Q2 2024 NCR Voyix Corp Earnings Call

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Operator: Greetings and welcome to the NCR Voyix Q2 2024 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alan Katz, VP of Investor Relations. Thank you. You may begin.

Speaker Change: Greetings and welcome to the NCR Voyix Q2 2024 earnings call.

Speaker Change: At this time, all participants are in a listen-only mode.

Speaker Change: A brief question and answer session will follow the formal presentation.

Speaker Change: Should anyone require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to introduce your host, Alan Katz, VP of Investor Relations. Thank you. You may begin. Alan Katz, VP of Investor Relations. Thank you.

Alan Katz: Good morning, and thank you for joining our second quarter 2024 earnings conference call. This morning, we issued our earnings release reporting financials for the quarter ended June 30th, 2024. The copy of the earnings release and the presentation that we will reference during this call are available on the Investor Relations section of our website, which can be found at www.ncrvoyix.com and has been filed with the SEC. With me on the call today are David Wilkinson, our Chief Executive Officer, and Brian Webb Walsh, our Chief Financial Officer. This call is being recorded, and the webcast will be available in the Investor Relations section of our website.

Speaker Change: Good morning and thank you for joining our second quarter 2024 earnings conference call. This morning we issued our earnings release reporting financials for the quarter ended June 30th, 2024.

Speaker Change: A copy of the earnings release and the presentation that we will reference during this call are available on the investor relations section of our website, which can be found at www.ncrvoyix.com.

Speaker Change: and have been filed with the SEC. With me on the call today are David Wilkinson, our Chief Executive Officer, and Brian Webb Walsh, our Chief Financial Officer.

Alan Katz: Before we begin, please be advised that my remarks today will contain forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our earnings release, and there are other reports filed with the SEC. We caution you not to place undue reliance on these statements. Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them. In addition, we will be discussing or providing certain non-GAAP financial measures today, which we believe will provide additional clarity regarding our ongoing performance. For a full reconciliation of the non-gap financial measures discussed in this call, the most comparable gap measure in accordance with SEC regulation.

Speaker Change: This call is being recorded and the webcast is available on the Investor Relations section of our website. Before we begin, please be advised that remarks today will contain forward-looking statements.

Speaker Change: These forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

Speaker Change: For additional information on these factors, please refer to our earnings release and our other reports filed with the SEC. We caution you not to place undue reliance on these statements.

Speaker Change: Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them.

Speaker Change: In addition, we will be discussing or providing certain non-GAAP financial measures today, which we believe will provide additional clarity regarding our ongoing performance.

Speaker Change: For a full reconciliation of the non-GAAP financial measures discussed in this call to the most comparable GAAP measure in accordance with SEC regulations, please see our press release furnished as an exhibit on our Form 8K filed this morning and our supplementary materials available on the Investor Relations section of our website.

Alan Katz: Please see our press release, attached as an exhibit to our Form 8K filed this morning, and our supplemented materials, available on the Investor Relations section of our website. With that, I would now like to turn the call over to David.

David Wilkinson: Thanks, Alan, and good morning, everyone. I would like to welcome all of you to our second quarter 2024 earnings call. In addition to discussing our quarterly financial results, we will also provide details concerning the strategic actions announced this morning, including the sale of our digital banking business, our expanded partner agreements with a leading provider of point of sale and self-checkout hardware, and our recent cost alignment initiative. I would like to remind everyone that the strategic review to optimize the company's operations and drive enhanced long-term shareholder value began in 2022.

Speaker Change: With that, I would now like to turn the call over to David.

David Wilkinson: Thanks, Alan. And good morning, everyone. I would like to welcome all of you to our second quarter 2024 earnings call.

David Wilkinson: In addition to discussing our quarterly financial results, we will also provide details concerning the strategic actions announced this morning, including the sale of our digital banking business, our expanded partner agreements with a leading provider for point-of-sale and self-checkout hardware, and our recent cost alignment initiatives.

David Wilkinson: I would like to remind everyone that the Strategic Review to Optimize the Company's Operations and Drive Enhanced Long-Term Shareholder Value began in 2022.

David Wilkinson: The initial part of this multifaceted plan was realized in October 2023 with the completion of the spinoff of our ATM business into NCR Atlio. Following the spin, the NCR Voyix board continued efforts to streamline the business and sharpen the company's focus to better serve our customers and drive enhanced value to our shareholders. As you will see on slide six, we have taken the following actions. First... We announced a definitive agreement to divest our digital banking segment to Veritas Capital for a $2.45 billion purchase price, plus up to $100 million of contingent consideration. Second,

David Wilkinson: The initial part of this multifaceted plan was realized in October 2023 with the completion of the spinoff of our ATM business into NCR Atlios.

Speaker Change: Following the spin, the NCR Voyix board continued efforts to streamline the business and sharpen the company's focus to better serve our customers and drive enhanced value to our shareholders.

Speaker Change: As you will see on slide 6, we have taken the following actions.

Speaker Change: First.

Speaker Change: We announced a definitive agreement to divest our digital banking segment to Veritas Capital for a $2.45 billion purchase price, plus up to $100 million of contingent consideration.

David Wilkinson: We announced partnering with EniconCorp, a leading hardware provider for both point of sale and self-checkout. And third, we implemented a multi-phase cost alignment program, which began with the elimination of approximately 800 staff globally, or approximately $75 million in annualized operating and capitalized payroll-related costs at the end of Q2. This program contemplates an ongoing assessment of all costs. These actions will significantly reduce leverage.

Speaker Change: Second, we announced partnering with EniconCorp, a leading hardware provider for both point of sale and self-checkout.

Speaker Change: And third, we implemented a multi-phase cost alignment program, which began with the elimination of approximately 800 staff globally, or approximately $75 million in annualized operating and capitalized payroll-related costs at the end of Q2.

Speaker Change: This program contemplates an ongoing assessment of all costs.

David Wilkinson: moderate the variability of hardware-related revenue beginning in 2025, align our current operating costs to the new structure, and position NCR Voyix for accelerated top-line growth and margin expansion. Brian will discuss the details of the Cost Alignment Program and our improved future capital profile later on in the call. As we have described previously, the digital banking business is an industry-leading provider of digital-first solutions for banks and credit unions and the only provider of a truly end-to-end offering across the physical and digital channels.

Speaker Change: These actions will significantly reduce leverage.

Speaker Change: Moderate the variability of hardware-related revenue beginning in 2025.

Speaker Change: Align our current operating costs to the new structure.

Speaker Change: and position NCR Voyix for accelerated top-line growth and margin expansion.

Speaker Change: Brian will discuss the details of the cost alignment program and our improved future capital profile later on the call.

Brian: As we have described previously, the digital banking business is an industry-leading provider of digital-first solutions for banks and credit unions.

Brian: and the only provider of a truly end-to-end offering across the physical and digital channels.

David Wilkinson: With 2023 revenue of $579 million, this business employs over 1,600 employees across seven global facilities and serves approximately 1,300 financial institutions in North America. We believe divesting this business benefits both NCR Voyix and digital banking, allowing each to focus on its core competencies. Over the last four months, we conducted a rigorous selection process that resulted in identifying the best owner for the business while maximizing value for our shareholders. We expect the transaction to close by year end.

Brian: With 2023 revenue of $579 million, this business employs over 1,600 employees across seven global facilities and serves approximately 1,300 financial institutions in North America.

Brian: We believe divesting this business benefits both NCR Voyix and digital banking, allowing each to focus on its core competencies.

Brian: Over the last four months, we conducted a rigorous selection process, which resulted in identifying the best owner for the business, while maximizing value for our shareholders.

David Wilkinson: For hardware, we have selected a leading manufacturer of point-of-sale and self-checkout hardware, Enecon Corp., whereby we will function as their agent and maintain the sales relationship with our customers. However, all other aspects of the hardware sale, including design, manufacture, and warranty of the hardware, will be fulfilled by Enicon. Once the agreement is implemented, we will only record the net sales commission from hardware in our revenue.

