to win in the marketplace beat the competition and we feel that we will do that through the rest of the year. So.
Well. Thank you everybody for joining us today, and we'll talk to you next quarter.
Yeah.
And so that does conclude this call. Thank you for your participation you may now disconnect.
[music].