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): April 29, 2014
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.) | |
3097 Satellite Boulevard
Duluth, Georgia 30096
(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))
Item 2.02. Results of Operations and Financial Condition.
On April 29, 2014, the Company issued a press release setting forth its first quarter 2014 financial results along with its updated fiscal year 2014 financial outlook and its second quarter 2014 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 April 29, 2014, the Company will hold its previously announced conference call to discuss its first quarter 2014 results, its updated fiscal year 2014 financial outlook and its second quarter 2014 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 April 29, 2014 |
99.2 | Supplementary Materials, dated April 29, 2014 |
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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/ Robert Fishman | |
Robert Fishman | ||
Senior Vice President and Chief Financial Officer | ||
Date: April 29, 2014
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Index to Exhibits
The following exhibit is attached with this current report on Form 8-K:
Exhibit No. Description
99.1 Press Release issued by the Company, dated April 29, 2014
99.2 Supplementary Materials, dated April 29, 2014
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| ||
NEWS RELEASE
April 29, 2014
NCR Announces First Quarter 2014 Results
Strong revenue and operating margin led by software-related revenue growth
• | Revenue increased 8% to $1.52 billion; 45% growth in software-related revenue to $395 million, including 242% growth in SaaS revenue to $113 million |
• | Non-pension operating income (NPOI) increased 20% to $155 million; GAAP income from operations increased 27% to $108 million |
• | Non-GAAP diluted EPS of $0.50; GAAP diluted EPS of $0.31 |
• | Completed acquisition of Digital Insight Corporation |
• | Revenue growth guidance updated from 12-14% to 10-12% including 1% of unfavorable foreign currency impact; NPOI and Non-GAAP diluted EPS guidance reaffirmed for full-year 2014 |
DULUTH, Georgia - NCR Corporation (NYSE: NCR) reported financial results today for the three months ended March 31, 2014.
"Our first quarter results show continued progress in the transformation of NCR into a software-driven leader in consumer transaction technologies,” said Chairman and CEO Bill Nuti. “Software-related revenue grew 45% in the first quarter, including SaaS revenue growth of 242%. We are also making good progress integrating the Digital Insight acquisition, which has contributed significantly to our software-related and SaaS revenue growth and broadens our Financial Services technology portfolio similar to the transformation of our Retail Solutions and Hospitality businesses. Although we are seeing a challenging market in Retail Solutions, we are pleased to see the increased strength in the Financial Services industry and feel good about our growth trajectory in 2014. We are reaffirming the NPOI and EPS range, although we do expect to be at the lower end of this range based on what we are seeing today.”
Q1 Financial Summary
First Quarter | |||||
2014 | 2013 | Change | |||
Revenue | $1,518 million | $1,410 million | 8% * | ||
Income from operations | $108 million | $85 million | 27% | ||
Non-pension operating income (NPOI) | $155 million | $129 million ** | 20% ** | ||
Diluted earnings per share | $0.31 | $0.37 | (16)% *** | ||
Non-GAAP diluted earnings per share | $0.50 | $0.54 | (7)% *** | ||
* Revenue growth of 10% on a constant currency basis.
** | Includes $13 million benefit related to Q1 2013 amendment to U.S. separation plan; excluding this item, year-over-year change is 34%. |
*** Decrease primarily due to higher interest expense in Q1 2014.
In this release, we use the non-GAAP measures non-pension operating income (NPOI), non-GAAP diluted EPS, free cash flow and revenue growth on a constant currency basis. These non-GAAP measures are described and reconciled to their corresponding GAAP measures at the end of this release.
Q1 Supplemental Revenue Information
First Quarter | ||||||||||
2014 | 2013 | Change | ||||||||
SaaS | $ | 113 | $ | 33 | 242 | % | ||||
Software License/Software Maintenance | 147 | 136 | 8 | % | ||||||
Professional Services | 135 | 104 | 30 | % | ||||||
Total Software-Related Revenue | 395 | 273 | 45 | % | ||||||
Hardware | 570 | 600 | (5 | %) | ||||||
Other Services | 553 | 537 | 3 | % | ||||||
Total Revenue | $ | 1,518 | $ | 1,410 | 8 | % | ||||
Software-related revenue grew 45% in the first quarter, including 242% growth related to SaaS, partially due to the contribution of Digital Insight. Professional services revenue increased 30% primarily in the Retail Solutions line of business.
Q1 Operating Segment Results
First Quarter | ||||||||||
2014 | 2013 | % Change | ||||||||
Revenue by segment | ||||||||||
Financial Services | $ | 794 | $ | 714 | 11 | % | ||||
Retail Solutions | 490 | 489 | — | % | ||||||
Hospitality | 149 | 131 | 14 | % | ||||||
Emerging Industries | 85 | 76 | 12 | % | ||||||
Total Revenue | $ | 1,518 | $ | 1,410 | 8 | % | ||||
Operating income by segment | ||||||||||
Financial Services | $ | 103 | $ | 57 | ||||||
% of Financial Services Revenue | 13.0 | % | 8.0 | % | ||||||
Retail Solutions | 36 | 41 | ||||||||
% of Retail Solutions Revenue | 7.3 | % | 8.4 | % | ||||||
Hospitality | 12 | 21 | ||||||||
% of Hospitality Revenue | 8.1 | % | 16.0 | % | ||||||
Emerging Industries | 4 | 10 | ||||||||
% of Emerging Industries Revenue | 4.7 | % | 13.2 | % | ||||||
Segment operating income | $ | 155 | $ | 129 | ||||||
% of Total Revenue | 10.2 | % | 9.1 | % | ||||||
Revenue increased 8% year on year led by strong growth in Financial Services, Hospitality and Emerging Industries. Within Financial Services, Branch Transformation continues to drive strong year on year growth, and Digital Insight contributed $76 million of revenue in the first quarter of 2014. Retail Solutions results were as expected due to a difficult comparison versus the prior year.
Segment operating income increased 20% year-over-year. The increase was led by growth in Financial Services, which was driven by a higher mix of software-related revenue with the contribution of the Digital Insight business. Retail Solutions and Hospitality operating incomes were negatively impacted by an unfavorable mix of revenue in the quarter
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and continued investments in their businesses. Emerging Industries operating income was negatively impacted by on-boarding costs associated with managed services contracts.
Free Cash Flow
First Quarter | |||||||
2014 | 2013 | ||||||
Net cash provided by operating activities | $ | 31 | $ | 21 | |||
Total capital expenditures | (66 | ) | (45 | ) | |||
Net cash (used in) provided by operating activities from discontinued operations | (16 | ) | 1 | ||||
Free cash flow | $ | (51 | ) | $ | (23 | ) | |
Net cash provided by operating activities increased $10 million due to increased profitability. Free cash flow decreased $28 million driven by increases in capital expenditures and cash outflows for discontinued operations related to environmental matters.
More information on NCR’s Q1 2014 earnings, including additional financial information and analysis, is available on NCR’s Investor Relations website at http://investor.ncr.com/.
