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): October 30, 2018
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):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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 o
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 October 30, 2018, the Company issued a press release setting forth its third quarter 2018 financial results along with its fiscal year 2018 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 October 30, 2018, the Company will hold its previously announced conference call to discuss its third quarter 2018 results and fiscal year 2018 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 October 30, 2018 |
99.2 | Supplemental materials, dated October 30, 2018 |
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Index to Exhibits
The following exhibits are attached with this current report on Form 8-K:
Exhibit No. Description
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 Fernandez | |
Andre Fernandez | ||
Executive Vice President and Chief Financial Officer | ||
Date: October 30, 2018
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 | NEWS RELEASE | |
October 30, 2018
NCR Announces Third Quarter 2018 Results
ATLANTA - NCR Corporation (NYSE: NCR) reported financial results today for the three months ended September 30, 2018. Third quarter and other recent highlights include:
• | Revenue of $1.55 billion, down 7% as reported |
• | Software revenue up 1% driven by cloud revenue growth of 6% |
• | GAAP diluted EPS of $0.57; Non-GAAP diluted EPS of $0.58 |
• | Services revenue up 1% and gross margin expansion of 70 basis points |
• | Announced planned acquisition of JetPay to expand our offerings to include end-to-end payment processing |
• | Announcing program to achieve at least $100 million cost savings in 2019 |
“Our third quarter performance was in-line with our expectations and we continue working to build a stronger and more efficient NCR,” said Michael Hayford, President and Chief Executive Officer. “During the quarter, we made notable progress realigning our organization and addressing critical execution areas. We placed strategic emphasis on our supply chain and manufacturing operations, and our success to date positions us to achieve a significant ramp in ATM production during the fourth quarter.”
Mr. Hayford continued, “Our evaluation of our business has uncovered significant cost reduction opportunities in areas targeting spend optimization to improve margins. Moving forward, we will drive operational efficiencies through a targeted plan that we expect will result in at least $100 million cost savings in 2019. At the same time, we are enabling higher quality and faster deployment of solutions across our markets while remaining committed to becoming a leading software and services-led enterprise provider of vertical industry solutions. This is demonstrated through our pending acquisition of JetPay, which will enable NCR to fully integrate NCR Payments with our point of sale and capture this recurring revenue stream. Our leadership team is confident in our strategy and committed to continuing to take the steps necessary to accelerate our long-term growth potential and deliver increasing returns to our 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.
Third Quarter 2018 Operating Results
Revenue
Third quarter revenue of $1.55 billion was down 7% year-over-year. Foreign currency fluctuations had an unfavorable impact on the revenue comparison of 2%.
The following table shows the revenue by segment for the third quarter:
$ in millions | 2018 | 2017 | % Change | % Change Constant Currency | |||||||||
Software License | $ | 80 | $ | 79 | 1 | % | 3 | % | |||||
Software Maintenance | 92 | 95 | (3 | %) | (2 | %) | |||||||
Cloud | 158 | 149 | 6 | % | 6 | % | |||||||
Professional Services | 150 | 153 | (2 | %) | — | % | |||||||
Software Revenue | $ | 480 | $ | 476 | 1 | % | 2 | % | |||||
Services Revenue | $ | 616 | $ | 609 | 1 | % | 4 | % | |||||
ATM | $ | 237 | $ | 273 | (13 | %) | (10 | %) | |||||
SCO | 60 | 79 | (24 | %) | (24 | %) | |||||||
POS | 157 | 221 | (29 | %) | (28 | %) | |||||||
IPS | — | 5 | (100 | %) | (100 | %) | |||||||
Hardware Revenue | $ | 454 | $ | 578 | (21 | %) | (20 | %) | |||||
Total Revenue | $ | 1,550 | $ | 1,663 | (7 | %) | (5 | %) | |||||
Software revenue was up 2% on a constant currency basis driven by cloud revenue growth of 6%.
Services revenue was up 4% on a constant currency basis driven by hardware maintenance and implementation services growth, as well as continued momentum in managed service offerings.
Hardware revenue was down 20% on a constant currency basis. ATM revenue declined 10% on a constant currency basis primarily due to continued supply constraints, which improved throughout the quarter. ATM orders increased for the third consecutive quarter, which is expected to drive improved revenue performance in the fourth quarter. SCO revenue decreased 24% on a constant currency basis due to the timing of customer roll-outs. POS revenue decreased 28% on a constant currency basis in the quarter compared to growth of 18% on a constant currency basis in the prior year, which benefited from several large customer roll-outs.
Gross Margin
Third quarter gross margin of $410 million was down from $472 million in the prior year period. Gross margin rate was 26.5%, down from 28.4%. Third quarter gross margin (non-GAAP) of $425 million was down from $485 million in the prior year period. Gross margin rate (non-GAAP) was 27.4%, down from 29.2%. The decrease in gross margin, on a GAAP and non-GAAP basis, was primarily due to increased costs in the Hardware segment associated with alleviating supply chain constraints.
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Expenses
Third quarter operating expenses of $285 million increased from $273 million in the prior year period. Third quarter operating expenses (non-GAAP) of $264 million increased from $251 million. The increase in operating expenses, on a GAAP and non-GAAP basis, was due to continued investment in the business to improve execution.
Operating Income
Third quarter income from operations of $125 million decreased from $199 million in the prior year period. Third quarter operating income (non-GAAP) of $161 million decreased from $234 million. Income from operations and operating income (non-GAAP) reflected lower profit in the Hardware segment and continued investment in the business.
Other (Expense)
Third quarter other (expense) and other (expense) (non-GAAP) of $53 million increased from $49 million compared to the prior year period partially due to higher interest rates and higher foreign currency losses.
Income Tax Expense (Benefit)
Third quarter income tax benefit of $15 million decreased from income tax expense of $31 million in the prior year period. The third quarter effective income tax rate was (21)% compared to 21% in the prior year period. Income tax decreased primarily due to lower income before taxes in the quarter, the impact of U.S. tax reform and tax restructuring transactions.
Third quarter income tax expense (non-GAAP) of $20 million decreased from $41 million in the prior year period. The third quarter effective income tax rate (non-GAAP) was 19% compared to 22% in the prior year period. Income tax (non-GAAP) decreased primarily due to lower income before taxes in the quarter and tax restructuring transactions.
Net Income from Continuing Operations Attributable to NCR
Third quarter net income from continuing operations attributable to NCR of $85 million decreased from $118 million in the prior year period. Third quarter net income from continuing operations attributable to NCR (non-GAAP) of $86 million decreased from $143 million in the prior year period.
Cash Flow
Third quarter cash provided by operating activities of $68 million decreased from cash provided by operating activities of $136 million in the prior year period. Free cash outflow was $22 million in the third quarter of 2018 as compared to an inflow of $48 million in the third quarter of 2017. The decreases were due to lower earnings in the third quarter of 2018, which we expect to improve in the fourth quarter.
Restructuring and Transformation Initiatives
Our previously announced restructuring and transformation initiatives continue to progress on track. In Services, our Mission One performance and profit improvement program continues to deliver revenue growth and margin expansion. In Hardware, we are continuing the move to a more variable cost structure by reducing the number of manufacturing plants and ramping up production with contract manufacturers.
However, in order to focus the organization on the strategic growth areas, we are announcing a spend optimization program to drive cost savings through operational efficiencies to generate at least $100 million of savings in 2019. These initiatives will create efficiencies in our corporate functions, reduce spend in the non-strategic areas and limit discretionary spending. We expect to incur a pre-tax charge of $75 million to $100 million over the next twelve months, with approximately $50 million incurred during the fourth quarter of 2018. The cash impact is expected to be $75 million to $100 million which will be paid in 2018 and 2019. The estimate of the pre-tax charge of $50 million has been included in our 2018 GAAP diluted earnings per share guidance.
