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 27, 2021
(Exact name of registrant as specified in its charter)
Commission File Number 001-00395
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (937 ) 445-1936
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):
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02. Results of Operations and Financial Condition.
On April 27, 2021, the Company issued a press release setting forth its first quarter 2021 financial results. 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 27, 2021, the Company will hold its previously announced conference call to discuss its first quarter financial results. 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.
The information in this report (including Exhibits 99.1 and 99.2) is being furnished pursuant to Item 2.02 and Item 7.01 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act.
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
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
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/ Timothy C. Oliver | |||||||
| Timothy C. Oliver | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
Date: April 27, 2021
 | NEWS RELEASE | |||||||
April 27, 2021
NCR Announces First Quarter 2021 Results
Significant Profit Margin Expansion and Recurring Revenue up 9%
ATLANTA - NCR Corporation (NYSE: NCR) reported financial results today for the three months ended March 31, 2021. First quarter and other recent highlights include:
•Revenue of $1,544 million, up 3%; Recurring revenue up 9%
•Significant profit margin expansion driven by cost reductions and favorable mix of revenue
•Cash flow from operations of $155 million; Free cash flow of $98 million, up $118 million
•GAAP diluted EPS of $0.19; Non-GAAP diluted EPS of $0.51, up 65%
“Our first quarter results represent a great start to the year with increased momentum in our shift to NCR-as-a-Service,” said Michael Hayford, President and Chief Executive Officer. “Our performance included strong recurring revenue growth, margin expansion and cash flow generation. We are benefiting from the successful execution of our strategy and are a stronger company than we were a year ago. We are confident our strategy will drive accelerated profitable growth and deliver long-term value creation for stockholders. Our financial position is strong, and our proposed transaction with Cardtronics remains on track for a mid-year 2021 close, subject to regulatory and Cardtroncs' shareholder approval.”
In this release, we use certain non-GAAP measures. These non-GAAP measures include "free cash flow," "adjusted EBITDA," and others with the words “non-GAAP" 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.
First Quarter 2021 Operating Results
Revenue
First quarter revenue of $1,544 million increased 3% year over year. The following table shows revenue for the first quarter:
| $ in millions | Q1 2021 | Q1 2020 | % Increase (Decrease) | |||||||||||||||||
| Banking | $ | 756 | $ | 763 | (1 | %) | ||||||||||||||
| Retail | 532 | 472 | 13 | % | ||||||||||||||||
| Hospitality | 179 | 169 | 6 | % | ||||||||||||||||
| Other | 77 | 99 | (22 | %) | ||||||||||||||||
| Total Revenue | $ | 1,544 | $ | 1,503 | 3 | % | ||||||||||||||
| Software & Services Revenue | $ | 1,110 | $ | 1,110 | — | % | ||||||||||||||
| Software & Services Revenue % | 72 | % | 74 | % | ||||||||||||||||
| Recurring Revenue | $ | 874 | $ | 802 | 9 | % | ||||||||||||||
| Recurring Revenue % | 57 | % | 53 | % | ||||||||||||||||
Banking revenue decreased 1% due to a decline in ATM hardware revenue partially offset by higher software and services revenue.
Retail revenue increased 13% due to growth in self-checkout and point-of-sale revenue, as well as higher services revenue.
Hospitality revenue increased 6% driven primarily by an increase in point-of-sale revenue, as well as higher services revenue.
Gross Margin
First quarter gross margin of $414 million increased from $397 million in the prior year period. Gross margin rate was 26.8%, up from 26.4%. First quarter gross margin (non-GAAP) of $425 million increased from $404 million in the prior year period. Gross margin rate (non-GAAP) was 27.5%, up from 26.9%. The increases in gross margin, both GAAP and non-GAAP, were driven by higher revenues and cost-saving actions taken in 2020, partially offset by the shift to recurring revenue.
Operating Expenses
First quarter operating expenses of $304 million decreased from $320 million in the prior year period. First quarter operating expenses (non-GAAP) of $277 million decreased from $300 million in the prior year period. The decreases in operating expenses, both GAAP and non-GAAP, were driven by cost-saving actions taken in 2020.
Operating Income
First quarter income from operations of $110 million increased from $77 million in the prior year period. First quarter operating income (non-GAAP) of $148 million increased from $104 million in the prior year period. The increases in operating income, both GAAP and non-GAAP, were driven by the impacts to gross margin and operating expenses described above.
Other Expense/Income
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First quarter other expense (GAAP) of $62 million increased from $52 million in the prior year period. The increase in other expense (GAAP) was due to increases in acquisition related expenses, partially offset by lower interest income. First quarter other expense (non-GAAP) of $45 million decreased from $52 million. The decrease in other expense (non-GAAP) was due to lower interest expense.
Income Tax Expense/Benefit
First quarter income tax expense of $17 million increased from $1 million in the prior year period. The first quarter effective income tax rate was 35.4%, compared to 4.0% in the prior year period. First quarter income tax expense (non-GAAP) of $29 million increased from $7 million in the prior year period. The first quarter effective income tax rate (non-GAAP) was 28.2%, compared to 13.5% in the prior year period. The increases in income tax expense, both GAAP and non-GAAP, were primarily driven by higher income before taxes and a decrease in discrete tax benefits.
Net Income from Continuing Operations Attributable to NCR
First quarter net income from continuing operations attributable to NCR of $30 million increased from $23 million in the prior year period. The increase was driven by impacts to gross margin and operating expenses partially offset by higher income tax expense, described above.
Adjusted EBITDA
First quarter adjusted EBITDA of $258 million increased from $188 million in the prior year period. Adjusted EBITDA margin rate increased to 16.7%, compared to 12.5% in the prior year period. The increase in adjusted EBITDA was driven by impacts to gross margin and operating expenses, described above.
