Good day, and welcome to the NCR Corporation Second Quarter Fiscal Year 2022 Earnings Conference. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Michael Nelson, Treasurer and Head of Investor Relations. Please go ahead, sir.

Good afternoon, and thank you for joining our second 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 July 27, 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.

Thanks, Michael, and thank you, everyone for joining us today for our second quarter 2022 earnings call. I will begin with some of my views on the business. And I will also provide commentary on our previously announced strategic review process. Tim will review our financial performance and then Owen, Tim and I will take your questions. The team has done an excellent job executing in a difficult macro environment. Coming off a very difficult first quarter due to a number of external factors, the team focused on execution in the second quarter, and they delivered. As important we continue to build strong momentum in the business as we made progress on our strategy to NCR becoming a software-led as-a-service company with a higher shift to recurring revenue streams. Let's begin on Slide 4, with some highlights from the second quarter. First, we delivered 23% year-over-year total revenue growth on a constant currency basis, and 35% recurring revenue growth constant currency in the second quarter. Second, adjusted EBITA increased 26% on a constant currency basis from the second quarter of 2021. Third, adjusted EBITDA margin expanded to 17%, which represents a 250 basis point increase from the first quarter of 2022. Fourth, we are beginning to see the supply chain impacts easing, meaning the component costs and transportation costs have not worsened in the second quarter. But more importantly, our engineering and procurement teams have adjusted by designing alternative components and certifying more sources to begin reducing the impact. And finally, overall, our team's executed extremely well. And we experienced strong customer demand for solutions across our business segments and continue to successfully transform NCR into a software-led as-a-service company with higher recurring revenue streams. Software and services revenue represented 73% of total revenue compared to 69% in the second quarter of 2021. Recurring revenue represented 61% of total revenue up from 55% in the year-ago quarter. Now moving to the business update on Slide 5. We had a strong momentum across our strategic growth platforms which support our company's transformation. In Payments & Network, we are making progress across both merchant acquiring and the Allpoint network. We are seeing an accelerating number of merchants sign on for integrated payments with a POS decision. We are also expanding NCR Pay360, which brings more transaction types including digital currency solutions at NCR endpoints. We are also continuing to see strong Allpoint growth both in terms of transaction volume and new FI partnerships. Pleased to announce that PNC Bank has partnered with the Allpoint network starting in June, extending surcharge-free ATM access to more than 10 million of their customers. In digital banking, we continue to have positive momentum. In the second quarter, digital banking had 25 renewals, 5 new logo deals and the continued expansion of Terafina with 4 new clients for our online digital account opening platform. In Self-Service Banking, we continued momentum in our ATM as-a-service solution. Interest in our offering is accelerating both in community banks and large FIs globally. In the second quarter, we signed 10 ATM as-a-service deals including Bank of New Zealand, which is embracing NCR's ATM as-a-service to run the bank's ATM fleet as part of its digital transformation. NCR will own and operate the bank's offsite ATM fleet and will also run its on-prem fleet of NCR ATMs. In retail, we continue to gain traction with our NCR Emerald POS software and our NCP, NCR's Commerce Platform. We have positive momentum in winning the upgraded imperative for retail POS software, including in the second quarter Stater Bros. Markets, Southern California's largest privately owned supermarket chain with 171 stores connected to the NCR commerce platform. Stater Bros. implemented NCR Emerald to connect all technology to run the store. They were able to successfully deploy all new software and hardware to all 171 stores in only 15 weeks. In hospitality, we continue to experience strong demand across the enterprise and SMB customers. In SMB, our Aloha Cloud Restaurant platform is a user-focused turnkey solution that helps operations run their restaurant. During the second quarter, we launched an updated Aloha Cloud software and hardware solution and continued to invest in our direct distribution model. Our payment attach rate for hospitality accelerated during the second quarter, as we had a record high number of payment booking sites with over 90% attach rate for new SMB customers. In the enterprise market, we expanded our partnership with Wendy's connecting them to the NCP, NCR's commerce platform, which will enable Wendy's to better manage and use data captured through the NCR Aloha point-of-sale. We also signed a deal with United Franchise Group to deploy NCR Aloha in all of its locations with a bundled solution, including point-of-sale, secured payment processing, robust data reporting, back end security solutions, and kitchen production solutions. In the second quarter, we continued our evolution to a lean factory model by outsourcing manufacturing. A couple of weeks ago, we transferred our Budapest manufacturing facility to Ennoconn, which will reduce fixed costs and continue the shift to more variable manufacturing cost model. This transition is part of a strategy which we started in 2018. Today, 90% of the SKUs that we used to manufacture will now be outsourced. And finally, I'll provide an update on our Board-led strategic review process. As noted in our February 8th announcement, the Board did not set a timetable for the strategic review process. This process continues to be ongoing. We are evaluating strategic alternatives available to NCR in the context of our continued strong performance. The goal of the strategic review process has not changed to unlock value for NCR shareholders. With that, let me pass it over to Tim.

