Good day, and welcome to the NCR Corporation Third Quarter Fiscal Year 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Michael Nelson, Treasurer and Vice President of Investor Relations. Please go ahead, sir.

Good afternoon. And thank you for joining our third quarter 2021 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 are 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, in our periodic filings with the SEC, including our annual report. On today's call, we will 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 October 26, 2021, 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.

Thanks, Michael. And as always a great job with the intro to our third quarter call. And thank you everyone for joining us today for our third quarter 2021 earnings call. I will begin with some of my views on the business, including an update on our move to NCR becoming a software platform and payments company with a shift to recurring revenue streams, and a focus on improving profit margin. Tim will then review our financial performance and an outlook into the remainder of 2021, and then Owen, Tim and I will take your questions. Let's begin on Slide 4 with some highlights from the third quarter. NCR delivered strong performance that included accelerated recurring revenue growth, significant margin expansion and solid cash flow production. The team executed very well, both strategically and tactically. Strategically improving our mix of software and services, investing in our platform products and at the same time, continuing to build momentum in our NCR-as-a-Service strategy, while continuing to focus on meeting customer needs in the challenging supply chain environment that we experienced in the third quarter. First, we delivered 20% total revenue growth and 39% recurring revenue growth in the third quarter. Recurring revenue represented 62% of total revenues in the quarter, which is the significant increase from 53% one year ago. We continue to make steady progress increasing our recurring revenue, which is consistent with our 80, 60, 20 goals. As you know, the third quarter was the first full quarter of incorporating Cardtronics in our financial results as we closed on the transaction in late June and received the final regulatory approval on August 10 from the CMA in the UK. Second, adjusted EBITDA increased 41%. Third, adjusted EBITDA margin expanded to 18.5%, which represents an increase of 280 basis points from the third quarter of 2020 and marks the highest level in four years. Fourth, we delivered solid free cash flow. We generated $125 million of free cash flow in the quarter. This is the sixth consecutive quarter of positive free cash flow. The successful execution of our NCR-as-a-Service strategy is helping to drive higher recurring revenues, expansion of EBITDA margin and more linear free cash flow production. And finally, the integration of Cardtronics remains on track. We made progress integrating the teams and going to market as the unified company, we are more enthusiastic than ever. We are well positioned to accelerate the NCR-as-a-Service strategy and further shift NCR’s revenue mix to software services payment, including recurring revenues. Now moving to Slide 5, we executed extremely well in the third quarter driving progress towards NCR-as-a-Service. We have strong momentum across our strategic growth platforms, which support our transition to shift NCR to a software platform and payments company. In banking, we continue to have a positive momentum in our digital banking platform. In the third quarter, digital banking had 22 renewals, three new logo deals and eight new product sales to existing clients, all positive drivers of growth. Demand has been strong for our business banking platform, as well as for the online digital account opening. With digital account opening, which we obtained through the acquisition of Terafina earlier this year, NCR can now onboard a broad array of accounts across multiple channels. I am pleased with the progress we have made returning digital banking to a growth engine for NCR. During the third quarter, digital banking grew 9% over the same period last year. We are receiving increased interest in our ATM-as-a-Service solution and integrated go-to-market model between the legacy NCR and Cardtronics teams provide a key point of competitive differentiation. Liberty Bank, which is one of the largest mutual banks in the United States selected NCR to provide end-to-end ATM-as-a-Service for its ATM network, including upgrading its entire ATM fleet. In retail, we continue to gain traction with our NCR Emerald software platform. We have positive momentum in winning upgrade imperative for retail POS software. In the third quarter, we had significant success advancing our software defined store, which is a component of our next-gen Emerald solution. It provides us the capability to start our retail clients down the path of upgrading to our next-gen cloud-based solution in a seamless low risk approach by accepting select microservices from our NCR Commerce platform in an incremental approach to transitioning to NCR’s next-gen solution. We had two major software defined store commerce platform signings during the third quarter from large clients that have installed the NCR commerce platform, validated the technology in a full rollout during 2021, both confirming their success with signing a five year subscription agreement during the third quarter. These two were Pilot Flying J, the largest operator of travel centers in North America with 750 retail locations in 44 states, and Circle K, which operates more than 15,000 convenience stores in over 20 countries. In addition to the NCR Commerce platform, Circle K also expanded its relationship with NCR to enable the Allpoint network across stores in eight states. During the quarter, we also signed 17 new contracts for our digital front-end app, Freshop. This SaaS solution helps grocers implement their own e-commerce and delivery services without expensive third-party providers. Freshop connects to our clients through the NCR platform and provides NCR additional upsell opportunities and value-add for our retail customers. In hospitality, our focus on customer success and wallet share gain is proving itself in our ability to track new customers and better service existing customers. NCR realized a significant upgrade in our relationship with Buffalo Wild Wings, which is part of the Inspire Brands family, entering into a four-year contract to support Buffalo Wild Wings across 1,200 locations with subscription-based point-of-sale software, various cloud-based applications and end-to-end managed services. In the SMB market, the momentum of Aloha Essentials, which bundles payments, software services and hardware into a single offering continued in the third quarter with a 102% increase in Aloha Essentials sites over last year's same quarter. Our payments business continued its success during the third quarter. We increased the number of restaurant payment processing sites by 27% from the second quarter, as well as upselling existing customers to our payments platform. During the third quarter, we signed enterprise hospitality client Sbarro to our payments platform. This is in addition to two other enterprise hospitality clients, Shipley and Payway that we signed a payment processing deal earlier this year. In summary, we have increased momentum, accelerating our NCR-as-a-Service strategy across each of our business segments. We continue to focus on taking care of our customers, advancing our product capability with investments in our strategic growth platforms and improving our productivity. With that, let me pass it over to Tim.