Cash Flow
First quarter cash provided by operating activities of $155 million increased from cash provided by operating activities of $54 million in the prior year period. First quarter free cash flow was $98 million, compared to free cash outflow of $20 million in the prior year period. The increases in cash provided by operating activities and free cash flow were both driven by higher operating earnings.
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Impact from COVID-19
We continue to navigate through the challenging times presented by COVID-19, with a sharp focus on safeguarding our employees and helping our customers. Despite the unprecedented environment, our teams are executing at a high level and we are advancing our strategy.
While it is difficult to project how disruptive and protracted the pandemic will be, we do expect it will negatively impact our business. We expect all of our segment results to be negatively impacted by the COVID-19 pandemic. We expect our hardware revenues to be most impacted while our recurring revenue streams are expected to be more resilient.
The COVID-19 pandemic is complex and rapidly evolving. The ultimate impact on our overall financial condition and operating results will depend on the currently unknowable duration and severity of the pandemic, as well as any additional governmental and public actions taken in response. We continue to evaluate the long-term impact that COVID-19 may have on our business model. There can be no assurance that the measures we have taken or will take will completely offset the negative impact of COVID-19.
2021 First Quarter Earnings Conference Call
A conference call is scheduled for today at 4:30 p.m. Eastern Time to discuss the first quarter 2021 results. 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 7622865.
More information on NCR’s first quarter earnings, including additional financial information and analysis, is available on NCR’s Investor Relations website at http://investor.ncr.com/.
About NCR Corporation
NCR Corporation (NYSE: NCR) is a leading software- and services-led enterprise provider in the financial, retail and hospitality industries. NCR is headquartered in Atlanta, Ga., with 36,000 employees globally. 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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Cautionary Statements
This release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements use words such as “expect,” “anticipate,” “outlook,” “intend,” “plan,” “confident,” “believe,” “will,” “should,” “would,” “potential,” “proposed,” “objective,” “could,” “may,” and words of similar meaning, as well as other words or expressions referencing future events, conditions or circumstances. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Act. 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. Examples of forward-looking statements in this release include, without limitation, statements regarding NCR’s momentum and acceleration of our NCR-as-a-Service and 80/60/20 strategy, statements regarding our financial position, expectations regarding the closing of the proposed Cardtronics acquisition, expectations regarding growth and long-term value creation for our stockholders, expectations regarding execution of our 80/60/20 strategy and continued growth, statements regarding our plan to continue investing in strategic platforms, statements regarding our plans to mange our business through the COVID-19 pandemic and the health and safety of our employees and helping our customers, the expected impact of the COVID-19 pandemic on our business, segments and revenues, statements regarding our second quarter 2021 financial outlook including revenue, adjusted EBITDA margin and free cash flow, expectations regarding increasing revenue and cash flow linearity, and expectations regarding cost discipline, operating leverage, margin expansion and return on investment opportunities. 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 impact of the coronavirus (COVID-19) pandemic on our business, financial condition and results of operations; domestic and global economic and credit conditions including, in particular, political, consumer, and unemployment conditions, the imposition or threat of protectionist trade policies or import or export tariffs, global and regional market conditions and spending trends, new tax legislation across multiple jurisdictions, modified or new global or regional trade agreements, execution of the United Kingdom’s exit from the European Union, uncertainty over further potential changes in Eurozone participation, fluctuations in oil and commodity prices, and our customer responses to the same; the transformation of our business model to an as-a-service company with focus on, among other items, increased software and services revenue, and recurring revenue; our ability grow software and services and expanding our customer base; our ability to successfully develop and introduce new solutions in the competitive, rapidly changing environment in which we do business; defects, errors, installation difficulties or development delays in our products; disruptions in our data center hosting facilities or cloud based hosting; our ability to compete effectively within the technology industry; reliance on third party suppliers; our multinational operations, including in new and emerging markets; our ability to successfully integrate acquisitions or effectively manage alliance activities, including but not limited to, the Cardtronics acquisition; the consummation of the Cardtronics acquisition, including approval by Cardtronics’ shareholders and regulatory approvals; continuous improvement, customer experience, restructuring and cost reduction initiatives; our ability to retain key employees, or attract quality new and replacement employees; financing and liquidity risks including: our level of indebtedness; the terms of the documents governing our indebtedness including financial and other covenants; the incurrence of substantially more debt, including secured debt, and similar liabilities, which would increase the risks described in our risk factors relating to indebtedness and repurchase obligations; sufficiency of our cash flows including to service our indebtedness; interest rate risk, which could cause our debt service obligations to increase significantly; our ability to raise the funds necessary to finance a required repurchase of our senior unsecured notes or our Series A Convertible Preferred Stock; a lowering or withdrawal of the ratings assigned to our debt securities by rating agencies; our pension liabilities; data protection, cybersecurity and privacy risks; intellectual property risks including protection, development and our ability to manage third party claims regarding patents and other intellectual property rights; legal and regulatory risks including unanticipated changes to our tax rates and additional income tax liabilities; environmental exposures from our historical and ongoing manufacturing activities; uncertainties with regard to regulations, lawsuits, claims, and other matters across various jurisdictions; other risks including the impact of the terms of our Series A Convertible Preferred Stock relating to voting power, share dilution and market price of our common stock, as well as rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders; actions or proposals from stockholders that do not align with our business strategies or the interests of our other stockholders; and potential write-down of the value of certain significant assets. 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, except as required by law.
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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, as well as other special items, including amortization of acquisition related intangibles and transformation and restructuring activities, 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 believes these measures are useful for investors because they provide a more complete understanding of NCR's underlying operational performance, as well as consistency and comparability with NCR's past reports of financial results.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA). NCR determines Adjusted EBITDA for a given period based on its GAAP net income from continuing operations attributable to NCR plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization; plus other income (expense); plus pension mark-to-market adjustments, pension settlements, pension curtailments and pension special termination benefits and other special items, including amortization of acquisition related intangibles and restructuring charges, among others. NCR uses Adjusted EBITDA to manage and measure the performance of its business segments. NCR also uses Adjusted EBITDA to manage and determine the effectiveness of its business managers and as a basis for incentive compensation. NCR believes that Adjusted EBITDA 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.