Thank you, Mike. Last quarter, we spent a significant amount of time describing the long list of exogenous detractors that resulted in financial performance that was well below our expectations. At that time, we estimated not only the impact for the first quarter, but then tried to extrapolate the impact for the remainder of 2022. We were partially correct. The Omicron wave that disrupted hardware supply chains, and suppressed transaction volumes as payments resolved in Q1. We saw both higher transaction volumes and better availability of components respectively, in Q2. That said, fuel prices are persistently high. Component costs remain too high even if availability is better. Interest rates are higher. Inflation has reached a 40-year high, and the war in Ukraine continues to disrupt and distract our large presence in Eastern Europe. And now, you can add the implications of a rapidly strengthening U.S. dollar to the list of challenges. Our second quarter results represent very strong execution, despite this extremely difficult macroeconomic environment. We generated productivity, closed some of the price-cost gap and delivered the product that had been delayed in Q1. We diligently controlled the things that we could control and readied our businesses for any further shocks. Our team simultaneously executed a recovery plan, accelerated our strategic initiatives and supported the ongoing strategic review process that we launched in February. This was a very busy and successful 90 days. While uncertainty persists, our strong performance in Q2 and the further mitigating actions we plan to take in the second half, allow us to leave our outlook for the full year unchanged from that we delivered in April. Although some headwinds in Q1 improved, others like interest rates got worse. And we have a new headwind in foreign exchange rates. As is always the case, the outlook we provided in April presumed currency rates at that time. In Q2, foreign currency exchange reduced revenue by $50 million and adjusted EBITDA by roughly $15 million and we still delivered strong results. We currently expect a similar FX impact going forward. We still believe we can hit the lower end of our guided ranges from April, even with these challenges. Let's begin on Slide 6 with a top level overview of our second quarter financial performance. Starting in the top left, we delivered revenue of $2 billion, up $320 million or 23% from the prior year on a constant currency basis. Foreign currency exchange rates had an unfavorable impact of $50 million split roughly evenly between our Self-Service Banking and Retail segments. Recurring revenue was up 35% on a constant currency basis. Adjusting for the partial quarter of Cardtronics last year, revenue was up 4% on a constant currency basis. In the top right, adjusted EBITDA increased $58 million, or 26% on a constant currency year-over-year basis with $339 million. Foreign currency exchange rates had an unfavorable impact of roughly $15 million. Adjusted EBITDA margin expanded 20 basis points in the second quarter of 2021 to 17%. While we don't typically discuss EBITDA margin sequentially, the outlook we provided in April did describe sequential EBITDA improvements beginning with Q1 levels, and each of the remaining three quarters of the year between $50 million and $70 million. In Q2, we improved by almost $70 million over the Q1 level, even after a significant currency impact. This allows us to be closer to the $50 million of sequential improvement in Q3 and Q4. In the bottom left, reported non-GAAP EPS was $0.71, up $0.09, or 15% year-over-year. The strength of the U.S. dollar reduced EPS by about $0.07. The non-GAAP tax rate was 21.2% in the quarter, and results in an average for the first half of the year of 25%. The rate was driven by stronger earnings as well as the timing of the discrete tax items. During the second half of the year, we expect tax rate to be within the range of 27% to 29%. And finally, free cash flow was flat, which was a solid outcome given the challenges in supply chain that caused both nonlinear revenue recognition and a discretionary investment in working capital. We have invested roughly $250 million in working capital in the first half of this year, much of it in raw inventories and finished goods to insulate our customers from a supply chain disruption. These investments in working capital are expected to support our growth in the back half of the year and will generate cash then. Let's move to Slide 7. Starting with the segments, this segment is our Payments & Networks. Starting at the top left, Payments & Networks revenue increased $278 million or 515% year-over-year driven by the acquisition of Cardtronics. On a Cardtronics pro forma basis, revenue increased $35 million or 12% year-over-year, driven by LibertyX, growth in the merchant acquiring business and in the Allpoint network. Payments & Network adjusted EBITDA increased 411% year-over-year. On a pro forma basis, adjusted EBITDA has declined 9% year-over-year due to a nonrecurring U.K. property tax rebate at the legacy Cardtronics in the prior year, and much higher interest rates. You'll recall the interest rates are an operating expense in this business. The cost of cash rental goes through EBITDA as a cost of goods. Adjusted EBITDA margin rate was 29%. The bottom of the slide shows Payments & Network segment key metrics. On the bottom left, endpoints increased 25% year-over-year. These access points to the Allpoint network and merchant acquiring terminals are increasing as we migrate them to the NCR installed base. In the centre bottom, our transactions, a KPI that illustrates the payments processed across our Allpoint network and our merchant acquiring business. Transactions remained flat year-over-year against a very tough comparison due to the lack of the government stimulus-related activity in the year-ago quarter. Transactions increased 8% from the first quarter of 2022. We continued growth in both North America and a rebound in the United Kingdom. Annual recurring revenue in this business