NCR Voyix Corp (VYX) 2022 Q1 法說會逐字稿

Good day, and welcome to the NCR Corporation First Quarter Fiscal Year 2022 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Michael Nelson, Treasurer and Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining our first quarter 2022 earnings call. Joining me on the call today are Mike Hayford, CEO; Owen Sullivan, President and COO; and Tim Oliver, CFO.

Before we get started, let me remind you that our presentation and discussions will include forward-looking statements. These statements reflect our current expectations and beliefs, but they're subject to risks and uncertainties that could cause actual results to differ materially from those expectations. These risks and uncertainties are described in our earnings release and our periodic filings with the SEC, including our annual report.

On today's call, we'll also be discussing certain non-GAAP financial measures. These non-GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials, the press release dated April 26, 2022, and on the Investor Relations page of our website. A replay of this call will be available later today on our website, ncr.com. With that, I would now like to turn the call over to Mike.

All right. I'm assuming by now, you have seen our numbers for the quarter. And while the external macro impacts resulted in disappointing financial results, our teams continue to execute in the business segments. And overall, I would say our first quarter was very good with strong sales contributing to build order backlog, competitive wins, strategic transformation momentum and execution on our KPIs. Inflation, interest, pandemic and war all impacted us in the first quarter and caused us to miss our expected numbers.

Tim will cover more specifics later, but let me give you a high level. Acceleration of costs led by microprocessors, fuel and shipping costs impacted us in the first quarter. We think many of these impacts will be mitigated throughout the year by things we can control, prices and/or cost actions. Interest rates moved quickly in the first quarter. We don't see this improving during 2022, so we'll have to address costs elsewhere. The Omicron strain caused impact to transaction volumes as the numerous countries slowed down during the first quarter.

We have already started to see improved volumes in the second quarter. And lastly, the war in the Ukraine has impacted our business in Ukraine and Russia. Tim will cover the impacts and actions we are taking. The bulk of the financial impacts were due to the inflationary cost pressures and the Omicron impacts.

On Slide 4. Over the past 3 years, we have successfully balanced transforming NCR into software-led as a service company while continuing to deliver on our quarterly financial performance. During the first quarter, we continued to focus on that balance. In the first quarter, NCR made significant progress against our strategic initiatives with strong executions across our KPIs. Despite the significant challenges we faced, our teams executed extremely well and delivered to our customers.

In quarter 1, NCR delivered 21% total revenue growth with recurring revenue growth of 35%, adjusted EBITDA increased 5%. Importantly, we are experiencing strong customer demand for solutions across our business segments and continue to successfully transform NCR into a software-led as a services company with a higher shift to recurring revenue streams.

Now moving to the business update on Slide 5. We have had strong momentum across our strategic growth platforms, which support our company transformation. In Payments & Network, we are making progress against both Merchant acquiring and the Allpoint network. We are seeing an accelerating number of merchant applications for integrated payments. In the first quarter, we also extended our Allpoint network with key merchant partners, most notably Circle K, which expanded its relationship with NCR with the addition of more than 650 locations across 13 states. We are also expanding NCR Pay360, which provides nationwide cardless access to NCR cash endpoints and through strategic partnerships, NCR Pay360 facilitates money transfer for nearly any business vertical.

NCR Pay360 also brings more transaction types, including digital currency solutions and the ability to buy and sell cryptocurrency at NCR cash endpoints. In digital banking, we continue to have positive momentum. In the first quarter, Digital Banking had 23 renewals and a new logo deal and the continued expansion of Terafina with 3 new clients for our online digital account opening platform. In self-service banking, we continued momentum in the transformative shift to software-based solutions, which deliver recurring revenue. We are also receiving increased interest in our ATM as-a-service solution, an integrated go-to-market model combining the NCR and Cardtronics' teams capabilities that provides a key point of competitive differentiation.

In the first quarter, we secured 4 new ATM as a service customers, including Directions Credit Union, which is embracing NCR's ATM as a service to enhance and modernize their member experience. We are helping Saudi National Bank deliver a richer customer experience with our enterprise ATM software suite, providing targeted interactions and increased efficiencies. In Retail, we have positive momentum in winning upgrade imperative for retail point-of-sale solutions. NCR was named the world's largest POS software provider for the fifth consecutive year by RBR. During the quarter, we began deploying NCR Freshop at Big Y to be used as the front end of Big Y's micro fulfillment center.

