NCR Voyix Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 29, 2024

Key Takeaways

  • The completion of the spin-off of the ATM business left NCR Voyix as a cloud-based software and services company, with software and services now representing over 70% of total revenue and 2023 normalized software and services revenue up 5%.
  • For full year 2023, NCR Voyix delivered $3.83 billion in revenue (up 2% on a normalized basis), $618 million in adjusted EBITDA (up 2%), expanded margin by 40 basis points, added approximately 14,000 platform sites, and signed more than 650 new customers.
  • Segment highlights include 10% growth in restaurant software and services with platform sites up 8% and payment sites up 34%, retail platform sites growing 65% with over 125 new logos, and digital banking revenue up 6% with 39 new customer wins and 28 million registered users.
  • The 2024 outlook calls for total revenue of $3.60–3.70 billion (down ~1.5% normalized), software and services revenue up 2–4%, adjusted EBITDA of $632–657 million (up 2%), margins of 17.5–17.7%, and free cash flow of $155–185 million.
  • Management is executing efficiency initiatives targeting $100 million of annual run-rate savings to offset $60 million of dis-synergies, and disclosed a $23 million fraudulent ACH loss in 2023 with up to $5 million of expense expected in Q1 2024.
AI Generated. May Contain Errors.
Earnings Conference Call
NCR Voyix Q4 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Greetings. Welcome to the NCR Voyix Q4 and Full Year 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. I will now turn the conference over to your host, Alan Katz of Investor Relations.

Operator

You may begin.

Speaker 1

Good afternoon, and thank you for joining our Q4 fiscal 2023 earnings conference call. This afternoon, we issued our earnings release reporting preliminary financials for the quarter year ended December 31, 2023. 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 ncrvoyick.com

Speaker 2

and has been filed with

Speaker 1

the SEC. Joining me on the call today are David Wilkinson, our CEO and Brian Webb Walsh, our CFO. This call is being recorded and webcast 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 and uncertainties and other factors, which could cause actual results to differ materially from those expressed or implied by such forward looking statements.

Speaker 1

For additional information on these factors, please refer to our earnings release and 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 are more reflective of 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 to our Form 8 ks filed this afternoon and our supplemental materials available on the Investor Relations section of our website.

Speaker 1

As a reminder, you will see the financials of the NCR Altios business, which was spun off as an independent publicly traded company on October 16, 2023 in the discontinued operations line within the P and L. With that, I would like to turn the call over to David.

Speaker 3

Thank you, Alan. Welcome everyone to our Q4 full year 2023 earnings call. I'll begin by saying that I'm proud of what our team accomplished in 2023. With the spin off of the ATM business now behind us, we are laser focused on driving growth from our software and service revenue streams. Our software solutions, which include our platform and physical point of sale technology and digital banking products enable restaurants, retailers and financial institutions to seamlessly transact and engage with their end user customers.

Speaker 3

Before commenting on our performance, I'd like to spend a moment on Slide 4 to remind everyone of NCR Voyix's market leading position for each of our 3 segments. These reflect the global reach of our customer base coupled with our products and services across restaurant, retail and digital banking. During our call today, I will discuss our strategy to invest in initiatives that support our sales and distribution networks, platform conversions and technology innovation to drive growth for the company. Turning to Slide 5. We've outlined the key strategic initiatives in place to support our long term profitable growth.

Speaker 3

Today, we're a cloud based platform enabled software and services company, providing end to end digital solutions to our global customer base. Placing customers at the center, we leverage our deep industry expertise and well established sales and go to market engine to drive platform adoption and new customer growth. We will continue to invest in innovation via our commerce and digital banking platforms to deliver best in class products and solutions to expand our existing portfolio and drive growth. And we continue to focus on expanding our relationship with our customers across all segments, enterprise, mid market and SMB through integrated merchant payment offerings. Turning now to our 2023 performance.

