NCR (NCR) Q1 2021 Earnings Call Transcript

NCR (VYX 1.41%)
Q1 2021 Earnings Call
Apr 27, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, everyone and welcome to the NCR Corporation first-quarter fiscal year 2021 earnings conference call. Today's call is being recorded. And now at this time, I would like to turn the call over to Mr. Michael Nelson, vice president of investor relations.

Please go ahead.

Michael Nelson -- Vice President, Investor Relations

Good afternoon, and thank you for joining our first quarter of the 2021 earnings call. Joining me on the call today are Mike Hayford, president and CEO; Owen Sullivan, 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 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 April 27, 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.

Mike Hayford -- President and Chief Executive Officer

Thanks, Michael, and thank you, everyone, for joining us today for our first-quarter 2021 earnings call. I will begin with some of my views on the business, including an update on our shift to NCR becoming a software and services-focused company with a higher level of recurring revenue. Tim will then review our financial performance and outlook into the second quarter. And then, Owen, Tim, and I take your questions.

Let's begin on Slide 4 with some highlights from the first quarter. NCR delivered a solid performance that included accelerated recurring revenue growth, significant margin expansion, and strong cash flow production. Although there remains uncertainty regarding when businesses return to pre-pandemic levels in certain geographies, we are starting to experience green shoots across parts of our business. A year ago, we were facing unprecedented uncertainty over the depth and length of the pandemic.

We were focused on taking care of our employees. We asked our team to stay focused on taking care of our customers. I believe that that relentless focus is starting to pay dividends in improved customer satisfaction and brand loyalty. Although we still haven't fully recovered from the crisis, we are in a much stronger position today than we were a year ago.

We are building momentum in our NCR as-a-Service strategy and improving execution. First, we expanded the adjusted EBITDA margin to 16.7% in the first quarter, which represents an increase of 420-basis-points from the first quarter of 2020. Second, we delivered 9% recurring revenue growth in the quarter. That brings recurring revenue to 57% of total revenue.

We continue to make steady progress increasing our recurring revenue, which is consistent with our 80/60/20 goals. Third, we delivered strong free cash flow. We generated $98 million of free cash flow in the quarter, which represents the first time in many years that NCR has generated positive free cash flow in the first quarter of the year. And finally, we are very excited about the opportunity combined with Cardtronics.

The proposed transaction will accelerate the NCR as-a-Service strategy and further shift NCR's revenue mix to software, services, and recurring revenue. We have successfully completed the financing for the transaction and remain on track to close mid-year 2021, subject, of course, to regulatory and shareholder approval. Now moving to Slide 5. We have continued to progress executing our strategy and remain focused on our transition to drive NCR as-a-Service and achieve our 80/60/20 strategic goals.

We have made significant progress against these goals, particularly as we accelerate margin expansion toward our 20% adjusted EBITDA margin target. In Banking, we continue to have positive momentum in our digital banking platform, with 11 new deals signed in the first quarter. We also had cross-sold success with existing clients with new products, including three business banking deals done in the quarter. Banking software continues with strong growth as we continue to shift the business to a recurring model.

The first quarter saw strong growth in our end-to-end multi-vendor ATM solutions as well as continued momentum with our Digital First strategy, integrating our physical assets into our digital banking solutions. In addition, we are beginning to shift to multi-year professional service engagements that are aligned with our software projects. We are receiving increased interest in our ATM as-a-Service solution and in the first quarter, signed Arkea, one of the leading retail banks in France to a 10-year ATM as-a-Service agreement. In Retail, we are gaining traction with our NCR Emerald offering, which is our next-gen cloud-based retail point of sale solution.

The acceleration in digital transformation is being driven by consumer demand, and retailers will need to respond. We believe this is starting to drive an upgrade cycle for retail POS software. We recently signed a new NCR Emerald deal with Brookshire Grocery, a Texas-based super-regional grocery with more than 180 stores across three states. We are also seeing increased adoption of our self-checkout solutions.

We experienced demand across customers and geographies as consumer preferences accelerate. In Hospitality, the momentum of Aloha Essentials, which bundle software, services hardware, and payments continued in the first quarter. This model is proving itself in our ability to attract new customers and better service existing customers. During the first quarter, over 90% of all Aloha sites sold through our direct offices were sold as subscription bundles.

The payment attaches rate is also strong at roughly 85% of sales into new sites. NCR and Steak 'n Shake recently entered into an agreement for NCR to support Steak 'n Shake for over 500 restaurants globally with the subscription-based point of sale software, hardware, and end-to-end IT services in support of their restaurants. As we focus on executing our NCR as-a-Service strategy and drive the transformation of our businesses, we will strive to become an even more efficient steward of our resources. 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 over to Tim.

Tim Oliver -- Chief Financial Officer

Thank you, Mike, and thanks to all of you on the phone for tuning in today. As Mike just described, the execution of a strategy that was launched a little over two years ago is starting to be evident in both our competitive and financial results. Turning to Slide 6, which presents the top of the overview of our first-quarter financial performance. Starting on the top left, consolidated revenue was $1.54 billion, up to $41 million or 3% versus the 2020 first quarter, driven by solid growth in our retail and hospitality segments.