increased 11% for the first quarter of 2022. Turning to Slide 8, which shows our Digital Banking segment. Digital Banking revenue and EBITDA increased 2% year-over-year, with an adjusted EBITDA margin rate of 43%. Digital Banking's key metrics in the bottom of this slide include registered users, active users, and annual recurring revenue. Registered users decreased 3% and active users declined 5% year-over-year. As mentioned during our first quarter earnings call, user accounts were impacted by two long-anticipated customer consolidations and deconversions. Neither of these were competitive losses. One customer was acquired, and another told us several years ago that they would move to an in-house solution. These deconversions will be more than offset by the onboarding of two of last year's major wins, Wintrust, which successfully converted last week and Associated Bank. ARR was up 2% year-over-year. We expect the revenue growth in this business to accelerate in the second half of the year and to exit the year at about 10%. Remember that only about two-thirds of the revenue in this business is driven by user accounts. And that user accounts can have a short temporal dislocation from reported revenue. And finally Terafina continues to grow at more than 60% year-over-year. Slide 9 shows our Self-Service Banking segment results. About half of the $50 million of total company currency impact affected this business. Self-Service Banking revenue was up $34 million or 5% year-over-year and 9% on a constant currency basis. Adjusted EBITDA increased $142 million or 1% year-over-year, and 4% on a constant currency basis. The adjusted EBITDA margin rate was 21%. This business continues to mitigate ongoing global supply chain effects of component availability, freight and fuel inflation. The bottom of this slide shows our Self-Service Banking segment key results. On the left, our software and services revenue mix was flat compared to last year at 67% due to higher ATM hardware sales in the quarter. ATM as-a-service units increased 3% year-over-year to almost 4,500 units. We have a very strong backlog of ATM as-a-service deals and now expect more than triple the number of units to more than 15,000 machines by year-end. The shift of recurring revenue continues to gain traction with ARR of 3% year-over-year. Moving to Slide 10, which shows our retail segment results. This segment absorbed the other half of the $50 million of total currency impact to revenue. Starting in the top left, retail revenue was flat year-over-year and up 4% on a constant currency basis. Order activity in this business remain strong and backlog is high. The composition of our backlog is different from prior periods as we execute our NCR as-a-service strategy. We're building backlog with multiyear contracts, which will drive future recurring revenue streams. Retail adjusted EBITDA was down 14% and down 9% on a constant currency basis. This business is still highly impacted by component cost inflation, particularly on POS devices. However, our mitigating actions and better product mix during the quarter drove significant improvement in profitability from the first quarter of 2022 with adjusted EBITDA margin rate up 620 basis points sequentially to 19%. The bottom of the slide shows the retail segment key metrics. On the left, 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 almost 600% compared to the same period a year-ago. 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 1% year-over-year. Keep in mind that install timing causes a lag in this metric, and we expect growth to accelerate in the second half of the year. Recurring revenue in this business was flat year-over-year and up 4% on a constant currency basis. Slide 11 shows our Hospitality segment results and illustrates the momentum across this business. We experienced strength in both the enterprise and SMB markets caused by an uptick in new restaurant openings, technology refreshes and acceleration in our payments business. As Mike mentioned, we had a record high number of payments booking sites. Payment attach rate is strong at roughly 90% of sales into new SMB sites. We increased our feet on the street and invested in sales and marketing to catalyze growth, and the strategy is working. We are winning new customers and benefiting from competitive takeaways. And in the enterprise segment, the receptivity for our payment solution is exceeding our expectations and demand for our service desk solution is strong. Hospitality revenue increased $23 million or 11% year-over-year as restaurants reopened, rework, and expand. Second quarter adjusted EBITDA was up 18% year-over-year, while adjusted EBITDA margin rate was 19%. Hospitality's key metrics on the bottom of this slide include platform and payment sites and ARR. Platform sites increased 39%, payment sites increased 139% and ARR was up 15% year-over-year. This business is simultaneously executing extremely well on its strategy as it is also delivering excellent quarterly results. On Slide 12, we present free cash flow, net debt and adjusted EBITDA metrics to facilitate leverage calculations. As I previously stated, free cash flow was flat in the quarter. Receivable days outstanding and finished goods inventory both increased. We invested in working capital to support the second half growth. We expect working capital improvements in the back half of the year, particularly around inventories, and receivables. This slide also shows our net debt to adjusted EBITDA metric, with a leverage ratio of 4.0, down slightly from the prior quarter due to higher profitability. And we ended the second quarter with $398 million of cash and remain well within our debt covenants. Those covenants include a maximum pro forma leverage ratio of 5.25x. We also have significant liquidity with almost $900 million available under our revolving credit facility. We have a strong balance sheet with an average cost of debt of less than 5%, ample liquidity and financial strength to support our growth strategy. With that, I'll turn it back to you, Mike.

