Q2 2022 NCR Corp Earnings Call
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Good day, everyone and welcome to the NCR Corporation second quarter fiscal year 2022 earnings conference.
Today's call is being recorded.
At this time I'd like to turn the conference over to Mr. Michael Nelson Treasurer, and head of Investor Relations. Please go ahead Sir.
Good afternoon, and thank you for joining our second 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 remind you that our presentation and discussions will include forward.
Looking statements. These statements reflect our current expectations and beliefs are 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 July 27th 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. Thanks, Michael.
And thank you everyone for joining us today for our second quarter 2022 earnings call.
I will begin with some of my views on the business.
I'll also provide commentary on our previously announced strategic review process.
Tim will review, our financial performance, and then Oh, and Tim and I will take your questions.
The team has done an excellent job executing in a difficult macro environment coming off a very difficult first quarter due to a number of external factor the team focused on execution in the second quarter and they delivered.
As important we continued to build strong momentum in the business as we made progress on our strategy.
Yeah, becoming a software led as a service company with a higher shift to recurring revenue streams.
Let's begin on slide four with some highlights from the second quarter.
First we delivered 23% year over year total revenue growth on a constant currency basis and.
And 35% recurring revenue growth constant currency in the second quarter.
Second adjusted EBITDA increased 26% on a constant currency basis from the second quarter of 2021.
Third adjusted EBITDA margin expanded to 17%, which represents a 250 basis point increase from the first quarter of 2022.
Fourth we are beginning to see the supply chain impacts easing, meaning the component costs and transportation costs have not worse than in the second quarter.
But more importantly, our engineering and procurement teams have adjusted by designing alternative component and certifying more sources to begin reducing the impact.
And finally overall, our teams executed extremely well and we experience strong customer demand for our solutions across our business segments and continue to successfully transform NCR into software as a service company with higher recurring revenue streams.
Software and services revenue represented 73% of total revenue compared to 69% in the second quarter of 2021.
Recurring revenue represented 61%.
Total revenue up from 55%.
In the year ago quarter.
Now moving to the business update on slide five.
We had a strong momentum across our strategic growth platforms, which support our company's transformation.
In payments and network, we are making progress across both merchant acquiring and the offline network. We're seeing an accelerating number of merchant sign on for integrated payments with a P. O S decision.
We are also expanding MTR Patria 60, which brings more transaction types, including digital currency solutions at NCR endpoint.
We are also continuing to see strong I'll point well, both in terms of transaction volume and new <unk> partnerships.
He used to announced that PNC Bank has partnered with you I'll point network starting in June .
Extending surcharge free ATM access to more than $10 million of their customers.
In digital banking, we continued to have positive momentum in the second quarter digital banking had 25 renewals five new logo deals and the continued expansion of tariffs with four new clients for our online digital account opening platform.
In self service banking, we continued momentum in our ATM as a service solution.
Interest in our offering is accelerating both in community banks and large F. EIS globally in the second quarter, We signed 10 ATM as a service deals including bank of New Zealand.
Embracing NCR Atms in service to round the bank's ATM fleet, that's part of the digital transformation.
And yeah, we will own and operate the banks' appetite ATM fleet and will also run it on Prem fleet.
Yeah, our Atms.
In retail we continue to gain traction with our NCR MLP O S software and our N C. P NCR commerce platform.
Positive momentum in winning the upgrade imperative for retail P less software, including in the second quarter Stater brothers market.
Southern California's largest privately owned supermarket chain with 171 stores connected to the NCR Commerce platform.
They'd rather have implemented ncr's emerald to connect all technology to run the store they were able to successfully deploy all new software and hardware to all 171 stores and only 15 weeks.
In hospitality, we continue to experience strong demand across the enterprise.
F N b customers.
M B, our Aloha cloud restaurant platform is a user focused turnkey solution that helps operations run their restaurant during the second quarter, we launched an updated Aloha cloud software and hardware solution and continued to invest in our direct distribution model.
The payment attach rates of hospitality accelerated during the second quarter as we had a record high number of payment booking site with over 90% attach rate for new SMB customers in the enterprise market, we expanded our partnership with Wendy connecting them to the N C. P NCR commerce platform, which will enable.
Wendy's to better manage and use data captured through the NCR Aloha point of sale.
