Thanks, everyone, for joining us. We're very excited to have Jim Kelly here with us, CEO of NCR Voyix. Jim took over earlier this year in February and was previously Executive Chair of the Board. Prior to his time at NCR Voyix, he was CEO of EVO Payments. He's had a long career in the payments industry before taking over at NCR. Thanks for joining us, Jim.
Glad to be here. Actually, it's my first time.
It's a long trip. Yeah, it is. You come here for the scenery and the weather.
Exactly. It was very foggy when I landed at midnight.
All right. Welcome to the conference.
Thank you.
It's been less than a year since you've taken over the BO. I wanted to kick it off. I was hoping you could give an overview of what you're bringing into the role, what your priorities are, how are your priorities shifting as you've taken over?
Okay. Just by background, again, I joined initially in October of 2023 as the Chairman, as you stated, in May. The last year was a lot around addressing the balance sheet. This was a spin-off of our ATM business and a sale of a digital banking business. The spin-off was in 2023, the end of 2023. The sale of the digital banking business was June of last year. That was that, together with helping to work with the current CEO, who was at the time, or prior to that, had been the head of the retail business, had moved into the CEO role with the split. Given my background running several public companies, as you said, in payments, but also the most recent one, we battled somewhat in software, but we tried to keep those separate generally. My interest was to fix the balance sheet.
Coming into this year was to address some operational challenges the company's had in the past. If you look at the history the company's gone through, as everybody did, they went through COVID. They went through a failed sale process in 2021, 2022, and it morphed into a split. A lot of changes at the organization, in particular at the CEO role. I think the board's view was we wanted to make sure that the company was on really good footings going forward, in particular because we have some amazing products coming to market at NRF in January, and also on the restaurant side as well. It was just repositioning operationally. I think they asked me to step into a full-time role here, just given my background in operations and leading public companies.
Great. I guess as you stepped in the role, what's kind of your primary goal to, you know, what are the operations you're most focused on? What are kind of key initiatives over the next year?
The company is 145 years old, started in the hardware business. They still think of themselves to some extent as being in the hardware business. As you remember, last year, in addition to the sale of Digital-First Banking, we announced a relationship with Enocom, which is partially owned by Foxconn, the outsourcing, it's called ODM structure. Our expectation was to have that done by the end of last year. Some technology got in the way. We're still targeting to have it implemented by the end of this year. Going into next year, this is a platform company, and that's the big shift for employees, for our customer base. The customers have been with us 20 or 30 years. Our attrition rate on revenue is 1%. These are great customers. They're predominantly enterprise.
When you think of our competition, we're focused on enterprise first, mid-market, and we do have some SME, but that's not the predominance of what we do. The number one goal for the launch at the end of this year into next year is to get the product right for the platform. These are cloud-native applications that will replace the legacy on-premise applications, like I said, that have been there for a long time. They're long in the tooth, a lot of technical debt, and our customers, I've seen now 70 of them personally, either some over video, but most of them in person. I've traveled and met with over 75% of our employees. I've been across India, Europe, Latin America, and Europe in the last six months. Part of that is that's how I learned. I learned about the business.
I haven't run a software company of this size previously. It also gives me a chance to understand the needs of our customers. As I said earlier, some of the unkept promises we're trying to make up for. In the end, the customers are on our side. They want to see this transformation move as smoothly and quickly as possible. If you look at what we do as our core business, it is point-of-sale. The point-of-sale is how these companies make money. While services, I think, is a differentiator, and now payments are being introduced to the mix, the core focus is the launch of the platform into next year on both the retail and restaurant side.
Maybe you can talk a little bit about what it means to be a platform company, what it looks like kind of on the ground as you go to these customers, and fundamentally, how does the customer experience change when they experience NCR Voyix as a platform company instead of a hardware company?
Yeah, if you look at it today, our customers run their stores. Whether it's grocery, convenience, fuel, restaurants, these are legacy applications, like I said several times, that have been there for a number of years. As consumers themselves, they all have iPhones. They watch Netflix. There's somewhere between 13,000 and 16,000 platform companies today in existence. It's just a very simple concept. We all take it for granted. We watch a movie on Netflix and it's a drama. Tomorrow, I'm going to see other dramas suggested to me. That's what our customers ultimately want to do is understand the buying patterns of their consumers. Unfortunately, given the structure of applications that were written 30 years ago, that's just not available to them. They've been very patient.