2014 Outlook
2014 Guidance | 2013 Actual | ||
Revenue | $6,750 - $6,850 million * | $6,123 million | |
Year-over-year revenue growth | 10% - 12% * | 7% | |
Income from Operations (GAAP) | $730 - $750 million ** | $666 million ** | |
Non-pension operating income (NPOI) | $900 - $920 million | $717 million | |
Diluted earnings per share (GAAP) | $2.36 - $2.46 ** | 2.67 ** | |
Non-GAAP Diluted EPS | $3.00 - $3.10 | $2.81 | |
* | Includes 1% of expected unfavorable foreign currency fluctuations; previous revenue guidance was 12% - 14% year-over-year growth. |
** | For 2013, includes actuarial mark-to-market pension adjustment; for 2014, excludes actuarial mark-to-market pension adjustments to be determined in Q4 2014. |
NCR expects approximately $200 million of other expense, net including interest expense in 2014 and that its full-year 2014 effective income tax rate will be approximately 26%.
Q2 2014 Outlook
For the second quarter of 2014, the Company expects non-pension operating income (NPOI) to be in the range of $205 million to $215 million, compared to $182 million in the second quarter of 2013 and income from operations to be in the range of $163 million to $173 million, compared to $139 million in the second quarter of 2013. NCR expects its second quarter 2014 effective income tax rate to be approximately 29% and other expense, net including interest expense to be approximately $50 million.
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2014 First Quarter Earnings Conference Call
A conference call is scheduled for today at 4:30 p.m. (EST) to discuss the first quarter results and guidance for second quarter and full-year 2014. Access to the conference call and accompanying slides, as well as a replay of the call, is available on NCR's web site at http://investor.ncr.com/. Additionally, the live call can be accessed by dialing 888-801-6504 and entering the participant passcode 8650319.
About NCR Corporation
NCR Corporation (NYSE: NCR) is the global leader in consumer transaction technologies, turning everyday interactions with businesses into exceptional experiences. With its software, hardware, and portfolio of services, NCR enables more than 485 million transactions daily across the financial, retail, hospitality, travel, telecom and technology industries. NCR solutions run the everyday transactions that make your life easier.
NCR is headquartered in Duluth, Georgia with over 29,000 employees and does business in 180 countries. NCR is a trademark of NCR Corporation in the United States and other countries. NCR encourages investors to visit its web site which is updated regularly with financial and other important information about NCR.
Web site: www.ncr.com
Twitter: @NCRCorporation
Facebook: www.facebook.com/ncrcorp
LinkedIn: http://linkd.in/ncrgroup
YouTube: www.youtube.com/user/ncrcorporation
News Media Contact
Lou Casale
NCR Corporation
212.589.8415
lou.casale@ncr.com
Investor Contact
Tracy Krumme
NCR Corporation
212.589.8569
tracy.krumme@ncr.com
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Note to Investors This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements use words such as “expect,” “anticipate,” “outlook,” “intend,” “believe,” “will,” “should,” “would,” “could” and words of similar meaning. Statements that describe or relate to NCR’s future 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 the transformation of NCR and its lines of business; the expected contribution of recently-acquired Digital Insight to NCR’s business and solutions portfolio; NCR's anticipated growth; and NCR's 2014 financial outlook (including in the sections entitled “2014 Outlook” and “Q2 2014 Outlook”). 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: domestic and global economic and credit conditions; the impact of our indebtedness and its terms on our financial and operating activities; our ability to successfully introduce new solutions and compete and in the information technology industry; the transformation of our business model and our ability to sell higher-margin software and services; defects or errors in our products; manufacturing disruptions; the historical seasonality of our sales; foreign currency fluctuations; the availability and success of acquisitions, divestitures and alliances, including the acquisition of Digital Insight; our pension strategy and underfunded pension obligation; tax rates; compliance with data privacy and protection requirements; reliance on third party suppliers; development and protection of intellectual property; workforce turnover and the ability to attract and retain skilled employees; 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.
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-Pension Operating Income and Non-GAAP Diluted Earnings Per Share. NCR’s non-pension operating income and non-GAAP diluted earnings per share are determined by excluding pension expense and special items, including amortization of acquisition related intangibles, from NCR’s GAAP income (loss) from operations. Due to the significant change in its pension expense from year to year and the non-operational nature of pension expense and these special items, NCR's management uses non-pension operating income and non-GAAP diluted earnings per share to evaluate year-over-year operating performance, 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 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' definitions of this measure.
Revenue Growth on a Constant Currency Basis. NCR’s period-over-period revenue growth on a constant currency basis excludes the effects of foreign currency translation. Due to the variability of foreign exchange rates from period to period, NCR’s management uses revenue on a constant currency basis to evaluate period-over-period operating performance. Revenue growth on a constant currency basis is calculated by translating prior period revenue at current period monthly average exchange rates.
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 corresponding GAAP measures in the tables below.
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Reconciliation of Diluted Earnings Per Share (GAAP) to Non-GAAP Diluted Earnings Per Share (non-GAAP)
Q1 2014 Actual | Q1 2013 Actual | 2014 Guidance | 2013 Actual | |||||||||||
Diluted EPS (GAAP) | $ | 0.31 | $ | 0.37 | $2.36 - $2.46 | $ | 2.67 | |||||||
Pension (benefit) expense | — | 0.02 | 0.03 | (0.34 | ) | |||||||||
Acquisition-related costs | 0.06 | 0.06 | 0.11 | 0.21 | ||||||||||
Acquisition-related amortization of intangibles | 0.11 | 0.06 | 0.47 | 0.29 | ||||||||||
Acquisition-related purchase price adjustments | 0.01 | 0.02 | 0.02 | 0.06 | ||||||||||
OFAC and FCPA Investigations (1) | 0.01 | 0.01 | 0.01 | 0.01 | ||||||||||
Japan valuation reserve release | — | — | — | (0.09 | ) | |||||||||
Non- GAAP Diluted EPS | $ | 0.50 | $ | 0.54 | $3.00 - $3.10 | $ | 2.81 | |||||||
Reconciliation of Income from Operations (GAAP) to Non-pension Operating Income (non-GAAP)
(in millions) | Q1 2014 Actual | Q1 2013 Actual | 2014 Guidance | 2013 Actual | Q2 2014 Guidance | Q2 2013 Actual | |||||||||||||||
Income from Operations (GAAP) | $ | 108 | $ | 85 | $730 - $750 | $ | 666 | $163 - $173 | $ | 139 | |||||||||||
Pension (benefit) expense | (1 | ) | 7 | 8 | (78 | ) | 3 | 9 | |||||||||||||
Acquisition-related costs | 14 | 16 | 33 | 46 | 7 | 14 | |||||||||||||||
Acquisition-related amortization of intangibles | 30 | 14 | 121 | 65 | 30 | 17 | |||||||||||||||
Acquisition-related purchase price adjustments | 3 | 6 | 6 | 15 | 1 | 3 | |||||||||||||||
OFAC and FCPA Investigations (1) | 1 | 1 | 2 | 3 | 1 | — | |||||||||||||||
Non-pension Operating Income (non-GAAP) | $ | 155 | $ | 129 | $900 - $920 | $ | 717 | $205 - $215 | $ | 182 | |||||||||||
Reconciliation of Net Cash Provided By (Used In) Operating Activities (GAAP) to Free Cash Flow (non-GAAP)
For the Periods Ended March 31 | For the Periods Ended December 31 | |||||||||||||
Three Months | Twelve Months | |||||||||||||
(in millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||
Net cash provided by (used in) operating activities (GAAP) | $ | 31 | $ | 21 | $595 - $625 | $ | 281 | |||||||
Less expenditures for: | ||||||||||||||
Property, plant and equipment | (32 | ) | (24 | ) | (135) - (140) | (116 | ) | |||||||
Capitalized software | (34 | ) | (21 | ) | (115) - (120) | (110 | ) | |||||||
Total capital expenditures | (66 | ) | (45 | ) | (250) - (260) | (226 | ) | |||||||
Net cash used in operating activities from discontinued operations | (16 | ) | 1 | (45) - (55) | (52 | ) | ||||||||
Discretionary pension contributions and settlements | — | — | 20 | 204 | ||||||||||
Free cash flow (non-GAAP) | $ | (51 | ) | $ | (23 | ) | $300 - $350 | $ | 207 | |||||
Reconciliation of Revenue Growth (GAAP) to Revenue Growth on a Constant Currency Basis (non-GAAP)
Revenue Growth % (GAAP) | (Favorable) unfavorable FX impact | Constant Currency Revenue Growth % (non-GAAP) | |||
Total Revenue | 8% | 2% | 10% | ||
(1) Estimated expenses for 2014 will be affected by, among other things, the status and progress of these matters. There can be no assurance that the Company will not be subject to fines or other remedial measures as a result of OFAC’s, the SEC’s or the DOJ’s investigations.
