Q1 2023 NCR Corporation Earnings Call
[music].
Please standby.
Good day and welcome to the NCR Corporation first quarter fiscal year 2023 earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Michael Nelson.
Measure and Vice President of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining our first quarter 2023 earnings call. Joining me on the call today are Mike Hayford, CEO Owen Sullivan, President and C. O L. 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, but they're subject to risks and uncertainties that could cause actual results to differ materially from those expectations. These risks and uncertainties are described in our earnings release and our periodic filings with the U S E C, including our annual report on today's call.
I'll 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 May four 2023 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 I will begin with some of my views on the business.
And I will also provide an update on our previously announced intention to separate NCR into two public companies, including our recent announcement of our leadership team.
Hum will then review our financial performance and then Owen Tonight, We will take your questions.
Let's begin on slide five with some highlights from the first quarter.
First NCI delivered strong performance that included solid topline revenue growth and significant margin expansion.
And delivered over 200 million of free cash flow, which puts us on track to delever prior to the spin.
Second we are on track to separate NCR into two public companies.
In the fourth quarter of 2023.
Following Tim's comment on our financial results I will provide an update on those separation activities.
Third we delivered 4% year over year total revenue growth on a constant currency basis, and 7% recurring revenue growth also on a constant currency basis in the quarter I think it's important to note that the 4% growth would have been 7% without the impact of shifting to subscription.
Fourth adjusted EBITDA increased 19% on a constant currency basis from the first quarter of 2022.
Our adjusted EBITDA margin expanded to 16% this quarter, which represents 150 basis point increase.
Over the first quarter of 2022.
Fifth NCR generated $209 million in free cash flow in the quarter over the past two quarters, we have generated over 400 million of free cash flow, allowing us to reduce financial leverage ahead of the separation.
And finally I wanted to provide an update on the cyber security incident, we experienced.
On April 13th we determined that a single data center outage that impacted some functionality for a subset of our commerce customers.
Kosmos sabre.
My incident.
At this time, we are well on our way of recovering the majority of the most critical functions impacting our customers.
None of our ATM digital banking, all point payments or other retail products were impacted by this incident.
And while this was contained to a relatively limited set of our overall customer base, we absolutely understand how difficult. This incident has been for those impacted customers, we take their business extremely seriously and we sincerely apologize for any disruptions. This has caused.
Now moving to the business update on slide six we have strong momentum across all sides of our business segments with progress against our strategic initiatives.
All of our Kpis.
In retail we continue to deliver on our strategy to be the retail platform company of choice during the first quarter NCS expanded its relationship with the second biggest retailer in the U K customer committed to increasing the number of NCR self checkout units. While also signing a professional services agreement to a multiyear subscription model to help transform their in.
Storage solutions.
In hospitality, we continued to experience strong demand across the enterprise and SMB customers and S. M. B a payment attach rate for new customers remained roughly 90% driving a 50% increase of payments sites and enterprise, we expanded our relationship with the world's largest food fast food chain to be the sole provider for digital menu.
In the U S.
In digital banking, we continued to have positive momentum in the first quarter digital banking sales activity was strong with 12, new customer deals and 12 digital banking, we know Lal.
Last week NCR signed an agreement with North Carolina State employees credit Union S. E. T U the second largest credit union in the U S with over two 7 million members and more than $50 billion in assets to transform its members digital banking experience. This new partnership will help deliver more modernized banking digital banking capabilities for S. E. T was members unemployed.
This will deliver a modernized digital technology platform for the credit Union animal dance Ncr's digital first market position in the large regional financial institution segment.
And payments and network, we are making progress against both merchant acquiring and the all point network, North American ATM withdrawals and cash dispense I read a six plus year high.
International market expansion continues to accelerate with over 100 merchant contracts signed in Portugal, and over 50 merchant contract signed in Greece.
The first quarter, we add a new payment transaction capability to where Patria 60 platform.
Partnership with pace, there, which allows a gig workers to access cash in their accounts with a simple secure code via pay first digit banking app.
South Florida banking, we continued momentum in our ATM as a service solution.
