NCR (NYSE:VYX) Voyix (ticker NCRV), a leader in commerce solutions, reported its third-quarter earnings on October 30, 2024, with total revenue of $708 million, marking an 11% decrease from the previous year, largely due to a slump in hardware sales. The company's adjusted EBITDA stood at $101 million. Despite the revenue decline, NCR Voyix completed a significant sale of its digital banking business, leading to a substantial debt reduction and the announcement of a $100 million share repurchase program. The company is focusing on growth through restructuring, including a revised sales strategy and investments in cloud solutions, while also maintaining guidance for the full year 2024.
Key Takeaways
- NCR Voyix reported a decline in total revenue to $708 million, an 11% decrease, primarily due to lower hardware sales.
- Adjusted EBITDA was reported at $101 million, with cost actions and a favorable sales mix partially offsetting the revenue decline.
- The sale of the digital banking business was completed, generating $2.45 billion and leading to a significant debt reduction.
- NCR Voyix plans to repurchase $100 million in shares and invest $20 million in NextGen cloud solutions.
- The company is restructuring with a new leadership team and revised sales strategies aimed at capturing market share.
- The outlook for 2024 remains positive, with revenue guidance of $2.805 billion to $2.860 billion and adjusted EBITDA of $355 million to $375 million.
- Software (ETR:SOWGn) and services revenue is expected to remain stable in Q4, while hardware may underperform.
Company Outlook
- NCR Voyix maintains its revenue guidance for 2024 at $2.805 billion to $2.860 billion.
- Adjusted EBITDA guidance for 2024 is set at $355 million to $375 million.
- The company expects to provide a growth outlook for 2025 in February 2024, based on pro forma results.
Bearish Highlights
- Total (EPA:TTEF) reported revenue saw an 11% decline due to weak hardware sales.
- Free cash flow was negative $25 million, impacted by transaction fees related to the sale of the digital banking business.
Bullish Highlights
- NCR Voyix signed over 230 new software customers in the restaurant segment and added two new enterprise customers in retail.
- Adjusted EBITDA margins improved in both the Retail and Restaurant segments.
- The company is net adding customers across all segments and plans to enhance its go-to-market model.
Misses
- Software revenue decreased by 2% year-over-year, although it was up 2% when excluding a one-time adjustment from the previous year.
- Service revenue also saw a 3% decrease to $271 million.
Q&A Highlights
- Management emphasized the importance of organic cash flow generation and maintaining a leverage ratio around two turns.
- The company is optimistic about the demand for self-checkout solutions and expects no negative impact from the new ODM model.
- Plans for expansion in Japan, Europe, and Australia were discussed, focusing on leveraging existing customer relationships.
In conclusion, NCR Voyix is navigating through a strategic transformation, balancing cost-cutting measures with investments in growth areas. The company's focus on software, services, and strategic acquisitions, along with its capital allocation strategies, are aimed at returning to growth and enhancing shareholder value. Despite the challenges in hardware sales, NCR Voyix's strategic initiatives in the restaurant and retail sectors signal a commitment to adapting to market demands and positioning itself for future success.
InvestingPro Insights
NCR Voyix's recent earnings report reflects a company in transition, balancing challenges with strategic moves. According to InvestingPro data, the company's market capitalization stands at $2.03 billion, with a revenue of $3.71 billion over the last twelve months as of Q2 2023. This represents a substantial revenue growth of 108.31% over the same period, despite the recent quarterly decline reported in the earnings.
The company's focus on software and services aligns with its strong revenue growth, even as it faces headwinds in hardware sales. However, InvestingPro Tips highlight that analysts anticipate a sales decline in the current year, which corroborates the company's reported 11% decrease in total revenue for the third quarter.
NCR Voyix's strategic initiatives, including the sale of its digital banking business and the announced share repurchase program, appear timely given the InvestingPro Tip indicating that the stock price movements are quite volatile. The significant return over the last week (9.31%) and strong return over the last three months (23.52%) suggest that investors are responding positively to these strategic moves.
The company's focus on improving EBITDA margins in its Retail and Restaurant segments is crucial, especially considering that InvestingPro data shows an EBITDA of $376 million for the last twelve months as of Q2 2023. However, the EBITDA growth rate of -33.69% over the same period underscores the challenges the company faces in maintaining profitability amidst its transformation.
It's worth noting that InvestingPro Tips indicate that NCR Voyix does not pay a dividend to shareholders, which aligns with the company's current strategy of reinvesting in growth initiatives and reducing debt. This approach may be necessary given another InvestingPro Tip suggesting that short-term obligations exceed liquid assets.
For investors seeking a deeper understanding of NCR Voyix's financial health and prospects, InvestingPro offers additional tips and insights. In fact, there are 8 more InvestingPro Tips available for NCR Voyix, which could provide valuable context for the company's current position and future outlook.