Also signed a deal with United franchise group to deploy NCR Aloha and all of its locations with a bundled solution and quoted including point of sale secured payment processing robust data reporting backend soccer solutions and kitchen production solutions.
In the second quarter, we continued our evolution to a lean factory model by outsourcing manufacturing.
A couple of weeks ago, we transferred our Budapest manufacturing facility you know com.
They told me it was fixed costs and continue the shift to more variable manufacturing cost model. This transition as part of our strategy, which we started in 2018 today, 90% of the Skus that we used that we use to manufacture will now be outsourced.
And finally I'll provide an update on our board led strategic view process as noted in our February announcement.
Board did not set a timetable for this strategic review process.
This process continues to be ongoing.
We are evaluating strategic alternatives available to MTR in the context of a continued strong performance.
The goal of the strategic review process has not changed unlocks value for Ncr's shareholders.
With that let me pass it over to Tim.
Thank you Mike.
Last quarter, we spent a significant amount of time, describing the long list of exogenous detractors that resulted in financial performance that was well below our expectations at that time, we estimated not only the impact for the first quarter, but then try to extrapolate the impact for the remainder of 2022.
You are partially correct.
The Amazon wave that disrupted hardware supply chain.
Trust transaction volumes.
Resolved in Q1.
We saw both higher transaction volumes and better availability of components, respectively in Q2.
That said fuel prices are persistently high.
Component costs remain too high even if availability is better.
Rates are higher.
<unk> reached to 40 year high.
And the war in Ukraine continues to disrupt and distract our large presence in eastern Europe .
And now you can add the implications of a rapidly strengthening U S dollar to go with the challenges.
Our second quarter results represent very strong execution. Despite this extremely difficult macroeconomic environment we.
We generated productivity.
Closed some of the price cost gap.
Delivered a product that had been delayed in Q1.
We diligently control the things, we could control and readied our businesses for any further shocks.
Our team simultaneously executed a recovery plan accelerated.
And our strategic initiatives and supported the ongoing strategic review process that we launched in February .
It was a very busy and successful in 90 days.
While uncertainty persists.
Our strong performance in Q2 and its further mitigating actions we plan to take in the second half allow us to leave our outlook for the full year unchanged from that will be delivered in April .
Although some headwinds in Q1 improved others like interest rates got worse.
And we have a new headwind in foreign exchange rates.
As is always the case the outlook, we provided in April presumed currency rates at that time.
In Q2, foreign currency exchange reduced revenue by $50 million and adjusted EBITDA by roughly $15 million and we still delivered strong results.
We currently expect a similar FX impact going forward.
We still believe we can hit the lower end of our guided ranges from April even with these challenges.
Let's begin on slide six with a top level overview of our second quarter financial performance starting in the top left we delivered revenue of $2 billion up $320 million or 23% from the prior year on a constant currency basis.
Foreign currency exchange rates had an unfavorable impact of $50 million split roughly evenly between our self service banking and retail segments.
Recurring revenue was up 35% on a constant currency basis.
Adjusting for the partial quarter of Cardtronics last year revenue was up 4% on a constant currency basis.
In the top right adjusted EBITDA increased $58 million or 26% on a constant currency year over year basis to $339 million.
Foreign currency exchange rates had an unfavorable impact of roughly $15 million.
Adjusted EBITDA margin expanded 20 basis points.
Second quarter of 2021% to 17%.
While we don't typically discuss EBITDA margin sequentially.
Look we provided in April did describe sequential EBITDA improvements beginning with Q1 levels in each of the remaining three quarters of the year between 50 and $70 million.
In Q2, we improved by almost $70 million over the Q1 level, even after a significant currency impact.
This allows us to be closer to the $50 million of sequential improvement in Q3 and four.
In the bottom left reported non-GAAP EPS was <unk> 71 nine.
<unk> or 15% year over year, the strength of the U S dollar reduced EPS by about <unk>.
The non-GAAP tax rate was 21, 2% in the quarter and result in an average for the first half of the year of 25%.
The rate was driven by stronger earnings as well as the timing of discrete tax items.
During the second half of the year, we expect tax rate to be within the range of 27% to 29%.
And finally free cash flow was flat, which was a solid outcome given the challenges in supply chain that caused both non linear revenue recognition and a discretionary investment in working capital.
We have invested roughly $250 million in working capital in the first half of this year much of it in raw inventories and finished goods to insulate our customers from a supply chain disruption.