Thanks, Tim. In closing on Slide 13. During our first quarter call, we said we would adjust to the external factors which negatively impacted us in the first quarter. Our team did just that. In an environment, which is still challenging, our team performed exceptionally well and delivered a solid quarter. As important, we have made significant strategic progress transforming NCR to a software-led as-a-service company. And while the macro environment remains challenging, we feel good about the underlying business and the operational discipline during the second quarter. That concludes our prepared remarks for today. With that, we will open the call for questions. Keep in mind, please hold your questions regarding our strategic review as we will not provide further comment on that topic today. Operator, please open the line.

The operator provided instructions to participants. And our first question will come from Dan Perlin with RBC Capital Markets.

Thanks. Good evening, everyone. I just wanted to follow up on the outlook question here. You said you're leaving it unchanged, you feel like you can still hit the low end of the range given the FX headwinds, which looked like they're going to get worse for you before they get better over the next couple of quarters. So I just want to make sure we're all kind of level setting. So the revenue numbers that you would put out for the full year were approximately kind of $8 billion. Your adjusted EBITDA was a $1.4 billion to $1.5 billion and then the free cash flow was $400 to $500, I believe and EPS $2.70, $2.30. So we should be kind of, I guess, keying in on the lower end of that range I guess, first of all. Then secondly, there's a pretty significant ramp in the free cash flow in order to achieve that. I'm just wondering, you can walk me through some of the guideposts we should be looking for. Thank you.

