Thanks to everybody who is joining us today. For those that don't know me, my name is Chuck Nabhan. I cover the payments and fintech space here at Stephens. We're pleased to host NCR Voyix today. Joining me today from the company is CEO David Wilkinson, as well as CFO Brian Webb-Walsh. Gentlemen, thank you for making the trip and joining us today.
Yeah, thanks for having us.
Great. So, it's been an eventful two years, to say the least, for the company. So just as a starting point for those not as familiar with the story, can you walk us through what led the events that led up to the split, and how you believe the split will add value for shareholders?
Sure. A couple things. Probably worth just describing what we are now as a company. So NCR Voyix is a fintech platform-led software and services company supporting three key verticals. So think about banking, the retail bank branch, retail, and restaurant. We're a market leader in those three verticals that we serve, or those three market segments that we serve, the number one provider of point-of-sale software in retail and restaurant, the leading independent digital banking application provider in the U.S. It's a... As you all know that market segment really well, it's a very large and growing market. You know, we would tell you $25 billion and expanding to over $100 billion in total addressable market. After the separation, we're about a $4 billion top-line company, just under $4 billion, with over half of that revenue is recurring revenue.
So think about that as software and services that to those into those industry verticals that we serve. And Chuck, back to your—it's been a two-year process for us. As you all know, NCR, we were very public about starting a strategic review process a couple of years ago. We explored every option under the sun through that process, so it was a while; it kept us all busy. It was a very fulsome process. We left no stone unturned. The outcome of that process was what led us to this split, and we believe that creating the platform-led software and services company, NCR Voyix, and then separating out NCR Atleos, and I think our Atleos colleagues are running around here somewhere today, if you wanna hunt them down and find them.
But that was the ATM side of the business, and we believed in conversations like this. In the past, we would've had a very different set of conversations where we would talk about five, six segments, multiple market trends that were happening, multiple macroeconomic environments that we had to play into, and that was what was happening inside of the four walls of the company. So we really believe that the focus that we can create with NCR Voyix and NCR Atleos on the core verticals, the core solutions that we're providing. There's a different set of investments required to be a platform-led software and services company versus an ATM provider running an ATM network and a payments network. So for us, it's really about focus. It's the ability to continue to focus on our customers, continue to focus on building great products, and then having more focused conversations around what we do as a company and how we're investing.
That's a good segue, David, 'cause I wanna drill into the concept of platform-led businesses, which, you know, you've characterized retail and restaurant as such. Can you talk about what that means in a little more detail, as well as what KPIs investors could look at to gauge progress on your initiatives?
Yeah, absolutely. All three businesses are platform businesses. We leverage Google Cloud for all three of the businesses as our core platform provider. But you think about it in retail and restaurant, so in the legacy space, where I describe we're the market leader in point-of-sale software, so the point-of-sale software is very sticky inside of retail and restaurants. And to do that, we add things like online ordering or loyalty or alternative payments or different payment forms, but you don't need to change out the core point-of-sale to do that.
So our strategy is take that install base, connect our legacy point-of-sale applications to our platform, and then you can cross-sell and upsell other modules or services on top of the platform that are delivered via the cloud. It could be run on-premise or, but it's delivered through the cloud, and that's how we connect our cloud services. Online ordering is a good example of that, like what we did with Buffalo Wild Wings, where they were running our core point of sale, and we connected them to the platform, unified their online ordering capabilities. Because really about leveraging a unified customer data, a unified transaction data set, and a unified inventory or menu if you will. So the economics of that, really, if you look at our install base, we're gonna start describing how many people we have connected to the platform.
So the penetration, we released that at Investor Day. We talked about in the restaurant space, we have about 20% of our install base connected to the platform today, and then when we describe the number of connected lanes to the platform or sites to the platform, we'll also describe ARPU, or average revenue per unit. That's the average revenue per site. And what we're seeing is when we get you connected to the platform, we immediately see a 1.5x uplift in that platform. So I would tell you to track that penetration, the number of platform sites connected, and then the ARPU for those sites. In retail, we're a little further behind. We just had a little bit later start. It doesn't mean that the market's not as receptive. We're about 10% penetrated in the retail market with a bigger backlog. There's a little longer time to renew. And on the digital banking side, it's really about number of active users connected to the platform. We'll, we'll also disclose ARPU, but that growth story is more about users.
