Document
false0000070866 0000070866 2019-07-30 2019-07-30 0000070866 2019-01-01 2019-06-30


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

         
FORM 8-K
 

         
 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): July 30, 2019
 

        
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NCR CORPORATION
(Exact name of registrant as specified in its charter)
 

Commission File Number 001-00395  
Maryland
 
31-0387920
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
864 Spring Street NW
Atlanta, GA 30308
(Address of principal executive offices and zip code)
 
Registrant's telephone number, including area code: (937) 445-5000
 
N/A
(Former name or former address, if changed since last report)
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
NCR
New York Stock Exchange





Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).        Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o


Item 2.02.     Results of Operations and Financial Condition.
On July 30, 2019, the Company issued a press release setting forth its second quarter 2019 financial results and fiscal year 2019 financial outlook. A copy of the press release is attached hereto as Exhibit 99.1 and hereby incorporated by reference.
Item 7.01.     Regulation FD Disclosure.
On July 30, 2019, the Company will hold its previously announced conference call to discuss its second quarter 2019 results and fiscal year 2019 financial outlook. A copy of supplementary materials that will be referred to in the conference call, and which were posted to the Company’s website, is attached hereto as Exhibit 99.2.

Item 9.01.        Financial Statements and Exhibits.

(d)    Exhibits:

The following exhibits are attached with this current report on Form 8-K:

Exhibit No.
Description
99.1
Press Release issued by the Company, dated July 30, 2019
99.2
Supplemental materials, dated July 30, 2019

            
                        
                    









Index to Exhibits
The following exhibits are attached with this current report on Form 8-K:

Exhibit No.            Description            
99.1                Press Release issued by the Company, dated July 30, 2019
99.2                Supplemental materials, dated July 30, 2019


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
NCR Corporation
 
 
By:
 
/s/ Andre J. Fernandez
 
 
Andre J. Fernandez
 
 
Executive Vice President and Chief Financial Officer
Date: July 30, 2019






























- 3 -
Exhibit



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NEWS RELEASE


July 30, 2019         

NCR Announces Second Quarter 2019 Results

ATLANTA - NCR Corporation (NYSE: NCR) reported financial results today for the three months ended June 30, 2019. Second quarter and other recent highlights include:

Revenue of $1.71 billion, up 11% as reported and up 14% constant currency
Banking revenue up 20% as reported
Net income attributable to NCR of $88 million; Adjusted EBITDA of $263 million
GAAP diluted EPS of $0.58; Non-GAAP diluted EPS of $0.76
2019 revenue guidance raised; EPS and cash flow guidance reaffirmed

“We generated solid results in the second quarter and are raising our revenue outlook for the full year,” said Michael Hayford, President and Chief Executive Officer. “Our performance was led by our banking segment driven by strong ATM revenue growth. Moving forward, our focus remains centered on prioritizing investments in our strategic growth platforms, advancing the rollout of our integrated payments platform and pursuing targeted acquisitions that are consistent with our digital first and recurring revenue strategy. We entered the second half of the year with a focused commitment to driving customer success and strengthening our foundation for sustainable long-term value creation for stockholders.” 

In this release, we use certain non-GAAP measures, including presenting certain measures on a constant currency basis. These non-GAAP measures include "free cash flow" and others with the words “non-GAAP," or "constant currency" in their titles. These non-GAAP measures are listed, described, and reconciled to their most directly comparable GAAP measures under the heading "Non-GAAP Financial Measures" later in this release.









Second Quarter 2019 Operating Results

Revenue
Second quarter revenue of $1,710 million was up 11% year-over-year. Foreign currency fluctuations had an unfavorable impact on the revenue comparison of 3%. The following table shows revenue for the second quarter:
$ in millions
Q2 2019
 
Q2 2018
 
% Change
 
% Change Constant Currency
Banking
$
868

 
$
725

 
20
%
 
23
%
Retail
558

 
537

 
4
%
 
6
%
Hospitality
202

 
198

 
2
%
 
3
%
Other
82

 
77

 
6
%
 
8
%
 
Total Revenue
$
1,710

 
$
1,537

 
11
%
 
14
%
 
 
 
 
 
 
 
 
 
Software
$
496

 
$
470

 
6
%
 
7
%
Services
622

 
610

 
2
%
 
5
%
Hardware
592

 
457

 
30
%
 
33
%
 
ATM
312

 
180

 
73
%
 
78
%
 
SCO/POS
280

 
277

 
1
%
 
3
%
 
Total Revenue
$
1,710

 
$
1,537

 
11
%
 
14
%

Banking revenue increased 20% due to 73% growth in ATM hardware revenue driven by higher backlog conversion as well as growth in ATM-related software and services revenue. The revenue growth was mainly driven by strength in the Americas and Europe. Foreign currency fluctuations had an unfavorable impact of 3% on the revenue comparison.

Retail revenue increased 4% driven by growth in payments, self-checkout and services revenue. Foreign currency fluctuations had an unfavorable impact of 2% on the revenue comparison.

Hospitality revenue increased 2% driven by higher cloud and payments revenue. Foreign currency fluctuations had an unfavorable impact of 1% on the revenue comparison.

Gross Margin
Second quarter gross margin of $471 million increased from $403 million in the prior year period. Gross margin rate was 27.5%, up from 26.2%. Second quarter gross margin (non-GAAP) of $487 million increased from $449 million in the prior year period. These increases in gross margin were primarily due to increases in the Banking and Retail segments. Gross margin rate (non-GAAP) was 28.5%, down from 29.2%. The decrease in gross margin rate (non-GAAP) was primarily due to product mix with an increase in hardware revenue.

Expenses
Second quarter operating expenses of $314 million decreased from $509 million in the prior year period. The decrease in operating expenses was primarily due to $183 million of asset impairment charges incurred in the prior year. Second quarter operating expenses (non-GAAP) of $295 million increased from $284 million in the prior year period. The increase in operating expenses (non-GAAP) was primarily due to higher employee-related and real estate costs.

Operating Income
Second quarter income from operations of $157 million increased from loss from operations of $106 million in the prior year period. Second quarter operating income (non-GAAP) of $192 million increased from $165 million in the prior year period.

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Other (Expense)
Second quarter other (expense) of $54 million increased from $50 million in the prior year period. Second quarter other (expense) (non-GAAP) of $54 million increased from $50 million in the prior year period. The increases were due to higher interest expense.

Income Tax Expense (Benefit)
Second quarter income tax expense of $15 million increased from income tax benefit of $12 million in the prior year period. The second quarter effective income tax rate was 15% compared to 8% in the prior year period. Second quarter income tax expense (non-GAAP) of $22 million increased from $18 million in the prior year period. The second quarter effective income tax rate (non-GAAP) was 16% compared to 16% in the prior year period. The increases in income tax on a GAAP and non-GAAP basis were primarily due to higher income before taxes in the quarter.

Net Income from Continuing Operations Attributable to NCR
Second quarter net income from continuing operations attributable to NCR of $88 million increased from net loss from continuing operations of $143 million in the prior year period. Second quarter net income from continuing operations attributable to NCR (non-GAAP) of $116 million increased from $97 million in the prior year period.

Cash Flow
Second quarter cash provided by operating activities of $87 million decreased from cash provided by operating activities of $119 million in the prior year period. Free cash flow was $9 million in the second quarter of 2019 as compared to free cash flow of $27 million in the second quarter of 2018 driven by timing of working capital with higher receivables exiting the quarter driven by the increase in revenue.

Restructuring and Transformation Initiatives
Our previously announced transformation and restructuring initiatives continue to progress. Our services performance and profit improvement program continues to deliver revenue growth and margin expansion. Our manufacturing transformation initiatives to move to a variable cost structure by reducing the number of manufacturing plants and ramping up production with contract manufacturers is substantially complete. Additionally, we are executing our spend optimization program to drive cost savings through operational efficiencies to generate at least $100 million of savings in 2019. This initiative will create efficiencies in our corporate functions, reduce spend in the non-strategic areas and limit discretionary spending. The benefits generated from the spend optimization program will largely offset higher real estate and people costs incurred in 2019. We incurred a pre-tax charge of $40 million in the first half of 2019 with a cash impact of $27 million. In 2019, for all initiatives, we expect to incur a pre-tax charge of $60 million and a cash impact of $70 million to $80 million.

