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): February 8, 2018
NCR CORPORATION
(Exact name of registrant as specified in its charter)
Commission File Number 001-00395
Maryland | 31-0387920 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
864 Spring Street NW
Atlanta, GA 30308
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (937) 445-5000
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02. Results of Operations and Financial Condition.
On February 8, 2018, the Company issued a press release setting forth its fourth quarter 2017 financial results along with its first quarter 2018 and fiscal year 2018 financial outlook. A copy of the press release is attached hereto as Exhibit 99.1 and hereby incorporated by reference.
Item 7.01. Regulation FD Disclosure.
On February 8, 2018, the Company will hold its previously announced conference call to discuss its fourth quarter 2017 results, its first quarter 2018 financial outlook and fiscal year 2018 financial outlook. A copy of supplementary materials that will be referred to in the conference call, and which were posted to the Company’s website, is attached hereto as Exhibit 99.2.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits:
The following exhibits are attached with this current report on Form 8-K:
Exhibit No. | Description |
99.1 | Press Release issued by the Company, dated February 8, 2018 |
99.2 | Supplemental materials, dated February 8, 2018 |
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Index to Exhibits
The following exhibits are attached with this current report on Form 8-K:
Exhibit No. Description
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
NCR Corporation | ||
By: | /s/ Robert Fishman | |
Robert Fishman | ||
Executive Vice President and Chief Financial Officer | ||
Date: February 8, 2018
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 | NEWS RELEASE | |
February 8, 2018
NCR Announces Fourth Quarter and Full Year 2017 Results
ATLANTA - NCR Corporation (NYSE: NCR) reported financial results today for the three and twelve months ended December 31, 2017. Fourth quarter and full year highlights include:
• | Revenue of $1.78 billion, at the high end of previously provided guidance |
• | Software revenue up 1% driven by cloud revenue growth of 6%; Full year net ACV of $67 million, up 46% from $46 million in the prior year |
• | GAAP diluted EPS of $(0.38), includes $130 million non-cash charge related to US tax reform; Non-GAAP diluted EPS of $0.92, at the high end of previously provided guidance |
• | Services gross margin expansion of 280 basis points |
• | Full year cash flow from operations of $755 million, and free cash flow of $453 million, both within previously provided guidance |
• | $300 million share repurchase planned for 2018 with $125 million completed to date |
• | 2018 guidance announced |
“Our fourth quarter results were consistent with our guidance and reflect continued momentum in strategic areas such as cloud and Services margin expansion," said Chairman and CEO Bill Nuti. "While ATM revenue was lower than expected in 2017, growth in unattached software, cloud, and recurring revenues, allowed us to build a stronger foundation going into 2018. NCR continues to position itself as one of the world's largest cloud companies facilitating omni-channel commerce and digital transformation, and our SaaS solutions are gaining traction as evidenced by consistent double digit net ACV growth. We enter 2018 excited about the year ahead and confident in our company strategy. As such, we are also announcing our repurchase of up to $300 million of shares in 2018.”
“Going forward, we are focused on improving execution and we will leverage our growing strength in cloud, combined with our end-to-end smart edge hardware and services solution assets to deliver unmatched value in the markets we serve, as businesses of every size undergo Omni-Channel, digital enablement, and channel transformation journeys,” said President and COO Mark Benjamin. “As we do this in 2018, we will also prioritize driving sustainable margin improvement in our hardware and services segments via specific programs targeted at driving higher productivity, process efficiency, and, using technology as an enabler. As we finalize these restructuring programs, we plan to achieve run-rate savings of approximately $150 million per year by 2020.”
In this release, we use certain performance metrics as well as certain non-GAAP measures, including presenting certain measures on a constant currency and adjusted constant currency basis. The performance metrics include net annual contract value (or Net ACV) and the non-GAAP measures include free cash flow and others with the words “non-GAAP," "adjusted," or "constant currency" in their titles. The performance metrics are listed and described, and the non-GAAP measures are listed, described, and reconciled to their most directly comparable GAAP measures, under the heading "Performance Metrics and Non-GAAP Financial Measures" later in this release.
Fourth Quarter 2017 Operating Results
Revenue
Fourth quarter revenue of $1.78 billion was down 1% year-over-year. Foreign currency fluctuations had a favorable impact on the revenue comparison of 2%.
The following table shows the revenue by segment for the fourth quarter:
$ in millions | 2017 | 2016 | % Change | % Change Constant Currency | |||||||||
Software License | $ | 95 | $ | 103 | (8 | %) | (10 | %) | |||||
Software Maintenance | 96 | 96 | — | % | (2 | %) | |||||||
Cloud | 156 | 147 | 6 | % | 6 | % | |||||||
Professional Services | 161 | 156 | 3 | % | 1 | % | |||||||
Software Revenue | $ | 508 | $ | 502 | 1 | % | — | % | |||||
Services Revenue | $ | 619 | $ | 598 | 4 | % | 2 | % | |||||
ATM | $ | 303 | $ | 385 | (21 | %) | (22 | %) | |||||
SCO | 131 | 132 | (1 | %) | (1 | %) | |||||||
POS | 218 | 177 | 23 | % | 20 | % | |||||||
IPS | 3 | 8 | (63 | %) | (63 | %) | |||||||
Hardware Revenue | $ | 655 | $ | 702 | (7 | %) | (9 | %) | |||||
Total Revenue | $ | 1,782 | $ | 1,802 | (1 | %) | (3 | %) | |||||
Software revenue was up 1% primarily due to cloud revenue growth of 6% and professional services revenue growth of 3%. This was partially offset by lower software license revenue of 8% due to lower software license revenue associated with lower hardware sales.
Services revenue was up 4% driven by hardware maintenance and implementation services growth as a result of continued momentum in channel transformation trends.
Hardware revenue was down 7% due to a 21% decline in ATM revenue and a 1% decline in SCO revenue, partially offset by a 23% increase in POS revenue. ATM revenue reflected the lower backlog starting the quarter, but was better than expected. SCO revenue was roughly flat, as expected, but grew 66% sequentially from the third quarter of 2017. POS revenue continued its momentum and was up significantly in the quarter due to product replacements and new product introductions.
Gross Margin
Fourth quarter gross margin of $515 million increased 8% from $479 million. Gross margin rate was 28.9%, up from 26.6%. During the fourth quarter of 2017, our annual pension mark-to-market adjustment was $1 million of benefit compared to $38 million of cost in the prior year.
Fourth quarter gross margin (non-GAAP) of $527 million decreased 1% from $530 million. Gross margin rate (Non-GAAP) was 29.6%, up from 29.4%. The increase in gross margin rate (non-GAAP) was primarily due to continued focus on productivity improvements in our Services segment, partially offset by lower software license revenue, decreased ATM volumes and new product introductions.
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Expenses
Fourth quarter operating expenses of $334 million increased from $333 million. During the fourth quarter of 2017, our annual pension mark-to-market adjustment was $29 million of expense compared to $47 million of expense in the prior year.
Fourth quarter operating expenses (non-GAAP) of $284 million increased from $266 million. The increases in expenses were due to increased sales investment as we expand our strategic offers and go-to-market strategy.
Operating Income
Fourth quarter operating income of $181 million increased 24% from $146 million. Operating margin rate was 10.2%, up from 8.1%. During the fourth quarter of 2017, we recorded our annual pension mark-to-market adjustment which was $28 million compared to $85 million in the prior year.
Fourth quarter operating income (non-GAAP) of $243 million decreased 8% from $264 million. Operating margin rate (non-GAAP) was 13.6%, down from 14.7%. Operating margin rate (non-GAAP) reflected lower software license revenue, decreased ATM volumes and increased sales investment partially offset by continued services margin expansion. For the full year, operating margin rate (non-GAAP) increased and is expected to expand in 2018.
Other (Expense)
Fourth quarter other (expense) of $50 million decreased 12% from $57 million. Fourth quarter other (expense) (non-GAAP) of $50 million decreased 11% from $56 million. These decreases were primarily due to higher foreign currency losses in the fourth quarter of 2016.
Income Tax Expense and Impact of US Tax Reform
Fourth quarter income tax expense of $164 million increased from $17 million. Income tax expense includes a $130 million non-cash charge related to the impact of the U.S. Tax Cuts and Jobs Act enacted in December 2017. The non-cash charge represents a provisional amount and NCR’s current best estimate, which may be refined and adjusted over the course of 2018.
Fourth quarter income tax expense (non-GAAP) of $49 million increased from $36 million in the prior year. Income tax expense (non-GAAP) increased due to more favorable discrete benefits in the prior year period.
Net Income from Continuing Operations Attributable to NCR
Fourth quarter net loss from continuing operations attributable to NCR was $35 million decreased from net income from continuing operations attributable to NCR of $68 million in the prior year. Fourth quarter net income from continuing operations attributable to NCR (non-GAAP) of $142 million decreased from $168 million.
Cash Flow
Fourth quarter cash provided by operating activities of $484 million decreased from $525 million. Free cash flow was $402 million in the fourth quarter of 2017 as compared to $449 million in the fourth quarter of 2016. Fourth quarter cash flow was strong, but was lower than the prior year due to a $100 million working capital improvement in the fourth quarter of 2016. Full year cash provided by operating activities was $755 million, and full year free cash flow was $453 million, both within previously provided guidance.
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Share Repurchase Program
During 2018, NCR plans to repurchase up to $300 million of its common stock under its previously authorized share repurchase programs, and has repurchased shares of its common stock for approximately $125 million through the date of this release.