Adjusted EBITDA margin is calculated based on Adjusted EBITDA as a percentage of total revenue.
Free Cash Flow. NCR defines free cash flow as net cash provided by (used in) operating activities less capital expenditures for property, plant and equipment, less additions to capitalized software plus pension contributions and pension settlements. NCR's management uses free cash flow to assess the financial performance of the Company and believes it is useful for investors because it relates the operating cash flow of the Company to the capital that is spent to continue and improve business operations. In particular, free cash flow indicates the amount of cash generated after capital expenditures, which can be used for, among other things, investment in the Company's existing businesses, strategic acquisitions, strengthening the Company's balance sheet, repurchase of Company stock and repayment of the Company's debt obligations. Free cash flow does not represent the residual cash flow available for discretionary expenditures since there may be other nondiscretionary expenditures that are not deducted from the measure. Free cash flow does not have uniform definitions under GAAP and, therefore, NCR's definitions may differ from other companies' definitions of these measures.
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.
Use of Certain Terms
Recurring revenue includes all revenue streams from contracts where there is a predictable revenue pattern that will occur at regular intervals with a relatively high degree of certainty. This includes hardware and software maintenance revenue, cloud revenue, payment processing revenue, and certain professional services arrangements, as well as term-based software license arrangements that include customer termination rights.
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Reconciliation of Gross Margin (GAAP) to Gross Margin (Non-GAAP)
| $ in millions | Q1 2021 | Q1 2020 | |||||||||
| Gross Margin (GAAP) | $ | 414 | $ | 397 | |||||||
| Transformation and restructuring costs | 4 | — | |||||||||
| Acquisition-related amortization of intangibles | 7 | 7 | |||||||||
| Gross Margin (Non-GAAP) | $ | 425 | $ | 404 | |||||||
Reconciliation of Gross Margin Rate (GAAP) to Gross Margin Rate (Non-GAAP)
| Q1 2021 | Q1 2020 | ||||||||||
| Gross Margin Rate (GAAP) | 26.8 | % | 26.4 | % | |||||||
| Transformation and restructuring costs | 0.3 | % | — | % | |||||||
| Acquisition-related amortization of intangibles | 0.4 | % | 0.5 | % | |||||||
| Gross Margin Rate (Non-GAAP) | 27.5 | % | 26.9 | % | |||||||
Reconciliation of Operating Expenses (GAAP) to Operating Expenses (Non-GAAP)
| $ in millions | Q1 2021 | Q1 2020 | |||||||||
| Operating Expenses (GAAP) | $ | 304 | $ | 320 | |||||||
| Transformation and restructuring costs | (4) | (5) | |||||||||
| Acquisition-related amortization of intangibles | (13) | (15) | |||||||||
| Acquisition-related costs | (10) | — | |||||||||
| Operating Expenses (Non-GAAP) | $ | 277 | $ | 300 | |||||||
Reconciliation of Income from Operations (GAAP) to Operating Income (Non-GAAP)
| $ in millions | Q1 2021 | Q1 2020 | |||||||||
| Income (Loss) from Operations (GAAP) | $ | 110 | $ | 77 | |||||||
| Transformation and restructuring costs | 8 | 5 | |||||||||
| Acquisition-related amortization of intangibles | 20 | 22 | |||||||||
| Acquisition-related costs | 10 | — | |||||||||
| Operating Income (Non-GAAP) | $ | 148 | $ | 104 | |||||||
Reconciliation of Other (Expense) (GAAP) to Other (Expense) (Non-GAAP)
| $ in millions | Q1 2021 | Q1 2020 | |||||||||
| Other Income (Expense) (GAAP) | $ | (62) | $ | (52) | |||||||
| Acquisition-related cost | 17 | — | |||||||||
| Other Income (Expense) (Non-GAAP) | $ | (45) | $ | (52) | |||||||
Reconciliation of Income Tax (Benefit) Expense (GAAP) to Income Tax Expense (Non-GAAP)
| $ in millions | Q1 2021 | Q1 2020 | |||||||||
| Income Tax (Benefit) Expense (GAAP) | $ | 17 | $ | 1 | |||||||
| Transformation and restructuring costs | 2 | 1 | |||||||||
| Acquisition-related amortization of intangibles | 4 | 5 | |||||||||
| Acquisition-related costs | 6 | — | |||||||||
| Income Tax Expense (Non-GAAP) | $ | 29 | $ | 7 | |||||||
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Reconciliation of Net Income from Continuing Operations Attributable to NCR (GAAP) to Earnings Before Interest, Depreciation, Taxes and Amortization (Adjusted EBITDA)
| $ in millions | Q1 2021 | Q1 2020 | |||||||||
| Net Income (Loss) from Continuing Operations Attributable to NCR (GAAP) | $ | 30 | $ | 23 | |||||||
| Transformation and restructuring costs | 8 | 5 | |||||||||
| Acquisition-related amortization of intangibles | 20 | 22 | |||||||||
| Acquisition-related costs | 27 | — | |||||||||
| Depreciation and amortization (excluding acquisition-related amortization of intangibles) | 70 | 63 | |||||||||
| Interest expense | 45 | 50 | |||||||||
| Interest income | (3) | (1) | |||||||||
| Income tax expense (benefit) | 17 | 1 | |||||||||
| Stock-based compensation expense | 44 | 25 | |||||||||
| Adjusted EBITDA (Non-GAAP) | $ | 258 | $ | 188 | |||||||
Reconciliation of Diluted Earnings Per Share from Continuing Operations (GAAP) to
Non-GAAP Diluted Earnings Per Share from Continuing Operations (Non-GAAP)
| Q1 2021 | Q1 2020 | ||||||||||
Diluted Earnings Per Share (GAAP) (1) | $ | 0.19 | $ | 0.13 | |||||||
| Transformation and restructuring costs | 0.04 | 0.03 | |||||||||
| Acquisition-related amortization of intangibles | 0.11 | 0.12 | |||||||||
| Acquisition-related costs | 0.15 | — | |||||||||
Diluted Earnings Per Share (Non-GAAP) (1) | $ | 0.51 | $ | 0.31 | |||||||
(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.
