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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
________________________
(Mark One)
| | | | | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | | | | |
| For the quarterly period ended March 31, 2023 |
| | | | | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________ |
| | | | | |
| Commission File Number: 001-00395 |
________________________
NCR CORPORATION
(Exact name of registrant as specified in its charter)
________________________
| | | | | | | | |
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) (Zip Code)
Registrant’s telephone number, including area code: (937) 445-1936
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | NCR | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
Large accelerated filer | þ | | | Accelerated filer | o |
Non-accelerated filer | o | | | Smaller reporting company | ☐ |
| | | | 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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of April 21, 2023, there were approximately 140.4 million shares of the registrant's common stock issued and outstanding.
TABLE OF CONTENTS
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PART I. Financial Information | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II. Other Information | |
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| Description | Page |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 6. | | |
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Part I. Financial Information
Item 1. FINANCIAL STATEMENTS
NCR Corporation
Condensed Consolidated Statements of Operations (Unaudited)
| | | | | | | | | | | | | | | |
In millions, except per share amounts | Three months ended March 31 | | |
2023 | | 2022 | | | | |
Product revenue | $ | 521 | | | $ | 516 | | | | | |
Service revenue | 1,370 | | | 1,350 | | | | | |
Total revenue | 1,891 | | | 1,866 | | | | | |
Cost of products | 456 | | | 492 | | | | | |
Cost of services | 969 | | | 963 | | | | | |
Selling, general and administrative expenses | 292 | | | 313 | | | | | |
Research and development expenses | 64 | | | 65 | | | | | |
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Total operating expenses | 1,781 | | | 1,833 | | | | | |
Income (loss) from operations | 110 | | | 33 | | | | | |
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Interest expense | (83) | | | (63) | | | | | |
Other income (expense), net | (3) | | | 9 | | | | | |
Income (loss) from continuing operations before income taxes | 24 | | | (21) | | | | | |
Income tax expense (benefit) | 14 | | | 13 | | | | | |
Income (loss) from continuing operations | 10 | | | (34) | | | | | |
Income (loss) from discontinued operations, net of tax | — | | | (1) | | | | | |
Net income (loss) | 10 | | | (35) | | | | | |
Net income (loss) attributable to noncontrolling interests | 1 | | | (1) | | | | | |
Net income (loss) attributable to NCR | $ | 9 | | | $ | (34) | | | | | |
Amounts attributable to NCR common stockholders: | | | | | | | |
Income (loss) from continuing operations | $ | 9 | | | $ | (33) | | | | | |
Series A convertible preferred stock dividends | (4) | | | (4) | | | | | |
Income (loss) from continuing operations attributable to NCR common stockholders | 5 | | | (37) | | | | | |
Income (loss) from discontinued operations, net of tax | — | | | (1) | | | | | |
Net income (loss) attributable to NCR common stockholders | $ | 5 | | | $ | (38) | | | | | |
Income (loss) per share attributable to NCR common stockholders: | | | | | | | |
Income (loss) per common share from continuing operations | | | | | | | |
Basic | $ | 0.04 | | | $ | (0.27) | | | | | |
Diluted | $ | 0.04 | | | $ | (0.27) | | | | | |
Net income (loss) per common share | | | | | | | |
Basic | $ | 0.04 | | | $ | (0.28) | | | | | |
Diluted | $ | 0.04 | | | $ | (0.28) | | | | | |
Weighted average common shares outstanding | | | | | | | |
Basic | 139.6 | | | 135.7 | | | | | |
Diluted | 141.7 | | | 135.7 | | | | | |
See Notes to Condensed Consolidated Financial Statements.