Full transcript - NCR Corp (VYX) Q3 2024:
Operator: Good day ladies and gentlemen and welcome to the NCR Voyix Third Quarter 2024 Earnings Call. Our host for today's call is Alan Katz. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would like to now turn the call over to your host. Mr. Katz, you may begin.
Alan Katz: Good morning, and thank you for joining our third quarter 2024 earnings conference call. This morning, we issued our earnings release reporting financials for the quarter ended September 30, 2024. 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, 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. 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. 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 our 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-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 8-K filed this morning and our supplemental materials available on the Investor Relations section of our website. With that, I would now like to turn the call over to David. David?
David Wilkinson: Thanks, Alan, and good morning, everyone. I would like to welcome all of you to our third quarter 2024 earnings call. Before I begin, I'd like to welcome our newest Executive Vice President, Darren Wilson to NCR Voyix. As you saw in our press release, Darren has joined to lead our international retail and restaurant businesses, primarily in Europe and Asia Pacific. This new leadership position will allow us, to focus on expanding our international presence in restaurants and retail. I will now spend a few moments discussing our recent progress on the digital banking and hardware transactions announced in August, before commenting on our recent business performance and the company's go forward objectives. Brian will then review our financial results for the quarter, and our outlook for the remainder of the year. Beginning with Digital Banking, we completed the sale on September 30, ahead of expectations. This was an important step in our plans to simplify the business, and significantly improve our balance sheet with $2.45 billion in gross sale proceeds. After estimated taxes and fees of $437 million, we utilized approximately $1.8 billion of proceeds to reduce our indebtedness. Further positive impact of these actions reduced our annual cash interest expense, by approximately $95 million. Of the remaining proceeds, the Company intends to utilize approximately $100 million to complete repurchases of common stock under its existing share repurchase program, which is an aggregate repurchase authority of up to $153 million and has been previously outlined in our public filings. We believe this is the best use of proceeds given our current valuation. Brian will discuss the details of the remaining proceeds allocation later on the call. For hardware, we anticipate the agreement to become effective by year-end and will provide Ennoconn certain transitional services until they are fully operational in 2025. In connection with the transaction, we have jointly notified our affected employees, who will be part of the new organization. As a reminder, we will continue to sell hardware to our customers as a sales agent, and earn a commission on the sale, but all other aspects of the contract including design, manufacture, delivery and warranty will be fulfilled by Ennoconn. Turning to our third quarter performance on a normalized basis, total revenue for the quarter was $708 million, a decline of 11% driven primarily by lower hardware and hardware related install services. Software and services revenue was flat, when excluding the adverse impact of a one-time software true-up from the prior year. Normalized adjusted EBITDA for the quarter was $101 million, driven by cost actions taken in the second quarter coupled with sales mix. As of the third quarter, we had approximately 70,000 sites on our cloud native commerce platform, an increase of 25% from the prior year. Software ARR and Total segment ARR increased 2% in the quarter. Turning to our Restaurant segment. In the third quarter, we continued to demonstrate momentum, signing more than 230 new software customers, and increasing our platform and payment sites, by 4% and 12% respectively. Software ARR and Total ARR both increased 1% in the quarter. Within our Enterprise division, we executed 11 renewal and expansion agreements, for both software and services solutions. These included converting existing software customers representing more than 350 sites, to our cloud native commerce platform. For example, we converted Cafe Rio an Aloha user to the platform at the time of renewal. We also expanded our platform contract with Hungry Jack's to now include our value added solution. Under our new agreement with Hungry Jack's, we will provide loyalty solutions for nearly 500 sites across Australia. For services, we renewed and expanded our long standing Help Desk contract with a global coffee chain this quarter. We have extended our monitoring assistance services to their shops in Latin America, while continuing to service their existing site base in the U.S. and the U.K. Finally, we continue to execute against our payments attached strategy, both for enterprise and mid-market restaurants. This quarter, we expanded agreements with two existing enterprise software customers to provide end-to-end payment capabilities across nearly 40 sites. In our mid-market business, our payments attach rate remains strong with 97% of new customers attaching payments to their point-of-sale contracts in the third quarter. As we move into 2025 and implement our new sales strategy to drive growth, we will focus aggressively on cross-selling payments into our existing base. Turning to our Retail segment, this quarter we signed two new enterprise customers and more than five mid-market customers leading to nearly 3,000 additional sites. We increased our platform sites by 47%, as we continue to convert on-premise customers and onboard newly signed customers. Software ARR increased 2% and total ARR increased 3% in the quarter. In enterprise, we signed a new multiyear software and hosting services agreement with Endeavour Group, Australia's largest retail drinks network. We will deliver our cloud hosted point-of-sale software, hosted loyalty solution, store insights and Edge infrastructure via our commerce