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| NCR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in millions, except per share amounts) | Schedule A |
For the Periods Ended March 31 | |||||||
Three Months | |||||||
2014 | 2013 | ||||||
Revenue | |||||||
Products | $ | 634 | $ | 667 | |||
Services | 884 | 743 | |||||
Total Revenue | 1,518 | 1,410 | |||||
Cost of products | 476 | 503 | |||||
Cost of services | 626 | 538 | |||||
Total gross margin | 416 | 369 | |||||
% of Revenue | 27.4 | % | 26.2 | % | |||
Selling, general and administrative expenses | 245 | 229 | |||||
Research and development expenses | 63 | 55 | |||||
Income from operations | 108 | 85 | |||||
% of Revenue | 7.1 | % | 6.0 | % | |||
Interest expense | (43 | ) | (21 | ) | |||
Other (expense) income, net | (7 | ) | 2 | ||||
Total other (expense), net | (50 | ) | (19 | ) | |||
Income before income taxes and discontinued operations | 58 | 66 | |||||
% of Revenue | 3.8 | % | 4.7 | % | |||
Income tax expense | 4 | 2 | |||||
Income from continuing operations | 54 | 64 | |||||
Loss from discontinued operations, net of tax | — | (1 | ) | ||||
Net Income | 54 | 63 | |||||
Net income attributable to noncontrolling interests | 1 | 2 | |||||
Net income attributable to NCR | $ | 53 | $ | 61 | |||
Amounts attributable to NCR common stockholders: | |||||||
Income from continuing operations | $ | 53 | $ | 62 | |||
Loss from discontinued operations, net of tax | — | (1 | ) | ||||
Net income | $ | 53 | $ | 61 | |||
Net income per share attributable to NCR common stockholders: | |||||||
Net income per common share from continuing operations | |||||||
Basic | $ | 0.32 | $ | 0.38 | |||
Diluted | $ | 0.31 | $ | 0.37 | |||
Net income per common share | |||||||
Basic | $ | 0.32 | $ | 0.37 | |||
Diluted | $ | 0.31 | $ | 0.36 | |||
Weighted average common shares outstanding | |||||||
Basic | 167.1 | 163.7 | |||||
Diluted | 171.0 | 167.5 | |||||
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| NCR CORPORATION CONSOLIDATED REVENUE AND OPERATING INCOME SUMMARY (Unaudited) (in millions) | Schedule B |
For the Periods Ended March 31 | ||||||||||
Three Months | ||||||||||
2014 | 2013 | % Change | ||||||||
Revenue by segment | ||||||||||
Financial Services | $ | 794 | $ | 714 | 11 | % | ||||
Retail Solutions | 490 | 489 | — | % | ||||||
Hospitality | 149 | 131 | 14 | % | ||||||
Emerging Industries | 85 | 76 | 12 | % | ||||||
Total Revenue | $ | 1,518 | $ | 1,410 | 8 | % | ||||
Operating income by segment | ||||||||||
Financial Services | $ | 103 | $ | 57 | ||||||
% of Revenue | 13.0 | % | 8.0 | % | ||||||
Retail Solutions | 36 | 41 | ||||||||
% of Revenue | 7.3 | % | 8.4 | % | ||||||
Hospitality | 12 | 21 | ||||||||
% of Revenue | 8.1 | % | 16.0 | % | ||||||
Emerging Industries | 4 | 10 | ||||||||
% of Revenue | 4.7 | % | 13.2 | % | ||||||
Subtotal-segment operating income | $ | 155 | $ | 129 | ||||||
% of Revenue | 10.2 | % | 9.1 | % | ||||||
Pension (benefit) expense | (1 | ) | 7 | |||||||
Other adjustments (1) | 48 | 37 | ||||||||
Total income from operations | $ | 108 | $ | 85 | ||||||
(1) | Other adjustments for the three months ended March 31, 2014 include $14 million of acquisition related costs, $30 million of acquisition-related amortization of intangible assets, $3 million of acquisition-related purchase price adjustments and $1 million of legal costs related to previously disclosed OFAC and FCPA investigations; other adjustments for the three months ended March 31, 2013 include $16 million of acquisition-related costs, $14 million of acquisition-related amortization of intangible assets, $6 million of acquisition-related purchase price adjustments and $1 million of legal costs related to previously disclosed OFAC and FCPA investigations. |
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| NCR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except per share amounts) | Schedule C |
March 31, 2014 | December 31, 2013 | ||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 515 | $ | 528 | |||
Restricted cash | — | 1,114 | |||||
Accounts receivable, net | 1,442 | 1,339 | |||||
Inventories | 820 | 790 | |||||
Other current assets | 608 | 568 | |||||
Total current assets | 3,385 | 4,339 | |||||
Property, plant and equipment, net | 390 | 352 | |||||
Goodwill | 2,789 | 1,534 | |||||
Intangibles, net | 1,024 | 494 | |||||
Prepaid pension cost | 495 | 478 | |||||
Deferred income taxes | 252 | 441 | |||||
Other assets | 493 | 470 | |||||
Total assets | $ | 8,828 | $ | 8,108 | |||
Liabilities and stockholders’ equity | |||||||
Current liabilities | |||||||
Short-term borrowings | $ | 64 | $ | 34 | |||
Accounts payable | 695 | 670 | |||||
Payroll and benefits liabilities | 183 | 191 | |||||
Deferred service revenue and customer deposits | 587 | 525 | |||||
Other current liabilities | 479 | 461 | |||||
Total current liabilities | 2,008 | 1,881 | |||||
Long-term debt | 3,885 | 3,320 | |||||
Pension and indemnity plan liabilities | 532 | 532 | |||||
Postretirement and postemployment benefits liabilities | 170 | 169 | |||||
Income tax accruals | 182 | 189 | |||||
Environmental liabilities | 111 | 121 | |||||
Other liabilities | 92 | 99 | |||||
Total liabilities | 6,980 | 6,311 | |||||
Redeemable noncontrolling interests | 14 | 14 | |||||
Stockholders' equity | |||||||
NCR stockholders' equity: | |||||||
Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively | — | — | |||||
Common stock: par value $0.01 per share, 500.0 shares authorized, 167.8 and 166.6 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively | 2 | 2 | |||||
Paid-in capital | 426 | 433 | |||||
Retained earnings | 1,425 | 1,372 | |||||
Accumulated other comprehensive loss | (33 | ) | (38 | ) | |||
Total NCR stockholders' equity | 1,820 | 1,769 | |||||
Noncontrolling interests in subsidiaries | 14 | 14 | |||||
Total stockholders' equity | 1,834 | 1,783 | |||||
Total liabilities and stockholders' equity | $ | 8,828 | $ | 8,108 | |||
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| NCR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions) | Schedule D |
For the Periods Ended March 31 | |||||||
Three Months | |||||||
2014 | 2013 | ||||||
Operating activities | |||||||
Net income | $ | 54 | $ | 63 | |||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||
Loss from discontinued operations | — | 1 | |||||