This SaaS solutions help grocers implement their own e-commerce and delivery services through the NCR e-commerce platform. In self-checkout, we're also seeing continued adoption with our market-leading solutions, including the supermarket retailer, Kohl's, based in Australia, who recently refreshed their self-checkout estate. In hospitality, we continue to attract new customers and cross-sell to existing customers, including First Watch Restaurant Group, where we partnered on kitchen innovation technologies to better serve their staff and customers. We also continue to expand our strategic relationship with Noodles & Company by adding additional services to our software platform.

We saw increased momentum with our distribution partnership for our SMB product with a large bank in America through their Merchant Services division. And finally, I'll provide an update on our strategic review process, which is ongoing. In last call, we announced the initiation of a strategic review to enhance shareholder value. During the quarter, we hired advisers from BofA and Goldman Sachs in addition to Evercore and began a process to review strategic alternatives available to NCR to enhance shareholder value. We continue to evaluate a number of different paths and have made good progress to date. With that, let me pass it over to Tim.

Thanks, Mike, and thanks to all of you for joining us today. I echo Mike. Our first quarter results represent a tremendous effort across our strategic growth initiatives while simultaneously battling a surge in existing challenges compounded with new exogenous shocks. As a reminder, beginning this quarter, we will report our results relative to 5 new segments described in our December Investor Day. And the legacy Cardtronics results are now included primarily in the Payments & Network segment.

So let's begin on Slide 6 with a top level overview of our first quarter financial performance. Because these results are significantly different than we anticipated, I've added an additional chart that follows to provide a deeper candle analysis. Starting on the top left, revenue was $1.9 billion, up $322 million or 21% versus the 2021 first quarter. Recurring revenue was up 35% year-over-year. On a pro forma basis, including Cardtronics for the full year of 2021, revenue was up about 4%. In the top right, adjusted EBITDA increased $13 million or 5% year-over-year to $271 million. In the bottom left, non-GAAP EPS was $0.33, down $0.18 or 35% from the prior year first quarter. The tax rate, while similar to prior year, was much higher than our full year expectation due to the lower level of profit and the follow-on effect on discrete items and deductibility.

Assuming profitability improves as we expect, the tax rate will decline across the remaining quarters of 2022. And finally, first quarter free cash flow was a modest use of $10 million due to seasonal compensation expense that was not funded in 2021 and a onetime adjustment to our annual 401(k) match. This result was slightly better than our expectations. Before I walk through the segment results, I want to quantify the macro impacts to our revenue and EBITDA as the themes across all of the segments will be similar. This chart categorizes the impact on revenue and EBITDA for the results realized in Q1 and then projects the anticipated impact for the remainder of 2022. For revenue, supply disruptions late in the quarter in Eastern Europe due to the war and in China due to new COVID lockdowns, both caused our hardware revenue to be extremely back-end loaded and caused us to miss revenue recognition for ATMs and SCO at the end of the quarter.

This accounted for a little more than half of the shortfall, and we expect to recover most of this revenue as the year plays out. The persistence of the Omicron COVID wave around the world and the resulting decrease in transaction volumes suppressed revenue by more than $25 million relative to our expectations. While transaction volumes are not backlog like hardware, we are seeing better volumes now in The U.S. and anticipate similar improvements in the [Crown countries]. We expect volumes to continue to recover across the second quarter and have a strong second half. And lastly, on revenue, NCR has suspended all operations in Russia. In the quarter, we wrote down all of our receivables and inventory, paid severance to our Russian employees and aided our Ukrainian employees relocation. Direct revenue in Russian Ukraine would have been about $15 million in the first quarter and the full year, the direct impact is approximately $90 million. We do expect another $10 million or so of follow-on impact in other parts of Eastern Europe.

Switching to EBITDA. The first quarter hardware revenue miss would have converted to about $15 million and should be mostly recoverable as we eventually ship that impacted hardware. The Payments transaction volume shortfall would have converted to a similar $15 million of EBITDA, and we are -- as I said before, are seeing better trends currently. Adding the impact of the war in Eastern Europe, about 40% of the EBITDA challenge in Q1 was directly linked to revenue and its conversion. The other 60% of the EBITDA miss is attributable to significantly higher than forecasted inflation. Component prices jumped well above 2021 levels even with extended lead times and freight, particularly expedite costs, continued to escalate with surcharges increasing.