Reconciliation of Net Cash Provided by Operating Activities (GAAP) to Free Cash Flow (Non-GAAP)
| $ in millions | Q1 2021 | Q1 2020 | |||||||||
| Net cash provided by (used in) operating activities | $ | 155 | $ | 54 | |||||||
| Total capital expenditures | (61) | (79) | |||||||||
| Pension contributions | 4 | 5 | |||||||||
| Free cash flow | $ | 98 | $ | (20) | |||||||
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| NCR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in millions, except per share amounts) | Schedule A | ||||||
| For the Periods Ended March 31 | |||||||||||
| Three Months | |||||||||||
| 2021 | 2020 | ||||||||||
| Revenue | |||||||||||
| Product | $ | 482 | $ | 474 | |||||||
| Service | 1,062 | 1,029 | |||||||||
| Total Revenue | 1,544 | 1,503 | |||||||||
| Cost of products | 408 | 391 | |||||||||
| Cost of services | 722 | 715 | |||||||||
| Total gross margin | 414 | 397 | |||||||||
| % of Revenue | 26.8 | % | 26.4 | % | |||||||
| Selling, general and administrative expenses | 238 | 255 | |||||||||
| Research and development expenses | 66 | 65 | |||||||||
| Income (loss) from operations | 110 | 77 | |||||||||
| % of Revenue | 7.1 | % | 5.1 | % | |||||||
| Interest expense | (45) | (50) | |||||||||
| Other expense, net | (17) | (2) | |||||||||
| Total other expense, net | (62) | (52) | |||||||||
| Income (loss) from continuing operations before income taxes | 48 | 25 | |||||||||
| % of Revenue | 3.1 | % | 1.7 | % | |||||||
| Income tax expense (benefit) | 17 | 1 | |||||||||
| Income (loss) from continuing operations | 31 | 24 | |||||||||
| Loss from discontinued operations, net of tax | — | — | |||||||||
| Net income (loss) | 31 | 24 | |||||||||
| Net income (loss) attributable to noncontrolling interests | 1 | 1 | |||||||||
| Net income (loss) attributable to NCR | $ | 30 | $ | 23 | |||||||
| Amounts attributable to NCR common stockholders: | |||||||||||
| Income (loss) from continuing operations | $ | 30 | $ | 23 | |||||||
| Dividends on convertible preferred stock | (4) | (6) | |||||||||
| Income (loss) from continuing operations attributable to NCR common stockholders | 26 | 17 | |||||||||
| Loss from discontinued operations, net of tax | — | — | |||||||||
| Net income (loss) attributable to NCR common stockholders | $ | 26 | $ | 17 | |||||||
| Income (loss) per share attributable to NCR common stockholders: | |||||||||||
| Income (loss) per common share from continuing operations | |||||||||||
| Basic | $ | 0.20 | $ | 0.13 | |||||||
Diluted (1) | $ | 0.19 | $ | 0.13 | |||||||
| Net income (loss) per common share | |||||||||||
| Basic | $ | 0.20 | $ | 0.13 | |||||||
Diluted (1) | $ | 0.19 | $ | 0.13 | |||||||
| Weighted average common shares outstanding | |||||||||||
| Basic | 130.0 | 128.0 | |||||||||
Diluted (1) | 134.7 | 130.5 | |||||||||
(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.
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| NCR CORPORATION REVENUE AND OPERATING INCOME SUMMARY (Unaudited) (in millions) | Schedule B | ||||||
| For the Periods Ended March 31 | |||||||||||||||||
| 2021 | 2020 | % Change | |||||||||||||||
| Revenue by segment | |||||||||||||||||
| Banking | $ | 756 | $ | 763 | (1) | % | |||||||||||
| Retail | 532 | 472 | 13 | % | |||||||||||||
| Hospitality | 179 | 169 | 6 | % | |||||||||||||
| Other | 77 | 99 | (22) | % | |||||||||||||
| Total Revenue | $ | 1,544 | $ | 1,503 | 3 | % | |||||||||||
| Adjusted EBITDA by segment | |||||||||||||||||
| Banking | $ | 154 | $ | 140 | |||||||||||||
| Banking adjusted EBITDA margin % | 20.4 | % | 18.3 | % | |||||||||||||
| Retail | 73 | 37 | |||||||||||||||
| Retail adjusted EBITDA margin % | 13.7 | % | 7.8 | % | |||||||||||||
| Hospitality | 25 | 7 | |||||||||||||||
| Hospitality adjusted EBITDA margin % | 14.0 | % | 4.1 | % | |||||||||||||
| Other | 10 | 8 | |||||||||||||||
| Other adjusted EBITDA margin % | 13.0 | % | 8.1 | % | |||||||||||||
| Total adjusted EBITDA by segment | 262 | 192 | |||||||||||||||
| Other income (expense) | (3) | (3) | |||||||||||||||
| Non-controlling interest in subsidiaries | (1) | (1) | |||||||||||||||
| Total adjusted EBITDA | $ | 258 | $ | 188 | |||||||||||||
| Total adjusted EBITDA margin % | 16.7 | % | 12.5 | % | |||||||||||||
10
| NCR CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except per share amounts) | Schedule C | ||||||
| March 31, 2021 | December 31, 2020 | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 319 | $ | 338 | |||||||
Accounts receivable, net of allowances of $39 and $51 as of March 31, 2021 and December 31, 2020, respectively | 1,212 | 1,117 | |||||||||
| Inventories | 634 | 601 | |||||||||
| Other current assets | 447 | 422 | |||||||||
| Total current assets | 2,612 | 2,478 | |||||||||
| Property, plant and equipment, net | 364 | 373 | |||||||||
| Goodwill | 2,924 | 2,837 | |||||||||
| Intangibles, net | 565 | 532 | |||||||||
| Operating lease assets | 396 | 344 | |||||||||