These investments in working capital are expected to support our growth in the back half of the year and we will generate cash.
Let's move to slide seven.
Starting with the segments. This segment is our payments and networks.
The top left payments and networks revenue increased $278 million or 515% year over year, driven by the acquisition of Cardtronics.
On a cardtronics pro forma basis revenue increased $35 million.
Or 12% year over year, driven by Liberty X growth in the merchant acquiring business and in the all point network.
Payment and network adjusted EBITDA increased 411% year over year.
On a pro forma basis, adjusted EBITDA declined 9% year over year due to a nonrecurring U K property tax rebate at the legacy Cardtronics in the prior year and much higher interest rates Youll recall that interest rates are in operating expense in this business the cost of cash rental goes through EBITDA.
As a cost of goods.
Adjusted EBITDA margin rate was 29%.
The bottom of the slide shows payments and network segment key metrics on the bottom left endpoints increased 25% year over year. These access points to the <unk> network and merchant acquiring terminals are increasing as we migrate them to the NCR installed base.
In the center bottom our transactions kpis it illustrates the payments processed across our all point network and our merchant acquiring business.
Transactions remained flat year over year against a very tough comparison due to the lack of the government stimulus related activity in the year ago quarter.
Transactions increased 8% from the first quarter of 2022 with continued growth in both North America, and a rebound in the United Kingdom.
And annual recurring revenue in this business increased 11% from the first quarter of 2022.
Turning to slide eight which shows our digital banking segment.
Digital banking revenue and EBITDA increased 2% year over year with an adjusted EBITDA margin rate of 43%.
Digital banking is key metrics in the bottom of this slide include registered users active users and annual recurring revenue.
Registered users decreased 3% and active users declined 5% year over year.
As mentioned during our first quarter earnings call user counts were impacted by two long anticipated customer consolidation deconversion.
Neither of these were competitive losses, one customer was acquired and another told US several years ago that they would move to an in house solution. These big conversions will be more than offset the onboarding of two of last year's major wins, when trust, which successfully converted last week and associated banc.
<unk> was up 2% year over year.
We expect the revenue growth in this business to accelerate in the second half of the year and to exit the year at about 10%.
That only about two thirds of the revenue in this business is driven by user counts and that user counts can have a short temporal dislocation for reported revenue.
And finally tariff Phoenix continues to grow at more than 60% year over year.
Slide nine shows our self service banking segment results.
About half of the $50 million of total company currency impact affected this business.
Self service banking revenue was up $34 million or 5% year over year, and 9% on a constant currency basis.
Adjusted EBITDA increased $142 million or 1% year over year, and 4% on a constant currency basis.
The adjusted EBITDA margin rate was 21%.
This business continues to mitigate ongoing global supply chain effects of component availability freight and fuel inflation.
The bottom of this slide shows our self service banking segments key results on the left our software and services revenue mix was flat compared to last year at 67% due to higher ATM hardware sales in the quarter.
ATM as a service units increased 3% year over year to almost 4500 units.
Have a very strong backlog of Atms at the service deals and now expect more than triple the number of units to more than 15000 machines by year end.
The shift to recurring revenue continues to gain traction with AAR are up 3% year over year.
Moving to slide 10, which shows our retail segment results.
This segment absorbed the other half of the $50 million of total currency impact to revenue.
Starting in the top left retail revenue was flat year over year and up 4% on a constant currency basis.
Order activity in this business remains strong and backlog is high.
The composition of our backlog is different from prior periods as we execute our NCR as a service strategy.
We're building backlog with multi year contracts, which will drive future recurring revenue streams.
Retail adjusted EBITDA was down, 14% and down 9% on a constant currency basis.
This business is still highly impacted by component cost inflation, particularly on Pos devices.
Our mitigating actions and better product mix during the quarter drove significant improvement in profitability from the first quarter of 2022 with adjusted EBITDA margin rate up 620 basis points sequentially to 19%.
The bottom of the slide shows the retail segment key metrics.
On the left platform lays our kpis and illustrates the success of our strategy to convert our retail customers to our platform based subscription model we.
We increased our number of platform raised almost 600% compared to the same period a year ago, we see accelerating momentum for the conversion of our traditional laser platform lanes and have a substantial land conversion backlog.
In the center bottom self checkout revenue increased 1% year over year keep in mind that installed timing causes of the lag in this metric and we expect growth to accelerate in the second half of the year recurring revenue in this business was flat year over year and up 4% on a constant currency basis.