We're changing the point of sale, one of the most difficult things a company, a CEO can do, because that's how they make money. All their money comes through the sale at the point of sale, whether it's above store or in store. That's the differentiator. From their standpoint, they just want to see it. They want to see the product in practice. They want to see a number of customers who've accepted it so that they can reference it. It's a very small industry. Any one of those verticals is very small. They know each other. We have a great reputation. We've been around for a very long period of time. I think they're a little impatient that we haven't brought this to market sooner. As I said, there's been a number of distractions over the last couple of years.
I think those distractions have positioned the company to be in the best position it's been, a great looking balance sheet, but also in a fantastic product that we're coming to market with, surrounded by now payments and enhanced services.
When you talk to these clients who've been on kind of the legacy platforms for a while, how disruptive is it to swap out the platform? Is it a different kind of front user-facing software platform? Do they have to retrain? Just how are you thinking about managing that transition?
Yeah, as I said before, today they manage the stores. Tomorrow we'll manage the store. Like your iPhone, you're not managing the phone. Somebody manages it remotely. You can access applications just like they'll be able to access features. That'll be our responsibility to manage the store for them. I think that's a value enhancement to where they are today. You know, it's something there. I think beyond the managing of the store, though, back to what I was just mentioning, the access to data to make decisions, buying decisions for their customers is really what the differentiator is going to be.
Great. Okay. I wanted to maybe switch gears and talk a little bit about the payments opportunity. You know, we covered the payments and fintech space here at Goldman. You have a long history in the payments space. It seemed like this was one of the first things that you saw as an opportunity for the company when you took over. Can you talk about what was the prior state of payments at NCR Voyix? How is the strategy shifting? What is Worldpay going to do to change the way you go to market?
Okay, so yes, I've spent 25 years in payments, both at Global and then a company called EVO Payments, which we sold to Global a few years ago. It was interesting. There's a little time thing in front of us, and we were doing a tour. I was first on the board, and there's a little convenience store inside the corporate office, and there was a red number up on the screen. I remember asking the former CEO, you know, what does that represent? He said it was the volume of business that goes through our point-of-sale. On an annual basis, if you look across all our markets, we're touching over $1.3 trillion just on the credit side. If you add fuel to that on top of it, I bet you we're pushing close to $2 trillion. Put that up against any acquirer.
My last company was $150 billion in volume, and we had $700 million of revenue and sold it for $4.5 billion. There's a huge payment opportunity. If you go back to its history, a 145-year-old company, the focus was hardware and later software, some services, but payments was not something that NCR Voyix would have thought of. They were thinking of ATMs or digital banking. They didn't realize that there was value sitting right there. The value to the customer, to our customers, is that they don't have to have multiple parties involved. While it runs through the point-of-sale, the transaction doesn't turn into cash until the credit card clears. If we can offer it cradle to grave, so to speak, end to end, then that's a differentiator from what they have today. It takes a lot of the noise out. It deals with the complexity.
If there's a change at the point-of-sale or the change at the processor, they change, update firmware or something else, then we're able to, if it's our processor, you mentioned Worldpay. We selected Worldpay because of the complexity of our customer base, which is fuel, convenience, and grocery. The former JetPay acquisition that the company made in 2019 didn't have that capability. On the positive side, all our SME restaurants that we sign up, we take 100% payments, 99%. Now we're working through our existing customer base to expose them to the capabilities that we can now offer them so that there's one relationship instead of multiple. Just as an order of magnitude, in the U.S. alone, we touch on an annual basis, 12.5 billion transactions run through our point-of-sale, runs through our connected system. $800 billion of volume in the U.S. as part of the $1.3 trillion.
That's already on our system. That's already our customers. We're just going to them to expose the capability that we have on the endpoint, which is Worldpay, that they can now take advantage of.
Got it. When I think about the convergence of software and payments, we've seen that happen really fast at the SMB side. How do you see that happening with the enterprise customer base? How do you think about the catalyst to get some of these enterprise merchants to switch?
