NCR (VYX) Q4 2023 Earnings Call Transcript

adminMarch 1, 2024

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NCR (VYX 2.10%)
Q4 2023 Earnings Call
Feb 29, 2024, 4:30 p.m. ET

Prepared Remarks:

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.

(Operator instructions) I will now turn the conference over to your host, Alan Katz of Investor Relations. You may begin.

Alan Katz — Investor Relations

Good afternoon, and thank you for joining our fourth quarter and fiscal 2023 earnings conference call. This afternoon, we issued our earnings release reporting preliminary financials for the quarter and year ended December 31st, 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.ncrvoyix.com and has been filed with 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. 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-K file this afternoon and our supplemental materials available on the investor relations section of our website.

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

David Wilkinson — Chief Executive Officer

Thank you, Alan. Welcome, everyone, to our fourth quarter and full year 2023 earnings call. I’ll begin by saying that I’m proud of what our team accomplished in 2023. With the spinoff 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. Before commenting on our performance, I’d like to spend a moment on Slide 4 to remind every one of NCR Voyix market-leading position for each of our three 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 initiative in place to support our long-term profitable growth. 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, midmarket, and SMB, through integrated merchant payment offerings. Turning now to our 2023 performance. 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 ’23, 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 billion last year, up 35% from 2022. During December ’23 alone, our platform managed nearly 50 million loyalty transactions and 26 million 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 Tadele 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.

Our platform sites and payment sites increased 8% and 34%, respectively, led by our midmarket 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 midmarket, multi-site operators of five to 50 sites and increasingly complex operations. Focusing on 2024 and beyond, a key component of our growth strategy is to better address the midmarket, as these businesses provide the greatest opportunity for growth.

Historically, we’ve benefited from our midmarket customers as they can ultimately grow into enterprise businesses. In the quarter, we had several key customer lands and expansions that I’d like to highlight. One is the signing of a multi-year contract with Nautical Bowls, a rapidly growing Acai bowl franchise that fits the profile of a target midmarket 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. 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 attach strategy for midmarket has resulted in us more than doubling the number of payment sites in our portfolio over the last two years. And we will continue to see strong interest in our capabilities, and we’re investing to capture share in this segment. 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 sign deals with more than 125 new logos, including both enterprise and midmarket customers in the year, and we’re named the No. 1 point-of-sale software provider within the industry. We remain focused on converting the legacy base of on-prem customers to the commerce platform, which 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. 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. 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., given our long-standing relationship with one of their other portfolio brands, coupled with our market-leading position and 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 midmarket spaces.

Our focus here continues to be signing on new enterprise and midmarket customers as we also convert our customers to our commerce platform. We have demonstrated success in executing the strategy, and we see a healthy backlog of customers that have committed to moving onto 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 Voyix has invested in building a robust platform that can deliver leading solutions to all customers. 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 Tansill 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 institutions, both of which align with our digital banking objectives.

In the fourth quarter, 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. Our registered users grew 4% to more than 28 million, and the number of active users grew 3% to more than 19 million. 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. 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. 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 three 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 new customer 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.

These solutions can either be bundled or offered stand-alone while leveraging our cloud-based architecture and our open API toolkit to provide flexibility for third-party integrations. These provide a customized experience for our customers, including access to our existing partner 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 Voyix. 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 Voyix team once again for their hard work. 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.

Brian Webb-Walsh — Chief Financial Officer

Thank you, David, and good afternoon, everyone. I will note that the spinoff of NCR Atleos 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 investor-related items. Some of my commentary will focus on these normalized results.

Please turn to Slide 12. Fourth quarter total revenue was 963 million, flat as reported and up 1% on a normalized basis. Full year revenue was 3.83 billion, 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. 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 fourth quarter and 5% for the full year. For the full year, each of our segments contributed to this growth. Full year hardware revenue was $1.08 billion, down 6% driven by higher demand in 2022 as a result of COVID and supply chain dynamics. Q4 adjusted EBITDA was $134 million, down 19% as reported and down 24% normalized, largely due to synergies and prior-year labor benefits.

Full year adjusted EBITDA was $618 million, up 4% as reported and up 2% normalized. However, these results contain certain prior-year nonrecurring positive labor items and a $25 million nonrecurring 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.

Normalizing for the spin and divest-related items are 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. Q4 restaurant adjusted EBITDA increased 22%, and margin expanded 360 basis points. Full year restaurants adjusted EBITDA increased 23%, and margin improved 350 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. 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 the $25 million nonrecurring software payment.