| Prepaid pension cost | 202 | 199 | |||||||||
| Deferred income taxes | 946 | 965 | |||||||||
| Other assets | 693 | 686 | |||||||||
| Total assets | $ | 8,702 | $ | 8,414 | |||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities | |||||||||||
| Short-term borrowings | $ | 52 | $ | 8 | |||||||
| Accounts payable | 707 | 632 | |||||||||
| Payroll and benefits liabilities | 227 | 268 | |||||||||
| Contract liabilities | 594 | 507 | |||||||||
| Other current liabilities | 638 | 673 | |||||||||
| Total current liabilities | 2,218 | 2,088 | |||||||||
| Long-term debt | 3,349 | 3,270 | |||||||||
| Pension and indemnity plan liabilities | 839 | 851 | |||||||||
| Postretirement and postemployment benefits liabilities | 117 | 120 | |||||||||
| Income tax accruals | 101 | 102 | |||||||||
| Operating lease liabilities | 377 | 325 | |||||||||
| Other liabilities | 328 | 334 | |||||||||
| Total liabilities | 7,329 | 7,090 | |||||||||
Series A convertible preferred stock: par value $0.01 per share, 3.0 shares authorized, 0.3 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively; redemption amount and liquidation preference of $276 as of March 31, 2021 and December 31, 2020, respectively | 273 | 273 | |||||||||
| 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, 2021 and December 31, 2020, respectively | — | — | |||||||||
Common stock: par value $0.01 per share, 500.0 shares authorized, 130.6 and 129.1 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | 1 | 1 | |||||||||
| Paid-in capital | 398 | 368 | |||||||||
| Retained earnings | 976 | 950 | |||||||||
| Accumulated other comprehensive loss | (279) | (271) | |||||||||
| Total NCR stockholders' equity | 1,096 | 1,048 | |||||||||
| Noncontrolling interests in subsidiaries | 4 | 3 | |||||||||
| Total stockholders' equity | 1,100 | 1,051 | |||||||||
| Total liabilities and stockholders' equity | $ | 8,702 | $ | 8,414 | |||||||
11
| NCR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions) | Schedule D | ||||||
| For the Periods Ended March 31 | |||||||||||
| Three Months | |||||||||||
| 2021 | 2020 As Revised(1) | ||||||||||
| Operating activities | |||||||||||
| Net income (loss) | $ | 31 | $ | 24 | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 92 | 87 | |||||||||
| Stock-based compensation expense | 44 | 25 | |||||||||
| Deferred income taxes | 7 | 5 | |||||||||
| Impairment of other assets | — | 1 | |||||||||
| Gain (loss) on disposal of property, plant and equipment | — | (2) | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Receivables | (91) | 137 | |||||||||
| Inventories | (17) | (48) | |||||||||
| Current payables and accrued expenses | 34 | (183) | |||||||||
| Contract liabilities | 74 | 108 | |||||||||
| Employee benefit plans | (10) | (3) | |||||||||
| Other assets and liabilities | (9) | (97) | |||||||||
| Net cash provided by operating activities | 155 | 54 | |||||||||
| Investing activities | |||||||||||
| Expenditures for property, plant and equipment | (10) | (10) | |||||||||
| Proceeds from sale of property, plant and equipment | — | 7 | |||||||||
| Additions to capitalized software | (51) | (69) | |||||||||
| Business acquisitions, net of cash acquired | (157) | (26) | |||||||||
| Purchases of short-term investments | (5) | — | |||||||||
| Proceeds from sales of short-term investments | 5 | — | |||||||||
| Net cash used in investing activities | (218) | (98) | |||||||||
| Financing activities | |||||||||||
| Short term borrowings, net | — | 3 | |||||||||
| Payments on term credit facilities | (8) | (2) | |||||||||
| Payments on revolving credit facilities | (318) | (573) | |||||||||
| Borrowings on revolving credit facilities | 448 | 1,397 | |||||||||
| Debt issuance costs | (1) | (1) | |||||||||
| Cash dividend paid for Series A preferred shares dividends | (4) | (6) | |||||||||
| Repurchases of common stock | — | (41) | |||||||||
| Proceeds from employee stock plans | 8 | 3 | |||||||||
| Tax withholding payments on behalf of employees | (22) | (24) | |||||||||
| Net change in client funds obligations | — | 12 | |||||||||
| Principal payments for finance lease obligations | (4) | — | |||||||||
| Other financing activities | (1) | (3) | |||||||||
| Net cash provided by (used in) financing activities | 98 | 765 | |||||||||
| Cash flows from discontinued operations | |||||||||||
| Net cash provided by (used in) discontinued operations | (44) | 3 | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (6) | (14) | |||||||||
| Increase (decrease) in cash, cash equivalents, and restricted cash | (15) | 710 | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 406 | 563 | |||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 391 | $ | 1,273 | |||||||
(1) Certain amounts have been revised for the three months ended March 31, 2020 to correct for errors related to the business activities of JetPay Corporation, a wholly-owned subsidiary, which were more fully described in our 2020 Form 10-K filing.