Speaker 3

For the full year, we delivered revenue and adjusted EBITDA results in line with expectations discussed at our Investor Day in September. Included in that performance, software and services revenue grew 5% on a normalized basis and today represents more than 70% of total company revenue. Brian will provide more details on the financials in his remarks. In 2023, we added approximately 14,000 sites to our platform and signed more than 650 new customers to our growing book of business. Platform traffic and usage continue to increase with the volume of API calls exceeding 100,000,000,000 last year, up 35% in 2022.

Speaker 3

During December 23 alone, our platform managed nearly 50,000,000 loyalty transactions and 26,000,000 mobile orders online, enabling thousands of restaurants and retailers to meaningful transact with their end user customers and operate their businesses. Before I begin my discussion on the segment performance, I'd like to welcome Benny Tadella to the team as President of our Restaurant segment. His growth orientation, technical background, global perspective and customer centric approach will be instrumental in driving our technology and go to market path forward as we look to expand our market share. Now let's turn to the Restaurant segment on Slide 6. 2023 was a strong year for our Restaurant segment as we signed over 500 new customers.

Speaker 3

Our platform sites and payment sites increased 8% 34%, respectively, led by our mid market portfolio of customers. Let me remind you that our restaurant segment is divided into enterprise, which is defined as businesses with more than 50 locations and SMB, which we define as organizations with fewer than 50 locations. At NCR Voyix, our SMB division is keenly focused on what we call the mid market, multisite operators of 5 to 50 sites and increasingly complex operations. Focusing on 2024 and beyond, a key component of our growth strategy is to better address the mid market as these businesses provide the greatest opportunity for growth. Historically, we've benefited from our mid market customers as they can ultimately grow into enterprise businesses.

Speaker 3

In the quarter, we had several key customer wins and expansions that I'd like to highlight. 1 is the signing of a multiyear contract with Nautical Bowls, a rapidly growing acai bowl franchise that fits the profile of a target mid market business for us. This was a competitive takeaway. Here we rolled out point of sale software via our platform to more than 30 of their locations in Q4 and have continued that rollout into Q1. This customer is leveraging multiple modules delivered via our Commerce platform to drive revenue growth and improve efficiency.

Speaker 3

Within our Enterprise division, we expanded our long standing relationships with Red Robin to add our kitchen solution across their chain of restaurants. This is a long standing relationship and we're now in the process of implementing a multi phase rollout of a comprehensive run the restaurant solution within their sites. Our platform solution has continued to gain traction across our target customer base. Our payments attached strategy for mid market has resulted in us more than doubling the number of payment sites in our portfolio over the last 2 years. And we will continue to see strong interest in our capabilities and we're investing to capture share in this segment.

Speaker 3

Let's move on to our Retail segment on Slide 7. We continue to make significant progress in converting customers to the platform, with platform sites increasing nearly 65% for the year. We signed deals with more than 125 new logos, including both enterprise and mid market customers in the year and were named the number one point of sale software provider within the industry. We remain focused on converting the legacy base of on prem customers to the commerce platform, will provide them access to new functionality to run their stores. This will enable us to offer best in class SaaS solutions, which would extend the longevity of our robust relationships and provide us with greater flexibility to seamlessly deliver new products.

Speaker 3

An example of upselling additional capabilities to a customer previously converted to the commerce platform, we implemented additional third party mobile solutions for a large fuel and convenience retailer across this chain of more than 1,000 sites in the United States. The enhanced solution we integrated to our platform enables an extension for card on file and tech wallet within our customers' mobile applications. Further, the integration allows the retailer to offer loyalty promotions to their end consumers, driving increased mobile app and payments usage. We were able to quickly deploy this functionality following our customers' recent conversion to our platform. In addition to conversions, we're also focused on winning new customers.

Speaker 3

I'd like to highlight a new business win we secured in the quarter with a new brand of an existing enterprise relationship with one of the world's largest e com retailers as they have launched new brick and mortar grocery stores over the past few years. This customer chose us to roll out self checkout as they go live in new stores in the U. S. And the U. K.