Full Year 2018 Outlook
In 2018, our revenue growth is expected to be 0% to 3%. Our GAAP diluted earnings per share is expected to be $2.08 to $2.48, and our non-GAAP diluted earnings per share is expected to be $3.30 to $3.45. Our non-GAAP diluted earnings per share guidance assumes an effective tax rate of 24% for 2018 compared to 25% in 2017. The decrease is due to the expected impact of U.S. tax reform. Free cash flow is expected to be approximately 90% of non-GAAP net income.
To accelerate our transformation journey, we are evaluating programs to prioritize driving sustainable margin improvement in our hardware and services segments targeted at driving higher productivity, process efficiency, and, using technology as an enabler. As we finalize these programs, NCR expects to incur a related pre-tax charge over the next two years in the range of approximately $200 million to $250 million, with $100 million to $150 million in 2018, that will be included in income from operations. The cash impact of the restructuring plan is expected to be approximately $150 million to $200 million over the next two years, with $100 million in 2018. We plan to achieve run-rate savings of approximately $150 million per year by 2020. The estimate of the pre-tax charges and cash impact has been included in our 2018 GAAP diluted earnings per share and free cash flow guidance.
Q1 2018 Outlook
For the first quarter of 2018, revenue growth is expected to be down 1% to up 2%, GAAP diluted earnings per share is expected to be $0.16 to $0.29, and non-GAAP diluted earnings per share is expected to be $0.41 to $0.47.
NCR will provide additional information regarding its first quarter and full year 2018 guidance during its fourth quarter earnings conference call and webcast.
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2017 Fourth Quarter Earnings Conference Call
A conference call is scheduled for today at 4:30 p.m. (EDT) to discuss the fourth quarter 2017 results and guidance for first quarter and full year 2018. Access to the conference call and accompanying slides, as well as a replay of the call, are available on NCR's web site at http://investor.ncr.com/. Additionally, the live call can be accessed by dialing 888-820-9413 (United States/Canada Toll-free) or 786-460-7169 (International Toll) and entering the participant passcode 2459485.
More information on NCR’s Q4 2017 earnings, including additional financial information and analysis, is available on NCR’s Investor Relations website at http://investor.ncr.com/.
About NCR Corporation
NCR Corporation (NYSE: NCR) is a leader in omni-channel solutions, turning everyday interactions with businesses into exceptional experiences. With its software, hardware, and portfolio of services, NCR enables nearly 700 million transactions daily across financial, retail, hospitality, travel, telecom and technology industries. NCR solutions run the everyday transactions that make your life easier. NCR is headquartered in Atlanta, Ga., with about 30,000 employees and does business in 180 countries. NCR is a trademark of NCR Corporation in the United States and other countries. NCR encourages investors to visit its website which is updated regularly with financial and other important information about NCR.
Website: www.ncr.com
Twitter: @NCRCorporation
Facebook: www.facebook.com/ncrcorp
LinkedIn: https://www.linkedin.com/company/ncr-corporation
YouTube: www.youtube.com/user/ncrcorporation
News Media Contact
Scott Sykes
NCR Corporation
212.589.8428
scott.sykes@ncr.com
Investor Contact
Michael Nelson
NCR Corporation
678.808.6995
michael.nelson@ncr.com
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Note to Investors This release contains forward-looking statements. Forward-looking statements use words such as “expect,” “anticipate,” “outlook,” “intend,” “plan,” “believe,” “will,” “should,” “would,” “could,” and words of 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 plans for further share repurchases in 2018; NCR’s momentum in strategic areas; market acceptance of NCR’s SaaS solutions; NCR’s confidence in its strategy; NCR’s areas of focus going forward, and its ability to deliver value in the markets its serves; expectations regarding the omni-channel, digital enablement and channel transformation journeys of businesses of every size; NCR’s areas of priority for its hardware and services segments in 2018 and its programs to drive sustainable margin improvement, including the expected timing, costs and benefits thereof; and NCR’s full-year and first quarter financial guidance and outlook (including the sections entitled “2018 Outlook” and “Q1 2018 Outlook”) and the expected type and magnitude of the non-operational adjustments included in any forward-looking non-GAAP measures. Forward-looking statements are based on our current beliefs, expectations and assumptions, which may not prove to be accurate, and involve a number of known and unknown risks and uncertainties, many of which are out of NCR’s control. Forward-looking statements are not guarantees of future performance, and there are a number of important factors that could cause actual outcomes and results to differ materially from the results contemplated by such forward-looking statements, including those factors relating to: the strength of demand for ATMs and other financial services hardware and its effect on the results of our businesses and reportable segments; domestic and global economic and credit conditions including, in particular, those resulting from the imposition or threat of protectionist trade policies or import or export tariffs, global and regional market conditions and spending trends in the financial services and retail industries, new comprehensive U.S. tax legislation, modified or new global or regional trade agreements, the determination by the United Kingdom to exit the European Union, uncertainty over further potential changes in Eurozone participation and fluctuations in oil and commodity prices; the transformation of our business model and our ability to sell higher-margin software and services; our ability to improve execution in our sales and services organizations; our ability to successfully introduce new solutions and compete in the information technology industry; cybersecurity risks and compliance with data privacy and protection requirements; the possibility of disruptions in or problems with our data center hosting facilities; defects or errors in our products; the impact of our indebtedness and its terms on our financial and operating activities; the historical seasonality of our sales; tax rates and new US tax legislation; foreign currency fluctuations; the success of our restructuring plans and cost reduction initiatives; manufacturing disruptions; 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; environmental exposures from our historical and ongoing manufacturing activities; and uncertainties with regard to regulations, lawsuits, claims, and other matters across various jurisdictions. Additional information concerning these and other factors can be found in the Company’s filings with the U.S. Securities and Exchange Commission, including the Company’s most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8- K. Any forward-looking statement speaks only as of the date on which it is made. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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Performance Metrics and Non-GAAP Financial Measures
Performance Metrics. The term “net annual contract value” or “net ACV” for any particular period means NCR’s net bookings for cloud revenue during the period, and is calculated as twelve months of expected subscription revenues under new cloud contracts during such period less twelve months of subscription revenues under cloud contracts that expired or were terminated during such period, adjusted for twelve months of expected pricing discounts or price increases from renewals of existing contracts. Net ACV is a forward-looking measure that NCR tracks and discloses as an indicator of potential cloud revenue growth in future periods.
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), 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), 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 and net income from continuing operations attributable to NCR, respectively. Due to the non-operational nature of these pension and other special items, NCR's management uses these non-GAAP measures to evaluate year-over-year operating performance. NCR also uses operating income (non-GAAP) and diluted EPS (non-GAAP), to manage and determine the effectiveness of its business managers and as a basis for incentive compensation. NCR believes these measures are useful for investors because they provide a more complete understanding of NCR's underlying operational performance, as well as consistency and comparability with NCR's past reports of financial results.
Free Cash Flow and Free Cash Flow as a Percentage of Non-GAAP Net Income (or Free Cash Flow Conversion Rate). NCR defines free cash flow as net cash provided by/used in operating activities and cash flow provided by/used in discontinued operations less capital expenditures for property, plant and equipment, additions to capitalized software, discretionary pension contributions and pension settlements. NCR's management uses free cash flow to assess the financial performance of the Company and believes it is useful for investors because it relates the operating cash flow of the Company to the capital that is spent to continue and improve business operations. In particular, free cash flow indicates the amount of cash generated after capital expenditures which can be used for, among other things, investment in the Company's existing businesses, strategic acquisitions, strengthening the Company's balance sheet, repurchase of Company stock and repayment of the Company's debt obligations. Free cash flow does not represent the residual cash flow available for discretionary expenditures since there may be other nondiscretionary expenditures that are not deducted from the measure. NCR also describes the ratio of free cash flow to non-GAAP net income (or free cash flow conversion rate), which is calculated as free cash flow divided by non-GAAP net income. NCR’s management targets an annual free cash flow conversion rate at or above the range described in this release because management believes that a conversion rate at or above that range represents the efficient conversion of non-GAAP net income to free cash flow for its business. Free cash flow and free cash flow conversion rate do not have uniform definitions under GAAP and, therefore, NCR's definitions may differ from other companies' definitions of these measures.
Constant Currency, IPS Divestiture and Adjusted 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 also presents certain financial measures on an adjusted constant currency basis, which excludes both the effects of foreign currency translation, as described above, and the results of NCR’s Interactive Printer Solutions (IPS) business for the comparable prior period after completion of the sale of the business (which results were previously included in NCR’s Hardware segment). NCR completed the sale of all but the Middle East and Africa assets of its Interactive Printer Solutions (IPS) division to Atlas Holdings LLC on May 27, 2016. NCR’s management believes that presentation of financial measures without these results is more representative of the company's period-over-period operating performance, and provides additional insight into historical and/or future performance, which may be helpful for investors.
NCR's definitions and calculations of these non-GAAP measures may differ from similarly-titled measures reported by other companies and cannot, therefore, be compared with similarly-titled measures of other companies. These non-GAAP measures should not be considered as substitutes for, or superior to, results determined in accordance with GAAP. These non-GAAP measures are reconciled to their most directly comparable GAAP measures in the tables below.