Brian: We expect the transaction to close by year-end.

Brian: For hardware, we have selected a leading manufacturer of point-of-sale and self-checkout hardware, Enecon Corp.

Brian: whereby we will function as their agent and maintain the sales relationship with our customers.

Brian: However, all other aspects of the hardware sale, including design, manufacture, and warranty of the hardware, will be fulfilled by Enicon.

Brian: Once the agreement is implemented, we will only record the net sales commission from hardware in our revenue.

David Wilkinson: This is the natural next step in the evolution of the company's hardware, which has transitioned over the years from internal to outsource manufacturing and will now be exclusively handled by a leading third-party design and manufacturing company. This should allow our software customers access to market-leading hardware products with the benefit of improved lead times, enhanced speed of innovation, and increasingly competitive prices. Turning to slide seven.

Brian: This is the natural next step in the evolution of the company's hardware business.

Brian: which has transitioned over the years from internal to outsourced manufacturing and will now be exclusively handled by a leading third-party design and manufacturing company.

Brian: This should allow our software customers access to market-leading hardware products with the benefit of improved lead times, enhanced speed of innovation, and increasingly competitive pricing.

David Wilkinson: We have outlined our key forward strategic objectives for the second half of 2024 and into 2025. We believe these efforts will strengthen operations in our core markets, enhance existing customer relationships, attract new customers, and improve the allocation of resources to focus on our restaurant and retail segments and drive profitable growth for the company. These can be best summarized as follows.

Brian: Turning to slide 7.

Brian: We have outlined our key go-forward strategic objectives for the second half of 2024 and into 2025.

Brian: We believe these efforts strengthen operations in our core markets.

Brian: Enhance existing customer relationships.

Brian: Attract new customers. Improve allocation of resources to focus on our restaurant and retail segments.

Brian: and drive profitable growth for the company.

David Wilkinson: First, accelerate platform conversion. Today, we have around 20% of our sites connected to the platform. Our expectation is to accelerate platform conversion over the next three years. As we continue to convert customers to the platform and improve customer adoption of value-added platform capabilities, we will significantly increase our software revenues related to our existing customers. Second, we need to ensure we have the right resources and incentive programs in place to improve upon our past performance of gaining share across our market.

Brian: These can be best summarized as follows. First, accelerate platform conversions.

Brian: Today we have around 20% of our sites connected to the platform.

Brian: Our expectation is to accelerate platform conversion over the next three years.

Brian: As we continue to convert customers to the platform and improve customer adoption of value-added platform capabilities, we will significantly increase our software revenues related to our existing customers.

Brian: Second, is to ensure we have the right resources and incentive programs in place to improve upon past performance of gaining share across our markets.

David Wilkinson: And finally, invest in our Voyix Commerce Platform to meet the growing demands of our customers. Including tuck-in acquisitions of added capabilities and accelerating speed, we believe these actions support the continued realignment of our operating model and will enable us to see meaningful improvements in revenue and earnings growth over time. Before I turn the call over to Brian to discuss our financial results, I would like to take a few moments to review some of our second quarter highlights on Slide 8.

Brian: And finally, invest in our Voyix commerce platform to meet the growing demands of our customers.

Brian: including tuck-in acquisitions of added capabilities accelerating speed to market.

Brian: We believe these actions support the continued realignment of our operating model and will enable us to see meaningful improvements in revenue and earnings growth over time.

Brian: Before I turn the call over to Brian to discuss our financial results, I would like to take a few moments to review some of our second quarter highlights on slide 8.

David Wilkinson: For the quarter, Normalized Software Revenue increased 5%, and Normalized Services Revenue decreased 2%, while when excluding the Adverse Impact of a One-Time Prior Periods Adjustment and a One-Time Software Chew-Up from the Prior Year. We executed on transformation initiatives and saw the impact of the continued growth within our higher-margin revenue. We achieved solid sales results across our segments, including signing nearly 300 new customers. We also continued converting customers to our platform and now have a total of more than 67,000 retail and restaurant platform sites, an increase of nearly 35% from the prior year. The ongoing execution of our platform strategy.

Brian: For the quarter, Normalized Software Revenue increased 5% and Normalized Services Revenue decreased 2%.

Brian: When excluding the adverse impact of a one-time prior periods adjustment and a one-time software chew-up from the prior year.

Brian: We executed on transformation initiatives and saw the impact of the continued growth within our higher margin revenue streams.

Brian: We achieve solid sales results across our segments, including signing nearly 300 new customers.

Brian: We also continued converting customers to our platform and now have a total of more than 67,000 retail and restaurant platform sites, an increase of nearly 35 percent from the prior year.

David Wilkinson: This coupled with our increased investment in our global sales and services network drove software ARR growth of 6% and total segment ARR growth of 5%. Turning to our restaurant segment on slide 9, in the second quarter, we continue to demonstrate momentum, signing more than 220 new customers and increasing our platform and payment sites by 7 and 21%, respectively. Software ARR increased 2% and total ARR increased 4% in the quarter within our Enterprise Division.

Brian: The ongoing execution of our platform strategy.

Brian: Coupled with our increased investment in our global sales and services network drove software ARR growth of 6% and total segment ARR growth of 5%.

Brian: Turning to our restaurant segment on slide 9, in the second quarter we continue to demonstrate momentum, signing more than 220 new customers and increasing our platform and payment sites by 7 and 21 percent respectively.

Brian: Software ARR increased 2% and total ARR increased 4% in the quarter.

David Wilkinson: We signed a new multi-year agreement with a large North American hospitality group to provide the Voyix commerce platform with Aloha essentials to more than six restaurant brands across Canada. Under our agreement, we will provide a full suite of solutions for approximately 90 restaurant sites with the opportunity to contract an additional 90 plus franchisee sites in the future. Our comprehensive solution will enable this customer to streamline operations and significantly improve business agility, allowing them to execute on their growth opportunities and scale their business.

Brian: within our Enterprise Division.

Brian: We signed a new multi-year agreement with a large North American hospitality group to provide the Voyix commerce platform with Aloha essentials to more than six restaurant brands across Canada.

Brian: Under our agreement, we will provide a full suite of solutions for approximately 90 restaurant sites with the opportunity to contract an additional 90 plus franchisee sites in the future.

Brian: Our comprehensive solution will enable this customer to streamline operations and significantly improve business agility, allowing them to execute on their growth opportunities and scale their business.

David Wilkinson: This quarter, we also rolled out our digital ordering platform solutions for a longtime large fast casual restaurant customer across 2000 plus domestic locations. This customer leveraged our platform to power their new digital ordering strategy in the third quarter of 2023. As of today, they have fully implemented our solution, including our online and mobile ordering services, Order Monitoring and Menu Management to integrate the customer experience across the physical and digital channels.

Brian: This quarter, we also rolled out our digital ordering platform solutions for a long-time large fast casual restaurant customer across 2,000 plus domestic locations.

Brian: This customer leveraged our platform to power their new digital ordering strategy in the third quarter of 2023.

Brian: As of today, they have fully implemented our solutions, including our online and mobile ordering services.

Brian: Order Monitoring and Menu Management to integrate the customer experience across the physical and digital channels.

David Wilkinson: Our technology will be integral to their digital transformation for their end customers, while also lowering their operating costs. Lastly, in our mid market business, we continue to execute on our growth efforts, signing more than 220 new logos. Our payment sites for this segment continue to increase as well, with 98% of the new mid-market customers signed, attaching payments to their point-of-sale contracts. Turning to our retail segment on slide 10, this quarter we signed two enterprise customers and 45 mid-market customers, leading to nearly 800 additional sites.

Brian: Our technology will be integral to their digital transformation for their end customers, while also lowering their operating costs.

