Q3 2024 Earnings Summary
- Strong demand for self-checkout solutions: Despite a significant downturn in the hardware market this year, VYX is experiencing strong demand for its self-checkout software, which is expected to continue into next year. Customers are seeking new ways to enhance in-store experiences, and VYX's self-checkout platform is well-positioned to meet this demand, offering flexibility and speed in deploying new capabilities. This presents an opportunity for revenue growth as delayed capital projects resume.
- Positive customer reception to the ODM model transition: Customers have responded positively to VYX's migration to the ODM model, appreciating the company's focus on software and services. This transition allows VYX to provide complete solutions while leveraging partners like Ennoconn for hardware fulfillment, potentially improving lead times, reducing costs, and enhancing quality. This strategic move is seen as the logical next step in evolution by customers.
- Improved financial position and shareholder returns: Following the sale of its digital banking business, VYX reduced its indebtedness by approximately $1.8 billion, bringing net leverage down to 1.6x and reducing annual cash interest expense by around $95 million. Additionally, the company announced a $100 million share repurchase program and plans to invest $20 million to accelerate its next-gen offerings. This demonstrates a strong commitment to improving financial health and returning value to shareholders.
- Declining Hardware Market: The hardware market has been significantly down this year and is not expected to fully recover next year, with expectations of it being flat to slightly down. This could negatively impact total revenues, especially since hardware declines have already contributed to an 11% decrease in normalized revenue in the recent quarter.
- Limited Impact from Platform Revenues: While the company is focusing on its platform strategy, platform revenues currently represent a small percentage of total revenues and are not yet significantly driving growth. This suggests that the anticipated financial benefits from platform conversions may take time to materialize, potentially limiting near-term growth prospects.
- Diminishing Margins from Cost Savings: The majority of the cost-saving measures have already been implemented, resulting in improvements in adjusted EBITDA. However, future margin improvements may be limited as additional cost-cutting plans are primarily around non-payroll costs and may yield less significant benefits compared to previous actions.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | FY 2024 | $2.805B to $2.860B | $2.805B to $2.860B | no change |
Adjusted EBITDA | FY 2024 | $355M to $375M | $355M to $375M | no change |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Declining hardware revenue | Referenced consistently in Q4 2023, Q1 2024, and Q2 2024 as an ongoing challenge mainly due to delayed refresh cycles, strategic shifts to ODM, and market softness. | Continues to be a headwind in Q3 2024, notably impacting overall revenue and nonrecurring installation services. | Ongoing challenge affecting multiple segments |
Ongoing cost-saving initiatives | Discussed in Q4 2023, Q1 2024, and Q2 2024, targeting payroll and nonpayroll reductions, hardware design efficiencies, and corporate expense cuts. | A $105 million cost program largely completed by Q3 2024, contributing to EBITDA improvement; future plans focus on additional nonpayroll reductions. | Efforts continue but further impact is diminishing |
Shift toward software and services | Stressed since Q4 2023, Q1 2024, and Q2 2024 as a strategic priority (focus on cloud platforms, ARR growth, self-checkout software). | Reinforced in Q3 2024, highlighting higher-value offerings like self-checkout platforms and decoupled hardware and software decisions. | Core strategy with strong customer demand |
Transition to ODM hardware model | First detailed in Q2 2024 as a shift of design, manufacturing, and warranty to Ennoconn; aimed at reducing revenue volatility. | Q3 2024 feedback remains positive; customers welcome the focus on software while Ennoconn handles hardware fulfillment. | New model introduced in Q2 2024, continued in Q3 2024 |
Debt reduction and leverage ratios | Prominent in Q4 2023, Q1 2024, and Q2 2024 with targets to lower debt, improve net leverage, and offset interest costs. | Q3 2024 proceeds from Digital Banking sale used to pay down $1.84B in debt, improving leverage to 1.6x, with plans to maintain at or below 2x. | Continual focus with substantial reduction achieved |
Digital Banking segment evolution | Shown strong performance in Q4 2023 and Q1 2024; announced divestiture in Q2 2024 for $2.45B. | Q3 2024 sees the deal closed on Sept. 30, proceeds used for debt paydown, share repurchases, and investments in cloud solutions. | Completed divestiture; key factor in balance sheet transformation |
Fraudulent ACH transactions (Q4 2023) | Only addressed in Q4 2023, disclosing $23M in fraudulent ACH debits and up to $5M additional impact in Q1 2024. | No mention in Q3 2024. | No longer mentioned after Q4 2023 |
Reduced expectations for Atleos deals | Q4 2023 guidance lowered from $50M to $20M in expected revenues; further reductions noted in Q1 2024 ($11M) and Q2 2024 (exiting agreements). | No mention in Q3 2024. | No longer mentioned; phased out |
Mid-market expansion investments | Cited in Q4 2023, Q1 2024, and Q2 2024 as a high-growth focus with strong payments attach rates and expanded sales teams. | Continues in Q3 2024 with new customer wins (e.g., Speedy Stop), nearly 3,000 additional sites, and a 97% payments attach rate. | Consistent priority for capturing new market share |
Share repurchase programs | In Q2 2024, the company mentioned it would begin considering share buybacks once leverage targets were met. | Q3 2024 introduced a $100M share repurchase program, viewed as the best use of proceeds given the valuation. | Newly launched in Q3 2024 |
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Guidance for Fiscal 2025
Q: Any directional guidance for fiscal '25?