NCR Corporation
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
| | | | | | | | | | | | | | | |
In millions | Three months ended March 31 | | |
2023 | | 2022 | | | | |
Net income (loss) | $ | 10 | | | $ | (35) | | | | | |
Other comprehensive income (loss): | | | | | | | |
Currency translation adjustments | | | | | | | |
Currency translation gains (loss) | 4 | | | (26) | | | | | |
Derivatives | | | | | | | |
Unrealized gains (loss) on derivatives | (11) | | | 57 | | | | | |
Loss (gains) on derivatives recognized during the period | (19) | | | 1 | | | | | |
Less income tax | 7 | | | (13) | | | | | |
Employee benefit plans | | | | | | | |
Amortization of prior service cost (benefit) | — | | | (1) | | | | | |
| | | | | | | |
Amortization of actuarial loss (gains) | (1) | | | — | | | | | |
Less income tax | — | | | — | | | | | |
Other comprehensive income (loss) | (20) | | | 18 | | | | | |
Total comprehensive income (loss) | (10) | | | (17) | | | | | |
Less comprehensive income (loss) attributable to noncontrolling interests: | | | | | | | |
Net income (loss) | 1 | | | (1) | | | | | |
Currency translation losses | (1) | | | — | | | | | |
Amounts attributable to noncontrolling interests | — | | | (1) | | | | | |
Comprehensive income (loss) attributable to NCR | $ | (10) | | | $ | (16) | | | | | |
See Notes to Condensed Consolidated Financial Statements.
NCR Corporation
Condensed Consolidated Balance Sheets (Unaudited)
| | | | | | | | | | | |
In millions, except per share amounts | March 31, 2023 | | December 31, 2022 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 519 | | | $ | 505 | |
Accounts receivable, net of allowances of $37 and $34 as of March 31, 2023 and December 31, 2022, respectively | 1,009 | | | 1,083 | |
Inventories | 792 | | | 772 | |
Restricted cash | 257 | | | 228 | |
Prepaid and other current assets | 493 | | | 494 | |
Total current assets | 3,070 | | | 3,082 | |
Property, plant and equipment, net | 681 | | | 663 | |
Goodwill | 4,542 | | | 4,540 | |
Intangibles, net | 1,105 | | | 1,145 | |
Operating lease assets | 353 | | | 371 | |
Prepaid pension cost | 217 | | | 212 | |
Deferred income taxes | 595 | | | 598 | |
Other assets | 879 | | | 896 | |
Total assets | $ | 11,442 | | | $ | 11,507 | |
Liabilities and stockholders’ equity | | | |
Current liabilities | | | |
Short-term borrowings | $ | 105 | | | $ | 104 | |
Accounts payable | 952 | | | 942 | |
Payroll and benefits liabilities | 223 | | | 207 | |
Contract liabilities | 631 | | | 537 | |
Settlement liabilities | 269 | | | 250 | |
Other current liabilities | 636 | | | 673 | |
Total current liabilities | 2,816 | | | 2,713 | |
Long-term debt | 5,406 | | | 5,561 | |
Pension and indemnity plan liabilities | 615 | | | 614 | |
Postretirement and postemployment benefits liabilities | 88 | | | 91 | |
Income tax accruals | 97 | | | 97 | |
Operating lease liabilities | 340 | | | 353 | |
Other liabilities | 317 | | | 324 | |
Total liabilities | 9,679 | | | 9,753 | |
Commitments and Contingencies (Note 10) | | | |
| | | |
Series A convertible preferred stock: par value $0.01 per share, 3.0 shares authorized, 0.3 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively; redemption amount and liquidation preference of $276 as of March 31, 2023 and December 31, 2022, respectively | 275 | | | 275 | |
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, 2023 and December 31, 2022, respectively | — | | | — | |
Common stock: par value $0.01 per share, 500.0 shares authorized, 140.1 and 138.0 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | 1 | | | 1 | |
Paid-in capital | 727 | | | 704 | |
Retained earnings | 1,080 | | | 1,075 | |
Accumulated other comprehensive loss | (319) | | | (300) | |
Total NCR stockholders’ equity | 1,489 | | | 1,480 | |
Noncontrolling interests in subsidiaries | (1) | | | (1) | |
Total stockholders’ equity | 1,488 | | | 1,479 | |
Total liabilities and stockholders’ equity | $ | 11,442 | | | $ | 11,507 | |
See Notes to Condensed Consolidated Financial Statements.