12
1 Q1 2021 EARNINGS CONFERENCE CALL MICHAEL HAYFORD, PRESIDENT & CEO OWEN SULLIVAN, COO TIM OLIVER, CFO April 27, 2021
2 FORWARD-LOOKING STATEMENTS. Comments made during this conference call and in these materials contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements use words such as “expect,” “anticipate,” “outlook,” “intend,” “plan,” “believe,” “will,” “should,” “would,” “potential,” “proposed,” “objective,” “could,” “may,” and words of similar meaning, as well as other words or expressions referencing future events, conditions or circumstances. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Act. 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. Examples of forward-looking statements in these materials include, without limitation, statements regarding NCR’s momentum and acceleration of our NCR-as-a-Service and 80/60/20 strategy, statements regarding our financial position, expectations regarding the closing of the proposed Cardtronics acquisition, expectations regarding growth and long-term value creation for our stockholders, expectations regarding execution of our 80/60/20 strategy and continued growth, statements regarding our plan to continue investing in strategic platforms, statements regarding our plans to manage our business through the COVID-19 pandemic and the health and safety of our employees and helping our customers, the expected impact of the COVID-19 pandemic on our business, segments and revenues, statements regarding our second quarter 2021 financial outlook including revenue, adjusted EBITDA margin and free cash flow, expectations regarding increasing revenue and cash flow linearity, and expectations regarding cost discipline, operating leverage, margin expansion and return on investment opportunities. 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 filed with the U.S. Securities and Exchange Commission (SEC) on February 26, 2021 and those factors detailed from time to time in NCR’s other SEC reports including quarterly reports on Form 10-Q and current reports on Form 8-K. These materials are dated April 27, 2021, 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, except as otherwise required by law. NOTES TO INVESTORS
3 NON-GAAP MEASURES. While NCR reports its results in accordance with generally accepted accounting principles in the United States, or 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; gross margin rate (non-GAAP); diluted earnings per share (non-GAAP); free cash flow; gross margin (non-GAAP); net debt; adjusted EBITDA; the ratio of net debt to adjusted EBITDA; operating income (non-GAAP); interest and other expense (non-GAAP); income tax expense (non-GAAP); effective income tax rate (non-GAAP); and net income (non-GAAP). These measures are included to provide additional useful information regarding NCR's financial results, and are not a substitute for their comparable GAAP measures. Explanations of these non-GAAP measures, and reconciliations of these non-GAAP measures to their directly comparable GAAP measures, are included in the accompanying "Supplementary Materials" and are available on the Investor Relations page of NCR's website at www.ncr.com. Descriptions of many of these non-GAAP measures are also included in NCR's SEC reports. USE OF CERTAIN TERMS. As used in these materials: (i) the term "recurring revenue" includes all revenue streams from contracts where there is a predictable revenue pattern that will occur at regular intervals with a relatively high degree of certainty. This includes hardware and software maintenance revenue, cloud revenue, payment processing revenue, and certain professional services arrangements, as well as term-based software license arrangements that include customer termination rights. These presentation materials and the associated remarks made during this conference call are integrally related and are intended to be presented and understood together. NOTES TO INVESTORS
4 Anticipate mid-year close with CARDTRONICS, subject to regulatory and shareholder approval OVERVIEW FREE CASH FLOW of $98M in Q1 RECURRING REVENUE up 9% Y/Y in Q1 Adjusted EBITDA MARGIN EXPANSION 420 bps Y/Y to 16.7% Completed FINANCING for pending Cardtronics transaction
5 STRATEGIC UPDATE • Successful progress on 80/60/20 goals • Banking – Digital banking momentum and accelerating shift to recurring software revenue • Retail - Gaining traction on NCR EmeraldTM and self-checkout solutions • Hospitality - Momentum in AlohaTM Essentials continues • Accelerating NCR-as-a-Service transformation • Continue to invest in strategic platforms
6 Adjusted EBITDA up 37% and margin rate up 420 bps y/y due to higher revenue and expense reduction Non-GAAP EPS up y/y due to higher operating earnings Driving more linear free cash flow production Total Revenue/Recurring Adjusted EBITDA Non-GAAP Diluted EPS Free Cash Flow Revenue up 3% y/y due to an increase in Retail and Hospitality; Recurring revenue up 9% y/y Q1 2021 FINANCIAL RESULTS Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $0 $900 $1,800 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $0 $150 $300 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $0.00 $0.30 $0.60 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $0 $100 $200 $98 $0.51 $1,544 $258 $ in millions, except for EPS $1,503 $188 $0.31 $(20) 16.7% 12.5% $1,631 $258 $0.59 $158 15.8% $802 $874 $874
7 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 $100 $125 $150 $ in millions, except registered users BANKING Revenue Adjusted EBITDA Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $0 $250 $500 $750 $1,000 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $0 $60 $120 $180 $756$763 $154 $140 20.4% 18.3% Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 22.0 24.0 26.0 Digital Banking Revenue Digital Banking Registered Users Recurring Revenue Up 6% y/y Up 13% y/y Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $400 $425 $450 Up 8% y/y Digital banking and shift to recurring revenue gaining traction $117 25.2M $447 Key Metrics $795 $132 16.6% $116 $123 22.4M 24.5M $414 $447