Brian: Lastly, in our mid-market business, we continue to execute on our growth efforts, signing more than 220 new logos.

Brian: Our payment sites for this segment continue to increase as well, with 98% of the new mid-market customers signed attaching payments to their point-of-sale contracts.

Brian: Turning to our retail segment on slide 10, this quarter we signed two enterprise customers and 45 mid-market customers, leading to nearly 800 additional sites.

David Wilkinson: We also increased our platform sites by 70% as we continue to convert on-premise customers and onboard newly signed customers. Software ARR increased 6% and total ARR increased 4%, attributed to the powerful impact of attaching to the platform. Additionally, we signed a new multi-year agreement with a large wholesale grocery supplier and grocery store operator in the United States. Under our agreement, we will provide this customer with our full suite of retail platform solutions, including point of sale, NextGen Self Checkout, and Customer Loyalty, for 10,000 lanes across 600 of their newly acquired stores.

Brian: We also increased our platform sites by 70% as we continue to convert on-premise customers and onboard newly signed customers.

Brian: Software ARR increased 6%, and total ARR increased 4%, attributed to the powerful impact of attaching to the platform.

Brian: In our enterprise business, we signed a new multi-year agreement with a large wholesale grocery supplier and grocery store operator in the United States.

Brian: Under our agreement, we will provide this customer with our full suite of retail platform solutions, including point-of-sale, next-gen self-checkout, and customer loyalty for 10,000 lanes across 600 of their newly acquired stores.

David Wilkinson: We also expanded our relationship with a longstanding fuel and convenience customer, NCR Voyix. By the end of 2025, we will connect their entire store footprint of approximately 3,500 lanes across Canada to the platform to modernize their point of sale. Following the migration, we'll work to cross-sell additional solutions. Lastly, we renewed and expanded our services agreement with one of our largest retail customers following our successful execution to support their holiday traffic across more than 5,000 sites consisting of 200,000 lanes.

Brian: We also expanded our relationship with a long-standing fuel and convenience customer of NCR Voyix.

Brian: By the end of 2025, we will connect their entire store footprint of approximately 3,500 lanes across Canada to the platform to modernize their point-of-sale solution.

Brian: Following the migration, we'll work to cross-sell additional solutions.

Brian: Lastly, we renewed and expanded our services agreement with one of our largest retail customers following our successful execution to support their holiday traffic across more than 5,000 sites consisting of 200,000 lanes.

David Wilkinson: As a result of our performance, this customer not only renewed their contract with us for an additional three years, but it expanded the scope of the agreement to include additional services. Turning to slide 11, our digital banking business demonstrated strong financial and operational performance this quarter. Compared to the prior year, revenue increased 9%, and adjusted EBITDA increased 17%. Registered users grew 4% to 29 million, and the number of active users grew 3% to 20 million, while segment ARR increased 9%.

Brian: As a result of our performance, this customer not only renewed their contract with us for an additional 3 years, but expanded the scope of the agreement to include additional services.

Brian: Turning to slide 11, our digital banking business demonstrated strong financial and operational performance this quarter.

Brian: Compared to the prior year, revenue increased 9% and adjusted EBITDA increased 17%.

Brian: Registered users grew 4% to 29 million, and a number of active users grew 3% to 20 million, while segment ARR increased 9%.

David Wilkinson: As I stated earlier, we anticipate the sale of digital banking to close by year end, and we will continue to support the transition of the business to Veritas Capital outside Europe. With that, I will turn it over to Brian, who will discuss our second quarter financial performance and the financial impact of the transactions announced today.

Brian: As I stated earlier, we anticipate the sale of digital banking to close by year end.

Brian: We will continue to support the transition of the business to Veritas Capital beyond year end.

Brian: With that, I will turn it over to Brian , who will discuss our second quarter financial performance and the financial impact of the transactions announced today.

Brian Webb Walsh: Thank you, David. And good morning, everyone.

Brian: Thank you, David, and good morning, everyone. I will begin my remarks today by discussing the financial impact of the strategic actions announced this morning before commenting on our second quarter results.

Brian: Our updated 2024 outlook and a pro forma view of the company giving effect to the strategic actions.

Brian Webb Walsh: I will begin my remarks today by discussing the financial impact of the strategic actions announced this morning before commenting on our second quarter results, our updated 2024 outlook, and a pro forma view of the company, giving effect to the strategic action. I will start with the sale of the digital banking business on slide 13. As David mentioned, we have entered into a definitive agreement to sell our digital banking business for $2.45 billion, plus a potential contingent consideration of up to $100 million. This reflects a 20 times multiple on the last 12 months of adjusted free cash flow.

Brian: I will start with the sale of the digital banking business on slide 13. As David mentioned, we have entered into a definitive agreement to sell our digital banking business for $2.45 billion.

Brian: Plus a potential contingent consideration of up to $100 million. This reflects a 20 times multiple on the last 12 months of adjusted free cash flow.

Brian Webb Walsh: Upon closing, we intend to use the proceeds primarily to pay down our debt, including all outstanding amounts under our term loan, repurchase certain bonds, and terminate our AR facilities. These efforts are designed to result in a net leverage ratio of approximately two turns based on our proforma 2024 adjusted EBITDA. This will reduce the net interest expense of the company. The net impact of the interest reduction and our cost takeout will offset the cash flow impact from the divestment.

Brian: Upon closing, we intend to use the proceeds primarily to pay down our debt, including all outstanding amounts under our term loan, repurchase of certain bonds, and to terminate our AR facility.

Brian: These efforts are designed to result in a net leverage ratio of approximately two turns based on our Pro Forma 2024 Adjusted EBITDA.

Brian: This will reduce the net interest expense of the company.

Brian: The net impact of the interest reduction and our cost takeout will offset the cash flow impact from the divestiture.

Brian Webb Walsh: Turning to hardware, as David indicated, we have executed an agreement with a leading manufacturer to provide hardware solutions to our valued customers. Once implemented, Enicon will design, manufacture, warranty, supply, and ship self-checkout and point-of-sale hardware directly to the customer.

Brian: Turning to hardware, as David indicated, we have executed an agreement with a leading manufacturer to provide hardware solutions to our valued customers.

David Wilkinson: Once implemented, Enecon will design, manufacture, warranty, supply, and ship self-checkout and point-of-sale hardware directly to the customer. We will continue to sell hardware to our customers as an agent and expect to record commission revenue from these hardware sales on a net basis.

Brian Webb Walsh: We will continue to sell hardware to our customers as an agent and expect to record commission revenue from these hardware sales on a net-based basis, although these revenues are expected to be modestly lower than the net margins from past hardware sales. We have retained the intellectual property on all designs pertaining to point-of-sale and self-checkout hardware.

David Wilkinson: These revenues are expected to be modestly lower than the net margins from past hardware sales. We have retained the IP on all designs pertaining to point-of-sale and self-checkout hardware.

Brian Webb Walsh: With the exit of the ATM and digital banking businesses and a modification of our hardware go-to-market structure, the company is aligning corporate costs and support services to reflect the new reality of our leaner organization. As such, at the end of Q2, we eliminated 800 staff, totaling $75 million in annualized payroll costs, comprised of operating and capital costs. Additional work is underway to identify another $30 million of non-payroll costs expected to be eliminated over time once the divestiture is closed and the ODM model is implemented.

David Wilkinson: With the exit of the ATM and digital banking businesses and a modification of our hardware go-to-market structure, the company is aligning corporate costs and support services to reflect the new reality of our leaner organization.

David Wilkinson: As such, at the end of Q2, we eliminated 800 staff, totaling $75 million of annualized payroll costs.

David Wilkinson: comprised of operating and capital costs. Additional work is underway to identify another 30 million of non-payroll costs expected to be eliminated over time once the divestiture is closed and the ODM model is implemented.