Speaker 3

Given our long standing relationship with one of their other portfolio brands coupled with our market leading position in self checkout. We also signed a new customer in our international business, a large fuel and convenience customer based in Australia. This was a competitive takeaway and we look forward to serving this customer across their footprint of more than 600 sites. Within the retail industry, we are the clear leader in the enterprise and mid market spaces. Our focus here continues to be signing on new enterprise and mid market customers as we also convert our customers to our commerce platform.

Speaker 3

We have demonstrated success in executing the strategy and we see a healthy backlog of customers that have committed to moving on to the platform over the next 12 months. Upon their conversion, we will be able to drive additional value for these customers through cross selling and up selling value added modules and other services. Turning to Slide 8. We included this slide to illustrate a brief overview of capabilities and functionality enabled by our cloud based commerce platform, which supports both our retail and restaurant customers, giving us the benefit of operating synergies when delivering common solutions. NCR Voyage has invested in building a robust platform that can deliver leading solutions to all customers.

Speaker 3

Our shift to the platform will also enable us to move away from maintaining legacy on prem applications, which have limited functionality and are becoming increasingly cost inefficient for the customer. Before I begin my discussion of our digital banking performance on Slide 9, I'd like to welcome Brendan Panzel as President of the Digital Banking segment. Brendan has served as a successful leader in the financial technology industry for more than 10 years and has extensive experience working with financial institution, both of which align with our digital banking objectives. In the Q4, digital banking had strong sales activity that included 13 new relationships with financial institutions and 25 renewals. For the full year in 2023, we signed 39 new customers and renewed 76 relationships, which represents approximately 10% of our base.

Speaker 3

Our registered users grew 4% to more than 28,000,000 and the number of active users grew 3% to more than 19,000,000. We are making solid progress accelerating growth for the segment by deepening our existing relationships, selling our value added services and creating a pipeline of new deals, which together demonstrate the value our partners see in our solutions. To highlight, we signed a new agreement with Nicolet Bank out of Wisconsin. They selected our platform solution to deepen relationships, attract new customers and gather new deposits. This again was a competitive takeaway from a large legacy player in the space given our capabilities within retail banking.

Speaker 3

We also continue to experience strong cross sell and upsell momentum across our multiple platform solutions. One recent example is the Old National Bank, a top 30 bank in the U. S. That renewed its existing contract and added business banking as part of their go to market initiatives to attract new profitable customers and retain their best small business relationships. Lastly, we had a competitive takeaway signing Cadence Bank, a leading banking franchise across the South and Southwest, who will implement our digital account opening technology.

Speaker 3

We included Slide 10 to provide a brief overview of our cloud based digital banking platform, which is separate and distinct from our commerce platform serving our restaurants and retail customers. The capabilities across the platform enable our banking partners to access a wide variety of leading edge proprietary and third party solutions for their end users. We have made significant investments in our platform over the last 3 years to offer end to end solutions that have allowed us to win in the marketplace, as reflected in our leading digital footprint and the 39 relationships we signed in 2023. As illustrated on the slide, we offer cloud based platform enabled digital banking for both consumer and business banking. In addition, we offer add ons to enable sales and account opening along with transactions and servicing solutions that provide banks and credit unions with a fully integrated consumer experience across the digital and physical channels.

Speaker 3

These solutions can either be bundled or offered standalone, while leveraging our cloud based architecture and our open API toolkit to provide flexibility for 3rd party integrations. These provide a customized experience for our customers, including access to our existing network of more than 200 partners. Before I turn the call over to Brian, I'd like to reiterate how excited I am about the opportunities that lie ahead of NCR VoyaX. While the spin provided both the company and NCR Atleos the benefit of operating independently, it was without question a huge undertaking that required the entire team's attention. I would like to thank the NCR VoyaX team once again for their hard work.

Speaker 3

With that milestone behind us, we are now acutely focused on the initiatives I've outlined today. I am confident in this team's ability to drive growth and plan efficiencies across all of our businesses as we continue to invest to support our customers' needs. Now I will turn it over to Brian, who will take you through the financial results and our outlook for 2024.