Thank you, Mike, and thanks to all of you joining us today. To echo Mike's comments, we are very pleased with our third quarter results. We demonstrated terrific tactical execution in an uncertain business environment and significant acceleration in our more strategic growth areas. As a reminder, the financial close of the Cardtronics acquisition was June 21, and we received final approval from the UK CMA in mid August since we last talked to you on our Q2 earnings call. Today's report includes results for the consolidated companies for the full quarter with legacy Cardtronics now included in our banking segment. Let's begin with Slide 6, which presents a top level overview of our third quarter financial performance. Starting in the top left, revenue was $1.9 billion, up $312 million or 20% versus the 2020 third quarter, driven by strong growth in both our banking and hospitality segments. Normalizing for the inclusion of Cardtronics, pro forma revenue was up 3% year-over-year. In aggregate, we had high double-digit revenue growth in our software business, which is more than sufficient to offset lower hardware revenue. While demand for hardware across all three segments is increasing, component availability and freight challenges constrained both revenue and profitability in self checkout and point-of-sale. Also shown here in darker green is our mix of recurring revenue. With the inclusion, the full quarter of Cardtronics revenue, which has a preponderance of recurring revenue, our aggregate result was up 39% and comprised 62% of revenue in the quarter. On a pro forma basis, recurring revenue was up 7% year-over-year. In the top right, adjusted EBITDA increased to $103 million or 41% year-over-year to $352 million. Adjusted EBITDA margin rate expanded 280 basis points to 18.5% representing a high watermark for the previous four years. While I will provide a little more detail in the discussion of the segments, in general, a higher value revenue mix, cost productivity and price initiatives were together more than sufficient to overcome premium costs associated with a brutally difficult supply chain and a huge shift to recurring revenue for our retail business. In the bottom left, non-GAAP EPS was $0.69, up $0.15 or 28% from the prior year third quarter. The Cardtronics transaction remains on track to be 20% to 25% accretive to EPS within the first full year. The tax rate was 28.5%. And we now expect the full year tax rate to be 28%. And finally, and maybe most importantly, we delivered another strong quarter of free cash flow with generation of $125 million. This compares to $160 million in the third quarter of 2020, which benefited from pandemic-related temporal cash preservation actions and the timing of an insurance settlement. Moving to Slide 7 for our banking segment results, which now includes the Cardtronics operations. Banking revenue increased $273 million or 35% year-over-year driven by increases in software and services revenues that more than offset the decline in ATM hardware revenue. We continue to successfully replace our one-time revenue that was traditionally recognized with the sale of ATM hardware with more durable, predictable and valuable software and services revenue streams. Subscription software TCV signed in this segment doubled from prior year with significant increases in both annual value and duration. Banking adjusted EBITDA increased $98 million or 68% year-over-year. Adjusted EBITDA margin rate expanded by 450 basis points to 23%. The margin increase was a result of the significant accretion from the inclusion of the Cardtronics businesses, a more profitable and valuable mix of revenue in our legacy NCR businesses, as well as the cost productivity and price increases. The bottom of the slide shows our key metrics for the Banking segment. On the left, while current quarter wins have a typical lag to conversion and eventual revenue generation prior period wins at Digital Banking drove a 9% year-over-year growth rate in the third quarter. The grade of growth in Digital Banking has accelerated in the last several quarters. We continue to expect Digital Banking to exit the year at a double-digit revenue growth rate as we lap most of the attrition caused by the 2019 customer losses. Digital Banking registered users also increased 9%, compared to Q3 of 2020. The shift to recurring revenue continues to gain traction with recurring revenue up 71% year-over-year and 7% on a pro forma basis. We are extremely pleased with the first full quarter performance at Cardtronics. As we continue to add and expand with financial and retail partners, we are driving more transactions over our leading ATM network in the United States. Cash transactions on our ATMs in the U.S. were up 12% compared to third quarter of 2020. This strong transaction growth in the U.S. demonstrates the value of the network to our consumers, to our retailers and to our financial institutions and drove strong performance. We expect to drive both traditional transaction growth and new types of transactions as we invest and expand the capabilities of this network. Moving to Slide 8, which shows our Retail segment results. While I typically start in the top left on these charts for this quarter in retail, the story is really described by the bottom half of the page. Looking at SCO revenue, which is approximately 50% hardware as we called out on Q2, we posted a very strong Q2 growth rate due to a customer request to accelerate a $30 million self checkout order into Q2 from the second half of the year, which exacerbated an already sawtooth pattern. We expect a strong Q4 for self checkout result in full year 2021 growth of more than 10%. And in the center bottom our platform lanes, a KPI that illustrates the success of our strategy of converting our retail customers to our platform based subscription model. As you heard from Mike, we had two key deals at Pilot Flying J and Circle K converting to our software defined store platform during the quarter. These contracts much like those we have standardized on in the Banking segment convert one-time perpetual sales into a multi-year subscription based revenue stream. The nature of these contracts shifts roughly $30 million of very high profit revenue that would’ve previously occurred as upfront software license to revenue that now recurs over the next several years. Considering those two retiming impacts, retail revenue declined $3 million or 1% year-over-year due to the lower hardware revenue and the shift to recurring revenue, partially offset by growth in software and services. And similarly retail adjusted EBITDA declined $11 million or 14% year-over-year. While adjusted EBITDA margin rate contracted 190 basis points to 12.7%. The declines are primarily driven by that shift to recurring revenue. Recurring revenue in this business increased 4% versus the third quarter of last year. Slide 9 shows our Hospitality segment results, which is participating fully in the recovery of the restaurant industry. We’re seeing strong momentum across the business. As we see a rebound in the enterprise market for the uptick in new restaurant openings and technology refreshes. Hospitality revenue increased $50 million or 29% as restaurants reopen, rework existing locations and expand. Our signed subscription total contract value in this business increased 46% from the year ago third quarter. Our sales pipeline is getting stronger and we continue to hire to increase our feet on the street and catalyze growth. Second quarter adjusted EBITDA increased to $35 million up 46% from the third quarter of 2020, while adjusted EBITDA margin rate expanded 180 basis points to 15.7%. This improved profitability was driven by higher revenue and lower operating expenses. Hospitality’s key metrics on the bottom of this slide include Aloha Essentials sites and recurring revenue. Aloha Essentials sites more than doubled when compared to the prior year third quarter and grew 30% sequentially. And in the graph in the bottom right, recurring revenue increased 19% from last year and 7% sequentially. Turning to Slide 10, we provide our second quarter results for our 80/60/20 strategic targets. First, we strive to generate 80% of our revenue from software and services or less than 20% of our revenue from discrete hardware sales. In the third quarter, software and services represented 76% of our revenue, which is up from 71% in the year ago quarter. Stepping down the page we aim for 60% of our revenue to be recurring to drive more resilient, more predictable, and more valuable revenue. With addition of Cardtronics, we have now exceeded our goal with recurring revenue representing 62% of the total, up from 53% in last year’s third quarter. And we aspire to a 20% adjusted EBITDA margin rate. We made significant progress in this quarter with an adjusted EBITDA margin of 18.5%, compared to 15.7% in the third quarter of 2020. On Slide 11, we present free cash flow, net debt and adjusted EBITDA metrics to facilitate leverage calculations. We continued the trend of strong, more linear free cash flow. We generated total free cash flow of $125 million. We have a strong balance sheet, ample liquidity and the financial strength to support our growth strategy. The increase in cash provided by operating activities was primarily driven by the effective management of our working capital, including the refinancing of our receivables asset based revolver to provide higher availability and to make the financing non-recourse. This provided a one-time $274 million benefit to operating cash flows. We used that cash along with our strong Q3 free cash flow to redeem our highest coupon debt, $400 million of 8% bonds. Taking all together, all of these efforts have reduced our average borrowing rate to 4.15%. This slide also shows our net debt to adjusted EBITDA metric with a pro forma leverage ratio of 3.8 times. When we announced the Cardtronics transaction, we estimated that our pro forma leverage would be about 4.5 times with a commitment to delever to 3.5 by the end of 2022. We are significantly ahead of the schedule due to higher than forecast cash generation by both companies. We ended the third quarter with $383 million of cash and remain well within our debt covenants, which include a maximum pro forma leverage ratio of 5.5 times. We also have significant liquidity with about $1 billion available under our revolving credit facility. Finally, about 90 days ago, we provided guidance for the first time since the beginning of the pandemic to help you bridge your modeling efforts to an NCR that was inclusive of the Cardtronics acquisition. Considering the Q3 results and the persistently challenging global supply chain, we expect to be at the lower end of those guided ranges. While we expect a 20% sequential increase in hardware revenue in Q4 and anticipate continued excess demand for both self checkout and point of sale and some recovery from price increases on hardware, supply chain constraints will likely cause us to carry some backlog into 2022. For EBITDA and EPS, a little less revenue and supply chain premium cost will modestly constrain profit. And for free cash flow, slightly lower revenue, less linear revenue, and the potential need to invest in safety stocks of key components to meet customer needs early in 2022 will all impact cash generation. With that, Michael, turn it back to you.