Revenue was down $87 million or 5% sequentially. Although there is still some seasonality in our business and the lumpiness that can result from major hardware orders, we are driving significantly improved linearity. This year's Q1 sequential decline in revenue compares to an average step down of over $300 million from Q4 to Q1 over the last four years. Importantly, our strategy to shift to recurring revenue streams again accelerated.

Recurring revenue was up 9% and comprised 57% of our revenue in the quarter. In the top right, adjusted EBITDA increased $70 million or 37% year over year to $258 million. Adjusted EBITDA margin rate expanded 420-basis-points to 16.7%. This improvement is almost ratably attributable to three things: direct cost productivity in our operations; significant cost reduction in our indirect and overhead layers; and revenue growth in the right, more profitable places.

On our last call, we detailed the more permanent productivity improvements that accumulated to more than $150 million in recurring annual cost savings. While we will judiciously add cost back to businesses with particularly high growth rates, we intend to preserve the productivity we have already generated and to identify further efficiencies both in our current operations and those synergistic from acquisitions. Similar to the discussion of revenue, we are driving improved linearity in adjusted EBITDA. The flat performance from the fourth quarter of 2020 compares to an average Q1 sequential decline of roughly $90 million in the first quarters of each of the last four years.

In the bottom left, non-GAAP EPS was $0.51, up to $0.20 or over 65% from the prior year's first quarter. The tax rate of 28.2% was higher than the 2020 Q1 tax rate of 13.5% and our full-year guidance of 26%, up in both cases due to higher income and a decrease in discrete tax benefits. And finally, and maybe most importantly, we generated $98 million of free cash flow in the quarter. This compares to a use of cash of $20 million in the first quarter of 2020 and represents the first time in many years that NCR has generated positive free cash flow in our first quarter.

The $60 million declines from the fourth quarter of 2020 compared to an average Q1 sequential decline of roughly $425 million in the first quarters of the prior four years. Moving to Slide 7, which describes our banking segment results. Banking revenue decreased by $7 million or 1% year over year, with more than all of that decline attributable to lower ATM hardware sales. Software and services revenues both increased despite the lower hardware pull-through and the shift to recurring revenue.

This business extended its trend of replacing revenue that was traditionally recognized with the sale of ATM hardware with revenue streams and software and services that are more durable, predictable, and valuable. Our banking sales funnel has improved to above pre-COVID levels, with close rates also starting to trend more positively. Our sales funnel mix now has a much larger and richer recurring and subscription component. Q1 2021 total contract value signed was more than twice the value from a year ago.

Banking adjusted EBITDA increased $14 million or 10% year-over-year despite the lower revenue. As a result, the adjusted EBITDA margin rate expanded by 210-basis-points to 20.4%. On a sequential basis, revenue was down 5%, while adjusted EBITDA increased 17%, and the adjusted EBITDA margin rate expanded 380-basis-points. The improved profitability both year over year and sequentially was driven by a favorable mix of revenue and lower expenses.

The bottom of the slide shows our key metrics for the Banking segment. On the left, while the conversion of current quarter wins that Mike described will have a typical 9-month lag to conversion and eventual revenue generation, prior period wins at digital banking drove a 6% year-over-year growth rate in the first quarter. Digital banking registered users increased 13% compared to Q1 2020, and despite the decline in total banking revenue, we did grow in the right places. Recurring revenue in the Banking segment increased 8% year over year.

Moving to Slide 8, shows our Retail segment results, which were uniformly strong. Retail revenue increased $60 million or 13% year over year, driven by strong self-checkout and services revenue. Retail adjusted EBITDA increased $36 million or 97% year over year, while adjusted EBITDA margin rate expanded by 590-basis-points to 13.7%. This first-quarter performance demonstrates the impact of double-digit revenue growth accompanied by cost discipline, with incremental EBITDA conversion of $0.60 on the dollar.

Lower on the page, we depicted the three key metrics for retail. Self-checkout revenue increased 31% year over year, driven by broad-based demand both by the customer and by geography. Platform lanes increased 51% compared to the prior-year first quarter. We continue to see accelerating adoption and implementation rates of our next-generation retail POS software solutions.

And importantly, recurring revenue in this business increased 14% versus the first quarter of 2020. Slide 9 shows our Hospitality segment results, which returned to year-over-year growth. Hospitality revenue increased by $10 million or 6% as we are beginning to see restaurants reopen, rework existing locations, and expand. Our signed total contract value more than doubled from the year-ago first quarter.

Our sales pipeline is getting stronger, and we are adding resources to our selling effort to catalyze this improving trend. First-quarter adjusted EBITDA increased $18 million or more than tripled from the first quarter of 2020 due to higher revenue and lower operating expenses. Hospitality's key metrics include Aloha Essential sites and recurring revenue. Aloha Essentials sites, which bundle software, services, hardware, and payments into a single offering grew 61% when compared to the prior year's first quarter and grew 21% sequentially.