Speaker 4

Thank you, David, and good afternoon, everyone. I will note that the spin off of NCR Allios has created some level of noise in our 2023 reported results due to discontinued operations. Therefore, we are providing normalized growth rates to exclude the impact of certain spin and divesture related items. Some of my commentary will focus on these normalized results. Please turn to Slide 12.

Speaker 4

4th quarter total revenue was $963,000,000 flat as reported and up 1% on a normalized basis. Full year revenue was $3,830,000,000 up 1% as reported and up 2% on a normalized basis. This 2% is consistent with the range we gave at Investor Day. As David highlighted, in addition to total revenue, we will now report a new metric, software and services revenue, which includes software, services and payments revenue and excludes hardware. We believe this metric is a better indication of the strength and progress of our business.

Speaker 4

It removes point of sale and self checkout hardware, which although important to providing our customers with a complete solution fluctuate from period to period depending on refresh cycles and large rollouts. Software and services revenue also generates the vast majority of the company's EBITDA and cash flow. Normalized software and services revenue increased 4% for the 4th quarter and 5% for the full year. For the full year, each of our segments contributed to this growth. Full year hardware revenue was $1,080,000,000 down 6%, driven by higher demand in 2022 as a result of COVID and supply chain dynamics.

Speaker 4

Q4 adjusted EBITDA was $134,000,000 down 19% as reported and down 24% normalized, largely due to the synergies and prior year labor benefits. Full year adjusted EBITDA was $618,000,000 up 4% as reported and up 2% normalized. However, these results contain certain prior year non recurring positive labor items and a $25,000,000 non recurring software payment across Q2 and Q3 of 2023. Excluding these items, our year over year growth would have been 14 points higher. Full year margin expanded 40 basis points, driven by growth in software and services, coupled with cost initiatives.

Speaker 4

Normalizing for the spin and divestiture related items, our adjusted EBITDA and adjusted EBITDA margin met our 2023 Investor Day outlook. Please turn to Slide 13, which details our segment results. Q4 restaurants revenue increased 2% compared to the prior year, reflecting a 7% increase in software and services revenue. These results were driven by platform and payment sites, service desk ramp and price increases. Full year restaurants revenue increased 3% and software and services revenue increased 10%, largely driven by the same factors that positively impacted Q4.

Speaker 4

Q4 restaurant adjusted EBITDA increased 22% and margin expanded 3 60 basis points. Full year restaurants adjusted EBITDA increased 23% and margin improved 3 50 basis points. Both Q4 and full year results were driven by the positive impact of revenue mix and efficiency initiatives. Q4 Retail segment revenue declined 3% as a result of a 1% decline in software and services as well as a decline in hardware. The software and services revenue decline reflects the impact of lower maintenance revenues.

Speaker 4

Full year retail revenue was flat, which reflects 3% growth in software and services, primarily offset by lower hardware revenue. Software and services growth was driven by platform sites and a $25,000,000 non recurring software payment. Q4 retail and adjusted EBITDA declined 14% as a result of hardware declines, spin dis synergies and prior year labor benefits. Full year retail adjusted EBITDA increased 7% and margin expanded 130 basis points. These results reflect revenue mix, cost initiatives and the software payment.

Speaker 4

Q4 digital banking revenue increased 8% and full year digital banking revenue increased 6% as we continue to sign new customers and demonstrate strong cross sell momentum. Q4 digital banking adjusted EBITDA was flat, while margin declined 290 basis points to 37.1%. Full year Digital Banking adjusted EBITDA declined 6% and margin declined 480 basis points to 37.8%. The company made strategic investments in sales and technology throughout the year. Please turn to Slide 14.

Speaker 4

We ended the year with 3.7 times net leverage, dollars 2,600,000,000 of debt, dollars 263,000,000 of cash and had $333,000,000 available under our revolver. Leverage at year end was slightly higher than the Investor Day modeling because of spin and divestiture related items. 89% of our debt is fixed and our average rate is 5.5%. We do not currently have any significant maturities until 2028. We remain focused on driving cash flow, maintaining a healthy balance sheet and reducing leverage.