Bank concern from investors regarding the potential impact of MTR and the current banking crisis, we had a strong first quarter and self service banking and do not expect a slowdown given the current macro environment.
Interest in our offering is accelerating from both community banks enlarge F. EIS globally in the first quarter, we signed six ATM as a service deals, including first citizens bank with over 100 billion in total assets and over 500 Atms to full end to end management ATM solution.
And we partnered with member ATM Alliance.
NCR is now the exclusive provider of ATM as a service solutions for the Alliance's credit Union members with that let me pass it over to Tim.
Thanks, Mike and thanks to all of you for joining us today.
Mike just summarized in the fourth quarter, we drove substantial growth in recurring revenue.
We ended our profit margins, particularly at gross margin and generated over $200 million of free cash flow.
Year ago, we were faced with a series of unanticipated geopolitical and macroeconomic challenges.
That had a significant impact on our business in the first quarter and then compounded across the remainder of the year.
At that time, we outlined our efforts to control the things that we could.
Productivity price cost efficiency and customer support levels.
Those efforts enabled the recovery of our reported financial metrics and insulated our customers from our supply chain disruptions and our labor challenges.
And those early 2022 actions have now been augmented with further cost productivity actions in both Q4 and in this Q1 to generate incremental savings to offset any dis synergies arising from the planned separation into two separate public companies.
Quarters results are demonstrative of an exceptional effort of our teams to simultaneously drive financial results accelerate our strategic plans and ready the company for a pending separation transaction.
I'll start on slide seven with a top level overview of our first quarter.
Which for every guided metric we paid at the high end of the ranges we provided back in February .
Starting in the top left revenue was $1.9 billion up 1% year over year as reported and up 4% on a constant currency basis recurring revenue was up 4% year over year and up 7% adjusted for FX.
We continue to have success transitioning from one time perpetual sales into multiyear subscription based revenue streams.
The nature of these contracts shifted $60 million of high profit revenue from would have been previously recognized upfront to recurring revenue that will convert over the next several years.
This intentional deferral of upfront revenue to recurring revenue lower total revenue growth by three full points.
The strong U S dollar compared to the year ago period had an unfavorable impact of $45 million.
Primarily within our retail and self service banking segments.
Adjusted for FX and the shift to recurring revenue total revenue growth would have been about 7%.
In the top right adjusted EBITDA increased $31 million year over year to $302 million up 11% year over year as reported and up 19% on a constant currency basis.
Foreign currency exchange rates had an unfavorable impact of $18 million.
Adjusted EBITDA margin expanded 150 basis points from the first quarter of 2022% to 16%.
The increase in margin was driven by lower direct costs, such as reductions in fuel shipping a component costs as well as the impact of indirect cost mitigation actions and a higher margin revenue mix.
The benefit of lower direct costs, Similarly added to 190% basis point increase in adjusted gross margin rate.
In the bottom left reported non-GAAP EPS. It was 56, that's up three cents.
Or 6% year over year.
As reported and up 27% on a constant currency basis.
The strength of the U S dollar reduced EPS by nine cents.
The non-GAAP tax rate was 27, 4% versus $24 eight in the prior year that reduced EPS by about another two pennies.
And finally, we generated $209 million of free cash flow from both higher profitability and the anticipated improvements in our working capital back.
Back in October we describe their desire to generate at least $500 million of free cash flow before the separation transaction to reduce our financial leverage.
And the first two quarters up those five we've already generated $400 million of that bogey.
Moving to slide eight which shows our retail segment results starting.
Starting in the top left retail revenue increased 1% year over year as reported and increased 4% adjusted for FX.
And by growth in services and point of sale hardware.
We also shifted roughly $15 million of high profit revenue that would've previously occurred upfront to recurring revenue that will be recognized over the next four to seven years.
This intentional deferral of upfront revenue to recurring revenue lower revenue growth in retail by three points.
Adjusted for FX and the shift to recurring revenue retail revenue would have grown at 7%.
First quarter, adjusted EBITDA increased 45% year over year, and 70% adjusted for constant currency, resulting from improvements in component labor and freight costs as well the other cost mitigation of pricing actions taken a latter part of 'twenty to 'twenty two.