Full Year 2019 Outlook

We are raising our 2019 revenue guidance and reaffirming our 2019 earnings and cash flow guidance. Our revenue growth is now expected to be approximately 3% to 4% (previous guidance 1% to 2%). Our GAAP diluted earnings per share guidance is expected to be $1.91 to $2.01, and our non-GAAP diluted earnings per share guidance is expected to be $2.75 to $2.85. Non-GAAP diluted earnings per share guidance assumes an effective tax rate of 23% to 24% for 2019 compared to 19% in 2018. We expect net income attributable to NCR to be $290 million to $305 million and adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) to be $1.04 billion to $1.08 billion. Additionally, we expect cash flow from operations to be $705 million to $730 million and free cash flow to be $300 million to $350 million.


2019 Second Quarter Earnings Conference Call

A conference call is scheduled for today at 4:30 p.m. (EDT) to discuss the second quarter 2019 results and guidance for full year 2019. Access to the conference call and accompanying slides, as well as a replay of the call, are available on

3



NCR's web site at http://investor.ncr.com/. Additionally, the live call can be accessed by dialing 888-820-9413 (United States/Canada Toll-free) or 786-460-7169 (International Toll) and entering the participant passcode 8960775.

More information on NCR’s Q2 2019 earnings, including additional financial information and analysis, is available on NCR’s Investor Relations website at http://investor.ncr.com/.
 
About NCR Corporation

NCR Corporation (NYSE: NCR) is a leading software- and services-led enterprise provider in the financial, retail, hospitality, telecom and technology industries. NCR is headquartered in Atlanta, Ga., with 34,000 employees and does business in 180 countries. NCR is a trademark of NCR Corporation in the United States and other countries.

Website: www.ncr.com
Twitter: @NCRCorporation
Facebook: www.facebook.com/ncrcorp
LinkedIn: https://www.linkedin.com/company/ncr-corporation
YouTube: www.youtube.com/user/ncrcorporation

News Media Contact
Scott Sykes
NCR Corporation
212.589.8428
scott.sykes@ncr.com

Investor Contact
Michael Nelson
NCR Corporation
678.808.6995
michael.nelson@ncr.com

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Note to Investors This release contains forward-looking statements. Forward-looking statements use words such as “expect,” “anticipate,” “outlook,” “intend,” “plan,” “believe,” “will,” “should,” “would,” “could,” and words of similar meaning. Statements that describe or relate to NCR’s plans, goals, intentions, strategies, or financial outlook, and statements that do not relate to historical or current fact, are examples of forward-looking statements. The forward-looking statements in this release include statements about NCR’s financial guidance and outlook (including the section entitled “Full Year 2019 Outlook” and the tables entitled "Reconciliation of Diluted Earnings Per Share from Continuing Operations (GAAP) to Non-GAAP Diluted Earnings Per Share from Continuing Operations (non-GAAP)" and "Reconciliation of Net Income for Continuing Operations Attributable to NCR (GAAP) to Earnings Before Interest, Depreciation, Taxes and Amortization (Adjusted EBITDA)"; NCR’s focus on strategic growth platforms, the rollout of an integrated payments platform and targeted acquisitions; expected results and impact of its spend optimization program in 2019; NCR’s expected areas of focus to drive growth and create long-term stockholder value; NCR’s expected free cash flow generation and capital allocation strategy; earnings per share; the effective tax rate in 2019; and the expected impact of NCR's previously announced restructuring and transformation activities, including expected pre-tax charges. Forward-looking statements are based on our current beliefs, expectations and assumptions, which may not prove to be accurate, and involve a number of known and unknown risks and uncertainties, many of which are out of NCR’s control. Forward-looking statements are not guarantees of future performance, and there are a number of important factors that could cause actual outcomes and results to differ materially from the results contemplated by such forward-looking statements, including those factors relating to: the strength of demand and pricing for ATMs and other financial services hardware and its effect on the results of our businesses and reportable segments; domestic and global economic and credit conditions including, in particular, those resulting from the imposition or threat of protectionist trade policies or import or export tariffs, global and regional market conditions and spending trends in the financial services and retail industries, new comprehensive U.S. tax legislation, modified or new global or regional trade agreements, the determination by the United Kingdom to exit the European Union, uncertainty over further potential changes in Eurozone participation and fluctuations in oil and commodity prices; the transformation of our business model and our ability to sell higher-margin software and services; our ability to improve execution in our sales and services organizations; our ability to successfully introduce new solutions and compete in the information technology industry; cybersecurity risks and compliance with data privacy and protection requirements; the possibility of disruptions in or problems with our data center hosting facilities; defects or errors in our products; the impact of our indebtedness and its terms on our financial and operating activities; the historical seasonality of our sales; tax rates and new U.S. tax legislation; foreign currency fluctuations; the success of our restructuring plans and cost reduction initiatives; manufacturing disruptions, including those caused by or related to outsourced manufacturing; the availability and success of acquisitions, divestitures and alliances; our pension strategy and underfunded pension obligation; reliance on third party suppliers; the impact of the terms of our strategic relationship with Blackstone and our Series A Convertible Preferred Stock; our multinational operations, including in new and emerging markets; collectability difficulties in subcontracting relationships in certain geographical markets; development and protection of intellectual property; workforce turnover and the ability to attract and retain skilled employees; uncertainties or delays associated with the transition of key business leaders; environmental exposures from our historical and ongoing manufacturing activities; and uncertainties with regard to regulations, lawsuits, claims, and other matters across various jurisdictions. Additional information concerning these and other factors can be found in the Company’s filings with the U.S. Securities and Exchange Commission, including the Company’s most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8- K. Any forward-looking statement speaks only as of the date on which it is made. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


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Non-GAAP Financial Measures

Non-GAAP Financial Measures. While NCR reports its results in accordance with Generally Accepted Accounting Principles in the United States, or GAAP, in this release NCR also uses the non-GAAP measures listed and described below.

Non-GAAP Diluted Earnings Per Share (EPS), Gross Margin (non-GAAP), Gross Margin Rate (non-GAAP), Operating Expenses (non-GAAP), Operating Income (non-GAAP), Operating Margin Rate (non-GAAP), Other (Expense) (non-GAAP), Income Tax Expense (non-GAAP), Effective Income Tax Rate (non-GAAP), and Net Income from Continuing Operations Attributable to NCR (non-GAAP). NCR’s non-GAAP diluted EPS, gross margin (non-GAAP), gross margin rate (non-GAAP), operating expenses (non-GAAP), operating income (non-GAAP), operating margin rate (non-GAAP), other (expense) (non-GAAP), income tax expense (non-GAAP), effective income tax rate (non-GAAP), and net income from continuing operations attributable to NCR (non-GAAP) are determined by excluding, as applicable, pension mark-to-market adjustments, pension settlements, pension curtailments and pension special termination benefits and other special items, including amortization of acquisition related intangibles, from NCR’s GAAP earnings per share, gross margin, gross margin rate, expenses, income from operations, operating margin rate, other (expense), income tax expense, effective income tax rate and net income from continuing operations attributable to NCR, respectively. Due to the non-operational nature of these pension and other special items, NCR's management uses these non-GAAP measures to evaluate year-over-year operating performance. NCR also uses operating income (non-GAAP) and diluted EPS (non-GAAP), to manage and determine the effectiveness of its business managers and as a basis for incentive compensation. NCR believes these measures are useful for investors because they provide a more complete understanding of NCR's underlying operational performance, as well as consistency and comparability with NCR's past reports of financial results.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) NCR believes that Adjusted EBITDA (adjusted earnings before interest, taxes, depreciation and amortization) provides useful information to investors because it is an indicator of the strength and performance of the Company's ongoing business operations, including its ability to fund discretionary spending such as capital expenditures, strategic acquisitions and other investments. NCR determines Adjusted EBITDA for a given period based on its GAAP net income attributable to NCR plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization; plus other income (expense); plus pension mark-to-market adjustments, pension settlements, pension curtailments and pension special termination benefits and other special items, including amortization of acquisition related intangibles.