Brian Webb Walsh: This will continue to be a core focus of the company as we look to accelerate our retail and restaurant performance. This program is complementary to the transformation initiatives that we laid out at the time of the ATLEO spin.

David Wilkinson: This will continue to be a core focus of the company as we look to accelerate our retail and restaurant performance.

David Wilkinson: This program is incremental to the transformation initiatives that we laid out at the time of the ATLEO spin. Those have largely been achieved and are included in our run rate cost structure today.

Brian Webb Walsh: Those have largely been achieved and are included in our run rate cost structure today. Turning to our Q2 results on slide 14, I would like to remind you that the spinoff of NCR-Alios has created complexity in our reported results; thus, we are providing normalized results that exclude the impact of these spin-related items and the impact of the divestures completed in 2023. My Q2 commentary will primarily focus on these normalized results.

David Wilkinson: Turning to our Q2 results on slide 14, I would like to remind you that the spinoff of NCR-Alios has created complexity in our reported results, thus we are providing normalized results that exclude the impact of these spin- related items and the impact of the divestitures completed in 2023.

Brian Webb Walsh: For the company, both reported and normalized revenue was $876 million, reflecting the previously discussed decline in hardware revenue and the adverse impact of a $10 million out-of-periods adjustment primarily to software and services revenue. This adjustment had a $3 million impact on our retail and restaurant segments and a $7 million impact on corporate and others. Excluding this item, our results were as expected.

David Wilkinson: My Q2 commentary will primarily focus on these normalized results.

David Wilkinson: For the company, both reported and normalized revenue was $876 million, reflecting the previously discussed decline in hardware revenue and the adverse impact of a $10 million out-of-periods adjustment primarily to software and services revenue.

David Wilkinson: This adjustment had a $3 million impact on our retail and restaurant segments and a $7 million impact on corporate and other. Excluding this item, our results were as expected.

David Wilkinson: Reported and normalized software revenue was $397 million, which was flat versus the prior year, and increased 5%, excluding the audit period's adjustment and a software true-up payment from Q2 of 2023.

Brian Webb Walsh: Normalized services revenue decreased 2% due to lower one-time hardware implementation. Adjusted EBITDA was $144 million, and on a normalized basis, it would have been $145 million. This was in line with our expectations.

David Wilkinson: Reported and normalized services revenue was $259 million. Normalized services revenue decreased 2% due to lower one-time hardware implementations.

David Wilkinson: Adjusted EBITDA was $144 million. On a normalized basis $145 million. This was in line with our expectations.

Brian Webb Walsh: The reported Adjusted EBITDA Margin was 16.4%, and the Normalized Adjusted EBITDA Margin was 16.6%. Adjusted Earnings Per Share for the quarter was $0.09, which reflected a non-GAAP tax rate of 59%. Please turn to slide 15, which details our segment results for the quarter. Beginning with our Respirant segment, reported and normalized software revenue was $85 million in the second quarter, an increase of 2%, excluding the one-time prior period adjustment, and flat as reported. Reported and normalized services revenue was $70 million, flat compared with the prior year.

David Wilkinson: Reported adjusted EBITDA margin was 16.4% and normalized adjusted EBITDA margin was 16.6%. Adjusted earnings per share for the quarter was nine cents which reflected a non-GAAP tax rate of 59%.

David Wilkinson: Please turn to slide 15 which details our segment results for the quarter.

David Wilkinson: Beginning with our Respirant segment, reported and normalized software revenue was $85 million in the second quarter, an increase of 2%, excluding the one-time prior periods adjustment, and flat as reported.

Brian Webb Walsh: Total segment revenue of $201 million declined 9% on a normalized basis, reflecting the expected declines in hardware. However, restaurants had a solid profit performance with adjusted EBIT of $62 million, increasing 22% and a margin of 30.8%, expanding 760 basis points on a normalized basis. These results were driven primarily by MIX and our transformation initiative.

David Wilkinson: Reported and normalized services revenue was 70 million flat compared with the prior year. Total segment revenue of 201 million declined 9% on a normalized basis reflecting the expected declines in hardware.

David Wilkinson: Restaurants had a solid profit performance with adjusted EBITDA of 62 million, increasing 22 percent and a margin of 30.8 percent, expanding 760 basis points on a normalized basis. These results were driven primarily by NICS and our transformation initiatives.

Brian Webb Walsh: Turning to retail, software revenue was $156 million, which increased 3% when adjusting for the one-time software true-up of $14 million in Q2 of 2023. However, software revenue, as reported, decreased 5% from the prior year due to the software true-up. Services revenue was $187 million, a decrease of 3% due to lower one-time hardware installation services. However, total retail revenue declined 7% on a normalized basis due to the expected declines in hardware.

David Wilkinson: Turning to retail, software revenue was $156 million, which increased 3% when adjusting for the one-time software true-up of $14 million in Q2 of 2023.

David Wilkinson: Software revenue, as reported, decreased 5% from the prior year due to the software true-up. Services revenue was $187 million, a decrease of 3% due to lower one-time hardware installation services.

David Wilkinson: Total retail revenue declined 7% on a normalized basis due to the expected declines in hardware.

Brian Webb Walsh: Adjusted EBITDA of $87 million declined 24% on a normalized basis due to hardware declines and the one-time software trouble. Digital Banking revenue increased 9% for the quarter, exceeding our expectations as we continue to demonstrate cross-sell momentum and onboard previously signed customers. Adjusted EBITDA increased 17%, and margin expanded by 260 basis points driven by operating leverage and the transformation initiatives we previously discussed on our Q1 call. Lastly, I'd like to spend a moment on our corporate and other lines.

David Wilkinson: Adjusted EBITDA of 87 million, declined 24% on a normalized basis due to hardware declines and the one-time software true-up.

David Wilkinson: Digital banking revenue increased 9% for the quarter, exceeding our expectations, as we continue to demonstrate cross-sell momentum and onboard previously signed customers.

David Wilkinson: Adjusted EBITDA increased 17% and margin expanded by 260 basis points driven by operating leverage and the transformation initiatives we previously discussed on our Q1 call.

Brian Webb Walsh: In Q2, adjusted corporate expenses for the quarter amounted to $67 million, which included $23 million of spin-related synergies. Corporate and other also included $2 million of revenue associated with our commercial agreements with Atlios, which we have now exited. Please turn to slide 16.

David Wilkinson: Lastly, I'd like to spend a moment on our corporate and other lines. In Q2, adjusted corporate expenses for the quarter amounted to $67 million, which included $23 million of spin-related synergies. Corporate and other also included $2 million of revenue associated with our commercial agreements with Atlios, which we have now exited.

Brian Webb Walsh: We ended the quarter with 4.1 times net leverage, $2.6 billion of debt, and $204 million of cash. As of June 30th, under our $500 million revolving credit facility, we had drawn $136 million. Our adjusted free cash flow for the quarter was a use of $26 million, which includes the adverse impacts of spend associated with our transformation and restructuring initiatives and the strategic action. Turning to slide 17, we have updated our 2024 guidance to remove the revenue and adjusted EBITDA associated with the digital banking business, which will be treated as discontinued operations for the full year and all prior periods beginning in the third quarter.

David Wilkinson: Please turn to slide 16. We ended the quarter with 4.1 times net leverage, 2.6 billion of debt, and $204 million of cash. As of June 30th, under our $500 million revolving credit facility, we had drawn $136 million.

David Wilkinson: Our adjusted free cash flow for the quarter was a use of $26 million, which includes the adverse impacts of spend associated with our transformation and restructuring initiatives and the strategic actions.

David Wilkinson: Turning to slide 17, we have updated our 2024 guidance to remove the revenue and adjusted EBITDA associated with the digital banking business, which will be treated as discontinued operations for the full year and all prior periods beginning in the third quarter.