Got it. Okay. So one external KPI you've discussed is the improvement in NPS scores across your business, which really is reflective of your standing with your customers. Can you talk about your initiatives and the progress you made in that area?
Yeah, it's, we're proud of the team for what they've been able to accomplish, and embarrassed almost to say what it used to be. So we started tracking NPS about five years ago. When we started tracking it, our NPS in retail and restaurants was negative. I didn't think that was even possible. Apparently, it is. Apparently, it's just math at some point that. But we had negative NPS in those segments, and when you have negative NPS and you're running point-of-sale applications like we do, that are mission-critical and very sticky, you end up with a bunch of customers that feel trapped. But the good news that what we learned in that process is that it is so sticky, and people don't want to change out their point of sale.
So even when they tell you they're not a promoter, they're actually a detractor, we were seeing that customers were sticking with us. They wanted us to succeed. They wanted us to be healthy and profitable and help- and have an innovative solution. What we've done is we've got more focused on the customer, so what you saw us do is align more towards these vertically centric business units. So we had... Before, we were hardware, software, and services as a company. The customer's lost in that mix. So now we have retail, restaurants, and our digital banking teams. We put support teams in line with those.
We had specific product investments that we were making towards those segments, and what we saw is an increase in Net Promoter Score, where we're north of 40, positive 40, in what we're doing with Net Promoter Score, and we're not stopping there. I mean, we wanna see that number get something more best-in-class. You know, our research would tell us that's closer to 60, but right now we're in really good, really good position with something that looks north of 40 from a negative five years ago. So it's a lot, a lot of work from the teams, a lot of, I'll say, basic blocking and tackling, roadmap management, and investing in what matters to our customers.
Got it. So just to broaden that a little bit, can you talk about the competitive landscape within retail and hospitality? And we'll get to digital banking in a second. Specifically, who you compete against, how you're differentiated, and, you know, maybe if you could touch on the market segmentation between SMB and enterprise, 'cause I think, you know, obviously Toast has become a household name in the space. However, you know, the reality of it is they're more SMB versus enterprise.
Yeah. On the retail and restaurant businesses, I'll combine those for a second to talk about enterprise. So when we say enterprise in the restaurant world, we say 50 sites or more. In the retail world, it's basically we have very little SMB, less than... I mean, it's very little SMB business, what we would call SMB in the retail space. So most of our business in both of those segments, 80% of the restaurant business and 95%+ of the retail business is enterprise, what we would classify as enterprise. So think of those as, you know, on the retail side, it's heavily weighted towards grocery. 70% of our business is grocery, another 15% convenience and fuel, so very durable, resilient, mission-critical or economy-critical businesses, and they're household names, people like Circle K, Pilot, Whole Foods, Sainsbury's.
Woolworths and Coles in Australia have nothing to do with the Woolworths and Coles of the old U.S. Those are the two largest grocery chains in Australia. But so, so we have really big household names: Starbucks, Wendy's, McDonald's, Chipotle, Buffalo Wild Wings. I mean, those are our core customers. The value and the differentiation that we see in that space, why people choose NCR Voyix, is both the tech. So not only are we the largest install base, and what I described is they run our software, likely today. We have feature-rich applications that we understand their businesses. We have depth of industry within our teams, and then we couple that tech with services, and when we put services on top of that, we can provide a complete set of capabilities. Every one of those clients that I mentioned, they're all looking to simplify their lives. They want fewer vendors-
Yep
To provide the capabilities they need, and they want to be able to apply more energy towards differentiating the customer experience and less energy towards either managing a bunch of tech vendors or, by default, becoming the systems integrator to stitch together a bunch of bespoke startup sets of technologies that we're providing specific tasks within the store or the restaurant. So our value is really the ability to stitch all of that together and create a holistic experience. On the SMB side, in-restaurant, it's about 20% of our restaurant business. We're, we're pretty selective about how we're taking share there. We are taking share still in the restaurant space, and we're doing it where we have more complex SMBs, so less than 50 sites, or ones that are growing at a higher growth rate. So, think about somebody that five, 10, 15 sites, they're still classified as what we would call in our segments an SMB.