NCR Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | | | | | | | | | | |
In millions | Three months ended March 31 |
2023 | | 2022 |
Operating activities | | | |
Net income (loss) | $ | 10 | | | $ | (35) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Loss (income) from discontinued operations | — | | | 1 | |
| | | |
Depreciation and amortization | 151 | | | 147 | |
Stock-based compensation expense | 32 | | | 34 | |
Deferred income taxes | 6 | | | 4 | |
| | | |
Loss (gain) on disposal of property, plant and equipment and other assets | 2 | | | 2 | |
(Gain) loss on divestiture | (3) | | | — | |
Changes in assets and liabilities, net of effects of business acquired: | | | |
Receivables | 63 | | | (129) | |
Inventories | (45) | | | (77) | |
Current payables and accrued expenses | 20 | | | (63) | |
Contract liabilities | 95 | | | 105 | |
Employee benefit plans | (16) | | | (8) | |
Other assets and liabilities | 2 | | | 57 | |
Net cash provided by operating activities | $ | 317 | | | $ | 38 | |
Investing activities | | | |
Expenditures for property, plant and equipment | $ | (19) | | | $ | (15) | |
| | | |
Additions to capitalized software | (64) | | | (65) | |
Business acquisitions, net of cash acquired | (6) | | | (1) | |
Proceeds from divestiture, net | 3 | | | — | |
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Other investing activities, net | — | | | (5) | |
Net cash used in investing activities | $ | (86) | | | $ | (86) | |
Financing activities | | | |
| | | |
Short term borrowings, net | $ | — | | | $ | 2 | |
Payments on term credit facilities | (26) | | | (2) | |
Payments on revolving credit facilities | (448) | | | (279) | |
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Borrowings on revolving credit facilities | 318 | | | 312 | |
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Cash dividend paid for Series A preferred shares dividends | (4) | | | (4) | |
| | | |
Proceeds from employee stock plans | 6 | | | 6 | |
Tax withholding payments on behalf of employees | (16) | | | (36) | |
Net change in client funds obligations | — | | | 6 | |
Principal payments for finance lease obligations | (5) | | | (4) | |
| | | |
Net cash provided by (used in) financing activities | $ | (175) | | | $ | 1 | |
Cash flows from discontinued operations | | | |
Net cash provided by (used in) operating activities of discontinued operations | $ | (6) | | | $ | (4) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (10) | | | (6) | |
Increase (decrease) in cash, cash equivalents, and restricted cash | 40 | | | (57) | |
Cash, cash equivalents and restricted cash at beginning of period | 740 | | | 749 | |
Cash, cash equivalents and restricted cash at end of period | $ | 780 | | | $ | 692 | |
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Supplemental disclosures of noncash investing and financing activities During the three months ended March 31, 2022, we issued shares of the Company's common stock and assumed unvested outstanding option awards in the acquisition of Moon Inc., dba LibertyX, for total non-cash consideration of $68 million. In connection with the acquisition, we also assumed debt of $2 million. Refer to Note 2, “Business Combinations”, for additional information on the LibertyX acquisition.
See Notes to Condensed Consolidated Financial Statements.
NCR Corporation
Condensed Consolidated Statements of Changes in Stockholder's Equity (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | NCR Stockholders | | | | |
| | Common Stock | | | | | | Accumulated Other Comprehensive (Loss) Income | | Non-Redeemable Noncontrolling Interests in Subsidiaries | | |
In millions | | Shares | | Amount | | Paid-in Capital | | Retained Earnings | | | | Total |
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December 31, 2022 | | 138 | | | $ | 1 | | | $ | 704 | | | $ | 1,075 | | | $ | (300) | | | $ | (1) | | | $ | 1,479 | |
Comprehensive income: | | | | | | | | | | | | | | |
Net income (loss) | | — | | | — | | | — | | | 9 | | | — | | | 1 | | | 10 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (19) | | | (1) | | | (20) | |
Total comprehensive income (loss) | | — | | | — | | | — | | | 9 | | | (19) | | | — | | | (10) | |
Employee stock purchase and stock compensation plans | | 2 | | | — | | | 23 | | | — | | | — | | | — | | | 23 | |
| | | | | | | | | | | | | | |
Series A convertible preferred stock dividends | | — | | | — | | | — | | | (4) | | | — | | | — | | | (4) | |
March 31, 2023 | | 140 | | | $ | 1 | | | $ | 727 | | | $ | 1,080 | | | $ | (319) | | | $ | (1) | | | $ | 1,488 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | NCR Stockholders | | | | |
| | Common Stock | | | | | | Accumulated Other Comprehensive (Loss) Income | | Non-Redeemable Noncontrolling Interests in Subsidiaries | | |
In millions | | Shares | | Amount | | Paid-in Capital | | Retained Earnings | | | | Total |
December 31, 2021 | | 132 | | | $ | 1 | | | $ | 515 | | | $ | 1,031 | | | $ | (291) | | | $ | 3 | | | $ | 1,259 | |
Comprehensive income: | | | | | | | | | | | | | | |
Net income (loss) | | — | | | — | | | — | | | (34) | | | — | | | (1) | | | (35) | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 18 | | | — | | | 18 | |
Total comprehensive income (loss) | | — | | | — | | | — | | | (34) | | | 18 | | | (1) | | | (17) | |
Employee stock purchase and stock compensation plans | | 3 | | | — | | | 19 | | | — | | | — | | | — | | | 19 | |
Stock issued in acquisition of LibertyX | | 1 | | | — | | | 68 | | | — | | | — | | | — | | | 68 | |
Series A convertible preferred stock dividends | | — | | | — | | | — | | | (4) | | | — | | | — | | | (4) | |
March 31, 2022 | | 136 | | | $ | 1 | | | $ | 602 | | | $ | 993 | | | $ | (273) | | | $ | 2 | | | $ | 1,325 | |
See Notes to Condensed Consolidated Financial Statements.