Recurring revenue in the graph at the bottom right has stabilized as the attrition rate caused by restaurant closure has abated. Recurring revenue in this business was down 1% from last year and was flat sequentially. Turning to Slide 10. We provide our first-quarter results for 80/60/20 strategic targets that are now very familiar to you.

We strive to generate 80% of our revenue from software and services or, described as the inverse, less than 20% of our revenue from discrete hardware sales. In the first quarter, software and services represented 72% of our revenue, which is an increase from 71% in the fourth quarter. The decline from 74% in the first quarter of 2020 was driven by higher SCO revenue this year. We aim for 60% of our revenue to be recurring, to drive more resilient, more predictable, and more valuable revenue.

Recurring revenue represented 57% of total revenue, compared to 54% in the fourth quarter, and 53% in the first quarter of 2020. And we aspire to a 20% adjusted EBITDA margin rate. As I've already emphasized, we made significant progress in this metric with an adjusted EBITDA margin rate of 16.7%, compared to 12.5% in the first quarter of 2020, and 15.8% in the fourth quarter. On Slide 11, we present free cash flow, net debt, and adjusted EBITDA metrics to facilitate leverage calculations.

As I described earlier, we extended the trend of strong, more linear free cash flow through the traditionally challenging first quarter of the year. Free cash flow of $98 million in this quarter, compared to free cash outflow in last year's same quarter of $20 million. Versus Q1 of 2020, all categories of inventory were down an aggregate of 17%, with days on hand down seven days operationally. Receivables were down 11%, with a 9-point improvement in those longer than 90 days, and days sales outstanding improved by nine full days.

This slide also shows our net-debt-to-adjusted-EBITDA metric, with a leverage ratio of 3.2 times. We ended the first quarter with $319 million of cash and remain well within our debt covenants. We ended the first quarter with credit facility leverage of approximately 3.3 times, well under our debt covenant maximum of 4.6. In anticipation of the Cardtronics transaction, we have augmented our financial position with two important debt transactions.

We amended and extended our senior secured credit facility which provided an incremental $1.3 billion of new Term Loan A, and issued new $1.2 billion in the 8-year senior notes. The weighted average interest of these transactions is about 3.7%, which is significantly lower than our original model. At the eventual close of the transaction, these funds will all become available, and our total leverage covenant will widen to 5.5 times to allow us to execute our plan to delever rapidly from a forecasted post-close level of 4.5 times. These borrowings are structured so that in the absence of a close, NCR would not be left with excess borrowing.

We greatly appreciate the partnership and strong support from our lending group. And my last slide is Slide 12, which provides an outlook for Q2 of 2021 for NCR on a stand-alone basis. While the successful completion of our proposed Cardtronics transaction at midyear would complicate both year modeling efforts and our reported results, we intend to report the second quarter and our current format to facilitate that analysis. So for Q2, for NCR is currently comprised, and relative to 2020's results, we expect revenue growth of 9% to 10%.

Strengthening demand signals from our end markets and improving competitive position will both support that growth. We expect particularly strong growth in our Retail and Hospitality businesses and a growth rate in our recurring revenue streams that is similar to Q1. On profitability, we expect the adjusted EBITDA margin rate to expand by 250-basis-points to 300-basis-points to more than 16%. And finally, we also expect free cash flow to be similar to Q1 of 2021 as we continue to drive improved cash generation linearity.

I expect our second-quarter performance to be another proof point that NCR is emerging from the pandemic in a more productive, more competitive, and more valuable company. With that, I will turn it back to Mike for his closing comments.

Mike Hayford -- President and Chief Executive Officer

Thanks, Tim. Now turning to Slide 13. I want to provide an update on the proposed transaction with Cardtronics. Cardtronics shareholders will vote on the transaction at their shareholder meeting scheduled for May 7.

From a regulatory perspective, the Hart-Scott-Rodino waiting period expired on March 11, and the transaction is still under review in South Africa and the United Kingdom. We anticipate the transaction to close midyear, subject to shareholder and regulatory approval. We remain very excited about the transaction as the addition of Cardtronics will accelerate our NCR as-a-Service strategy and is expected to be accretive to non-GAAP EPS for the first year by 20% to 25%. It will enhance our scale and cash flow generation while advancing our 80/60/20 strategic targets by roughly two years.

We believe the combination of NCR and Cardtronics will drive significant value for our customers and our shareholders. It is a unique opportunity that is both strategically consistent and financially accretive to NCR. Now turning to Slide 14. Looking forward, our key priorities are clear; First, we will continue to accelerate our NCR as-a-Service and 80/60/20 strategy.