Mm-hmm.
But they get a little more complicated, and they wake up one day and think they need an IT person or a tech team, but they really can't afford it, and they know that their core competency is not tech, it's running restaurants. And so that's when they call us, and that's where we add a lot of value in that space. So yes, we have the competition that you described, Toast and others in that SMB space. We feel like our customers value the differentiation we bring from a full service, not just the tech, but the tech and the services. And then it's a fragmented set of competitors in retail and restaurant. Retail, we have a... You know, if you look at our self-checkout as a product within the retail segment, we've been the market leader for 20 years, double that of the nearest competitor.
So you would think of the normal competitors, Toshiba, Fujitsu, Diebold in Europe, still for self-checkout, and point-of-sale, there's companies like Flooid and GK, and you, you'll see a little bit of Toshiba still on the restaurant side at the higher end. In QSR and enterprise, you'll see PAR, Brink, and the ones that you described, but for the most part, our differentiation is the broader set of capabilities.
Got it. Yeah, so we'll get to self-checkout in a second, but one of those vendors, in many cases, is your payment processor. You've started to attach payments as part of your Aloha bundle. Could you maybe touch on that opportunity?
Yeah, for us payments, we still believe in the opportunity. So we start the payment at the point of sale. We do all the encryption work that goes to the pinpad. We typically route it through our gateway out to the payment processor. The last little piece of the payment processor is the piece that we need. We believe we can add, and we believe that that simplifies the lives of our clients. So in my conversations with CEOs in the, like I'll pick the restaurant space, I was just with, in California, a 500-restaurant chain CEO, and he, they want us to do the payments end to end because we already started it. They just want us to finish it.
They don't want to have to go figure out how to negotiate with payments, pick pinpads, do all the things that have to be done in that ecosystem. It just simplifies their lives. So we're gonna continue to add, add payments. It's part of the ARPU expansion, so you'll see as payments to us becomes another module or another product that we add on when we get you attached to the platform. So you'll see that start to play out, and ARPU will still announce payment sites as we have been doing, but we think that's still a critical part of our strategy. We need to expand it more. It's. We lead with that in the SMB space, so we're 90% attached in that SMB world in restaurants. We're expanding into the enterprise side of restaurant, and then we'll start to get capabilities in retail. Retail grocery payments are a little more complicated.
Yeah.
So we have a little bit of work to do on the offering, but we'll bring that online through 2024. And I know, for those of you that have followed us for a while, you'll say, "You've talked about payments for a long time. You haven't made the progress that you wanted to make," and you're right. We got delayed based on some of the priority investments that we wanted to make, so I probably pushed that out a year based on what we thought we would originally do.
Got it. I wanna switch gears to digital banking. One question we receive is how that business fits in with the rest of NCR Voyix. Can you comment on that and how you think about the strategic optionality and the fit of that business?
Yeah. The reason we chose to put digital banking in with those other businesses I described, they're all platform software businesses, so they have similar skill sets, similar investment requirements, a similar mission in life in terms of allowing our clients in that space to create a differentiated consumer experience. So in all those cases, there's an experiential factor in terms of how you, as a consumer, interact with technology that creates some commonality. You know, that's where the commonality stops. They're different sales teams. We're running those businesses differently. I'll have a president of each of those three different businesses. We're setting them up independently, you know, for a lot of different reasons. You know, we, yes, we believe that that business has been extremely undervalued inside of the old perimeter of NCR. Yes.
We think the exposure of what we're doing, exposing the growth rate of that business and talking about how we're winning share now, the 36 net new customers that we've seen over the trailing twelve months, the low double-digit growth rate that we expect in next year, I mean, that... And it's very profitable. So we want to expose the strength and the velocity of that business, and then, like all of our other businesses, we'll evaluate all options to make sure that we're unlocking shareholder value.