Brian Webb Walsh: We also anticipate hardware revenue and related installation services will be lower through the balance of the year as a result of the announcement of the ODM transaction, coupled with continued macro trends. As a result, we now expect revenue for the year to be between $2.805 billion and $2.86 billion. We now have also separated software and services revenue. Software revenue is expected to be between $1 billion and $1.02 billion. Services revenue is expected to be between $1.04 billion and $1.06 billion, and hardware revenue is expected to be between $765 million and $780 million.

David Wilkinson: We also anticipate hardware revenue and related install services will be lower through the balance of the year as a result of the announcement of the ODM transaction coupled with continued macro trends. As a result, we now expect revenue for the year to be between $2.805 billion and $2.86 billion.

David Wilkinson: Software revenue is expected to be between $1 billion and $1.02 billion. Services revenue is expected to be between $1.04 billion and $1.06 billion. And hardware revenue is expected to be between $765 million and $780 million.

Brian Webb Walsh: Adjusted EBITDA is expected to be between $355 million and $375 million, reflecting a margin of 12.6 to 13.1%. We will reinstate our free cash flow and adjusted EPS guidance beginning in 2025 once the transactions announced today have closed and we allocate the incoming process. More importantly, turning to slide 18, we have presented a pro forma view of our outlook that reflects the full year impact of the transactions and cost initiatives utilizing the midpoint of the updated 2024 guidance.

David Wilkinson: Adjusted EBITDA is expected to be between $355 million and $375 million, reflecting a margin of 12.6 to 13.1 percent.

David Wilkinson: We will reinstate our free cash flow and adjusted EPS guidance beginning in 2025 once the transactions announced today have closed and we allocate the incoming proceeds.

David Wilkinson: More importantly, turning to slide 18, we have presented a pro forma view of our outlook that reflects the full year impact of the transactions and cost initiatives utilizing the midpoint of the updated 2024 guidance.

Brian Webb Walsh: These pro forma revenue and adjusted EBITDA levels will be the starting points for our growth targets in 2025. We anticipate pro forma revenue will be approximately $2.15 billion. This reflects moving to net revenue recognition for hardware as a result of the ODM transaction and the exit of our commercial agreements without. We anticipate pro forma adjusted EBITDA will be approximately $430 million. This reflects a reduction of $10 million from moving to the ODM model and a $35 million benefit from the full year run rate impact of the payroll related cost actions that we have already taken.

David Wilkinson: These pro forma revenue and adjusted EBITDA levels will be the starting points for our growth targets in 2025.

David Wilkinson: We anticipate pro forma revenue will be approximately 2.15 billion. This reflects moving to net revenue recognition for hardware as a result of the ODM transaction and the exit of our commercial agreements with Alios.

David Wilkinson: We anticipate pro forma adjusted EBITDA will be approximately $430 million. This reflects a reduction of $10 million from moving to the ODM model and a $35 million benefit from the full year run rate impact of the payroll related cost actions that we have already taken.

David Wilkinson: It also includes a $40 million benefit related to vendor cost reductions and the termination of our AR facilities. This results in an adjusted EBITDA margin of approximately 20%.

Brian Webb Walsh: It also includes a $40 million benefit related to vendor cost reductions and the termination of our accounts receivable facilities. This results in an adjusted EBITDA margin of approximately 20%. Following the closing of the anticipated digital banking divestiture and our cost actions, we expect pro forma net leverage to be approximately two terms. Our anticipated pro forma adjusted free cash flow is expected to be approximately $170 million, representing a roughly 40% conversion rate, or a 12 to 15 percentage point improvement from our initial 2024 guidance.

David Wilkinson: Following the closing of the digital banking divestiture, anticipated debt paydown, and our cost actions, we expect pro forma net leverage to be approximately two turns.

David Wilkinson: Our anticipated pro forma adjusted free cash flow is expected to be approximately $170 million, representing a roughly 40% conversion rate, or a 12 to 15 percentage point improvement from our initial 2024 guidance.

Brian Webb Walsh: Today's announcements represent a significant step forward for the company. Following the closing of these transactions, we will meaningfully improve the strength of our balance sheet and our free cash flow conversion. I am encouraged by the progress we have made on our strategic initiatives and look forward to focusing on the company's growth objectives. With that, I will turn it over to the operator to begin the question and answer session. Please open the line.

David Wilkinson: Today's announcements represent a significant step forward for the company.

Speaker Change: Following the closing of these transactions, we will meaningfully improve the strength of our balance sheet and our free cash flow conversion. I am encouraged by the progress we have made on our strategic initiatives and look forward to focusing on the company's growth objectives. With that, I will turn it over to the operator to begin the question and answer session. Please open the line.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. The first question is from Will Nance of Goldman Sachs. Please go ahead.

Speaker Change: Operator Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker Change: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

Will Nance: Hey guys, appreciate you taking the question this morning. I wanted to go ahead and ask, oh, and congratulations on all of the strategic announcements. I wanted to ask on the pro forma balance sheet, at roughly two times EBITDA, it sounds like somewhere in the four to five times free cash flow, just how are you thinking about capital allocation and sort of, you know, steady state targeted leverage once the transition is complete.

Speaker Change: The first question is from Will Nance from Goldman Sachs. Please go ahead.

Will Nance: Hey guys, appreciate you taking the question this morning. I wanted to go ahead and ask, oh and congrats on all of the strategic announcements.

Will Nance: I wanted to ask, on the pro-forma balance sheet at roughly two times EBITDA, it sounds like somewhere in the four to five times free cash flow, how are you thinking about capital allocation and sort of steady state targeted leverage once the transaction is completed?

Brian Webb Walsh: Yeah, so thanks, Will. So right now, we think that two times net leverage is the right target. And as we think about capital allocation, we would continue to invest in CapEx for our products and platform; we'd consider tuck-in acquisitions to add capabilities to the platform that we can then provide to our customer base. And lastly, we would start to consider share repurchase on a going forward basis once we get through allocating the current proceeds.

Will Nance: Yeah, so thanks Will. So right now we think that two times that leverage is...

Speaker Change: The Right Target.

Speaker Change: And as we think about capital allocation, we would continue to invest in CapEx for our products and platform.

Speaker Change: We'd consider tuck-in acquisitions to add capabilities to the platform that we can then provide to our customer base. And lastly, we'd start to consider a share repurchase on a go-forward basis once we get through, you know, allocating the current proceeds.

Brian Webb Walsh: Got it. I appreciate that. And then just as a quick follow-up, and I apologize if I missed a lot of details this morning. Could you just clarify, are there any considerations for stranded costs or disc synergies associated with the transaction? And just, you know, are those included in sort of the pro forma numbers?

Speaker Change: Got it. I appreciate that. And then just as a quick follow-up, and I apologize if I missed this, a lot of details this morning, could you just clarify, are there any considerations for like stranded costs or disc synergies associated with the transaction? And just, you know, are those included in sort of the pro forma numbers?

Brian Webb Walsh: Yeah, there's roughly $20 million of corporate costs that become stranded in the first year. We'll get coverage of a portion of that through the TSA, and it's all been considered in the modeling, and we will then remove the cost as the TSA rolls off.

Speaker Change: Yeah, there's roughly 20 million of corporate costs that become stranded. In the first year, we'll get coverage of a portion of that through the TSA and it's all been considered in the modeling and we will then remove the cost as the TSA rolls off.

Brian Webb Walsh: Got it. Appreciate that. Thanks for taking the questions this morning. And congratulations again.

Speaker Change: Got it. Appreciate that. Thanks for taking the questions this morning, and congrats again.

Mayank Tandon: The next question is from Mayank Tandon from Needham & Co. Please go ahead.

Speaker Change: Thanks, Will. Thanks.

Mayank Tandon: Thank you. Good morning.

Speaker Change: The next question is from Mayank Tandon from Needham & Co. Please go ahead.