Slide 11 shows our hospitality segment results and illustrates the momentum across this business.
We experienced strength in both the enterprise and SMB markets caused by an uptick in new restaurant openings technology, refreshes and acceleration in our payments business.
As Mike mentioned, we had a record high number of payments booking site payment attach rate is strong at roughly 90% of sales into new SMB sites.
We increased our feet on the street and invested in sales and marketing to catalyze growth and the strategy is working.
We are winning new customers and benefiting from competitive takeaways.
In the enterprise segment, the receptivity for our payment solution is exceeding our expectations and demand for our service desk solution is strong.
Hospitality revenue increased $23 million or 11% year over year as restaurants, reopen rework and expand.
Second quarter, adjusted EBITDA was up 18% year over year, while adjusted EBITDA margin rate was 19%.
Hospitality is key metrics on the bottom of this slide include platform and payments sites and they are.
Platform sites increased 39% payment sites increased 139%.
<unk> was up 15% year over year.
<unk> business is simultaneously executing extremely well in its strategy as it is also delivering excellent quarterly results.
On slide 12, we present free cash flow net debt and adjusted EBITDA metrics to facilitate leverage calculations.
As I previously stated free cash flow was flat in the quarter.
Receivable days outstanding and finished goods inventory both increased.
We invested in working capital to support the second half growth.
We expect working capital improvements in the back half of the year, particularly around inventories and receivables.
This slide also shows our net debt to adjusted EBITDA metric with a leverage ratio of 4.0 down slightly from the prior quarter due to higher profitability.
And we ended the second quarter was $398 million of cash and remain well within our debt covenants. Those covenants include a maximum pro forma leverage ratio of 525 times.
We also have significant liquidity with almost $900 million available under our revolving credit facility.
We have a strong balance sheet with an average cost of debt of less than 5% ample liquidity and the financial strength to support our growth strategy.
With that I'll turn it back to you Mike.
Thanks, Tim.
In closing on slide 13 during our first quarter call. We said, we would adjust to the external factors, which negatively impacted us in the first quarter.
Our team did just that in an environment, which is still challenging our team performed exceptionally well and delivered a solid quarter.
As important we have made significant strategic progress transforming NCI to a software led as a service company.
And while the macro environment remains challenging we feel good about the underlying business and the operational discipline during the second quarter.
That concludes our prepared remarks for today.
With that we will open the call for questions keep in mind. Please hold your questions regarding our strategic review as we will not provide further comment on that topic today.
Operator, please open the line.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question.
And well pause for just a moment to allow everyone an opportunity to take now.
Okay.
Okay.
And our first question will come from Dan Perlin with RBC capital markets.
Thanks, Good evening everyone.
I just wanted to follow up on the outlook question here.
You said, you're leaving it unchanged you feel like you can still hit the low end of the range given the FX headwinds, which look like they're going to get worse for you before they get better over the next couple of quarters I just want to make sure.
We're all kind of level setting so that the revenue numbers that you had put out for the full year were approximately eight 8 billion. Your adjusted EBITDA was $1 4 billion five and then the free cash flow was 400 to 500 I believe an EPS of $2 730, So we should be kind of.
I guess keying in on the lower end of that range I guess first of all and then secondly.
That's a pretty significant ramp in the free cash flow in order to achieve that I'm. Just wondering if you could walk me through or something.
The guideposts, we should be looking for thank you.
Yes sure.
Could see free cash writing it down.
FX was an issue in Q2 about $50 million on revenue and to your point, it's going to get worse in the second half of the year. If the forward curve is correct. So if forward rates are correct.
We've probably got another $170 million of pressure on revenue in the second half alone.
That translates to about.
Oh, maybe $50 million of pressure on EBITDA in the second half of the year, which would be 20 bps. So.
The walk from let's say the midpoint of the range down to the low end of the range is entirely attributable to FX.
But as I sit here today, I believe we will be able to get to the lower end of that range.
On free cash flow.
If I'd be more concerned about cash flow I didn't know exactly why where we're bouncing off of zero.
We know, we purposefully and intentionally increased inventory levels.
By about $150 million and our receivables are up by $100 million.
Purely because of timing because of the fact that too much of art hardware.