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Reconciliation of Gross Margin (GAAP) to Gross Margin (non-GAAP)
$ in millions | Q4 2017 | Q4 2016 | |||||
Gross Margin (GAAP) | $ | 515 | $ | 479 | |||
Acquisition-related amortization of intangibles | 13 | 13 | |||||
Pension mark-to-market adjustments | (1 | ) | 38 | ||||
Gross Margin (Non-GAAP) | $ | 527 | $ | 530 | |||
Reconciliation of Gross Margin Rate (GAAP) to Gross Margin Rate (non-GAAP)
Q4 2017 | Q4 2016 | ||||
Gross Margin Rate (GAAP) | 28.9 | % | 26.6 | % | |
Acquisition-related amortization of intangibles | 0.7 | % | 0.7 | % | |
Pension mark-to-market adjustments | — | % | 2.1 | % | |
Gross Margin Rate (Non-GAAP) | 29.6 | % | 29.4 | % | |
Reconciliation of Operating Expenses (GAAP) to Operating Expenses (non-GAAP)
$ in millions | Q4 2017 | Q4 2016 | |||||
Operating Expenses (GAAP) | $ | 334 | $ | 333 | |||
Transformation/Restructuring Costs | (3 | ) | (3 | ) | |||
Acquisition-related amortization of intangibles | (16 | ) | (15 | ) | |||
Acquisition-related costs | (2 | ) | (2 | ) | |||
Pension mark-to-market adjustments | (29 | ) | (47 | ) | |||
Operating Expenses (Non-GAAP) | $ | 284 | $ | 266 | |||
Reconciliation of Income from Operations (GAAP) to Operating Income (non-GAAP)
$ in millions | Q4 2017 | Q4 2016 | |||||
Income from Operations (GAAP) | $ | 181 | $ | 146 | |||
Transformation/Restructuring Costs | 3 | 3 | |||||
Acquisition-related amortization of intangibles | 29 | 28 | |||||
Acquisition-related costs | 2 | 2 | |||||
Pension mark-to-market adjustments | 28 | 85 | |||||
Operating Income (Non-GAAP) | $ | 243 | $ | 264 | |||
Reconciliation of Operating Margin rate (GAAP) to Operating Margin rate (non-GAAP)
Q4 2017 | Q4 2016 | ||||
Operating Margin rate (GAAP) | 10.2 | % | 8.1 | % | |
Transformation/Restructuring Costs | 0.2 | % | 0.2 | % | |
Acquisition-related amortization of intangibles | 1.6 | % | 1.6 | % | |
Acquisition-related costs | — | % | 0.1 | % | |
Pension mark-to-market adjustments | 1.6 | % | 4.7 | % | |
Operating Margin rate (Non-GAAP) | 13.6 | % | 14.7 | % | |
Reconciliation of Other (Expense) (GAAP) to Other (Expense) (non-GAAP)
$ in millions | Q4 2017 | Q4 2016 | |||||
Other (Expense) (GAAP) | $ | (50 | ) | $ | (57 | ) | |
Divestiture and liquidation losses | — | 1 | |||||
Other (Expense) (Non-GAAP) | $ | (50 | ) | $ | (56 | ) | |
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Reconciliation of Income Tax Expense (GAAP) to Income Tax Expense (non-GAAP)
$ in millions | Q4 2017 | Q4 2016 | |||||
Income Tax Expense (GAAP) | $ | 164 | $ | 17 | |||
Transformation/Restructuring Costs | 2 | 2 | |||||
Acquisition-related amortization of intangibles | 9 | 9 | |||||
Acquisition-related costs | 1 | — | |||||
Pension mark-to-market adjustments | 3 | 7 | |||||
Divestiture and liquidation losses | — | 1 | |||||
Impact of U.S. tax reform | (130 | ) | — | ||||
Income Tax Expense (Non-GAAP) | $ | 49 | $ | 36 | |||
Reconciliation of Net Income from Continuing Operations Attributable to NCR (GAAP) to
Net Income from Continuing Operations Attributable to NCR (non-GAAP)
$ in millions | Q4 2017 | Q4 2016 | |||||
Net (Loss) Income from Continuing Operations Attributable to NCR (GAAP) | $ | (35 | ) | $ | 68 | ||
Transformation/Restructuring Costs | 1 | 1 | |||||
Acquisition-related amortization of intangibles | 20 | 19 | |||||
Acquisition-related costs | 1 | 2 | |||||
Pension mark-to-market adjustments | 25 | 78 | |||||
Impact of U.S. tax reform | 130 | — | |||||
Net Income from Continuing Operations Attributable to NCR (Non-GAAP) | $ | 142 | $ | 168 | |||
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Reconciliation of Diluted Earnings Per Share (GAAP) to Non-GAAP Diluted Earnings Per Share (non-GAAP)
Q4 2017 Actual | Q4 2016 Actual | 2017 Actual | 2016 Actual | Q1 2018 Guidance (2) | 2018 Guidance (2) | ||||||||||||||||
Diluted Earnings Per Share (GAAP) (1) | $ | (0.38 | ) | $ | 0.43 | $ | 1.01 | $ | 1.80 | $0.16 - $0.29 | $2.08 - $2.48 | ||||||||||
Transformation/Restructuring Costs | 0.01 | 0.01 | 0.13 | 0.13 | 0.05 - 0.09 | 0.50 - 0.75 | |||||||||||||||
Acquisition-related amortization of intangibles | 0.13 | 0.12 | 0.51 | 0.53 | 0.10 | 0.42 | |||||||||||||||
Acquisition-related costs | 0.01 | 0.01 | 0.02 | 0.03 | 0.01 | 0.05 | |||||||||||||||
Deemed dividends related to Blackstone transaction | — | — | 0.39 | — | — | — | |||||||||||||||
Divestiture and liquidation losses | — | — | — | 0.03 | — | — | |||||||||||||||
Pension mark-to-market adjustments | 0.16 | 0.50 | 0.16 | 0.50 | — | — | |||||||||||||||
Impact of U.S. tax reform | 0.85 | — | 0.84 | — | — | — | |||||||||||||||
Diluted Earnings Per Share (non-GAAP) (1) | $ | 0.92 | $ | 1.07 | $ | 3.20 | $ | 3.02 | $0.41 - $0.47 | $3.30 - $3.45 | |||||||||||
(1) | Non-GAAP diluted EPS is determined using the conversion of the Series A Convertible Preferred Stock into common stock in the calculation of weighted average diluted shares outstanding. GAAP EPS is determined using the most dilutive measure, either including the impact of dividends or deemed dividends on the Company's Series A Convertible Preferred Stock in the calculation of net income or loss available to common stockholders or including the impact of the conversion of the Series A Convertible Preferred Stock into common stock in the calculation of the weighted average diluted shares outstanding. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may not mathematically reconcile. |
(2) | Except for the adjustments noted herein, this guidance does not include the effects of any future acquisitions/divestitures, restructuring activities, pension mark-to-market adjustments, taxes or other events, which are difficult to predict and which may or may not be significant. |
Reconciliation of Net Cash Provided by Operating Activities (GAAP) to Free Cash Flow (non-GAAP)
$ in millions | Q4 2017 QTD | Q4 2016 QTD | Q4 2017 YTD | Q4 2016 YTD | |||||||||||
Net cash provided by operating activities | $ | 484 | $ | 525 | $ | 755 | $ | 894 | |||||||
Total capital expenditures | (88 | ) | (67 | ) | (294 | ) | (227 | ) | |||||||
Net cash provided by (used in) discontinued operations | 6 | (9 | ) | (8 | ) | (39 | ) | ||||||||
Free cash flow | $ | 402 | $ | 449 | $ | 453 | $ | 628 | |||||||
* Note: The total capital expenditures of $294 million in 2017 includes $60 million related to the new world headquarters in Atlanta, Georgia. This $60 million is offset by $44 million of reimbursements by the lessor included in net cash provided by operating activities.