Yes, sure. Let's see, free cash flow is down. FX was an issue in Q2, about $50 million on revenue. And to your point, it's going to get worse in the second half of the year if the forward curve is correct. So if forward rates are correct, we've probably got another $170 million of pressure on revenue in the second half alone. I think that translates to about $50 million of pressure on EBITDA in the second half of the year, which would be $0.20 of EPS. So the walk from, let's say, the midpoint of the range down to the lower end of the range is entirely attributable to FX. But as I sit here today, I believe we will be able to get to the lower end of that range. On free cash flow, I'd be more concerned about cash flow if I didn't know exactly why we're bouncing off of zero. We know we purposefully and intentionally increased inventory levels by about $150 million. Our receivables are up by $100 million, purely because of timing, because too much of our hardware is shifting in the last couple of weeks of the quarter. That has gotten progressively worse as the year played out. The good news is we got the hardware out. The bad news is we got it out way too late to collect the cash. So it will come back. It's just timing. We hope to get more linear as supply chains free up.

Okay, that's really helpful. And just a quick follow-up on supply chains. I think Mike, you were saying it's not gotten worse. It's not necessarily better either. But you've come up with more creative solutions and you've done a good job of incrementally expanding sources. I'm just wondering if you could kind of dive into that a little bit more and just give us a picture of what's really playing out in the field? Thank you.

Yes, I think the external factors, meaning some of the prices in the marketplace haven't necessarily gotten much better. They haven't gotten worse. And then the ability to move either components or finished goods around the world at lower costs, meaning pretty good on containers and chips versus flying it, is incrementally getting better. But I think the big change we called out is in an environment where things have stayed the same, which we think they're going to be for the second half, if not get a little bit better externally, in terms of things that we could control. Our engineering team and Owen talked about this last quarter call that our engineering team was designing around some of the chips that had dramatically accelerated in cost. So we could find alternative chips, and therefore find alternative sources. And that did happen in the second quarter. So as we look at the third and fourth quarter, we believe we'll have a positive impact, meaning lower costs for raw supplies, because we can source different chips, and we've certified other suppliers. So we have a more optimistic outlook, sitting here today than we did 3 months ago.

That's great to hear. Thank you so much.

The operator provided instructions to participants. And our next question will come from Matt Summerville with D.A. Davidson.

Thanks. I just want to point a little bit of a finer point on where you are with price costs. So can you give us anything to help triangulate on that in terms of maybe how much price cost was a headwind to EBITDA margin in Q1 versus how much headwind you saw in Q2, and then what you're expecting for the balance of the year that's kind of baked into the numbers you're speaking to today? And then I have a follow-up.

Yes, that's a multivariate equation. Let me walk through how we did it last quarter: we talked about the impact of the COVID wave and innovated as we thought we would. In fact, we recovered and regained some of the revenue that had been missed. The war in Eastern Europe has been unchanged; we are out of the country, so it impacts us on a known basis. On the inflation versus price line, as Mike just said, I think components will get better in the second half of the year. I think our component costs will be better in the second half because of the hard work by our sourcing teams. Freight has not yet come down, although it is a little more available. We expect freight to ease off late in the year, but probably not in Q3. From a fuel perspective, it's hard to know. Fuel prices were higher in Q2 than in Q1. It looks like they are now stabilizing and maybe will be a little lower in Q3 than in Q2. The biggest change for us is interest rates. Interest rates are probably 100 basis points higher than when we talked 90 days ago, and every 1 percentage point in interest rates costs us about $24 million of EBITDA as a cost of goods in the payments business. We also talked about trying to achieve $200 million of cost actions and $200 million of pricing actions. The pricing actions are largely in place because of the long lead time on some of our products, so we can't impact that quickly from here. Whether we get to $200 million will depend heavily on our ability to convert and hold those price increases in a competitive environment. We're doing okay so far. On the cost side, we're probably halfway to where we need to be. We've got some work to do in the second half of the year. Owen and I are working on that.

Yes, no, that's very helpful. I appreciate that. And then as a follow-up, you may have just answered it, actually, Tim. Payments and network you saw a nice sequential bump in revenue. EBITDA was pretty flat. Is all of that flattening out in EBITDA being driven by the cost of cash, so to speak for that business? Or is there something else going on that's contributing?