Free Cash Flow. NCR defines free cash flow as net cash provided by/used in operating activities and cash flow provided by/used in discontinued operations less capital expenditures for property, plant and equipment, additions to capitalized software, discretionary pension contributions and pension settlements. NCR's management uses free cash flow to assess the financial performance of the Company and believes it is useful for investors because it relates the operating cash flow of the Company to the capital that is spent to continue and improve business operations. In particular, free cash flow indicates the amount of cash generated after capital expenditures, which can be used for, among other things, investment in the Company's existing businesses, strategic acquisitions, strengthening the Company's balance sheet, repurchase of Company stock and repayment of the Company's debt obligations. Free cash flow does not represent the residual cash flow available for discretionary expenditures since there may be other nondiscretionary expenditures that are not deducted from the measure. Free cash flow does not have uniform definitions under GAAP and, therefore, NCR's definitions may differ from other companies' definitions of these measures.

Constant Currency. NCR presents certain financial measures, such as period-over-period revenue growth, on a constant currency basis, which excludes the effects of foreign currency translation by translating prior period results at current period monthly average exchange rates. Due to the overall variability of foreign exchange rates from period to period, NCR’s management uses constant currency measures to evaluate period-over-period operating performance on a more consistent and comparable basis. NCR’s management believes that presentation of financial measures without this result is more representative of the company's period-over-period operating performance, and provides additional insight into historical and/or future performance, which may be helpful for investors.

NCR's definitions and calculations of these non-GAAP measures may differ from similarly-titled measures reported by other companies and cannot, therefore, be compared with similarly-titled measures of other companies. These non-GAAP measures should not be considered as substitutes for, or superior to, results determined in accordance with GAAP. These non-GAAP measures are reconciled to their most directly comparable GAAP measures in the tables below.


6



Reconciliation of Gross Margin (GAAP) to Gross Margin (non-GAAP)
$ in millions
Q2 2019
 
Q2 2018
Gross Margin (GAAP)
$
471

 
$
403

Transformation and restructuring costs
10

 
41

Acquisition-related amortization of intangibles
6

 
5

Gross Margin (Non-GAAP)
$
487

 
$
449


Reconciliation of Gross Margin Rate (GAAP) to Gross Margin Rate (non-GAAP)

 
Q2 2019
 
Q2 2018
Gross Margin Rate (GAAP)
27.5
%
 
26.2
%
Transformation and restructuring costs
0.6
%
 
2.7
%
Acquisition-related amortization of intangibles
0.4
%
 
0.3
%
Gross Margin Rate (Non-GAAP)
28.5
%
 
29.2
%

Reconciliation of Operating Expenses (GAAP) to Operating Expenses (non-GAAP)
$ in millions
Q2 2019
 
Q2 2018
Operating Expenses (GAAP)
$
314

 
$
509

Transformation and restructuring costs
(4
)
 
(25
)
Asset impairment charges

 
(183
)
Acquisition-related amortization of intangibles
(15
)
 
(16
)
Acquisition-related costs

 
(1
)
Operating Expenses (Non-GAAP)
$
295

 
$
284


Reconciliation of Income from Operations (GAAP) to Operating Income (non-GAAP)
$ in millions
Q2 2019
 
Q2 2018
Income (Loss) from Operations (GAAP)
$
157

 
$
(106
)
Transformation and restructuring costs
14

 
66

Asset impairment charges

 
183

Acquisition-related amortization of intangibles
21

 
21

Acquisition-related costs

 
1

Operating Income (Non-GAAP)
$
192

 
$
165



Reconciliation of Income Tax Expense (GAAP) to Income Tax Expense (non-GAAP)
$ in millions
Q2 2019
 
Q2 2018
Income Tax (Benefit) Expense (GAAP)
$
15

 
$
(12
)
Transformation and restructuring costs
3

 
16

Asset impairment charges

 
8

Acquisition-related amortization of intangibles
4

 
4

Impact of U.S. tax reform

 
2

Income Tax Expense (Non-GAAP)
$
22

 
$
18



7



Reconciliation of Net Income from Continuing Operations Attributable to NCR (GAAP) to
Net Income from Continuing Operations Attributable to NCR (non-GAAP)
$ in millions
Q2 2019
 
Q2 2018
Net Income (Loss) from Continuing Operations Attributable to NCR (GAAP)
$
88

 
$
(143
)
Transformation and restructuring costs
11

 
50

Asset impairment charges

 
174

Acquisition-related amortization of intangibles
17

 
17

Acquisition-related costs

 
1

Impact of U.S. tax reform

 
(2
)
Net Income from Continuing Operations Attributable to NCR (Non-GAAP)
$
116

 
$
97


Reconciliation of Diluted Earnings Per Share from Continuing Operations (GAAP) to
Non-GAAP Diluted Earnings Per Share from Continuing Operations (non-GAAP)

Q2 2019 Actual

Q2 2018 Actual
 
2019 Guidance(2)
Diluted Earnings Per Share (GAAP) (1)
$
0.58


$
(1.31
)
 
$1.91 - $2.01

Transformation & restructuring costs
0.07


0.34

 
0.31

Goodwill & long-lived asset impairment charges

 
1.17

 

Acquisition-related amortization of intangibles
0.11

 
0.11

 
0.48

Acquisition-related costs


0.01

 
0.05

Impact of U.S. tax reform

 
(0.01
)
 

Diluted Earnings Per Share (non-GAAP) (1)
$
0.76


$
0.65

 
$2.75 - $2.85


(1)  
Non-GAAP diluted EPS is determined using the conversion of the Series A Convertible Preferred Stock into common stock in the calculation of weighted average diluted shares outstanding. GAAP EPS is determined using the most dilutive measure, either including the impact of dividends or deemed dividends on the Company's Series A Convertible Preferred Stock in the calculation of net income or loss available to common stockholders or including the impact of the conversion of the Series A Convertible Preferred Stock into common stock in the calculation of the weighted average diluted shares outstanding. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may not mathematically reconcile.
(2) 
Except for the adjustments noted herein, this guidance does not include the effects of any future acquisitions/divestitures, pension mark-to-market adjustments, taxes or other events, which are difficult to predict and may or may not be significant.

Reconciliation of Net Income from Continuing Operations Attributable to NCR (GAAP) to Earnings Before Interest, Depreciation, Taxes and Amortization (Adjusted EBITDA)
$ in millions
Q2 2019 Actual
2019 Guidance
Net Income Attributable to NCR (GAAP)
$
88

$290 - $305

Transformation and restructuring costs
14

60

Acquisition-related amortization of intangibles
21

95

Acquisition-related costs

10

Interest, net
44

180 - 195

Taxes
15

85 - 95

Depreciation & Amortization (excluding acquisition-related amortization of intangibles)
56

240

Stock Compensation
25

80

Adjusted EBITDA (Non-GAAP)
$
263

$1,040 - $1,080


Reconciliation of Net Cash Provided by Operating Activities (GAAP) to Free Cash Flow (non-GAAP)

8



$ in millions
Q2 2019 QTD
 
Q2 2018 QTD
 
2019 Guidance
Net cash used by operating activities
$
87

 
$
119

 
$705 - $730

Total capital expenditures
(73
)
 
(85
)
 
(350) - (375)

Net cash used in discontinued operations
(5
)
 
(7
)
 
(30
)
Free cash flow
$
9

 
$
27

 
$300 - $350




Reconciliation of Revenue Growth % (GAAP) to
Revenue Growth Constant Currency % (non-GAAP)
 
Three months ended June 30, 2019

Revenue Growth % (GAAP)
 
Favorable (unfavorable) FX impact
 
Revenue Growth Constant Currency %
(non-GAAP)
Banking
20%
 
(3)%
 
23%
Retail
4%
 
(2)%
 
6%
Hospitality
2%
 
(1)%
 
3%
Other
6%
 
(2)%
 
8%
Total Revenue
11%
 
(3)%
 
14%

 
Three months ended June 30, 2019
 
Revenue Growth % (GAAP)
 