We have made notable progress and strive to build on the positive momentum; Second, we have momentum in the business and are well-positioned to drive accelerated growth while improving revenue and cash flow linearity as we shift more of our revenue to a recurring revenue stream; Third, we expect the combination of a lower cost structure along with positive operating leverage will continue to drive margin expansion; 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; and finally, we are preparing to hit the ground running and executing on the opportunities that Cardtronics will bring us once the transaction closes. That concludes our prepared remarks for today. With that, we will open up the call for questions. Thank you for your time.

And operator, please open the line.

Questions & Answers:

Operator

Thank you. [Operator Instructions]. And we will take our first question from Katy Huberty of Morgan Stanley.

Kathryn Huberty -- Morgan Stanley -- Analyst

Yes, thank you, a couple of questions. First, 2Q guidance -- revenue guidance is strong. But if you look at it on a sequential basis, up 5% is below pre-COVID seasonality of about 8% in 2Q. Is that just a function of increasing the recurring revenue mix? Or is there something having to do with the timing of when you see hardware deals coming through this year? Then I have a follow-up.

Tim Oliver -- Chief Financial Officer

Katy, this is Tim. You are exactly right. As we have gotten more linear in our revenue streams, we had a much better first quarter than would have typically happened in the -- historically happened to shift from Q4 to Q1. And so going into the sequential growth is there, but the trend of modest sequential growth that we have talked about for the last several quarters continues into Q2.

I would expect the growth in that quarter to be a little bit more hardware-heavy in Q2, particularly when it comes to SCO and point-of-sale in the Hospitality business.

Kathryn Huberty -- Morgan Stanley -- Analyst

Ok. And Tim, I assume that is why EBITDA expansion is up year on year, but it is down sequentially in 2Q, is that because of the hardware mix?

Tim Oliver -- Chief Financial Officer

Yeah. So as we sit here now, I'm not certain it will be lower. I think we did demonstrate some pretty significant growth in Q1. I do see a little bit higher cost in the second quarter, and my revenue mix is a little less advantageous in Q2.

So now, look if we are able to hit the high end of that growth range, there is some opportunity that will come in the right places. But yes, for now, I would expect the margin rate to be just modestly below where it was in this quarter.

Kathryn Huberty -- Morgan Stanley -- Analyst

Ok. And then lastly, you commented on TCV and pipeline for the Banking and Hospitality segments. Can you just comment on what you are seeing around the pipeline in retail in particular?

Tim Oliver -- Chief Financial Officer

Yes. Go ahead, Owen.

Owen Sullivan -- Chief Operating Officer

Yes, Katy, this is Owen. The retail business is both on the software side of the house which is what is driving the TCV. We are seeing some really good momentum there. We have talked about the refresh cycle that we were forecasting or talking about back in December.

We are seeing that come to fruition. And the activity level is really strong, so the TCV number is a reflection of that. And coming along with that is the self-checkout as we convert the number of lanes that are available to us. So it is a little bit of hand in glove.

But what we really like and goes back to Tim's comment about the mix, we are getting the right mix out of the retail business, along with the others, but they are going to drive a big hardware number. They did in the first quarter. We probably will see that in the second quarter, but I think we are more energized about the software momentum there.

Kathryn Huberty -- Morgan Stanley -- Analyst

Ok, great. Congrats on the quarter. Thank you.

Tim Oliver -- Chief Financial Officer

Thank you.

Owen Sullivan -- Chief Operating Officer

Thanks.

Operator

Next, we will hear from Tim Willi of Wells Fargo.

Tim Willi -- Wells Fargo Securities -- Analyst

Hi. Thank you and good afternoon, everybody. My first question and then a follow-up, Mike, and Tim, I think you both referenced numerous times through your comments talking about your improved competitive position. And I know that product and people have been a focus of investment since you arrived, Mike.

I'm wondering if you could just sort of -- is there a business line more so than others where you feel like there have been substantial improvements in your competitive position, any way to sort of think about 1 standout versus the other, appreciating that probably all of them are better?

Mike Hayford -- President and Chief Executive Officer

Yeah. Tim thanks for the question. I would say a little bit across the board, again, we have been focused on all three lines of business and some very specific initiatives. I think you see a little bit in the numbers.

I think if you start with hospitality and what we have done in the SMB market with the Aloha Essentials. And we give you those metrics, we are starting to have good success there, we are starting to have really good success in attaching payments to those bundled Aloha sales in the SMB market. The enterprise side of Hospitality is starting to pick up. A little bit of that is the challenges at the large end of the market had last year.

It is because they were so busy, this year, we are starting to get refreshes and upgrades, and they are opening up new stores, new restaurants. Retail, we have had a number of years now reinvesting back in our Emerald cloud-based retail POS. We believe, and we are starting to see that again with the pandemic, in driving the need to really have a lot of multiple channels available that you need to upgrade your POS to get it on the more current architecture. So we are starting to see success in that.