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Full Year 2018 Outlook
We are reaffirming our full year 2018 revenue guidance. Revenue is expected to be (1)% to (3)%. Our GAAP diluted earnings per share guidance is now expected to be $0.10 to $0.68 (previous guidance of $0.07 to $0.65) due to the impact of U.S. Tax Reform and the spend optimization program. We are reaffirming our non-GAAP diluted earnings per share guidance of $2.55 to $2.75. Non-GAAP diluted earnings per share guidance assumes an effective tax rate of 21% for 2018 compared to 25% in 2017. Additionally, we now expect cash flow from operations to be $640 million to $670 million (previous guidance of $690 million to $720 million) and free cash flow to be $250 million to $300 million (previous guidance of $300 million to $350 million). The reduction is due to higher working capital levels as we ramp production during the fourth quarter as well as the expected cash payments related to the spend optimization program.
2018 Third Quarter Earnings Conference Call
A conference call is scheduled for today at 4:30 p.m. (EDT) to discuss the third quarter 2018 results and guidance for full year 2018. Access to the conference call and accompanying slides, as well as a replay of the call, are available on 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 1900963.
More information on NCR’s Q3 2018 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 leader in banking and commerce solutions, powering incredible experiences that make life easier. With its software, hardware, and portfolio of services, NCR enables 760 million transactions daily across financial, retail, hospitality, travel, 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 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 sections entitled “Full Year 2018 Outlook” and the expected type and magnitude of the non-operational adjustments included in any forward-looking non-GAAP measures); NCR’s critical execution areas, areas of strategic focus, including supply chain and manufacturing operations and execution strategy; NCR’s expected areas of focus to drive growth and create long-term stockholder value; NCR’s quality and deployment of solutions; NCR’s software and services offerings; NCR’s plans to diversify revenue and streamline costs; expectations regarding NCR’s pending acquisition of JetPay; NCR's cost savings program and its expected benefits in 2019 and the fourth quarter of 2018; NCR’s global leadership; expectations regarding ATM production rates, ATM revenues and overall revenue in the fourth quarter of 2018; NCR’s expected free cash flow generation and capital allocation strategy; NCR’s earnings per share and the expected impact of U.S. Tax Reform on earnings per share; and the expected impact of NCR’s previously announced restructuring and transformation activities. 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 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, including those in our Hardware segment; 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.
Free Cash Flow and Free Cash Flow as a Percentage of Non-GAAP Net Income (or Free Cash Flow Conversion Rate). 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. NCR also describes the ratio of free cash flow to non-GAAP net income (or free cash flow conversion rate), which is calculated as free cash flow divided by non-GAAP net income. NCR’s management targets an annual free cash flow conversion rate at or above the range described in this release because management believes that a conversion rate at or above that range represents the efficient conversion of non-GAAP net income to free cash flow for its business. Free cash flow and free cash flow conversion rate do 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.
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Reconciliation of Gross Margin (GAAP) to Gross Margin (non-GAAP)
$ in millions | Q3 2018 | Q3 2017 | |||||
Gross Margin (GAAP) | $ | 410 | $ | 472 | |||
Transformation & Restructuring costs | 9 | 1 | |||||
Acquisition-related amortization of intangibles | 6 | 12 | |||||
Gross Margin (Non-GAAP) | $ | 425 | $ | 485 | |||
Reconciliation of Gross Margin Rate (GAAP) to Gross Margin Rate (non-GAAP)
Q3 2018 | Q3 2017 | ||||
Gross Margin Rate (GAAP) | 26.5 | % | 28.4 | % | |
Transformation and Restructuring costs | 0.5 | % | 0.1 | % | |
Acquisition-related amortization of intangibles | 0.4 | % | 0.7 | % | |
Gross Margin Rate (Non-GAAP) | 27.4 | % | 29.2 | % | |
Reconciliation of Operating Expenses (GAAP) to Operating Expenses (non-GAAP)
$ in millions | Q3 2018 | Q3 2017 | |||||
Operating Expenses (GAAP) | $ | 285 | $ | 273 | |||
Transformation and Restructuring costs | (7 | ) | (4 | ) | |||
Acquisition-related amortization of intangibles | (14 | ) | (17 | ) | |||
Acquisition-related costs | — | (1 | ) | ||||
Operating Expenses (Non-GAAP) | $ | 264 | $ | 251 | |||
Reconciliation of Income from Operations (GAAP) to Operating Income (non-GAAP)
$ in millions | Q3 2018 | Q3 2017 | |||||
Income from Operations (GAAP) | $ | 125 | $ | 199 | |||
Transformation and Restructuring costs | 16 | 5 | |||||
Acquisition-related amortization of intangibles | 20 | 29 | |||||
Acquisition-related costs | — | 1 | |||||
Operating Income (Non-GAAP) | $ | 161 | $ | 234 | |||
Reconciliation of Income Tax Expense (GAAP) to Income Tax Expense (non-GAAP)
$ in millions | Q3 2018 | Q3 2017 | |||||
Income Tax Expense (Benefit) (GAAP) | $ | (15 | ) | $ | 31 | ||
Transformation and Restructuring costs | (8 | ) | 1 | ||||
Acquisition-related amortization of intangibles | 5 | 9 | |||||
Impact of U.S. tax reform | 38 | — | |||||
Income Tax Expense (Non-GAAP) | $ | 20 | $ | 41 | |||
Reconciliation of Net Income (Loss) from Continuing Operations Attributable to NCR (GAAP) to
Net Income from Continuing Operations Attributable to NCR (non-GAAP)
$ in millions | Q3 2018 | Q3 2017 | |||||
Net Income from Continuing Operations Attributable to NCR (GAAP) | $ | 85 | $ | 118 | |||
Transformation and Restructuring costs | 24 | 4 | |||||
Acquisition-related amortization of intangibles | 15 | 20 | |||||
Acquisition-related costs | — | 1 | |||||
Impact of U.S. tax reform | (38 | ) | — | ||||
Net Income from Continuing Operations Attributable to NCR (Non-GAAP) | $ | 86 | $ | 143 | |||
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Reconciliation of Diluted Earnings (Loss) Per Share from Continuing Operations (GAAP) to
Non-GAAP Diluted Earnings Per Share from Continuing Operations (non-GAAP)
Q3 2018 Actual | Q3 2017 Actual | Current FY 2018 Guidance (2) | Prior FY 2018 Guidance (2) | ||||||||||
Diluted Earnings Per Share (GAAP) (1) | $ | 0.57 | $ | 0.77 | $0.10- $0.68 | $0.07 - $0.65 | |||||||
Transformation & Restructuring costs | 0.16 | 0.02 | 0.75 - 1.00 | 0.50 - 0.75 | |||||||||
Asset impairment charges | — | — | 1.16 | 1.16 | |||||||||
Acquisition-related amortization of intangibles | 0.10 | 0.13 | 0.42 | 0.42 | |||||||||