And even again in early 2023.
The adjusted EBITDA rate was 17, 6%, a 530 basis points over the prior year.
The bottom of the slide shows retail segment key performance indicators.
On the left platform lanes or kpis that illustrates the success of our strategy to convert our retail customers to our platform based subscription model.
We increased their number of platform lanes by 33000 lanes or 125% year over year.
At the time of conversion of platform named drives an incremental $400 of a R. R.
Or an increase of $12 million versus last year.
The platform line increase was driven by Rollouts at major convenience and fuel customers.
While platform lanes currently represent less than 5% of our total lanes we.
We see it accelerating momentum for the conversion of our traditional lanes and have had substantial named conversion backlog.
And what's on the platform the opportunity to upsell and cross sell new features and functionality drives further ARPA expansion.
In the center bottom is our self checkout revenue self checkout revenue was flat year over year on a trailing 12 month basis.
And a R. R was flat year over year similar to the impact on revenue currency rates did affect all of our our calculations, including this one.
Hospitality segment results.
This chart shows results and illustrates the momentum across this business.
Fatality revenue increased $12 million or 6% year over year as reported and 7% adjusting for currency driven by an increase in services and software revenues, including cloud services and payment processing.
Adjusted EBITDA was up 29% year over year.
The EBITDA margin rate expanded 440 basis points to 24%.
A richer mix of software and services revenue pricing and cost reductions all helped push margin rate higher.
Hospitality is key strategic metrics on the bottom of the slide include platform sites payment sites and a R. R.
Platform sites increased 16% payment sites increased 50% and a R. R was up 12% year over year on higher ARPA at both platform and new payment sites.
The average conversion to platform sites currently drives an incremental $7000 a year and a R. R.
The average conversion to payment side currently drives an incremental $4000 combined the additional platform sites and payment sites contributed an incremental $35 million and they are year over year.
We continue to see strategic momentum in this business as enterprise quiets transitioned to the platform and expand their functionality and SMB quiets attach payments.
Turning to slide 10, which shows our digital banking segment.
Digital banking revenue was flat year over year.
Two thirds of our revenue that is driven by user counts increased in this quarter on higher user counts and led to higher recurring revenue.
This increase was offset however by lower nonrecurring revenue that can be lumpy.
<unk> EBITDA was down 13% year over year due to lower nonrecurring software revenue.
An enhanced investment in sales marketing and R&D to grow this business faster.
Adjusted EBITDA margin rate was 36%.
Digital Banking's key strategic metrics on the bottom of this slide include registered users active users and annual recurring revenue.
Registered users increased 8% active users increased 6% year over year in.
Digital banking core business growth is evident in our year over year increase of 7% and a R. R.
On slide 11, we do some easy math to help you evaluate the combined segments.
A retail hospitality and digital banking these segments will form N C. Our remain co after the separation transaction.
This roll up is for directional indications only the eventual financials for this company will be impacted by currently unallocated corporate costs by revenue or profit adjustments that reflect the planned perimeter of the transaction and by synergies or dis synergies that result from the spin.
The combined adjusted EBITDA was up 29% year over year adjusted for FX with an adjusted EBITDA margin rate of 22%.
Let's move to slide 12. This is our payments and network segment, starting in the top left payment in network revenue increased $24 million or 8% year over year and 11% adjusted for FX, driven by higher transaction volumes and an increase in payment processing.
Adjusted EBIT declined $15 million or 15% year over year and 14% adjusted for FX more than all of this decline was caused by 10 interest rate hikes aggregating five full points over the last three quarters, raising our ATM cash rental costs this quarter by approximately $40 million on a gross basis and.
$22 million on a net basis after our mitigation efforts.
Adjusted EBITDA margin rate was 26% down compared to the previous year on the same cash rental costs.
Our cash rental costs are calculated using short term interest rates, which have been and will continue to affect our results that said hedging program algorithm and operational optimization and pricing adjustments or protections mitigates some of the impact of interest rates.
As a result.