Speaker 4

Finally, I'd like to outline our 2024 guidance on Slide 15. One note before I start, our 2024 guidance and normalized growth rates do not include revenue and adjusted EBITDA associated with delayed ATLIO's country transfers. While these delayed countries are not in our guidance, they are currently in our historical financials. Once these transfers are complete, the continuing operations

Speaker 3

view of the business will

Speaker 4

be updated to exclude these amounts. Additionally, from commercial agreements with Atleos, which is lower than our Investor Day assumption of $50,000,000 With that, we expect total revenue to be between $3,600,000,000 $3,700,000,000 for the year, down 1.5% at the midpoint on a normalized basis. This reflects lower hardware revenue for the year. We expect software and services revenue to be between $2,700,000,000 $2,750,000,000 reflecting a normalized growth rate of 2% to 4%. Hardware revenue is expected to decline and range from $900,000,000 to $950,000,000 due to the timing of customer refreshes and major projects.

Speaker 4

We expect our full year adjusted EBITDA to be between $632,000,000 $657,000,000 up 2% on a normalized basis at the midpoint of the range. This includes absorbing $60,000,000 of cumulative dis synergies. Additionally, the prior year results contain the $25,000,000 non recurring software payment that I mentioned earlier. Excluding this item, our year over year growth would be 4 points higher at the midpoint of the range. Margin is expected to be between 17.5% 17.7%, up year over year and above the outlook we shared at Investor Day.

Speaker 4

Our adjusted EBITDA guidance is underpinned by an efficiency program focused on 3 areas: corporate, hardware and services. This program is expected to deliver annualized run rate savings of $100,000,000 by the end of the year and more than offset $60,000,000 of cumulative dis synergies in 2024. Many of these actions have already been executed. We expect our full year free cash flow to be between $155,000,000 $185,000,000 which includes $250,000,000 of CapEx. Revenue and adjusted EBITDA are expected to improve sequentially through the year given our expectations for hardware, seasonality and timing of our efficiency actions.

Speaker 4

For the Q1, we expect revenue to decline between 3% 4% on a normalized basis, driven by hardware declines. We expect adjusted EBITDA margin to be relatively flat with normalized Q1 of 2023 and expect to use cash in the Q1 based on our seasonality. Before we move to Q and A, I would like to call your attention to the disclosure in our press release that we filed this afternoon. In early February of this year, the company identified certain ACH debit transactions from one of our bank accounts, which were upon further investigation fraudulent. While the investigation is still ongoing, we believe the impact of this fraud through year end was $23,000,000 all of which was recorded in 2023.

Speaker 4

Further, we expect to record up to an additional $5,000,000 of expense net of recoveries in Q1 2024 related to ACH debit transactions that incurred in Q1 before we discovered this issue and disabled ACH debit functionality for this account. The 23 $1,000,000 was reported as a non GAAP adjustment to adjusted EBITDA in our press release. To the extent possible, we are pursuing direct recovery of the fraudulent disbursements and insurance coverage for this matter. We are filing a 15 day extension for our 10 ks and expect to file before the end of the extension period. The 10 ks will also include details about 2 material weaknesses in internal controls over financial reporting that we identified during the investigation along with our remediation plans.

Speaker 4

I will now turn the call over to the operator to begin our question and answer session. Operator?

Operator

Thank you. At this time, we will be conducting a question and answer session. Our first question comes from the line of Mayank Tandon with Needham and Company. Please proceed with your question.

Speaker 5

Thank you. Good evening, Dave and Brian. I wanted to start with your key growth metric ARR. Could you talk about how that trended across the various segments in 2023 and your expectations for what it might trend like in 2024 just to get a better gauge on the momentum of the business?