Depreciation and amortization | 69 | 47 | |||||
Stock-based compensation expense | 10 | 10 | |||||
Deferred income taxes | 3 | (9 | ) | ||||
Gain on sale of property, plant and equipment and other assets | (1 | ) | (4 | ) | |||
Changes in assets and liabilities: | |||||||
Receivables | (66 | ) | 9 | ||||
Inventories | (30 | ) | (47 | ) | |||
Current payables and accrued expenses | — | (36 | ) | ||||
Deferred service revenue and customer deposits | 59 | 73 | |||||
Employee benefit plans | (21 | ) | (34 | ) | |||
Other assets and liabilities | (46 | ) | (52 | ) | |||
Net cash provided by (used in) operating activities | 31 | 21 | |||||
Investing activities | |||||||
Expenditures for property, plant and equipment | (32 | ) | (24 | ) | |||
Additions to capitalized software | (34 | ) | (21 | ) | |||
Business acquisition, net | (1,642 | ) | (681 | ) | |||
Changes in restricted cash | 1,114 | — | |||||
Other investing activities, net | (4 | ) | 5 | ||||
Net cash used in investing activities | (598 | ) | (721 | ) | |||
Financing activities | |||||||
Tax withholding payments on behalf of employees | (22 | ) | (25 | ) | |||
Short term borrowings, net | 6 | 1 | |||||
Payments on term credit facility | — | (18 | ) | ||||
Borrowings on term credit facilities | 250 | — | |||||
Payments on revolving credit facility | (60 | ) | (420 | ) | |||
Borrowings on revolving credit facility | 400 | 565 | |||||
Debt issuance costs | (2 | ) | (2 | ) | |||
Proceeds from employee stock plans | 5 | 18 | |||||
Other financing activities | (1 | ) | — | ||||
Net cash provided by financing activities | 576 | 119 | |||||
Cash flows from discontinued operations | |||||||
Net cash (used in) provided by discontinued operations | (16 | ) | 1 | ||||
Effect of exchange rate changes on cash and cash equivalents | (6 | ) | (6 | ) | |||
Increase (decrease) in cash and cash equivalents | (13 | ) | (586 | ) | |||
Cash and cash equivalents at beginning of period | 528 | 1,069 | |||||
Cash and cash equivalents at end of period | $ | 515 | $ | 483 | |||
10
Q1 2014 EARNINGS CONFERENCE CALL BILL NUTI, CHAIRMAN AND CEO JOHN BRUNO, EVP BOB FISHMAN, CFO April 29, 2014
NOTES TO INVESTORS FORWARD-LOOKING STATEMENTS. Comments made during this conference call and in these materials contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that describe or relate to NCR’s future 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 the anticipated growth of NCR’s software-related revenue (and the components thereof) and operational gross margins, the expected financial and other benefits from the acquisition of Digital Insight, the future growth and transformation of NCR and its lines of business, NCR's 2014 financial outlook and NCR’s goals for 2014. 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 listed in Item 1a “Risk Factors” of NCR’s Annual Report on Form 10-K and those factors detailed from time to time in NCR’s other SEC reports. These materials are dated April 29, 2014, 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. 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 these materials will include the following “non-GAAP” measures: non-pension operating income (NPOI), non-GAAP diluted earnings per share (non-GAAP diluted EPS), free cash flow (FCF), adjusted free cash flow (adjusted FCF), operational gross margin, operational gross margin rate, expenses (non-GAAP), adjusted EBITDA, effective tax rate, non-GAAP net income and constant currency. 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 Non-GAAP 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, the term “software-related revenue” includes software license, software maintenance, software as a service (SaaS) and professional services revenue associated with software delivery, and the term “recurring revenue” means the sum of SaaS, hardware maintenance and software maintenance revenue. Investors are cautioned that in NCR’s prior earnings releases and presentation materials, NCR used the term “software revenue,” which does not include professional services revenue associated with software delivery. Therefore software revenue in such releases and presentation materials will not be directly comparable to software-related revenue in these materials. 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
Q1 2014 FINANCIAL HIGHLIGHTS (1) Post AT&T Spin-off, excluding Teradata. (2) NPOI as a percentage of revenue. 3 REVENUE Q1 2013 Q1 2014 $1.41 billion $1.52 billion Up 8% y/y; up 10% on constant currency basis Recurring revenue up 22%; 44% of total revenue OPERATIONAL GROSS MARGIN Q1 2013 Q1 2014 27.4% 28.6% Up 120 bps y/y NPOI Up 20% y/y All-time high (1) Q1 NPOI margin (2) of 10.2% FREE CASH FLOW Cash from ops up $10M offset by higher investment in capex of $21M and disc ops of $17M Q1 2013 Q1 2014 $129 million $155 million Q1 2013 Q1 2014 $(23) million $(51) million 17th consecutive quarter of y/y revenue and NPOI growth 18th consecutive quarter of meeting or beating EPS consensus estimate Record(1) Q1 NPOI results
INVESTING IN OUR REINVENTION Investing to deliver differentiated value and sustainable long-term growth Commitment to disruptive innovation/R&D and delivering compelling value R&D as a % of revenue reaches an all-time high of 4.2%, up 15% y/y Strengthening Services Delivery and Sales organizations Improved productivity and efficiency gains to come Committed to balancing investment , long-term goals & near-term performance Financial Services: Digital Insight acquisition integration Services: Make Customer Services a competitive advantage Hospitality: International expansion, Sales, Software/SaaS offers Emerging Industries: Managed Services (T&T) infrastructure/onboarding Business model transformation to a hardware-enabled, software-driven business 4
STRONG SOFTWARE-RELATED REVENUE GROWTH Q1 2014 Q1 2013 $113 $33 Q1 • Q1 Software-related revenue up 45% • Q1 Professional Services revenue up 30% • Q1 SaaS revenue up 242% $135 $104 $273 $395 $136 $147 FY 2013 FY 2014e $1,775 – $1,825 FY 2012 $345 FY ($’s in Millions) ($’s in Millions) $466 $616 ~$725 $94 $145 ~$500 • On target to generate ~$1.8B in software- related revenue in FY2014 • 2014 estimated software-related revenue growth of 40-44% SaaS Professional Services SW Licenses & SW Maintenance $1,271 $905 5 SaaS Professional Services SW Licenses & SW Maintenance