I think the initial reaction when I said this in February was, people like to have not all their eggs in one basket, so to speak. The reality is they have all their eggs in our basket. If we can offer them payments, we already have the capabilities to do it. I think it's an easy switch. Now, switch conceptually, practically speaking, there's work to do. It's not going to happen overnight. It's taken a long time to get to where they are today. I think over the course of this year or next year, we have a team that's dedicated, one, to teaching our sales organization how to sell payments, and two, to be a partner when the process is ongoing with our customers. We have already had some customers convert over to us. They've said yes. We have to work through the process.
We're out talking to all our customers. So far, the reception has been very positive.
Great. Okay. I guess the last question on this, you mentioned that this is the longer-term initiative. What's the reasonable timeline investors should be focused on to start seeing some of the impact of the payments strategy?
I would say it's not just payments. I think it's all these components. There's been a lot of change with the organizations. Last year we took out $240 million of cost as we exited the digital banking business on top of the sales and on top of ODM. Some of that is rolled into this year. While our top line is not where we'd like it to be, the earnings have continued to grow. My sense is I will start seeing it. I'll see it before you'll see it for obvious reasons. I will start to see it.
You'll let us know.
I will let you know often and loud as soon as I do. I would say it's fourth quarter at the earliest. One of the ways to think about this, 75% of our revenue comes from services, people doing things, and 25%, if you take out hardware, 25% is software. We have conversations going on, escalating prices on the software maintenance, which has been around for a long period. At the same time, we're selling new software, the cloud platforms that I just mentioned. Same thing on the 75%, which is the services piece. Historically, the company has not inflated the price of the service over time. It's been flat, generally speaking. We'll start seeing that over time. I would say on the retail side, our customer contracts are generally every, they're five-year contracts. We'll see 20% a year. On the restaurant, they align with payments. It's every three years.
It'll slowly build. As it starts to build, it'll start to accelerate too, because they have a compounding effect. I think I'll see some of it early, early in the fourth quarter. Going into next year, I would expect to see payments, the sale of subscription software for the platform, and services on top of that. At the same time, you'll see hardware. There'll probably be some hardware that will leak into the first quarter because we're migrating. We're not going to do it all one big bang. Past the first quarter at this stage, my feeling is that we would finish the ODM. You'll be looking at the company as a net of hardware. We'll have a commission associated with it, but you won't have the gross hardware number that you've seen in the past.
Got it. Just to understand that, it sounds like still on track for getting ODM up and running, but looking to transition it gradually. We'll still see some gross hardware revenue early next year?
At this stage, if you saw in the queue, if you read the queue, if you saw in the queue that we said it would be commencing at the end of the year, the fourth quarter is an important quarter for any company. You know, we're a calendar company and we have commitments to customers and we don't want to cause any disruption. January is a much slower month. It's moving along the revised timeline that we talked about at the end of last year.
Got it. Okay. Makes sense. I want to maybe take a deeper dive into the retail segment, you know, and just talk about the growth algorithm. There's been a lot going on. You have this ongoing shift from on-premise systems to a cloud-native architecture. I think the prior management teams have been flagging the impact that that has on kind of current period revenue and the impact that it has longer term for the business.
Yep.
You've also added an element of payments to the story. When you think about the retail growth algorithm, how do you think about kind of near term where you're still undergoing that transition and then maybe 18 to 24 months out, when do we start to see an inflection in some of the reported revenue metrics?
Yeah, when you talk retail across the board as opposed to just software in particular.
Yeah, I think that's okay.
Yeah, again, I think the timeline is the same. I think we'll start to see retail, you know, NRF is the big kickoff. That's when we'll have the booth and all the rest and the customers on site. There will be a lot of conversations, meetings, obviously around that. One of the things that we're also going to focus on this year is beyond delivering to our existing customer base. The company has been very insular, focused on existing customers as opposed to making the tent bigger. My focus is more on, since we have this new, I think, market leading application for the segments that I've mentioned, that we're going to be as focused on forming new relationships as servicing our existing relationships. I think that's part of a shift as well.