Now turning to Slide 12. Looking forward, our key priorities are clear. First. We expect to continue to execute well in a very difficult supply chain environment. We will continue to put our customers first and deliver on our commitments while we manage through the supply chain challenges. Second, we are eager to capitalize on the opportunities that Cardtronics brings us. We are excited to leverage Cardtronics to accelerate ATM as a service and broaden our retail business. Third, we are experiencing increased opportunities to accelerate NCR payments and transaction processing solutions as we go to market with the more robust offering. Fourth, we will continue to allocate capital to the highest growth and return opportunities with the goal of driving free cash flow and increasing returns for our shareholders. Fifth, we will continue to focus on our customer satisfaction initiatives with the simple belief that happy customers will buy more solutions from NCR. We strive to garner a larger share of wallet with the mission to help our customers run the store, run the restaurant and run self-directed banking. Our strategy of transitioning customers onto our software and payments platforms is gaining traction with customers and the platforms increasing their spend with NCR. And lastly, I’d like to extend an invitation to each of you to participate in our virtual Investor Day, which is scheduled for December 9 of this year. We are looking forward to this event and intend to take a deep dive into our strategy, our software and payment platforms, and an update on our strategic goals. That concludes our prepared remarks for today. With that, we will open the call for questions. Thank you for your time. Operator, please open the line.