platform for over 4,000 lanes across more than 1,600 sites. In addition, we will provide professional and implementation services for Endeavour Group. We also demonstrated traction in our mid-market business this quarter signing a new multiyear software and services agreement with Speedy Stop, a regional convenience and fuel chain in the U.S. Under the agreement, we will deploy our point-of-sale and self-checkout software in addition to our Edge infrastructure on Speedy Stop's existing third-party hardware devices, which will be able to significantly reduce their downtime and improve reliability. This win reflects our early success in our new go-to-market strategy. Lastly, we renewed and expanded our agreement with a large U.S. specialty clothing store. In addition to converting this point-of-sale software customer to our cloud native commerce platform, we will also provide our loyalty and marketing solutions, for their entire store footprint, which spans more than 1,500 lanes across 400 sites. Before I turn the call over to Brian, I would like to elaborate on my comments related to our go-to-market approach for next year. While much of the first half of 2024 was consumed with executing two major transactions for the company, the sale of the digital banking business and our hardware ODM agreement. A parallel restructuring effort was also underway to address top line software and services for group. Prior to 2024, the company's sales strategy was partial toward cross-selling and upselling the base, versus attracting and signing new software and services customers. We have now aligned our focus to drive balance between upselling existing customers, and capturing market share through new customers. Additionally, we have taken various steps to better align our organization, to drive long-term growth in 2025 and beyond. The five key revenue growth actions underway are as follows. First, beginning in 2025 we will have restructured our sales teams, and implemented a revised incentive compensation plan to address new customer growth, and to expand market share across our channels. Second, to support our go-to-market sales efforts, we are using a portion of the digital banking proceeds, to invest in our solution sets for both restaurants and retail, which will accelerate our speed to market for enhanced cloud solutions and enable us to capitalize on growth opportunities. Beginning in Q1, we will expand Aloha Cloud to a broader segment of the domestic restaurant market. During the year, we will continue to add feature rich capabilities to our Aloha platform. In retail, we are investing in Edge and next-gen point-of-sale in self-checkout software solutions to acquire new customers, and accelerate our efforts to migrate our existing customer base. This acceleration will free up engineering resources managing legacy solutions to be redeployed elsewhere, lower our future capital spend and enable stickier customer relationships over time. Third, we're launching an aggressive program to expedite the contract renewals for existing customers, while also converting their legacy software to our market leading cloud solutions. This will be a multiyear initiative, which has been well received thus far. The fourth and fifth pillars of our growth strategy, relate to changes we have made to strengthen our senior organization, which will be critical to our sales execution, product delivery and customer satisfaction. Beginning with Executive leadership, as I stated earlier, Darren Wilson has been appointed President, International. With Darren leading our businesses in Europe, Japan and Asia Pac. It will also allow us to have enhanced attention on our largest market, the Americas, as we focus on driving growth and expanding market share. And finally, we've attracted additional proven leaders, to fill key roles across the broader organization. Since Q2, we have replaced the three sales leaders in our U.S. Restaurant segment, hired a proven Head of Development for our Retail Product Group, and most recently added a seasoned Payments Professional to lead our expanded payments initiative next year. In summary, while work remains, we have advanced plans to align our resources, products and incentives, to position the company to return to growth. With that, I will turn it over to Brian.
Brian Webb-Walsh: Thank you David and good morning everyone. With the sale of digital banking, our full year results will reflect only the continuing operations of our Retail and Restaurant segments. Digital Banking will be reflected at discontinued operations. We will continue to support the digital banking business on a transitional basis, for up to two years from closing. My comments today will focus on our normalized results, which exclude the impact of the digital banking divestiture along with spin-related items, and other completed divestitures. For the quarter, reported revenue was $711 million and normalized revenue was $708 million, reflecting a decline of 11% driven primarily by an unusually weak year in hardware sales. Reported and normalized software revenue was $245 million, which decreased 2% versus prior year, but increased 2% when excluding the one-time software true-up from Q3 2023. This increase was driven by attachments to the cloud native platform. Reported and normalized services revenue was $271 million, which decreased 3% due to lower hardware installations. On a normalized basis, adjusted EBITDA for the quarter was $101 million while EBITDA was lower versus prior year, due to spend related to synergies, we demonstrated a sequential improvement from Q2. We will lap these dis-synergies in Q4 however, at which point we expect to show growth year over year. As reported, adjusted EBITDA of $93 million was adversely impacted by $6 million of stranded costs, related to digital banking that did not qualify for discontinued operations and $2 million from delayed country exits related to the spin. Adjusted EBITDA margin was 13.1% as reported and 14.3% on a normalized basis. Let's turn to our segment results for the quarter. Beginning with restaurants, reported and normalized software revenue was $87 million, which was flat to prior year. Reported and normalized services revenue was $75 million down 1%. Total segment revenue of $211 million declined 7% on a normalized