43% 42% 41% 38% 36% 33% 45% 45% 45% 46% 43% 41% 12% 13% 14% 16% 21% 26% FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014e Software-Related Revenue Hardware Revenue Other Services Revenue (Hardware Maintenance, Transaction Services) ($ in Millions) $5,730 $6,750 – $6,850 SOFTWARE-RELATED REVENUE POSITIVELY IMPACTING MARGINS $5,291 $6,123 Operational Gross Margin 22.0% 23.5% 24.9% 26.8% 28.5% ~31%e ~900bp from 2009 $4,711 $4,579 6
UNIQUELY POSITIONED IN OMNI-COMMERCE LANDSCAPE At the intersection of the world’s transactions We connect channel and payment options to provide convenience for consumers CREDIT/ DEBIT PROMOS CASH CHECK LOYALTY KIOSK MPOS TABLET MOBILE SOCIAL ONLINE INNOVATION: TECHNOLOGY CONSUMER BUSINESS MODEL 7
TRANSFORMING THE CONSUMER EXPERIENCE 485 million transactions a day, around the world Transforming brick & mortar experiences Shaping digital experiences Travel Hospitality Stadium Sales Mobile Order & Pay Clientelling & Loyalty Digital Wallet at Pump Retail Interactive Teller Mobile Banking Financial Services Transforming brick & mortar experiences Shaping digital experiences Mobile Boarding Pass Wayfinding 8
Mobile Boarding Passes Travel-in T&T Mobile Boarding Passes Bill Pay Security Check-in Virtual Storefront Digital Signage Digital Signage Cash Management Loyalty Way Finding Queue Mgmt Digital Marketing Passenger Re-accommodation Merchandising & Retailing Global Leading Provider of Mobile Boarding Passes (4) (4) Source: NCR Internal Loyalty Connected Payments Customer Relationship Management (CRM) Digital Wallet Sales Channels & Touch Points Electronic & Mobile Payment Merchandising Inventory Supply Chain Management #1 Vendor under consideration for future software purchases(2) (2) IHL/RIS Study, January 2014 Retail Solutions Mobile & Online Banking Branch Transformation Cash Management Multi-Channel Marketing Payment Switching & Fraud Detection Image & Payment Processing High Availability Software #1 ATM multi-vendor SW(1) (1) RBR’s Multivendor Software 2013 report Financial Services Consumer Engagement Loyalty & Gift Card Mobile/Online Ordering & Payment Mobile Ticketing Operations & Management Efficiency Mobile Analytics Kitchen Production Labor & Inventory Management #1 US Restaurant POS SW(3) (3) Chain Store Guide, March 2014 Hospitality Emerging Industries EXPANSIVE SOFTWARE SOLUTIONS PORTFOLIO Delivering Strategic Value to NCR Customers The majority of SW solutions can be sold independent of HW 9
Performance Highlights Financial Highlights Revenue $794M Operating Income $103M +11% y/y +81% y/y Strong orders driven by North America, small & mid-sized banks, Branch Transformation & SW Strong backlog, both in volume and mix Increased operating margin driven by favorable revenue mix & higher mix of SW-related revenue Excluding Digital Insight, Q1 core revenue up 1% y/y and operating margin up 310 bps SW-related revenue up 92%; up 17% excluding Digital Insight FINANCIAL SERVICES Q1 2014 Update Balanced performance globally; Keeping an eye on Russia North America small to mid-sized banks segment strong in the quarter Continued momentum in Branch Transformation Branch Transformation revenues up 300% y/y 17 new APTRATM Interactive Services customers; customer wins globally Strong start for Digital Insight Executing integration plan Strong existing customer base win rates and mobile active user growth Early cross-sell wins Operating Margin 13.0% +500 bps Key Developments 10
UPDATE: DIGITAL INSIGHT ACQUISITION Creates one of the most powerful FinTech companies with the most comprehensive suite of retail banking solutions Uniquely positions NCR software within the FinTech industry with an end-to-end technology platform for seamless banking services across both physical and digital channels Demonstrates commitment to be the global leader in omni-channel retail banking transformation enabling effortless transactions across multiple touch points Positions NCR for long-term growth, greater recurring revenue, accelerated margin expansion and earnings appreciation Expect to be slightly accretive to non-GAAP diluted EPS for FY2014 and ~$0.15 accretive for FY2015 Closed transaction on Jan. 10; integration started immediately Q1 revenue of $76M and operating income of $23M, in-line with expectations Positive feedback from existing Digital Insight customers on the power of NCR’s omni-channel banking solutions Investments made to transition to NCR-run data centers Win rates in existing customer base up ~49% with leading indicators pointing to continued improvement over prior year 83% y/y increase in mobile active user rates 5.5M total mobile users vs. 3.0M last year KEY ACQUISITION OBJECTIVE PROGRESS UPDATE 11
Orders down mid-single digit y/y driven by North America; Strong orders in rest of world Backlog up significantly; Rollout of large orders pushing revenue to end of year & 2015 Q1 revenue growth as expected due to difficult comparison versus prior year Operating income decline due to unfavorable mix of revenue & continued investment in business SW up significantly; SW-related revenue up 27%; SaaS revenue up 30% Financial Highlights Revenue $490M Operating Income $36M Flat y/y -12% y/y Strong revenue and order growth in the Europe, Middle East and Africa region Retalix continues to perform well; experiencing strong demand for R10 NCR at the top in new leadership rankings: #1 point-of-sale (POS) software vendor* Leader in traditional North America ePOS & self-checkout (SCO) terminal providers ** Leader in NAMER POS share gains** Strong order growth in SCO Market developments Capital spending priorities changing due to change in focus to data privacy and security Consolidation within U.S grocery segment Introduced new innovative SaaS solutions: NCR Cloud Connect & NCR Command Center RETAIL SOLUTIONS Q1 2014 Update Performance Highlights * Source: 11th Annual IHL/RIS News Store System Study - Stores Reinvented 2014 ** 2014 IHL NAMER POS Terminal Report. Operating Margin 7.3% -110 bps Key Developments 12