8 Momentum in Self-Checkout and Platform Lanes $ in millions, except platform lanes RETAIL Revenue Adjusted EBITDA Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $0 $200 $400 $600 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $0 $40 $80 $120$569 $472 $73 $37 13.7% 7.8% SCO Revenue Platform Lanes Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 3,000 4,000 5,000 Recurring Revenue Up 31% y/y Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $200 $250 $300 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $100 $200 $300 $225 4,618 $260 Key Metrics $532 $88 Up 14% y/yUp 51% y/y 15.5% 4,249 $172 $260 3,059 $229 $260
9 $ in millions, except Aloha Essential sites HOSPITALITY Revenue Adjusted EBITDA Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $0 $50 $100 $150 $200 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $0 $10 $20 $30$179$169 $25 $7 4.1% 14.0% Aloha Essential Sites Recurring Revenue Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 2,500 3,750 5,000 Up 61% y/y Down 1% y/y Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 $75 $100 $125 Conversion to Aloha Essentials gaining traction Key Metrics 4,594 $106 $182 $27 14.8% 2,856 3,785 $107 $106
10 Q1 2021 Q4 2020 Q1 2020 80% of NCR's revenue will come from software and services 72% 71% 74% 60% of NCR's revenue will come from recurring revenue 57% 54% 53% 20% goal for Adjusted EBITDA as a percent of revenue 16.7% 15.8% 12.5% Progress on 80/60/20 Goals
11 Free Cash Flow Q1 2021 Q1 2020 Cash provided by operating activities $155 $54 Less: Total capital expenditures ($61) ($79) Plus: Pension contributions $4 $5 Free Cash Flow $98 ($20) $ in millions FREE CASH FLOW, NET DEBT & EBITDA Net Debt & EBITDA Q1 2021 Q4 2020 Q1 2020 Debt $3,401 $3,278 $4,385 Cash ($319) ($338) ($1,214) Net Debt $3,082 $2,940 $3,171 Adjusted EBITDA LTM $966 $896 $1,028 Net Debt / Adjusted EBITDA 3.2x 3.3x 3.1x
12 OUTLOOK Q2 2021 • Revenue - Up 9% to 10% year over year • Adjusted EBITDA Margin Rate – Expands 250-300 bps to >16% • Free Cash Flow - Similar to Q1 2021
13 Transaction is under South African and UK antitrust regulatory review CARDTRONICS Transaction Update The HSR waiting period expired on March 11, 2021 Secured transaction financing Entered into Definitive Agreement on January 25, 2021 Subject to Cardtronics shareholder approval; Meeting scheduled for May 7th Transaction Anticipated for Mid-Year Closing
14 • Maintain momentum of NCR-as-a-Service 80/60/20 strategy • Accelerate growth • Increase revenue and cash flow linearity • Cost discipline and positive operating leverage drive margin expansion • Allocate capital to highest growth and return on investment opportunities LOOKING FORWARD
15 SUPPLEMENTARY MATERIALS
16 Q1 2021 Q1 2020 % Change Revenue $1,544 $1,503 3% Gross Margin 414 397 4% Gross Margin Rate 26.8% 26.4% Operating Expenses 304 320 (5)% % of Revenue 19.7% 21.3% Operating Income 110 77 43% % of Revenue 7.1% 5.1% Interest and other expense (62) (52) 19% Income Tax Expense (Benefit) 17 1 1,600% Effective Income Tax Rate 35.4% 4.0% Net Income from Continuing Operations (attributable to NCR) $30 $23 30% Diluted EPS $0.19 $0.13 46% $ in millions, except per share amounts Q1 2021 GAAP RESULTS
17 Q1 2021 Q1 2020 % Change Revenue $1,544 $1,503 3% Gross Margin (non-GAAP) 425 404 5% Gross Margin Rate (non-GAAP) 27.5% 26.9% 60 bps Operating Expenses (non-GAAP) $277 $300 (8%) % of Revenue 17.9% 20.0% (200 bps) Operating Income (non-GAAP) $148 $104 42% % of Revenue 9.6% 6.9% 270 bps Interest and other expense (non-GAAP) ($45) ($52) (13%) Income Tax Expense (non-GAAP) 29 7 314% Effective Income Tax Rate (non-GAAP) 28.2% 13.5% Net Income (Loss) From Continuing Operations (attributable to NCR) (non-GAAP) $73 $44 66% Diluted EPS (non-GAAP) $0.51 $0.31 65% $ in millions, except per share amounts Q1 2021 OPERATIONAL RESULTS
18 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020 Banking $ 154 $ 132 $ 144 $ 130 $ 140 Retail 73 88 81 49 37 Hospitality 25 27 24 15 7 Other 10 11 10 10 8 Adjusted EBITDA by Segment $ 262 $ 258 $ 259 $ 204 $ 192 OIE (3) (1) (9) (3) (3) Minority Interest (1) 1 (1) — (1) Adjusted EBITDA $ 258 $ 258 $ 249 $ 201 $ 188 ADJUSTED EBITDA BY SEGMENT $ in millions
19 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. 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, as well as other special items, including amortization of acquisition related intangibles and transformation and restructuring activities, 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 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 less capital expenditures for property, plant and equipment, less additions to capitalized software plus pension contributions and pension settlements. NCR's management uses free cash flow to assess the financial performance of the Company and believes it is useful for investors because it relates the operating cash flow of the Company to the capital that is spent to continue and improve business operations. In particular, free cash flow indicates the amount of cash generated after capital expenditures, which can be used for, among other things, investment in the Company's existing businesses, strategic acquisitions, strengthening the Company's balance sheet, repurchase of Company stock and repayment of the Company's debt obligations. Free cash flow does not represent the residual cash flow available for discretionary expenditures since there may be other nondiscretionary expenditures that are not deducted from the measure. Free cash flow does not have uniform definitions under GAAP and, therefore, NCR's definitions may differ from other companies' definitions of these measures. NON-GAAP MEASURES
20 Net Debt and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA). 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 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 Adjusted EBITDA for a given period based on its GAAP net income from continuing operations attributable to NCR plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization; plus other income (expense); plus pension mark-to-market adjustments, pension settlements, pension curtailments and pension special termination benefits and other special items, including amortization of acquisition related intangibles and restructuring charges, among others. NCR uses Adjusted EBITDA to manage and measure the performance of its business segments. NCR also uses Adjusted EBITDA to manage and determine the effectiveness of its business managers and as a basis for incentive compensation. NCR believes that Adjusted EBITDA 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 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. NON-GAAP MEASURES