basis, reflecting the continued declines in hardware. Adjusted EBITDA of $66 million increased 27%, and margin of 31.3% expanded more than 800 basis points on a normalized basis. This was primarily driven by increased efficiencies and sales mix. Turning to retail, reported and normalized software revenue was $153 million, which declined 3% due to the one-time software true-up of $10 million in Q3, 2023. Excluding this impact, software revenue increased 3%. Services revenue was $193 million, a decrease of 3% due to lower one-time hardware installation services. Total revenue in retail declined 12% on a normalized basis, due to a 28% decline in hardware sales. Adjusted EBITDA of $108 million declined 12% and margin of 22.2%, was flat on a normalized basis driven by hardware declines in the one-time software true-up. Excluding the impact of the true-up, adjusted EBITDA decline 4%, and margin expanded 140 basis points. Lastly, normalized corporate and other expenses for the quarter, were $73 million, which included $21 million of spin related to synergies. Turning to the sale of digital banking, as we announced on September 30, the company completed the sale receiving $2.45 billion in gross proceeds. In conjunction with the closing, we utilized $1.84 billion to paydown our debts as follows. $1.195 billion was used to paydown a portion of the bonds, $192.5 million to pay-off our term loan A, and another $200 million was used to paydown the revolving credit facility. And finally $251.5 million to pay-off our accounts receivable facility. We ended the quarter with 1.6 times net leverage based on the $430 million of pro forma 2024, adjusted EBITDA we shared on our last call. This leverage calculation excludes $375 million of cash for estimated digital banking related cash tax payments. Our net leverage has significantly improved since the second quarter, at which point our leverage was 4.1 times. For the quarter free cash flow for the use of $25 million, which included approximately $80 million in fees related to the digital banking transaction and other strategic initiatives. Following the debt pay down subject to market conditions, we intend to use approximately $100 million of the proceeds from digital banking to complete the repurchase of common stock under our share repurchase program. In addition, the sale proceeds allow us greater opportunity to invest in our solutions to support the strategic objectives David described earlier. We have allocated up to $20 million over the next one to two years to accelerate the launch of our NextGen cloud solutions to achieve our go-to-market initiatives. Turning to our outlook, we are maintaining the 2024 revenue and EBITDA guidance provided on our Q2 call. While we were modestly ahead of expectations in Q3 on both revenue and adjusted EBITDA, this was due to timing. We continue to expect revenue for the year to be between $2.805 billion and $2.860 billion and adjusted EBITDA to be between $355 million and $375 million. As a reminder, we will reinstate free cash flow and adjusted EPS guidance in 2025. Before I conclude, I'd like to draw your attention to the supplementary pro forma information we have provided in connection with our earnings materials today. This information contains year-over-year comparisons to assist with modeling the company on a go forward basis. Our 2025 performance will be compared to these pro forma 2024 results. The 2024 pro forma financials include $170 million in free cash flow. This does not include the $20 million of proceeds that we are allocating towards NextGen product acceleration, nor does it include the working capital benefit from the ODM model. Our ODM model frees us up from purchasing finished goods inventory which at the end of the third quarter was $89 million. This benefit will start in January of 2025 when the ODM agreement is expected to become effective. With that, I will turn the call over to the operator to begin the question-and-answer session. Operator?
Operator: [Operator Instructions] Your first question comes from Mayank Tandon with Needham. Your line is open.
Mayank Tandon: Thank you. Good morning, David. I wanted to just touch on the platform strategies. I know that's been a big focus for you and you highlighted several conversions. So, if I have my numbers right, I think you're at about 20% in terms of platform across both retail and restaurants. I just wanted to get a sense on how do you drive that conversion up over time. What's a realistic target based on customer feedback as you've been having these conversations with customers? And then maybe you could square that with the impact on the P&L relative to the more traditional model of selling hardware, software and services?
David Wilkinson: Yes. Good morning, Mayank. The platform strategy as we've described in our previous releases and what we've seen in the results in terms of the platform site growth is performing well. It's really a couple of things that we're driving. As customers need new capabilities, all the new capabilities that we're delivering are through our platform. So when we do the platform attached, we're not only seeing increased customer satisfaction and their ability to upgrade and use new capabilities, but we're also seeing an uplift in our ARR when we make that attachment. We are at about 20%. We're working aggressively. In my prepared remarks, I talked about one of the investment pillars. We're aggressively going after renewals and conversions of our existing install base to try to accelerate that platform conversion, so more to come on that. But we're seeing the economics play out in terms of when we look at the cohorts of the customers that are coming on board. We're seeing the uplift upon immediate sign on. And then over time we're seeing that increase in ARR with each customer.
Brian Webb-Walsh: And I would just add that. We get the ARPU benefits and the ARR benefits, but we also get a margin benefit because software is our highest margin part of the business. But within software, the subscription to platform revenue has the highest margin.
David Wilkinson: And it's a small percentage of the total revenues now. And that's why you're not seeing it drive the whole number yet, Mayank. But as we aggressively move more to the platform, you'll see that have a bigger impact through ARR.
