NCR Announces Fourth Quarter and Full Year 2018 Results

ATLANTA–(BUSINESS WIRE)–NCR Corporation (NYSE: NCR) reported financial results today for the
three months ended December 31, 2018. Fourth quarter, full year and
other recent highlights include:

  • Fourth quarter revenue of $1.80 billion, up 1% as reported; Full
    year revenue of $6.41 billion, down 2% as reported
  • Fourth quarter GAAP diluted EPS of $(0.39); Fourth quarter non-GAAP
    diluted EPS of $0.84
  • Full year GAAP diluted EPS of $(0.72); Full year non-GAAP diluted
    EPS of $2.62
  • Fourth quarter services revenue up 2% and gross margin expansion of
    250 basis points
  • Full year cash from operations of $572 million and free cash flow
    of $223 million
  • Completed planned acquisition of JetPay to expand our offerings to
    include end-to-end payment processing
  • Program to achieve at least $100 million cost savings in 2019 is on
    track
  • 2019 guidance announced, including return to revenue growth

“In 2018 we made progress in our efforts to build a stronger and more
efficient NCR and our fourth quarter results were indicative of the
early success as we continue to improve our execution and stabilize our
business,” said Michael Hayford, President and Chief Executive Officer.
“Our work to simplify and stream line NCR is delivering results. During
the fourth quarter, we achieved a significant ramp-up in hardware
production, which demonstrates our success restructuring our
manufacturing network. In addition, our Services business continues to
generate improved margin performance through the ongoing implementation
of our transformation initiatives.”

Mr. Hayford concluded, “Looking ahead, we enter 2019 with positive
momentum and a commitment to return to growth by investing in our future
while also reducing our cost structure. We are elevating our investment
in digital-focused strategic growth platforms as we look to accelerate
our mix shift to recurring software and services revenues. These
investments will be supported by the addition of JetPay, which gives us
an end-to-end payments platform and unlocks incremental recurring
revenue streams. We are confident the further execution of our strategy
will deliver competitive differentiation to our customers, strengthen
our long-term growth profile and drive increased value creation for our
stockholders.”

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

Fourth Quarter 2018 Operating Results

Revenue
Fourth quarter revenue of $1.80 billion was up
1% year-over-year. Foreign currency fluctuations had an unfavorable
impact on the revenue comparison of 2%.

The following table shows the revenue by segment for the fourth quarter:

$ in millions     Q4 2018     Q4 2017     % Change    

% Change
Constant
Currency

Software License $ 90 $ 95 (5 %) (4 %)
Software Maintenance 90 96 (6 %) (5 %)
Cloud 163 156 4 % 5 %
Professional Services   159   161 (1 %) 1 %
Software Revenue $ 502 $ 508 (1 %) %
 
Services Revenue $ 633 $ 619 2 % 5 %
 
ATM $ 367 $ 303 21 % 26 %
SCO 110 131 (16 %) (16 %)
POS 189 218 (13 %) (12 %)
IPS     3 (100 %) (100 %)
Hardware Revenue $ 666 $ 655 2 % 4 %
   
Total Revenue $ 1,801 $ 1,782 1 % 3 %
 

Software revenue was flat on a constant currency basis driven by lower
software license and software maintenance, partially offset by growth in
cloud revenue.

Services revenue was up 5% on a constant currency basis driven by
continued momentum in managed service offerings and implementation
services.

Hardware revenue was up 4% on a constant currency basis. ATM revenue
increased 26% on a constant currency basis primarily due to higher
backlog conversion as we significantly ramped production. SCO revenue
decreased 16% on a constant currency basis due to the timing of customer
roll-outs. POS revenue decreased 12% on a constant currency basis in the
quarter compared to growth of 20% on a constant currency basis in the
prior year, which benefited from several large customer wins.

Gross Margin
Fourth quarter gross margin of $442 million
decreased from $510 million in the prior year period. Gross margin rate
was 24.5%, down from 28.6%. The decrease in gross margin was primarily
due to higher operating costs in the Hardware segment as well as
restructuring and transformation charges of $48 million incurred during
the fourth quarter of 2018.

Fourth quarter gross margin (non-GAAP) of $495 million decreased from
$523 million in the prior year period. Gross margin rate (non-GAAP) was
27.5%, down from 29.3%. The decrease in gross margin (non-GAAP) was
primarily due to higher operating costs in the Hardware segment.

Expenses
Fourth quarter operating expenses of $379 million
increased from $308 million in the prior year period. The increase in
operating expenses was primarily due to restructuring and transformation
expenses of $77 million incurred during the fourth quarter of 2018.