Yeah, let's, let's talk about that strength for a little bit, 'cause, if I recall, that business was originally acquired in 2013. When Mike Hayford came on in 2019, one of his initial initiatives was to really invest and turn around that business, and it's been quite a remarkable turnaround story from both a growth and a customer retention standpoint. So can you maybe touch on that and some of the initiatives that led to the turnaround with the digital banking?
Yeah, and Mike knew that we had an asset. He had experience in that digital banking space, and, and he knew we had that asset sitting there that was being underinvested in and, and was quite honestly being picked off. It was the carcass on the side of the road or the donor pool or whatever that would allow the Q2s and the Alchemies of the world. The product was unreliable, it wasn't feature-rich, and it was, it was old and not being invested in. And the original strategy when that was acquired by NCR was to fold it into the ATM sales team and try to get them to be able to cross-sell digital through the ATM channel, and it didn't work. It was a bad idea.
When Mike came on board, we decided to invest in the product, so it took two, almost three years to get the product back to, I'll call it, healthy. These aren't easy things to fix. It takes a while to have an old product and make it new. So that investment had been taken over the, you know, starting five, four or five years ago. The product is really strong today. It's modern. We finished last year moving all almost 20,000,000 users into Google Cloud. We've opened the APIs. We've created a partner network of over 200 partners that allow—that create that open ecosystem to create functionality for all these financial institutions as they fight for deposits.
Their whole battleground is deposits, and it's a very bloody battleground today for them, so they need more capabilities and more features. And what this partner network does is allows us to embed them into the digital banking app, and they can do things like peer-to-peer payments or bill pay or card management. And, you know, we take our shim off of that as it flows through our platform, but then it creates... We don't have to build every set of new capabilities or functionality within the app. We will build or buy capabilities, like we did with Terafina, to add account opening.
Right.
So we're seeing those types of... where we see trends in the market where account opening became huge. Obviously, as you're trying to fight for deposits, you need to be able to open accounts. It reduced the time to open and reduced the number of audits and the quality of the accounts coming through. So those are the kind of things that we'll continue to invest in. But that and then once we got the product fixed, we started to pour the go-to-market, turn the go-to-market back on.
Yeah.
That's what we're seeing in the... When I described those 36 net new wins, that's where you're seeing the power, and we're asking the team, "What more do they need? How do we continue to grow?" Because right now, we wanna pour gasoline, in terms of go-to-market, onto that fire because we have a great product that's winning.
Great. Switching to financials, could you talk about the leverage profile of the business, and how investors should think about free cash flow generation and, and target leverage over time?
Sure. So, starting with leverage, we're targeting to be around 3.5 turns at the end of this year, and then getting that to three turns of leverage by the end of next year. And then long term, we've said we wanna be within two to three turns of leverage, and we think that's the right amount of debt for our recurring revenue model and our business profile. When we think about cash conversion, well, one other point on the debt, it's, you know, attractive debt. We inherited the legacy NCR debt, so the average rate is 5.4%. It's 90% fixed, so it's relatively attractive. Free cash flow, next year we're targeting 25%-30% conversion on adjusted EBITDA, and then that goes up to 40%-45% by the time we get to 2027. And the things that drive that improvement are margin improving, CapEx as a percent of revenue coming down as we scale our revenue. We think that can go from 7% today to 6% as we go through 2027. And then the absence of separation cash costs, we still have some costs next year that won't be there after next year. So that's, that's how we get to that cash flow conversion.
Got it. That's, that's super helpful. Could you also talk about the revenue and EBITDA targets you laid out in, in your recent disclosures, and, and specifically, how we should think about recurring-- the recurring revenue headwind in the near term? 'Cause that's obviously a relevant point there.
Yep. So if we look at the growth targets on the top line, 4%-6% CAGR, 2027 compared to 2023, with more modest growth this year and next year, 1%-2% this year, and then 1%-3% next year. Part of the reason is the recurring headwind as we shift upfront licensed revenue to a subscription model. That puts pressure on the overall revenue growth, and we believe that's a 2-point headwind next year, and then that starts to normalize in our growth rates in 2025, and it's no longer a headwind. Then we'll see restaurant and retail specifically start to accelerate growth. The other thing, as David was talking about, today we have roughly a little over 10% of our retailers connected to our platform, 20% of restaurants.