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Index to Financial Statements and Supplemental Data
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Condensed Consolidated Financial Statements have been prepared by NCR Corporation (“NCR”, the “Company”, “we” or “us”) without audit pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments, unless otherwise disclosed) necessary for a fair statement of the condensed consolidated results of operations, financial position, and cash flows for each period presented. The consolidated results for the interim periods are not necessarily indicative of results to be expected for the full year. The 2022 year-end Condensed Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States (GAAP). These financial statements should be read in conjunction with NCR’s Form 10-K for the year ended December 31, 2022.
Announcement of Planned Separation On September 15, 2022, NCR announced a plan to separate into two independent, publicly traded companies – one focused on digital commerce, the other on ATMs. The separation is intended to be structured in a tax-free manner. The separation transaction will follow the satisfaction of customary conditions, including effectiveness of appropriate filings with the U.S. Securities and Exchange Commission, and the completion of audited financial statements. The current target is to complete the separation in the fourth quarter of 2023.
In connection with the planned separation into two independent, publicly traded companies, the restricted stock units and stock options of certain members of executive management, including our named executive officers, will be converted into restricted stock units and stock options of NCR (RemainCo) and NCR ATMCo (SpinCo) on the same basis as is applicable to our stockholders.
Use of Estimates The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the period reported.
Although our estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations and financial position. In
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
particular, a number of estimates have been and will continue to be affected by the ongoing variants of the coronavirus (COVID-19) pandemic, macroeconomic pressures and geopolitical challenges. The ultimate impact on our overall financial condition and operating results will depend on the duration and severity of the pandemic, supply chain challenges and cost escalations including materials, interest, labor and freight, and any additional governmental and public actions taken in response. As a result, our accounting estimates and assumptions may change over time as a consequence of the effects of these external factors. Such changes could result in future impairments of goodwill, intangible assets, long-lived assets, incremental credit losses on accounts receivable and decreases in the carrying amount of our tax assets.
Evaluation of Subsequent Events The Company evaluated subsequent events through the date that our Condensed Consolidated Financial Statements were issued. Other than the items discussed below and within the Notes to Condensed Consolidated Financial Statements, no matters were identified that required adjustment to the Condensed Consolidated Financial Statements or additional disclosure.
Cyber ransomware incident On April 13, 2023, NCR determined that a single data center outage impacting certain of its commerce customers was caused by a cyber ransomware incident. Upon such determination, NCR immediately started contacting customers, enacted its cybersecurity protocol and engaged outside experts to contain the incident and begin the recovery process. We believe this incident is limited to specific functionality in Aloha cloud-based services and Counterpoint. At this time, our ongoing investigation also indicates no financial reporting systems were impacted.
We have incurred, and may continue to incur, certain expenses related to this attack, including expenses to respond to, remediate and investigate this matter. While the Company’s response to this incident is ongoing, at this time we do not believe such impact of the incident will ultimately have a material adverse effect on our business, results of operations or financial condition; however, we remain subject to risks and uncertainties as a result of the incident. We continue to assess the security event and cannot definitively determine, at this time, the full extent of the impact from such event on our business, results of operations or financial condition or whether such impact will ultimately have a material adverse effect.
Reclassifications Certain prior-period amounts have been reclassified in the accompanying Condensed Consolidated Financial Statements and Notes thereto in order to conform to the current period presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.