Q4 retail and adjusted EBITDA declined 14% as a result of hardware declines, spin to synergies, and prior-year labor benefits. Full year retail adjusted EBITDA increased 7% and margin expanded to 130 basis points. These results reflect revenue mix, cost initiatives, and the software payment. 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. We ended the year with 3.7 times net leverage, 2.6 billion of debt, 263 million of cash, and had 333 million available under our revolver. Leverage at year end was slightly higher than the investor day modeling because of spin into investor-related items. Eighty-nine percent 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 cashflow, maintaining a healthy balance sheet, and reducing leverage. 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 Atleos 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 view of the business will be updated to exclude these amounts. Additionally, our 2024 guidance now only includes 20 million of revenue from commercial agreements with Atleos, which is lower than our investor day assumption of 50 million. With that, we expect total revenue to be between 3.6 billion and 3.7 billion 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 2.7 billion and 2.75 billion, reflecting a normalized growth rate of 2% to 4%. Hardware revenue is expected to decline and range from 900 million to 950 million due to the timing of customer refreshes and major projects. We expect our full year adjusted EBITDA to be between 632 million and 657 million, up 2% on a normalized basis at the midpoint of the range.

This includes absorbing 60 million of cumulative disenergies. Additionally the prior-year results contain the 25 million nonrecurring 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 and 17.7 percent, up year over year and above the outlook we shared at investor day.

Our adjusted EBITDA guidance is underpinned by an efficiency program focused on three areas, corporate, hardware, and services. This program is expected to deliver annualized run rate savings of 100 million by the end of the year and more than offset 60 million of cumulative disenergies in 2024. Many of these actions have already been executed. We expect our full year free cash flow to be between 155 million and 185 million, which includes 250 million 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. For this first quarter, we expect revenue to climb between 3% and 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 first quarter based on our seasonality. Before we move to Q&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 million, all of which was recorded in 2023. Further, we expect to record up to an additional 5 million 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 million 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-K and expect to file before the end of the extension period. The 10-K will also include details about two material weaknesses in internal controls over financial reporting that we identified during the investigation along with our remediation plans. I will now turn the call over to the operator to begin our question-and-answer session.

Operator?

Questions & Answers:

Operator

(Operator instructions) Our first question comes from the line of Mayank Tandon with Needham and Company. Please proceed with your question.

Mayank Tandon — Needham and Company — Analyst

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?

David Wilkinson — Chief Executive Officer

Yeah, Mike, this is David. ARR, as you described, is an important metric for us in really reviewing the health of the overall strategy. We saw ARR grow 5% in ’23, that’s in total. And we saw digital banking was at 8%, restaurant was at 12, and retail was at 1%.

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

Mayank Tandon — Needham and Company — Analyst

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 three segments?

David Wilkinson — Chief Executive Officer

I wouldn’t call it 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 midmarket 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 midmarket space, but I 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 midmarket and connecting our existing enterprise customers to the platform for cross-sell/upsell.

Mayank Tandon — Needham and Company — Analyst

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

David Wilkinson — Chief Executive Officer

Thank you.

Operator

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

Sabrina Hao — Morgan Stanley — Analyst

Hi, this is Sabrina on for Eric Woodring. Thank you for taking the question. You know, 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’s once fall and 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?

Brian Webb-Walsh — Chief Financial Officer

Yes. So, within the number in being flat to down three, the positive aspect of that is the recurring revenue is growing six to seven, and the software and services is up growing three percent 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 believed 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. 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.

David Wilkinson — Chief Executive Officer

I was going to 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 it rebound from a year and a half, two years ago, and then some of the dynamics that we saw in the market last year. So, we’re seeing that in line with market.

Sabrina Hao — Morgan Stanley — Analyst

Understood, that’s super helpful. And then, you maybe just one more, you talked about wanting to better serve the midmarket in the restaurant segment. I guess what are the pillars of your strategy and what are you changing within that segment? And then, how much of that is baked into your long-term guide? Thank you.

David Wilkinson — Chief Executive Officer

Yeah, let’s 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 midmarket definition in restaurants, it’s really five 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. Our approach is payments-led in that space. So, as we build up 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.

Sabrina Hao — Morgan Stanley — Analyst

Great, thank you.

Operator

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

Kartik Mehta — Northcoast Research — Analyst

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 ’23? Or is it a little bit more difficult to grow at that rate considering the size of the business now?