Fourth quarter operating expenses (non-GAAP) of $281 million decreased
from $287 million in the prior period. The decrease in operating
expenses (non-GAAP) was due to cost reduction benefits realized,
partially offset by higher employee-related expenses.

Operating Income
Fourth quarter income from operations of
$63 million decreased from $202 million in the prior year period. Income
from operations reflected restructuring and transformation expenses of
$125 million incurred during the fourth quarter of 2018.

Fourth quarter operating income (non-GAAP) of $214 million decreased
from $236 million in the prior period. Operating income (non-GAAP)
reflected lower profit in the Hardware segment and higher employee
related expenses.

Other (Expense)
Fourth quarter other (expense) of $3 million
decreased from $71 million in the prior period. The pension mark to
market adjustment was income of $45 million in the fourth quarter of
2018 compared to expense of $28 million in the fourth quarter of 2017.
Fourth quarter other (expense) (non-GAAP) of $48 million increased from
$43 million compared to the prior year period due to higher interest
expense.

Income Tax Expense (Benefit)
Fourth quarter income tax
expense of $93 million decreased from $164 million in the prior year
period. The fourth quarter effective income tax rate was 155% compared
to 125% in the prior year period. Income tax decreased primarily due to
lower income before taxes in the quarter and the impact of U.S. tax
reform.

Fourth quarter income tax expense (non-GAAP) of $40 million decreased
from $49 million in the prior year period. The fourth quarter effective
income tax rate (non-GAAP) was 24% compared to 25% in the prior year
period. Income tax (non-GAAP) decreased primarily due to lower income
before taxes in the quarter.

Net Loss from Continuing Operations Attributable to NCR
Fourth
quarter net loss from continuing operations attributable to NCR of $33
million increased from net loss from continuing operations of $35
million in the prior year period. Fourth quarter net income from
continuing operations attributable to NCR (non-GAAP) of $126 million
decreased from $142 million in the prior year period.

Cash Flow
Fourth quarter cash provided by operating
activities of $409 million decreased from cash provided by operating
activities of $482 million in the prior year period. Free cash flow was
$317 million in the fourth quarter of 2018 as compared to $400 million
in the fourth quarter of 2017. The decreases were due to lower earnings
in the fourth quarter of 2018 and higher inventory as a result of the
hardware initiatives.

Full Year 2018 Operating Results

Full year 2018 revenue of $6.41 billion was down 2% from 2017. Foreign
currency fluctuations did not have an impact on the full year revenue
comparison.

Full year 2018 GAAP diluted EPS
of $(0.72) was down from $1.01 in 2017. Full year 2018 diluted EPS
(non-GAAP) of $2.62 was down from $3.20 in 2017.

Full year cash provided by operating activities was $572 million and
full year free cash flow was $223 million.

Restructuring and Transformation Initiatives

Our previously announced restructuring and transformation initiatives
continue to progress on track. In Services, our performance and profit
improvement program continues to deliver revenue growth and margin
expansion. In Hardware, we are continuing the move to a more variable
cost structure by reducing the number of manufacturing plants and
ramping up production with contract manufacturers.

In order to focus the organization on the strategic growth areas, in the
fourth quarter of 2018, we announced a spend optimization program to
drive cost savings through operational efficiencies to generate at least
$100 million of savings in 2019. These initiatives will create
efficiencies in our corporate functions, reduce spend in the
non-strategic areas and limit discretionary spending. We incurred a
pre-tax charge of $64 million during the fourth quarter of 2018 and
expect to incur an additional $30 million in 2019 for a total pre-tax
charge of approximately $94 million. The cash impact of this program was
$19 million during the fourth quarter of 2018 and is expected to be an
additional $40 million to $50 million in 2019 for a total cash impact of
approximately $60 million to $70 million.

Full Year 2019 Outlook

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

2018 Fourth Quarter Earnings Conference Call

A conference call is scheduled for today at 4:30 p.m. (EST) to discuss
the fourth quarter 2018 results and guidance for full year 2019. Access
to the conference call and accompanying slides, as well as a replay of
the call, are available on 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 2136365.

More information on NCR’s Q4 2018 earnings, including additional
financial information and analysis, is available on NCR’s Investor
Relations website at http://investor.ncr.com/.