Other In the first quarter of 2023, the Company recorded a $10 million out-of-period adjustment to increase operating expenses and an employee-related liability in order to correct for an understatement of such same balances during the fourth quarter of 2022. The Company evaluated the impact of the error and out-of-period adjustment and concluded it was not material to any previously issued interim or annual consolidated financial statements and the adjustment is not expected to be material to the year ending December 31, 2023.
Cash, Cash Equivalents, and Restricted Cash The reconciliation of cash, cash equivalents and restricted cash in the Condensed Consolidated Statements of Cash Flows is as follows:
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In millions | | | | March 31 |
| Balance Sheet Location | | 2023 | | 2022 |
Cash and cash equivalents | | Cash and cash equivalents | | $ | 519 | | | $ | 412 | |
Short term restricted cash | | Restricted cash | | 8 | | | — | |
Long term restricted cash | | Other assets | | 4 | | | 7 | |
Funds held for client | | Restricted cash | | — | | | 54 | |
Cash included in settlement processing assets | | Restricted cash | | 249 | | | 219 | |
Total cash, cash equivalents and restricted cash | | | | $ | 780 | | | $ | 692 | |
Contract Assets and Liabilities The following table presents the net contract liability balances as of March 31, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | |
In millions | Location in the Condensed Consolidated Balance Sheet | | March 31, 2023 | | December 31, 2022 |
Current portion of contract liabilities | Contract liabilities | | $ | 631 | | | $ | 537 | |
Non-current portion of contract liabilities | Other liabilities | | $ | 50 | | | $ | 49 | |
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
During the three months ended March 31, 2023, the Company recognized $214 million in revenue that was included in contract liabilities as of December 31, 2022. During the three months ended March 31, 2022, the Company recognized $228 million in revenue that was included in contract liabilities as of December 31, 2021.
Remaining Performance Obligations Remaining performance obligations represent the transaction price of orders for which products have not been delivered or services have not been performed. As of March 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $4.0 billion. The Company expects to recognize revenue on approximately three-quarters of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter. The majority of our professional services are expected to be recognized over the next 12 months but this is contingent upon a number of factors, including customers’ needs and schedules.
The Company has made three elections that affect the value of remaining performance obligations described above. We do not disclose remaining performance obligations for contracts where variable consideration is directly allocated based on usage or when the original expected duration is one year or less. Additionally, we do not disclose remaining performance obligations for contracts where we recognize revenue from the satisfaction of the performance obligation in accordance with the 'right to invoice' practical expedient.
Recent Accounting Pronouncements
Adoption of New Accounting Pronouncements
In October 2021, the FASB issued accounting standards update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, with new guidance for contract assets and contract liabilities acquired in a business combination. The new guidance requires contract assets and contract liabilities, such as deferred revenue, acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. Prior to the issuance of this guidance, contract assets and contract liabilities were recognized by the acquirer at fair value on the acquisition date. The accounting standards update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted and should be applied prospectively to acquisitions occurring on or after the effective date. The adoption of this accounting standards update did not have a material effect on the Company's net income, cash flows, earnings per share or financial condition.
Although there are other new accounting pronouncements issued by the FASB and adopted by or effective for the Company, the Company does not believe any of these accounting pronouncements had a material impact on its condensed consolidated financial statements.
Accounting Pronouncements Issued But Not Yet Adopted
Although there are new accounting pronouncements issued by the FASB and not yet adopted by or effective for the Company, the Company does not believe any of these accounting pronouncements will have a material impact on its condensed consolidated financial statements.
2. BUSINESS COMBINATIONS
Acquisition of LibertyX (2022)
On January 5, 2022, NCR completed its acquisition of Moon Inc., dba LibertyX, a leading cryptocurrency software provider, with the goal of enabling NCR to provide a complete digital currency solution, including the ability to buy and sell cryptocurrency, conduct cross-border remittance, and accept digital currency payments across digital and physical channels. The Company purchased all outstanding shares of LibertyX for $1 million cash consideration and approximately 1.4 million shares of the Company's common stock at a price of $42.13 per share. The Company also converted approximately 0.2 million outstanding unvested LibertyX option awards into NCR awards pursuant to an exchange ratio as defined in the acquisition agreement. LibertyX stock option awards were converted into NCR stock option awards with an exercise price per share for option awards equal to the exercise price per share of such stock option award immediately prior to the completion of the acquisition divided by the exchange ratio, and vested immediately. The value of the option awards was deemed attributable to services already rendered and was included as a portion of the purchase price. Total purchase consideration for the LibertyX acquisition was approximately $69 million. As a result of the acquisition, LibertyX became a wholly-owned subsidiary of NCR.