Thank you. We’ll take our first question from Matt Summerville with D.A. Davidson. Please go ahead.

Thanks. I was wondering if you could maybe first quantify the revenue and operating profit impact you saw associated with—I'm just going to generally call it supply chain related items, whether it’s expedited freight, whether it’s not being able to get components. What was the impact in Q3? And I guess, how did that compare to how you were thinking about it heading into the quarter?

Yes, thanks for that question. Let me answer it this way. We talked last quarter about $40 million more cost pressure in the latter half of the year than we saw in the first. So, and we said we saw $20 million of that in the first half of the year. So I think that adds up to $80 million of cost pressure across the year, when we talked 90 days ago. I think that number is closer to $100 million now. And as described, about $80 million of that will take place in the latter half of the year, so a lot. In the last quarter, the pressure was a little higher than we thought, but it’s really the fourth quarter that is most different from the last time we talked. In the third quarter, that was about a 50-50 split between premium freight and cost of components. As we move into the fourth quarter, freight seems to have stabilized or is increasing at a much less rapid rate, but cost of components is much higher, likely representing two-thirds to even 75% of that pressure in the fourth quarter. So it causes us then to have to make some decisions on whether the last dollar of hardware revenue is profitable enough for us to go get it. So my concern is—and the reason we walked our guidance down a little bit—is that I think there’s $50 million to $75 million of hardware revenue that we will have demand for that we’re unlikely to ship having talked with our customers and made sure the retiming is fine with them. We’re unlikely to ship it because of the extreme cost pressure that we hope will abate.