Acquisition-related costs | — | 0.01 | 0.05 | 0.05 | |||||||||
Impact of U.S. tax reform | (0.25 | ) | — | (0.27 | ) | — | |||||||
Diluted Earnings Per Share (non-GAAP) (1) | $ | 0.58 | $ | 0.93 | $2.55- $2.75 | $2.55 - $2.75 | |||||||
(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 Cash Provided by Operating Activities (GAAP) to Free Cash Flow (non-GAAP)
$ in millions | Q3 2018 QTD | Q3 2017 QTD | Current 2018 Guidance | Prior FY 2018 Guidance | |||||||||
Net cash provided by operating activities | $ | 68 | $ | 136 | $640 - $670 | $690 - $720 | |||||||
Total capital expenditures | (78 | ) | (79 | ) | (330) - (350) | (330) - (350) | |||||||
Net cash used in discontinued operations | (12 | ) | (9 | ) | (40 | ) | (40 | ) | |||||
Free cash (outflow) inflow | $ | (22 | ) | $ | 48 | $250 - $300 | $300 - $350 | ||||||
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Reconciliation of Revenue Growth % (GAAP) to
Revenue Growth Constant Currency % (non-GAAP)
Three months ended September 30, 2018 | |||||
Revenue Growth % (GAAP) | Favorable (unfavorable) FX impact | Revenue Growth Constant Currency % (non-GAAP) | |||
Software License | 1% | (2)% | 3% | ||
Software Maintenance | (3)% | (1)% | (2)% | ||
Cloud | 6% | —% | 6% | ||
Professional Services | (2)% | (2)% | —% | ||
Software | 1% | (1)% | 2% | ||
Services | 1% | (3)% | 4% | ||
ATM | (13)% | (3)% | (10)% | ||
SCO | (24)% | —% | (24)% | ||
POS | (29)% | (1)% | (28)% | ||
IPS | (100)% | —% | (100)% | ||
Hardware | (21)% | (1)% | (20)% | ||
Total Revenue | (7)% | (2)% | (5)% | ||
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 | NCR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in millions, except per share amounts) | Schedule A |
For the Periods Ended September 30 | |||||||||||||||
Three Months | Nine Months | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenue | |||||||||||||||
Products | $ | 534 | $ | 657 | $ | 1,585 | $ | 1,829 | |||||||
Services | 1,016 | 1,006 | 3,019 | 2,905 | |||||||||||
Total Revenue | 1,550 | 1,663 | 4,604 | 4,734 | |||||||||||
Cost of products | 473 | 528 | 1,344 | 1,430 | |||||||||||
Cost of services | 667 | 663 | 2,027 | 1,959 | |||||||||||
Total gross margin | 410 | 472 | 1,233 | 1,345 | |||||||||||
% of Revenue | 26.5 | % | 28.4 | % | 26.8 | % | 28.4 | % | |||||||
Selling, general and administrative expenses | 226 | 220 | 732 | 678 | |||||||||||
Research and development expenses | 59 | 53 | 190 | 178 | |||||||||||
Asset impairment charges | — | — | 183 | — | |||||||||||
Income from operations | 125 | 199 | 128 | 489 | |||||||||||
% of Revenue | 8.1 | % | 12.0 | % | 2.8 | % | 10.3 | % | |||||||
Interest expense | (43 | ) | (42 | ) | (125 | ) | (122 | ) | |||||||
Other (expense), net | (10 | ) | (7 | ) | (24 | ) | (16 | ) | |||||||
Total other (expense), net | (53 | ) | (49 | ) | (149 | ) | (138 | ) | |||||||
Income (loss) before income taxes and discontinued operations | 72 | 150 | (21 | ) | 351 | ||||||||||
% of Revenue | 4.6 | % | 9.0 | % | (0.5 | )% | 7.4 | % | |||||||
Income tax (benefit) expense | (15 | ) | 31 | (20 | ) | 78 | |||||||||
Income (loss) from continuing operations | 87 | 119 | (1 | ) | 273 | ||||||||||
(Loss) Income from discontinued operations, net of tax | (1 | ) | — | (38 | ) | 5 | |||||||||
Net income (loss) | 86 | 119 | (39 | ) | 278 | ||||||||||
Net income attributable to noncontrolling interests | 2 | 1 | 2 | 1 | |||||||||||
Net income (loss) attributable to NCR | $ | 84 | $ | 118 | $ | (41 | ) | $ | 277 | ||||||
Amounts attributable to NCR common stockholders: | |||||||||||||||
Income (loss) from continuing operations | $ | 85 | $ | 118 | $ | (3 | ) | $ | 272 | ||||||
Dividends on convertible preferred stock | (12 | ) | (12 | ) | (36 | ) | (36 | ) | |||||||
Deemed dividend on modification of convertible preferred stock | — | — | — | (4 | ) | ||||||||||
Deemed dividend on convertible preferred shares related to redemption | — | — | — | (58 | ) | ||||||||||
Net (loss) income from continuing operations attributable to NCR common stockholders | 73 | 106 | (39 | ) | 174 | ||||||||||
(Loss) income from discontinued operations, net of tax | (1 | ) | — | (38 | ) | 5 | |||||||||
Net (loss) income attributable to NCR common stockholders | $ | 72 | $ | 106 | $ | (77 | ) | $ | 179 | ||||||
Net (loss) income per share attributable to NCR common stockholders: | |||||||||||||||
Net (loss) income per common share from continuing operations | |||||||||||||||
Basic | $ | 0.62 | $ | 0.87 | $ | (0.33 | ) | $ | 1.43 | ||||||
Diluted (1) | $ | 0.57 | $ | 0.77 | $ | (0.33 | ) | $ | 1.37 | ||||||
Net (loss) income per common share | |||||||||||||||
Basic | $ | 0.61 | $ | 0.87 | $ | (0.65 | ) | $ | 1.47 | ||||||
Diluted (1) | $ | 0.56 | $ | 0.77 | $ | (0.65 | ) | $ | 1.41 | ||||||
Weighted average common shares outstanding | |||||||||||||||
Basic | 118.0 | 121.5 | 118.4 | 121.9 | |||||||||||
Diluted (1) | 149.3 | 153.1 | 118.4 | 126.9 | |||||||||||
(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
| NCR CORPORATION REVENUE AND OPERATING INCOME SUMMARY (Unaudited) (in millions) | Schedule B |
For the Periods Ended September 30 | |||||||||||||||||||||||
Three Months | Nine Months | ||||||||||||||||||||||
2018 | 2017 | % Change | % Change Constant Currency | 2018 | 2017 | % Change | % Change Constant Currency | ||||||||||||||||
Revenue by segment | |||||||||||||||||||||||
Software | $ | 480 | $ | 476 | 1% | 2% | $ | 1,410 | $ | 1,392 | 1% | 1% | |||||||||||
Software Gross Margin Rate | 47.5 | % | 50.4 | % | 47.6 | % | 50.2 | % | |||||||||||||||
Services | 616 | 609 | 1% | 4% | 1,827 | 1,754 | 4% | 3% | |||||||||||||||
Services Gross Margin Rate | 26.8 | % | 26.1 | % | 25.6 | % | 24.4 | % | |||||||||||||||
Hardware | 454 | 578 | (21)% | (20)% | 1,367 | 1,588 | (14)% | (14)% | |||||||||||||||
Hardware Gross Margin Rate | 7.0 | % | 14.9 | % | 12.2 | % | 16.8 | % | |||||||||||||||
Total Revenue | $ | 1,550 | $ | 1,663 | (7)% | (5)% | $ | 4,604 | $ | 4,734 | (3)% | (3)% | |||||||||||
Gross Margin Rate | 27.4 | % | 29.2 | % | 28.3 | % | 29.4 | % | |||||||||||||||
Operating income (loss) by segment | |||||||||||||||||||||||
Software | $ | 127 | $ | 148 | $ | 351 | $ | 399 | |||||||||||||||
% of Revenue | 26.5 | % | 31.1 | % | 24.9 | % | 28.7 | % | |||||||||||||||
Services | 90 | 88 | 229 | 206 | |||||||||||||||||||
% of Revenue | 14.6 | % | 14.4 | % | 12.5 | % | 11.7 | % | |||||||||||||||
Hardware | (56 | ) | (2 | ) | (106 | ) | (1 | ) | |||||||||||||||
% of Revenue | (12.3 | )% | (0.3 | )% | (7.8 | )% | (0.1 | )% | |||||||||||||||
Subtotal-segment operating income | $ | 161 | $ | 234 | $ | 474 | $ | 604 | |||||||||||||||
% of Revenue | 10.4 | % | 14.1 | % | 10.3 | % | 12.8 | % | |||||||||||||||
Other adjustments (1) | 36 | 35 | 346 | 115 | |||||||||||||||||||
Total income from operations | $ | 125 | $ | 199 | $ | 128 | $ | 489 | |||||||||||||||
(1) | The following table presents the other adjustments for NCR: |
