NCR Voyix Corporation

Moat: 2/5

Understandability: 4/5

Balance Sheet Health: 3/5

NCR Voyix Corporation is a global provider of digital commerce solutions, including software, services, and hardware, primarily focused on the retail, hospitality, and banking industries.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

NCR Voyix Corporation (VYX) operates in the digital commerce solutions market, offering a range of hardware, software, and services to various industries, particularly retail, hospitality, and banking.

  • Revenue Distribution:
    • Software and Services: The core of NCR Voyix’s business, encompassing recurring revenues through subscriptions and long-term contracts for software, services, and related support.
    • Hardware: The sale of point-of-sale systems, self-checkout kiosks, ATMs, and related devices.
    • The company has been restructuring its operations, focusing more on recurring revenue streams from software and services, and less on fluctuating hardware sales. As of September 2022, recurring revenue constituted roughly 62% of the company’s total revenue.
  • Industry Trends:

The industries where NCR Voyix operates are undergoing significant digital transformations, creating opportunities as well as challenges. Retail and hospitality are increasingly adopting self-service technologies, data analytics, cloud computing, and mobile payments. The banking sector is seeing more integration of digital channels, while also managing security risks. * Retail: The retail industry’s move towards omnichannel solutions (integrating in-store with online) and the adoption of self-checkout and electronic price tags are driving demand for NCR Voyix’s technologies. However, online retail provides competition for many brick-and-mortar stores, therefore creating more price pressure. * Hospitality: The hospitality industry is adopting technology for personalized experiences, online ordering and payments, and streamlined operations to enhance efficiency. This creates opportunities for companies that offer innovative point-of-sale, kitchen display systems, and loyalty systems. * Banking: The financial industry is transforming rapidly, with increased adoption of digital banking, the need for enhanced cybersecurity, and improved efficiency in operations through automation of processes.

  • Margins:
    • NCR Voyix has a respectable gross profit margin, ranging from 40 to 60%. The service segment generates much higher margins than the hardware segment.

The company’s focus on shifting towards more software and recurring revenue streams is intended to drive higher margins and more stable performance. * Competitive Landscape: * The company faces competition from a number of large companies, including those that specialize in technology and others that offer very narrow products. Competitors are often focused on different segments of the market. For example, in the ATM space, Diebold, and in payments and financial processing, Global Payments and Fiserv, are their competitors.

        *   Many companies try to replicate the success of NCR's services by offering similar software and hardware to the same industries. This creates intense competition that can lead to price wars.
      *   Because many technology companies can create and deploy similar solutions, the technology itself isn't a significant moat.
     *   The market also sees some companies compete on specific functionalities rather than providing comprehensive solutions.    *   **What Makes NCR Voyix Different?:**
   *   NCR Voyix differentiates itself by providing an integrated solution for all three key areas of retail, hospitality and banking as opposed to specializing in one like some of its competitors. Additionally, NCR has a good long-standing reputation for ATM hardware and support.
      *   However, the company has a long way to go to develop meaningful and sustainable moats.

Financial Analysis

  • Revenue Growth: Revenues declined in 2022 by about 8% from $7.5B to $6.9B mostly due to decreased hardware sales, which are less profitable than the software and service part of the business. The company has been making a strong push to grow revenues from recurring revenues, software, and services, as these have more predictable income and better margins. This strategy has had some success so far, but is still ongoing. The most recent quarter, 2023 Q3, shows revenues of $1.9B with a 1% growth rate year over year. While this is only one quarter and must be taken with a grain of salt, it still reflects that the company is struggling to grow in the short-term.
  • Profitability: Gross margins are a good point of strength, averaging between 40% and 60%. The adjusted operating margin, on the other hand, is less impressive, averaging around 12%. The company is aiming to achieve a better profitability picture by increasing recurring revenues and reducing reliance on low-margin hardware sales. However, the operating margin is still an area of concern.
  • Balance Sheet: The company’s current assets amount to 1.6B in assets and the company has a total of 11.3B in debt, which is quite a high level of debt. The debt has been declining in recent years as the company generates more cash, but the company’s liabilities overall are still high at 12.8 billion. Moreover, goodwill and intangibles represent a sizeable part of their assets (4.1B), which leaves little in the way of actual assets and makes its balance sheet health somewhat worrying.
  • Cash Flows: For the nine months ended September 30, 2023, net cash provided by operations was 646 million. After adding capital expenditures, free cash flow for the nine-month period was $360 million, showing a reasonable positive trend. The company has also been focusing on better cost control in order to generate more cash. Free cash flow is an important variable to watch, as it shows whether the company is generating enough income to finance itself and reinvest into its business.