I think the timeline is, you know, once a contract is signed, just like any other SaaS organization, we're starting, the billing occurs then as opposed to at the point of actual installation. Installation takes time. These are organizations that have a thousand lanes, two thousand lanes. It takes time to install. It's not an SME business where you're signing 10,000 merchants a month. You're signing one customer that has 10,000 lanes. We have 18,200 fuel locations across the U.S. Rolling that out is not instantaneous, but you'll see the revenue start to build over time. I think you'll start to see that by the second quarter of next year. Next year is a big year for a number of things because we've spent the time fixing some components of the business, the balance sheet, I said, operational as well.
Now with the product coming to market, we're excited about next year.
That's great. All right. Just another one on the retail side, on the self-checkout. I think self-checkout business used to be a big focus in kind of prior renditions of the company's disclosures and communications. It was a big chunk of the retail segment. I imagine a lot of that was on the hardware side, so probably less going forward. Maybe just talk about that because you have some marquee customers with Walmart and Whole Foods. Really impressive relationships, longstanding relationships for the company. How do you think about the software opportunity in the self-checkout space?
Yeah, when you mentioned the hardware, yes, there are some instances. I don't think we sell any hardware without some software. Our software in there, the drivers are our software. Sometimes it's holistic, most of the time it's holistically our software. I think, yes, there was a big spike, well preceded me in self-checkout. I think as consumers, we like that convenience. We don't want to see a long line if we have 10 items or 20 items to get out of the store quickly. I haven't, I mean, I've been to a lot of these stores and met with the leadership of the organizations. They still like self-checkout. I think the self-checkout has gotten a bit of a maybe unfair reputation of it's driving a lot of shrink.
As a result of COVID, right?
Yes, exactly. There is other technology that we're working on that's in the field today around camera technology, video technology to be able to sort it out. I think AI will continue to assist in that endeavor. My impression talking to the leaderships of these organizations is they want self-checkout. They just want it to not be a source of losses. I think as that starts to gel around lower shrink, you're going to see that continue to move. Because what's the alternative? If you don't have a self-checkout, you're going to have to put another lane in and that's going to be people and that's going to be cost as well.
Sure.
You're trying to balance the two off.
Makes sense. All right. On the hardware side, how are you thinking about tariffs? I think this past quarter you left your estimate of the impact from tariffs embedded in the guide unchanged, which was $8 million to $12 million, if I'm not mistaken.
That's correct.
Has there been any changes to that, and just, you know, any thoughts on kind of mitigation strategies?
I think I got this one. I got it wrong twice because I think the day we did the earnings call, Trump made a change and somebody corrected me on the call. Look, you know, I don't have any great better crystal ball than anybody else. I did misread. I thought at least during the first part of the year, I mean, I was new CEO, lots of changes in the company. I thought these would be more of a head fake than they've seemed to be been. I mean, they're here to stay.
I don't think they're the only one.
Maybe that was, it was just so egregious, some of them in terms of the size, you know, that I was just surprised that they would sustain. Obviously they've moved around. I looked at before their last earnings call, I think there was something like 27 changes, public changes, tweets about these as to how they were going to change. For the first half of the year, I was more inclined. In the first quarter, we didn't see any. It was really just the second quarter that we started to absorb some of them. We did what we could to mitigate by pushing back to customers and saying, we're just not going to order that printer for you because there's a 25% tariff to it. We'll just have to sweat the existing one a little bit longer. Otherwise, there's a tariff coming and they didn't want to pay it.
Going into the back half of the year, we have tariffs that relate to parts and we have tariffs that relate to hardware. Currently, we're assembling in Mexico and we're 51% over. Under the USMCA, we're good. That hasn't changed. That's up for next year. We'll have to see what that looks like. For right now, my feeling has evolved that this is almost a permanent price increase. We're more inclined to, where applicable in our contracts, to push those on to the customers because they're not going to go away. Hardware in particular, it's not a big margin business for us, for anybody. I'm not inclined to lose money on hardware if I don't have to.
Sure. Yeah, that makes sense. I guess, do you feel the idea of, let's sweat the hardware? Do you think the $8 to $12 million can encompass any element of demand destruction for people who do say, let's just try to wait another year before we bite the bullet?
Yeah, our tariffs are 8% to 12% in the size of $700 million. It's not a lot of money. I don't think anybody, and when you put it across the customer base, this number just disappears. I think it's more of an emotional thing.
I got you. Okay. That makes sense.
We have absorbed some. I mean, some of our second quarter had that in there.