These are direct costs to our manufacturing operations and pushed margin rates on some of our hardware products down to breakeven levels. The standard cost of some of our POS devices has increased over 35% year-over-year. Fuel costs are pressuring the margins in our services businesses. NCR purchases about 10 million gallons of fuel a year for our service fleet and spent significantly more through employee mileage and contractors. And interest rates are an operating expense for us. We rent more than $4 billion of cash from our bank partners to supply our ATM fleet. The cost of that rental goes through the EBITDA line as cost of goods. While we planned for 3 rate increases in 2022, we did not plan for 6 or more. There are operational adjustments we can make to offset some of the higher interest rates such as reducing the amount of cash in the ATMs as well as passing through contractual protections triggered by higher rates, the obvious offset to cost inflation or price increases and cost productivity.

We're actively working on both. While we've been implementing price increases beginning all the way back in July of '21, we have not yet seen full realization of those increases. Hardware sold from backlog and longer-term contracts with only annual escalators caused a lag in price realization that is particularly painful in an environment of runaway inflation. The full year impact on EBITDA on the far right captures our expectation for those exogenous factors that impacted our first quarter performance. The range is at the bottom of the page for mitigating actions describes our ability to impact those things we can control like pricing cost. These actions are all reflected in the adjustment we are making to our full year guidance.

Let's move to the segments on Slide 8, which shows our Payments & Network segment for the quarter. Please note that the results and key metrics on this slide are presented on a pro forma basis and reflect Cardtronics' historical results as well. In general, this was a very good quarter strategically for this business and a decent operating quarter. Starting at the top left, Payments & Network revenue increased $32 million or 12% year-over-year with Allpoint growth more than offsetting the Omicron-driven shortfall in global transaction volumes. Payments & Network adjusted EBITDA increased 10% year-over-year, while adjusted EBITDA margin rate was a strong 33%. At the bottom of the slide shows Payments & Network segment key metrics. On the bottom left, endpoints increased 29% year-over-year. These access points to the Allpoint network and merchanting acquiring terminals are increasing as we migrate them to an NCR installed base.

In the center bottom, are transactions, a KPI that illustrates the payments processed across our Allpoint and merchant acquiring networks. Transactions increased 6% year-over-year but fell slightly sequentially. As I said before, the global impact of the Omicron wave is evident in this metric for both Q4 and Q1. And annual recurring revenue in this business increased 13% compared to the first quarter of 2021.

Turning to Slide 9. This slide emphasizes the continued momentum in our Digital Banking segment. Digital Banking had a very good start to the year, with revenue increasing $13 million or 11%. First quarter adjusted EBITDA was up 4% from the first quarter of '21 and an adjusted EBITDA margin rate of 41%. Digital Banking's key metrics on the bottom of this slide include registered users, active users and ARR, all of which were about flat in the quarter. Remember that only about 2/3 of the revenue in this business is driven by user accounts and that user accounts can have some short temporal dislocations from revenue. We expect all 3 of these metrics to be up about 10% at year-end. The air pocket in user accounts is caused by 2 long known customer consolidation deconversions, which will be closely followed by the onboarding of 2 of last year's major wins in Q3, Wintrust and Associated Bank.

Slide 10 shows our self-service banking segment results. Self-service banking revenue declined $17 million or 3% year-over-year with strong software revenue more than offset by lower onetime hardware sales. Self-service banking adjusted EBITDA decreased $25 million or 18% year-over-year. The EBITDA margin rate declined by 350 basis points to 18%. This business suffered the most from the back-end loaded revenue quarter due to component availability and the dramatic inflation in freight and fuel. This business also had the largest presence in Russia. The bottom of the slide shows our self-service banking segment key results. On the left, we made significant progress increasing our software and services revenue mix to 72%, up 4 points year-over-year. We saw a 6x increase in units served as ATM as a service compared to the same quarter of 2021, and we are ahead of our plan to get this metric to more than 11,000 machines by year-end. The shift to recurring revenue continues to gain traction with ARR up 6% year-over-year.