Mayank Tandon: Thank you. Good morning. Maybe for Brian first. Brian , just looking at slide 17 again, trying to digest all the news today.

Brian Webb Walsh: Maybe for Brian first. Brian, just looking at slide 17 again, to kind of digest all the news today. I wanted to ask you, are you also in any way changing your forecast for the restaurants and retail segments? Just looking at the numbers, I see that you obviously take out the impact of the digital banking piece, but just want to make sure there's no change, or if there's a change, if you could just kind of quantify it on the restaurant and retail side of the business.

Mayank Tandon: I wanted to ask you, are you also in any way changing your forecast for the restaurants and retail segments? Just looking at the numbers, I see that you obviously take out the impact of the digital banking piece, but just want to make sure.

Speaker Change: There is no change, or if there is a change, you could just kind of quantify it on the restaurant and retail side of the business.

Brian Webb Walsh: Sure, Maya. So if you look at slide 17, the 630 to 635 on the software line is removing revenue for digital banking, and then the 30 to 35 on services and the hardware line, those are related to retail and restaurants and the hardware pressure we're seeing in the second half, plus we've de-risked it a bit because of the ODM announcement. And then from an EBITDA perspective, if you look at the EBITDA change, $258 million is related to digital banking, and the rest is hardware pressure, partially offset by the added cost.

Maya: Sure, Maya. So if you look at slide 17, the 630 to 635 on the software line is removing the revenue for digital banking.

Maya: and then the 30 to 35 in services and the hardware line.

Speaker Change: Those are related to retail and restaurants and the hardware pressure we're seeing in the second half, plus we've de-arrested a bit because of the ODM announcement.

Speaker Change: And then from an EBITDA perspective, if you look at the EBITDA change, $258 million is related to digital banking, and the rest is the hardware pressure partially offset by the added cost actions.

Mayank Tandon: Got it. Very helpful. That clears that up.

Speaker Change: Got it, very helpful, that clears that up. And then the next question, maybe more just around the deleveraging, what is sort of the flow through or what were...

Speaker Change: [inaudible]

Brian Webb Walsh: And then the next question, maybe more just around the deleveraging. What is the flow through or over the course of time? How do you deliver? Are there any restrictions? Let me ask you this way. Are there any sort of restrictions on the sort of debt where you might not be able to pay down certain portions, while certain portions you can? So I just want to understand the dynamics of how that deleveraging will take place over time.

Brian Webb Walsh: Yes, so our plan is to pay off the Term Loan A and the revolver balance, and then to take out a portion of the senior notes, and we're going to terminate the AR facility, which is $300 million. So that's how we plan to use the incoming process.

Speaker Change: Yes, so our plan is to pay off the Term Loan A and the revolver balance and then to take out a portion of the senior notes and we're going to terminate the AR facility which is $300 million so that's how we plan to use the incoming proceeds.

Brian Webb Walsh: And no restrictions, Mayank, on how we use the proceeds. Okay.

Speaker Change: And no restrictions, Mayank, on how we use the proceeds.

Mayank Tandon: Okay, that's good. Thank you so much. I appreciate it.

Mayank Tandon: Okay, that's good. Thank you so much. Appreciate it.

Matt Summerville: The next question is from Matt Summerville from D.A. Davidson. Please go ahead.

Mayank Tandon: The next question is from Matt Summerville from D.A. Davidson. Please go ahead.

Matt Summerville: Thanks. A couple of questions. What's changed in the hardware environment relative to 90 days ago, and can you delineate between the retail side of things in terms of both point of sale and self-checkout, and then also touch on the restaurant business separately?

Matt Somerville: Thanks. A couple questions. What's changed in the hardware environment relative to 90 days ago and if you can delineate between the retail side of things in terms of both point-of-sale and self checkout and then also touch on the restaurant business separately from retail.

David Wilkinson: Yeah, a couple things. The recovery of the hardware market is much of a change, or the lack of a change. There hasn't been much of a recovery.

Speaker Change: Yeah, a couple of things. The recovery of the hardware market at Sonos is much of a change or the lack of a change. There hasn't been the recovery. We're still seeing the large enterprise clients sweat those assets a little longer and not.

David Wilkinson: We're still seeing the large enterprise clients sweat those assets a little longer and not go through the refresh cycle. Part of the reason we did the strategic transaction that we did with ENICON is to reduce that variability. As we focus on software and services, that hardware variability and volatility will become much less relevant in our overall strategy. And it's a pretty good mix between SCO and PAWS, probably equal in terms of what we're seeing on the refresh rate decline. And it's fairly equal across restaurant and retail as well. It's just a general enterprise market trend that we're seeing.

Speaker Change: go through the refresh cycle. Part of the reason we did the strategic transaction that we did with ENICON is to reduce the variability. As we focus on software and services, that hardware variability and volatility will become much less relevant in our overall numbers.

Speaker Change: And it's a pretty good mix between SCO and PAWS, probably equal in terms of what we're seeing on the refresh rate decline, and it's fairly equal across restaurant and retail as well. It's just a general enterprise market trend that we're seeing.

David Wilkinson: And then as you think about the digital banking sale, does any of Voyix's debt go away and exit the company and stay with digital banking, or does Voyix retain all of the indebtedness that, obviously, you'll be working down with transactional proceeds? I just want to be very clear on the capital structure. It's gap-free, and we retain.

Speaker Change: And then as you think about the digital banking sale, is there, does any of Voyix's debt go away and exit the company and stay with digital banking, or does Voyix retain all of the indebtedness that obviously you'll be working down with transactional proceeds? I just want to be very clear on the capital structure.

David Wilkinson: Yeah, it's debt free and we retain the debt it paid, you know, we at times we'll pay it down with proceeds.

Speaker Change: Yeah, it's debt free and we retain the debt it paid, you know, we attend and we'll pay it down with proceeds.

Parker Lane: The next question is from Parker Lane from Stiefel; please go ahead.

Speaker Change: Thank you.

Parker Lane: Hey guys, thanks for taking the question. Just wanted to double back to the hardware ODM model and relate that to the 135 to 170

Speaker Change: The next question is from Parker Lane from Stiefel. Please go ahead.

Parker Lane: Hey guys, thanks for taking the question. I just want to double back to the hardware ODM model and relate that to the 135 to 170 decline in hardware guidance. Can you talk about how much of that's related to that hardware ODM model that you guys just announced versus the broader market trends that you just talked about?

Brian Webb Walsh: Yeah, I would say that the majority of it is.

Speaker Change: Yeah, I would say that the majority of it is related to the macro environment.

Speaker Change: and the trends that we're seeing across retail and restaurants.

Speaker Change: and the lack of recovery. And then we've discounted it maybe 30% more given the ODM.

Speaker Change: Transition.

Speaker Change: and the rest that that could create.

Brian Webb Walsh: I appreciate the color. And then on the $75 million in cost savings, or 800 employees that are the roles that were eliminated at the end of 2Q, can you just provide a little color on what aspects of the organization were most impacted by that cost savings initiative?

Speaker Change: So, I would think about it as 70-30.

Speaker Change: Understood. Appreciate the color. And then on the $75 million of cost savings or 800 employees that are the roles that were eliminated at the end of 2Q, can you just provide a little color on what aspects of the organization were most impacted by that cost savings initiative?

Brian Webb Walsh: Yeah, we focused on roles that were not customer-facing. I mean, we're clearly doubling down on what we're doing in sales activity, as we described in our prepared remarks. So these were a lot of back office corporate functions, and we were getting ahead of the stranded costs that we knew would be left in the business with the two transactions that we announced. So we were really just getting ahead of those.

Speaker Change: Yeah, we focused on

Speaker Change: We're clearly doubling down on what we're doing in sales activity, as we described in our prepared remarks. So these were a lot of back-office corporate functions, and we were getting ahead of the stranded costs that we knew would be left in the business with the two transactions that we announced. So we were really just getting ahead of those.