Interest rate net impact during the quarter was $22 million and we project an additional impact of $20 million across the rest of the year.
The bottom of this slide shows payments and network key strategic metrics.
On the bottom left endpoints increased 2% year over year.
In the center bottom our transactions Kpis illustrates payments process across all of our all point network and across our merchant acquiring network.
Transactions were up 2% year over year on a trailing 12 month basis fueled by ATM withdrawal growth of 6%.
The rise in both the frequency of withdrawals and the amount withdrawn per transaction led to a 13% year over year increase in the total amount of cash this best globally.
Annual recurring revenue in this business increased 8% year over year.
Slide 13 shows our self service banking segment results.
Self service banking revenue was flat as reported and up 4% on a constant currency basis.
Primarily due to growth in recurring revenue, which was up 10% on an FX adjusted basis over the prior year.
We continue to have success transitioning our self service banking business from onetime perpetual sales into a multiyear subscription based revenue streams.
During the quarter, we shifted roughly $38 million in revenue they would've been upfront previously to recurring revenue.
The intentional deferral of upfront revenue from recurring revenue lowered revenue growth by six points.
Adjusted for FX and the shift to recurring revenue self service banking revenue growth would have been 10%.
While a quarter ago, our outlook for this business suggested a E.
Full year 2023 decline in revenue.
<unk> results and strong demand in Q1 suggests that this business can now deliver full year revenue similar to that in 2022 even after $150 million or nearly six points of growth is shifted to recurring revenue as part of our ATM as a service offering.
Adjusted EBITDA increased 23% year over year and was up 33% on FX consistent basis.
Adjusted EBITDA margin rate was 23%.
The remarkable margin expansion from the previous year. It can be credited to the reduction in direct costs, particularly in expenses related to fuel and components as.
As well as the increase in the higher margin recurring revenue streams.
The bottom of the slide shows our self service banking segment key metrics.
On the left software and services revenue mix was flat.
A T M service units increased 293% year over year to 17000 units.
We experienced significant growth in India and incremental growth in the United States.
The shift to recurring revenue continues to gain traction with our are up 5% year over year.
On slide 14.
Similar to the view presented on slide 10 for NCR remain co and with similar caveat.
This slide showcases the combined segment results, where payments and network and self service banking, which are the segments that will comprise N C. R. A T M Coe after the separation transaction.
As I said before the unallocated revenue and corporate costs are not reflected here.
The combined revenue for these segments increased $24 million or 3% year over year as reported and 6% adjusted for currency.
Combined adjusted EBITDA was up 10% year over year adjusted for FX with an adjusted EBITDA margin rate of 23%.
Turning to slide 15, which describes free cash flow net debt and adjusted EBITDA metrics to facilitate leverage calculations.
As we said before we generated $209 million of free cash flow in the quarter, driven by higher profitability and an improvement in working capital with a cash conversion cycle improving by two days.
Our goal to generate $500 million in free cash flow before the separation transaction to reduce financial leverage has been well communicated.
We have now generated $400 million of free cash flow over the last two quarters and are positioned well to meet our targeted leverage.
The slide also displays our net debt to adjusted EBITDA metric, which has improved to a leverage ratio of 3.6 times down from 4.1 in Q1 of 2022 driven by higher profitability and cash generation.
We remain well within our debt covenants and have significant liquidity with over $875 million available under our revolving credit facility.
We possess a robust balance sheet ample liquidity and strong financial stability to support our growth and the spin transaction.
On slide 16, we present, our second quarter outlook and reaffirm our full year 2023 guidance.
For Q2, 2023 we expect revenue of 1.9 to 2.1 billion adjusted EBITDA of $340 million to $360 million and non-GAAP EPS of <unk> 70 said 76 at <unk>.
We anticipate generating free cash flow of approximately $50 million.
For the quarter, we've assumed a tax rate of 27% to 29% a share count range of 153 to 154 million shares and interest expense of $88 million.
For the remaining two quarters of 2023 we expect relatively linear sequential quarterly improvement across most financial metrics.
With that back to you Mike.