Moving to Slide 11, which shows our Retail segment results. Starting at the top left, Retail revenue increased $26 million or 5% year-over-year, driven by higher self-checkout and point-of-sale solutions revenue. Order activity in this business is very strong, backlog is high and lead times are extending. Retail adjusted EBITDA declined 32% year-over-year and adjusted EBITDA margin rate was 12%. This business was most impacted by the component cost inflation, particularly on POS devices, which accounted for most of the decline in profitability. Retail did also have a presence in Russia. The bottom of the slide shows retail segment key metrics. On the left, our platform lanes, a KPI that illustrates the success of our strategy to convert our retail customers to our platform-based subscription model.

We increased our number of platform lanes by 6x compared to the same period a year ago. The implementation of software-defined store at Circle K describes this quarter's jump. We see accelerating momentum for the conversion of our traditional lanes to platform lanes and have a substantial lane conversion backlog. In the center bottom, self-checkout revenue increased 8% year-over-year. Recurring revenue in this business increased 3% compared to Q1 of 2021.

Slide 12 shows our hospitality segment results and illustrates the momentum across this business with particular strength in enterprise market, caused by an uptick in new restaurant openings and technology refreshes. Hospitality revenue increased $32 million or 18% as restaurants reopen, rework their existing locations and expand. Our pipeline is strong, our backlog is significantly higher, and we continue to hire to increase our feet on the street and catalyze growth. First quarter adjusted EBITDA was up 14% year-over-year, while adjusted EBITDA margin rate was 19%. Hospitality's key metrics in the bottom of this slide include platform payment sites and ARR. Platform sites increased 37%, payment sites tripled, and the ARR was up 14% year-over-year compared to Q1 of 2021.

Before I move to free cash flow, I want to remind you of our new reporting segments and the inclusion of a corporate and other and eliminations bucket. They are comprised of 3 things: our T&T operating unit, our total corporate overhead and the elimination of the merchant acquiring business that is counted in both the Payments & Network segment that owns the technology and in the retail and hospitality segments that drive the customer growth.

On Slide 13, we present free cash flow, net debt and adjusted EBITDA metrics to facilitate leverage calculations. As I previously stated, we ended the quarter with a $10 million use of cash due to typical and planned seasonal factors. Receivable days outstanding and finished goods inventory both increased sequentially due to the lack of linearity in revenue caused by component availability. This slide also shows our net debt to adjusted EBITDA metric with a leverage ratio of 3.9x. We ended the first quarter with $412 million of cash and remain well within our debt covenants, which include a maximum pro forma leverage ratio of 5.5x. We also have significant liquidity with over $860 million available under our revolving credit facility. We have a strong balance sheet, ample liquidity and the financial strength to support our growth strategy.

And finally, on Slide 14, I'd summarize the adjustments down that we needed to make to our guidance to reflect what we just experienced and what we think we know about the remainder of the year. Slide 7 described these causes for revenue and EBITDA, and then I flow those same adjustments through to EPS and cash flow here. So for full year 2022, we now expect revenue of approximately $8 billion, down from $8 billion to $8.2 billion previously. Adjusted EBITDA of $1.4 billion to $1.5 billion, down from $1.5 billion to $1.575 billion and non-GAAP EPS of $2.70 to $3.20. Free cash flow generation will be between $400 million and $500 million, reflecting the decline in profitability. With that, I'll turn it back to you, Mike.

Thanks, Tim. In closing, on Slide 15, we have made significant strategic progress transforming NCR to a software-led as a services company. And while the external forces of inflation, interest, pandemic and war negatively impacted our financial results, we really feel good about the underlying business execution during the first quarter. As we continue to transform the company, we will address the external macro headwinds with price actions, cost takeout and efficiency gains. And finally, we feel confident that we will find strategic actions that will unlock shareholder value. That concludes our prepared remarks for today. With that, we will open the call for questions. Operator, please open the line.

(Operator Instructions) And we will go to our first question from Erik Woodring of Morgan Stanley.

Maybe you could just help us think or detail a little bit more about the linearity in the March quarter. Obviously, we spoke 90 days or I shall say, less than 90 days ago and you guided to the year and the quarter. And so was the 1Q miss largely from March? How did April trend versus March? Just looking to get a better understanding of when and where the impact was and perhaps how it was unforeseen when the last time we spoke. And then I have a follow-up.