For the Periods Ended September 30 | |||||||||||||||
Three Months | Nine Months | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Transformation and restructuring costs | $ | 16 | $ | 5 | $ | 98 | $ | 26 | |||||||
Asset impairment charges | — | — | 183 | — | |||||||||||
Acquisition-related amortization of intangible assets | 20 | 29 | 64 | 86 | |||||||||||
Acquisition-related costs | — | 1 | 1 | 3 | |||||||||||
Total other adjustments | $ | 36 | $ | 35 | $ | 346 | $ | 115 | |||||||
11
| NCR CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except per share amounts) | Schedule C |
September 30, 2018 | June 30, 2018 | December 31, 2017 | |||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 334 | $ | 343 | $ | 537 | |||||
Accounts receivable, net | 1,309 | 1,272 | 1,270 | ||||||||
Inventories | 916 | 842 | 780 | ||||||||
Other current assets | 296 | 282 | 243 | ||||||||
Total current assets | 2,855 | 2,739 | 2,830 | ||||||||
Property, plant and equipment, net | 348 | 326 | 341 | ||||||||
Goodwill | 2,589 | 2,590 | 2,741 | ||||||||
Intangibles, net | 501 | 517 | 578 | ||||||||
Prepaid pension cost | 133 | 127 | 118 | ||||||||
Deferred income taxes | 488 | 472 | 460 | ||||||||
Other assets | 591 | 593 | 586 | ||||||||
Total assets | $ | 7,505 | $ | 7,364 | $ | 7,654 | |||||
Liabilities and stockholders’ equity | |||||||||||
Current liabilities | |||||||||||
Short-term borrowings | $ | 246 | $ | 160 | $ | 52 | |||||
Accounts payable | 804 | 711 | 762 | ||||||||
Payroll and benefits liabilities | 225 | 229 | 219 | ||||||||
Contract liabilities | 427 | 469 | 458 | ||||||||
Other current liabilities | 302 | 310 | 398 | ||||||||
Total current liabilities | 2,004 | 1,879 | 1,889 | ||||||||
Long-term debt | 2,881 | 2,952 | 2,939 | ||||||||
Pension and indemnity plan liabilities | 803 | 796 | 798 | ||||||||
Postretirement and postemployment benefits liabilities | 130 | 132 | 133 | ||||||||
Income tax accruals | 118 | 127 | 148 | ||||||||
Other liabilities | 261 | 258 | 200 | ||||||||
Total liabilities | 6,197 | 6,144 | 6,107 | ||||||||
Redeemable noncontrolling interests | 14 | 12 | 15 | ||||||||
Series A convertible preferred stock: par value $0.01 per share, 3.0 shares authorized, 0.9, 0.8 and 0.8 shares issued and outstanding as of September 30, 2018, June 30, 2018 and December 31, 2017 | 846 | 834 | 810 | ||||||||
Stockholders' equity | |||||||||||
NCR stockholders' equity: | |||||||||||
Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding as of September 30, 2018, June 30, 2018 and December 31, 2017 | — | — | — | ||||||||
Common stock: par value $0.01 per share, 500.0 shares authorized, 118.0, 117.7 and 122.0 shares issued and outstanding as of September 30, 2018, June 30, 2018 and December 31, 2017 | 1 | 1 | 1 | ||||||||
Paid-in capital | 19 | — | 60 | ||||||||
Retained earnings | 666 | 594 | 857 | ||||||||
Accumulated other comprehensive loss | (242 | ) | (224 | ) | (199 | ) | |||||
Total NCR stockholders' equity | 444 | 371 | 719 | ||||||||
Noncontrolling interests in subsidiaries | 4 | 3 | 3 | ||||||||
Total stockholders' equity | 448 | 374 | 722 | ||||||||
Total liabilities and stockholders' equity | $ | 7,505 | $ | 7,364 | $ | 7,654 | |||||
12
| NCR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions) | Schedule D |
For the Periods Ended September 30 | |||||||||||||||
Three Months | Nine Months | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Operating activities | |||||||||||||||
Net income (loss) | $ | 86 | $ | 119 | $ | (39 | ) | $ | 278 | ||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||||||
Loss (income) from discontinued operations | 1 | — | 38 | (5 | ) | ||||||||||
Depreciation and amortization | 78 | 91 | 249 | 263 | |||||||||||
Stock-based compensation expense | 15 | 19 | 55 | 60 | |||||||||||
Deferred income taxes | (16 | ) | 15 | (15 | ) | 19 | |||||||||
Gain on sale of property, plant and equipment and other assets | (2 | ) | (1 | ) | (2 | ) | (2 | ) | |||||||
Impairment of long-lived and other assets | — | 1 | 193 | 1 | |||||||||||
Changes in assets and liabilities: | |||||||||||||||
Receivables | (61 | ) | (79 | ) | (102 | ) | (107 | ) | |||||||
Inventories | (94 | ) | 6 | (182 | ) | (120 | ) | ||||||||
Current payables and accrued expenses | 88 | (39 | ) | 31 | (132 | ) | |||||||||
Contract liabilities | (36 | ) | (30 | ) | (36 | ) | 20 | ||||||||
Employee benefit plans | (10 | ) | (7 | ) | (18 | ) | (13 | ) | |||||||
Other assets and liabilities | 19 | 41 | (9 | ) | 8 | ||||||||||
Net cash provided by operating activities | 68 | 136 | 163 | 270 | |||||||||||
Investing activities | |||||||||||||||
Expenditures for property, plant and equipment | (34 | ) | (38 | ) | (104 | ) | (81 | ) | |||||||
Proceeds from sales of property, plant and equipment | 3 | 6 | 3 | 6 | |||||||||||
Additions to capitalized software | (44 | ) | (41 | ) | (130 | ) | (125 | ) | |||||||
Other investing activities, net | (1 | ) | — | (4 | ) | — | |||||||||
Net cash used in investing activities | (76 | ) | (73 | ) | (235 | ) | (200 | ) | |||||||
Financing activities | |||||||||||||||
Short term borrowings, net | 5 | (3 | ) | 7 | 10 | ||||||||||
Payments on term credit facilities | (17 | ) | (12 | ) | (51 | ) | (37 | ) | |||||||
Payments on revolving credit facilities | (420 | ) | (495 | ) | (1,433 | ) | (1,110 | ) | |||||||
Borrowings on revolving credit facilities | 445 | 480 | 1,608 | 1,335 | |||||||||||
Repurchases of Company common stock | — | — | (210 | ) | (350 | ) | |||||||||
Proceeds from employee stock plans | 5 | 3 | 16 | 11 | |||||||||||
Tax withholding payments on behalf of employees | (1 | ) | — | (30 | ) | (24 | ) | ||||||||
Other financing activities | — | — | — | (1 | ) | ||||||||||
Net cash provided by (used in) financing activities | 17 | (27 | ) | (93 | ) | (166 | ) | ||||||||
Cash flows from discontinued operations | |||||||||||||||
Net cash used in discontinued operations | (12 | ) | (9 | ) | (23 | ) | (14 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | (4 | ) | 4 | (12 | ) | 16 | |||||||||
Decrease in cash, cash equivalents, and restricted cash | (7 | ) | 31 | (200 | ) | (94 | ) | ||||||||
Cash, cash equivalents and restricted cash at beginning of period | 350 | 382 | 543 | 507 | |||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 343 | $ | 413 | $ | 343 | $ | 413 | |||||||
13
Q3 2018 EARNINGS CONFERENCE CALL MICHAEL HAYFORD, PRESIDENT & CEO OWEN SULLIVAN, COO ANDRE FERNANDEZ, EVP & CFO October 30, 2018