Favorable (unfavorable) FX impact
 
Revenue Growth Adjusted Constant Currency %
(non-GAAP)
Software
6%
 
(1)%
 
7%
Services
2%
 
(3)%
 
5%
Hardware
30%
 
(3)%
 
33%
      ATM
73%
 
(5)%
 
78%
     SCO/POS
1%
 
(2)%
 
3%
Total Revenue
11%
 
(3)%
 
14%




9



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NCR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)
Schedule A
 
For the Periods Ended June 30
 
Three Months
 
Six Months
 
2019
 
2018
 
2019
 
2018
Revenue
 
 
 
 
 
 
 
Products
$
664

 
$
525

 
$
1,203

 
$
1,051

Services
1,046

 
1,012

 
2,043

 
2,003

Total Revenue
1,710

 
1,537

 
3,246

 
3,054

Cost of products
539

 
451

 
992

 
871

Cost of services
700

 
683

 
1,372

 
1,360

Total gross margin
471

 
403

 
882

 
823

% of Revenue
27.5
%
 
26.2
 %
 
27.2
%
 
26.9
 %
Selling, general and administrative expenses
252

 
261

 
504

 
506

Research and development expenses
62

 
65

 
121

 
131

Asset impairment charges

 
183

 

 
183

Income (loss) from operations
157

 
(106
)
 
257

 
3

% of Revenue
9.2
%
 
(6.9
)%
 
7.9
%
 
0.1
 %
Interest expense
(45
)
 
(41
)
 
(90
)
 
(82
)
Other expense, net
(9
)
 
(9
)
 
(17
)
 
(14
)
Total other expense, net
(54
)
 
(50
)
 
(107
)
 
(96
)
Income (loss) from continuing operations before income taxes
103

 
(156
)
 
150

 
(93
)
% of Revenue
6.0
%
 
(10.1
)%
 
4.6
%
 
(3.0
)%
Income tax expense (benefit)
15

 
(12
)
 
24

 
(5
)
Income (loss) from continuing operations
88

 
(144
)
 
126

 
(88
)
Loss from discontinued operations, net of tax

 
(2
)
 

 
(37
)
Net income (loss)
88

 
(146
)
 
126

 
(125
)
Net income (loss) attributable to noncontrolling interests

 
(1
)
 
1

 

Net income (loss) attributable to NCR
$
88

 
$
(145
)
 
$
125

 
$
(125
)
Amounts attributable to NCR common stockholders:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
88

 
$
(143
)
 
$
125

 
$
(88
)
Dividends on convertible preferred stock
(12
)
 
(12
)
 
(25
)
 
(24
)
Income (loss) from continuing operations attributable to NCR common stockholders
76

 
(155
)
 
100

 
(112
)
Loss from discontinued operations, net of tax

 
(2
)
 

 
(37
)
Net income (loss) attributable to NCR common stockholders
$
76

 
$
(157
)
 
$
100

 
$
(149
)
Income (loss) per share attributable to NCR common stockholders:
 
 
 
 
 
 
 
Income (loss) per common share from continuing operations
 
 
 
 
 
 
 
Basic
$
0.63

 
$
(1.31
)
 
$
0.83

 
$
(0.94
)
Diluted (1)
$
0.58

 
$
(1.31
)
 
$
0.81

 
$
(0.94
)
Net income (loss) per common share
 
 
 
 
 
 
 
Basic
$
0.63

 
$
(1.33
)
 
$
0.83

 
$
(1.26
)
Diluted (1)
$
0.58

 
$
(1.33
)
 
$
0.81

 
$
(1.26
)
Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
120.2

 
117.9

 
119.8

 
118.6

Diluted (1)
152.7

 
117.9

 
123.0

 
118.6


(1) Diluted EPS is determined using the most dilutive measure, either including the impact of the dividends and deemed dividends on NCR's Series A Convertible Preferred Shares in the calculation of net income or loss per common share from continuing operations and net income or loss per common share or including the impact of the conversion of such preferred stock into common stock in the calculation of the weighted average diluted shares outstanding.


10





http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13030569&doc=10
NCR CORPORATION
REVENUE AND OPERATING INCOME SUMMARY
(Unaudited)
(in millions)
Schedule B

 
For the Periods Ended June 30
 
Three Months
 
Six Months
 
2019
 
2018
 
% Change
 
% Change Constant Currency
 
2019
 
2018
 
% Change
 
% Change Constant Currency
Revenue by segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Banking
$
868

 
$
725

 
20%
 
23%
 
$
1,626

 
$
1,446

 
12%
 
16%
Retail
558

 
537

 
4%
 
6%
 
1,069

 
1,058

 
1%
 
4%
Hospitality
202

 
198

 
2%
 
3%
 
395

 
402

 
(2)%
 
—%
Other
82

 
77

 
6%
 
8%
 
156

 
148

 
5%
 
8%
Total Revenue
$
1,710

 
$
1,537

 
11%
 
14%
 
$
3,246

 
$
3,054

 
6%
 
9%
Operating income by segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Banking
$
129

 
$
94

 
 
 
 
 
$
224

 
$
178

 
 
 
 
Banking operating income margin %
14.9
%
 
13.0
%
 
 
 
 
 
13.8
%
 
12.3
%
 
 
 
 
Retail
40

 
41

 
 
 
 
 
66

 
76

 
 
 
 
Retail operating income margin %
7.2
%
 
7.6
%
 
 
 
 
 
6.2
%
 
7.2
%
 
 
 
 
Hospitality
13

 
19

 
 
 
 
 
29

 
38

 
 
 
 
Hospitality operating income margin %
6.4
%
 
9.6
%
 
 
 
 
 
7.3
%
 
9.5
%
 
 
 
 
Other
10

 
11

 
 
 
 
 
20

 
21

 
 
 
 
All Other operating income margin %
12.2
%
 
14.3
%
 
 
 
 
 
12.8
%
 
14.2
%
 
 
 
 
Subtotal-segment operating income
$
192

 
$
165

 
 
 
 
 
$
339

 
$
313

 
 
 
 
        Total Revenue operating income margin %
11.2
%
 
10.7
%
 
 
 
 
 
10.4
%
 
10.2
%
 
 
 
 
Other adjustments (1)
35

 
271

 
 
 
 
 
82

 
310

 
 
 
 
Total income from operations
$
157

 
$
(106
)
 
 
 
 
 
$
257

 
$
3

 
 
 
 

(1) 
The following table presents the other adjustments for NCR:
 
For the Periods Ended June 30
 
Three Months
 
Six Months
In millions
2019
 
2018
 
2019
 
2018
Transformation and restructuring costs
$
14

 
$
66

 
$
40

 
$
82

Asset impairment charges

 
183

 

 
183

Acquisition-related amortization of intangible assets
21

 
21

 
42

 
44

Acquisition-related costs

 
1

 

 
1

Total other adjustments
$
35

 
$
271

 
$
82

 
$
310



11



http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13030569&doc=10
NCR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions, except per share amounts)
Schedule C
 
June 30,
2019
 
March 31, 2019
 
December 31, 2018
Assets
 
 
 
 
 
Current assets
 
 
 
 
 
Cash and cash equivalents
$
335

 
$
414

 
$
464

Accounts receivable, net
1,430

 
1,335

 
1,356

Inventories
868

 
874

 
806

Other current assets
402

 
393

 
397

Total current assets
3,035

 
3,016

 
3,023

Property, plant and equipment, net
372

 
373

 
359

Goodwill
2,707

 
2,705

 
2,692

Intangibles, net
553

 
573

 
595

Operating lease assets
414

 
433

 

Prepaid pension cost
151

 
148

 
140

Deferred income taxes
468

 
453

 
448

Other assets
522

 
497

 
504

Total assets
$
8,222

 
$
8,198

 
$
7,761

Liabilities and stockholders’ equity
 
 
 
 
 
Current liabilities
 
 
 
 
 