Shipping in the last couple of weeks of the quarter and that has gotten progressively worse as the year played out the good news is we got the hardware out the bad news is we got it out way too late to collect the cash so it will come back it's just timing.
We hope to get more linear.
Supply chain is free up.
Okay, that's really helpful.
And just a quick follow up on supply chain.
I think Mike you were saying, it's not gotten worse not necessarily better either but you can come up with more creative solutions and you've done a job of incrementally expanding sources. I was just wondering if you could kind of dive into that a little bit more and just give us a picture of what kind of what's really playing out in the field.
Thank you.
Yeah, I mean, I think there's any external factors meaning.
Some of the prices in the marketplace haven't necessarily got much better they haven't they haven't gotten worse.
And then the <unk>.
To move.
Either components or finished goods around around the world at lower cost, meaning pretty good on containers and ships versus flying it.
Yes.
Mentally getting better, but I think the big the big change we called out is in an environment, where things have stayed the same which we think they're going to be for the second half if not get a little bit better externally in terms of things that we could control.
Our engineering team and I want to talk about this last quarter call that our engineering team is designing around some of the ships that had dramatically accelerated and cost. So we could find alternative chips and therefore find alternative sources.
And that did happen in the second quarter. So as we look at the third and fourth quarter are.
We believe we will have a positive impact being lower cost for a.
About supply because we can source different.
<unk>.
Certified other other suppliers so.
We have a more optimistic outlook sitting.
Sitting here today than we did three months ago.
That's great to hear thank you so much.
And our next question will come from Matt Summerville with D. A Davidson.
Thanks, I just wanted to put a little bit of a finer point on where you are with price cost.
Can you give us anything too to help triangulate on that in terms of maybe how much price cost was a headwind EBITDA margin in Q1 versus how much headwind you saw price costs in Q2, and then what youre expecting for the life of the year, that's kind of baked into the numbers here.
Speaking to today.
I have a follow up.
Yes, that's a multi varied equation right. So let me walk through how we did it last quarter, which was we talked about the impact of the Covid wave.
It abated as it is we thought that it would and in fact, we recovered there and got back some of the revenue that had been had been missed the word eastern Europe was it with no change right. It is what it is we're out of the country and so it impacted.
In fact, as a known basis.
Uh huh.
The inflation versus price.
Line.
As Mike just said I think components are going to get better in the second half of the year I think our component costs will be better in the second half of the year because of the hard work that's been done by I R. M.
Sourcing teams, great has not yet come down and that's an important part of the impact of inflation to us rate has not come down a little bit more available. We do expect to see freight ease off late in the year, but probably not in Q3.
From a fuel perspective, it's hard to know fuel prices were higher in Q2 than they were in Q1. It looks like they are now stabilizing maybe there'll be even a little lower in Q3 than they were in Q2.
The biggest change for us as interest rates interest rates are probably 100 basis points. The expectation is 100 basis points higher than when we talked 90 days ago.
Every one percentage point in interest rates cost us about $24 million at EBITDA.
Is it as a cost of goods in the in the payments business. So I think.
We also talked about trying to have $200 million of cost action in $200 million of.
<unk> actions I will tell you that the pricing actions are all in place because of the long lead time on some of our some of our product.
So there wont be we can impact it from here.
I think whether we get to $200 million and that will be heavily dependent upon our ability to convert those price increases to hold those price increases in the competitive environment, we're doing okay. So far.
On the cost side, we're probably.
Halfway to where we need to be and we've got some work to do in the second half of the year.
They are working on that.
I hope that that framed it for you anyway.
Yeah No. That's that's very helpful. I appreciate that and then as a follow up can you may have just answered it actually term payments from network you saw a nice sequential bump in revenue EBITDA was it was pretty flat is all of that flattening out in EBITDA than is that being driven by the cost of cash so.
Speak for that business or is there something else going on that's contributing there.
Yes, there's three things going on in there one.
Before we.
Cardtronics on.
On a pro forma basis, they benefited from an item in the U K. There was a one time item associated with the rebate on property taxes had been paid and it came through it came through EBITDA and it's nonrecurring.
So that's the that's a temporal issue it's gone.
The other is we did add Liberty ex Liberty X was under just under $20 million of revenue in the quarter.
Liberty X has no profitability currently so it's a breakeven business that dilutes margin rate and then just lastly.
Interest rates are higher and I think across this year.
Probably going to be an aggregate of $35 million.
To this business and so.