In 2023 Q3, NCR Voyix’s revenue stream is struggling to generate consistent growth. The company is heavily dependent on acquisitions for revenue, and this approach might be unsustainable in the long-term. The company also needs to tackle its heavy debt load, improve profitability, and build its brand in a sustainable manner to create investor value.

Moat Assessment

Moat Rating: 2 / 5

  • Intangible Assets: NCR Voyix does have a brand that provides some moat, but not that much due to competition from all sides. The company does possess some proprietary software and hardware that is difficult to replace. However, due to competitors catching up, this aspect is being challenged as well.
  • Switching Costs: Due to the nature of business and the way the company interweaves into the business structure of the customer, switching costs provide some moat. However, this moat isn’t strong due to competition from alternative software and hardware solutions.
  • Network Effects: The company’s services and products do not benefit significantly from any network effects.
  • Cost Advantages: The company doesn’t have any particular cost advantages that lead to a better competitive position and moat. However, through economies of scale, it can have better pricing power.

Justification: Overall, NCR Voyix has a “narrow” moat. The company benefits from its established position in its main markets and can make it difficult for customers to switch due to integrations between software and hardware. However, these benefits are challenged by intense competition that offer both substitute products and competing services. While NCR has some differentiating factors, they are not strong enough to provide long term protection from new and existing competitors.

Risks to the Moat and Business Resilience

  • Technological Disruption: The company is prone to disruption from new technologies, such as faster and more modern hardware systems, and software services that displace NCR’s current lineup. The technology sector is always undergoing massive transformation, and it’s important that the company keep up with these rapid changes in order to have a sustainable moat.
  • Increased Competition: Competitors such as IBM, Fiserv, and Diebold continue to improve their products and offer alternatives, placing pressure on NCR’s pricing and market share. The increasing amount of companies in the digital payment space also increases risk in the future.
  • Economic Downturns: The industries that NCR serves are tied to broader economic trends. Hence, an economic downturn can harm NCR’s growth, as companies hold back on investments.
  • Debt Load: The high debt levels of the company can constrain its financial flexibility to invest in its business or make new acquisitions. The high debt might reduce NCR’s capability to withstand the tough competitive environment.
  • Integration and Execution Challenges: Acquisitions have been a key element of the company’s growth, however, integrating all these companies can be difficult. Moreover, there have also been some challenges associated with the execution of the new strategy. Failing to properly integrate acquired companies or properly implement strategies may harm the company’s overall financial outlook and profitability.

  • Customer Consolidation: The customers that NCR serves include a few large multinational corporations, providing a risk if those companies were to consolidate with their competitors. This would likely reduce the amount of orders.

    Business Resilience: Overall, NCR Voyix has shown some resilience in the past to market changes. It has been moving to strengthen itself by focusing on recurring revenues and reducing its reliance on hardware sales. However, technological disruption and fierce competition could pose significant threats to its long-term resilience. The current business model does not seem resilient enough to withstand a major downturn, especially with its high debt.

Understandability Rating

Understandability: 4 / 5

  • NCR Voyix has a clear business model—selling digital commerce solutions, hardware, and related services to companies in various industries. However, the various methods of valuation are somewhat complicated and require a deeper understanding of finance.
  • While the industry that NCR serves is fairly straightforward, understanding how each element affects the company and its competitive advantage requires more effort. It also requires knowledge of the technology involved.

Balance Sheet Health Rating

Balance Sheet Health: 3 / 5

  • The level of debt is a point of concern and negatively impacts its score. Despite paying down some debt, the company still has a significant amount left.

  • Goodwill makes up a sizeable chunk of their assets, which decreases the true value of the company’s assets and poses a potential risk.

  • The company has a somewhat reasonable level of cash and marketable securities, but it can be severely hampered by its long-term debt obligations.
  • NCR has been improving its balance sheet but has yet to establish a fully healthy one.