10
Reconciliation of Revenue Growth % (GAAP) to
Revenue Growth Constant Currency % (non-GAAP)
Three months ended December 31, 2017 | |||||
Revenue Growth % (GAAP) | Favorable (unfavorable) FX impact | Revenue Growth Constant Currency % (non-GAAP) | |||
Software License | (8)% | 2% | (10)% | ||
Software Maintenance | —% | 2% | (2)% | ||
Cloud | 6% | —% | 6% | ||
Professional Services | 3% | 2% | 1% | ||
Software | 1% | 1% | —% | ||
Services | 4% | 2% | 2% | ||
ATMs | (21)% | 1% | (22)% | ||
SCO | (1)% | —% | (1)% | ||
POS | 23% | 3% | 20% | ||
IPS | (63)% | —% | (63)% | ||
Hardware | (7)% | 2% | (9)% | ||
Total Revenue | (1)% | 2% | (3)% | ||
Twelve months ended December 31, 2017 | |||||||
Revenue Growth % (GAAP) | Favorable (unfavorable) FX impact | Divestiture impact | Revenue Growth Adjusted Constant Currency % (non-GAAP) | ||||
Software | 3% | —% | —% | 3% | |||
Services | 3% | —% | —% | 3% | |||
Hardware | (6)% | 1% | (5)% | (2)% | |||
Total Revenue | —% | —% | (1)% | 1% | |||
11
 | NCR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in millions, except per share amounts) | Schedule A |
For the Periods Ended December 31 | |||||||||||||||
Three Months | Twelve Months | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue | |||||||||||||||
Products | $ | 750 | $ | 805 | $ | 2,579 | $ | 2,737 | |||||||
Services | 1,032 | 997 | 3,937 | 3,806 | |||||||||||
Total Revenue | 1,782 | 1,802 | 6,516 | 6,543 | |||||||||||
Cost of products | 596 | 615 | 2,026 | 2,102 | |||||||||||
Cost of services | 671 | 708 | 2,626 | 2,659 | |||||||||||
Total gross margin | 515 | 479 | 1,864 | 1,782 | |||||||||||
% of Revenue | 28.9 | % | 26.6 | % | 28.6 | % | 27.2 | % | |||||||
Selling, general and administrative expenses | 256 | 248 | 932 | 926 | |||||||||||
Research and development expenses | 78 | 83 | 256 | 242 | |||||||||||
Restructuring-related charges | — | 2 | — | 15 | |||||||||||
Income from operations | 181 | 146 | 676 | 599 | |||||||||||
% of Revenue | 10.2 | % | 8.1 | % | 10.4 | % | 9.2 | % | |||||||
Interest expense | (41 | ) | (40 | ) | (163 | ) | (170 | ) | |||||||
Other (expense), net | (9 | ) | (17 | ) | (31 | ) | (50 | ) | |||||||
Total other (expense), net | (50 | ) | (57 | ) | (194 | ) | (220 | ) | |||||||
Income before income taxes and discontinued operations | 131 | 89 | 482 | 379 | |||||||||||
% of Revenue | 7.4 | % | 4.9 | % | 7.4 | % | 5.8 | % | |||||||
Income tax expense | 164 | 17 | 242 | 92 | |||||||||||
(Loss) income from continuing operations | (33 | ) | 72 | 240 | 287 | ||||||||||
(Loss) from discontinued operations, net of tax | (10 | ) | (11 | ) | (5 | ) | (13 | ) | |||||||
Net (loss) income | (43 | ) | 61 | 235 | 274 | ||||||||||
Net income attributable to noncontrolling interests | 2 | 4 | 3 | 4 | |||||||||||
Net (loss) income attributable to NCR | $ | (45 | ) | $ | 57 | $ | 232 | $ | 270 | ||||||
Amounts attributable to NCR common stockholders: | |||||||||||||||
(Loss) income from continuing operations | $ | (35 | ) | $ | 68 | $ | 237 | $ | 283 | ||||||
Dividends on convertible preferred stock | (11 | ) | (12 | ) | (47 | ) | (49 | ) | |||||||
Deemed dividend on modification of convertible preferred stock | — | — | (4 | ) | — | ||||||||||
Deemed dividend on convertible preferred shares related to redemption | — | — | (58 | ) | — | ||||||||||
Net (loss) income from continuing operations attributable to NCR common stockholders | (46 | ) | 56 | 128 | 234 | ||||||||||
(Loss) from discontinued operations, net of tax | (10 | ) | (11 | ) | (5 | ) | (13 | ) | |||||||
Net (loss) income attributable to NCR common stockholders | $ | (56 | ) | $ | 45 | $ | 123 | $ | 221 | ||||||
Net (loss) income per share attributable to NCR common stockholders: | |||||||||||||||
Net (loss) income per common share from continuing operations | |||||||||||||||
Basic | $ | (0.38 | ) | $ | 0.45 | $ | 1.05 | $ | 1.86 | ||||||
Diluted | $ | (0.38 | ) | $ | 0.43 | $ | 1.01 | $ | 1.80 | ||||||
Net (loss) income per common share | |||||||||||||||
Basic | $ | (0.46 | ) | $ | 0.36 | $ | 1.01 | $ | 1.76 | ||||||
Diluted | $ | (0.46 | ) | $ | 0.35 | $ | 0.97 | $ | 1.71 | ||||||
Weighted average common shares outstanding | |||||||||||||||
Basic | 121.9 | 124.5 | 121.9 | 125.6 | |||||||||||
Diluted (continuing operations) | 121.9 | 157.4 | 127.0 | 157.4 | |||||||||||
Diluted (net income) | 121.9 | 128.6 | 127.0 | 129.2 | |||||||||||
12
(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.
| NCR CORPORATION REVENUE AND OPERATING INCOME SUMMARY (Unaudited) (in millions) | Schedule B |
For the Periods Ended December 31 | |||||||||||||||||||||||
Three Months | Twelve Months | ||||||||||||||||||||||
2017 | 2016 | % Change | % Change Constant Currency | 2017 | 2016 | % Change | % Change Adjusted Constant Currency | ||||||||||||||||
Revenue by segment | |||||||||||||||||||||||
Software | $ | 508 | $ | 502 | 1% | —% | $ | 1,900 | $ | 1,841 | 3% | 3% | |||||||||||
Software Gross Margin Rate | 53.1 | % | 53.8 | % | 51.1 | % | 51.8 | % | |||||||||||||||
Services | 619 | 598 | 4% | 2% | 2,373 | 2,306 | 3% | 3% | |||||||||||||||
Services Gross Margin Rate | 25.0 | % | 22.2 | % | 24.7 | % | 21.6 | % | |||||||||||||||
Hardware | 655 | 702 | (7)% | (9)% | 2,243 | 2,396 | (6)% | (2)% | |||||||||||||||
Hardware Gross Margin Rate | 15.6 | % | 18.1 | % | 16.4 | % | 18.0 | % | |||||||||||||||
Total Revenue | $ | 1,782 | $ | 1,802 | (1)% | (3)% | $ | 6,516 | $ | 6,543 | —% | 1% | |||||||||||
Gross Margin Rate | 29.6 | % | 29.4 | % | 29.5 | % | 28.8 | % | |||||||||||||||
Operating income by segment | |||||||||||||||||||||||
Software | $ | 166 | $ | 172 | $ | 567 | $ | 577 | |||||||||||||||
% of Revenue | 32.7 | % | 34.3 | % | 29.8 | % | 31.3 | % | |||||||||||||||
Services | 79 | 62 | 288 | 201 | |||||||||||||||||||
% of Revenue | 12.8 | % | 10.4 | % | 12.1 | % | 8.7 | % | |||||||||||||||
Hardware | (2 | ) | 30 | (2 | ) | 62 | |||||||||||||||||
% of Revenue | (0.3 | )% | 4.3 | % | (0.1 | )% | 2.6 | % | |||||||||||||||
Subtotal-segment operating income | $ | 243 | $ | 264 | $ | 853 | $ | 840 | |||||||||||||||
% of Revenue | 13.6 | % | 14.7 | % | 13.1 | % | 12.8 | % | |||||||||||||||
Other adjustments (1) | 62 | 118 | 177 | 241 | |||||||||||||||||||
Total income from operations | $ | 181 | $ | 146 | $ | 676 | $ | 599 | |||||||||||||||
(1) | The following table presents the other adjustments for NCR: |
For the Periods Ended December 31 | |||||||||||||||
Three Months | Twelve Months | ||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Transformation/Restructuring costs | $ | 3 | $ | 3 | $ | 29 | $ | 26 | |||||||
Acquisition-related amortization of intangible assets | 29 | 28 | 115 | 123 | |||||||||||
Acquisition-related costs | 2 | 2 | 5 | 7 | |||||||||||
Pension mark-to-market adjustments | 28 | 85 | 28 | 85 | |||||||||||
Total other adjustments | $ | 62 | $ | 118 | $ | 177 | $ | 241 | |||||||
13
| NCR CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except per share amounts) | Schedule C |
December 31, 2017 | September 30, 2017 | December 31, 2016 | |||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 537 | $ | 405 | $ | 498 | |||||
Accounts receivable, net | 1,270 | 1,408 | 1,282 | ||||||||
Inventories | 780 | 824 | 699 | ||||||||
Other current assets | 243 | 263 | 278 | ||||||||
Total current assets | 2,830 | 2,900 | 2,757 | ||||||||
Property, plant and equipment, net | 341 | 321 | 287 | ||||||||
Goodwill | 2,741 | 2,741 | 2,727 | ||||||||
Intangibles, net | 578 | 591 | 672 | ||||||||
Prepaid pension cost | 118 | 115 | 94 | ||||||||
Deferred income taxes | 460 | 595 | 575 | ||||||||
Other assets | 586 | 587 | 561 | ||||||||
Total assets | $ | 7,654 | $ | 7,850 | $ | 7,673 | |||||
Liabilities and stockholders’ equity | |||||||||||
Current liabilities | |||||||||||
Short-term borrowings | $ | 52 | $ | 269 | $ | 50 | |||||
Accounts payable | 762 | 720 | 781 | ||||||||
Payroll and benefits liabilities | 219 | 202 | 234 | ||||||||
Deferred service revenue and customer deposits | 458 | 465 | 468 | ||||||||
Other current liabilities | 398 | 390 | 432 | ||||||||
Total current liabilities | 1,889 | 2,046 | 1,965 | ||||||||
Long-term debt | 2,939 | 2,984 | 3,001 | ||||||||
Pension and indemnity plan liabilities | 798 | 771 | 739 | ||||||||
Postretirement and postemployment benefits liabilities | 133 | 127 | 127 | ||||||||
Income tax accruals | 148 | 138 | 142 | ||||||||
Other liabilities | 200 | 197 | 138 | ||||||||
Total liabilities | 6,107 | 6,263 | 6,112 | ||||||||
Redeemable noncontrolling interests | 15 | 14 | 15 | ||||||||
