NCR replaced their management team about a year ago. Bill Nuti, NCR’s previous CEO, borrowed money with seemingly little regard for the future, committed NCR to an overpriced, downtown office in Atlanta, and couldn’t be bothered to live anywhere near the company’s headquarters. It seems we aren’t the only ones that questioned Bill’s approach.
NCR’s new management has been at the helm for a year. The market would tell you that any performance from here on out is directly attributed to the new leadership: they cannot blame Nuti for any missteps going forward.
It’s with this lens that we analyze NCR’s Q4 2018 performance.
What first caught our attention was NCR’s CEO discussing the investment in their POS divisions.
Next in Digital First restaurant, we will accelerate investment in our Aloha Cloud point-of-sale solution as we migrate from a software license to a subscription model. Likewise, in Digital First retail, we will continue to invest in Emerald, our next-generation cloud-based retail point-of-sale solution, which also facilitates the transition to a subscription model.
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And we talked about Aloha and bringing that to cloud. We talked about the Emerald product, which we’ve got up and running that a couple of sites already end of this year that we’re going to put some more money in, which gets into a cloud-based retail product.
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Note, in our revenue guidance that as our business model changes and we begin to bring new products to market, we will begin to shift from perpetual license revenue to subscription-based revenue, which may have a dampening effect on our overall revenue as we grow our recurring revenue base.
Mike Hayford, NCR CEO
This comment is mostly smoke and mirrors. An uninformed listener might automatically assume that a monthly subscription model accompanies serverless, cloud POS systems. Any why wouldn’t they: over the past 10 years companies like Square have offered cloud POS with a monthly fee. Yet NCR does not have a cloud POS of note (we’re not counting NCR Silver, which is too lightweight to replace Aloha or Emerald). Why has NCR missed the market by a decade? Even more importantly, why is the person who was responsible for this product category promoted despite missing the market by a decade?
This is a reflection on new leadership, not Nuti.
Next, NCR is starting to bundle their POS offerings with their payments acquisition in JetPay. NCR has already tasked some JetPay executives with finding way to accelerate the adoption of NCR Sliver, yet those same JetPay executives have been reaching out to competing POS companies to find a different (i.e not NCR Sliver) POS to attach with JetPay. When our POS colleagues asked why JetPay was reaching out considering they were backed by NCR and tasked with moving Silver, these executives said they did not feel they could meet their payments quotas with the Silver product.
Woah.
Finally, in digital small business essentials, we will expand our NCR Silver product capability, including the full integration of payment. We will also increase marketing spend to accelerate adoption.
Mike Hayford, NCR CEO
NCR is still keen on M&A. We disagree with NCR’s “competitive advantage” as POS (and certainly payments) is commoditized and reaching a singularity, and one could very convincingly argue that NCR’s POS products in particular significantly lag those of competitors by a wide margin.
These six strategic growth platforms are areas where we are delivering proven value and competitive advantage to customers today. During 2019, we will be prioritizing investments in these six platforms through increased spend as we accelerate software related investments to further strengthen our growth profile. This approach will result in higher CapEx in 2019 as we pull forward investments resulting in capital allocations that will be weighted more heavily towards internal investments than targeted M&A.
Mike Hayford, NCR CEO
On the plus side, NCR is starting to find some margin expansion in their Services revenue. It’s unclear if this is coming by way of expense reduction or cost increases. Technology companies like Revel, Square, and Toast use data to remotely diagnose and even resolve issues before the merchant knows they have a problem. This requires foresight that NCR has not often demonstrated they have. NCR’s CEO says higher Service margins are from Mission One, which is an overhaul program of sorts. Given NCR’s track record of overpricing and a fundamental misunderstanding of data, we’re not convinced that’s true. If NCR has figured out how to finally use data to cut down on support costs, let’s hope they pass the savings along to customers.
Services margins continue to expand as a result of our Mission One transformation initiatives, which have improved productivity and efficiency.
Mike Hayford, NCR CEO
We’re shocked no activist investor ever demanded this previously, but NCR is going change their quarterly and annual reporting for the better. This will give the market much more transparency on NCR’s efforts, so kudos to their management team for recognizing the needed change.
“Beginning in 2019, we have reorganized the business by industry and will change our reporting segments effective Q1 2019 to banking, retail, hospitality and other segments… banking comprises roughly 50% of total revenue; retail, 33%; hospitality, 12%; and other, 5%.”
While NCR didn’t say they would be laying off a relatively large number of people in quarters past, now that those people are gone NCR can talk about how it found $100M in savings to pay for Nuti’s overambitious expenditures.
And finally, in OpEx, our plan to generate at least $100 million in annualized savings, the bulk of which is OpEx, remains on track. The majority of these savings have already been achieved, primarily through workforce reductions
The last two topics of note are a broader reflection of NCR’s current culture, which disappointingly seems to have remain unchanged from the days of Bill Nuti.
And I think as Mike said, we need a broader software portfolio to rely less on third-party. So I think we think of M&A with that in mind. Also, too, you look on something like software maintenance.
Andre Fernandez, NCR CFO
Again, we’re catching NCR saying that they want to monopolize the entire technology stack for their merchants. This is despite their own historical proof points of an inability to do so.
When NCR has made acquisitions in the past, those products have become irrelevant in a remarkably short order of time. Aloha POS should be all the proof someone needs: NCR missed the move to cloud POS by 10 years! 10 years is a whole f*cking decade. Never mind NCR’s acquisitions of Cimplebox, Compris, Orderman, Radiant, Retalix, and a long list of others. The same outcome is likely for the HR and payroll business lines NCR acquired with JetPay:
“We picked up a HR and payroll system with the JetPay acquisition that we’re going to cross-sell in the SMB market.”
Why NCR thinks the market should give them latitude to ruin other parts of the merchant stack is beyond us. Can NCR first prove it does one and only one thing well?
Last is Mike Hayford’s commentary on their JetPay integrations.
So the team right now, you may have seen with the press release clearly the day after we closed, we have an Aloha client up and using JetPay from merchant acquiring.
Mike Hayford, NCR CEO
Mike Hayford is referring to David Long, the owner at Urban Eatz in Richardson, Texas. We called David to ask him about his payments experience and he shared that NCR would not let him talk to us. If it were going so well wouldn’t NCR want David to transparently discuss the product with news outlets? This reminds us a lot of Theranos, a fraudulent startup that had tightly controlled demonstrations and significantly curtailed any intelligent journalism to obfuscate what was really going on. In other words, we’ve never found gag orders to be a proxy for outstanding corporate culture.
Until NCR changes its culture and recognizes its limitations we don’t see current management meeting numbers and getting the reprieve they might be seeking from the markets. We expect things to only get more difficult for NCR.