Revenue growth across all theaters Operating income decline due to unfavorable revenue mix & investment in international expansion SW-related revenue up 2% SaaS revenue up 11% SaaS application sites up 20% y/y Financial Highlights Revenue $149M Operating Income $12M +14% y/y -43% y/y HOSPITALITY Q1 2014 Update Performance Highlights Operating Margin 8.1% -790 bps Key Developments Geographic expansion gaining further traction Strong revenue growth in Europe and the Asia, Middle East, and Africa regions New international customers, primarily in Brazil and Germany Continued focus on North America SMB market 22% revenue growth y/y Continued investment in software development and capabilities Fast adoption of software, SaaS and mobile solutions Recognized by Technology Association of GA as one of the Top 10 most innovative companies for our mobile payment solution 13
Telecom & Technology Expanded service offerings by providing on-site maintenance and support for Unify customers Travel Continued focus on airport and airline innovation in emerging countries Shenzhen Baoan International Airport (China), Muscat International and Salalah airports (Oman), China Eastern airlines, China Southern airlines Entered pilot programs for Travel Retail Solutions - omni-channel retailing within airports Delivered a record 15M mobile airline boarding passes, up 90% y/y Small Business Increased adoption of NCR Silver customer base (over 7,000) and devices (over 15,000) Revenue $85M Operating Income $4M +12% y/y -60% y/y Telecom & Technology revenue up 18% Travel revenue down 9% Software-related revenue down 11% Operating income negatively impacted by on- boarding costs associated with managed services contracts EMERGING INDUSTRIES Q1 2014 Update Performance Highlights Financial Highlights Operating Margin 4.7% -850 bps Key Developments 14
Q1 2014 SUMMARY 8% revenue growth led by Financial Services, Hospitality and Emerging Industries; Retail Solutions’ revenue growth as expected due to difficult comparison versus prior year Branch transformation, mobile, SCO and omni-channel driving demand Recurring revenue growth % improved, including contribution from Digital Insight Strong growth in Software/SaaS drove improved overall margin expansion Digital Insight acquisition closed; Q1 results solid and integration on track Ongoing investments in R&D, Services and Line of Business capabilities Cash Flow from Operations up Y/Y; Free Cash Flow as expected; on track Full-year revenue guidance lowered; maintain full-year NPOI and EPS guidance Delivering sustainable profitable growth in rapidly expanding markets 15
FINANCIAL PERFORMANCE & GUIDANCE April 29, 2014
Revenue $1,518 $1,410 8%(1) / 10%(2) Operational Gross Margin 434 387 12% Operational Gross Margin Rate 28.6% 27.4% Expenses (non-GAAP) 279 258 8% % of Revenue 18.4% 18.3% NPOI 155 129(3) 20% % of Revenue 10.2% 9.1% Non-GAAP Diluted EPS(4) $0.50 $0.54 (7)% Q1 OPERATIONAL RESULTS 2014 2013 % Change (1) As reported. (2) On a constant currency basis. (3) Includes $13M curtailment benefit related to Q1 2013 amendment to U.S. separation plan. (4) Decrease primarily related to higher interest expense in Q1 2014 compared to Q1 2013. $ millions, except per share amounts For the Three-Month Period Ending March 31 17
Revenue $1,518 $1,410 8% Gross Margin 416 369 13% Gross Margin Rate 27.4% 26.2% Expenses 308 284 8% % of Revenue 20.3% 20.1% Income from Operations 108 85(1) 27% % of Revenue 7.1% 6.0% GAAP Diluted EPS(2) $0.31 $0.37 (16%) Q1 GAAP RESULTS (1) Includes $13M curtailment benefit related to Q1 2013 amendment to U.S. separation plan. (2) Decrease primarily related to higher interest expense in Q1 2014 compared to Q1 2013. $ millions, except per share amounts 2014 2013 % Change For the Three-Month Period Ending March 31 18
Q1 REVENUE BY SEGMENT Financial Services Excluding Digital Insight* $ 794 718 $ 714 11% 1% 14% 4% Retail Solutions 490 489 - 1% Hospitality 149 131 14% 15% Emerging Industries 85 76 12% 12% Total Revenue Excluding Digital Insight* $ 1,518 1,442 $ 1,410 8% 2% 10% 4% 2014 2013 % Change % Change (Constant Currency) $ millions * Digital Insight acquisition closed on Jan. 10, 2014. For the Three-Month Period Ending March 31 19
Q1 OPERATING INCOME BY SEGMENT Financial Services $ 103 $ 57 % of Financial Services Revenue 13.0% 8.0% Retail Solutions 36 41 % of Retail Solutions Revenue 7.3% 8.4% Hospitality 12 21 % of Hospitality Revenue 8.1% 16.0% Emerging Industries 4 10 % of Emerging Industries Revenue 4.7% 13.2% NPOI $ 155 $ 129 % of Total Revenue 10.2% 9.1% For the Three-Month Period Ended March 31 2014 2013 $ millions 20
Q1 SUPPLEMENTAL REVENUE INFORMATION SaaS $113 $33 242% Software License/Software Maintenance 147 136 8% Professional Services 135 104 30% Total Software-Related Revenue 395 273 45% Hardware 570 600 (5)% Other Services 553 537 3% Total Revenue $1,518 $1,410 8% 2014 2013 % Change $ millions For the Three-Month Period Ending March 31 21
FREE CASH FLOW Q1 2014 Q1 2013 FY 2014e FY 2013 Cash Provided by Operating Activities $31 $21 $595 - $625 $281 Net capital expenditures (66) (45) (250) – (260) (226) Cash Provided by (Used In) Discontinued Operations (16) 1 (45) – (55) (52) Pension discretionary contributions and settlements - - 20 204 Free Cash Flow (Used) $(51) $(23) $300 - $350 $207 $ in millions 22
FREE CASH FLOW GENERATION $ in millions 2014e 2013 Free Cash Flow (FCF) ~$300 - $350 $207 plus: Pension 70 79 plus: Discontinued Ops 45-55 52 plus: Acquisition-related costs 25-35 43 Adjusted FCF ~$440 - $510 $381 Adjusted FCF as a % of non-GAAP net income ~90% 80% $ millions, except metrics 23
NET DEBT & EBITDA METRICS $ in billions, except metrics 2013 Q1 2014 2014e Debt $3.4 $3.9 Cash 0.5 0.5 Net Debt $2.9 $3.4 $3.3 Adjusted EBITDA $0.9 $0.9 (1) $1.1 Net Debt / Adjusted EBITDA 3.2 3.7 ~3.0 (1) Adjusted EBITDA for the trailing twelve-month period. 24
2014e 2013 Revenue $6,750 - $6,850(1) $6,123 Year-over-Year Revenue Growth 10% - 12% growth(1) 7% Income from Operations (GAAP)(2) $730 - $750 $666 Non-Pension Operating Income (NPOI) $900 - $920 $717 Adjusted EBITDA $1,085 – $1,105 $886 Diluted EPS (GAAP)(2) $2.36 - $2.46 $2.67 Non-GAAP Diluted EPS(3) $3.00 - $3.10 $2.81 Free Cash Flow $300 - $350 $207 (1) Includes 1% of unfavorable foreign currency fluctuations; previous revenue guidance was 12% - 14% growth. (2) Income from operations and diluted earnings per share guidance excludes the impact of the actuarial mark to market pension adjustment that will be determined in the fourth quarter of 2014. (3) 2014 guidance includes expected other expense (income), net (OIE) of $200M, which incorporates $185M of interest expense, a 26% tax rate and a share count of 172M. 2013 results include OIE of $112M,which incorporates $103M of interest expense, a 22% tax rate and a share count of 169M. FY 2014 GUIDANCE $ in millions, except per share amounts 25