Short-term borrowings
$
198

 
$
297

 
$
185

Accounts payable
769

 
788

 
897

Payroll and benefits liabilities
235

 
184

 
238

Contract liabilities
546

 
566

 
461

Other current liabilities
555

 
546

 
501

Total current liabilities
2,303

 
2,381

 
2,282

Long-term debt
2,918

 
2,914

 
2,980

Pension and indemnity plan liabilities
767

 
760

 
759

Postretirement and postemployment benefits liabilities
120

 
120

 
118

Income tax accruals
94

 
93

 
91

Operating lease liabilities
389

 
406

 

Other liabilities
186

 
184

 
259

Total liabilities
6,777

 
6,858

 
6,489

Redeemable noncontrolling interests
14

 
14

 
14

Series A convertible preferred stock: par value $0.01 per share, 3.0 shares authorized, 0.9, 0.9, and 0.9 shares issued and outstanding as of June 30, 2019, March 31, 2019 and December 31, 2018, respectively; redemption amount and liquidation preference of $895, $883, and $871 as of June 30, 2019, March 31, 2019 and December 31, 2018, respectively
884

 
872

 
859

Stockholders' equity
 
 

 
 
NCR stockholders' equity:
 
 

 
 
Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding as of June 30, 2019, March 31, 2019 and December 31, 2018, respectively

 

 

Common stock: par value $0.01 per share, 500.0 shares authorized, 120.3, 119.8 and 118.7 shares issued and outstanding as of June 30, 2019, March 31, 2019 and December 31, 2018, respectively
1

 
1

 
1

Paid-in capital
76

 
48

 
34

Retained earnings
706

 
630

 
606

Accumulated other comprehensive loss
(241
)
 
(230
)
 
(246
)
Total NCR stockholders' equity
542

 
449

 
395

Noncontrolling interests in subsidiaries
5

 
5

 
4

Total stockholders' equity
547

 
454

 
399

Total liabilities and stockholders' equity
$
8,222

 
$
8,198

 
$
7,761


12



http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13030569&doc=10
NCR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
Schedule D
 
For the Periods Ended June 30
 
Three Months

Six Months
 
2019
 
2018
 
2019
 
2018
Operating activities
 
 
 
 
 
 
 
Net income
$
88

 
$
(146
)
 
$
126

 
$
(125
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Loss from discontinued operations

 
2

 

 
37

Depreciation and amortization
79

 
85

 
160

 
171

Stock-based compensation expense
25

 
26

 
48

 
40

Deferred income taxes
(12
)
 
(3
)
 
(17
)
 
1

Gain on sale of property, plant and equipment
(6
)
 

 
(6
)
 

Impairment of long-lived and other assets

 
193

 

 
193

Changes in assets and liabilities:
 
 
 
 
 
 
 
Receivables
(92
)
 
73

 
(71
)
 
(41
)
Inventories
4

 
(46
)
 
(64
)
 
(88
)
Current payables and accrued expenses
48

 
20

 
(144
)
 
(57
)
Contract liabilities
(24
)
 
(75
)
 
76

 

Employee benefit plans
(5
)
 
(5
)
 
(9
)
 
(8
)
Other assets and liabilities
(18
)
 
(5
)
 
(28
)
 
(28
)
Net cash provided by operating activities
87

 
119

 
71

 
95

Investing activities
 
 
 
 
 
 
 
Expenditures for property, plant and equipment
(13
)
 
(41
)
 
(35
)
 
(70
)
Proceeds from sales of property, plant and equipment
11

 

 
11

 

Additions to capitalized software
(60
)
 
(44
)
 
(103
)
 
(86
)
Business acquisitions, net
(6
)
 

 
(12
)
 

Other investing activities, net
2

 

 
5

 
(3
)
Net cash used in investing activities
(66
)
 
(85
)
 
(134
)
 
(159
)
Financing activities
 
 
 
 
 
 
 
Short term borrowings, net
(3
)
 
3

 
4

 
2

Payments on term credit facilities
(22
)
 

 
(39
)
 
(34
)
Payments on revolving credit facilities
(539
)
 
(515
)
 
(914
)
 
(1,013
)
Borrowings on revolving credit facilities
467

 
550

 
897

 
1,163

Repurchases of Company common stock

 
(45
)
 

 
(210
)
Proceeds from employee stock plans
6

 
6

 
10

 
11

Tax withholding payments on behalf of employees
(3
)
 
(18
)
 
(16
)
 
(29
)
Net cash used in financing activities
(94
)
 
(19
)
 
(58
)
 
(110
)
Cash flows from discontinued operations


 

 

 

Net cash used in discontinued operations
(5
)
 
(7
)
 
(11
)
 
(11
)
Effect of exchange rate changes on cash and cash equivalents

 
(13
)
 
1

 
(8
)
Decrease in cash, cash equivalents, and restricted cash
(78
)
 
(5
)
 
(131
)
 
(193
)
Cash, cash equivalents and restricted cash at beginning of period
423

 
355

 
476

 
543

Cash, cash equivalents, and restricted cash at end of period
$
345

 
$
350

 
$
345

 
$
350


13
q22019callslidesfinal
Q2 2019 EARNINGS CONFERENCE CALL MICHAEL HAYFORD, PRESIDENT & CEO OWEN SULLIVAN, COO ANDRE FERNANDEZ, CFO July 30, 2019


 
NOTES TO INVESTORS FORWARD-LOOKING STATEMENTS. Comments made during this conference call and in these materials contain forward-looking statements. Statements that describe or relate to NCR's plans, goals, intentions, strategies, or financial outlook, and statements that do not relate to historical or current fact, are examples of forward-looking statements. The forward- looking statements in these materials include statements about NCR’s full year 2019 financial guidance and the expected type and magnitude of the non-operational adjustments included in any forward-looking non-GAAP measures; NCR's strategy and expected areas of focus to drive stockholder value creation including strategic growth platforms, revenue shift to recurring software and services revenue and its impact on revenue, revenue growth acceleration, customer purchasing experience, and sales team quoting and configuration process; spend optimization and related expected investments and results; areas of focus to improve productivity; payments platform integration; NCR's investment priorities and their expected benefits in 2019; NCR's acquisition strategy; and NCR's expected free cash flow generation and capital allocation strategy. Forward-looking statements are not guarantees of future performance, and there are a number of important factors that could cause actual outcomes and results to differ materially from the results contemplated by such forward-looking statements, including those factors listed in Item 1a "Risk Factors" of NCR's Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 28, 2019, and those factors detailed from time to time in NCR's other SEC reports. These materials are dated July 30, 2019, and NCR does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These presentation materials and the associated remarks made during this conference call are integrally related and are intended to be presented and understood together. 2


 
NOTES TO INVESTORS NON-GAAP MEASURES. While NCR reports its results in accordance with generally accepted accounting principles in the United States (GAAP), comments made during this conference call and in these materials will include or make reference to certain "non-GAAP" measures, including: selected measures, such as period-over-period revenue growth, expressed on a constant currency (CC) basis; gross margin rate (non-GAAP); diluted earnings per share (non-GAAP); free cash flow; gross margin (non-GAAP); net debt; adjusted EBITDA; the ratio of net debt to adjusted EBITDA; operating income (non-GAAP); interest and other expense (non-GAAP); income tax expense (non-GAAP); effective income tax rate (non-GAAP); and net income (non- GAAP). These measures are included to provide additional useful information regarding NCR's financial results, and are not a substitute for their comparable GAAP measures. Explanations of these non-GAAP measures, and reconciliations of these non- GAAP measures to their directly comparable GAAP measures, are included in the accompanying "Supplementary Materials" and are available on the Investor Relations page of NCR's website at www.ncr.com. Descriptions of many of these non-GAAP measures are also included in NCR's SEC reports. USE OF CERTAIN TERMS. As used in these materials: (i) the term "recurring revenue" means revenue for services under contract for which revenue is recognized over time and (ii) the term "CC" means constant currency. These presentation materials and the associated remarks made during this conference call are integrally related and are intended to be presented and understood together. 3