Yes, there are three things happening. First, before we acquired Cardtronics on a pro forma basis, they benefited from a one-time item in the U.K., a rebate on property tax that came through EBITDA and is nonrecurring, so that is a temporal issue and it is gone. Second, we added LibertyX, which generated just under $20 million of revenue in the quarter; LibertyX is currently unprofitable, effectively breakeven, and that dilutes margin rates. Third, interest rates are higher, and across this year that will likely cost the business roughly $35 million. If you do the math, a point on $4 billion is about $40 million, so we are working to mitigate the impact with hedges and changes in business models and will keep working it down. When we get to the end of the year, the biggest changes in margin rates will be the dilution from LibertyX revenue and higher interest costs.

Understood. Thank you, guys.

The operator provided instructions to participants. And our next question will come from Erik Woodring with Morgan Stanley.

Hey, good evening, guys. Thanks for taking the question. Just to nail down on the outlook, I just want to make sure I'm clear there. So, when you talk about kind of the $170 million of incremental FX pressure in the second half, does that imply that revenue should be $170 million lower than about $8 billion? Or are there offsets from better operational performance that would get you back to that, again, $8 billion number? And if so, what would be some of those offsets. And then I just have a follow-up. Thanks.

Yes, so typically, when we give guidance, we leave ourselves some room. So and I said approximately $8 billion, so you can imagine I probably had a plan that rolled up to north of that. Forward rates right now suggest $170 million of pressure, if we just simply take the euro, pound, Japanese yen and Canadian dollar and convert back our revenue streams. I don't know whether those will be correct or not. But we'll keep trying to grow, I think there are avenues to get more revenue this year. In our services businesses, in particular, we're continuing to work. So I think $8 billion is a reasonable number. I think our results, as I said here today, we will round to $8 billion from one side to the other. On EBITDA, same. We had a wide range, it's a very wide range. And so I think I can absorb this new hit inside of that guided range. And that same would then translate through down to EPS.

Okay, that's really helpful. And then, maybe last quarter you just talked about backlog up 30% sequentially. Just any way you can help us kind of talk to the size of the growth of backlog or if you saw a decrease because of supply chain improvement. And any kind of qualitative comments you could talk about an underlying mix, if that's changed at all? That's it for me. Thanks so much.

Sure. I'll let Owen take that one.

Yes, I would say, as we came out of the quarter, we have not seen a change in the sales activity, the funnel activity. And across all of the businesses, order activity carried good momentum coming out of the quarter. So we're continuing to see growth across the hardware, the software and most importantly, we're seeing it on as-a-service business in both the ATM as-a-service, as well as Mike talked about in his comments, sites, payments and platform lanes out of hospitality and retail. So obviously, as Tim talked about the outlook, that's predicated on the momentum we're seeing in order activity.

The operator provided instructions to participants. And our next question will come from Kartik Mehta with Northcoast Research.

I just wanted to make sure on the free cash flow, I understood your comments. I think the range was $400 million to $500 million last quarter when you gave guidance. You still feel comfortable on that low end? You talked about guidance being on the low end around that $400 million, or will that be difficult because of the inventory you've had to add because of the current environment?

No, I think we intend to convert that inventory to cash in the latter half of the year. As supply chains start to let up, we won't need as much safety stock, and we won't have as much finished goods sitting around because we're able to get it shipped in the quarter. So I'm not worried about harvesting that on the receivable side. We know why it's drifted up a bit; we can work it back down. We'll make it a focus and get it down. That's $250 million of cash that was used in the first half of the year that I think we can harvest in the second half. The remainder, the $400 million, will come from higher profitability in the second half of the year versus the first. For the most part that gets us to the low end of the range we described. If we're able to improve EBITDA or define a bit more revenue, we could get closer to the midpoint. But I think $400 million is probably the right place to be for now.

Right. And, Mike, you obviously talked about some of the challenges that are happening in Europe, specifically Eastern Europe because of what's going on. I’m wondering, is that leading to any cancellation of orders throughout Europe or even Eastern Europe, because of the current environment?

No, Kartik. We had on the first quarter call, when the war started in Ukraine, and we had to pull out of Russia. And I think at that point, we probably had a little bit more question around what might happen throughout the rest of Eastern Europe. I think, today it seems to have settled into, unfortunately, kind of a norm. And we haven't seen impacts that have bled over into our businesses in Eastern Europe or in Western Europe.