Yes, sure. So the last time we spoke was February the 8, and I hadn't yet seen January results. So we truly hadn't seen much in the way of results in Q1. The -- as you know, the war in Russia that accounts for most of the adjustment in revenue had not yet started. Interest rates hadn't yet started to climb. Gas prices climbed even further. And really because most of this has to do with cost on hardware, our hardware revenue was extremely back-end loaded. We could not get the chips we needed. So we assembled the devices earlier in the quarter, waiting for the last piece, which were the chips and got them out the door in December, and in many instances in the last 2 weeks of December. So the miss on hardware in the quarter, about $45 million, let's say, across ATMs and SCO together pushed from Q1 out into successive quarters. But that -- we didn't see that coming. We didn't know at the time we wouldn't get the chips in order, in sequence. And so we scrambled to get hardware out the door at the end of the quarter.

Okay. That's helpful. And then when you talk about the mitigation efforts on, I think it was Slide 6, maybe just help us detail those a bit further beyond pricing, what exactly -- what efforts or actions are you taking? When should we expect those to kick in? Maybe just detail there would be great.

Yes. So let me set that up and I'll hand over to Owen. This will be his project to drive. We had pricing actions underway, and those pricing actions will pay dividends in Q2 through Q4. We also had cost actions underway, efficiency, primarily around the Cardtronics' acquisition. Those were on schedule and on budget. The difference then is the change in cost between January and now. We have to act more proactively to go chase yet more price and more cost. My best guess is that we will have about $200 million of pricing actions that we put through, which we net about $100 million in 2022, and we'll put through a couple of hundred million dollars of cost savings, which would likely net over $100.25 million of that as the year played out. So we're going to try to over solve with internal actions against what we know today in anticipation of further deterioration in some of these macro indicators.

Yes. I think I'd add a couple of comments. It's been to say a while since any of us have dealt in a hyperinflationary environment, it would be an understatement. It's been decades. And I think what Tim described in terms of catching the falling knife, we had backlog built in the third quarter that we've actually put price increases and surcharges on. As we came into the first quarter and dealt with this back-end loaded linearity to our build plan, the cost escalation was extreme. Some of it is inflationary and I'll be candid, some of it's gouging in the marketplace. I'll just give you a couple of examples that we dealt with chips that we were buying at $41 in the second half of the year are now in the open market that we had to go to for almost $2,900.

We had chips that were -- we were paying $0.42 for power supplies, I should say, that we're now paying $114 for. So I will tell you that we wanted to meet customer demand. We did that. We missed on the escalation and acceleration of cost from our backlog in the third quarter to what we were building and delivering at the end of the first quarter. The lesson learned is the actions we're taking and have taken is everything in the second, third and fourth quarter backlog. We have now gone and looked at the selling price, projected out what our costs will be, and we'll continue to stay on top of that, and we're taking corrective pricing action. So you take the lesson learned and it wasn't -- it's been a tough one.

We are going to continue to deal with hyperinflationary environment. We're going to be continuously dealing with some of the open market issues. And what we will continue to do now is figure out how best to take pricing actions to mitigate those discrepancies as we go forward. So between those and cost actions out that we're taking, addressing the fuel escalation, which, as Tim described, that happened within the quarter. And as a sure of about 10 million gallons a year, that's a material impact. We have now started to address that through surcharging and price increases. So I think the action -- we understand the magnitude of the issue that we just went through. We've done our best to project forward, and we believe the actions that we're taking will mitigate the risk as we look out through the year.

And we'll move to our next question from Matt Summerville with D.A. Davidson.

A couple of questions. It would be really helpful. You -- I think Tim mentioned across a number of the businesses have strong orders, backlog, the momentum you're seeing there. Is there any sort of numerical -- are you able to give us something more tangible from a numerical standpoint that really can underscore how strong the fundamental demand side is in the business other than to just say it's strong. And then I have a follow-up.

So you can see in the KPIs across the bottom, most of those charts that strategically, we made tremendous progress in the quarter. And with those conversions to platform lanes (inaudible) and platform sites, it drives really nice conversion on revenue in future periods. When we talk about backlog, we're really talking about hardware. And the backlog in SCO is as high -- it's historically high. The backlog in POS is high. And actually, I wish it was a little bit higher in that we delivered a lot of POS devices to keep our customers happy in the quarter that we probably were at breakeven or less on, as Owen described, those chip escalations on a device that only costs $1,200 to have a $400 increase in a chip is pretty painful.