Thanks, Tim and I'm going to continue on slide 17, with the NCI separation roadmap. Our go to market teams are organized by industry under a general manager unit. These teams already and have been ready for the spin. Additionally, there are areas of shared services functions, such as legal tax HR Treasury I T.
And others that are well underway in the process of preparing for the separation we.
We are planning on submitting a form 10 registration statement very shortly and then the timing of the separation will be largely dependent on the FTC process and the state of the capital markets. We have already submitted a letter with the internal revenue service regarding the tax free nature of the separation.
We intend to delever through the generation of free cash flow between now and separation, which is expected to occur in the fourth quarter 2023.
At this time, we expect the timing to be early in the fourth quarter. This of course is dependent on clearing the FTC process and a favorable capital markets environment.
In closing on slide 18, looking Florida, our key priorities are clear.
First we are on track to separate NCR into two public companies in the fourth quarter. Upon separation. We believe each company will benefit from increased operating and financial flexibility in pursuit of respective indistinct opportunity sets. We believe that spending of MTR at ATM, calling a tax free distribution is the best path to unlock shareholder value.
<unk>.
But the other alternative options become available in the future that could deliver superior value such as a whole or partial company sale of NCI. The board continues to remain open to considering these alternative scenarios.
Second we expect the cyber security.
Or would it be mostly behind us in the near future well a recovery process is ongoing we quickly established with heavy path, which included building out a new cloud environment. At this time, our most critical applications had been brought fully back online safely and securely and the majority of customer functionality has been we start over.
The next six months, we will re double our efforts to protect our system from cyber attacks.
Third our teams are focused on our customers and executing our plan for 2020 three as our success in the first quarter shows we are off to a good start in 2023 and expect to drive sequential quarterly operating.
And financial improvement throughout the remainder of the year.
And finally I want to congratulate our.
Our CEO designate as post separation, Tim Oliver and David Wilkinson.
Tim and David have contributed greatly to NCR in a highly qualified to lead the two companies upon separation timberland.
Soon the CEO leadership.
Well at NCR Atms spin co, while David will assume the CEO well at NCI remain co.
Until the separation, Tim will continue and as well as C. F O of NCR and David will continue as well as president of NCR Commerce.
I look forward to working with both of them to execute a smooth and effective transition as a company.
Take the final form on a personal note I couldn't be more excited for both Tim.
And David taking our company's forward and creating to wait and see ours.
I also wanted to congratulate Joe lease who was elected to chair of NCR Board earlier this week.
And then last a special thanks to Frank Martire, who retired on Tuesday, as executive chair after five years in that role at NCI.
This concludes our prepared remarks for today with that we will open the call for questions.
Operator, please open the line for questions.
Well. Thank you if you would like to signal with questions. Please press star one on your Touchtone telephone. If you are joining us today speaker phone. Please make sure mute function is turned off to allow your signal to reach our equipment.
Again that will be star one if you would like to signal with questions Star one.
And our first question comes from Paul Chung with Jpmorgan.
Hi, Thanks for taking my questions and nice execution here.
So just on.
Digital banking you know are you seeing.
Pressure on your active user base.
Given some of the tough macro backdrop.
I guess the cross regional banks, and then are you seeing any emerging trends developing.
And then can you also expand on the kind of the new deals that were signed or are they competitive wins renewals in.
Any nice momentum you're seeing there.
Yeah.
Yes, Thanks Paul.
On the first question around some of the.
The impact is taking place and and regional banks.
I think we I think we did this a couple of months ago.
Thanks, Chris Yeah, we literally looked across all of our businesses, including digital banking.
And.
Based on the banks that were at risk of being impacted.
It's really not a material number.
On the digital banking side.
At least what we've seen so far it's not it's not an impact at all so there's a little bit here and there, but it's not doesn't even add up to anything.
Meaningful.
But we'll watch it like we have in prior years, but we.
You can look at a situation like this even either what's going on.
Those accounts are still out there for small businesses consumers.
They're going to end up somewhere.
Such a strong market share that we would expect even with some shifts that will end up.
In a good place so at this stage, we're not concerned about that at all.
On your second question competitive nature.
Everything we do right now is that competitive.