That's gonna improve as we go forward, and we can cross-sell and upsell as we connect more of our customers to our platform. So those things will get the retail and restaurant segments accelerating 25, 26, 27. And then the good news is digital banking's already accelerated. In the most recent quarter, we grew 7%. We expect Q4 next year to be high single digit, low double digit, and that growth to continue into the future years. So that's how the revenue model works. And then, EBITDA is gonna grow faster than revenue, 10%-12% CAGR. We're gonna expand margin 400-500 basis points. At the high end of that, the 500 basis points, 300 comes from mix shift, so digital banking growing faster than retail and restaurants.
Mm-hmm.
And then within retail and restaurants, software services and payments growing faster than hardware, so that's 300 basis points of the margin improvement. The other 200 basis points comes from cost takeout.
Yep.
And that's already started. That's gonna help us offset next year the $45 million-$55 million of dis-synergies we have by being our own company. So we expect to be able to maintain the 17% margin this year and keep margins flat through our cost programs, and then from there, they'll start to contribute into the, to the margin improvement. And if, if I just break out the cost program a little bit, there's three major components. One is our corporate costs, where we're looking at our real estate footprint and, and exiting some underutilized facilities. We're looking at where we have our skills and taking advantage of lower-cost strategic value centers, and just making sure we have the right-sized corporate team for, for the Voyix business.
The second work stream is around our hardware and simplifying how we design our products and our hardware. In the past, legacy NCR had a joint engineering team with ATMs, SCO, and point-of-sale, and that caused us to over-design some aspects of our hardware. So we already have a program that's well underway, that's been in place for multiple months to simplify the design, and we'll start to get benefits from that next year. And then lastly, our services organization.
There's a big program around moving more resources to strategic value centers, reducing some overlap we have between our different services organizations, and then making sure we have the right skill set, because again, just having to deal with POS and SCO, the skill set is less complex than when we, in the legacy world, had to also service ATMs. So that's how we're gonna drive the margin improvement and grow EBITDA faster than revenue.
That's great. Appreciate that. And just to touch on the two -point headwind, and I think it was three points this quarter but two points for next year. Have you disclosed where that's concentrated in terms of the segments?
Yeah, it's—there's some impact in all segments.
Okay.
In the retail and restaurant segments, it's the corporate average is the impact to those two segments.
Got it. Okay, okay. And, again, you touched on the mix of hardware and software and services. Could you give us a sense for where... what it looks like today and what it could look like down the road?
Yeah, so from a hardware mix, 28% of our hardware in Q3, 28% of our revenue is hardware. And that's a little bit higher in retail, a little bit lower in restaurants, and it doesn't exist in digital banking.
Yep.
We expect that to decline low single digit, while the recurring revenue in software and services and payments grows at a much faster rate. So the mix of hardware, by the time we get to 2027, will hopefully be around 20%-25% of revenue, so it'll improve.
Got it.
That helps the margin,
Yeah. And just to kind of put a finer point and solidify our understanding of it, you're not always replacing the POS. Once you get customers on the platform, you're cross-selling new softwares and software and services, and that's really what's driving mix shift. Is that a fair way to characterize it?
Absolutely. Yep.
Okay, great.
Yeah, and the headwind doesn't come. We're not doing hardware as part of that bundle.
Mm-hmm.
So don't—the headwind is not a hardware one-time shift to... In the SMB space, we might bundle hardware in some cases. We, we do. But in the enterprise side, you know, self-checkout or point-of-sale, that headwind is not a headwind like we would've seen on the Atleos side when they're moving to ATM as a service.
Yeah.
This is... It's the software one-time recurring revenue, the license revenue that you would have got on a perpetual basis-
Yeah
That is creating that headwind.
So, to ask the obligatory macro question you know, we could start with digital banking and move through the segments in it. And just, on a high level, there's obviously, you know, macro-related headwinds, but at the same time, there are some secular tailwinds. And your solutions, whether it's banking or hospitality, do position your customers to compete in the current environment and meet changes in customer demand. So, I mean, I guess with that in mind, could you, starting with digital banking, could you maybe talk about what you're seeing from an IT spending standpoint within your customer base, and how your solutions, whether it's Terafina or, just the platform in general, position banks to gather deposits and compete?