It will.
We're working to mitigate at every point really is $40 million. If you just do the math right a point that $4 billion, but we've got some ways to mitigate some of that book with hedges and with changes in business model. So, we'll keep working it down but that.
That will when we get to the end of the year the biggest change in.
Margin rate for this business will be the dilution from the addition of the revenue from Liberty X and interest costs.
Understood. Thank you guys.
Our next question will come from Erik Woodring with Morgan Stanley .
Hey, good evening guys. Thanks for taking the call. The question sorry, just didn't nail down on the outlook I just want to make sure I'm clear. There. So you know when a when you talk about kind of a $170 million of incremental FX pressure in the second half does that imply that revenue should be.
$170 million lower than about 8 billion or are there offsets from better operational performance that would get you back to that again 8 billion number and if so what would be some of those offsets and then I just have a follow up thanks.
Yes, so typically when we give guidance we leave ourselves some room so.
And I said approximately 8 billion. So you can imagine they probably had a plan that rolled up to north of that.
The forward rates right now suggests a $170 million of pressure, we just simply take the.
The euro pound Japanese yen and Canadian dollar and convert back our revenue streams I don't know, whether those would be correct or not.
But we'll keep trying to grow I think there are avenues to get more revenue this year and our services businesses in particular, we're continuing to work so I.
I think $8 billion is a reasonable number I think our results as I sit here today will round to <unk> 8 billion from one side or the other.
On EBITDA same we had a wide range is a very wide range and so I think I can absorb this new.
This new hit.
Inside of that guided range.
Same would then translate through down to EPS.
Okay, that's really helpful and then.
You know maybe last quarter, you just talked about backlog up 30% sequentially just any way you can help us kind of.
Talk to the size of the growth of backlog or if you saw it decrease because of supply chain improvements.
You know any any kind of qualitative comments that you could talk about an underlying mix. If that's changed at all that's it for me. Thanks, so much.
Yes, sure I'll, let <unk> take that one.
Yeah, I would say as we came out of the quarter, we have not seen.
A change in the in the sales activity the funnel activity and across all of the businesses.
Order activity was carried good momentum coming out of the quarter. So we're continuing to see growth across the hardware the software and most importantly.
We're seeing it on the as a service business in both the ATM as a service as well as as Mike talked about in his comments.
Sites payments and platform lanes out of hospitality and retail so.
Obviously as Tim talked about the outlook, that's predicated on the momentum we're seeing in order activity.
And Mr. Woodring did you have anything further sir.
Sorry about that thank you so much.
Thank you, we'll now take a question from Kartik Mehta with Northcoast research.
Okay.
I wanted to make sure on the free cash flow I understood your comments.
I think the range was 4% to 500 million last quarter when you gave guidance.
Do you still feel comfortable on that low end, you talked about guidance being on the low end, Ron that $400 million or would that be difficult because of the inventory you've had to add.
Because of the current environment.
No I think.
I intend, we intend to convert that inventory to cash in the latter half of the year.
Why chain start to let up we won't need as much safety stock and we won't have as much finished goods sitting around because we're able to get it shipped in the quarter. So I'm not worried about harvesting that on the receivables side.
We know why it's it's drifted up a bit we can work it back down we'll make it a focus to get it out so that's $250 million of cash that was used in the first half of the year that I think we can harvest in the second half the remainder of the 400 come from higher profitability in the second half of the year versus the first.
For the most part that that solves to the low end of the range. We just described if we're able to get.
Further into the range from an EBITDA perspective or defined.
A little bit more revenue than we could.
We could get closer to the midpoint, but I think.
$400 million is probably the right place to be for now.
And Mike you, obviously talked about some of the challenges that are happening in Europe , specifically eastern Europe , because of what's going on and I'm wondering is that leading to any cancellation of orders throughout Europe or even eastern Europe .
Because of the current environment.
Okay.
Alright.
On the first quarter call when.
The worst start in the Ukraine, and we had to pull out of Russia, and I think at that point, we probably had a little bit more question around what might happen.
Throughout the rest of eastern Europe , I think today.
It seems to have settled into unfortunately kind of a norm and we haven't seen impacts that have bled over into.
Our businesses in eastern Europe , and Western Europe .
Thank you very much appreciate it.
And our next question will come from Charles <unk> with Stephens.