Thank you very much. Appreciate it.

The operator provided instructions to participants. And our next question will come from Charles Nabhan with Stephens.

Hi, good afternoon, and thank you for taking my question. Just curious if your ability to manage some of the supply chain headwinds, and specifically procure certain chips internally has translated into competitive advantage? Or if you see that as a potential tailwind in the second half of the year.

Yes, I think the ability to react, whether it's the team on the supply chain side that did a really awesome job in the second quarter, continuing to find components and then certify new supply sources, or the engineering team, which also did, has been doing a great job literally for the last year, continuing to design around challenges, whether its ability to get shipped, or whether it's the price. So I think we feel really good about our ability to react. Owen talked last quarter about just the timing. So in the first quarter, we didn't have the timing to be able to do that. We were able to do that in the second quarter. So we believe, as Tim talked about coming into the third and fourth quarter, that will be a pickup or a benefit for us in terms of our cost pressure. Competitively, I think in the three verticals we compete in right now we feel as good as we've ever felt. We have products that are competing, I think in the hardware space, whether it's the ATM market, the ITO market, whether it's SCO, whether it's POS, we think we're out there competing very well. And we've been able to work some of the costs down through the supply chain or working through some of the other engineering activities. So, whether that translates into more revenue, Tim talked about, as we look at the outlook we will continue to chase opportunities for revenue, but we feel really good about where we sit right now.

Yes, I think the only additional comment I would make is that when Tim talked about our investment into working capital, we have heard consistently from our customers that we have been a very dependable provider. We did not miss a customer commitment in the whole first half of the year, and that ends up being a competitive advantage without a doubt. So it has taken some investment; you saw some of the costs we incurred in the first quarter. But if you're a long-term player, those investments are appreciated by the market and by our customers, and we're hearing that. So we feel really good about where the teams left us.

Got it. And as a follow-up, I had a question about the cadence of free cash flows for the back half of the year. And I apologies if I missed it. I know historically, the fourth quarter has been the high for the year on free cash flow. But obviously there's some abnormalities this year. So any color you could provide on the cadence for the back half of the year would be helpful.

Yes, hard to predict. I do think our fourth quarter will be a very strong quarter. I think the third quarter will be solid. So I would have a fourth quarter that is greater than the third.

Got it. Thank you.

The operator provided instructions to participants. We will now go to Paul Chung with JP Morgan.

Hi, thanks for taking my question. So just a follow-up on cash flow on that last point. So are the shifts in the kind of second half resulting in kind of higher AR balance regarding your service contracts? Given some macro headwinds, are we reverting back to that second half seasonal cash flow again, or is this temporary? And how's the pricing environment competition evolving here? And I’ve a follow-up.

So I'll defer on pricing and competition to Owen. On the first one, cash flow generated in the last month of the year is no way to live. We worked incredibly hard to get back to the point where cash flow was more linear. And we've been unable to keep up that trend in an environment where way too much of our revenue comes very late in the quarter because we just can't get the parts to get them out the door. And that's really where most of the issues in the hardware side. A lot of the recovery coming out of the pandemic in 2022 has been hardware, and so big on POS. So that's been a struggle, I don't want to live this way, much longer. I think supply chains are easing. I suspect that we will get back into a better cadence of more linear free cash flow generation, as we get into 2023. But at this point, I've only got a half now to generate the cash I need to generate and we will do it.

And on the pricing, I think my comments in the first quarter was that for those of us who have lived in hyperinflationary times in the past, which not a lot of us have, catching that falling knife was tough. And so we saw the impact in the first quarter of not getting there. The team across all three industry groups have made adjustments to pricing, both permanent pricing and temporal pricing. We believe that the pricing is reflective of the reality that we're all dealing with. And our customers have accepted that. There have been some temporary charges that we’ve put through on freight and on fuel, that will be temporal and our customers understand that we have not seen those price increases create a competitive disadvantage. In fact, to the contrary, to my comments a few minutes ago, our customers have been very appreciative of our ability to deliver despite all of the supply chain disruptions. So we think that the pricing will hold. It is competitive and where it's been temporal, we will adjust accordingly.