I want to mention that, that is going quite well. You are seeing a little bit on SCO, I should say, a little bit SCO coming out of pandemic that drives to self-service. It started with the pandemic, now it is driven by the ability to get labor, and then the labor cost that all of our clients are seeing is driving a lot of conversation around the scope. We have improved across the board, not only on the product in the product investment but also on our service or NPS scores, our Net Promoter Scores, went up last year quite well.

And as a result, as you know, in the business that we are in, when they are customer sat improves because we do better service, we get more sales. So we are starting to see that. And then lastly, digital banking came back last year, had a good 2020. And it is continuing to show very well into 2021.

So literally across the board, retail, hospitality, banking, digital banking have had a really good start to the year.

Tim Willi -- Wells Fargo Securities -- Analyst

Thank you. And then my follow-up was just on hospitality and restaurants. We hear a lot about labor shortages and people not being able to hire. And I'm curious if within your product suite there, are there definitive revenue opportunities that are really built for this environment where you can really walk into that restaurant and help them manage even if they are understaffed, whether it is checkout at the table or some kind of other products and services in that POS system that there is a real opportunity given this labor market to really get some cross-selling into the customer base around labor-type products?

Mike Hayford -- President and Chief Executive Officer

Well, I mean, those are the two, you can sense in the two the ability to pay a table and a quick things ability to order a table, the ability to order the table and drive it straight through to the kitchen. Again, most times when you pop a menu at a table, you can just wait for the wait staff. Our system, because it is integrated with Aloha, it went back to the back kitchen. If you are an Aloha client, your customers can order a table, and then you can have runners taking them out for drinks and the food.

Integrated with the front end, we put some money into our front-end online ordering system. Again, that goes through our BSP, our Business Service Platform, right through the kitchen. So you don't have to reenter, which most platforms with the coming in third-party aggregators like Grubhub or Uber Eats. If you see it in the restaurant, they are reordering it into the POS Aloha straight through into the kitchen.

So we have some technology in the enterprise accounts, a lot of interest in just having that integration and having the capability to minimize staff interactions. So we think we are poised pretty well for that talent in self-service.

Tim Willi -- Wells Fargo Securities -- Analyst

Excellent. I appreciate the thoughts and all the details on the call. Thank you.

Operator

Joel Hoeffler of Stephens has our next question.

Joel Hoeffler -- Stephens Inc.-- Analyst

Great. Thanks, guys. Thanks for taking my question. I might have missed this earlier, but I was hoping if you could talk more about the payment attach rates for the existing hospitality customer base and if you were starting to win some of the acquiring business as that is coming up for renewal.

And then I have a follow-up.

Mike Hayford -- President and Chief Executive Officer

Yeah. So we talk about going on and putting up new Aloha central sites. So Aloha Essentials could be to a new client, a Greenfield client or it could be upgrading an existing Aloha client. So in those situations, you can see the attach rates are very strong.

We actually have gone out and started to sell into larger accounts, whether it is still SMB with 10 restaurants or whether it is a larger enterprise, and are starting to build a nice pipeline with that. I think we will start to see some of those converts into customers over time. We have actually had payments, so hospitality is head of retail or retail is starting to get some momentum as well with Store Point and with Emerald. So across the board, payments are starting to get the attraction.

I would say this every call, payment is a long game. We are going to attach payments to our point of sale when we start a transaction. We want to complete the transaction and collect the fee for that. And we will just keep moving and keep integrating, keep adding functionality that we can differentiate with the integrated POS to the merchant payment.

Owen Sullivan -- Chief Operating Officer

And the only thing I would add to that is Dirk and his team, as they have gone to market here, two things that they are very focused on. They are on the path to double the number of feet on the street in the hospitality space. So when we look at our product functionality and feature, we think we are very competitive. We feel good about that.

This is about a foot on the street, a battle in the SMB market, in particular, so we are on the path to double the number of salespeople. The other thing is that they have really built a strategy to lead as a payment-first strategy with the SMB marketplace. And in fact, what we have done is we have bundled the pricing to do a net settlement on payments. So at the end of the day, we are bringing Aloha Essentials with payments to the table, and it is all on a net settlement basis against the payments volume.

So the message is loud and clear, and I will tell you the receptivity, Mike talked about 61% growth on a low of sites. We are more than happy about that. We are overachieving on the attach rate in that activity versus what we had planned.

Joel Hoeffler -- Stephens Inc.-- Analyst

That is super helpful. I appreciate that. My follow-up question is, to the extent that you guys can, any update on how customers or partners are thinking about the Cardtronics acquisition?

Mike Hayford -- President and Chief Executive Officer

Yes. I mean we obviously can't go and market together. We can't go and talk about Cardtronics as an offering. We do get inbound messages, whether it is calls or as well talking to clients, an executive.

So it is literally more anecdotal. I would say the vast majority of it has been very positive, whether it is the banks or retail input around. And again, some of these are joint customers, right, so some of the retail clients are using our products are also using Cardtronics. Some of the banks have relationships with us, and they also use the offline network or they use some other services from Cardtronics.

They come to us and say, "Well, together, here are some things that you guys could do that would really help us." So it is, again, very anecdotal, but so far, it has been very positive.