So we have not broadcasted our backlog numbers before, but I think know that they only apply to hardware. And part of the reason you see us recovering the hardware revenue we missed in the quarter has to do with the fact that, that backlog is still there. It didn't get out the door because of chip availability, but that backlog is still there.

Matt, this is Mike. I would ask you again, just if you go back and look at the strategic KPIs, hospitality platform sites up year-over-year, 37%. Retail platform lanes up 400% year-over-year, tremendous growth. Digital Banking up 11% RAV endpoints for our payment business, both the Allpoint as well as Merchant up almost 30%. So across the board, the strategic metrics did really, really well. We got hidden hardware and -- we got hitting hardware late in the quarter on some areas we couldn't react to. If you look at the full year, where we sit today, we have 8 months to make adjustments. We can adjust on price. We can adjust on cost. We didn't have an opportunity in the first quarter to make the adjustment. So again, the strategic KPIs, the strategic transformation, we were extremely excited about a really, really strong first quarter.

Just to try and give you something to grasp on to, the backlog in hardware, particularly in Retail and Hospitality was up more than 30% year-over-year in the quarter.

Got it. And then is a follow-up, did I effectively hear you correctly in that you're repricing some of the backlog? And then, Owen, maybe just a little more context. We're kind of a year into this inflation. And I clearly understand it's gotten worse. Hands down, no doubt about it. Every single company who's going to report, is going to say the same thing. Is there a way in your business -- in NCR's business to better align inbound cost versus how you're pricing the product? As you guys are probably aware, I follow some more industrial tech type names. Indeed, majority of them are actually in a favorable price/cost spread position right now. And I guess I'm trying to understand more around your business, maybe what makes it so much different.

Yes. No, that's a very good question. I -- Owen and I ask that ourselves as well. The -- when you sell as a solution and you sell long-dated contracts, 4- or 5-year contracts, with only annual escalators, it's really hard to catch up in an environment where price is increasing so quickly. We also have very long lead times on -- particularly because of availability of parts, long lead times on our SCO and ATM units and I guess, POS now as well. When we sell those units to our customers, they -- we commit to a price and we get revenue recognition when they implement those devices. And the change in cost for us over that 4-month period of time when a step function changes like it did in Q1 is painful. And so we need to find a way contracting with our customers that we protect ourselves against that extension of implementation.

And we'll move on to our next question from Charles Nabhan of Stephens.

Given some of the visibility you have into consumer behavior through your businesses, whether it's Allpoint or Hospitality, just curious what you're seeing in terms of spending trends given some of the inflationary pressures? And also curious if stimulus -- the lapping of stimulus disbursements through 2021 has any impact on your businesses or the cadence of results over -- through 2022?

Yes. On the first part, whether we've seen customers impacted by spending trends, we have not seen that yet. If you look at our commerce business, Retail and Hospitality, the 2 biggest challenges, the executive teams, the managers of those entities have, is the implementation of technology and the pace of some of the change, particularly around opening up new channels and integration of channels. A lot of that brought in by the pandemic, quite frankly.

And then secondly, their second biggest issue is labor, the cost of labor, the availability of labor. And so as you look at NCR, as they look at assets, our software technology and our self-service equipment that allows them to deliver lower cost. So we actually -- and Tim talked about in the Retail, that's a pretty active area is as people try to roll that out and help to impact their labor costs. So on the stimulus that hit Allpoint, some of that in 2020, a little bit that hit 2021, you could see the months for that roll through, so that did have a little bit of a spike and some revenue pickup.

The first quarter impact to Allpoint and transaction volume was really related to offshore, Australia, U.K., Canada, South Africa, some of the other countries where they did shut down probably a little bit in the states where some regions may be slowed down due to Omicron. And I suspect, as most of you know, Omicron kind of came at us late December, early January and just rolled to and shut down parts of the business. So I don't think the impacts in the first quarter relates to impact of stimulus. We've kind of mapped it out. We still -- as you look at it, we still grew -- even with those impacts, our payments grew year-over-year quite nicely. So it was more of a where we thought we were going to be against plan versus year-over-year growth.

Right. The segment grew, Mike, and so did the total transaction volumes. So The U.S. did grow better than others. But in aggregate, the payments volumes were up year-over-year, just not up as much as we would have thought.