Speaker 3

Yes. Mike, is David. ARR, as you described, is an important metric for us and really reviewing the health of the overall strategy, we saw ARR grow 5 percent in 23%, that's in total. And we saw digital banking was at 8%, restaurants at 12% and retail was at 1%. When we look forward into this year, we see that growing across the company at mid to high single digits with that mid to high single digit growth rate across all three of the segments.

Speaker 3

So that's really a testament to the both the platform strategy and our acquisition of customers with payments.

Speaker 5

Got it. Very helpful. And if I can just ask about competition. So it's been obviously only a few months since the spin, but have you seen a change in your win rates early on in terms of how you're competing with some of the incumbents? Any change in the dynamics in the market that you can call out across your 3 segments?

Speaker 3

I wouldn't call any out due to the spin itself. I think for us, we feel like we're, I'll say, in fighting shape and the ability to get very focused on the segments that we serve. And what we've seen is that as we not only serve our enterprise existing customers, but then move into mid market on our focus areas, it really our differentiators are around the core tech platform and our ability to service those customers end to end. So as our clients have increasing complexity, we differentiate even further. So you'll see us continue to grow in the mid market space, but I don't know that the dynamic has changed as much as we feel more focused on how we're looking for growth from new sites in the mid market and connecting our existing enterprise customers to the platform for cross sell, up sell.

Speaker 5

Got it. I'll get back in queue. Thank you so much.

Speaker 3

Thank you.

Operator

Thank you. Our next question comes from the line of Eric Woodring with Morgan Stanley. Please proceed with your question.

Speaker 6

Hi, this is Sabrina on for Eric Woodring. Thank you for taking the question. Our first one is you had previously talked about the business growing, call it, 1 to 3% in 2024, but now guidance implies that revenue is going to fall, I think, 1% normalized. So what are the drivers of this change in outlook? And more broadly, like what are the macro trends you're hearing from customers right now in terms of propensity to spend on larger CapEx purchases by segment?

Speaker 4

Yes. So within the number and being flat to down 3, the positive aspect of that is the recurring revenue is growing 6% to 7% and the software and services is up growing 3% at the midpoint of the range. So that's the positive and that's in line with Investor Day expectations. Where we're having some volatility is with our hardware demand that we know is lumpy given our large enterprise customers and their projects and refresh schedules. At the time of Investor Day, we believe some of these cyclical projects would be back and we would typically have visibility to these projects by now and we're just not seeing it.

Speaker 4

So we're guiding hardware revenue to be down 12% at the midpoint. And if we exclude hardware, we would have been up 1% to 2%, which is in line with Investor Day.

Speaker 3

I'll just add, Brian. I think that the hardware expectations we have are in line with what we're seeing in the broader market for hardware demand coming out of the post COVID, I'll call rebound from 1.5 years, 2 years ago and then some of the dynamics that we saw in the market last year. So we're kind of seeing that in line with market.

Speaker 6

Understood. That's super helpful. And then maybe just one more. You talked about wanting to better serve the mid market in the restaurant segment. I guess what are the pillars of your strategy and what are you changing within that segment?

Speaker 6

And then how much of that is baked into your long term guide? Thank you.

Speaker 3

I'll start with the end. It's all baked into our long term guide. That's why we feel confident in that guidance. As I described our mid market definition in restaurants, it's really 5 to 50 sites. So think about a multi site operator that is growing into more sites overall or trying to grow either in geographic region or across the country.

Speaker 3

Our approach is payments led in that space. So as we build out additional payment capabilities, you'll see that show up in that space as well. And then it's really our service differentiation that also adds to what we're building on the tech side of the platform. We'll also simplify our product a little bit in terms of how our customers use it and think about it. And then really the real change is our go to market focus, we are going to juice up our go to market in that space with some additional salespeople.

Speaker 6

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Kartik Mehta with Northcoast Research. Please proceed with your question.

Speaker 7

Thanks. Hey, Dave and Brian, as you look at the guidance and the outlook for the businesses, obviously, hardware is dragging a lot of dragging I apologize dragging down a lot of revenue growth. But as you look at digital banking piece, would you anticipate that that will continue to grow as it did in 2023? Or is it a little bit more difficult to grow at that rate considering the size of the business now?