Yeah. So we have the macro banking environment, we have not seen an impact to spend. The battle for deposits, I'll say, is trumping the maybe some of those macro underlying negative sentiment. We had our digital banking conference here in Nashville. I was gonna say in Nashville, but we are in Nashville. So we had it here four weeks ago, five weeks ago. We had a record number of attendees, both prospects and existing customers, close to 1,000 people in the room. And when we're sitting talking with all of the financial institutions of all sizes in the room, they all describe how the budgets within their bank are moving to the digital channels.
Mm-hmm.
So in the past, it would've... You'd had an infrastructure team, a retail branch. You know, the branch team would have a budget, then there'd be kind of a corporate thing, and there was this digital budget. The marketing team had this digital budget. That digital team is kinda taking over the way that they think about the retail face of the bank-
Yep
To the consumer. So they're getting a lot more power, and they're looking for solutions that help unify the channel, and that's exactly what our solutions, whether it's our core digital banking application, new account opening. We have a channel services platform that unifies the four main channels of a bank, whether that's the digital channel, the ATM channel, the call center, or the physical teller. So we have some capabilities to stitch that together. It's what we built for U.S. Bank. It's what we're doing with Citi. There are some trends that are moving towards creating that digital experience on the front end, and we're well positioned, and that's where we're investing.
Yeah. And I wanna sort of bridge what might appear to be a disconnect on the surface in that, you know, for those that follow the bank space, you hear about efficiency, you hear about cost containment. They're not going on the calls and talking about how much money they're spending. But at the same time, it sounds like there are branches being contracted, efficiencies gained in other areas of the bank that are being reallocated towards digital. Is that a fair characterization? Because I think that's an important point to make for those that, you know, continuously hear about efficiencies in the bank space.
Yeah, absolutely. Absolutely. The shift... I mean, you think about peeling off more of the transactions and more of the capabilities into a digital world-
Yeah
Versus a physical world, because you're right, you still, the functions of a bank still have to exist. I still have to apply for loans. I still have to get an application for new products or services. All of those things still exist, so digitizing that entire experience end to end is where we're focused, and creating, peeling more of that off of the physical branch, because we know that either the branch footprint's gonna get smaller, or they're gonna look for alternative ways to do that, or neobanks are gonna come in and compete differently. So allowing the local banks to be able to compete better is what we're all about.
Remind us where your sweet spot is in terms of, like, asset size or market segment?
Yeah, it's pretty wide. So we've done a purposeful job of expanding that. The core digital banking product, the old DI product that you described, would be $500 million-$25 billion in assets. We have a more modular product that was another acquisition called D3, that allows us to go into that $25 billion and above-
Mm-hmm
Class, and CSP is really playing in that higher-end asset class as well. So, I mean, we, the sweet spot for our core digital banking app is that $500 million-$25 billion, but I would give you the full wide berth of, you know... Exclude the money center banks, and we're probably we can butt up against, like I said, U.S. Bank and Citi and others. SECU, we signed. They're the largest credit union in the U.S. So, you know, there are some limits in terms of when you get really big, you start to kinda roll your own or build your own technology in some of those cases.
Yeah.
And so that's, you know, those big money center banks are where we have not seen a lot of success.
Got it. And you, you talked about Q2 and Alchemy earlier, right? I assume you still see those guys as well-
Yeah
As the Jack Henrys and the FISs and Fiservs of the world.
Yeah, you know, our data, based on the wins that we're seeing, would tell us that where we're taking share is from the Jack Henrys and the Fiservs and the FIS of the world. What we heard at our banking conference was that where we're investing in that digital front end and the new experiences in this open ecosystem.
Mm-hmm
Is what they're looking for. And they're, you know, I don't think those companies are bad or doing the wrong thing. The banks, our customers, are telling us they're just not investing in the things that are most important to them in the digital side of things. So that's where we see we're able to differentiate, is how we're investing. I think there's gonna be. And that's why I said right now, I think we can strike while the iron is hot, in terms of getting more feet on the street to go win more. Will Jack Henry, and FIS, and Fiserv figure stuff out? Sure.