Operator

Next, we will hear from Dan Kurnos of The Benchmark Company.

Daniel Kurnos -- The Benchmark Company -- Analyst

Thanks. Owen, can we just go back for a second, just on the Hospitality doubling feet on the street. If there is any way to kind of maybe parse out what you guys are seeing between, let's call it, existing logos that were struggling and are reopening their doors versus maybe new logos that have cropped up because obviously, the pandemic impacted the hospitality space in a more meaningful way than almost any other vertical. Just kind of the conversations that you are having there just so we can get a sense of the trajectory there.

And then, Mike, I guess, look, I know we haven't really touched on digital banking too much. It had a nice uptick in the quarter. Thanks for all the breakouts again kind of here. You have talked about seeing some green shoots, integration of physical assets.

Just any other granularity you can give us on sort of how you see that trajectory kind of improvement over the balance of this year would be helpful.

Owen Sullivan -- Chief Operating Officer

Sure. So on the hospitality, I would say that we certainly absorbed a lot with our customer base. I think Mike referenced there are Net Promoter Scores, probably the most material movement has been in the hospitality space. And I think that was because, with our existing customers, we really collaborated with them in terms of helping them absorb the body punches for you all, so suspending payments and stretching things out.

So the loyalty there has been very, very strong. The attrition has been coming from those that just couldn't survive and stepped out, but the loyalty from that customer base is really good. What we are seeing in the vast majority of the step-up in Aloha sites are new footprints. Now some of those are existing customers that move down the street or reopen their shop for new stores, but we are seeing a really good pickup.

And the receptivity to this approach that Dirk and his team have taken, which is the bundle of Aloha Essentials, minimal upfront capital, the net settlement on payments has really made this tolerable because even though we are starting to come out of it, we are not out yet. The volume is directionally right, but the volume isn't there. So the cost or the payment structure is volume sensitive, which is exactly what these new folks are looking for. So we are seeing a really good performance in new footprints opening up, and the loyalty of those customers that survived it has been really strong.

So I don't know if that is what you were looking for, but that is kind of what we are seeing from the activity in the first quarter.

Mike Hayford -- President and Chief Executive Officer

Yeah. And then on digital banking, so we had talked on December 3, at our Investor Day that we have build up -- build back the digital banking product set, not only with the product on feature function and the investment but also with our team, with our go-to-market and how we literally interact with the marketplace. So we aspire to get that growth rate into double-digits. I think we said we believe we can get there.

I don't think that is going to happen in 2021, but we think going into 2023, we can approach double digits. With the acquisition of D3, which is paying dividends and the $25 billion above, we announced a couple of big deals. We announced the Associated Bank, we announced Interest Bank, both of those banks are in the $50 billion range, so some very large scale. Part of that was integrating with Terrafina.

We brought on Terrafina as a part of our business. We have partnered with them in the past. They do omnichannel or multichannel account opening. They put it in front of the mobile, they put it in front of digital.

We can put that in the brand, so we put that into ATM. So we really have different products, particularly in that segment of the marketplace where they are looking for the retail consumer, starting with a digital experience moving to a branch and moving to an ATM or ITM. We are competing out there with the Q2s and the Alkermes. We believe we are winning our share against them, and we are doing really well.

The cores, particularly some of the core providers have some legacy platforms that have not been cut up to date on the mobile side. And as you guys all know, the whole play for a bank in the retail side of their business is all digital today, so it is so important to have a really strong digital partner, and we believe our product is as good as anybody else out there today.

Joel Hoeffler -- Stephens Inc.-- Analyst

Perfect, thanks for all the color guys. I appreciate it.

Operator

Paul Chung of J.P. Morgan has our next question.

Paul Chung -- J.P. Morgan -- Analyst

Hi, thanks for taking my question. So just on free cash, very strong generation this quarter, typical usage in 1Q, so anything on working cap you want to call out, looks like payables is a bit lighter, so anything structural going on there? You are going to smooth that out across the year? Q2 looks pretty strong as well, so how do we think about 4Q as well? Are you going to see a bump there?

Tim Oliver -- Chief Financial Officer

Yes, we had a great quarter on receivables again, and receivables have been most of the story over the last day, let's say, three quarters. While those improvements to our processes aren't necessarily completely institutionalized yet, they become, let's call, more comments across the organization. We will continue to work on that. We still got too much in the way of our receivables.

They are still longer than 90 days in duration, we are going to work on that. And I think overall, our days right now are, in the quarter, 71, 72 days. We have been as low as 63 or 64 days at year-end, and then we will work that down as we go through the year. On the inventory side, really great performance, typically, this company ramps up inventory buys in Q1 and then draws down that inventory tick on the raw side over the next several quarters.

We are buying in a more linear fashion to be more just in time or not just in time, but more just in time. And you are seeing that in our raws. And we finished the quarter a little higher than it would have liked on finished goods that had to do with -- remember, there are some shipping issues as we closed out the quarter globally. So I think we will clean up a little bit of that going into Q2.