 
OVERVIEW RESULTS EXCEED expectations Continued to IMPROVE EXECUTION BANKING REVENUE up 23% cc; ATM revenue up 78% cc Progress building STRATEGIC GROWTH PLATFORMS and TARGETED M&A program 2019 REVENUE GUIDANCE increased 4


 
Q2 2019 FINANCIAL RESULTS Revenue Adjusted EBITDA FX Impact $(36) million $1.71 $1.54 $235 $263 billion billion million million Q2 2018 Q2 2019 Q2 2018 Q2 2019 Revenue up 11% as reported and up 14% CC Adjusted EBITDA up 12% Non-GAAP Diluted EPS Free Cash Flow FX Impact ($0.05) $27 $0.76 $9 $0.65 million million Q2 2018 Q2 2019 Q2 2018 Q2 2019 Non-GAAP EPS up 17% as reported and up 27% CC Free cash flow down due to higher working capital 5


 
SHIFT TO SUBSCRIPTION to drive increased recurring revenue across our strategic growth platforms Digital First Digital First Digital First Banking Restaurant Retail Digital Digital Digital Small Connected Convenience Business Services and Fuel Essentials 6


 
PAYMENTS INTEGRATION NCR Silver Aloha Integration On Track for Integration Complete on Track & POC+ NCR Silver & & Customers Live Live Aloha GA* 2H19 + Proof of Concept * General Availability 7


 
M&A UPDATE Minority Interest D3 Technology Texas P.O.S. OKI Brazil IT Services in NCR Manaus • Expands • Expands • Increases the • Expands addressable Hospitality breadth of addressable market for Digital sales and NCR's service market in First Banking services offerings in Brazil • Supports the coverage in Brazil U.S. large Texas financial institution market • Platform for international expansion 8


 
BANKING $ in millions Revenue Operating Income +20% As Reported +37% As +23% FXN Reported $868 +47% FXN $725 $129 $94 Q2 18 Q2 19 Q2 18 Q2 19 Key Highlights • Revenue up 23% CC driven by ATM hardware revenue growth of 78% CC and related software as well as services revenue growth • Operating Income up 47% CC driven by higher volume and favorable mix of revenue 9


 
RETAIL $ in millions Revenue +4% As Operating Income Reported +6% FXN (2)% As $558 Reported $537 +14% FXN $41 $40 Q2 18 Q2 19 Q2 18 Q2 19 Key Highlights • Revenue up 6% CC driven by increase in payments, self-checkout and services revenue • Operating Income up 14% CC driven by services productivity improvements 10


 
HOSPITALITY $ in millions Revenue Operating Income +2% As Reported +3% FXN $198 $202 (32)% As Reported (36)% FXN $19 $13 Q2 18 Q2 19 Q2 18 Q2 19 Key Highlights • Revenue up 3% CC driven by increase in cloud and payments revenue • Operating Income down 36% CC driven by unfavorable mix of revenue and continued investment in customer satisfaction initiatives 11


 
SUPPLEMENTAL REVENUE Q2 2019 Q2 2018 % Change % Change CC Software $496 $470 6% 7% Services $622 $610 2% 5% Hardware $592 $457 30% 33% ATM $312 $180 73% 78% SCO/POS $280 $277 1% 3% Total Revenue $1,710 $1,537 11% 14% $ in millions Key Highlights • Software growth of 7% CC driven by an increase in ATM-related software revenue as well as an increase in cloud and payments revenue • Services growth of 5% CC driven by increase in recurring revenue • Hardware growth of 33% CC driven by 78% CC growth in ATM revenue and 3% CC growth in SCO/POS revenue 12


 
FREE CASH FLOW, NET DEBT & EBITDA Free Cash Flow Q2 2019 Q2 2018 Cash provided by Operating Activities $87 $119 Total capital expenditures ($73) ($85) Cash used in Discontinued Operations (5) (7) Free Cash Flow $9 $27 $ in millions Net Debt & EBITDA Q2 2019 Q1 2019 Q2 2018 Debt $3,116 $3,211 $3,112 Cash ($335) ($414) ($343) Net Debt 2,781 $2,797 $2,769 Adjusted EBITDA(1) $986 $958 $1,065 Net Debt / Adjusted EBITDA 2.8x 2.9x 2.6x (1) Adjusted EBITDA for the trailing twelve-month period $ in millions 13


 
2019 GUIDANCE Current Guidance * Previous Guidance Revenue Growth 3% - 4% 1% - 2% Net Income Attributable to NCR $290 - $305 $290 - $305 Adjusted EBITDA $1,040 - $1,080 $1,040 - $1,080 GAAP Diluted EPS $1.91 - $2.01 $1.91 - $2.01 Non-GAAP Diluted EPS $2.75 - $2.85 $2.75 - $2.85 Cash Flow from Operations $705 - $730 $705 - $730 Free Cash Flow $300 - $350 $300 - $350 $ in millions, except per share amounts * Revenue growth guidance raised to 3% to 4% with all other guidance reaffirmed 14


 
LOOKING FORWARD • Solid execution in Q2 reinforces full year confidence • Targeted investments to drive profitable growth • Mix shift to software, services and recurring revenue • Improve cost structure • Allocate capital to highest growth and return on investment opportunities • Drive cash flow generation 15


 
SUPPLEMENTARY MATERIALS


 
Q2 2019 GAAP RESULTS % Change Q2 2019 Q2 2018 As Reported Revenue $1,710 $1,537 11% Gross Margin 471 403 17% Gross Margin Rate 27.5% 26.2% Operating Expenses 314 509 (38)% % of Revenue 18.4% 33.1% Operating Income (Loss) 157 (106) 248% % of Revenue 9.2% (6.9%) Interest and other expense (54) (50) 8% Income Tax Expense (Benefit) 15 (12) 225% Effective Income Tax Rate 14.6% 7.7% Net Income (Loss) From Continuing Operations (attributable to NCR) 88 (143) 162% Diluted EPS $0.58 ($1.31) 144% $ in millions, except per share amounts 17


 
Q2 2019 OPERATIONAL RESULTS % Change % Change Q2 2019 Q2 2018 As Constant Reported Currency Revenue $1,710 $1,537 11% 14% Gross Margin (non-GAAP) 487 449 8% 12% Gross Margin Rate (non-GAAP) 28.5% 29.2% (70 bps) (30 bps) Operating Expenses (non-GAAP) 295 284 4% 6% % of Revenue 17.3% 18.5% (120)bps (130)bps Operating Income (non-GAAP) 192 165 16% 25% % of Revenue 11.2% 10.7% 50bps 100bps Interest and other expense (non-GAAP) (54) (50) 8% 11% Income Tax Expense (non-GAAP) 22 18 22% 37% Effective Income Tax Rate (non-GAAP) 15.9% 15.7% Net Income (Loss) From Continuing Operations (attributable to NCR) (non-GAAP) 116 97 20% 30% Diluted EPS (non-GAAP) $0.76 $0.65 17% 27% $ in millions, except per share amounts 18