Mayank Tandon: That's helpful. We'll stay tuned on that. And then maybe for Brian, any directional guidance for fiscal '25, what type of seasonality we should be reflecting in our models, both on the top line and also in terms of margin trajectory. So any color you can provide on how we should frame 2025, given all the puts and takes, so that it would be helpful?
Brian Webb-Walsh: Yes. We're going to give guidance for '25 in February on our Q4 call. But consistent with what we said on the last call, we believe off the pro forma 2024 we've been describing that we can grow off that next year and we'll provide more details we get into next year.
Mayank Tandon: Got it. Okay. Thank you.
Operator: Your next question comes from Will Nance with Goldman Sachs (NYSE:GS). Your line is open.
Will Nance: Hi guys, appreciate you taking the question. I appreciate all the details on some of the go to market restructuring and kind of growth related investments that you guys are making. I was wondering if you could maybe talk about how you think about the timelines to seeing those sort of play out, and how we on the outside? What we should be looking for in terms of KPIs over the next few years to kind of measure the success of the go-to-market investments and NextGen investments that you're making? Thanks.
David Wilkinson: The timing of those changes will be -- we're making those changes internally. We've started the process in the beginning of the year. We've accelerated that as we get closer to the end of the year after digesting the other two strategic initiatives that were underway. So now all the management team's effort attention is focused on those items that we outlined. We'll enter next year with that in place. So we're executing the remainder of those changes through the balance of the year and we'll be in that formation or however you want to describe that going into next year. The KPIs I would look at are similar or the same as what we've described. Our new go-to-market model will incent our frontline sellers to drive new customer acquisitions. It will have the right incentives to drive attachment to the platform so you can look at that. It will drive renewal of existing contracts and it will drive add-ons of existing services. So we feel like looking at new sites, payment sites, ARR will still be the right key metrics to continue to look at.
Brian Webb-Walsh: I would just add that internally as we make investments we're very focused on ROI and so that's a key metric for us.
Mayank Tandon: Got it. That's helpful. Appreciate that. And just maybe if you could give any context on how you're thinking about capital allocation over the next year, understanding the share repurchase today from the net proceeds from the sale. How are you thinking about organic cash flow generation and capital allocation next year? Thanks.
Brian Webb-Walsh: Yes, so we're pleased with what we've talked about today in our prepared remarks, how we've used the digital banking proceeds to pay down debt, improve our leverage. We have leverage where we want it and we see that staying around two turns or a little lower. We also today announced, as you just mentioned, the share repurchase and the $20 million of investment to accelerate our NextGen offerings. So we will execute those things that we announced today. And then going forward we see consistent with what we've been talking about, making sure we're investing in our products, software offerings to drive growth internally and then considering tuck-in acquisitions if there's something we can go out and buy versus build. That will be a consideration. And then future share repurchase, we'll work with our Board to evaluate and consider. Right now I think the focus is executing what we've announced and then driving the cash flow in 2025.
Will Nance: Got it. Appreciate all the color. Thanks guys.
Operator: Your next question comes from Matt Summerville with D.A. Davidson. Your line is open.
Matt Summerville: Thanks. Couple of questions. First, maybe can you talk about what you're anticipating from an inflection standpoint with respect to hardware, specifically the dynamics you're seeing play out in the self-checkout market as well as market share therein? And then what customer feedback has been on voyage, migrating to the ODM? And then I have a follow up. Thank you. The hardware market, Matt, we see has been significantly down this year overall in the total market. So we see that going into next year that a lot of that demand will push into next year. The capital projects that were on hold this year, we think some of that will carry over. So we thought about hardware as a market demand being flat, so maybe down a little. Point of sale being -- probably more down than self-checkout. We see self-checkout demand strong as we've described in the past. Self-checkout for us is a lot more than just hardware. It's the software and the intellectual property that goes around how you as a retailer use that device to be your point of service for your customers. So as our customers are continuing to look at new ways to check out their customers and create experiences in the store, we think our new self-checkout, I'll call it the platform as well positioned to do that. It creates a lot of flexibility, speed of testing out new capabilities and offers. So we're seeing a lot of strong demand for our self-checkout software. I think we'll get some refresh self-checkout hardware revenues that will pull some services through with it as well. So we'll describe that. We think that probably not going to fully recover, but we think flat, maybe slightly down. When I think about the reaction of our customers to the ODM model, I've had several customers, I've heard from the teams that have been in front of our largest customers that there's been no negative impact, it's all been positive. They understand what we're trying to get done. They like the focus that we have on software and services and they largely see this as the next evolution from where we were before, having an outsourced manufacturer just taking that logical next step. So they still look to us to provide a complete solution and then we'll leverage Ennoconn to fulfil against that hardware.
Matt Summerville: Got it. And then just as a follow-up, can you talk about in both retail and restaurants, particularly on the enterprise side of the business, what your net site count looks like, whether you're net adding customers and sites or net losing customers and sites based on your performance year to-date and in the third quarter?