Nice with the SEC.
The rest of them were at nice that that's a very large one are very competitive.
Second largest credit union in the country over $2 5 million accounts, so very very meaningful we're excited to help them on their digital journey and really changed how they engage with their clients.
I think everybody showed up to compete there where we're very excited that we won on that particular deal.
Okay, Great and then on the ATM side.
We're seeing regional kind of remain engaged.
And then given some pressures going on with your nearest competitor can.
Can you expand on kind of the competitive environment. There and then separately what is spurring some of these large larger ATM as a service.
Fields from <unk> from some of these customers as well thank you.
Yeah, I mean, I think in the first part.
Headedly, maybe what's happened to some of our competitors.
Self service banking.
We chose the number of years ago to invest for growth to build out our products build out our services to be the best in the industry build out our software to be the best.
We have industry, leading hardware and.
It's showing up as Tim said, it's where it's a little stronger than we anticipated.
So far this year, we expect it to be strong for the full year.
And we're.
We're continuing to win in the marketplace on the ATM the ATM as a service strategy that we embarked on almost two years ago, but we said we do believe that this is a leverage business, where if you can do it at a better price point and you can do it at scale.
Not only across the country, but across the globe that there's an opportunity here to.
Two to drive really strong business and take a business that maybe is a little lower growth and turned into pretty a pretty high growth business.
And we really are seeing that.
The desire to outsource and have somebody else, we can deliver it at a better quality and better service level, which we believe we can again because of scale because the alpine network because of our capabilities coupled with cardtronics.
It seems to be playing on the market I think the team is very excited every year they clear out.
Florida, they clear out of a bunch of their sales pipeline into deals and then they build more backlog in the marketplace with demand so.
Excited about another good quarter and quite frankly, I think we're looking forward to the whole year here.
With ATM as a service are continuing to expand.
Great. Thank you.
And our next question will come from Charles <unk> with Stephens.
Hi, Good afternoon, and thank you for taking my question and Tim David Congrats on your appointment.
Hum.
Wanted to ask about the capital structure, you talked about refinancing a couple of your notes recently and I know the credit markets are huge variable, but could you speak to your.
Intentions with regard to.
The capital structure going forward.
Sure as we generally we've talked a lot about delevering getting ready for the spin.
We have not deployed that cash yet we've used it to pay the revolver down thus far because.
While the rate is not that different from our long term rate.
That said there are as you know there are two bonds, we will have to take out.
Those trade at a point, we think it's good.
Good trade for us to go take them out in advance of the transaction and we feel sanguine about the transaction were likely to go out and buy some of those bonds in the open market I'd love to go after some of the converts as you'll recall, we have $275 million of converts out there still that are there.
They are expensive, we've just seen anybody show us.
And ask that it makes it.
Makes sense so.
All of the cash we generate now is to delever to get us ready for the spin.
Got it and just as a follow up if I wish to think about the range of.
Cash flow guidance.
In your mind, what are the biggest variables that would take you either from the <unk>. The high end of the range to the low end of the range I know, there's a lot of moving parts in the business, but just curious how you think about the variables with respect to cash flows.
Working capital was the biggest one coming into this quarter, but we did a hell of a job we generate $150 million in working capital in a singular quarter and it allowed us to outpace the $500 million high end of this range. So having done fully half of the low end of the range in the first quarter of the year.
I feel very good about the high end of this range.
Got it. Thank you I appreciate the color.
Sure.
Our next question will come from Matt Summerville with D. A Davidson.
A couple of questions can you love some more numbers around ATM transactions withdrawals et cetera. If you could maybe go over those again I couldn't write them down fast enough and maybe talk about what you feel is driving that because I would imagine that's called.
Too many as being a bit counter intuitive to see that kind of growth.
Kind of resurgence.
We've been a big believer in cash all along others who've tried to talk us out of it we felt good about the.
The volume of transactions for some time in this quarter ATM withdrawals and cash dispatch were at a six year high ATM withdrawals were up 6% year over year and importantly, the amount of cash withdrawn per transaction was up another 13% year over year. So think about almost a 20% increase in the amount of cash dispensers in the quarter.