 
NON-GAAP MEASURES While NCR reports its results in accordance with generally accepted accounting principles (GAAP) in the United States, comments made during this conference call and in these materials will include non-GAAP measures. These measures are included to provide additional useful information regarding NCR's financial results, and are not a substitute for their comparable GAAP measures. Operating Income (non-GAAP), Diluted EPS (non-GAAP), Gross Margin (non-GAAP), Gross Margin Rate (non-GAAP), Interest and Other expense (non-GAAP), Effective Income Tax Rate (non-GAAP), Net Income (non-GAAP), Operating Expenses (non-GAAP) and Income Tax Expense (non-GAAP). NCR’s operating income (non-GAAP), diluted earnings per share (non-GAAP), gross margin (non- GAAP), gross margin rate (non-GAAP), interest and other expense (non-GAAP), effective income tax rate (non-GAAP), and net income (non-GAAP), operating expenses (non-GAAP) and income tax expense (non-GAAP) are determined by excluding pension mark-to- market adjustments, pension settlements, pension curtailments and pension special termination benefits and other special items, including amortization of acquisition related intangibles, from NCR's GAAP income (loss) from operations, earnings per share, gross margin, gross margin rate, interest and other expense, effective income tax rate, net income, operating expenses and income tax expense, respectively. Due to the non-operational nature of these pension and other special items, NCR's management uses these non-GAAP measures to evaluate year-over-year operating performance. NCR also uses operating income (non-GAAP) and non-GAAP diluted EPS, to manage and determine the effectiveness of its business managers and as a basis for incentive compensation. NCR believes these measures are useful for investors because they provide a more complete understanding of NCR's underlying operational performance, as well as consistency and comparability with NCR's past reports of financial results. Free Cash Flow. NCR defines free cash flow as net cash provided by/used in operating activities and cash flow provided by/used in discontinued operations less capital expenditures for property, plant and equipment, additions to capitalized software, discretionary pension contributions and pension settlements. NCR's management uses free cash flow to assess the financial performance of the Company and believes it is useful for investors because it relates the operating cash flow of the Company to the capital that is spent to continue and improve business operations. In particular, free cash flow indicates the amount of cash generated after capital expenditures which can be used for, among other things, investment in the Company's existing businesses, strategic acquisitions, strengthening the Company's balance sheet, repurchase of Company stock and repayment of the Company's debt obligations. Free cash flow does not represent the residual cash flow available for discretionary expenditures since there may be other nondiscretionary expenditures that are not deducted from the measure. Free cash flow does not have a uniform definition under GAAP and, therefore, NCR's definition may differ from other companies' definition of this measure. 19


 
NON-GAAP MEASURES Constant Currency. NCR presents certain financial measures, such as period-over-period revenue growth, on a constant currency basis, which excludes the effects of foreign currency translation by translating prior period results at current period monthly average exchange rates. Due to the overall variability of foreign exchange rates from period to period, NCR’s management uses constant currency measures to evaluate period-over-period operating performance on a more consistent and comparable basis. NCR’s management believes that presentation of financial measures without these results is more representative of the company's period- over-period operating performance, and provides additional insight into historical and/or future performance, which may be helpful for investors. Net Debt and Adjusted EBITDA. NCR believes that Net Debt provides useful information to investors because NCR’s management reviews Net Debt as part of its management of overall liquidity, financial flexibility, capital structure and leverage. In addition, certain debt rating agencies, creditors and credit analysts monitor NCR’s Net Debt as part of their assessments of NCR’s business. NCR determines Net Debt based on its total debt less cash and cash equivalents, with total debt being defined as total short-term borrowings plus total long-term debt. NCR believes that Adjusted EBITDA (adjusted earnings before interest, taxes, depreciation and amortization) provides useful information to investors because it is an indicator of the strength and performance of the Company's ongoing business operations, including its ability to fund discretionary spending such as capital expenditures, strategic acquisitions and other investments. NCR determines Adjusted EBITDA for a given period based on its GAAP net income attributable to NCR plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization; plus other income (expense); plus pension mark-to-market adjustments, pension settlements, pension curtailments and pension special termination benefits and other special items, including amortization of acquisition related intangibles. NCR believes that its ratio of net debt to Adjusted EBITDA provides useful information to investors because it is an indicator of the company's ability to meet its future financial obligations. NCR believes that its ratio of Net Debt to Adjusted EBITDA provides useful information to investors because it is an indicator of the company's ability to meet its future financial obligations. In addition, the Net Debt to Adjusted EBITDA ratio is measures frequently used by investors and credit rating agencies. The Net Debt to Adjusted EBITDA ratio is calculated by dividing Net Debt by trailing twelve- month Adjusted EBITDA. NCR management's definitions and calculations of these non-GAAP measures may differ from similarly-titled measures reported by other companies and cannot, therefore, be compared with similarly-titled measures of other companies. These non-GAAP measures should not be considered as substitutes for, or superior to, results determined in accordance with GAAP. These non-GAAP measures are reconciled to their corresponding GAAP measures in the following slides and elsewhere in these materials. These reconciliations and other information regarding these non-GAAP measures are also available on the Investor Relations page of NCR's website at www.ncr.com. 20


 
GAAP TO NON-GAAP RECONCILIATION Net Income from Continuing Operations (GAAP) to Adjusted EBITDA (non-GAAP) Q2 2019 Q1 2019 Q2 2018 LTM LTM LTM Q2 2019 Q2 2018 Net (Loss) Income from Continuing Operations Attributable to NCR (GAAP) $ 177 $ (54) $ (5) $ 88 $ (143) Pension Mark-to-Market Adjustments (45) (45) 28 — — Transformation/Restructuring Costs 181 233 90 14 66 Acquisition-Related Amortization of Intangibles 83 83 102 21 21 Acquisition-Related Costs 5 6 4 — 1 Long-lived and Intangible Asset Impairment Charges — 183 183 — 183 Interest Expense 176 172 165 45 41 Interest Income (5) (5) (3) (1) (1) Depreciation and Amortization 232 237 243 56 61 Income Taxes 102 75 190 15 (12) Stock Compensation Expense 80 73 68 25 18 Adjusted EBITDA (non-GAAP) $ 986 $ 958 $ 1,065 $ 263 $ 235 $ in millions 21


 
GAAP TO NON-GAAP RECONCILIATION Q2 2019 QTD Transformation Acquisition- Q2 QTD 2019 and related Q2 QTD 2019 GAAP Restructuring amortization of non-GAAP costs intangibles Product revenue $664 $— $— $664 Service revenue 1,046 — — 1,046 Total revenue 1,710 — — 1,710 Cost of products 539 (9) (2) 528 Cost of services 700 (1) (4) 695 Gross margin 471 10 6 487 Gross margin rate 27.5% 0.6% 0.4% 28.5% Selling, general and administrative expenses $252 (4) (15) $233 Research and development expenses 62 — — 62 Total operating expenses $314 (4) (15) $295 Total operating expense as a % of revenue 18.4% (0.1)% (0.9)% 17.3% Income from operations 157 14 21 192 Income from operations as a % of revenue 9.2% 0.8% 1.2% 11.2% Interest and Other (expense) income, net (54) — — (54) Income from continuing operations before income taxes 103 14 21 138 Income tax (benefit) expense 15 3 4 22 Effective income tax rate 14.6% 15.9% Income from continuing operations 88 11 17 116 Net income attributable to noncontrolling interests — — — — Income from continuing operations (attributable to NCR) $88 $11 $17 $116 Diluted earnings per share $0.58 0.07 0.11 $0.76 Diluted shares outstanding 152.7 152.7 $ in millions, except per share amounts 22


 
GAAP TO NON-GAAP RECONCILIATION Q2 2019 QTD Q2 QTD 2019 Q2 QTD 2019 GAAP non-GAAP Income from continuing operations attributable to NCR common stockholders: Income from continuing operations (attributable to NCR) $88 $116 Dividends on convertible preferred shares $(12) — Income from continuing operations attributable to NCR common stockholders $76 $116 Weighted average outstanding shares: Weighted average diluted shares outstanding 123.1 123.1 Weighted as-if converted preferred shares 29.6 29.6 Total shares used in diluted earnings per share 152.7 152.7 Diluted earnings per share (1) $0.58 $0.76 $ in millions, except per share amounts (1) GAAP EPS is determined using the most dilutive measure, either including the impact of the dividends on NCR's Series A Convertible Preferred Shares in the calculation of net income or loss available to common stockholders or including the impact of the conversion of such preferred stock into common stock in the calculation of the weighted average diluted shares outstanding. Non-GAAP EPS is always determined using the as-if converted preferred shares and shares that would be issued for stock compensation awards. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may be calculated using different methods, and may not mathematically reconcile. 23