Series A convertible preferred stock: par value $0.01 per share, 3.0 shares authorized, 0.8 shares issued and outstanding as of December 31, 2017, September 30, 2017, and 0.9 shares issued and outstanding as of December 31, 2016 | 810 | 799 | 847 | ||||||||
Stockholders' equity | |||||||||||
NCR stockholders' equity: | |||||||||||
Preferred stock: par value $0.01 per share, 100.0 shares authorized, no shares issued and outstanding as of December 31, 2017, September 30, 2017, and December 31, 2016 | — | — | — | ||||||||
Common stock: par value $0.01 per share, 500.0 shares authorized, 122.0, 121.5, and 124.6 shares issued and outstanding as of December 31, 2017, September 30, 2017, and December 31, 2016 | 1 | 1 | 1 | ||||||||
Paid-in capital | 60 | 44 | 32 | ||||||||
Retained earnings | 857 | 913 | 867 | ||||||||
Accumulated other comprehensive loss | (199 | ) | (188 | ) | (205 | ) | |||||
Total NCR stockholders' equity | 719 | 770 | 695 | ||||||||
Noncontrolling interests in subsidiaries | 3 | 4 | 4 | ||||||||
Total stockholders' equity | 722 | 774 | 699 | ||||||||
Total liabilities and stockholders' equity | $ | 7,654 | $ | 7,850 | $ | 7,673 | |||||
14
| NCR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions) | Schedule D |
For the Periods Ended December 31 | |||||||||||||||
Three Months | Twelve Months | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Operating activities | |||||||||||||||
Net (loss) income | $ | (43 | ) | $ | 61 | $ | 235 | $ | 274 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||
Loss from discontinued operations | 10 | 11 | 5 | 13 | |||||||||||
Depreciation and amortization | 91 | 85 | 354 | 344 | |||||||||||
Stock-based compensation expense | 17 | 16 | 77 | 61 | |||||||||||
Deferred income taxes | 154 | (29 | ) | 173 | 10 | ||||||||||
Gain on sale of property, plant and equipment and other assets | (1 | ) | — | (3 | ) | — | |||||||||
Loss on divestiture | — | 1 | — | 2 | |||||||||||
Impairment of long-lived and other assets | — | — | 1 | 2 | |||||||||||
Changes in assets and liabilities: | |||||||||||||||
Receivables | 136 | 49 | 29 | (89 | ) | ||||||||||
Inventories | 52 | 42 | (68 | ) | (86 | ) | |||||||||
Current payables and accrued expenses | 54 | 148 | (78 | ) | 216 | ||||||||||
Deferred service revenue and customer deposits | (10 | ) | 10 | 10 | 88 | ||||||||||
Employee benefit plans | 9 | 71 | (4 | ) | 33 | ||||||||||
Other assets and liabilities | 15 | 60 | 24 | 26 | |||||||||||
Net cash provided by operating activities | 484 | 525 | 755 | 894 | |||||||||||
Investing activities | |||||||||||||||
Expenditures for property, plant and equipment | (47 | ) | (28 | ) | (128 | ) | (73 | ) | |||||||
Proceeds from sales of property, plant and equipment | — | — | 6 | — | |||||||||||
Additions to capitalized software | (41 | ) | (39 | ) | (166 | ) | (154 | ) | |||||||
Business acquisition, net | (8 | ) | — | (8 | ) | — | |||||||||
Proceeds from divestiture | 3 | — | 3 | 47 | |||||||||||
Other investing activities, net | 3 | (1 | ) | 3 | (9 | ) | |||||||||
Net cash used in investing activities | (90 | ) | (68 | ) | (290 | ) | (189 | ) | |||||||
Financing activities | |||||||||||||||
Short term borrowings, net | (14 | ) | (6 | ) | (4 | ) | (8 | ) | |||||||
Payments on term credit facilities | (24 | ) | (13 | ) | (61 | ) | (97 | ) | |||||||
Payments on revolving credit facilities | (830 | ) | (695 | ) | (1,940 | ) | (1,431 | ) | |||||||
Borrowings on revolving credit facilities | 605 | 475 | 1,940 | 1,331 | |||||||||||
Debt issuance costs | — | (1 | ) | — | (9 | ) | |||||||||
Repurchases of Company common stock | — | — | (350 | ) | (250 | ) | |||||||||
Proceeds from employee stock plans | 4 | 5 | 15 | 15 | |||||||||||
Tax withholding payments on behalf of employees | (7 | ) | (9 | ) | (31 | ) | (16 | ) | |||||||
Other financing activities | (2 | ) | — | (3 | ) | (2 | ) | ||||||||
Net cash used in financing activities | (268 | ) | (244 | ) | (434 | ) | (467 | ) | |||||||
Cash flows from discontinued operations | |||||||||||||||
Net cash provided by (used in) discontinued operations | 6 | (9 | ) | (8 | ) | (39 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | — | (24 | ) | 16 | (29 | ) | |||||||||
(Decrease)/increase in cash and cash equivalents | 132 | 180 | 39 | 170 | |||||||||||
Cash and cash equivalents at beginning of period | 405 | 318 | 498 | 328 | |||||||||||
Cash and cash equivalents at end of period | $ | 537 | $ | 498 | $ | 537 | $ | 498 | |||||||
15
February 8, 2018
BILL NUTI, CHAIRMAN & CEO
MARK BENJAMIN, PRESIDENT & COO
BOB FISHMAN, CFO
Q4 2017 EARNINGS
CONFERENCE CALL
2
FORWARD-LOOKING STATEMENTS. Comments made during this conference call and in these materials contain forward-looking
statements. Statements that describe or relate to NCR's plans, goals, intentions, strategies, or financial outlook, and statements that do not
relate to historical or current fact, are examples of forward-looking statements. The forward-looking statements in these materials include
statements about NCR’s plans for further share repurchases in 2018; NCR’s full year 2018 financial guidance, and first quarter 2018 financial
guidance, and the expected type and magnitude of the non-operational adjustments included in any forward-looking non-GAAP measures;
NCR's initiatives to accelerate its transformation, and the expected timing, costs and benefits thereof; NCR's Mission One (M1) Services initiative
and its expected benefits on NCR's services margin profile; NCR's expected areas of focus to drive momentum; expectations for accelerating
cloud and recurring revenue; the status and momentum of NCR's Services and Hardware transformations; and NCR's expected free cash flow
generation and capital allocation strategy. Forward-looking statements are not guarantees of future performance, and there are a number
of important factors that could cause actual outcomes and results to differ materially from the results contemplated by such forward-looking
statements, including those factors listed in Item 1a "Risk Factors" of NCR's Annual Report on Form 10-K filed with the Securities and Exchange
Commission (SEC) on February 24, 2017, and those factors detailed from time to time in NCR's other SEC reports. These materials are dated
February 8, 2018, and NCR does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
NON-GAAP MEASURES. While NCR reports its results in accordance with generally accepted accounting principles in the United
States (GAAP), comments made during this conference call and in these materials will include or make reference to certain "non-GAAP"
measures, including: selected measures, such as period-over-period revenue growth, expressed on a constant currency basis and adjusted
constant currency basis, gross margin rate (non-GAAP), diluted earnings per share (non-GAAP), free cash flow (FCF), gross margin (non-GAAP),
free cash flow as a percentage of non-GAAP net income (or free cash flow conversion rate), net debt, adjusted EBITDA, the ratio of net debt
to adjusted EBITDA, operating expenses (non-GAAP), operating income (non-GAAP), interest and other expense (non-GAAP), income tax
expense (non-GAAP), income tax rate (non-GAAP), and net income (non-GAAP). These measures are included to provide additional useful
information regarding NCR's financial results, and are not a substitute for their comparable GAAP measures. Explanations of these non- GAAP
measures, and reconciliations of these non-GAAP measures to their directly comparable GAAP measures, are included in the accompanying
"Supplementary Materials" and are available on the Investor Relations page of NCR's website at www.ncr.com. Descriptions of many of these
non-GAAP measures are also included in NCR's SEC reports.
USE OF CERTAIN TERMS. As used in these materials, (i) the term "recurring revenue" means the sum of cloud, hardware maintenance
and software maintenance revenue, (ii) the term “net annual contract value” or “net ACV” for any particular period means NCR’s net bookings
for cloud revenue during the period, and is calculated as twelve months of expected subscription revenues under new cloud contracts during
such period less twelve months of subscription revenues under cloud contracts that expired or were terminated during such period, adjusted
for twelve months of expected pricing discounts or price increases from renewals of existing contracts, and (iii) the term "CC" means constant
currency.
These presentation materials and the associated remarks made during this conference call
are integrally related and are intended to be presented and understood together.