Let me just add to that. So when it comes to pricing in the marketplace and competing, NCR is in a much, much better place than many of our competitors, we are in a much better place with our products. And as importantly, as we sit here today, we're in a much better place financially, in terms of our revenue, our earnings and our cash flow than a lot of the folks that we've been competing against the last number of years, literally in all three lines of business. So we'll continue to operate the business with discipline, we will continue to operate the business to generate revenue and earnings and cash flow. And we will come out better in this environment than a lot of our competitors.

Thanks for that. And then can you just talk about your backlog for self-checkout? You mentioned some increased conversion kind of later this year. Which verticals are you seeing demand? Are these competitive wins, kind of new deployments? And then how should we think about kind of visibility for next year after strong growth throughout the pandemic out of those trends?

So I would say from a self-checkout perspective, we are still very bullish about the self-checkout marketplace. If you look at the second quarter, you saw what is not atypical, which is some lumpiness in terms of order activity. So we were up roughly 15% quarter-to-quarter on our self-checkout. Our outlook for the year is still that we will grow in the mid single-digit range. I think we just had published the RBR report for through '21. And once again, we were the chip share leader across the globe. We still hold a huge market share position. And what encourages us are new segments that are opening up. The specialty retail environment like Bed Bath and Beyond has embraced self-checkout. The convenience, fuel and retail sector is really receptive and in fact, looking at it. And as labor continues to be a challenge, we think that self-checkout is going to play very strongly. So we look at the balance of the year and feel good about our outlook for 2022. And there's nothing that would suggest going into 2023, that it should slow down.

Right. And then last question. Any just general update on kind of regional bank demand across ATMs and digital banking services would be helpful. Are you seeing any customers tightening budgets here, given some macro headwinds? Just any comments on the macro here for regional banks? Thank you.

We haven't really seen banks change their buying behaviours. At this point, I think the banks have the benefit of a little spread right now. And then I think the banks are certainly looking forward and trying to estimate like everybody else's what will be the impacts on the economy, whether it will hit their balance sheet. Digital banking, anything related to self-service related efficiency, anything related to cost savings, which is effectively what we do in banking, continue to be things in areas that our customers are looking for. The other comment I would make on the banks and the ATM is if capital is an issue, what we're seeing from many of our customers is their embrace of the ATM as-a-service. And that clearly allows them to continue to build out their physical distribution with ATMs and ITMs without outlaying capital. So if that is an issue, we're already seeing customers really embrace the idea of the ATM as-a-service offering across the globe, all the regions now, we're having really good activity, a number of closures that Mike talked about. In the backlog for that or the pipeline for that business is growing in the double-digit range. So we feel really good that we have an offering that would address any conservatism on the part of the bank.

Thank you.

The operator provided instructions to participants. We will take a follow-up question from Dan Perlin with RBC Capital Markets.

Thanks. Hey, just a quick follow-up on Digital Banking. Did you say the exit rate i.e. maybe the fourth quarter rate would be 10%? Is that what you had embedded in guidance? Are you suggesting that for the full year, I just wanted to make sure I was clear on that.

I think we had two big accounts coming on. One of them is starting a couple of months later than we expected. So we'll exit the year at a 10% run rate. I think the full-year rate is likely to be very high single digits. But it's not just accounts that drive growth. We have some DSP deals that could push us above 10%, so there's a chance we hit 10% for the full year; we will certainly exit the year at a 10% run rate.

Got it. Okay. That's clear. Thank you.

There are no further questions at this time. I will turn things back over to Mike Hayford for any additional or closing remarks.

Thanks. During the second quarter, we continued to be impacted by a number of the external factors that we saw in the first quarter. In spite of that, even in this environment, our team at NCR really delivered a great financial quarter. They continued to build and deliver on our strategic initiatives for our product platforms. And as always, we believe we deliver the best care to our customers in the industry. The result of the second quarter, the strong performance we deliver in the second quarter is what gives us kind confidence that we can continue to execute in this environment during 2022. Thank you so much for joining us today. We will see you next quarter.

That does conclude today's conference call. Once again thanks everyone for joining us. You may now disconnect.