2014 SEGMENT REVENUE GUIDANCE Line of Business Current 2014 Guidance Previous 2014 Guidance FY 2013 Financial Services Financial Services excluding Digital Insight 15-17% 4-5% 15-17% 4-5% $3,115 Retail 3-5% 8-10% $2,034 Hospitality 8-10% 12-15% $626 Emerging Industries 10-14% 10-14% $348 Total 10-12% 12-14% $6,123 $ in millions 26
Q2 2014 GUIDANCE Q2 2014e Q2 2013 Income from Operations (GAAP) $163 - $173 $139 Non-Pension Operating Income (Non-GAAP) $205 – $215 $182 Tax rate 29% 25% Other expense ~ $50 $29 $ millions 27
Improve Free Cash Flow generation and working capital Further expand software/SaaS and services contribution and improve margin profile Use strong, growing NPOI to de-lever the balance sheet Implement next stage of cost reduction initiatives and complete final stages of pension strategy Continue steady execution, commitment to innovation, and deliver differentiation and value to customers 2014 Goals Execute against megatrends informing our businesses Position lines of business to grow faster than overall markets 28
SUPPLEMENTARY NON-GAAP MATERIALS
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. NPOI, Non-GAAP Diluted EPS, Operational Gross Margin, Operational Gross Margin Rate, Expenses (non-GAAP), Effective Tax Rate and Non-GAAP Net Income. NCR’s non-pension operating income (NPOI), non-GAAP net income and non-GAAP diluted earnings per share (non-GAAP diluted EPS) are determined by excluding pension expense and special items, including amortization of acquisition related intangibles, from NCR’s GAAP income (loss) from operations. NCR also determines operational gross margin, operational gross margin rate, expenses (non-GAAP) and effective tax rate (non-GAAP) by excluding pension expense and these special items from its GAAP gross margin, gross margin rate, expenses and effective tax rate. Due to the significant change in its pension expense from year to year and the non-operational nature of pension expense and these special items, NCR's management uses these non-GAAP measures to evaluate year-over-year operating performance. NCR also uses NPOI 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 and Adjusted 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 settlements. NCR defines adjusted free cash flow as free cash flow plus required pension contributions, cash provided by/used in discontinued operations, and cash flow impact of special items. NCR's management uses free cash flow and adjusted free cash flow to assess the financial performance of the Company and believes they are useful for investors because they relate the operating cash flow of the Company to the capital that is spent to continue and improve business operations. In particular, free cash flow and adjusted free cash flow indicate 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 and adjusted free cash flow do not represent the residual cash flow available for discretionary expenditures since there may be other nondiscretionary expenditures that are not deducted from the measures. Free cash flow (FCF) and adjusted free cash flow (adjusted FCF) do not have uniform definitions under GAAP and, therefore, NCR's definitions may differ from other companies' definitions of these measures. 30
NON-GAAP MEASURES 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 income (loss) from continuing operations plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization; plus other income (expense); plus pension expense (benefit); and plus special items included in the definition of NPOI. 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. Revenue Growth on a Constant Currency Basis. NCR’s period-over-period revenue growth on a constant currency basis excludes the effects of foreign currency translation. Due to the variability of foreign exchange rates from period to period, NCR’s management uses revenue growth on a constant currency basis to evaluate period-over-period operating performance. Revenue growth on a constant currency basis is calculated by translating prior period revenue at current period monthly average exchange rates. 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. 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. 31
GAAP TO NON-GAAP RECONCILIATION Q1 2014 LTM FY 2013 FY 2014e Q2 2014e Income from Operations (GAAP) $689 $666 $730 - $750 $163 – $173 Pension Expense (Benefit) (86) (78) 8 3 Acquisition-Related Amortization of Intangibles 81 65 121 30 Acquisition-Related Costs 44 46 33 7 Acquisition-Related Purchase Price Adjustment 12 15 6 1 OFAC and FCPA Investigations(1) 3 3 2 1 Non-Pension Operating Income (non- GAAP) $743 $717 $900 - $920 $205 – $215 Depreciation and Amortization 149 143 155 Ongoing Pension Expense (12) (15) (10) Stock Compensation Expense 41 41 40 Adjusted EBITDA (non-GAAP) $921 $886 $1,085 - $1,105 $ in millions Income from Operations (GAAP) to Non-Pension Operating Income (non-GAAP) and Adjusted EBITDA (non-GAAP) (1) Estimated expenses for 2014 will be affected by, among other things, the status and progress of these matters. There can be no assurance that the Company will not be subject to fines or other remedial measures as a result of OFAC’s, the SEC’s or the DOJ’s investigations. 32
in millions (except per share amounts) Q1 2014 GAAP Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Pension (expense) benefit Q1 2014 non-GAAP Product revenue $634 - - - - - $634 Service revenue 884 - - - - - 884 Total revenue 1,518 - - - - - 1,518 Cost of products 476 (10) - (2) - - 464 Cost of services 626 (6) - (1) - 1 620 Gross margin 416 16 - 3 - (1) 434 Gross margin rate 27.4% 1.1% 0.0% 0.2% 0.0% -0.1% 28.6% Selling, general and administrative expenses 245 (14) (14) - (1) - 216 Research and development expenses 63 - - - - - 63 Total expenses 308 (14) (14) - (1) - 279 Total expense as a % of revenue 20.3% -0.9% -0.9% 0.0% -0.1% 0.0% 18.4% Income (loss) from operations 108 30 14 3 1 (1) 155 Income (loss) from operations as a % of revenue 7.1% 2.0% 0.9% 0.2% 0.1% -0.1% 10.2% Interest and Other (expense) income, net (50) - - - - - (50) Income (loss) from continuing operations before income taxes 58 30 14 3 1 (1) 105 Income tax expense (benefit) 4 10 4 1 - (1) 18 Effective tax rate 7% 33% 29% 33% 0% 100% 17% Income (loss) from continuing operations 54 20 10 2 1 - 87 Net income (loss) attributable to noncontrolling interests 1 - - - - - 1 Income (loss) from continuing operations (attributable to NCR) $53 $20 $10 $2 $1 $- $86 Diluted earnings per share $0.31 $0.11 $0.06 $0.01 $0.01 $- $0.50 GAAP TO NON-GAAP RECONCILIATION Q1 2014 QTD 33