David Wilkinson: Yes, overall we're adding sites. So net adding in all of our segments. So I would tell you, as we've described the new go-to-market model, we want to accelerate that rate, but it's a net add. We haven't seen any upticks in customer attrition and the analysis that we've done, we're continuing to add new customers in both of the businesses. We're continuing to migrate customers to the platform with renewals. So we feel, we feel good about what we're doing in terms of a net add. I would like to see that accelerate.
Matt Summerville: Thanks, David.
Operator: Your next question comes from Matt Roswell with RBC Capital Markets. Your line is open.
Matt Roswell: Yes, good morning. Sort of following up on the hardware discussion, could you sort of remind us of the current relationship between software and services growth and hardware and how that will change going into '25 with the ODM contract?
Brian Webb-Walsh: Yes. So what I would say right now, the part of services that gets impacted by hardware and the lower hardware refresh that we've seen this year is the, what we call the TS or installation revenue that we get from implementing the hardware. That's 20% of services. That's the non-recurring part. The 80% that's recurring is the ongoing support of our customers. So it's really that 20% that becomes under pressure when we're not refreshing and doing installed projects.
David Wilkinson: And on the software, I'd say on the linkage between hardware and software, we are breaking that linkage between hardware and software and our customers and the enterprise space specifically have really moved those almost independent decisions and we're supporting that move with our edge platform and all of our NextGen software capabilities being hardware agnostic. So that's irrespective of the hardware fulfilment model. That was an industry trend. That's where we were headed strategically anyway. I think what Ennoconn allows us to do is stay focused on that software and then provide them our high level specs and they can design the best hardware for the industries that we serve with faster lead times, especially lower price points and the highest quality possible. So, we announced in the retail side, the Speedy Stop announcement was one where we're using their existing hardware helping sweat the assets and we see that as part of our ongoing strategy moving forward.
Matt Roswell: Switching over to expenses, you had a great sort of margin quarter, especially in restaurant this year. I'm wondering how much expense savings do you see remaining, especially now that kind of all the noise is sort of moving away. And then where would you expect to see any savings? Would it be in segment line or would it be down corporate and other?
Brian Webb-Walsh: Sure. So in Q2 on the Q2 call, we announced our $105 million cost cutting program that cut across payroll costs, non-payroll costs and then terminating our AR facility, saving us bank fees from doing that. Those actions have largely been implemented and are behind us. And that's why we saw the pickup in EBITDA one of the reasons from Q2 to Q3 we had a sequential improvement in EBITDA driven by those cost savings. We still in year, we're getting about $35 million of the benefit from those actions. And the rest we're building into the pro forma view of '24 that we provided. That's how we get to the 430 of adjusted EBITDA. When we think about the geography of those cuts, it's helping the segments and it's helping corporate and other. We expect the corporate and other expenses to be both reported and normalized, about $60 million in Q4. So we'll start to see improvements there. But the actions really cut across all areas of the business. And we're currently working additional plans for next year mostly around non-payroll costs where we're going to do further vendor reductions. A lot of that's going to be from insourcing certain functions. So not only do we save money, but we'll have more control over some of those functions. And so that, we'll talk more about that as we get into next year.
Matt Roswell: Excellent. Thank you very much.
Operator: Your next question comes from Charles Nabhan with Stephens. Your line is open.
Charles Nabhan: Good morning and thank you for taking my question. As we think about modeling the fourth quarter, I was wondering if you could give us a little color on the implied growth by segment?
Brian Webb-Walsh: Sure, just some color overall and then I'll talk about the segment. So overall software services, we expect to be near the midpoint of the guidance. When it comes to hardware, we expect to be towards the lower end. Even though we overachieved a bit in Q3, we given the backlog and visibility we have on Q4, we expect hardware will be towards the lower end. The good news on revenue overall, we still see the pro forma view that we gave on the last call holding up for '24, because even though hardware revenue is down, we're getting a bit of a better margin on it. So that the commissions on a pro forma view will be very similar to what we provided in the past. When we think about EBITDA, we expect EBITDA to be at the midpoint to slightly better than the midpoint of the range that we've given for the year. So that shows more sequential improvement from Q3 into Q4. When it comes to the segments retail software and services revenue is likely to be flattish in Q4 and EBITDA should be pretty consistent with Q3. And for restaurants we think 1% to 2% growth in software and services with EBITDA also consistent with Q3 of lot of the EBITDA improvement sequentially as we get into Q4 we'll come from corporate and other.
Charles Nabhan: Got it. Super helpful. Appreciate that color. And as a follow up I wanted to ask about your payment initiative and get a better sense for what types of clients you're targeting? What your value proposition is to those clients? And whether you could compete on price with the acquirers that some of your larger customers might be using?