Speaker 4

Yes. So we anticipate digital banking being up 7% this year as we add new customers and continue to cross sell. And EBITDA margin for that segment, we think will be flat at 38%.

Speaker 3

Yes, Kartik. And I would add that as we described in our prepared remarks, we've had 39 net new wins in that space over the last 12 months. And we believe that's an undervalued crown jewel within our portfolio. You look at the overall customer wins that we're seeing, we're taking share in that space and we have a very competitive product. So we like the growth prospects in that business.

Speaker 3

And even though we are it's a large business for us, it's also very profitable, already breaking the rule of 40 in this space. So we feel really good about that business and the long term growth prospects.

Speaker 7

And then just Brian, on the cash flow conversion, maybe I'm assuming 2024 obviously had you're separating from NCR and there's probably lots of takes ins and outs associated with it. I'm wondering over the next few years what you would expect conversion to be?

Speaker 4

Yes. So conversion is impacted this year by still some probably $25,000,000 to $50,000,000 of cash separation costs that are impacting us. We also have some restructuring associated with our cost takeout. So those things are pressuring cash conversion a bit. But as we go forward, those things will come down and we'll continue to improve margin and generate more cash flow.

Speaker 4

We have a working capital improvement baked in for this year as well. We think there's opportunity to continue that in the future years. So we see cash conversion improving in line with what we said at Investor Day as we go forward.

Speaker 7

Thank you very much. I really appreciate it.

Operator

Thank you. Our next question comes from the line of Dan Perlin with RBC. Please proceed with your question.

Speaker 2

Yes, good evening. It's Matt Roswell on for Dan. Two questions. I guess, first, when you're looking at the SMB focus and what sort of either product or sales force investments are we thinking about for this year?

Speaker 3

Yes. You say SMB, I'll just redirect a little bit to mid market. Okay. We are focused on that 5 that kind of multi site operator, both restaurant and retail. The product we feel is in good shape.

Speaker 3

So we're going to work on process in terms of making it easier to for our sellers to quote and onboard those customers with the payments led offering. And on the sales side, if I look at it overall, we're investing about $15,000,000 across the whole company in selling. And so when I think about where the growth will come across all three businesses, it will be in that mid market segment across all three businesses. So we're going to make more investments in sales to get more feet on the street. And that's where we think the impact will show up.

Speaker 2

Okay. And then on the digital banking piece, you had a number of net new wins in the quarter in the year. And I was wondering, who are you taking share from? Is it mainly legacy players or

Speaker 3

homegrown solutions? It's mainly the legacy players that we're seeing the I'll call it as the donor pool.

Speaker 1

Okay. Okay.

Speaker 3

Thank you very much.

Operator

Thank you. Our next question comes from the line of Ian Zaffino with Oppenheimer and Company. Please proceed with your question.

Speaker 8

Hey, good afternoon. This is Isaac Salison on for Ian. Thanks for taking the questions. My first on the cost side, could you talk about labor and component hardware costs and your expectations for the year? The EBITDA margin guide is certainly strong.

Speaker 8

So just trying to understand the cost saving measures you talked about and you've already taken and maybe how that flows through for the year?

Speaker 4

Yes. Thank you. The $100,000,000 is the which is simplifying how we design our products and those changes have been made. And as we go through our inventory, that will start the P and L. So we'll get most of the savings in this year, and that's worth $25,000,000 The next area is services, and that's around using our remote self capability more, hiring skill set that matches the NCR VOIC skill set need versus the overall Voyage I'm sorry, the overall NCR need.

Speaker 4

And also structural changes to get rid of overlaps between organizations. That we're about halfway through, dollars 50,000,000 is what we're targeting there, and we've taken about $25,000,000 of actions. We anticipate taking more before we end this quarter. So a lot of that will be behind us. And then the last area is our real estate footprint and our corporate footprint.