So we feel very good about both our fleet and the efficiency of that fleet and.
The behavior of the consumer behavior, we're seeing.
Yes.
Okay.
I'm, sorry, as things get tighter from an economic perspective, if we go into a recession things like cash and debit cards are inferior goods and you'll see much more use of those rather than credit cards.
Yes.
Completely concur with everything you said there.
Maybe spend that you guys could a few minutes on the self service banking business can you kind of do a regional walk through between the four parts of the world what Youre seeing on the ground from a demand scaled point, maybe where you're seeing greater uptake from them as a service standpoint, and then maybe just comment on health.
Check out flat I think it was an LTM metric that you guys shared what's your view on that business for the full year. Thank you.
Yeah, Let me this is.
Michael I'll just start with.
Self service.
And Tim can jump in with any color.
I think again just.
Overall, it's.
As Tim pointed out the first quarter started out a little stronger.
We had anticipated and as we look at the outlook for the year. It feels a little firmer little stronger then maybe he had.
Even anticipated what he shared with you last quarter.
And that's a cell surface thinking in total and also a.
Our shift to ATM as a service or shifts as serious as it played out my numbers that cuts of three points of growth.
Plasterboard shift too.
Subscriptions are not only HCM service, but the others just to subscription so we would've been at 7%.
Adjusted gross instead of 4%.
Regionally I don't know that Theres, a region thats more or less.
They're all doing.
Pretty well.
We've seen pretty good strength in North America.
The ATM as a service uptake.
I had a couple of nice deals in India last year, we did a really nice deal in the UK with center there, we're seeing a lot of movement.
The U S. A lot of deals a lot of pipeline activity.
We had anticipated it being more of Canadian banks and credit unions, and we're seeing quite a few I'd say super community and regional banks that we have.
Conversations with and then against some very large global banks like the center there so.
Again, I think that business is doing better than we anticipated that everything we expected in terms of that shift the ATM as a service. Yes. I think this is on the other comment I'd make is.
All of the reasons Mikes point are.
Are really performing well, we're seeing a pretty significant uptake in the north American market, which you know.
For us is our strongest margin market.
So we're seeing really good momentum there.
Our pipeline.
Stepped up as fast as faster than we anticipated and as we have closed a number of deals we announced several of them, including things like first citizens Bank, which was an 80 million plus dollar.
Deal.
We are keeping the pipeline sales pipeline.
As big as it's been throughout all of last year. So we're converting the pipeline, we're getting really good backlog, but we're also we benefited you know a year ago, we had a tough quarter everybody did supply chains.
Cost escalated, but our teams did a great job and value engineering.
Pensive parts out.
We have renegotiated a lot within our supply chain and as you all recall, we did not miss a customer commitment throughout all of last year.
The supply chain that we're operating with has held up.
We are seeing costs come back down into the range as pre <unk>.
First quarter of last year.
So we have a very healthy supply chain partnership we're getting margins youll see that in the gross margins and as we continue to convert to the as a service model. Despite the headwinds that they create on revenue. We're really building a very very strong recurring business with the ATM as a service so we're feeling pretty bullish.
Across all the regions.
<unk> the ATM as a service and so if you run that math out from what we thought just 90 days ago, and we gave you guidance for the full year.
We presumed $150 million of impact from shifting hardware as a service over the course of the year, which would have been about seven points of growth on that total business. So we talked about 3% decline in revenue for the full year for that business actually is now think will not only exceed the $150 million, which would put more pressure on top line.
But we're also going to get back to flat for the full year. So our order book is strong business is doing great.
The outlook is better.
Got it thank you.
And our next question will come from Ian Zaffino with Oppenheimer.
Okay, great. Thank you very much Greg.
Great job on the cash flow.
<unk> this quarter.
How do we now think about the cash flow cadence.
Because typically you get it mainly in the back half now you're seeing it earlier on.
Maybe walk us through how you're thinking about the cadence where there are levers that you've pulled in this quarter that you may not be able to pull again.
I'm just trying to understand it because it's.
Since that time, she free cash flow in the corner just trying to get my arms around.