Hi, good afternoon, and thank you for taking my question just curious if your ability to manage some of the supply chain headwinds specifically procure certain chips internally has translated into competitive advantage.
Or if you see that as a potential tailwind in the second half of the year.
Yeah, I mean, I think the ability to react.
Whether it's the team on the supply chain side that did it really.
Job in the second quarter, continuing to find components, and then certify new supply sources or the engineering team, which also did has been doing a great job literally for the last year continuing to design around chat.
Challenges, whether it's ability to get chips or whether it's the price. So I think we feel really good about our ability to react.
We talked last quarter about just the timing.
So in the first quarter, we didn't have the timing to be able to do that we were able to do that in the second quarter. So we believe as Jim talked about coming into the third and fourth quarter that will be a.
Pick up or a benefit for us in terms of our cost pressure.
Competitively.
I think in the three verticals we compete in right now we feel as good as we've ever felt.
Products that are competing I think in the <unk>.
Hardware space, whether it's the ATM market, the ITV America, whether its <unk>, whether its pls.
We're out there competing.
Very well and we've been able to work some of the cost.
Down too.
What can the supply chain are working through some of the other engineering activity. So you.
You know what does that translate into more around you know Tim talked about.
As we look at the outlook will continue to chase opportunities for revenue that we feel really good about where we sit right now I think the only additive comment that would make it to.
Tim talked about our investment into working capital.
We have heard consistently from our customers that we have been a very dependable provider and we.
We have not we got asked a lot in the first quarter about missed shipments or project delays due to supply chain et cetera. The one thing and I'll give huge props to as Mike just did the entire organization.
We did not miss a customer commitment and havent in the whole first half of the year and that ends up being a competitive advantage without a doubt so.
<unk>.
Yes.
It's taken some investment you saw some of the costs that we incurred in the first quarter.
But if youre a long term player those investments are appreciated by the market by our customers and we're hearing that so we feel really good about where the teams left us.
Got it and as a follow up.
I had a question about the cadence of free cash flows for the back half of the year and I apologize if I missed it.
I know historically the fourth quarter has been the.
The high for the year on free cash flow, but obviously theres. Some abnormalities. This year. So any color you could provide on the cadence for the back half of the year would be would be helpful.
Yeah hard to predict I do think our fourth quarter will be a very strong quarter I think the third quarter will be solid.
But I would have a fourth quarter that is greater than the third.
Got it thank you.
Sure.
Yeah.
And once again, if you'd like to ask a question. Please press star one we'll now go to Paul Chung with Jpmorgan.
Hi, Thanks for taking my question. So just a follow up on cash flow on that last point.
Are the shifts in the kind of second half <unk>.
<unk>.
Higher.
Our balance kind of regarding your service contracts given some macro headwinds are we reverting back to that second half seasonal cash flow again or is this temporary.
And how is the kind of pricing environment.
And competition evolving here and I have a follow up.
So I'll defer on pricing competition two O N.
On the first one.
Cash flow generated in the last month of the year is no way to live we worked incredibly hard to get back to the point, where cash flow was more linear and we've been unable to keep up that trend.
In an environment, where way too much of our revenue comes very late in the quarter, because we just can't get the parts to get them out the door.
And that's really where most of the issues in the hardware side.
A lot of the recovery coming out of the pandemic.
In 2022 has been hardware and so we got Pos so that's been a struggle.
<unk>.
I don't want to live this way much longer I think supply chains are easing I suspect that we will get back in.
Better cadence of more a more linear free cash flow generation as we get as we get into 2023.
But at this point I've only got a half now to generate the cash we need to generate and we will do it.
Yeah.
And on the on the pricing.
I think my comments in the first quarter was that for.
For those of US who have lived in the hyper inflationary times in the past, which not a lot of us have.
Catching that falling knife was tough and so we saw the impact in the first quarter of not getting there the team across all three all the industry groups have made adjustments to pricing.
Both permanent pricing and temporal pricing.
We believe that the pricing is reflective of the reality that we're all dealing with it and our customers have have accepted that there have been some temporary charges that were put through on freight and on.
Fuel that will be temporal and our customers understand that we have.
Have not seen those price increases.
Create a competitive disadvantage in fact to the contrary to my comments a few minutes ago.
Our customers have been very appreciative of our ability to deliver despite all of that supply chain disruption. So we think that the pricing.
Will we.
We will hold it is competitive and where it's been temporal.
We will adjust accordingly.