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
The fair value of consideration transferred to acquire LibertyX was allocated to the identifiable assets and acquired liabilities assumed based upon their estimated fair values as of the date of acquisition. The allocation of purchase price was finalized as of December 31, 2022.
3. GOODWILL AND PURCHASED INTANGIBLE ASSETS
Goodwill by Segment The carrying amounts of goodwill by segment as of March 31, 2023 and December 31, 2022 are included in the table below. Foreign currency fluctuations are included within other adjustments.
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| December 31, 2022 | | | | | | | | | | March 31, 2023 |
In millions | Goodwill | Accumulated Impairment | Total | | | | Additions | | Impairment | | Other | | Goodwill | Accumulated Impairment | Total |
| | | | | | | | | | | | | | | |
Retail | $ | 995 | | $ | (34) | | $ | 961 | | | | | $ | — | | | $ | — | | | $ | 1 | | | $ | 996 | | $ | (34) | | $ | 962 | |
Hospitality | 288 | | (23) | | 265 | | | | | — | | | — | | | 1 | | | 289 | | (23) | | 266 | |
Digital Banking | 594 | | — | | 594 | | | | | — | | | — | | | — | | | 594 | | — | | 594 | |
Payments & Network | 1,036 | | — | | 1,036 | | | | | — | | | — | | | — | | | 1,036 | | — | | 1,036 | |
Self-Service Banking | 1,633 | | (101) | | 1,532 | | | | | — | | | — | | | — | | | 1,633 | | (101) | | 1,532 | |
Other(1) | 163 | | (11) | | 152 | | | | | — | | | — | | | — | | | 163 | | (11) | | 152 | |
Total goodwill | $ | 4,709 | | $ | (169) | | $ | 4,540 | | | | | $ | — | | | $ | — | | | $ | 2 | | | $ | 4,711 | | $ | (169) | | $ | 4,542 | |
(1) Other segment includes the goodwill associated with our Technology & Telecommunications reporting unit.
Identifiable Intangible Assets NCR's purchased intangible assets, reported in Intangibles, net in the Condensed Consolidated Balance Sheets, were specifically identified when acquired, and are deemed to have finite lives. The gross carrying amount and accumulated amortization for NCR’s identifiable intangible assets were as set forth in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortization Period (in Years) | | March 31, 2023 | | December 31, 2022 |
In millions | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Identifiable intangible assets | | | | | | | | | |
Reseller & customer relationships | 1 - 20 | | $ | 1,103 | | | $ | (482) | | | $ | 1,103 | | | $ | (463) | |
Intellectual property | 2 - 8 | | 1,030 | | | (577) | | | 1,030 | | | (558) | |
Customer contracts | 8 | | 89 | | | (89) | | | 89 | | | (89) | |
Tradenames | 1 - 10 | | 130 | | | (99) | | | 128 | | | (95) | |
Total identifiable intangible assets | | | $ | 2,352 | | | $ | (1,247) | | | $ | 2,350 | | | $ | (1,205) | |
Amortization expense related to identifiable intangible assets for the following periods is:.
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31 | | |
In millions | | 2023 | | 2022 | | | | |
Amortization expense | | $ | 42 | | | $ | 41 | | | | | |
The estimated aggregate amortization expense for identifiable intangible assets for the following periods is:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the years ended December 31 |
In millions | Remainder of 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 |
Amortization expense | $ | 131 | | | $ | 162 | | | $ | 150 | | | $ | 139 | | | $ | 124 | | | $ | 106 | |
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
4. SEGMENT INFORMATION AND CONCENTRATIONS
The Company manages and reports its operations in the following segments:
•Retail - We offer software-led solutions to customers in the retail industry, leading with digital to connect retail operations end to end to integrate all aspects of a customer’s operations in indoor and outdoor settings from point-of-sale ("POS"), to payments, inventory management, fraud and loss prevention applications, loyalty and consumer engagement. These solutions include retail-oriented technologies such as comprehensive API-point of sale retail software platforms and applications, hardware terminals, self-service kiosks including self-checkout ("SCO"), payment processing and merchant acquiring solutions, and bar-code scanners.