Got it. And then can you also just as my follow-up talk about, I know you gave some numbers and we can probably calculate it, but what was the Cardtronics revenue and adjusted EBITDA contribution to NCR in Q3 and how should we be thinking about that in the context of your Q4 guidance? Thank you.

That’s great. We’re not breaking out Cardtronics from the banking segment. But I think in my remarks, I said on a pro forma basis, the banking segment grew about 3%—we grew as a company about 3%. If you dig a little bit deeper, both businesses grew about the same year-over-year and both businesses modestly expanded margin year-over-year. And while we didn’t report their third quarter results a year ago, they did. So I think you could dig those back up. By rule I’m not able to talk about them separately, but you can infer it from the pro forma results.

Thank you. We’ll take our next question from Katy Huberty with Morgan Stanley.

Yes. Thank you. Good afternoon. Tim, just following up on the prior conversation, can you talk about how much, if at all, backlog growth you saw in the third quarter and is that $50 million to $75 million of lost hardware revenue in Q4 assumed to go into backlog or could some of that be lost revenue that you just choose to give up to competitors?

No, we had firm orders for all of that revenue. It couldn’t be delivered in the third quarter. When we talked last week, I think you actually pushed and said, hey, you usually have higher fourth quarters, much better sequential growth, third to fourth than you’re anticipating now. I actually think we’re going to see nice sequential growth Q3 to Q4, primarily driven by hardware. I think our hardware revenue will be up, as I said earlier, about 20% Q3 to Q4, so a big step up. The last—let's call it the last $50 million of revenue will somewhat depend upon whether or not we can procure the components necessary to produce it at a value that makes sense to both us and our customers. So we’re hopeful that all that revenue will get out; if it doesn’t, it’ll carry into the first quarter of next year, but that will be with the customer's agreement.

Katy, to your specific point, we don’t believe customers are going elsewhere. We believe everybody’s got the same challenges with either logistics or with supply constraints around things like chips. And so we know that, for instance, in the second quarter, we had some sales that others weren’t able to deliver. So we don’t anticipate those sales going away.

Okay. And are you still assuming 10% accretion from Cardtronics in the back half of this year and about $100 million of cost savings next year or now that you’ve fully closed, have you found incremental opportunities?

So it’s already more accretive than that. It’s already tracking to mid-teens accretion this quarter. And I anticipate that the same in Q4. And, yes, we’re still very much on our target of $100 million of net cost synergies in 2022.

Okay. And then just lastly, as you transition the business to software and payments, just focusing on payments specifically, I think you’ve talked about a goal of driving penetration into your installed base of the payments offering somewhere in the tune of 15% to 20% penetration. Could you just talk about what that long-term goal is and where you think the penetration rates are today?

Yes. I think we’d still view that those types of goals are reasonable. And again, the 15% to 20% was kind of the goal against TAM of all the transaction volume that goes through our front end POS systems. And we felt we could capture 15% to 20% of that over time. You saw, let’s talk about a handful of deals now, where we’ve gone back into our customer base and upsold into enterprise accounts, particularly on the hospitality side, some payment connections. So we’re starting to get some traction there. The attach rate continues to be very strong in the SMB market, when we go into Aloha Essentials. So we’re starting to see that success. We are planning into 2022 as we’ve connected payments in the back end of some of the retail products that start to go into the retail side of the business as well and get some growth. And then, as we look at Cardtronics and some of the things we can do by offering—I almost call it a financial kiosk that you can place at a retailer and drive transactions through that with the Allpoint network—we continue to drive transactions and payments in that avenue as well.

Thank you.

Thank you. We’ll take our next question from Dan Perlin with RBC Capital Markets.

Thanks. Good evening. Tim, can I just ask a question on the adjusted EBITDA margins at 18.5%? You rattled off a bunch of things—pricing, costs, positive mix. The question here I’m kind of wondering is, if you look at what you had to absorb in terms of supply chain costs and yet still put up this margin, what would be a more normalized adjusted EBITDA margin in the context of adjusting for the supply chain issue? And then the second part of the question is, if pricing is part of it, where are you taking up price in an environment where you can’t deliver the goods to clients? I’m just wondering how they’re receptive to price increases.