David Wilkinson: Overall Chuck, our payment strategy there's two twofold. I'll say it's one in the SMB space. So as we've described SMB and mid-market we have a high 90s, 97% last quarter attached rate of payments. So we're selling a complete solution. So, very common in that segment of the market. The value prop in that segment is one-stop shop. You get everything you need to run your small restaurant or your small stores with NCR Voyage. Then when we think about moving up into the higher end of the mid-market or even to enterprise, our value proposition really becomes again that total solution. We think all the handoffs between the point of sale, the payment acceptance device, the gateways, the processors, that whole ecosystem benefits well when you have a single provider doing that. We likely in that case are not going to be any cheaper on the payment rate itself, where we get a better total cost of ownership for our customers is owning that whole thing end to end with all the integrations and testings and certifications, that need to be done. And like we've described in the past, in some cases we're leveraging our own processing capabilities. In other cases we're leveraging partnerships. So we believe that leveraging partners is a good way to go. And in that case, we'll be competitive on rate at the processing level, but when on ease of doing business and that total cost of ownership.
Charles Nabhan: Got it. Super helpful. Thank you.
Operator: Your next question comes from Kartik Mehta with Northcoast Research. Your line is open.
Kartik Mehta: Hey, good morning. David. I wanted to ask you, you talked a little bit about changing the comp initiatives for the sales force. And I know at times something like that could have a negative impact in the short term but a positive in the long term. And I'm wondering as you kind of implement that, if you've already implemented it, if you've seen any changes related to that or what you're anticipating or maybe how that might help with the forecast?
David Wilkinson: Yes, Kartik. We've implemented pieces of it. We are doing it in a way that minimizes impact to the fourth quarter results. The team's all very focused on delivering what we've described, what Brian just described as our fourth quarter commitments. The real changes will take effect as we turn the calendar into January. We'll do a beginning of the year meeting with the sales teams, our normal processes to go through all of the realignment of compensation plans in November, December as we finalize our '25 plan internally, and with the Board, and then we'll start to turn that into real corner. There's another piece of work that we're doing around the processes internally, to support the sales team so that we get the sales team singularly focused on selling. And we can lift a lot of the support functions and move them to the right support teams internally. All that work is underway now with the two goals as you just described. One, minimize disruption in Q4 and be ready to go in Q1. So I feel good about the change management activities that are happening inside the company and the teams are all over that.
Kartik Mehta: Great. Hi, it's great to see Darren join and I'm wondering where you see the best opportunity internationally, or where Darren sees an opportunity maybe geographically or from a product standpoint point? Yeah, it's early days for Darren, Kartik. I won't tell you he's got all this grand plan yet. He's got a lot of great ideas. I think when we look at what's happening in Europe, what's happening in Japan, and then I separate Japan from Asia Pacific. I know geographically, but that's the way - we have the business separated. Then we've got a lot of opportunity in Japan. I mean that's our second largest country outside of the U.S., and getting critically focused on that. We serve the largest retailers in Japan, so getting them moved to the platform strategy, and driving that. In Europe, we have a great install-based customer. Same thing in Australia, we really do well in the grocery market. So Darren's going to look at a couple things. We'll look at how do we drive getting customers attached to the platform faster, like we've described in the other areas, you'll have both retail and restaurant responsibilities. So we'll look at can we take our restaurant portfolio, and expand it globally. We'll look for payment opportunities given Darren's background, obviously maybe some payment opportunities in the U.K. and other parts of the market, potentially even in Japan. And then he's exploring how do, we get a mid-market offering. Our mid-market offering has largely been a U.S. based mid-market offer. So how do we look for a mid-market expansion. And the team's strong in the rest of the world too, so Darren can go look at some of those new avenues for growth, while leveraging the existing team. So everybody's excited about the ad of Darren. I like the focus that it's driving to get, not only Darren focused on international, but Eric and Benny focused on what's happening in the retail and restaurant business, specifically focused on the Americas.
Kartik Mehta: Perfect. Thanks. Appreciate it.
Operator: Your next question comes from Erik Woodring with Morgan Stanley (NYSE:MS). Your line is open.
Erik Woodring: Hi guys, good morning. Thank you for taking my questions. I have two as well and I apologize if one of these were asked. I just dropped off for a second, David, I'd love to understand the message that you are sending to prospective new customers on why they should move over to NCR Voyix, right. This is a new strategy or at least a change in strategy, or at least a change in emphasis. And I'm just wondering what's the value prop that you're leading with, is it indeed the end-to-end solutions, or is it anything beyond that that you're offering that maybe they couldn't get from their existing providers? And then I have a follow-up? Thanks.