Makes sense. Okay. Just on the field services side, I think it's been one of the things that you and prior management have always emphasized, that the ability to field a fleet of trucks, get people on site, fix things when they're broken, pick up the phone when people are calling in, is just a big differentiator. The ability to service these big enterprise customers at scale is a huge part of the moat on the enterprise part of the business. Can you talk a little bit about that? It sounds like you're talking a little bit more about pricing initiatives in that business. How do you feel about just the size and resources and scope of the services organization?
I mentioned in the beginning that the focus for this year is getting this product, this platform, solutions out to customers because that's what they're looking for. When you talk about competition in particular, for someone to displace us at scale, we have 8,000 people in this group between professional services, hardware installation, hardware maintenance, and then a call center that does 7/24 servicing out of Serbia and Bosnia. It's quite an amazing organization. It doesn't get the credit sometimes that it should, but we're supporting, I was in Bosnia a few months ago. You walk around the building, it's a multi-story building. I think it's one of the largest employers in Serbia.
Wow.
You see banners of all our major customers. There's a group of people and their job is to support that customer for all their needs within their stores. If their systems go down, monitoring their systems, taking help desk call center. It's very, very efficient. I think where we have to do a better job is instead of doing it as a bespoke, I want a little of this and a little of that, is put it together as a package so it's easier to buy a package. It's like buying a car, you know, buy a car off a lot or customize it. We've been very oriented to customization of the company. It's kind of its culture. We're going to try to standardize, make it easier to consume as a customer, but also sell as an organization.
I have high expectations for all our groups, but definitely on the services side, I think we, there's a guy named George Sloan who runs it. He and his team are fantastic and, you know, they do whatever it takes to support our customers.
Got it. All right. Let's talk a little bit about the restaurant side of the business. I guess one of the narratives in integrated POS more broadly is about the competitive nature of the space. That's especially true in the SMB and mid-market part of the space. You're one of the market leaders in the enterprise side, which hasn't seen the same degree of competition. What are you focused on to make sure that the increased competitive intensity down market doesn't eventually come up market?
I don't think there's anything I can do to prevent it other than I'll have super happy customers at the right price then. Look, I've heard from CEOs in the past, changing out a point-of-sale is the last thing anybody, I've seen enough of it. They've seen enough of it that that is not something they want to do. I think we would have to really step on our toe in a material way. It's not to say they won't go up for RFPs. I mean, you hear it, I hear it when obviously they come out. For someone to support at scale, they either have to have a partner, a third party, be the onsite. We've displaced a lot of those situations. Even last year, some of the companies that we announced, we didn't say the names of the companies because we're restricted.
These are very large multinational organizations that have tried to use third parties. One we just announced this year, same thing, they were using, I don't know, 10 different subs and it was too much of a pain to manage them. Ultimately, they want simplicity in their life too, to be able to manage a relationship. Look, there's always going to be competition, but I think we're extremely well positioned. Look at the last five years, all the change that we've gone through and competition trying to get to that scale, you know, the names that we all know. For them to move to that scale, it's not just the product, it's everything else. It's the installation of the product and the supporting of it thereafter.
If you're not able to do that, or if you can't convince them that you can do that, then I think it's very hard to take out the incumbent.
Yeah. Just on the enterprise space, does the payment strategy on the retail side extend to the enterprise part of the restaurant? Do you think you can do payments for, you know, franchisees?
We just signed one.
That's great.
There you go. The answer is yes.
That's an easy one.
I have no doubt that we can do that.
Great. Okay. I guess on the product side, where are you investing on the restaurant space, and what are you hearing from clients around the most important areas for Voyix to deliver?
Yeah, I think on the restaurant space, we still, while we have Aloha Cloud in the market, that is still a monolithic application. It's not microservices. It wasn't built that way. That is something we're taking a look at. I think AI is also having an increasingly attractive opportunity. It is an increasingly attractive opportunity for us in terms of speed to market on applications. Because if you look at the company, we have a library. Originally, as I've been told, I've not validated this, but one of the employees that have been there for a long time said 140 applications were acquired over the history of the company. There's 50 that are in operation today. There's 25 that are kind of the core ones. We have a really deep library of technology. I think AI can be very helpful for us as we refresh that going forward.