Brian Webb-Walsh — Chief Financial Officer

Yeah, so we anticipate digital banking being up 7% this year as we add new customers and continue to cross out. And even a margin for that segment, we think we’ll be flat at 38%.

David Wilkinson — Chief Executive Officer

Yeah, Kartik, 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. When 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.

And even though 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 their long-term growth prospects.

Kartik Mehta — Northcoast Research — Analyst

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

Brian Webb-Walsh — Chief Financial Officer

Yeah, so conversion is impacted this year by still some probably 25 million to 50 million 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.

We have a working capital improvement baked in for this year as well, and 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.

Kartik Mehta — Northcoast Research — Analyst

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.

Matthew Roswell — RBC Capital Markets — Analyst

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?

Brian Webb-Walsh — Chief Financial Officer

Yeah, you say SMB, I’ll just redirect a little bit to midmarket.

Matthew Roswell — RBC Capital Markets — Analyst

OK.

Brian Webb-Walsh — Chief Financial Officer

We are focused on that five, that kind of multi-site operator, both restaurant and retail. The product we feel is in good shape. So, we’re going to work on process in terms of making it easier 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 million across the whole company in selling.

And so when I think about where the grip will come across all three businesses, it will be in that midmarket segment across all three businesses. So, we are going to make more investments in sales to get more feet on the street. And that is where we think the impact will show up.

Matthew Roswell — RBC Capital Markets — Analyst

OK. 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 homegrown solutions?

Brian Webb-Walsh — Chief Financial Officer

It’s mainly the legacy players that we’re seeing the, I’ll call it, as the donor pool.

Matthew Roswell — RBC Capital Markets — Analyst

OK. OK, thank you very much.

Operator

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

Isaac Sellhausen — Oppenheimer and Company — Analyst

Hey, good afternoon. This is Isaac Sellhausen on for Ian. Thanks for taking the questions. But 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.

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.

Brian Webb-Walsh — Chief Financial Officer

Yep, thank you. Hundred million is the annualized cost we’re taking out this year, and it’s split between the three areas I talked about. The first being hardware, which is simplifying how we design our products. And those changes have been made.

And as we go through our inventory, that’ll start to impact the P&L, and it’s starting to impact the P&L. So, we’ll get most of the savings in this year, and that’s worth 25 million. The next area is services, and that’s around using our remote self capability more, hiring skill set that matches the NCR Voyix skill set need versus the overall Voyix — I’m sorry, the overall NCR need. And also structural changes to get rid of overlaps between organizations.

We’re about halfway through 50 million is what we’re targeting there. We’ve taken about 25 million 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.

And they were focused on reducing resources, shifting the 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 million of in-year savings related to this program, and we’re trying to drive more.

David Wilkinson — Chief Executive Officer

And I would just say that on those cost savings, those are the net numbers. We’re gonna reinvest some of that if you look at the Q4 exit run rate. That’s what we’re reinvesting back and 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. We’re continuing investment there.

Isaac Sellhausen — Oppenheimer and Company — Analyst

OK, that’s very helpful. And then, just as a quick follow-up regarding free cash flow for the year, maybe you could talk about your capital allocation priorities at 3.7 times. What’s the pace you’d like to move down to the two to three times long-term net leverage target?

Brian Webb-Walsh — Chief Financial Officer

Yeah, so for this year it’s going to be investing in our capex, which is 250 million, 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.

Isaac Sellhausen — Oppenheimer and Company — Analyst

OK, great. Thank you so much.

Operator

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

Alex Neumann — Stephens, Inc. — Analyst

All right. 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?

Brian Webb-Walsh — Chief Financial Officer

Yeah, we’re seeing good growth in the platform sites. I mean, you saw the numbers, and they are contributing to overall growth. So, if I take my 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 2024, 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 ’24.

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

Alex Neumann — Stephens, Inc. — Analyst

OK, nice. 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, that’d be helpful.

Brian Webb-Walsh — Chief Financial Officer

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 growing 1%. And if I adjust for the 25 million nonrecurring 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. It’s just hardware is putting pressure especially on retail.

Alex Neumann — Stephens, Inc. — Analyst

Thank you.

Operator

Thank you. And we have reached the end of the question-and-answer session. I’ll now turn the call back over to CEO David Wilkinson for a closing remark.

David Wilkinson — Chief Executive Officer

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 gonna 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 midmarket. 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. (Operator signoff)

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