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 2018 financial guidance and the expected type and magnitude of the non-operational adjustments included in any forward-looking non-GAAP measures; NCR's manufacturing network redesign, efforts to alleviate supply chain constraints and their expected benefits; NCR’s ATM production rates and their expected impact on revenue; NCR's cloud revenue momentum; NCR's Mission One (M1) Services initiative and its expected benefits on NCR's services margin profile; expectations regarding ATM orders driving revenue in the fourth quarter of 2018; NCR's expected areas of focus to drive growth and create long-term stockholder value; completed and targeted mergers and acquisitions and their expected benefits; expectations for accelerating recurring revenue and predictability; NCR's cost savings program and its expected benefits in 2019 and the fourth quarter of 2018; share repurchase for dilution; 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 26, 2018, and those factors detailed from time to time in NCR's other SEC reports. These materials are dated October 30, 2018, 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 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 basis, gross margin rate (non-GAAP), diluted earnings per share (non-GAAP), free cash flow (FCF), gross margin (non-GAAP), free cash flow as a percentage of non-GAAP net income (or free cash flow conversion rate), net debt, adjusted EBITDA, the ratio of net debt to adjusted EBITDA, operating expenses (non-GAAP), 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 the sum of cloud, hardware maintenance and software maintenance revenue, (ii) the term “net annual contract value” or “net ACV” for any particular period means NCR’s net bookings for cloud revenue during the period, and is calculated as twelve months of expected subscription revenues under new cloud contracts during such period less twelve months of subscription revenues under cloud contracts that expired or were terminated during such period, adjusted for twelve months of expected pricing discounts or price increases from renewals of existing contracts, and (iii) 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. 2
OVERVIEW RECURRING REVENUE up 2% including Cloud revenue up 6% Services continued MARGIN EXPANSION Executing TARGETED M&A strategy ALLEVIATING supply chain constraints Addressing EXECUTION challenges Announcing program to drive $100m of SAVINGS 3
TOP PRIORITIES Take CARE of our INNOVATE STREAMLINE Accelerate customers & bring high the GROWTH quality solutions business to market faster Create long-term stockholder value • Maintain focus on cost efficiencies • Reallocate capital to highest growth opportunities • Drive higher recurring revenue and better predictability • Grow cash flow, share repurchase for dilution and targeted product M&A and selected partnerships • Investor Day November 7th 4
EXECUTING TARGETED M&A STRATEGY JETPAY ZIPSCENE Monetize Provides transactions behavioral via integrated analytics to POS and enable data payment monetization solution 5
MANUFACTURING NETWORK REDESIGN PROGRESS New centrally Contract Increasing Closed located manufacturing global manufacturing distribution production utilization plant in Beijing center to ramp rates and with two maximize optimizing additional supply chain supply chain facilities to logistics flow network close by year- end 6
ATM PRODUCTION RAMPING Improving Strong Increased supply customer utilization demand chain constraints Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 E 7
ACCELERATED CUSTOMER ACTIVATION TEAMS Coming together to take care of our customers INTERACTIVE TELLER CO-LOCATION CONSUMER SELF- ORDERING NCR OPTIC ACCOUNTABILITY NEXT-GENERATION RETAIL REFERENCABLE SELF-CHECKOUT CUSTOMERS RELEASE 6 8
FOCUS ON SPEND OPTIMIZATION Drive cost savings through operational efficiencies Drive Cost - Create efficiencies in corporate functions - Reduce spend in non-strategic areas Savings - Limit discretionary spend Generate at least $100 million in savings in 2019 Manufacturing Network Redesign Ongoing Initiatives Mission One Services Transformation 9
Q3 2018 FINANCIAL RESULTS Non-GAAP Gross Revenue Margin Rate FX FX (10) ($32) million bps $1.66 $1.55 29.2% 27.4% billion billion Q3 2017 Q3 2018 Q3 2017 Q3 2018 Revenue down 7% as reported and down 5% CC; Non-GAAP gross margin rate down 180 bps as Recurring revenue up 2%, 48% of total revenue reported and down 170 bps CC Non-GAAP Diluted EPS Free Cash Flow FX ($0.03) $48 $0.93 ($22) $0.58 million million Q3 2017 Q3 2018 Q3 2017 Q3 2018 Non-GAAP Diluted EPS down 38% Free Cash Flow down due to lower earnings; as reported and down 36% CC Improvements expected in Q4 10
SOFTWARE Q3 2018 Update % Change Q3 2018 Q3 2017 % Change Constant Currency Software License $80 $79 1% 3% Attached License 26 32 (19)% (15)% Unattached License 54 47 15% 15% Software Maintenance 92 95 (3)% (2)% Cloud 158 149 6% 6% Professional Services 150 153 (2)% —% Software Revenue $480 $476 1% 2% Software Gross Margin $228 $240 (5)% (4)% Software Gross Margin Rate 47.5% 50.4% (290) bps (280) bps Operating Income $127 $148 (14)% (13)% Operating Income as a % of Revenue 26.5% 31.1% (460) bps (460) bps KEY HIGHLIGHTS $ in millions • Cloud revenue up 6%; Net ACV of $10M • Software License up 3% constant currency with solid unattached software license growth, offset by lower attached software license revenue • Operating income down driven by software license mix as well as higher employee related expenses 11
SERVICES Q3 2018 Update % Change Q3 2018 Q3 2017 % Change Constant Currency Services Revenue $616 $609 1% 4% Services Gross Margin $165 $159 4% 7% Services Gross Margin Rate 26.8% 26.1% +70 bps +90 bps Operating Income $90 $88 2% 6% Operating Income as a % of Revenue 14.6% 14.4% +20 bps +30 bps $ in millions KEY HIGHLIGHTS • Increase in revenue driven by hardware maintenance and implementation services as a result of continued momentum in managed service offerings and channel transformation trends • Increased wallet share from the current install base driven by improved customer satisfaction • Operating income increased due to sustainable improvements achieved through Mission One (M1) initiative offset by continued investment • M1 initiative is a performance and profit improvement program focused on transforming NCR’s services margin profile through: 1) productivity and efficiency improvements; 2) remote diagnostics and repair; 3) product life-cycle management; and 4) a higher mix of managed services 12
HARDWARE Q3 2018 Update % Change Q3 2018 Q3 2017 % Change Constant Currency ATMs $237 $273 (13)% (10)% Self-Checkout (SCO) 60 79 (24)% (24)% Point-of-Sale (POS) 157 221 (29)% (28)% Interactive Printer Solutions (IPS) — 5 (100)% (100)% Hardware Revenue $454 $578 (21)% (20)% Hardware Gross Margin $32 $86 (63)% (62)% Hardware Gross Margin Rate 7.0% 14.9% (790) bps (780) bps Operating Income ($56) ($2) Unfav Unfav Operating Income as a % of Revenue (12.3%) (0.3%) Unfav Unfav $ in millions KEY HIGHLIGHTS • ATM revenue down due to supply chain constraints during the quarter but up 32% sequentially; ATM orders increased for the third consecutive quarter, which is expected to drive improved revenue performance in the fourth quarter • SCO revenue down due to timing of customer roll-outs • POS revenue down compared to growth of 18% constant currency in the prior year, which benefited from several large customer roll-outs • Operating income decreased due to increased costs associated with improving supply chain constraints • Manufacturing network redesign progressing as planned 13
