Q4 2023 Earnings Summary
- Digital Banking segment revenue is expected to grow by 7% in 2024, with EBITDA margins steady at 38%, driven by adding new customers and successful cross-selling efforts.
- The company is implementing a $100 million annualized cost-saving program, aiming for at least $70 million of in-year savings in 2024, which is expected to improve margins and profitability.
- An investment of $15 million in sales efforts targeting the mid-market segment (operators of 5 to 50 sites) across all three businesses is anticipated to drive growth, focusing on increasing sales presence and capturing opportunities in this segment.
- The company experienced fraudulent ACH transactions resulting in a $23 million loss in 2023, with an expected additional $5 million expense in Q1 2024 before the issue was discovered and addressed. This incident indicates potential weaknesses in internal controls, and the company acknowledged two material weaknesses in internal controls over financial reporting identified during the investigation.
- There is a significant decline in hardware revenue, which is putting pressure on overall growth. For 2024, hardware revenue is expected to decline and range from $900 million to $950 million due to the timing of customer refreshes and major projects. This decline contributes to an anticipated 1.5% decrease in total revenue at the midpoint on a normalized basis , potentially impacting overall profitability.
- The company's 2024 guidance includes only $20 million of revenue from commercial agreements with Atleos, which is lower than the prior Investor Day assumption of $50 million. This reduction in expected revenue from Atleos may indicate challenges in the company's partnerships and could negatively impact financial performance.
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Cost Savings and Margins
Q: How will cost savings impact margins this year?
A: We're implementing annualized cost savings of $100 million, focusing on hardware simplification, services optimization, and reducing our real estate footprint. Most of the $25 million hardware savings will be realized this year. We're halfway through the $50 million services savings target and expect at least $70 million of in-year savings overall. These savings will improve margins, and we're reinvesting some into sales to drive growth. -
Digital Banking Growth
Q: Will digital banking continue its growth rate?
A: We anticipate digital banking revenue to grow by 7% this year as we add new customers and continue cross-selling. EBITDA margin is expected to remain flat at 38%. We've secured 39 net new wins over the last 12 months, taking share from legacy players. We view this as an undervalued crown jewel with strong long-term prospects. -
Cash Flow and Leverage
Q: What's the outlook for cash flow conversion and leverage?
A: This year's cash flow is impacted by $25 million to $50 million in separation and restructuring costs. As these costs decline, we'll improve margins and generate more cash flow. We're focused on reducing net leverage from 3.7x to 3.3x - 3.4x by year-end by investing $250 million in CapEx and using free cash flow to reduce debt. -
Retail and Restaurant Revenue
Q: How will retail and restaurant revenues trend in 2024?
A: In restaurants, we expect overall revenue to be flat to up 1%, with software and services growing 5% and hardware declining. In retail, revenue is projected to decline by 4% due to hardware, while software and services will grow by 1%, or 3% adjusting for a nonrecurring $25 million software payment. Hardware pressures are affecting overall numbers, but software and services are growing. -
Platform Contribution to Growth
Q: When will platform sites boost growth?
A: Platform sites are contributing to ARR growth, expected to be in the mid- to high single digits in 2024. Software-specific ARR in retail is projected to grow in the low double digits due to connecting sites to our platform. This connection increases ARPU and enables cross-selling and upselling, benefiting our recurring revenue streams. -
Mid-Market Sales Investments
Q: What investments are planned for the mid-market segment?
A: We're investing about $15 million company-wide in sales, focusing on mid-market multisite operators in restaurant and retail. We're refining processes to make it easier for sellers to quote and onboard customers with a payments-led offering. Growth is expected across all three businesses by increasing our sales force.
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