GAAP TO NON-GAAP RECONCIALIATION Q1 2013 QTD in millions (except per share amounts) Q1 2013 GAAP Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Pension (expense) benefit Q1 2013 non-GAAP Product revenue $667 - - - - - $667 Service revenue 743 - - - - - 743 Total revenue 1,410 - - - - - 1,410 Cost of products 503 (8) - - - - 495 Cost of services 538 - - (6) - (4) 528 Gross margin 369 8 - 6 - 4 387 Gross margin rate 26.2% 0.6% 0.0% 0.4% 0.0% 0.2% 27.4% Selling, general and administrative expenses 229 (6) (16) - (1) (2) 204 Research and development expenses 55 - - - - (1) 54 Total expenses 284 (6) (16) - (1) (3) 258 Total expense as a % of revenue 20.1% -0.4% -1.1% 0.0% -0.1% -0.2% 18.3% Income (loss) from operations 85 14 16 6 1 7 129 Income (loss) from operations as a % of revenue 6.0% 1.0% 1.1% 0.4% 0.1% 0.5% 9.1% Interest and Other (expense) income, net (19) - - - - - (19) Income (loss) from continuing operations before income taxes 66 14 16 6 1 7 110 Income tax expense (benefit) 2 5 6 2 - 3 18 Effective tax rate 3% 36% 38% 33% 0% 43% 16% Income (loss) from continuing operations 64 9 10 4 1 4 92 Net income (loss) attributable to noncontrolling interests 2 - - - - - 2 Income (loss) from continuing operations (attributable to NCR) $62 $9 $10 $4 $1 $4 $90 Diluted earnings per share $0.37 $0.06 $0.06 $0.02 $0.01 $0.02 $0.54 34
GAAP TO NON-GAAP RECONCILIATION Q2 2013 QTD in millions (except per share amounts) Q2 2013 GAAP Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Pension (expense) benefit Q2 2013 non-GAAP Product revenue $743 - - - - - $743 Service revenue 792 - - - - - 792 Total revenue 1,535 - - - - - 1,535 Cost of products 550 (9) - - - - 541 Cost of services 559 - - (3) - (5) 551 Gross margin 426 9 - 3 - 5 443 Gross margin rate 27.8% 0.6% 0.0% 0.2% 0.0% 0.3% 28.9% Selling, general and administrative expenses 232 (8) (14) - - (3) 207 Research and development expenses 55 - - - - (1) 54 Total expenses 287 (8) (14) - - (4) 261 Total expense as a % of revenue 18.7% -0.5% -0.9% 0.0% 0.0% -0.3% 17.0% Income (loss) from operations 139 17 14 3 - 9 182 Income (loss) from operations as a % of revenue 9.1% 1.1% 0.9% 0.2% 0.0% 0.6% 11.9% Interest and Other (expense) income, net (29) - - - - - (29) Income (loss) from continuing operations before income taxes 110 17 14 3 - 9 153 Income tax expense (benefit) 23 6 4 1 - 4 38 Effective tax rate 21% 35% 29% 33% 0% 44% 25% Income (loss) from continuing operations 87 11 10 2 - 5 115 Net income (loss) attributable to noncontrolling interests 1 - - - - - 1 Income (loss) from continuing operations (attributable to NCR) $86 $11 $10 $2 $- $5 $114 Diluted earnings per share $0.51 $0.07 $0.06 $0.01 $- $0.03 $0.68 35
GAAP TO NON-GAAP RECONCILIATION Q4 2013 YTD in millions (except per share amounts) FY 2013 GAAP Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Japan valuation reserve release Pension (expense) benefit FY 2013 non-GAAP Product revenue $2,912 - - - - - - $2,912 Service revenue 3,211 - - - - - - 3,211 Total revenue 6,123 - - - - - - 6,123 Cost of products 2,152 (36) - (1) - - 2 2,117 Cost of services 2,231 - - (14) - - 44 2,261 Gross margin 1,740 36 - 15 - - (46) 1,745 Gross margin rate 28.4% 0.6% 0.0% 0.2% 0.0% 0.0% -0.7% 28.5% Selling, general and administrative expenses 871 (29) (46) - (3) - 22 815 Research and development expenses 203 - - - - - 10 213 Total expenses 1,074 (29) (46) - (3) - 32 1,028 Total expense as a % of revenue 17.5% -0.5% -0.7% 0.0% 0.0% 0.0% 0.5% 16.8% Income (loss) from operations 666 65 46 15 3 - (78) 717 Income (loss) from operations as a % of revenue 10.9% 1.1% 0.8% 0.2% 0.0% 0.0% -1.3% 11.7% Interest and Other (expense) income, net (112) - 6 - - - - (106) Income (loss) from continuing operations before income taxes 554 65 52 15 3 - (78) 611 Income tax expense (benefit) 98 17 16 5 1 15 (20) 132 Effective tax rate 18% 26% 31% 33% 33% N/A 26% 22% Income (loss) from continuing operations 456 48 36 10 2 (15) (58) 479 Net income (loss) attributable to noncontrolling interests 4 - - - - - - 4 Income (loss) from continuing operations (attributable to NCR) $452 $48 $36 $10 $2 $(15) $(58) $475 Diluted earnings per share $2.67 $0.29 $0.21 $0.06 $0.01 $(0.09) $(0.34) $2.81 36
GAAP TO NON-GAAP RECONCILIATION FY 2014e Diluted EPS (GAAP) $2.36 - $2.46 Pension Expense (Benefit) 0.03 Acquisition-Related Amortization of Intangibles 0.47 Acquisition-Related Costs 0.11 Acquisition-Related Purchase Price Adjustment 0.02 OFAC and FCPA Investigations(1) 0.01 Non-GAAP Diluted EPS $3.00 – $3.10 Diluted Earnings per Share (GAAP) to Non-GAAP Diluted Earnings per Share (non-GAAP) (1) Estimated expenses for 2014 will be affected by, among other things, the status and progress of these matters. There can be no assurance that the Company will not be subject to fines or other remedial measures as a result of OFAC’s, the SEC’s or the DOJ’s investigations. 37
GAAP TO NON-GAAP RECONCILIATIONS FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 Gross Margin as a % of Revenue (GAAP) 22.0% 22.9% 18.0% 28.7% 28.4% Pension expense (benefit) (0.5)% 0.6% 6.8% (2.2)% (0.7)% Impairment of assets related to an equity investment 0.5% - - - - Acquisition-related purchase price adjustments - - - - 0.2% Acquisition-related amortization of intangibles - - 0.1% 0.3% 0.6% Operational Gross Margin Rate (non- GAAP) 22.0% 23.5% 24.9% 26.8% 28.5% Gross Margin as a % of Revenue (GAAP) to Operational Gross Margin Rate (non-GAAP) 38
GAAP TO NON-GAAP RECONCILIATIONS Revenue Growth % (GAAP) to Revenue Growth % on a Constant Currency Basis (non-GAAP) Q1 2014 Revenue Growth % (GAAP) 8% Unfavorable foreign currency fluctuation impact 2% Revenue Growth % on a Constant Currency Basis (non-GAAP) 10% 39
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