Okay, I wanted to maybe just touch on kind of some more financial-oriented metrics.
I'm not the CFO anymore. That was a long time ago.
That's a sneaky way of getting out of that.
You can go ahead.
I think more from a philosophical perspective, I think about the journey that NCR Voyix has been on to take a lot of costs out of the business. You're also investing a lot at the same time. I think about Jeff Sloan on the board was always very focused on global payments and driving margin expansion no matter what they had going on. Just what's your philosophy around prioritizing margin expansion and driving efficiencies while also investing?
Yeah, Jeff got that from me.
That's good.
If you look at global, we took a ton of cost out. Same at, and here we took $240 million out last year. There are still, and I've got questions today when I was meeting on the one-on-ones. We have a lot of, we have multiple accounting systems, not one general ledger. We have multiple billing systems. We have multiple Salesforce systems. We have a lot of manual labor that was just a product, I guess, as the company years ago started to offshore labor. I think it was, in their mind, faster to offshore labor than to go through the effort of automate instead. Our focus, AI aside, is to automate as much as we can. I think it eliminates human error. It improves, obviously, the speed. I agree with Jeff. I will tell him you mentioned that, but I agree with Jeff that efficiency is in margin expansion.
It's something, you know, when we gave the pro forma last year after the Enocom, excuse me, after the Digital-First Banking Enocom deals, that was one of the things that we wanted to show the market, that if you take out hardware, we're north of 20% margin business, which is for us, I think, a very good place to start. I think that number is going to continue to ratchet up as we sell more product at a much higher margin because if software is a bigger component of revenue, it's a much higher incremental margin. Payments as well is a very high incremental margin. All these things will be additive to margin to the bottom line. In particular, we're very focused on cash flow.
That's something that, you know, we had a lot of noise into this year as we've had reductions in other stuff in the numbers, investments, as you said. As Brian had said on the call last, our last call, some of those investments will creep into this year, probably more so than we thought at the start of the year. In the end, these are all around automating the organization, making it more efficient in the long term. At some point, we have to do this. We're doing both at the same time. We're focused on the revenue and all the growth needed there. At the same time, trying to make the company as efficient as possible.
Great. On the capital allocation front, I think about the journey the company's been on, the significant improvement in the balance sheet position. I think you had some leftover after some of the transactions to do a little bit of share repurchases. What's your thought on more steady state allocation for the company, and what's the journey over the next couple of years?
Some of the questions I've been getting are, what's M&A look like? We did some small buyout of our backend this quarter, but I don't see M&A as a driver for us. Really, the driver are things I've just talked about: the product, the platform, services, payments in particular. Buying another organization is just more confusion into the organization. I think for going into next year, the cap could buy back to be part of that. We have an authorization out there today. We did $125 million since I've been, I guess I was the Chairman, Executive Chairman before this, but over the last, since the closing of the Digital-First Banking deal, we did $125 million in buyback. In the end, that's not, it has had some help at points in time. At some point, that will be a bigger focus of the company.
I don't think it'll be the back half of this year, but I think going into next year, it'll be definitely something we'll look at.
Got it. Makes sense. I guess in the last minute and a half that we have left, as we look into the next year, what are some of the key kind of signposts that we should be looking at to measure NCR Voyix's performance? Are there any final thoughts you'd leave investors following the company?
Yeah. I think the signpost is we have to do a better job in reporting the numbers. We're still coming off a legacy reporting structure, so there's numbers that are mixed together. Payments are mixed in with software, with services. There's work being done internally to split that out to make it easier to understand what the company is, how it's performing. I think we'll start to see some uptick in the back half of this year and definitely into next year. I've asked what's my expectations. I don't lead into what % we're going to grow at at this point. It's still early for me. I think we need to understand what the business looks like a little bit better. I think the company's, I think it's a great company personally. It's the reason I stepped into this role. I think we have an amazing customer base.
We have an amazing employee base that, you know, the average tenure is probably 20 years. There's an NCRA within the organization. I think it's, you know, what's the North Star? Now we understand what the North Star is with the product being, it's not a product I created, but with the product being ready, with payments being ready, I'm very optimistic about next year.
Great. I think we'll leave it there, but thanks so much for taking the time to speak with us today. Appreciate your support of the conference.
Thank you very much.