Yeah.
I just know how long it took us to get our product modern. So, you know, I think we got a little bit of head start.
Got it. I'm gonna stop there and see if there's any questions in the audience.
Just spend a minute, just go back to the guidance, so with the merchant sale, you guys talked about sort of re-basing those-
Yep
So are those new numbers that you just gave? Or are those, have to think about?
Yeah, so think about $40 million of revenue coming out, $25 million of EBITDA, but the growth rates and the margin being relatively the same. Because it just, it's so small, it doesn't change the overall growth rates of the company or the overall margin targets. Yes. Of the absolute, the baseline, and then the growth rates. Yes, take it out of all periods, kind of like, you know, Atleos is being taken out of the, the NCR Voyix results. Take that divestiture out, and then the same growth rates apply going forward and the same margin rates.
Can you just talk about just strategically why to sell the merchant portfolio? I mean, obviously the-
Yeah
It doesn't really, it's not right in the sweet spot, but it's-
So, I wanna clarify, it wasn't the merchant portfolio, it was a set of payment . Oh, repeat the question. Okay. He was asking about the, why did we sell the payment divestiture that was done, why did we do that? So it was a set of non-core assets. It was, they were more contracts and customers in verticals that were part of an acquisition that NCR made of some payment capabilities. It had nothing to do with our ability to attach payments to retail and restaurant. So it was, we'll say, they're very concentrated sets of customers and non-core verticals, that there was renewal risk, investment required. It was just our effort to focus, we decided this is a really good time to divest of that. The next question that when... 'Cause you all will ask what questions didn't we ask?
I'll go ahead and preempt that one. You'll say: "Why were you guys so stupid and sell it for so little?" We didn't. We ran a full process on that, so I assure you that we maximized the amount that the market would pay for those assets. And that just speaks to the kind of non-strategic nature of what was actually part of that sale.
That transaction closed in the third?
Third quarter.
Okay.
Um-
Yeah, it actually closed in early fourth quarter.
Early fourth.
Oh, did it?
Yeah.
Okay.
So pre-spin or post-spin?
I believe it was post-spin.
Post-spin, okay. And then just a follow-up question just-
Yeah, sorry
Q came out, and then-
Yep
I just wanna double-check the day one balance sheet or net debt?
Yeah. So again, at Investor Day, we described our net debt and 3.5 turns of leverage as our target.
Right.
So that's still what we plan on ending the, the year at, around that. And in a Voyix balance sheet and cash flow statement, and continuing ops, discontinued ops view, will be available when we file for the fourth quarter, when we do the 10-K in February. So then you'll get a complete view of Voyix.
Okay, but we can't take NCR Atleos and subtract it?
It's not as simple as doing that, because of the way carve-out accounting works versus discontinued ops accounting works. So it's not as simple as that, unfortunately.
Yeah, Brian has some work to do.
Always. So I guess staying with the macro theme and shifting over to, shifting over to the restaurant segment, could you maybe talk about the segmentation of that business by enterprise and SMB, as well as how, you know, consumer behavior may or may not affect?
Yeah, for us, as I described, the SMB segment, 50 sites and less, you know, we're in that higher end, where we have more complex growing SMB. So we haven't seen as much of that macroeconomic impact. On the enterprise side, I was just out, you know, Sunday or Monday, I guess, in California, meeting with Brian at Chipotle, the CEO of Chipotle, and they're... He's growing like crazy. I mean, Chipotle is growing like crazy. They're a great customer of ours. We do their online ordering through our platform.
You know, when I talked to Todd at Wendy's, he'll say, "We're the fastest-growing burger chain in the world." So, when we look at the quick service restaurants that are our customers, the conversations that we have with them are all about growth. All about growth, and even in a kind of economic downturn, in the longest forecasted recession not to happen, or whatever's going to happen, we feel like our customer set, being grocery, enterprise, quick service, and fast casual, and convenience, and fuel, have all seen kind of—they all see pretty steady demand, and the outlook they all have is pretty positive on what they're doing, and they're all expanding. In a lot of cases, the enterprise clients that I've described, like in convenience and fuel, are actually rolling up some of the smaller players that are subscale. So we feel like our, the markets that we serve are very scaled.