And just as a quick follow-up on supply chain, and I apologize if you touched on this earlier. Could you speak to the receptiveness of your customers in accepting price actions from inflation? For example, obviously, nobody is happy about it, but are you seeing any orders just delayed indefinitely? Or are the majority of your clients accepting? And I guess as a parallel to that, if I think about the difference between the $50 million and $100 million in mitigating actions, if you could speak to what would lead us to come at the low end versus the high end of that range?

Yes. Let me take from the customer perspective. There isn't a customer who's not dealing with it on their end of things. And I think if you listen to many of our customers as they have reported and talked about the issue, they are trying to stay on ahead of this cost curve as well. So we have been as transparent with our customers as possible. Regarding the cost escalation, the fuel cost, the hardware cost, the freight costs, which have all escalated and it's to no one surprise that we're having the conversation. Most of our customers are understanding it. And I think there is, to this point, a tolerance. I think all of us are going to -- will be taxed on the level of tolerance. But thus far, as we've gone back to our customers and explained and met their need, and I think that's a hugely important issue.

We have met the needs of our customers throughout all of this, as they have expanded, as they've opened up, as they're refreshed, and I think that's a really important element of our commitment to support our customers. And in that conversation, especially in the last 30, 45 days, we have been very clear about our need to make sure that we're regaining pricing because of the cost escalations.

And I think -- on the $50 million versus $100 million, I think we need to look at all, that whole page in aggregate. We tried to estimate where we think that the macro environment is going to take us over the next 3 quarters. And I think we are reasonable in our expectations. We don't know whether we're right, but we think they're the right expectations. We also said we're going to over solve against that because we're not sure that the world might not deteriorate further. And so when I talked about a couple of hundred million dollars of cost or a couple of hundred million dollars of pricing actions to try and net, 2%, 2.25% this year. That would be over and above the $50 million to $100 million I described here. We need to get $50 million to $100 million to get back to the guidance we provided. I feel very good about the guidance range we provided, and these are the actions necessary to get there. When and if we overachieve this $50 million to $100 million, it should be accretive presuming (inaudible) continue to get worse.

We'll go next to Kartik Mehta of Northcoast Research.

Mike or Tim or Owen even, you've talked about, obviously, delays because of what's happening in the marketplace. Are any of your customers canceling orders maybe because of the price increase or maybe not being able to get the product on time?

Yes. Again, Kartik, you think about what we're delivering. So think about a restaurant, we're delivering POS system. So it's a device, but it's also all the software and the technology, they need that to open the store or, in some cases, refresh the store, refresh the restaurant. It's the same with a store. And again, it's the same with our banking business.

So I think our challenges have been getting the price increase with it. And then another one is just getting the surcharges for expediting orders pushed to the customers, and I think the team is confident we can get that done.

And I think the profile of the customer relationship is dramatically different because it's not hardware-focused independent. To Mike's point, and I go back to the strategic KPIs, these are about installing systems to run the restaurant to address the conversion to the latest version of POS for our retailers and coming along with that is the hardware. So our customers are not backing off. These are strategic initiatives on their part, which includes a hardware. It's why we worked so hard to make sure we're getting the hardware product to them. And in the total scheme of the imperative that they're trying to gain, I think that's where -- right now, the cost discussion with them is holding up. So they're not backing off because it's not a single hardware transaction. It's more. Most of these are part of a bigger imperative.

And then just 1 last question. Just on the merchant acquiring business, I know, you've talked about integrating that business to at least NCR Silver and obviously, Aloha. And I'm wondering how that's progressing and what the uptake might be from a customer standpoint?

Yes. So for our SMB market, the Silver product and the Aloha. And then again, we go to market (inaudible) Aloha Essentials where we bundle it. For new installs, we're running about 90% attach rate on payments. So we're actually doing quite well. We've continued to make progress with larger hospitality sites, some enterprise sites upselling our payment into those sites as well. And then this year, our goal is to get up and running the retail side as well with (inaudible) payment.

And we'll go next to Paul Chung of JPMorgan.

So just on digital banking. You saw EBITDA growth coming at a relatively kind of slower pace than revenues, but at 11%, which was quite strong. Is mix driving some of that or some of the overall macro headwinds you mentioned or some of the consolidation you also mentioned?

No. Digital banking doesn't -- inflation doesn't impact this business nearly as much as the others. I think it's just a temporal mix shift in the quarter. There's not a noticeable -- there is nothing to worry about in that margin rate, it's still very high.