Yes. Remember, we did deliver the goods. To be clear, we didn’t deliver some revenue in the quarter, but it was less than $50 million in that quarter, in the third quarter. And maybe—and I just intimated—there might be some more in the fourth, but any revenue that wasn’t delivered in the quarter, we cleared with the customer first. So the price increases in some instances are choices that we make with the customer, meaning, if it costs a lot of expedited freight to get that product here, we’ll ask the customer whether or not it’s worth it for them to expend those dollars. We have up until this point. We don’t believe we’ve slowed down the strategic progress, the implementation of any of our customers. Owen, if you want to add.

Yes. Dan, the comment I would make is the conversations with our customers are pretty transparent right now and I would say highly collaborative. This is not unique to NCR. You all know it. We all see it. We see it in our personal and professional space. The supply chain is impacting everyone. What we have been able to do is comfortably say, we are not missing any material commitments on behalf of our customers. I’d say, additionally, the quality that we’re delivering continues to improve. So despite challenges within the supply chain we’ve responded there. And then from a cost standpoint, we have been very transparent about the cost to deliver, and having conversations with our customers that, if in fact you need something expedited, we’re willing to deliver at this level of surcharge or incremental cost to you. We’ve had very good conversations where the customer said, let’s push this off. It’s not worth the additional cost and we’ll continue to have those conversations. This pressure is not going to go away. Our customers are not surprised by it. I think what they are comfortable with is that we have been able to deliver where they need us to deliver. And we’re pretty comfortable that as we go through the fourth quarter, we’re going to continue to be able to meet the demand and we’ll continue to have these conversations. So I actually think it’s helped in terms of our relationship with our customer base right now.

Back to your question on margin, the mix of revenue this quarter was very advantageous. When we sell less hardware and more software—software revenues up over 10%—it’s a great outcome from a profitability perspective. That goodness, I think, was offset by some of the pressure we just described. As we go into Q4, I think the pressure and cost will increase a bit. I also know that our pricing actions, which are across the board, across all of our products and services, will help considerably against that cost escalation in Q4. And I’d anticipate margin rate as we go into the fourth quarter to look a lot like what we just posted with those two effects offsetting one another. But to your point, as we go into 2022, I believe we can keep all of these gains from a productivity perspective we’ve been working on and we see our pricing effects take hold. We should have some, let’s say, the wind at our back when, and if the cost pressures abate.

Got it. Can I just ask a quick follow-up on digital banking? I think you said you called out three new logo wins. As we think about the implementation cycle for digital banking, are there any air pockets as we look out over the next three, four, five quarters that would be created because of delays in original new logo wins previously? Like obviously, it’s getting recognized in the revenues now, but I just want to make sure we’re not missing anything on that line.

No. Dan, I think digital banking is very stable to the extent you’re adding more customers, adding more accounts quarter-to-quarter. The only thing you have is if you get consolidation in the marketplace that you don’t anticipate. Going forward, we came off of what we described as kind of the bottom last year in 2020, and we felt we would grow back in 2021. We’re seeing that. And then we’ve talked about 2022 even getting higher growth, low double digits. So we feel good. As I mentioned, the fact that we got digital banking back to growth showing up in the financials, it’s also showing up in the market. We are winning deals and having success cross selling to our base.

That’s great. Thank you.

Thank you. We’ll take our next question from Kartik Mehta with Northcoast Research.

Hey, good evening. Mike, just thoughts on this logistics issue, and I know you said it’s not impacting current orders. But are you seeing any impact on future orders or maybe customers taking a pause because they know that products aren’t going to be delivered on time?

Yes. I guess, what most of—what I mean is Owen talked about it too—customers are making decisions. If you think about hospitality or even retail, some refreshes are rolling through stores and restaurants that they maybe didn’t get to during the pandemic. So we’ve seen some of that during the year. In some instances they might put off a refresh. We are working very aggressively, particularly around new store openings. And to Owen’s point, we haven’t disappointed anyone with an inability to deliver. So we’ve delivered when we’ve needed to, we’ve prioritized, we’ve made trade-offs with clients when timing and cost were issues. If the cost of expedite and transport is high and they decided they don’t want to pay the cost, we’ve chosen not to eat that. And again, they’ve been very responsive and receptive to that. So we just haven’t seen a situation where they’ve given an order to us and we can’t fill it and they run and have somebody else do it. We have very open dialogue around timing, cost, and availability. We’ve prioritized. I think our team—Owen, Adrian and the team—have done a great job of saying when you need to open a new store, we’ll get you the components, we’ll get you the parts, we’ll get your store opened.