 
GAAP TO NON-GAAP RECONCILIATION Q2 2018 QTD Acquisition- Q2 QTD Transformation Asset related Acquisition- Impact of Q2 QTD 2018 Costs Impairment amortization related U.S. Tax 2018 non- GAAP charges of costs Reform GAAP intangibles Product revenue 525 $— $— $— — — 525 Service revenue 1,012 — — — — — 1,012 Total revenue 1,537 — — — — — 1,537 Cost of products 451 (32) — (2) — — 417 Cost of services 683 (9) — (3) — — 671 Gross margin 403 41 — 5 — — 449 Gross margin rate 26.2% 2.7% —% 0.3% —% —% 29.2% Selling, general and administrative 261 (22) — (16) (1) — 222 Researchexpenses and development expenses 65 (3) — — — — 62 Asset impairment charges 183 — (183) — — — — Total expenses 509 (25) (183) (16) (1) — 284 Total expense as a % of revenue 33.1% (1.6)% (11.9)% (1.0)% (0.1)% —% 18.5% Income from operations (106) 66 183 21 1 — 165 Income from operations as a % of revenue (6.9)% 4.2% 11.9% 1.4% 0.1% —% 10.7% Interest and Other (expense) income, net (50) — — — — — (50) Income from continuing operations before (156) 66 183 21 1 — 115 income taxes Income tax expense (12) 16 8 4 — 2 18 Effective income tax rate 8% 15.7% Income from continuing operations (144) 50 175 17 1 (2) 97 Net income attributable to noncontrolling (1) — 1 — — — — interests Income from continuing operations (attributable to NCR) (143) 50 174 17 1 (2) 97 Diluted (loss) earnings per share ($1.31) $0.34 $1.17 $0.11 $0.01 ($0.01) $0.65 Diluted shares outstanding 117.9 149.2 $ in millions, except per share amounts 24


 
GAAP TO NON-GAAP RECONCILIATION Q2 2018 QTD Q2 QTD 2018 Q2 QTD 2018 GAAP non-GAAP Income from continuing operations attributable to NCR common stockholders: Income from continuing operations (attributable to NCR) ($143) $97 Dividends on convertible preferred shares (12) — Income from continuing operations attributable to NCR common ($155) $97 stockholders Weighted average outstanding shares: Weighted average diluted shares outstanding 117.9 121.1 Weighted as-if converted preferred shares — 28.1 Total shares used in diluted earnings per share 117.9 149.2 Diluted earnings per share (1) ($1.31) $0.65 $ in millions, except per share amounts (1) GAAP EPS is determined using the most dilutive measure, either including the impact of the dividends on NCR's Series A Convertible Preferred Shares in the calculation of net income or loss available to common stockholders or including the impact of the conversion of such preferred stock into common stock in the calculation of the weighted average diluted shares outstanding. Non-GAAP EPS is always determined using the as-if converted preferred shares and shares that would be issued for stock compensation awards. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may be calculated using different methods, and may not mathematically reconcile. 25


 
GAAP TO NON-GAAP RECONCILIATION Q2 2019 QTD Operating Income and Operating Income Rate (non-GAAP) to Operating Income and Operating Income Rate (GAAP) Operating Income Operating Income Rate Banking $129 14.9% Retail 40 7.2% Hospitality 13 6.4% Other 10 12.2% Total Operating Income (non-GAAP) 192 11.2% Less: Transformation and restructuring costs 14 0.8% Acquisition-related amortization of intangibles 21 1.2% Total Operating Income (GAAP) $157 9.2% $ in millions 26


 
GAAP TO NON-GAAP RECONCILIATION Q2 2018 QTD Operating Income and Operating Income Rate (non-GAAP) to Operating Income and Operating Income Rate (GAAP) Operating Income Operating Income Rate Banking $94 13.0% Retail 41 7.6% Hospitality 19 9.6% Other 11 14.3% Total Operating Income (non-GAAP) 165 10.7% Less: Transformation and restructuring costs 66 4.2% Asset impairment charges 183 11.9% Acquisition-related amortization of intangibles 21 1.4% Acquisition-related costs 1 0.1% Total Operating Loss (GAAP) ($106) (6.9)% 27


 
GAAP TO NON-GAAP RECONCILIATION Q2 2019 QTD Revenue Growth % (GAAP) to Revenue Growth Constant Currency % (non-GAAP) Revenue Growth Revenue Growth Favorable Constant % (GAAP) (unfavorable) FX Currency % impact (non-GAAP) Banking 20% (3%) 23% Retail 4% (2%) 6% Hospitality 2% (1%) 3% Other 6% (2%) 8% Total Revenue Growth % 11% (3)% 14% 28


 
GAAP TO NON-GAAP RECONCILIATION Q2 2019 QTD Revenue Growth % (GAAP) to Revenue Growth Constant Currency % (non-GAAP) Revenue Growth Revenue Growth Favorable Constant % (GAAP) (unfavorable) FX Currency % impact (non-GAAP) Software 6% (1%) 7% Services 2% (3%) 5% Hardware 30% (3%) 33% ATM 73% (5%) 78% SCO/POS 1% (2%) 3% Total Revenue Growth % 11% (3)% 14% 29


 
GAAP TO NON-GAAP RECONCILIATION Q2 2019 QTD Operating Income % (GAAP) to Operating Income Constant Currency % (non-GAAP) Operating Favorable Operating Income Growth (unfavorable) FX Income Growth % (GAAP) impact % (non-GAAP) Banking 37% (10%) 47% Retail (2%) (16%) 14% Hospitality (32%) 4% (36%) Other (9%) 5% (14%) Total Operating Income % 16% (9)% 25% 30


 
GAAP TO NON-GAAP RECONCILIATION % Change Favorable % Change Q2 Operational Results As (unfavorable) Constant Reported FX impact Currency Revenue 11% (3%) 14% Gross Margin (non-GAAP) 8% (4)% 12% Gross Margin Rate (non-GAAP) (70 bps) (40 bps) (30 bps) Operating Expenses (non-GAAP) 4% (2%) 6% % of Revenue (120)bps 10bps (130)bps Operating Income (non-GAAP) 16% (9%) 25% % of Revenue 50bps (50)bps 100bps Interest and other expense (non-GAAP) (8%) 3% (11%) Income Tax Expense (non-GAAP) 22% (15)% 37% Net Income (Loss) From Continuing Operations (attributable to NCR) (non-GAAP) 20% (10)% 30% Diluted EPS (non-GAAP) 17% (10%) 27% $ in millions, except per share amounts 31


 
GAAP TO NON-GAAP RECONCILIATION Diluted Earnings Per Share 2019 Guidance Diluted EPS (GAAP) (1) (2) $1.91 - $2.01 Transformation and restructuring costs $0.31 Acquisition-related amortization of intangibles $0.48 Acquisition-related costs $0.05 Non-GAAP Diluted EPS (1) (3) $2.75 - $2.85 (1) Non-GAAP diluted EPS is determined using the conversion of the Series A Convertible Preferred Stock into common stock in the calculation of weighted average diluted shares outstanding. GAAP EPS is determined using the most dilutive measure, either including the impact of dividends or deemed dividends on the Company's Series A Convertible Preferred Stock in the calculation of net income or loss available to common stockholders or including the impact of the conversion of the Series A Convertible Preferred Stock into common stock in the calculation of the weighted average diluted shares outstanding. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may not mathematically reconcile. (2) Except for the adjustments noted herein, this guidance does not include the effects of any future acquisitions/divestitures, pension mark-to-market adjustments, taxes or other events, which are difficult to predict and which may or may not be significant. (3) For FY 2019, we have assumed an effective tax rate of 23% to 24% and a share count of 153 million compared to an effective tax rate of 19% and a share count of 150 million in FY 2018. 32


 
GAAP TO NON-GAAP RECONCILIATION Earnings Before Interest, Taxes, Depreciation & Amortization (Adjusted EBITDA) 2019 Guidance Net Income Attributable to NCR (GAAP) $290 - $305 Transformation and restructuring costs 60 Acquisition-related amortization of intangibles 95 Acquisition-related costs 10 Interest 180 - 195 Taxes 85 - 95 Depreciation and amortization 240 Stock compensation 80 Adjusted EBITDA (Non-GAAP) $1,040 - $1,080 $ in millions 33


 
GAAP TO NON-GAAP RECONCILIATION 2019 Guidance Cash Provided by Operating Activities $705 - $730 Less: Total capital expenditures (350) - (375) Less: Cash used in Discontinued Operations (30) Free Cash Flow $300 - $350 $ in millions 34