But there is every reason to believe that as the year plays out, that our free cash flow should continue to be in the $450 million range for the full-year, which, if you play that out linearly across the year to get a little bit better in each quarter as we go, we tend to have a little higher second-half free cash flow than the first, but I still expect north of $200 million of free cash flow in the first half of the year.

Paul Chung -- J.P. Morgan -- Analyst

Ok. Wow. That's great. And then just a follow-up on Terrafina, what is kind of the respective contribution there? And what kind of attracted you to that asset? And then given the more kind of expansive capabilities and full solution, are you seeing more interest from fintech and community banking, any thoughts there? Thanks.

Mike Hayford -- President and Chief Executive Officer

Yes. So Terrafina, so starting with, we really like the project. We like the ability to account opening and do account opening on a digital or mobile platform. Second, we'd like the fact that they then can go to other channels.

As I said, we can do the same opening then on an ATM or ITM, probably more an ITM, Interactive Teller Machine. And then we can take that into a branch or a call center. So it is multichannel, we think that is really important. And then it is multiproduct.

So does a deposit account opening, it will do installment opening, it will go to a mortgage if it was a small bid. So it has that ability to really serve the whole breadth of products. And then lastly, it is built for customer direct. It is built really to be as opposed to back offices built front office for the customer.

So it fits really nicely with our strategy, which is self-service or self-directed banking for retail clients. It fit in nicely. It is integrated. It is up and running and it really is helping to drive sales, not only for Terrafina but also for our digital banking products.

Paul Chung -- J.P. Morgan -- Analyst

Thank you.

Operator

Next, we will hear from Matt Summerville of D.A. Davidson.

Matt Summerville -- D.A. Davidson -- Analyst

Just a couple of questions. First, has your business been impacted in any way by all of the supply chain and logistical challenges that you can basically read about sort of every day, whether it has to do with microprocessors or again, just challenges with freight, etc.?

Owen Sullivan -- Chief Operating Officer

Yes. Matt, this is Owen. I would say to date, we have been really comfortable with our position. I think as you may recall, over the last year or so, we talked quite a bit about what we had done to reevaluate our supply chain as we reestablished our manufacturing footprint around the globe, moving more localized with the supply chains, but also creating redundancies.

And quite candidly, over the last year, those redundancies were tested as COVID hit certain geographies that are in Brazil or Chennai. So we were able to put the supply chain infrastructure that we put in place to the test. We are pretty comfortable going forward that we have what we need. We have certainly looked and are aware of the microprocessor issues, but we believe that we have the supply chain and redundancy, and alternatives in place that we need.

That is given current conditions if things really moved in a materially bad way, and then we'd have to reassess where we are at. But right now, Adrian and his team have done a really good job getting us well-positioned.

Mike Hayford -- President and Chief Executive Officer

I mean you raised a constant battle going to ship a stock going to sue us now, our team has to scramble to figure how to get materials around that. A little over a year ago, we were very challenged with China. We have a plant in India right now. As you all know, the pandemic's hitting India as badly as any other country on the globe.

So we have been battling this for over a year. The team does a great job literally every single day trying to figure this out, but it is still a risk for us going forward.

Matt Summerville -- D.A. Davidson -- Analyst

And then lastly, can you talk, Tim, what the impact was in the quarter on the top and bottom line with respect to the ongoing shift toward more of a recurring revenue model?

Tim Oliver -- Chief Financial Officer

Yes. So about one point of growth, it costs us about one point of growth this quarter, predominantly still in banking for one more quarter, but probably two-thirds in banking and a third in the retail space.

Matt Summerville -- D.A. Davidson -- Analyst

Got it. Thank you.

Operator

[Operator Instructions] We will now hear from Kartik Mehta of NCR.

Kartik Mehta -- Northcoast Research -- Analyst

Good afternoon Mike, you talked a lot about ATM as-a-Service. I'm wondering what type of FIs you are seeing interest in size-wise -- asset size-wise and is it just domestic or are you seeing that demand internationally as well?

Mike Hayford -- President and Chief Executive Officer

Yes. We just announced a deal we did in Europe later, I think we announced it last week. So we are going to be more community credit unions, particularly in the States, it is going to be a little bigger overseas. I will tell you the discussions over the last 18-months.

And again, we are still fairly early stage in rolling out ATM as-a-Service. But we thought it would be smaller banks, maybe a few midsized banks. We have had larger banks very interested in a dialogue. In some cases, it is off-prem only, but they want to take their off-prem fleet.

In other cases, it is exploring at maybe a little bit broader opportunity where we could bring value to them. Again, we are early stage, so our focus right now is to do it on a smaller scale. That is an area that we have called out as we combine. If we get through the merger process with Cardtronics, we will have a very compelling offering in terms of this capability to operate and run.

They probably run as large a fleet as anybody on the globe in terms of driving ATMs 24/7. So today, it has been smaller. We think that will upscale quickly.