NOTES TO INVESTORS
3
Q4 results IN LINE WITH EXPECTATIONS
Improving CLOUD revenue growth; Net ACV of $67M, up
46% full year
Gross Margin RATE EXPANSION driven by strength in
Services
2018 GUIDANCE Revenue growth 0% - 3%; Non-GAAP EPS
of $3.30 - $3.45; Free cash flow conversion rate of ~90%
OVERVIEW
$300M SHARE REPURCHASE planned for 2018 with
$125M completed to date
4
Non-GAAP gross margin rate up 20 bps as
reported and down 10 bps CC
Non-GAAP Diluted EPS down 14% as reported and
down 20% CC
Strong performance in FY 2017; Q4 2016 benefited
from $100m working capital improvement
FX
Benefit
30 bps
FX
Benefit
$0.08
$1.80
billion
29.4% 29.6%
Q4 2016 Q4 2017
$0.92
Q4 2016 Q4 2017
$449
million
Q4 2016
$402
million
Q4 2017
Revenue
Non-GAAP Gross
Margin Rate
Non-GAAP Diluted EPS Free Cash Flow
Revenue down 1% as reported and down 3% CC;
Recurring revenue up 4% CC, 42% of total revenue
$1.78
billion
Q4 2017
$1.07
FX Benefit
$31 million
Q4 2017 FINANCIAL RESULTS
Q4 2016
5
Non-GAAP gross margin rate up 70 as reported
and CC
Non-GAAP Diluted EPS up 6% as reported
and 4% CC
92% FCF conversion rate in 2017; FY 2016
benefited from $100m working capital
improvement in Q4
No FX
impact
FX
Benefit
$0.06
$6.54
billion
28.8% 29.5%
2016 2017
$3.20
2016 2017
$628
million
2016
$453
million
2017
Revenue
Non-GAAP Gross
Margin Rate
Non-GAAP Diluted EPS Free Cash Flow
Revenue flat as reported and up 1% adjusted CC;
Recurring revenue up 3% CC, 44% of total revenue
$6.52
billion
2017
$3.02
FX Benefit
$8 million
IPS $124 million
FY 2017 FINANCIAL RESULTS
2016
6
NCR SOLUTION ECOSYSTEM
Branch
Transformation
Digitizing
the Bank
Digital
Channel
Omni-Channel
Commerce
Payments
Consumer
Engagement
& Experience
Travel & Events
Transformation
Security
Restaurant
Operations
Transformation
Outdoor
Transformation
Store Operations
Transformation
Store Transactions
Transformation
ATM
Re-invention
Cash
Management
ODSP
Omni-Channel Decision
Support Platform
7
TRANSFORMATION PROGRESS
What we said we would do What we did
IMPROVING SALES
EXECUTION
INCREASING CUSTOMER
SERVICES PRODUCTIVITY
AND LOYALTY
MAKING SOFTWARE
OUR BUSINESS
OPTIMIZING OUR
COST STRUCTURE
Created Industry Solutions Group
to optimize solution offers
World Class Customer Services
based on Cx Loyalty Scores up
500 bps from 2015
$2B Software Company with
~$600 M from Cloud;
Accelerated Cloud and
unattached SW license growth
Drove Services margin
expansion over 300 bps
How have we done so far?
8
ACCELERATING OUR TRANSFORMATION
Focus on ensuring success in our strategic plan to build share in the
most promising growth areas while driving further operating efficiencies
Expected P&L Charge of $200 million to $250 million over next 2 years
Expected Cash Costs of $150 million to $200 million over next 2 years
Annual Run Rate Savings of approximately $150 million by 2020
Investing in Software
products that will
accelerate growth
Driving growth in Services
through structural
improvements
Optimizing Hardware
production, sourcing and
supply chain strategy
9
Flat CC
Up 2%
CC
Down
9% CC
Down 80
bps CC
Up 280
bps CC
Down
330 bps
CC53.8% 53.1%
22.2%
25.0%
Q4 2016 Q4 2017 Q4 2016 Q4 2017
Software Gross Margin Services Gross Margin
18.1%
15.6%
Q4 2016 Q4 2017
Hardware Gross Margin
$502
million
$508
million
Q4 2016 Q4 2017
$598
million
$619
million
Q4 2017Q4 2016
Software Revenue Services Revenue
$702
million $655
million
Hardware Revenue
Q4 2017Q4 2016
Q4 2017 SEGMENT RESULTS
10
Q4 2017 Q4 2016 % Change
% Change
Constant
Currency
Software License $95 $103 (8)% (10)%
Attached License 37 45 (18)% (21)%
Unattached License 58 58 —% —%
Software Maintenance 96 96 —% (2)%
Cloud 156 147 6% 6%
Professional Services 161 156 3% 1%
Software Revenue $508 $502 1% —%
Software Gross Margin $270 $270 —% (1)%
Software Gross Margin Rate 53.1% 53.8% (70) bps (80) bps
Operating Income $166 $172 (3)% (5)%
Operating Income as a % of Revenue 32.7% 34.3% (160) bps (160) bps
$ in millions
SOFTWARE
Q4 2017 Update
KEY HIGHLIGHTS
• Cloud up 6% with accelerated sequential growth of $7 million driven by prior period bookings
• Q4 Net ACV of $14 million; Full year Net ACV of $67 million compared to FY 2016 Net ACV of $46 million
• Software License down 8% due to lower software license revenue associated with lower hardware sales; FY 2017
Unattached Software License up 12%
• Gross Margin rate down driven by lower Software License revenue partially offset by improved efficiency and scale
in Software Maintenance and Cloud
11
Q4 2017 Q4 2016 % Change
% Change
Constant
Currency
Services Revenue $619 $598 4% 2%
Services Gross Margin $155 $133 17% 16%
Services Gross Margin Rate 25.0% 22.2% +280 bps +280 bps
Operating Income $79 $62 27% 27%
Operating Income as a % of Revenue 12.8% 10.4% +240 bps +260 bps
$ in millions
SERVICES
Q4 2017 Update
KEY HIGHLIGHTS
• Growth in annuity services revenue, including hardware maintenance and managed services, drove higher revenue
in the quarter; Backlog improving in form of higher file value
• Gross margin rate increased due to sustainable improvements achieved through Mission One (M1) initiative
• M1 initiative is a performance and profit improvement program focused on transforming NCR’s services margin
profile through: 1) Productivity and efficiency improvements; 2) Remote diagnostics and repair; 3) Product life-
cycle management; and 4) a higher mix of managed services
12
Q4 2017 Q4 2016 % Change
% Change
Constant
Currency
ATMs $303 $385 (21)% (22)%
Self-Checkout (SCO) 131 132 (1)% (1)%
Point-of-Sale (POS) 218 177 23% 20%
Interactive Printer Solutions (IPS) 3 8 (63)% (63)%
Hardware Revenue $655 $702 (7)% (9)%
Hardware Gross Margin $102 $127 (20)% (25)%
Hardware Gross Margin Rate 15.6% 18.1% (250) bps (330) bps
Operating Income ($2) $30 (107)% (105)%
Operating Income as a % of Revenue (0.3%) 4.3% (460) bps (540) bps
$ in millions
HARDWARE
Q4 2017 Update
KEY HIGHLIGHTS
• Strong growth in POS revenues, primarily due to new customer wins and continued traction for NCR forecourt
Omni-Channel solution in the Petroleum & Convenience market
• ATM revenue down in the quarter due to lower backlog at the beginning of the quarter, but exceeded Company
expectations
• SCO revenue down slightly; Sequential growth of 66% from Q3 2017
• Gross margin rate decrease due to lower ATM volumes and new product introductions
13
n Software 51.1% GM rate
n Services 24.7% GM rate
n Hardware 16.4% GM rate
YTD 2017 Operating
Income Mix
Software
65%
Services
24%
Up 3%
CC
Up
3% CC Down
2%
Adj. CC
$1.84
billion
$1.90
bilion
FY 2016 FY 2017
$2.31
billion
$2.37
billion
Software Revenue Services Revenue
$2.40
billion
$2.24
billion
Hardware Revenue
FY 2017 SEGMENT RESULTS
FY 2016 FY 2017 FY 2016 FY 2017
Software
66%
Services
34%
• Cloud revenue growth of 6%;
Net ACV growth of 46%
• Unattached SW license
revenue growth of 12%
• Services margin expansion of
310 bps
• Recurring revenue at 44% of
total revenue, up 100 bps
14
QTD YTD
Q4 2017 Q4 2016 Q4 2017 Q4 2016
Cash Provided by Operating Activities $484 $525 $755 $894
Total capital expenditures (1) (88) (67) (294) (227)
Cash used in Discontinued Operations 6 (9) (8) (39)
Free Cash Flow $402 $449 $453 $628
Free Cash Flow Conversion Rate (2) 92% 132%
$ in millions
(1) The total capital expenditures of $294 million in 2017 includes $60 million related to the new world headquarters in Atlanta, Georgia. This $60
million is offset by $44 million of reimbursements by the lessor included in net cash provided by operating activities.
(2) Calculated as Free Cash Flow as a % of non-GAAP net income.
FREE CASH FLOW
15
FY 2016 Q3 2017 FY 2017
Debt $3,051 $3,253 $2,991
Cash (498) (405) (537)
Net Debt $2,553 $2,848 $2,454
Adjusted EBITDA (1) $1,057 $1,129 $1,124
Net Debt / Adjusted EBITDA 2.4x 2.5x 2.2x
$ in millions, except metrics(1) Adjusted EBITDA for the trailing twelve-month period.