David Wilkinson: Erik, when you look at our history and heritage and market share in these industries, our core businesses have been around retail and restaurants. So one - of the pieces of emphasis that we give, is we're back to our core businesses and extremely focused on delivering an end-to-end solution for retail and restaurant. We know the industries well, we know their challenges. So when we talk to new clients, there's one about the platform. We have great tech that provides all the capabilities that are required for your business, and to run your business. The other side of that is we have services capabilities that truly differentiate us. Most of our clients in the enterprise mid-market space are looking for a complete offering. And then, they don't want to have to maintain it and make sure it's up and running, and don't have the service capabilities. And they need somebody that can scale with their business, and grow with them. As they grow, we grow with them and they can trust us to continue to deliver the platform itself. I'll talk a little about architecture. They believe in the architecture, the platform strategy, the open nature of how we're delivering our solutions, and we allow not only our own technology, but we're going to have great applications for things like loyalty and payments and self-checkout. They can also bring their own applications, or we can plug in third-parties. So we have a good third-party ecosystem of partners that allow them to plug in. So, we give flexibility to our customers. We don't have to lock them in. And it gives them a lot of opportunity, to go explore and test out new offerings as they're looking to compete on differentiated solutions to their customers, to us as consumers. So we go in with the full solution, the credibility and history of what we do and the knowledge in our industries along with the great tech platform that's open.
Erik Woodring: Okay. That makes a lot of sense. Thank you for that color. Maybe just as a follow-up, can you maybe elaborate a bit on your capital allocation strategy? Just obviously you now passed the digital banking transaction. You're looking at closing the hardware shift. Obviously you talked about buybacks. Maybe just help us understand the pace of those buybacks, and then maybe what comes next? What's your leverage goal? How do we think about the capital allocation priorities? Thank you.
Brian Webb-Walsh: So, Erik, we covered this a little bit earlier, but I'll just reiterate that we, using the digital banking proceeds, we have our leverage where we want it to be. We'll keep it at or below two terms. We announced today $100 million share repurchase that will execute, and we also announced using $20 million of those proceeds, to accelerate some of our offering investments. So that's the use of, the majority of the digital banking proceeds. When we think about go forward capital allocation, it's really consistent with what we talked about before. Continuing to invest internally to support our offerings and to drive growth. And then looking at tuck-in acquisitions where it might make sense to buy something versus build it ourselves. And then lastly, any future share repurchase we'll evaluate and consider with our Board. And that's kind of what we talked about before. Right now the focus is executing, what we've announced and then generating the cash flow that we need to generate in 2025. No, David, do you add anything?
David Wilkinson: Okay. So that's the answer, Erik.
Erik Woodring: Great. Thanks so much guys. Sorry about the repeat question.
David Wilkinson: No worries.
Operator: Your next question comes from Ian Zaffino with Oppenheimer. Your line is open.
Isaac Sellhausen: Hi, good morning guys. This is Isaac Sellhausen on for Ian. Thanks very much for taking all the questions. I just had one on the initiatives and investments you mentioned in the restaurant and retail businesses. I guess specifically for restaurants. Maybe if you could provide some higher level thoughts on what the investments would entail, and maybe how you're looking to position the segment relative to your current market position and enterprise and QSR space? Thanks.
David Wilkinson: The work that we're doing on the portfolio for restaurants is really accelerating, what we would have had in our original roadmap. So we're pulling in some functionality to get a broader expansion. Specifically in QSR and Q1, we're looking to accelerate some of the value added capabilities on the platform. So the customers that have connected to the platform, we're giving them more that they can do through the platform with our investments. That is the focus. So you think about some of our capabilities like kitchen, payments, menu management, back office, those are the capabilities that we're looking to accelerate. And when we say accelerate, that's more of the cloud enablement. We've clearly got those capabilities on our legacy platform. Really delivering those through our cloud platform, and accelerating that migration to the platform is where we're focused. And then some of that will come in the form of aggressive marketing and commercial packages to some of our customers to get them connected faster.
Isaac Sellhausen: Okay, understood. Thank you very much.
Operator: At this time it appears there are no further questions. I'd like to turn the call back to NCR Voyix CEO, David Wilkinson.
David Wilkinson: I'd like to close with just a thank you to our employees at NCR Voyix. A great job of executing what is on paper a really strong set of strategic initiatives and a solid performance for Q3 as you. As we've described, there's a lot of work ahead of us, so the teams will be very focused on delivering to our commitments to our customers. I also like to thank our customers - for the confidence they have in us, and trusting us with their solution. We serve enterprise clients and mid-market clients and our mission critical to what they do every day. We don't take that lightly so we appreciate the support we have from our clients. And lastly, I would tell you that I'm really optimistic on the strategy that we have. We laid out the pro forma in the last earnings release, and the focus that we're driving as a company on software and services, the attention that we're driving as a management team, the change that we've made, the leadership. What we're describing is going to set us up on a path in '25, like we said, to grow off of that base. So we'll provide more color on that when we get into February. But we feel good about the initiatives we're executing, we feel good about the platform momentum that we have and we're appreciative of our existing customers. So thank you for your time this morning.
Operator: This concludes the NCR Voyix third quarter 2024 earnings call. Thank you for attending and have a wonderful rest of your day.
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