Kartik Mehta -- Northcoast Research -- Analyst

And Mike, just last question. As you look at the Aloha offering, how do you think you are comparing in terms of competition? Are you maintaining, gaining, losing market share? How would you kind of characterize what is happening on that side of the business?

Mike Hayford -- President and Chief Executive Officer

Yes. So Aloha's serving two markets, and then it is very small and we use a product called Silver, which is pure cloud-based. Aloha has got cloud components to it. And as you know, it is not really about the cloud, it is really about the ability to install, about the ability to support, the ability to drive upgrades.

And our products have that capability. Aloha on the enterprise side, we still think is by far the best product out there. It is continuing to be validated. So on the enterprise side, we do very well.

On the SMB side, Owen talked about it, we have rebuilt our channel into some of the marketplaces. We have been adding feet on the street and continuing to drive success. You can see that in our Aloha Essential numbers. We have got, I would say, some stronger competitors and one in particular in the SMB space.

But I think the product if you look at the product and you talk to people using the product, they love the product. There is more waiting staff. There are more servers in the industry who know our product and any other product out there. If you look at labor challenges and you want a product, somebody can walk in and use it in Aloha.

So I think the biggest challenge is demand man distribution, our channel, our ability to install, our ability to get it out there, and we are -- we have been addressing those over the last 18 months.

Operator

And we will now hear from Ian Zaffino of Oppenheimer.

Unknown speaker -- Oppenheimer & Co. Inc. -- Analyst

Hey guys it is Mark on for Ian. Thank you for taking my question. Just actually a quick one. On Aloha, can you give us a sense of where the attrition rate is? And then it seems like attrition rate has been caused a lot by restaurant closures, is that I guess, like the majority of the region or the driver and if so, like if not, is there anything else that is driving attrition or where do you see it going forward? Thanks.

Mike Hayford -- President and Chief Executive Officer

Yes. I mean we track attrition closely. It is a little hard, particularly in 2020. Is at an SMB-the enterprise ones, you see those.

That is fairly straightforward. And again, we are very torn in the enterprise, and we pick up market share in clients and enterprise as opposed to losing. In the SMB, it was hard to tell last year why they went away. And they stopped trading or stopped connecting to our system.

It is dramatically better now as Dirk and Owen track that quarter to quarter. First-quarter was dramatically lower on attrition, but he's been tracking that, following that. Our view of that space, so take your pick, read an industry periodical 25% to 30% of the restaurants closed up, not reopened. You can walk down your street build spaces that closed up in restaurants when a business, somebody is going to reopen in that space because the demand is going to be so high for going back out and eating on the pandemic.

And our goal is to be there and to win back or win new those entities that opened back up in literally the same location. So we think going forward, our numbers will continue to get better throughout 2021 on net add versus losses.

Unknown speaker -- Oppenheimer & Co. Inc. -- Analyst

Great. Thank you very much.

Operator

And it appears there are no further questions. At this time, I will turn the call over to Mike Hayford for any additional or closing comments.

Mike Hayford -- President and Chief Executive Officer

Thanks. Thanks to all of you for joining us again today. What I would say is, we don't think we are fully out of the global pandemic yet. Obviously, we are seeing it.

It moves. So depending on where you are, you feel better about where it is at. Obviously, our compatriots in India, have a large staff in India, and Brazil is still feeling the brunt of it. But we do feel really good about the progress in the first quarter.

In 2020 throughout the whole year, during a difficult year in the pandemic, we asked our team to stay very focused on the customer. And our goal is that we take are the customers in a difficult year, coming in the back end of that, they will look at NCR as a partner, and they will buy more from us. It was a pretty simple formula. We believe we are starting to see that.

That is starting to pay dividends. As customers are buying, and they are buying our strategic investments, they are buying our initiatives. And the work that we have been doing in the last 2.5 years is starting to pay dividends. These green shoots, as we call them, I called them in my script, these green shoots of success that we started to see in the first quarter or it gives us some optimism and you may be a little more optimistic in our call today based on our numbers and our performance, but the optimism is that our strategy is working.

Our execution is starting to come through, and that makes us feel a little bit better about 2021 going forward. Thanks for joining us today. We will see you in three months.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Michael Nelson -- Vice President, Investor Relations

Mike Hayford -- President and Chief Executive Officer

Tim Oliver -- Chief Financial Officer

Kathryn Huberty -- Morgan Stanley -- Analyst

Owen Sullivan -- Chief Operating Officer

Tim Willi -- Wells Fargo Securities -- Analyst

Joel Hoeffler -- Stephens Inc.-- Analyst

Daniel Kurnos -- The Benchmark Company -- Analyst

Paul Chung -- J.P. Morgan -- Analyst

Matt Summerville -- D.A. Davidson -- Analyst

Kartik Mehta -- Northcoast Research -- Analyst

Unknown speaker -- Oppenheimer & Co. Inc. -- Analyst

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