Parker Lane: Perfect. Got it. Thanks, guys.

Speaker Change: Perfect. Got it. Thanks, guys.

Ian Zaffino: The next question is from Ian Zaffino of Oppenheimer. Please go ahead. I agree. Thank you.

Speaker Change: The next question is from Ian Zaffino of Oppenheimer. Please go ahead.

David Wilkinson: Let's talk on the services side. I guess I have two questions on that. Anything changed with the now new outsourcing agreement? Anything about the trajectory of growth or anything like that or the ability to service different parts made by other people?

Ian Zaffino: I agree. Thank you very much.

Ian Zaffino: I agree. Thank you very much. Let's talk on the services side. I guess two questions on that. Anything changed with the now new outsourcing agreement?

Ian Zaffino: Anything for like the trajectory of growth or anything like that or ability to service different parts made by other people and then as far as Yeah, that's been awesome. I'll follow up. Thanks

David Wilkinson: And so when I look at our services business overall, that's clearly a core piece of what helps us differentiate ourselves in the market. 80% of that services business that Brian described in the pro forma is recurring. We purposefully selected a partner that would allow us to maintain the servicing relationships with our clients. So that, obviously, that was critical in how we maintained or how we did the selection, and we maintained all the IPs, and that transaction.

Speaker Change: And so when I look at our services business overall, that's clearly a core piece of what helps us differentiate ourselves in the market. Eighty percent of that services business that Brian described in the pro forma is recurring.

Speaker Change: [inaudible]

Speaker Change: Purposefully selected a partner that would allow us to maintain the servicing relationships with our clients so that obviously that that that was critical and how we maintained or how we did the selection and we maintained all the IP

Ian Zaffino: So when we look at this overall, outside of the one-time installs that go with some of the decline we're seeing in the macro market trend and particularly some of the maybe hardware-only sales that will be less in focus, for us, clearly, we don't see a big impact on the services business. And today, we actually service almost over 50% of our recurring services revenue is on non-hardware today, so it's already third-party. So we just see this as the next extension of the strategy that we've been executing.

Speaker Change: and that transaction. So when we look at this overall, outside of the one-time installs that go with some of the decline we're seeing in the macro market trend, and particularly some of the maybe hardware-only sales that will be less in focus.

Speaker Change: to the services business. And today we actually service, you know, almost over 50% of our recurring services revenue is on non-NCR Voyix hardware today, so it's already third-party. So we just see this as the next extension of the strategy that we've been executing.

David Wilkinson: Okay, and then just to follow up on that as far as services. If we're seeing a slowdown in hardware or the deterioration, I think, of the assets you had mentioned, does that then mean you're going to get incremental services work from that? And if so, what's the kind of ratio?

Speaker Change: Okay and then just just to follow up on on that is as far as the services

David Wilkinson: So, you know, every dollar you might lose on the hardware side, it would turn into X amount of services and revenues. And then also, if you could just touch upon the leverage ratio, as far as the ultimate leverage ratio and where you want to be. Yeah, I'll take...

David Wilkinson: Yeah, I'll take the service over the hardware. So yes, the bottom line is, if you sweat assets longer, they break more, and services revenues go up. I would say there's a direct correlation.

Speaker Change: Yeah, I'll take the service, the hardware. So, yes, the bottom line is if you sweat assets longer,

Speaker Change: And then we'll pull through hardware where customers need it to complete a solution, and that's where the referral arrangement back to the ODM partner will come into play. But I do see continued growth in services as we look through the back half of the year, as we described.

Brian Webb Walsh: I'm not looking at a $1 to $1 replacement or whatever for the hardware that we lose. Where we will be focused, and where our sales teams will focus, is on software and services, specifically. And then we'll pull through hardware where customers need it to complete a solution. And that's where the referral arrangement back to the ODM partner will come into play. But I do see continued growth in services as we look through the back half of the year, as we have described.

Brian Webb Walsh: As we've separated those things out, we're looking at both software and services there, or we see services there growing in the back half of the year. Brian, Brian, do you want to talk about capital? Yeah, so the two terms of net leverage are the current view and what seems right for the company. I think that gives us flexibility and options as we turn to growth. In terms of in 2025, you know, we'll get these transactions closed, as we described the digital banking transactional closed, at the year end; we'll move to the ODM model for hardware that will take effect, you know, year-end going into January 1. So we'll get those transactions behind us, and then that gives us a lot of options to look at in 2025 with a clean balance sheet.

Speaker Change: Yeah, I think that gives us flexibility and options as we as we turn to growth in terms of in 2025, you know, we'll get these transactions as we described the digital banking transactional close.

Speaker Change: before the year end. We'll move to the ODM model for hardware that will take effect at year end, going into January 1. So we'll get those transactions behind us, and then that gives us a lot of options to look at in 2025 with a clean balance sheet.

Ian Zaffino: Okay, thank you very much.

Erik Woodring: As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question. The next question is from Erik Woodring from Morgan Stanley. Please go ahead.

Erik Woodring: Good morning, guys. And congratulations on all the announcements this morning. I realize that there are a lot of moving pieces. But, you know, digital banking was kind of viewed as the female star stalwart of your existing business. And can you maybe share some early thoughts just on how to think about the multi-year growth EBITDA and margin trajectory of this business? Obviously, you shared a lot of details over the last six to 12 months following the spin-off from Atlios.

Speaker Change: Hey, good morning, guys. Congrats on all the announcements this morning. I realize that there is a lot of moving pieces, but digital banking was kind of viewed as the girl stalwart of your existing business.

Erik Woodring: How relevant are those? I imagine not as much, but even maybe just at the segment level, given some of the changes to the hardware model, seems like some of the prior revenue and EBITDA margin guidance by segment might change. So just any updates that you have on how to think about this maybe longer term over a multi-multi-year period, at least in the

Speaker Change: How relevant are those? I imagine not as much, but even maybe just at the segment level, given some of the changes to the hardware model.

Speaker Change: It seems like some of the prior revenue and EBITDA margin guidance by segment might change. So just any updates that you have on how to think about this, maybe longer term over a multi-year period, at least initially, would be helpful. And then I have a follow-up. Thank you.

David Wilkinson: Yeah, Erik, if you look at the business overall, we came out at the beginning of this year, and you looked at our top line because of the hardware volatility, and we were a top line negative grower. So we were not growing.

Speaker Change: Yeah, Erik, if you look at the business overall, we came out at the beginning of this year and you looked at our top line because of the hardware volatility, and we were a top line negative grower. So we were not growing. We believe these transactions, even with digital banking included in that mix,

David Wilkinson: We believe these transactions, even with digital banking included in that. We believe with these transactions as we go to 2025 and the new baseline that Brian's outlined in the pro forma, that that gives us the foundation that we'll grow off of. So yes, we will turn to growth when we go into 2025 and deleveraging. So the whole premise of the digital banking sale, I don't think it's a surprise to you or anyone else when we look at the feedback from the market around the ability to unlock value. And the new perimeter, when we spun out Atlios, we thought exposing it would give us value, but it didn't.

Speaker Change: We believe with these transactions as we go to 2025 and the new baseline that Brian's outlined in the pro forma, that that gives us the foundation that we'll grow off of. So yes, we will turn to growth when we go into 2025.

Brian Webb Walsh: So we had to unlock value in some way that we had committed to our shareholders, and we can now. We can delever the balance sheet, which gives us a lot of flexibility as we look into growth in 2025. We've been continuing to invest in the platform, and so the products are in really good shape. We're winning when you look at software error and services error and the two businesses that are remaining in retail and restaurants.

Speaker Change: The whole premise of the digital banking sale, I don't think it's a surprise to you or anyone else, when we look at the feedback from the market around the ability to unlock value and the new perimeter, when we spot out Atlios, we thought exposing it would give us the value. It didn't. So we had to unlock value in some way that we had committed to our shareholders.