Yes, it's very high. Got you. And then what are features of active users who are using the most? And how is the firm kind of driving higher active users there? What are some main reasons clients don't become active and then I have 1 follow-up?

Yes. I mean digital banking [class] the Board for the whole retail enterprise, whether it's our clients or in broader market. Most -- everybody uses your digital device payments as a retail client as the consumer. So payments are very active, reviewing accounts, transferring money. The big movement in digital banking is account origination. Our Terafina product is actually doing really strong as we go back and cross-sell into banks and credit unions across our customer base. So we actually competitively in the digital banking product space are really doing strong this year. The slight dip is really -- one of the customers got acquired about 1.5 years ago, that was deconverting. Larger clients that got merged (inaudible) and then another one that had notified, I think, 4 years ago that they were going to go in-house quite frankly, which is very odd. We haven't really seen one of those.

And as Owen mentioned or Tim mentioned at the early third quarter, in July, we anticipate bringing on 2 new clients. So it's really a slight dip in the account volume. The registered versus active, we look at that delta. It's a great opportunity to add new active accounts. We get paid on active. So the team has a very strong program to go back. You work with the bank, so you do a branded exercise with the bank that we will leave with NCR to go back to existing clients and say, did you know you could do your bill pays using your digital base, did you know you could open your accounts, did you know you could transfer money and try to get people back using that accounts so we get paid.

Got you. And then lastly on self-checkout. If you could give us an update on how the (inaudible) rollout is progressing? Are you seeing kind of more traction with other key retailers here beyond grocers and home improvement? And what are your kind of expectations there as we lost some tough comps here moving forward?

Yes. It's really -- so (inaudible) going great. Team is really -- again, in SCO, we have a great product, both hardware and software, right? It's usability. And we clearly lead the marketplace in that regard. So the big boxes that move down market to grocery store, the large grocers now to midsize and then very strong in the CFR convenience fuel space, where they're starting to be challenged by labor, cost of labor and availability of labor and really moving aggressively to roll out self-checkout.

And with no further questions in the queue, I would now like to turn the call over to Mike Hayford for closing remarks.

Thank you. So the team here is obviously disappointed in the numbers. It is a result of things moving at a pace that some of us haven't seen before in terms of multiple external factors so the pace of the cost moving very aggressively in the first quarter. The pace of interest rates that we anticipated changes this year, but they moved fairly aggressively in the first quarter. The pandemic, which I know we're all tired up 2 years into it. The Omicron wave, we did not expect those kind of impacts. I don't think anybody did having business to cycle back through a little bit of slowdown. And then lastly, we did not really predict the war and the impacts that it would have on our business in Russia and the Ukraine.

So while our numbers are disappointing, our performance during the quarter was not. We feel very positive about our performance. We had good momentum and good execution across all of our strategic initiatives. Our whole team worked really, really hard in the first quarter. We continue to win in the market. We continue to drive execution platform lanes. And the retail business is dramatically up. Digital Banking, strong growth again, customer wins again, both cross-sell as well as new logos, hospitality sites.

Hospitality is on a great tear the last number of quarters, and this quarter was no exception. So a number of sites, particularly in some of the SMB markets with the relaunch of our SMB product, a cloud-based product that we're excited about.

Payment attach revenue, payment attach in hospitality, very strong year-over-year. And then what we're doing in the Pay360 and LibertyX rolling out new products into our endpoints and offline exchange. So we looked at strategically and you can see the strategic metrics, we had a really strong 2022 first quarter.

The difference, I'd tell you on the cost, where in the first quarter, we didn't have the time to make the adjustments that we needed to the impact first quarter. We have the time to make those adjustments. And I think Tim did a nice job of laying out the desired actions. We will over solve, and we feel very confident we can hit the numbers that we have identified for impacting our cost structure throughout the rest of the year.

Our teams, again, have continued just a great shout out. Everybody performing in a very difficult environment, not only some of the external forces that we talked about, but still continue to work in this hybrid environment where we're not all sitting in our -- at our chairs. We continue to win in the marketplace via the competition, and we feel that we will do that through the rest of the year. So I want to thank everybody for joining us today, and we'll talk to you next quarter.

And so that does conclude this call. Thank you for your participation. You may now disconnect.