A: They will provide guidance for 2025 in February but believe they can grow off the pro forma 2024 they've described. More details will be provided next year. -
Fourth Quarter Segment Growth Outlook
Q: Color on implied Q4 growth by segment?
A: Software and services revenue is expected near the midpoint of guidance, hardware towards the lower end. Retail software and services likely flattish with EBITDA consistent with Q3. Restaurants expect 1–2% growth in software and services with EBITDA also consistent with Q3. -
Capital Allocation Strategy and Leverage Goals
Q: Elaborate on capital allocation and leverage goals?
A: They've reduced leverage to at or below 2 turns using digital banking proceeds. Announced $100 million share repurchase and $20 million investment to accelerate offerings. Future plans include investing internally, considering tuck-in acquisitions, and potential future share repurchases. -
Expense Savings and Margin Outlook
Q: How much expense savings remain, and where?
A: Implemented $105 million in cost-cutting, with $35 million benefit this year; the rest built into pro forma 2024 for $430 million of adjusted EBITDA. Savings help both segments and corporate expenses, expected to be about $60 million in Q4. -
Software/Services Growth and ODM Impact
Q: Relation between software/services growth and hardware, impact of ODM?
A: Hardware-linked services (20% of services) are pressured with lower hardware refreshes. The ODM model focuses on software, breaking the hardware-software linkage, and supports open, hardware-agnostic solutions. -
Go-to-Market Restructuring Timeline and KPIs
Q: Timeline for go-to-market changes and KPIs to measure?
A: Changes are being implemented now, to be in place next year. Key KPIs include new sites, payment sites, ARR, customer renewals, and service add-ons. They focus on ROI for investments. -
Hardware Expectations and ODM Migration
Q: Expectations for hardware, self-checkout, and ODM migration?
A: Hardware demand is significantly down this year; next year may be flat to slightly down. Self-checkout demand remains strong. Customers have reacted positively to ODM migration, seeing it as a logical step with no negative impacts. -
Payment Initiative Strategy
Q: Details on payment initiative and client targeting?
A: In SMB and mid-market, they have a 97% attachment rate, offering a one-stop solution. For higher-end clients, they provide total solutions and lower total cost of ownership, though not cheaper on payment rates. -
Net Site Additions
Q: Are you net adding or losing sites?
A: They are net adding sites in all segments, with no increase in customer attrition. They aim to accelerate net additions with the new go-to-market model. -
Platform Conversion Strategy
Q: How will you drive platform conversion over time?
A: Currently at 20% platform adoption, they are aggressively targeting renewals and conversions to accelerate conversion, seeing increased ARR and margin benefits. -
Sales Force Compensation Changes
Q: Impact of changing sales force compensation?
A: Changes take effect in January, minimizing Q4 disruption. The aim is to focus the sales team on selling, improving performance in Q1. Positive change management is underway. -
International Opportunities and Leadership
Q: Opportunities internationally or with new leadership?
A: New leader Darren is focusing on Europe, Japan, and Australia, aiming to drive platform strategy, expand globally, explore payment opportunities, and mid-market expansion. -
Value Proposition for New Customers
Q: Why should new customers choose NCR Voyix?
A: They offer end-to-end solutions, deep industry knowledge, and an open platform that allows flexibility and integration with third-party applications. -
Investments in Restaurant Business
Q: What do investments in the restaurant business entail?
A: Accelerating cloud enablement of capabilities like kitchen, payments, menu management, and back office, aiming to migrate customers faster to the cloud platform.
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