FREE CASH FLOW, NET DEBT & EBITDA Free Cash Flow Q3 2018 Q3 2017 YTD 2018 YTD 2017 Cash Provided by Operating Activities $68 $136 $163 $270 Total capital expenditures (78) (79) (234) (206) Cash used in Discontinued Operations (12) (9) (23) (14) Free Cash Flow ($22) $48 ($94) $50 $ in millions Net Debt & EBITDA Q3 2018 Q3 2017 Debt $3,127 $3,253 Cash (334) (405) Net Debt $2,793 $2,848 Adjusted EBITDA (2) $984 $1,129 Net Debt / Adjusted EBITDA 2.8x 2.5x $ in millions (2) Adjusted EBITDA for the trailing twelve-month period 14
2018 GUIDANCE Current FY 2018 Guidance Previous FY 2018 Guidance Revenue Growth (1)% - (3)% (1)% - (3)% GAAP Diluted EPS (1) $0.10- $0.68 $0.07 - $0.65 Non-GAAP Diluted EPS $2.55- $2.75 $2.55 - $2.75 Free Cash Flow (2) $250 - $300 million $300 - $350 million (1) GAAP Diluted EPS FY 2018 guidance has increased from previous guidance due to the impact of U.S. Tax Reform and the spend optimization program. For all other GAAP to non-GAAP adjustments, refer to the reconciliations included in the supplemental materials. (2) Free cash flow guidance has decreased from previous guidance due to the higher working capital levels as we ramp production during the fourth quarter and the expected cash impact of the spend optimization program. 15
LOOKING FORWARD Revenue growth; Focus on recurring revenue Deliver on outstanding demand Mix shift to software and services Improve cost structure Drive cash flow generation 16
SUPPLEMENTARY MATERIALS 17
Q3 2018 GAAP RESULTS % Change As Q3 2018 Q3 2017 Reported Revenue $1,550 $1,663 (7)% Gross Margin 410 472 (13)% Gross Margin Rate 26.5% 28.4% Operating Expenses 285 273 4% % of Revenue 18.4% 16.4% Operating (Loss) Income 125 199 (37)% % of Revenue 8.1% 12.0% Interest and other expense (53) (49) 8% Income Tax (Benefit) Expense (15) 31 (148)% Effective Income Tax Rate (21)% 21% Net Income $85 $118 (28)% Diluted EPS $0.57 $0.77 (26)% in millions, except per share amounts 18
Q3 2018 OPERATIONAL RESULTS % Change % Change As Constant Q3 2018 Q3 2017 Reported Currency Revenue $1,550 $1,663 (7)% (5)%(1) Gross Margin (non-GAAP) 425 485 (12)% (10)% Gross Margin Rate (non-GAAP) 27.4% 29.2% (180) bps (170) bps Operating Expenses (non-GAAP) 264 251 5% 7% % of Revenue 17.0% 15.1% Operating Income (non-GAAP) 161 234 (31)% (30)% % of Revenue 10.4% 14.1% (370) bps (360) bps Interest and other expense (non-GAAP) (53) (49) 8% 7% Income Tax Expense (non-GAAP) 20 41 (51)% Effective Income Tax Rate (non-GAAP) 19% 22% Net Income (non-GAAP) $86 $143 (40)% (38)% Diluted EPS (non-GAAP) (2) $0.58 $0.93 (38)% (36)% in millions, except per share amounts (1) The impact of foreign currency was $32 million unfavorable in Q3 2018. (2) Q3 2018 includes $0.03 of foreign currency headwind on EPS. Diluted share count of 149.3 million in Q3 2018 and 153.1 million in Q3 2017. 19
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 and Free Cash Flow as a Percentage of Non-GAAP Net Income (or Free Cash Flow Conversion Rate). 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. NCR also describes free cash flow as a percentage of non-GAAP net income (or free cash flow conversion rate), which is calculated as free cash flow divided by non-GAAP net income. NCR’s management targets an annual free cash flow conversion rate at or above the range described in these materials because management believes that a conversion rate at or above that range represents the efficient conversion of non-GAAP net income to free cash flow for its business. Free cash flow and free cash flow conversion rate do not have uniform definitions under GAAP and, therefore, NCR's definitions may differ from other companies' definitions of these measures. 20
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 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. 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. 21
GAAP TO NON-GAAP RECONCILIATION Net Income from Continuing Operations (GAAP) to Adjusted EBITDA (non-GAAP) Q3 2018 Q3 2017 in millions LTM LTM Net (Loss) Income from Continuing Operations (GAAP) ($34) $345 Pension Mark-to-Market Adjustments 28 85 Transformation/Restructuring Costs 101 29 Acquisition-Related Amortization of Intangibles 93 114 Acquisition-Related Costs 3 5 Asset Impairment Charges 183 — Divestiture and Liquidation Losses — 1 Net (Income) Loss from Continuing Operations Attributable to Noncontrolling Interests — (5) Interest Expense 166 162 Interest Income (3) (4) Depreciation and Amortization 239 226 Income Taxes 144 95 Stock Compensation Expense 64 76 Adjusted EBITDA (non-GAAP) $984 $1,129 22
GAAP TO NON-GAAP RECONCILIATION Q3 2018 QTD Transformation Acquisition- Q3 QTD Impact of and related Q3 QTD 2018 2018 U.S. Tax Restructuring amortization of non-GAAP GAAP Reform in millions (except per share amounts) costs intangibles Product revenue $534 $— $— $— $534 Service revenue 1,016 — — — 1,016 Total revenue 1,550 — — — 1,550 Cost of products 473 (8) (3) — 462 Cost of services 667 (1) (3) — 663 Gross margin 410 9 6 — 425 Gross margin rate 26.5% 0.5% 0.4% —% 27.4% Selling, general and administrative expenses 226 (6) (14) — 206 Research and development expenses 59 (1) — — 58 Total operating expenses 285 (7) (14) — 264 Total operating expense as a % of revenue 18.4% (0.5)% (0.9)% —% 17.0% Income from operations 125 16 20 — 161 Income from operations as a % of revenue 8.1% 1.0% 1.3% —% 10.4% Interest and Other (expense) income, net (53) — — — (53) Income from continuing operations before income taxes 72 16 20 — 108 Income tax (benefit) expense (15) (8) 5 38 20 Effective income tax rate (21)% 19% Income from continuing operations 87 24 15 (38) 88 Net income attributable to noncontrolling interests 2 — — — 2 Income from continuing operations (attributable to NCR) $85 $24 $15 ($38) $86 Diluted earnings per share $0.57 $0.16 $0.10 ($0.25) $0.58 Diluted shares outstanding 149.3 149.3 23
GAAP TO NON-GAAP RECONCILIATION Q3 2018 QTD Q3 QTD 2018 Q3 QTD 2018 GAAP non-GAAP in millions (except per share amounts) Income from continuing operations attributable to NCR common stockholders: Income from continuing operations (attributable to NCR) $85 $86 Income from continuing operations attributable to NCR common $85 $86 stockholders Weighted average outstanding shares: Weighted average diluted shares outstanding 120.9 120.9 Weighted as-if converted preferred shares 28.4 28.4 Total shares used in diluted earnings per share 149.3 149.3 Diluted earnings per share (1) $0.57 $0.58 (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. 24