Speaker Change: And so the products are in really good shape, we're winning when you look at software ARR and services ARR growth.

Brian Webb Walsh: The back half of the year looks like, you know, mid to high single-digit ARR growth in both of those businesses. So we're seeing the strength of our software and services focus. And as I described, as we get the go-to-market teams better aligned to cover the market, and better incented to drive true growth, I mean, I think we'll continue to see growth in 2025. Brian, do you want to give more detail?

Speaker Change: and the two businesses that are remaining in retail and restaurant, you know, the back half of the year, it looks like.

Speaker Change: Mid to High Single-Digit ARR Growth in both of those businesses. So we're seeing the strength of our software and services focus.

Speaker Change: And as I described, as we get the go-to-market teams better aligned.

Speaker Change: to cover the market, better incentive to drive true growth.

Brian Webb Walsh: I would just say we're going to be primarily a software and services company, $2.15 billion at 20%, even a margin, 40% free cash flow conversion with a strong balance sheet. So the profile of the business, the starting point, the pro forma profile is a great foundation to then grow off.

Speaker Change: I think we'll continue to see.

Speaker Change: Growth in 2025. Brian , if you want to give more detail. I would just say we're going to be primarily a software and services company 2.15 billion at 20% even a margin

Speaker Change: 40% free cash flow conversion with a strong balance sheet. So the profile of the business, the starting point, the pro forma profile is a great foundation to then grow off.

Erik Woodring: Okay, that's helpful. Thank you, guys. And then maybe just as a follow-up, obviously, a lot of moving pieces within what you've announced this morning, can you just maybe help us understand how exactly you're accounting for the risk of disruption from these changes, both with customers and with some of your partners, and any early feedback that, again, I don't know if you've gotten any feedback from partners or customers, but just any early feedback that you've gotten on some Thanks so much. Sure.

Speaker Change: Okay, that's helpful. Thank you, guys. And then maybe just as a follow-up, obviously, a lot of moving pieces.

Speaker Change: Within what you've announced this morning, can you just maybe help us understand how exactly you're accounting for the risk of disruption from these changes, both with customers, with some of your partners?

Speaker Change: And any early feedback that, again, I don't know if you've gotten any feedback from partners or customers, but just any early feedback that you've gotten on some of these changes would be super helpful. And that's it for me. Thanks so much.

David Wilkinson: Sure, we went into this very thoughtfully. We had three core things we needed to focus on. One was digital banking, monetizing that asset, and getting the value back to our shareholders. Two was finding a way to solve the hardware volatility problem and get a better focus on software and services. And the third thing was that we had to address costs as we got into this new structure. So we have executed on all three of the things that we said we needed to do and in the right priority order. So that's number one.

Speaker Change: Sure.

Speaker Change: Clearly we went into this very thoughtfully. We had three core things we needed to focus on. One was digital banking, monetizing that asset and getting the value back to our shareholders.

Speaker Change: Finding a way to solve the hardware volatility and get better focus on software and services. And the third was we had to address costs as we got into this new structure. So we have executed on all three of the things that we said we needed to do and the right priorities. So that's number one. So we had a thoughtful plan against that. Part of that plan was...

David Wilkinson: So we had a thoughtful plan against that. Part of that plan was having conversations with our big customers, having conversations with our partners, having conversations with the employees inside of the company that understand the business the best. When we look at the hardware transaction, the way we structure that allows us the maximum flexibility in terms of how we manage the relationships with those big clients. So if they want one,

Speaker Change: Having Conversations.

Speaker Change: When we look at the hardware transaction, the way we structure that allows us the maximum flexibility in terms of how we manage the relationships with those big clients. So if they want one,

David Wilkinson: This is a single provider of an end-to-end solution. We can still provide that to our clients. We've done that in a way that allows us to minimize disruption, and we can still offer them the complete service offerings on the platform technology to support that. So the feedback that we've heard from the customers that we've previewing this with has been positive. On the digital banking side, I think the customers are happy as well.

Speaker Change: a single provider of an end-to-end solution, and we can still provide that.

Speaker Change: Offerings in the Platform Technology.

Speaker Change: to support that. So the feedback that we've heard has been positive to the customers that we've

David Wilkinson: We had a handful of conversations with those customers last night and into this morning. So, overall, the feedback has been really positive about the changes, and our customers understand what we're doing and why we're doing it and believe in the strength that it creates for us coming out of this.

Erik Woodring: Great, that's really helpful. Thank you guys, and congrats again.

Speaker Change: Great. That's really helpful. Thank you, guys, and congrats again.

Matt Summerville: The next question is from Matt Summerville from T.A. Davidson. Please go ahead.

Matt Summerville: Yes, I just want to add just a couple of follow-ups. Can you compare and contrast what you were doing from a hardware manufacturing sort of strategy previously, and how and what exactly is changing with this other than the revenue recognition component, only being the expected commission generation?

Speaker Change: The next question is from Matt Summerville from T.A. Davidson. Please go ahead.

Matt Summerville: Yes, I just want to add just a couple of follow-ups. Can you compare and contrast what you were doing from a hardware manufacturing sort of strategy

Matt Summerville: Previously and how and what exactly is changing with this other than the revenue recognition component only being the expected commission generation?

Brian Webb Walsh: Yeah, so what I would say is that Enicon is also going to be taking inventory risk. They're going to be fulfilling and delivering to our customers. So, doing all the logistics, they're going to be setting the MSRPs. So there's a lot changing in the relationship. We're really now acting as the sales agent. So there's a lot that's changed.

Speaker Change: Yes, so what I would say is we're now outsourcing design in addition to manufacturing. Enecon is also going to be taking inventory risk. They're going to be fulfilling and delivering to our customers, so doing all the logistics. They're going to be setting the MSRPs.

Matt Summerville: So there's a lot changing the relationship. We're really now acting as the sales agent.

David Wilkinson: Yeah, we had a whole supply chain on our side for purchasing; we would do the design we would purchase even though we did outsource manufacturing. This takes it one step further and pushes all of our supply chain out to the third party.

Speaker Change: And so there's a lot that's changing.

Speaker Change: Yeah, we had a whole supply chain on our side for purchasing. We would do the design, we would purchase, even though we did outsource manufacturing.

Matt Summerville: This takes it one step further and pushes all of our supply chain out to the third party.

Matt Summerville: Thank you. That's it.

Matt Summerville: This concludes the question-and-answer session. I would like to turn the floor back over to David Wilkinson, NCR Voyix CEO , for closing comments.

David Wilkinson: Thank you, everyone, for joining us today. As I stated earlier, today's announcements represent another step on our journey to move the company forward and create incremental value for both our shareholders and our customers. I'd like to thank all of our NCR Voyix colleagues around the world for their contribution to the progress we've made in delivering on our commitment. I would also like to reiterate my appreciation for our customers and the trust they put in us every day to help them achieve their strategic objectives. We remain committed to serving our restaurant and retail segments and bringing them on the platform journey.

David Wilkinson: Thank you everyone for joining today. As I stated earlier, today's announcements represent another step on our journey to move the company forward and create incremental value.

David Wilkinson: for both our shareholders and our customers. I'd like to thank all of our NCR Voyage colleagues around the globe for their contribution to the progress we've made on delivering on our commitments. I would also like to reiterate my appreciation for our customers and the trust they put in us every day to help them achieve their strategic objectives.

Matt Summerville: We remain committed to serving our restaurant and retail segments.

Matt Summerville: and bringing them on the platform journey.

Matt Summerville: Our new operational structure provides a more acute focus and fortifies our foundation to go from both within our existing base and through signing new customers. I look forward to updating you on our continued progress of our strategic initiatives and our execution of our growth objectives on our call in November. Thank you.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.