About NCR Corporation

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

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

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

Non-GAAP Financial Measures

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

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

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

Free Cash Flow and Free Cash Flow as a Percentage of Non-GAAP Net
Income (or Free Cash Flow Conversion Rate).
NCR defines free cash
flow as net cash provided by/used in operating activities and cash flow
provided by/used in discontinued operations less capital expenditures
for property, plant and equipment, additions to capitalized software,
discretionary pension contributions and pension settlements. NCR’s
management uses free cash flow to assess the financial performance of
the Company and believes it is useful for investors because it relates
the operating cash flow of the Company to the capital that is spent to
continue and improve business operations. In particular, free cash flow
indicates the amount of cash generated after capital expenditures, which
can be used for, among other things, investment in the Company’s
existing businesses, strategic acquisitions, strengthening the Company’s
balance sheet, repurchase of Company stock and repayment of the
Company’s debt obligations. Free cash flow does not represent the
residual cash flow available for discretionary expenditures since there
may be other nondiscretionary expenditures that are not deducted from
the measure. NCR also describes the ratio of free cash flow to non-GAAP
net income (or free cash flow conversion rate), which is calculated as
free cash flow divided by non-GAAP net income. NCR’s management targets
an annual free cash flow conversion rate at or above the range described
in this release because management believes that a conversion rate at or
above that range represents the efficient conversion of non-GAAP net
income to free cash flow for its business. Free cash flow and free cash
flow conversion rate do not have uniform definitions under GAAP and,
therefore, NCR’s definitions may differ from other companies’
definitions of these measures.

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

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

 

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

 
$ in millions     Q4 2018     Q4 2017
Gross Margin (GAAP) $ 442 $ 510
Transformation and restructuring costs 48
Acquisition-related amortization of intangibles   5     13  
Gross Margin (Non-GAAP) $ 495   $ 523  
 

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

 
Q4 2018 Q4 2017
Gross Margin Rate (GAAP) 24.5 % 28.6 %
Transformation and restructuring costs 2.7 % %
Acquisition-related amortization of intangibles   0.3 %   0.7 %
Gross Margin Rate (Non-GAAP)   27.5 %   29.3 %
 

Reconciliation of Operating Expenses (GAAP) to Operating
Expenses (non-GAAP)

 
$ in millions Q4 2018 Q4 2017
Operating Expenses (GAAP) $ 379 $ 308
Transformation and restructuring costs (77 ) (3 )
Acquisition-related amortization of intangibles (16 ) (16 )
Acquisition-related costs   (5 )   (2 )
Operating Expenses (Non-GAAP) $ 281   $ 287  
 

Reconciliation of Income from Operations (GAAP) to Operating
Income (non-GAAP)

 
$ in millions Q4 2018 Q4 2017
Income from Operations (GAAP) $ 63 $ 202
Transformation and restructuring costs 125 3
Acquisition-related amortization of intangibles 21 29
Acquisition-related costs   5     2  
Operating Income (Non-GAAP) $ 214   $ 236  
 

Reconciliation of Other Income (Expense) (GAAP) to Other Income
(Expense) (non-GAAP)

 
$ in millions Q4 2018 Q4 2017
Other Income (Expense) (GAAP) $ (3 ) $ (71 )
Pension mark-to-market adjustments   (45 )   28  
Other Income (Expense) (Non-GAAP) $ (48 ) $ (43 )
 

Reconciliation of Income Tax Expense (GAAP) to Income Tax
Expense (non-GAAP)

 
$ in millions Q4 2018 Q4 2017
Income Tax Expense (Benefit) (GAAP) $ 93 $ 164
Transformation and restructuring costs 29 2
Acquisition-related amortization of intangibles 3 9
Acquisition-related costs 1 1
Pension mark-to-market adjustments (1 ) 3
Impact of U.S. tax reform   (85 )   (130 )
Income Tax Expense (Non-GAAP) $ 40   $ 49  
 

Reconciliation of Net Income (Loss) from Continuing Operations
Attributable to NCR (GAAP) to

Net Income from
Continuing Operations Attributable to NCR (non-GAAP)

 
$ in millions Q4 2018 Q4 2017
Net Income from Continuing Operations Attributable to NCR (GAAP) $ (33 ) $ (35 )
Transformation and restructuring costs 96 1
Acquisition-related amortization of intangibles 18 20
Acquisition-related costs 4 1
Pension mark-to-market adjustments (44 ) 25
Impact of U.S. tax reform   85     130  
Net Income from Continuing Operations Attributable to NCR
(Non-GAAP)
$ 126   $ 142  

Contacts

News Media Contact
Scott Sykes
NCR Corporation
212.589.8428
[email protected]

Investor Contact
Michael Nelson
NCR Corporation
678.808.6995
[email protected]

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