•Hospitality - We offer technology solutions to customers in the hospitality industry, including table-service, quick-service and fast casual restaurants of all sizes, that are designed to improve operational efficiency, increase customer satisfaction, streamline order and transaction processing and reduce operating costs. Our solutions include POS hardware and software solutions, payment processing and merchant acquiring services, installation, maintenance, as well as managed and professional services.
•Digital Banking - NCR Digital Banking helps financial institutions implement their digital-first platform strategy by providing solutions for account opening, account management, transaction processing, imaging, and branch services to enable financial institutions to offer a compelling customer experience.
•Payments & Network - We provide a cost-effective way for financial institutions, fintechs, and neobanks to reach and serve their customers through our network of automated teller machines ("ATMs") and multi-functioning financial services kiosks. We offer credit unions, banks, digital banks, fintechs, stored-value debit card issuers, and other consumer financial services providers access to our Allpoint retail-based ATM network, providing convenient and fee-free cash withdrawal and deposit access to their customers and cardholders as well as the ability to convert a digital value to cash, or vice versa, via NCRPay360. We also provide ATM branding solutions to financial institutions, ATM management and services to retailers and other businesses, as well as payment processing and merchant acquiring services in the retail, hospitality and other industries.
•Self-Service Banking - We offer solutions to enable customers in the financial services industry to reduce costs, generate new revenue streams and enhance customer loyalty. These solutions include a comprehensive line of ATM hardware and software, and related installation, maintenance, and managed and professional services. We also offer solutions to manage and run the ATM channel end-to-end for financial institutions that includes back office, cash management, software management and ATM deployment, among others.
Corporate and Other includes income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment along with any immaterial operating segment(s).
Eliminations include revenues from contracts with customers and the related costs that are reported in the Payments & Network segment as well as in the Retail or Hospitality segments, including merchant acquiring services that are monetized via payments.
These segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker in assessing segment performance and in allocating the Company's resources. Management evaluates the performance of the segments based on revenue and Adjusted EBITDA. Adjusted EBITDA is defined as GAAP net income (loss) from continuing operations attributable to NCR plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization; plus stock-based compensation expense; 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, transformation and restructuring charges (which includes integration, severance and other exit and disposal costs), among others. The special items are considered non-operational so are excluded from the Adjusted EBITDA metric utilized by our chief operating decision maker in evaluating segment performance and are separately delineated to reconcile back to total reported GAAP net income (loss) from continuing operations attributable to NCR.
Special Item Related to Russia The war in Eastern Europe and related sanctions imposed on Russia and related actors by the United States and other jurisdictions required us to commence the orderly wind down of our operations in Russia in the first quarter of 2022. As of March 31, 2023, we have ceased operations in Russia and are in the process of dissolving our only subsidiary in Russia. As a result, for the three months ended March 31, 2022, our presentation of segment revenue and Adjusted EBITDA exclude the immaterial impact of our operating results in Russia, as well as the impact of impairments taken to write down the carrying value of assets and liabilities, severance charges, and the assessment of collectability on revenue recognition.
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
We recognized a pre-tax net loss of $19 million for the three months ended March 31, 2022 related to these actions, recognized primarily in Cost of products, Cost of services and Selling, general and administrative expenses on the Condensed Consolidated Statement of Operations. No charges have been recognized for the three months ended March 31, 2023. We consider this to be a non-recurring special item and management has reviewed the results of its business segments excluding these impacts.
Assets are not allocated to segments, and thus are not included in the assessment of segment performance. Consequently, we do not disclose total assets by reportable segment. The accounting policies used to determine the results of the operating segments are the same as those utilized for the condensed consolidated financial statements as a whole. Intersegment sales and transfers are not material.