GAAP TO NON-GAAP RECONCILIATION Q3 2017 QTD Acquisition- Acquisition- Q3 QTD 2017 Transformation related Q3 QTD 2017 related Costs amortization of GAAP costs non-GAAP intangibles in millions (except per share amounts) Product revenue $657 $— $— $— $657 Service revenue 1,006 — — — 1,006 Total revenue 1,663 — — — 1,663 Cost of products 528 — (6) — 522 Cost of services 663 (1) (6) — 656 Gross margin 472 1 12 — 485 Gross margin rate 28.4% 0.1% 0.7% —% 29.2% Selling, general and administrative expenses 220 (3) (17) (1) 199 Research and development expenses 53 (1) — — 52 Total expenses 273 (4) (17) (1) 251 Total expense as a % of revenue 16.4% (0.2)% (1.0)% (0.1)% 15.1% Income from operations 199 5 29 1 234 Income from operations as a % of revenue 12.0% 0.3% 1.7% 0.1% 14.1% Interest and Other (expense) income, net (49) — — — (49) Income from continuing operations before income taxes 150 5 29 1 185 Income tax expense 31 1 9 — 41 Effective income tax rate 21% 22% Income from continuing operations 119 4 20 1 144 Net income attributable to noncontrolling interests 1 — — — 1 Income from continuing operations (attributable to NCR) $118 $4 $20 $1 $143 Diluted (loss) earnings per share $0.77 $0.02 $0.13 $0.01 $0.93 Diluted shares outstanding 153.1 153.1 25
GAAP TO NON-GAAP RECONCILIATION Q3 2017 QTD Q3 QTD 2017 Q3 QTD 2017 GAAP non-GAAP in millions (except per share amounts) Income from continuing operations attributable to NCR common stockholders: Income from continuing operations (attributable to NCR) $118 $143 Income from continuing operations attributable to NCR common $118 $143 stockholders Weighted average outstanding shares: Weighted average diluted shares outstanding 126.2 126.2 Weighted as-if converted preferred shares 26.9 26.9 Total shares used in diluted earnings per share 153.1 153.1 Diluted earnings per share (1) $0.77 $0.93 (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. 26
GAAP TO NON-GAAP RECONCILIATION Q3 2018 YTD Transformation Acquisition- Asset Acquisition- Impact of Q3 2018 YTD and related Q3 2018 YTD Impairment related U.S. Tax Restructuring amortization of GAAP charges costs Reform non-GAAP in millions (except per share amounts) costs intangibles Product revenue $1,585 $— $— $— $— $— $1,585 Service revenue 3,019 — — — — — 3,019 Total revenue 4,604 — — — — — 4,604 Cost of products 1,344 (40) — (9) — — 1,295 Cost of services 2,027 (14) — (9) — — 2,004 Gross margin 1,233 54 — 18 — — 1,305 Gross margin rate 26.8% 1.1% —% 0.4% —% —% 28.3% Selling, general and administrative expenses 732 (38) — (46) (1) — 647 Research and development expenses 190 (6) — — — — 184 Asset impairment charges 183 — (183) — — — — Total expenses 1,105 (44) (183) (46) (1) — 831 Total expense as a % of revenue 24.0% (0.9)% (4.0)% (1.0)% —% —% 18.0% Income from operations 128 98 183 64 1 — 474 Income from operations as a % of revenue 2.8% 2.1% 4.0% 1.4% —% —% 10.3% Interest and Other (expense) income, net (149) — — — — — (149) Income from continuing operations before income taxes (21) 98 183 64 1 — 325 Income tax expense (20) 12 8 14 — 40 54 Effective income tax rate 95% 17% Income from continuing operations (1) 86 175 50 1 (40) 271 Net income attributable to noncontrolling interests 2 — 1 — — — 3 Income from continuing operations (attributable to ($3) $86 $174 $50 $1 ($40) $268 NCR) Diluted earnings per share ($0.33) $0.57 $1.16 $0.33 $0.01 ($0.27) $1.78 Diluted Shares outstanding 118.4 150.2 27
GAAP TO NON-GAAP RECONCILIATION Q3 2018 YTD Q3 2018 YTD Q3 2018 YTD GAAP non-GAAP in millions (except per share amounts) Income from continuing operations attributable to NCR common stockholders: Income from continuing operations (attributable to NCR) $(3) $268 Dividends on convertible preferred shares (36) — Income from continuing operations attributable to NCR common $(39) $268 stockholders Weighted average outstanding shares: Weighted average diluted shares outstanding 118.4 122.1 Weighted as-if converted preferred shares — 28.1 Total shares used in diluted earnings per share 118.4 150.2 Diluted earnings per share (1) ($0.33) $1.78 (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. 28
GAAP TO NON-GAAP RECONCILIATION Q3 2017 YTD Acquisition- Acquisition- Q3 2017 YTD Transformation related Q3 2017 YTD related costs amortization GAAP costs non-GAAP in millions (except per share amounts) of intangibles Product revenue $1,829 $— $— $— $1,829 Service revenue 2,905 — — — 2,905 Total revenue 4,734 — — — 4,734 Cost of products 1,430 (2) (19) — 1,409 Cost of services 1,959 (9) (18) — 1,932 Gross margin 1,345 11 37 — 1,393 Gross margin rate 28.4% 0.3% 0.8% —% 29.4% Selling, general and administrative expenses 678 (10) (49) (3) 616 Research and development expenses 178 (5) — — 173 Total expenses 856 (15) (49) (3) 789 Total expense as a % of revenue 18.1% (0.3)% (1.0)% (0.1)% 16.7% Income from operations 489 26 86 3 604 Income from operations as a % of revenue 10.3% 0.5% 1.8% 0.1% 12.8% Interest and Other (expense) income, net (138) — — — (138) Income from continuing operations before income taxes 351 26 86 3 466 Income tax expense 78 7 27 1 113 Effective income tax rate 22% 24% Income from continuing operations 273 19 59 2 353 Net income attributable to noncontrolling interests 1 — — — 1 Income from continuing operations (attributable to NCR) $272 $19 $59 $2 $352 Diluted earnings per share $1.37 $0.12 $0.38 $0.01 $2.28 Diluted Shares outstanding 126.9 154.2 29
GAAP TO NON-GAAP RECONCILIATION Q3 2017 YTD Q3 2017 YTD Q3 2017 YTD GAAP non-GAAP in millions (except per share amounts) Income from continuing operations attributable to NCR common stockholders: Income from continuing operations (attributable to NCR) $272 $352 Dividends on convertible preferred shares (36) — Deemed dividend on modification of convertible preferred shares (4) — Deemed dividend on convertible preferred shares related to redemption value (58) — accretion Income from continuing operations attributable to NCR common $174 $352 stockholders Weighted average outstanding shares: Weighted average diluted shares outstanding 126.9 126.9 Weighted as-if converted preferred shares — 27.3 Total shares used in diluted earnings per share 126.9 154.2 Diluted earnings per share (1) $1.37 $2.28 (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. 30
GAAP TO NON-GAAP RECONCILIATION FY 2017 Acquisition- Acquisition- Pension mark- FY 2017 Transformation related Impact of U.S. FY 2017 related to-market Costs amortization Tax Reform GAAP costs adjustments non-GAAP in millions (except per share amounts) of intangibles Product revenue $2,579 $— $— $— $— $— $2,579 Service revenue 3,937 — — — — — 3,937 Total revenue 6,516 — — — — — 6,516 Cost of products 2,021 (2) (25) — — 1,994 Cost of services 2,639 (9) (25) — — 2,605 Gross margin 1,856 11 50 — — — 1,917 Gross margin rate 28.5% 0.1% 0.8% —% —% —% 29.4% Selling, general and administrative expenses 923 (14) (65) (5) — — 839 Research and development expenses 242 (4) — — — — 238 Total expenses 1,165 (18) (65) (5) — — 1,077 Total expense as a % of revenue 17.9% (0.3)% (1.0)% (0.1)% —% —% 16.5% Income from operations 691 29 115 5 — — 840 Income from operations as a % of revenue 10.6% 0.4% 1.8% 0.1% —% —% 12.9% Interest and Other (expense) income, net (209) — — — 28 — (181) Income from continuing operations before 482 29 115 5 28 — 659 income taxes Income tax expense (benefit) 242 9 36 2 3 (130) 162 Effective income tax rate 50% 25% Income from continuing operations 240 20 79 3 25 130 497 Net income attributable to noncontrolling 3 — — — — — 3 interests Income from continuing operations $237 $20 $79 $3 $25 $130 $494 (attributable to NCR) Diluted earnings per share $1.01 $0.13 $0.51 $0.02 $0.16 $0.84 $3.20 Diluted Shares outstanding 127.0 154.3 31