Yeah.
Yes.
Some of the line items and free cash flow are zero sum right you can only reduce working capital. So far we underperformed in working capital last year and so we had some some dry powder coming into the year and we suggested we were likely to overachieve in the first quarter.
You know more linear against the more linear expectation for some.
I think the second quarter.
<unk> given guidance of $50 million of free cash flow on some $4 billion of working capital out there in various forms $50 million isn't a huge percentage I feel good about that number and we could be on either side of it a little bit, but think about being halfway through the $500 million goal at the mid point of the year with <unk>.
There'll be more profitability in the latter half of the year than the first half of the year.
And similar spending levels I think we will be able to.
Do very well in the second half of the year. So I think we'll be halfway home through the first half.
And we'll have a we'll have a good second half as well.
Okay, great great job, there and then also on that debt.
The synergies.
You know I know you touched upon it a little bit I mean, if you were to kind of think about it or maybe bucking the dis synergies or maybe quantify kind of dis synergies are I wonder if you could address that right now or is that something we need to wait for you know as you get the form 10 filed but I mean any additional color that you could give us even though you did give us some good color in the prepared remarks.
<unk>.
Right.
The numbers that we had talked about.
As early as last December was you were looking at $80 million to $100 million of dis synergy cost that.
That cost actions that we set in motion last fall, we believe will offset those.
Also have will benefit from those actions and you're starting to see that come through.
The margin, especially the gross profit margins. So we feel pretty good as we're going through this.
We've talked a lot about where we are in the separation process.
And we are a long way into that process. So we're getting even better color and visibility into those dis synergies and I would say that ballpark. We gave you. It is holding up as are the offsetting.
Cost savings for sure the parking lot of ideas that can be acted upon let's say day two of the separation gets longer every day, we're not gonna make tremendous amount of change.
As we go into the spin, but what separate there are cost actions on both sides of the house it ought to be accretive at that point in time, So I agree with $180 million to $100 million, but what we thought.
Seem to be coming true.
And we don't anticipate that being additive to the cost structure of the two companies going forward, we'll have ways to offset that.
Okay. That's great color. Thank you so much.
And as a reminder, if you would like to signal with questions. Please press Star One star one and our.
Our next question will come from Matthew Roswell with RBC capital markets.
Yes, good evening, it's now possible to Dan Perlin.
I guess, if we could think of.
If we could look at the hospitality unit any thoughts on kind of trends through the quarter into April and then what's been the recent demand for a low bar given that some of your.
Competitors have been aggressive, especially in kind of at the low end of the market.
Most of the growth in that business actually was in recurring revenue would suggest that although hog competing very well, both SMB and enterprise level that that business was a little challenged in the hardware side that the post COVID-19 balance we experienced last year, our Pos and hospitality really buoyed revs.
Revenue last year in the absence of that we're still growing through it and more than all of the growth. This quarter came from recurring revenue streams.
Okay. Thank you very much.
Okay.
Thank you and that does conclude the question and answer session I'll now turn the conference back over to Mr. Mike Hayford for any additional or closing remarks.
Thanks.
Couple closing.
Our first.
We're we're off to a really good start in 2023 and we're excited in particular.
As we head into a very important year for us.
The cash flow our success in the first quarter, coupled with the cash flow that we drove in the fourth quarter, so $400 million two quarters.
Against the target, we had a 500 to delever.
It's a lot of confidence in our team that we can get to the spin with the balance sheet at the right leverage ratio.
Lee the activities.
Around the spin that is planned to be completed early in the fourth quarter of this year are on schedule and on track the teams are performing well.
And lastly, as you saw from the announcement today, we've announced the <unk>.
Leadership of the spin again I want to add my congratulations to Tim and David I know one will join me in this where were excited that theyre going to take over the reins and take us forward execute the strategy and.
And and take care of as a shareholder so where we're really excited about you guys taking over and.
Again, congratulations so with that we'll we'll give you an update next quarter.
Thank you thanks al Thanks.
Well. Thank you that does conclude today's conference call. We do thank you for your participation have an excellent day.
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