Speaker 4

And there, we're focused on reducing resources, shifting to lower cost strategic value centers and closing down some facilities. And that's underway. We have probably 60% of that behind us. So this year, we expect at least $70,000,000 of in year savings related to this program and we're trying to drive more.

Speaker 3

And I would just say that on those cost savings, those are the net numbers. We're going to reinvest some of that. If you look at the Q4 exit run rate, what we're reinvesting back in go to market and sales just to make sure we can continue to grow the business. While we're making these strategic savings in certain areas, they're I'll say a little more surgical as we look at the foundational elements that Brian described. Where we're not making cuts is things like customer support, product innovation and investment and sales and go to market.

Speaker 3

We're continuing investment there.

Speaker 8

Okay. That's very helpful. And then just as a quick follow-up regarding free cash flow for the year. Maybe if you could talk about your capital allocation priorities at 3.7x, what's the pace you'd like to move down to the 2x to 3x long term net leverage target?

Speaker 4

Yes. So for this year, it's going to be investing in our CapEx, which is $250,000,000 And then from there, letting the free cash flow add to our cash balance to bring down net debt. And we think we can get net leverage to 3.3 to 3.4 turns by the end of the year, and that's our focus for this year.

Speaker 8

Okay, great. Thanks so much.

Operator

Thank you. And our next question comes from the line of Alex Neumann with Stephens. Please proceed with your question.

Speaker 7

Hi. Thanks for taking the question. Just within the retail business, could you just give us a sense of how much the platform sites are contributing to that segment? And then when we could see that moving the needle just from a growth standpoint?

Speaker 3

Yes, we're seeing good growth in the platform sites. I mean, you saw the numbers, Lonnie's original question around ARR and I look at that ARR growth that we're expecting to see in the mid to high single digits in 20 24, that's all coming from platform connected sites. If I break that down even further and think about software specific related ARR in that business, We'll see software specific ARR get into the low double digit growth in 2024 and that's all about connecting these sites to the platform. So if you remember, when we connect these sites to the platform, we're getting an uplift in ARPU when we make that connection and it allows us to cross sell and upsell. So as these cohorts are aging, we're starting to see that benefit our recurring revenue streams and that's what you'll see in these growth numbers.

Speaker 3

Again, the overall numbers are well muted because of hardware and retail, but the rest of the software business and recurring revenue streams are growing nicely.

Speaker 7

Okay. Thanks. And then just given some of the lumpiness associated with hardware, if you could provide any color on the expected cadence and revenue in 24 within the Retail and Restaurant segment

Speaker 3

would be helpful.

Speaker 4

Sure. So for restaurants, we expect to be flat to up 1% overall, but that's made up of software and services growing 5% and hardware being down. And then in retail, the decline is declining roughly 4% and that's due to hardware, software and services is growing 1%. And if I adjust for the $25,000,000 non recurring software payment that I mentioned, it would be up 3%. So we're seeing growth in all three businesses on the software and services line.

Speaker 4

It's just hardware is putting pressure, especially on retail.

Speaker 3

Thank you.

Operator

Thank you. And we have reached the end of the question and session. And I'll now turn the call back over to CEO, David Wilkinson, for closing remarks. Yeah.

Speaker 3

In closing, I'd like to thank our customers again for the trust they put in us every day to help them achieve their strategic objectives. I'd also like to thank again our NCR Voyix colleagues for their contribution to our success up to now and our investors for their ongoing support. As I stated earlier, we remain committed to serving our existing clients and bringing them on the platform journey. Our platform investments over the past years have provided real value to our customers and we're going to continue to connect them to the platform. We've built a solid foundation for growth within our base and growth of new customers, specifically in the mid market.

Speaker 3

While we're proud of where we are, we need to do better at turning this foundation into growth, and this focus will show up in our results. I believe in the plan we have outlined today, and I believe in this management team to execute. Thank you all for joining the call.

Operator

And this concludes today's conference, and you may disconnect your lines at

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