GAAP TO NON-GAAP RECONCILIATION FY 2017 FY 2017 FY 2017 GAAP non-GAAP in millions (except per share amounts) Income from continuing operations attributable to NCR common stockholders: Income from continuing operations (attributable to NCR) $237 $494 Dividends on convertible preferred shares (47) — Deemed dividend on modification of convertible preferred shares (4) — Deemed dividend on convertible preferred shares related to redemption value (58) — accretion Income from continuing operations attributable to NCR common $128 $494 stockholders Weighted average outstanding shares: Weighted average diluted shares outstanding 127.0 127.0 Weighted as-if converted preferred shares — 27.3 Total shares used in diluted earnings per share 127.0 154.3 Diluted earnings per share (1) $1.01 $3.20 (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. 32
GAAP TO NON-GAAP RECONCILIATION Q3 2018 QTD Gross Margin and Gross Margin Rate (non-GAAP) to Gross Margin and Gross Margin Rate (GAAP) Q3 2018 QTD Gross Margin Gross Margin Rate % Software 228 47.5% Services 165 26.8% Hardware 32 7.0% Total Gross Margin (non-GAAP) 425 27.4% Less: Transformation Costs 9 0.5% Acquisition-related amortization of intangibles 6 0.4% Total Gross Margin (GAAP) 410 26.5% 33
GAAP TO NON-GAAP RECONCILIATION Q3 2017 QTD Gross Margin and Gross Margin Rate (non-GAAP) to Gross Margin and Gross Margin Rate (GAAP) Q3 2017 QTD Gross Margin Gross Margin Rate % Software 240 50.4% Services 159 26.1% Hardware 86 14.9% Total Gross Margin (non-GAAP) 485 29.2% Less: Transformation Costs 1 0.1% Acquisition-related amortization of intangibles 12 0.7% Total Gross Margin (GAAP) 472 28.4% 34
GAAP TO NON-GAAP RECONCILIATION Q3 2018 QTD Operating Income and Operating Income Rate (non-GAAP) to Operating Income and Operating Income Rate (GAAP) Q3 2018 QTD Operating Operating Income Income Rate Software 127 26.5% Services 90 14.6% Hardware (56) (12.3)% Total Operating Income (non-GAAP) 161 10.4% Less: Transformation & Restructuring costs 16 1.0% Acquisition-related amortization of intangibles 20 1.3% Total Operating Income (GAAP) 125 8.1% 35
GAAP TO NON-GAAP RECONCILIATION Q3 2017 QTD Operating Income and Operating Income Rate (non-GAAP) to Operating Income and Operating Income Rate (GAAP) Q3 2017 QTD Operating Operating Income Income Rate Software 148 31.1% Services 88 14.4% Hardware (2) (0.3)% Total Operating Income (non-GAAP) 234 14.1% Less: Transformation Costs 5 0.3% Acquisition-related amortization of intangibles 29 1.7% Acquisition-related costs 1 0.1% Total Operating Income (GAAP) 199 12.0% 36
GAAP TO NON-GAAP RECONCILIATION Revenue Growth % (GAAP) to Revenue Growth Constant Currency % (non-GAAP) Q3 2018 QTD Revenue Growth Revenue Growth Favorable Constant % (GAAP) (unfavorable) FX Currency % impact (non-GAAP) Software License 1% (2)% 3% Attached License (19)% (4)% (15)% Unattached License 15% —% 15% Software Maintenance (3)% (1)% (2)% Cloud 6% —% 6% Professional Services (2)% (2)% —% Software 1% (1)% 2% Services 1% (3)% 4% ATMs (13)% (3)% (10)% Self-Checkout (SCO) (24)% —% (24)% Point-of-Sale (POS) (29)% (1)% (28)% Interactive Printer Solutions (IPS) (100)% —% (100)% Hardware (21)% (1)% (20)% Total Revenue (7)% (2)% (5)% 37
GAAP TO NON-GAAP RECONCILIATION Gross Margin Growth % (GAAP) to Gross Margin Growth % on a Constant Currency Basis (non-GAAP) Q3 2018 QTD Constant Gross Margin Favorable Currency Gross Growth % (unfavorable) FX Margin Growth % Reported impact (non-GAAP) Software (5)% (1)% (4)% Services 4% (3)% 7% Hardware (63)% (1)% (62)% Total Gross Margin (12)% (2)% (10)% 38
GAAP TO NON-GAAP RECONCILIATION Operating Income Growth % (GAAP) to Operating Income Growth % on a Constant Currency Basis (non-GAAP) Q3 2018 QTD Constant Operating Income Favorable Currency Growth % (unfavorable) FX Operating Income Reported impact Growth % (non- GAAP) Software (14)% (1)% (13)% Services 2% (4)% 6% Hardware (2,700)% 578% (2,122)% Total Operating Income (31)% (1)% (30)% 39
GAAP TO NON-GAAP RECONCILIATION Gross Margin Growth bps (GAAP) to Gross Margin Growth bps on a Constant Currency Basis (non-GAAP) Q3 2018 QTD Constant Favorable Currency Gross Gross Margin bps (unfavorable) FX Margin bps Growth Reported impact Growth (non- GAAP) Software (290) bps (10) bps (280) bps Services 70 bps (20) bps 90 bps Hardware (790) bps (10) bps (780) bps Total Gross Margin bps (180) bps (10) bps (170) bps 40
GAAP TO NON-GAAP RECONCILIATION Operating Income Growth bps (GAAP) to Operating Income Growth bps on a Constant Currency Basis (non-GAAP) Q3 2018 QTD Constant Operating Income Favorable Currency bps Growth (unfavorable) FX Operating Income Reported impact bps Growth (non- GAAP) Software (460) bps 0 bps (460) bps Services 20 bps (10) bps 30 bps Hardware (1,200) bps (10) bps (1,190) bps Total Operating Income (370) bps (10) bps (360) bps 41
GAAP TO NON-GAAP RECONCILIATION Diluted Earnings per Share Current 2018 Prior 2018 Guidance Guidance Diluted EPS (GAAP) (1) (2) $0.10- $0.68 $0.07 - $0.65 Transformation & Restructuring costs 0.75 - 1.00 0.50 - 0.75 Asset impairment charges 1.16 1.16 Impact of U.S. Tax Reform (0.27) — Acquisition-Related Amortization of Intangibles 0.42 0.42 Acquisition-Related Costs 0.05 0.05 Non-GAAP Diluted EPS (1) (3) $2.55- $2.75 $2.55 - $2.75 (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. We have increased our GAAP Diluted EPS FY 2018 guidance from previous guidance due to the impact of U.S. Tax Reform and the spend optimization program. (3) For FY 2018, we have assumed OIE of approximately $205 million, an effective tax rate of 21% and a share count of 151 million compared to OIE of $181 million, an effective tax rate of 25% and a share count of 154 million in FY 2017. 42
GAAP TO NON-GAAP RECONCILIATION Free Cash Flow Current 2018 Guidance Prior 2018 Guidance Cash Provided by Operating Activities (1) $640 - $670 $690 - $720 Total capital expenditures (330) - (350) (330) - (350) Cash used in Discontinued Operations (40) (40) Free Cash Flow (1) $250 - $300 $300 - $350 $ in millions (1) Net cash provided by operating activities and free cash flow guidance decreased from previous guidance due to the higher working capital levels as we ramp production during the fourth quarter and the expected cash impact of the spend optimization program. 43
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