They're looking for efficiencies because they've now passed the point of passing on higher food costs and other things to you as a consumer. So they've got to get more efficient because they can't 'cause they've got to continue to expand margin as well, and that's where we come in with a simplified message of: "You know, let us take on a little bit more. We can save you some money, and we can do it more efficiently.
Got it. Okay, so, I wanna circle back to capital allocation. You touched on the leverage target, and, obviously, the near-term priority is deleveraging. Atleos has said they're gonna establish a dividend. That's not the focus for Voyix. However, M&A has been part of the strategy historically. Could you maybe talk about your go-forward capital allocation strategy over the medium to long term after you reach that three, that target?
Yeah. So to your point, in the near term, it's investing in our products, so continuing our CapEx investments, which are 90% software, and it's getting to the leverage targets we talked about. Beyond that, it's looking at tuck-in acquisitions, if we can buy something versus building it ourselves, and then opportunistically looking at share repurchase. That's kind of how we think about it in the medium term. And I don't know what you'd add about acquisitions.
I think the acquisition target or the acquisition strategy will remain very consistent with what we've done in the past. For retail and restaurant and banking, it'll be more tuck-in. So you think about the platform, once we get you connected to the platform and start that cross-selling and upselling, if there are capabilities that are easy to, I'll say, attach to the platform. So if you think about what we do on a platform sale, we have an existing customer that was on a perpetual software license, that was paying maintenance on that software license. When we connect them to the platform, we change the contract with that customer. We move them to our subscription, our SaaS master contract. That SaaS master contract serves as the vehicle that we can just add new capabilities. So if there's some technology out there, if we see a market trend growing, we can... and it can add on to that platform, that's the kind of tuck-in-
Yeah
We'd like to do. We're not in a position right now with what we wanna do with leverage, to look to buy a bunch of revenue growth or transformative types of things. Never say never. That's not what we're doing right this second. At NCR, you know, we'll evaluate all options, if the dynamics of the market changes or the appetite for leverage changes as well.
Got it. Okay. Any other questions?
So on the retail side, could you talk about some of the software modules that you're going in to cross-sell that is increasing that ARPU? Because I can understand from the restaurant side, you know, you're adding inventory management, menu management, online ordering. But on the retail side, what are those additional software modules that you use to add higher ARPU?
Yeah, so it is. I would describe it as there's some similarities. So, you know, I would add payments to some cases. Self-checkout becomes a platform module as well, that we can add on if we're running our existing point-of-sale. We have the ability to do, speaking of tuck-in acquisitions, we acquired a small company that, a handful of years ago, three years ago, four years ago. We do, we can do mobile ordering for grocery, so think about now giving the... I'd pull my phone out, but the grocer more power over their brand.
So instead of using a third party that's gonna disintermediate their brand, we have an application that's an add-on to the platform that gives them full mobile ordering capability, picking, delivery, that whole capability, put it in their own- put it back into their own hands. Loyalty, promotions, email marketing. We have another product where we do virtualized applications at the edge, where... That's been big in the convenience and fuel space. That's what we've done with Circle K and Pilot. That's allowed us to do some things around, continuous, available technology, upgrading the technology at the pumps faster. So there's, it's a broad portfolio.
In the Investor Day deck, on one of the pages, we had an infographic that described, we'll call it a kind of a menu of capabilities, so we can point you back to that as well, and that describes it really well in terms of what we're doing more broadly. A little bit of inventory, some replenishment. So the portfolio is very broad in terms of the capabilities that we can do, and a lot of that, in the old world, would've been built into the core point-of-sale, which was why everything was so inflexible, because that's the way we built software 20 years ago for these industries.
All right. I think that's all the time we have today. Gentlemen, thank you for joining us, really appreciate it, and thanks to everybody in the audience and listening online.
Yep.
Have a good day.
Thanks, Chuck.
Thank you.
Yep.