And then Tim, you’ve talked about this $100 million extra costs and some of the freight costs escalating, and obviously some of the other costs have accelerated. I’m wondering, as you look into 2022, how much of the $100 million can you recapture because of pricing power that you’re going to have and maybe some of these costs abating?

Yes. So I think the initiatives we currently have underway will be sufficient to offset $100 million of inflation next year. I don’t know what will happen with inflation next year. So we’ll put plenty of productivity initiatives in place and Adrian and his team will help us as costs start to drop around steel or plastic resins and things. We’ll start to claw back what we can. I think the bigger concern in 2022 will be labor inflation. We’ve just not seen much in the way of labor inflation yet. And what we have seen has been offset by higher attrition rates. As you go into 2022, I think we and many other companies have to think long and hard about what is the rate of inflation, both here and importantly in some of the lower cost locations where we manufacture and support. So we’ll be ready for that, but it’s a little hard to say now what that challenge will be and therefore whether or not we can overcome it. But I feel really good about the initiatives we currently have underway. And I think we’ll start to see the fruits in the fourth quarter.

Kartik, we talked last quarter about initiating price increases to cover the costs that we’re seeing on the supply chain or costs we’re seeing on the logistics and transport of components. We’re starting to pass those on. We hope that those will stick, that those will offset. As we go through the quarter, I think we’ll get more experience as to what’s going to happen. The words we used last quarter were this is not unique to NCR. So whether it’s supply chain or whether it’s logistics cost, all of our competitors are facing the same phenomenon. So we would expect that the marketplace will have to adjust to the price increases we’re planning to pass through. People will understand that that’s the way they’re going to have to pay to get the components, to get the supplies, to get the hardware that we’re delivering. So we expect that to stick; we just don’t know yet how completely it will.

All right. Thank you very much. I appreciate it.

Sure.

Thank you. We’ll hear next from Ian Zaffino with Oppenheimer.

Hi. Great. A lot has focused on the cost side and also supply. Can you just talk about some of your customer conversations that you’re having now, maybe on the SCO side in particular, as they look to try to abate labor inflation and some of the other inflation? How are the talks going as far as your ability to sell more SCOs, et cetera? Or is that not necessarily a factor right now?

Well, I think you hit it on the head: self-service—whether it’s self checkout in the retail space, whether it’s things we do in a restaurant to order a table or pay at a table, whether it’s things we do in the banking industry with self-service or self-directed banking—all those have been in even more demand during the pandemic because of preferences around limiting contact and obviously the desire to reduce labor costs. At this point it is almost entirely driven by cost of labor or the ability to get labor. So particularly in retail, there’s been a lot of desire. Big box stores have done it. Grocery stores are doing it. Convenience and fuel stores are aggressively moving to deploy self-checkout. So we’re seeing that across the board.

Yes. Mike, I’d add that we do expect total SCO revenue to be up double digits this year for the full year.

Okay, great. Thank you very much.

Thank you. And that does conclude today’s question-and-answer session. I’d like to turn the conference back over to Mr. Hayford for any additional or closing remarks.

Just want to thank everybody again for joining us today. We continue to focus on our customers. We’ve had that focus for the last three years. And I think third quarter was a great example of that focus—our ability to deliver on our commitments in an environment that is still somewhat challenged around the globe by the pandemic, whether it’s supply chains or our ability to get back to work in the offices as we had done prior. Our whole management team here is very proud of the work that our employees around the globe have done in working in this challenging environment, and again, really putting that focus on delivery for our customers. I think as exciting and as important for us during the third quarter, we continue to make very strong progress on our strategic goals, including increasing our recurring revenue percentages, increasing growth on our strategic platforms that we have shared around our KPIs and improving our EBITDA margin and improving our free cash flow on a year-over-year basis. So again, third quarter—even through the challenges—we felt really good about where we ended up particularly around our strategic initiatives and our financial performance. And then finally just a reminder again, please join us on December 9 for our Investor Day, where we will update you on our strategic plans and our progress. Thank you again for joining us today.

Thank you. That does conclude today’s conference. We do thank you all for your participation. You may now disconnect.