21 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020 Net (Loss) Income from Continuing Operations Attributable to NCR (GAAP) $ 30 $ (125) $ 31 $ 64 $ 23 Pension Mark-to-Market Adjustments — 34 — — — Transformation & Restructuring Costs 8 202 19 8 5 Acquisition-Related Amortization of Intangibles 20 19 21 19 22 Acquisition-Related Costs 27 (6) — — — Loss on Debt Extinguishment — — 20 — — Interest Expense 45 51 60 57 50 Interest Income (3) (3) (3) (1) (1) Depreciation and Amortization 70 74 70 68 63 Income Taxes 17 (20) — (34) 1 Stock Compensation Expense 44 32 31 20 25 Adjusted EBITDA (non-GAAP) $ 258 $ 258 $ 249 $ 201 $ 188 GAAP TO NON-GAAP RECONCILIATION $ in millions
22 Q1 2021 LTM Q4 2020 LTM Q1 2020 LTM Net (Loss) Income from Continuing Operations Attributable to NCR (GAAP) $ — $ (7) $ 600 Pension Mark-to-Market Adjustments 34 34 75 Transformation & Restructuring Costs 237 234 37 Acquisition-Related Amortization of Intangibles 79 81 87 Acquisition-Related Costs 21 (6) 3 Internal reorganization & IP Transfer — — (37) Loss on Debt Extinguishment 20 20 — Interest Expense 213 218 202 Interest Income (10) (8) (4) Depreciation and Amortization 282 275 237 Income Taxes (37) (53) (281) Stock Compensation Expense 127 108 109 Adjusted EBITDA (non-GAAP) $ 966 $ 896 $ 1,028 GAAP TO NON-GAAP RECONCILIATION $ in millions
23 Q1 QTD 2021 GAAP Transformation Costs Acquisition- related amortization of intangibles Acquisition- related costs Q1 QTD 2021 non-GAAP Product revenue $482 $— $— $— $482 Service revenue 1,062 — — — 1,062 Total revenue 1,544 — — — 1,544 Cost of products 408 — (3) — 405 Cost of services 722 (4) (4) — 714 Gross margin 414 4 7 — 425 Gross margin rate 26.8% 0.3% 0.4% —% 27.5% Selling, general and administrative expenses 238 (2) (13) (10) 213 Research and development expenses 66 (2) — — 64 Total operating expenses 304 (4) (13) (10) 277 Total operating expense as a % of revenue 19.7% (0.3)% (0.9)% (0.6)% 17.9% Income from operations 110 8 20 10 148 Income from operations as a % of revenue 7.1% 0.5% 1.4% 0.6% 9.6% Interest and Other (expense) income, net (62) — — 17 (45) Income from continuing operations before income taxes 48 8 20 27 103 Income tax (benefit) expense 17 2 4 6 29 Effective income tax rate 35.4% —% —% —% 28.2% Income from continuing operations 31 6 16 21 74 Net income (loss) attributable to noncontrolling interests 1 — — — 1 Income from continuing operations (attributable to NCR) $30 $6 $16 $21 $73 Diluted earnings per share $0.19 $0.04 $0.11 $0.15 $0.51 Diluted shares outstanding 134.7 143.9 GAAP TO NON-GAAP RECONCILIATION Q1 2021 $ in millions, except per share amounts
24 Q1 QTD 2021 GAAP Q1 QTD 2021 non- GAAP Income from continuing operations attributable to NCR common stockholders: Income from continuing operations (attributable to NCR) $30 $73 Dividends on convertible preferred shares (4) — Income from continuing operations attributable to NCR common stockholders $26 $73 Weighted average outstanding shares: Weighted average diluted shares outstanding 134.7 134.7 Weighted as-if converted preferred shares — 9.2 Total shares used in diluted earnings per share 134.7 143.9 Diluted earnings per share (1) $0.19 $0.51 (1) GAAP EPS is determined using the most dilutive measure, either including the impact of the dividends or deemed 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. GAAP TO NON-GAAP RECONCILIATION Q1 2021 $ in millions, except per share amounts
25 Q1 QTD 2020 GAAP Transformation Costs Acquisition- related amortization of intangibles Q1 QTD 2020 non-GAAP Product revenue $474 $— $— $474 Service revenue 1,029 — — 1,029 Total revenue 1,503 — — 1,503 Cost of products 391 — (3) 388 Cost of services 715 — (4) 711 Gross margin 397 — 7 404 Gross margin rate 26.4% —% 0.5% 26.9% Selling, general and administrative expenses 255 (5) (15) 235 Research and development expenses 65 — — 65 Total expenses 320 (5) (15) 300 Total expense as a % of revenue 21.3% (0.3)% (1.0)% 20.0% Income from operations 77 5 22 104 Income from operations as a % of revenue 5.1% 0.3% 1.5% 6.9% Interest and Other (expense) income, net (52) — — (52) Income from continuing operations before income taxes 25 5 22 52 Income tax expense 1 1 5 7 Effective income tax rate 4.0% —% —% 13.5% Income from continuing operations 24 4 17 45 Net income attributable to noncontrolling interests 1 — — 1 Income from continuing operations (attributable to NCR) $23 $4 $17 $44 Diluted (loss) earnings per share $0.13 $0.03 $0.12 $0.31 Diluted shares outstanding 130.5 143.7 GAAP TO NON-GAAP RECONCILIATION Q1 2020 $ in millions, except per share amounts
26 Q1 QTD 2020 GAAP Q1 QTD 2020 non-GAAP Income from continuing operations attributable to NCR common stockholders: Income from continuing operations (attributable to NCR) $23 $44 Dividends on convertible preferred shares ($6) $— Income from continuing operations attributable to NCR common stockholders $17 $44 Weighted average outstanding shares: Weighted average diluted shares outstanding 130.5 130.5 Weighted as-if converted preferred shares — 13.2 Total shares used in diluted earnings per share 130.5 143.7 Diluted earnings per share (1) $0.13 $0.31 (1) GAAP EPS is determined using the most dilutive measure, either including the impact of the dividends or deemed 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. GAAP TO NON-GAAP RECONCILIATION Q1 2020 $ in millions, except per share amounts
27 Q1 2021 Q4 2020 Q1 2020 Cash provided by operating activities $155 $146 $54 Less: Total capital expenditures ($61) ($63) ($79) Plus: Pension contributions $4 $75 $5 Free Cash Flow $98 $158 ($20) $ in millions GAAP TO NON-GAAP RECONCILIATION
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