NET DEBT AND EBITDA METRICS
16
FY 2018 Guidance
Revenue Growth 0% - 3%
GAAP Diluted EPS $2.08 - $2.48
Non-GAAP Diluted EPS $3.30 - $3.45
Free Cash Flow ~90% Conversion Rate
FY and Q1 2018 GUIDANCE
Q1 2018 Guidance
Revenue Growth (1%) - 2%
GAAP Diluted EPS $0.16 - $0.29
Non-GAAP Diluted EPS $0.41 - $0.47
17
Improving execution and operational efficiencies
Focused on sales funnel, go to market offers, orders and
Net ACV growth to drive momentum
Accelerate recurring revenue; primarily cloud
Accelerate transformation initiatives to generate
targeted run-rate savings of $150 million by 2020
Services transformation well under way; Hardware
transformation building momentum
Free cash flow generation and balanced capital allocation
strategy remain top priorities
LOOKING FORWARD
18
SUPPLEMENTARY
MATERIALS
19
Q4 2017 Q4 2016
% Change
As
Reported FY 2017 FY 2016
% Change
As
Reported
Revenue $1,782 $1,802 (1)% $6,516 $6,543 —%
Gross Margin 515 479 8% 1,864 1,782 5%
Gross Margin Rate 28.9% 26.6% 28.6% 27.2%
Operating Expenses 334 333 —% 1,188 1,183 —%
% of Revenue 18.7% 18.5% 18.2% 18.1%
Operating Income 181 146 24% 676 599 13%
% of Revenue 10.2% 8.1% 10.4% 9.2%
Interest and other expense (50) (57) (12)% (194) (220) (12)%
Income Tax Expense 164 17 865% 242 92 163%
Income Tax Rate 125% 19% 50% 24%
Net Income (1) ($35) $68 (151)% $237 $283 (16)%
Diluted EPS ($0.38) $0.43 (188)% $1.01 $1.80 (44)%
in millions, except per share amounts
Q4 & FY 2017 GAAP RESULTS
(1) Q4 GAAP net income includes pension mark-to-market expense of $25 million compared to $78 million in the prior year, and $130
million non-cash charge related to the impact of the U.S. Tax Cuts and Jobs Act enacted in December 2017. The non-cash charge
represents a provisional amount and NCR's current best estimate, which may be refined and adjusted over the course of 2018.
20
Q4
2017
Q4
2016
% Change
As
Reported
% Change
Constant
Currency
FY
2017
FY
2016
% Change
As
Reported
% Change
Adjusted
Constant
Currency
Revenue $1,782 $1,802 (1)% (3)% (1) $6,516 $6,543 —% 1% (1)
Gross Margin (non-GAAP) 527 530 (1)% (3)% 1,924 1,882 2% 2%
Gross Margin Rate (non-GAAP) 29.6% 29.4% +20 bps (10) bps 29.5% 28.8% +70 bps +70 bps
Operating Expenses (non-GAAP) 284 266 7% 5% 1,071 1,042 3% 3%
% of Revenue 15.9% 14.8% 16.4% 15.9%
Operating Income (non-GAAP) 243 264 (8)% (11)% 853 840 2% 2%
% of Revenue 13.6% 14.7% (110) bps (130) bps 13.1% 12.8% +30bps —bps
Interest and other expense (non-
GAAP) (50) (56) (11)% 4% (194) (214) (9)% (3)%
Income Tax Expense (non-GAAP) 49 36 36% 162 147 10%
Income Tax Rate (non-GAAP) 25% 17% 25% 23%
Net Income (non-GAAP) $142 $168 (15)% (22)% $494 $475 4% 2%
Diluted EPS (non-GAAP) (2) $0.92 $1.07 (14)% (20)% 3.20 $3.02 6% 4%
(1) The impact of foreign currency was $31 million favorable in Q4 2017 and $8 million favorable in FY 2017. Adjusted CC revenue
growth excludes $124 million of IPS revenue from FY 2016.
(2) Q4 2017 includes $0.08 of foreign currency benefit on EPS. Diluted share count of 153.7 million in Q4 2017 and 157.4 million in Q4
2016. FY 2017 includes $0.06 of foreign currency benefit on EPS. Diluted share count of 154.3 million in FY 2017 and 157.4 million in
FY 2016.
in millions, except per share amounts
Q4 & FY 2017 OPERATIONAL RESULTS
21
SOFTWARE
FY 2017 FY 2016 % Change
% Change
Constant
Currency
Software License $336 $341 (1)% (2)%
Attached License 121 149 (19)% (20)%
Unattached License 215 192 12% 12%
Software Maintenance 374 372 1% —%
Cloud 592 556 6% 6%
Professional Services 598 572 5% 5%
Software Revenue $1,900 $1,841 3% 3%
Software Gross Margin $970 $953 2% 2%
Software Gross Margin Rate 51.1% 51.8% (70) bps (60) bps
Operating Income $567 $577 (2)% (2)%
Operating Income as a % of Revenue 29.8% 31.3% (150) bps (150) bps
in millions
22
SERVICES
FY 2017 FY 2016 % Change
% Change
Constant
Currency
Services Revenue $2,373 $2,306 3% 3%
Services Gross Margin $586 $497 18% 20%
Services Gross Margin Rate 24.7% 21.6% +310 bps +340 bps
Operating Income $288 $201 43% 50%
Operating Income as a % of Revenue 12.1% 8.7% +340 bps +370 bps
in millions
23
HARDWARE
FY 2017 FY 2016 % Change
% Change
Constant
Currency
ATMs $1,012 $1,221 (17)% (18)%
Self-Checkout (SCO) 407 351 16% 16%
Point-of-Sale (POS) 806 674 20% 19%
Interactive Printer Solutions (IPS) 18 150 (88)% (32)%
Hardware Revenue $2,243 $2,396 (6)% (2)%
Hardware Gross Margin $368 $432 (15)% (17)%
Hardware Gross Margin Rate 16.4% 18.0% (160) bps (190) bps
Operating Income ($2) $62 (103)% (104)%
Operating Income as a % of Revenue (0.1%) 2.6% (270) bps (320) bps
in millions
24
While NCR reports its results in accordance with generally accepted accounting principles (GAAP) in the United States, comments
made during this conference call and in these materials will include non-GAAP measures. These measures are included to provide
additional useful information regarding NCR's financial results, and are not a substitute for their comparable GAAP measures.
Operating Income (non-GAAP), Diluted EPS (non-GAAP), Gross Margin (non-GAAP), Gross Margin Rate (non-GAAP), Interest and
Other expense (non-GAAP), Income Tax Rate (non-GAAP), Net Income (non-GAAP), Operating Expenses (non-GAAP) and Income Tax
Expense (non-GAAP). NCR’s operating income (non-GAAP), diluted earnings per share (non-GAAP), gross margin (non-GAAP), gross
margin rate (non-GAAP), interest and other expense (non-GAAP), income tax rate (non-GAAP), and net income (non-GAAP), operating
expenses (non-GAAP) and income tax expense (non-GAAP) are determined by excluding pension mark-to-market adjustments,
pension settlements, pension curtailments and pension special termination benefits and other special items, including amortization
of acquisition related intangibles, from NCR's GAAP income (loss) from operations, earnings per share, gross margin, gross margin
rate, interest and other expense, effective tax rate, net income, operating expenses and income tax expense, respectively. Due to
the non-operational nature of these pension and other special items, NCR's management uses these non-GAAP measures to evaluate
year-over-year operating performance. NCR also uses operating income (non-GAAP) and non-GAAP diluted EPS, to manage and
determine the effectiveness of its business managers and as a basis for incentive compensation. NCR believes these measures are
useful for investors because they provide a more complete understanding of NCR's underlying operational performance, as well as
consistency and comparability with NCR's past reports of financial results.
Free Cash Flow and Free Cash Flow as a Percentage of Non-GAAP Net Income (or Free Cash Flow Conversion Rate). NCR defines
free cash flow as net cash provided by/used in operating activities and cash flow provided by/used in discontinued operations less
capital expenditures for property, plant and equipment, additions to capitalized software, discretionary pension contributions and
pension settlements. NCR's management uses free cash flow to assess the financial performance of the Company and believes it is
useful for investors because it relates the operating cash flow of the Company to the capital that is spent to continue and improve
business operations. In particular, free cash flow indicates the amount of cash generated after capital expenditures which can be
used for, among other things, investment in the Company's existing businesses, strategic acquisitions, strengthening the Company's
balance sheet, repurchase of Company stock and repayment of the Company's debt obligations. NCR also describes free cash flow
as a percentage of non-GAAP net income (or free cash flow conversion rate), which is calculated as free cash flow divided by non-
GAAP net income. NCR’s management targets an annual free cash flow conversion rate at or above the range described in these
materials because management believes that a conversion rate at or above that range represents the efficient conversion of non-
GAAP net income to free cash flow for its business. Free cash flow and free cash flow conversion rate do not have uniform definitions
under GAAP and, therefore, NCR's definitions may differ from other companies' definition of these measures.
NON-GAAP MEASURES
25
Constant Currency, IPS Divestiture and Adjusted 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 also presents certain financial measures on an adjusted constant currency basis, which excludes
both the effects of foreign currency translation, as described above, and the results of NCR’s Interactive Printer Solutions (IPS) business
for the comparable prior period after completion of the sale of the business (which results were previously included in NCR’s Hardware
segment). NCR completed the sale of all but the Middle East and Africa assets of its Interactive Printer Solutions (IPS) division to Atlas
Holdings LLC on May 27, 2016. NCR’s management believes that presentation of financial measures without these results is more
representative of the company's period-over-period operating performance, and provides additional insight into historical and/or
future performance, which may be helpful for investors.which the company is able to convert its non-GAAP net income to cash.
Net Debt and Adjusted EBITDA. NCR believes that Net Debt provides useful information to investors because NCR’s management
reviews Net Debt as part of its management of overall liquidity, financial flexibility, capital structure and leverage. In addition, certain
debt rating agencies, creditors and credit analysts monitor NCR’s Net Debt as part of their assessments of NCR’s business. NCR
determines Net Debt based on its total debt less cash and cash equivalents, with total debt being defined as total short-term borrowings
plus total long-term debt.