The following table presents revenue and Adjusted EBITDA by segment:
| | | | | | | | | | | | | | | | | |
In millions | Three months ended March 31 | | |
2023 | | 2022 | | | | |
Revenue by segment | | | | | | | |
Retail | $ | 552 | | | $ | 546 | | | | | |
Hospitality | 223 | | | 211 | | | | | |
Digital Banking | 136 | | | 136 | | | | | |
Payments & Network | 323 | | | 299 | | | | | |
Self-Service Banking | 613 | | | 611 | | | | | |
Other | 54 | | | 68 | | | | | |
Eliminations | (10) | | | (8) | | | | | |
Total segment revenue | $ | 1,891 | | | $ | 1,863 | | | | | |
Other adjustment (1) | — | | | 3 | | | | | |
Consolidated revenue | $ | 1,891 | | | $ | 1,866 | | | | | |
| | | | | | | |
Adjusted EBITDA by segment | | | | | | | |
Retail | $ | 97 | | | $ | 67 | | | | | |
Hospitality | 53 | | | 41 | | | | | |
Digital Banking | 49 | | | 56 | | | | | |
Payments & Network | 83 | | | 98 | | | | | |
Self-Service Banking | 138 | | | 112 | | | | | |
Corporate and Other | (110) | | | (97) | | | | | |
Eliminations | (8) | | | (6) | | | | | |
Total Adjusted EBITDA | $ | 302 | | | $ | 271 | | | | | |
(1) Other adjustment reflects the revenue attributable to the Company's operations in Russia for the three months ended March 31, 2022 that were excluded from management's measure of revenue due to our previous announcement to suspend sales to Russia and orderly wind down of our operations in Russia beginning in the first quarter of 2022.
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
The following table reconciles net income (loss) from continuing operations attributable to NCR to Adjusted EBITDA:
| | | | | | | | | | | | | | | |
In millions | Three months ended March 31 | | |
2023 | | 2022 | | | | |
Net income (loss) from continuing operations attributable to NCR | $ | 9 | | | $ | (33) | | | | | |
Transformation and restructuring costs | — | | | 27 | | | | | |
Acquisition-related amortization of intangibles | 42 | | | 41 | | | | | |
Acquisition-related costs | — | | | 5 | | | | | |
| | | | | | | |
Interest expense | 83 | | | 63 | | | | | |
Interest income | (3) | | | (1) | | | | | |
Depreciation and amortization (excluding acquisition-related amortization of intangibles) | 106 | | | 103 | | | | | |
Income tax expense (benefit) | 14 | | | 13 | | | | | |
Stock-based compensation expense | 32 | | | 34 | | | | | |
Separation costs | 19 | | | — | | | | | |
Russia | — | | | 19 | | | | | |
Total Adjusted EBITDA | $ | 302 | | | $ | 271 | | | | | |
The following table presents revenue by geography for NCR:
| | | | | | | | | | | | | | | |
In millions | Three months ended March 31 | | |
2023 | | 2022 | | | | |
United States | $ | 1,093 | | | $ | 997 | | | | | |
Americas (excluding United States) | 182 | | | 184 | | | | | |
Europe, Middle East and Africa | 412 | | | 466 | | | | | |
Asia Pacific | 204 | | | 219 | | | | | |
Total revenue | $ | 1,891 | | | $ | 1,866 | | | | | |
The following table presents the recurring revenue for NCR:
| | | | | | | | | | | | | | | | | |
In millions | Three months ended March 31 | | |
2023 | | 2022 | | | | |
Recurring revenue (1) | $ | 1,229 | | | $ | 1,179 | | | | | |
All other products and services | 662 | | | 687 | | | | | |
Total revenue | $ | 1,891 | | | $ | 1,866 | | | | | |
(1) 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, interchange and network revenue, cryptocurrency-related revenue, and certain professional services arrangements, as well as term-based software license arrangements that include customer termination rights.
NCR Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
5. DEBT OBLIGATIONS
The following table summarizes the Company's short-term borrowings and long-term debt:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
In millions, except percentages | Amount | | Weighted-Average Interest Rate | | Amount | | Weighted-Average Interest Rate |
Short-Term Borrowings | | | | | | | |
Current portion of Senior Secured Credit Facility (1) | $ | 101 | | | 7.08% | | $ | 100 | | | 6.54% |
Other (1) | 4 | | | 7.13% | | 4 | | | 7.05% |
| Total short-term borrowings | $ | 105 | | | | | $ | 104 | | | |
Long-Term Debt | | | | | | | |
Senior Secured Credit Facility: | | | | | | | |
| Term loan facility (1) | $ | 1,752 | | | 7.18% | | $ | 1,778 | | | 6.69% |
| Revolving credit facility (1) | 393 | | | |