Let me just add to that so.
When it comes to.
Pricing in the marketplace and competing.
<unk>.
NCR is much much better place than many of our competitors were in a much better place with our products.
And as importantly, as we sit here today, we're in a much better place financially in terms of revenue or earnings or cash flow than a lot of the folks that we've been competing against the last number of years literally in all three lines of business. So we.
We will continue to operate the business with discipline will continue to operate the business to generate revenue.
And earnings and cash flow.
And we will come out better in this environment than a lot of our competitors.
Thanks for that and then can you just talk about your backlog for self checkout you mentioned.
We increased conversion kind of later this year.
Which verticals are you seeing demand.
These are you seeing competitive wins kind of new deployments.
And then how should we think about kind of visibility for next year after strong growth throughout the pandemic.
How did those trend.
Yes, so I would say from a self checkout, we are still very bullish about the self checkout marketplace.
If you look at first and second quarter, you saw what is not atypical which is some lumpiness in terms of order activity. So we were up roughly.
15% quarter to quarter on our self checkout our outlook for the year is still that we will.
ROE in the mid single digit range I think we just had published the RBR report.
For <unk> through 'twenty, one and once again, we were the ship share leader across the globe, we still hold a huge market share position and what encourages us our new segments that are opening up.
I think I've mentioned this in the past the specialty retail environment like bed Bath <unk> beyond just has.
Embraced the self checkout, the convenience fuel and retail sector is.
Really receptive and in fact looking at and as Labor continues to be a challenge. We think the self checkout is going to play very.
Strongly so we look at the balance of the year and feel good about.
Outlook from a year ago.
22, and Theres nothing that would suggest going into 'twenty theory that it should slow down.
Great and then last question.
General update on kind of regional bank demand across Atms and digital banking services would be helpful are you seeing any customers tightening budgets here given some macro headwinds just any comments on that.
The macro here for regional banks. Thank you.
Yes.
We haven't really seen banks.
Change your buying behaviors at this point I think the banks have the benefit of a little spread right now and then I think the banks are starting to look forward and trying to.
Estimate like everybody else is what will be the impacts on the economy, whether it will hit their balance sheet.
Digital banking anything related to self service banking related efficiency anything related to cost savings, which is effectively what we do in banking.
Continue to be.
Things in areas that.
Customers are looking for.
Okay.
Thank you.
The other comment that will take on the on the.
Banks and the ATM is if capital is an issue what we're seeing from many of our customers as their embrace of the ATM as a service and that clearly allows them to continue to build out their physical distribution with Atms at Atms without outlying capital. So if that is an issue.
We're already seeing customers.
Really embraced the idea of the ATM as a service offering across the globe all the regions now.
We're having really good activity a number of closures that Mike talked about in the backlog for that or the pipeline for that business is.
It is growing.
The double digit range. So we feel really good that we have an offering that would address any.
Conservativism on the part of the bank.
Thank you.
And we'll take a follow up question from Dan Perlin with RBC capital markets.
Thanks, Hey, just a quick follow up on.
On digital banking did you did you say the exit rate I E. Maybe the fourth quarter rate would be 10%.
As what you had embedded in guidance or were you, suggesting that for the for the full year I just wanted to make sure I was clear on that.
I think there was a we had two big accounts coming on one of them is coming on a couple of months later than we would have thought so we're going to exit the year at 10% I think the full year rate is likely to be very high single digits, but but remember that it's not just the accounts that drive growth. We've got some deals out there.
Therefore, DSP that could push us north of 10% So I put.
For the full year, so I think there's a chance we hit 10% for the full year, we will certainly exit the year at a 10% run rate.
Got it okay. That's clear thank you.
Okay.
And there are no further questions at this time I'll turn things back over to Mike Hayford for any additional or closing remark.
Thanks.
During the second quarter, we continued to be impacted by a number of external factors that we saw in the first quarter.
Inside of that even in this environment our team at NCR really delivered a great financial quarter.
They continue to build and deliver on our strategic initiatives for our product platforms.
And as always we believe we deliver the best care to our customers in the industry.
A result of the second quarter. The strong performance we delivered in the second quarter is what gives us confidence that we can continue to execute in this environment during 2022.
Thank you so much for joining us today, we will see you next quarter.
Okay.
And that does conclude today's conference call. Once again, thanks, everyone for joining US you may now disconnect.
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