NCR believes that Adjusted EBITDA (adjusted earnings before interest, taxes, depreciation and amortization) provides useful
information to investors because it is an indicator of the strength and performance of the Company's ongoing business operations,
including its ability to fund discretionary spending such as capital expenditures, strategic acquisitions and other investments. NCR
determines Adjusted EBITDA for a given period based on its GAAP income (loss) from continuing operations plus interest expense,
net; plus income tax expense (benefit); plus depreciation and amortization; plus other income (expense); plus pension expense (benefit);
and plus special items. NCR believes that its ratio of net debt to Adjusted EBITDA provides useful information to investors because it
is an indicator of the company's ability to meet its future financial obligations.
NCR believes that its ratio of Net Debt to Adjusted EBITDA provides useful information to investors because it is an indicator of the
company's ability to meet its future financial obligations. In addition, the Net Debt to Adjusted EBITDA ratio is measures frequently
used by investors and credit rating agencies. The Net Debt to Adjusted EBITDA ratio is calculated by dividing Net Debt by trailing twelve-
month Adjusted EBITDA.
NCR management's definitions and calculations of these non-GAAP measures may differ from similarly-titled measures reported by
other companies and cannot, therefore, be compared with similarly-titled measures of other companies. These non-GAAP measures
should not be considered as substitutes for, or superior to, results determined in accordance with GAAP. These non-GAAP measures
are reconciled to their corresponding GAAP measures in the following slides and elsewhere in these materials. These reconciliations
and other information regarding these non-GAAP measures are also available on the Investor Relations page of NCR's website at
www.ncr.com.
NON-GAAP MEASURES
26
Net Income from Continuing Operations (GAAP) to
Adjusted EBITDA (non-GAAP)
in millions FY 2016 Q3 2017 LTM FY 2017
Net Income from Continuing Operations (GAAP) $287 $345 $240
Pension Mark-to-Market Adjustments 85 85 28
Transformation/Restructuring Costs 26 29 29
Acquisition-Related Amortization of Intangibles 123 114 115
Acquisition-Related Costs 7 5 5
Divestiture and Liquidation Losses 6 1 —
Net (Income) Loss from Continuing Operations Attributable to Noncontrolling
Interests (4) (5) (3)
Interest Expense 170 162 163
Interest Income (4) (4) (3)
Depreciation and Amortization 208 226 231
Income Taxes 92 95 242
Stock Compensation Expense 61 76 77
Adjusted EBITDA (non-GAAP) $1,057 $1,129 $1,124
GAAP TO NON-GAAP RECONCILIATION
in millions
27
in millions (except per share amounts)
Q4 QTD 2017
GAAP
Transformation
Costs
Acquisition-
related
amortization of
intangibles
Acquisition
- related
costs
Pension
mark-to-
market
adjustments
Impact of U.S
Tax Reform
Q4 QTD
2017
non-GAAP
Product revenue $750 $— $— $— $— $— $750
Service revenue 1,032 — — — — — 1,032
Total revenue 1,782 — — — — — 1,782
Cost of products 596 — (6) — (5) — 585
Cost of services 671 — (7) — 6 — 670
Gross margin 515 — 13 — (1) — 527
Gross margin rate 28.9% —% 0.7% —% —% —% 29.6%
Selling, general and administrative expenses 256 (4) (16) (2) (12) — 222
Research and development expenses 78 1 — — (17) — 62
Total operating expenses 334 (3) (16) (2) (29) — 284
Total operating expense as a % of revenue 18.7% (0.2)% (0.9)% (0.1)% (1.6)% —% 15.9%
Income (loss) from operations 181 3 29 2 28 — 243
Income (loss) from operations as a % of revenue 10.2% 0.2% 1.6% —% 1.6% —% 13.6%
Interest and Other (expense) income, net (50) — — — — — (50)
Income (loss) from continuing operations before
income taxes 131 3 29 2 28 — 193
Income tax expense (benefit) 164 2 9 1 3 (130) 49
Effective tax rate 125% 25%
Income (loss) from continuing operations (33) 1 20 1 25 130 144
Net income (loss) attributable to noncontrolling
interests 2 — — — — — 2
Income (loss) from continuing operations
(attributable to NCR) ($35) $1 $20 $1 $25 $130 $142
Diluted earnings per share ($0.38) $0.01 $0.13 $0.01 $0.16 $0.85 $0.92
Diluted shares outstanding 121.9 153.7
GAAP TO NON-GAAP RECONCILIATION
Q4 2017 QTD
in millions, except per share amounts
28
in millions (except per share amounts)
Q4 QTD 2017
GAAP
Q4 QTD 2017
non-GAAP
Income (loss) from continuing operations attributable to NCR common
stockholders:
Income from continuing operations (attributable to NCR) $(35) $142
Dividends on convertible preferred shares ($11) —
Income from continuing operations attributable to NCR common
stockholders ($46) $142
Weighted average outstanding shares:
Weighted average diluted shares outstanding 121.9 126.4
Weighted as-if converted preferred shares — 27.3
Total shares used in diluted earnings per share 121.9 153.7
Diluted (loss) earnings per share (1) ($0.38) $0.92
(1) GAAP EPS is determined using the most dilutive measure, either including the impact of the dividends on NCR's Series A
Convertible Preferred Shares in the calculation of net income or loss available to common stockholders or including the impact
of the conversion of such preferred stock into common stock in the calculation of the weighted average diluted shares outstanding.
Non-GAAP EPS is always determined using the as-if converted preferred shares and shares that would be issued for stock
compensation awards. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may be calculated using different methods,
and may not mathematically reconcile.
GAAP TO NON-GAAP RECONCILIATION
Q4 2017 QTD
in millions, except per share amounts
29
in millions (except per share amounts)
Q4 QTD 2016
GAAP
Restructuring /
Transformation
Costs
Acquisition-
related
amortization of
intangibles
Acquisition
- related
costs
Pension
mark-to-
market
adjustments
Divestiture
and
Liquidation
Losses
Q4 QTD 2016
non-GAAP
Product revenue $805 $— $— $— $— $— $805
Service revenue 997 — — — — — 997
Total revenue 1,802 — — — — — 1,802
Cost of products 615 — (7) — (34) — 574
Cost of services 708 — (6) — (4) — 698
Gross margin 479 — 13 — 38 — 530
Gross margin rate 26.6% —% 0.7% —% 2.1% —% 29.4%
Selling, general and administrative expenses 248 (1) (15) (2) (24) — 206
Research and development expenses 83 — — — (23) — 60
Restructuring-related charges 2 (2) — — — — —
Total expenses 333 (3) (15) (2) (47) — 266
Total expense as a % of revenue 18.5% (0.2)% (0.8)% (0.1)% (2.6)% —% 14.8%
Income (loss) from operations 146 3 28 2 85 — 264
Income (loss) from operations as a % of revenue 8.1% 0.2% 1.6% 0.1% 4.7% —% 14.7%
Interest and Other (expense) income, net (57) — — — — 1 (56)
Income (loss) from continuing operations before
income taxes 89 3 28 2 85 1 208
Income tax expense (benefit) 17 2 9 — 7 1 36
Effective tax rate 19% 17%
Income (loss) from continuing operations 72 1 19 2 78 — 172
Net income (loss) attributable to noncontrolling
interests 4 — — — — — 4
Income (loss) from continuing operations
(attributable to NCR) $68 $1 $19 $2 $78 $— $168
Diluted earnings per share $0.43 $0.01 $0.12 $0.01 $0.50 $— $1.07
Diluted shares outstanding 157.4 157.4
GAAP TO NON-GAAP RECONCILIATION
Q4 2016 QTD
in millions, except per share amounts
30
in millions (except per share amounts)
Q4 QTD 2016
GAAP
Q4 QTD 2016
non-GAAP
Income from continuing operations attributable to NCR common
stockholders $68 $168
Weighted average outstanding shares:
Weighted average diluted shares outstanding 128.6 128.6
Weighted as-if converted preferred shares 28.8 28.8
Total shares used in diluted earnings per share 157.4 157.4
Diluted earnings per share (1) $0.43 $1.07
(1) GAAP EPS is determined using the most dilutive measure, either including the impact of the dividends on NCR's Series A
Convertible Preferred Shares in the calculation of net income or loss available to common stockholders or including the impact
of the conversion of such preferred stock into common stock in the calculation of the weighted average diluted shares outstanding.
Non-GAAP EPS is always determined using the as-if converted preferred shares and shares that would be issued for stock
compensation awards. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may be calculated using different methods,
and may not mathematically reconcile.
GAAP TO NON-GAAP RECONCILIATION
Q4 2016 QTD
in millions, except per share amounts
31
in millions (except per share amounts)
FY 2017
GAAP
Transformation
Costs
Acquisition-
related
amortization of
intangibles
Acquisition-
related
costs
Pension mark-
to-market
adjustments
Impact of
U.S. Tax
Reform
FY 2017
non-GAAP
Product revenue $2,579 $— $— $— $— $— $2,579
Service revenue 3,937 — — — — — 3,937
Total revenue 6,516 — — — — — 6,516
Cost of products 2,026 (2) (25) — (5) — 1,994
Cost of services 2,626 (9) (25) — 6 — 2,598
Gross margin 1,864 11 50 — (1) — 1,924
Gross margin rate 28.6% 0.1% 0.8% —% —% —% 29.5%
Selling, general and administrative expenses 932 (14) (65) (5) (12) — 836
Research and development expenses 256 (4) — — (17) — 235
Total operating expenses 1,188 (18) (65) (5) (29) — 1,071
Total operating expense as a % of revenue 18.2% (0.3)% (1.0)% (0.1)% (0.4)% —% 16.4%
Income (loss) from operations 676 29 115 5 28 — 853
Income (loss) from operations as a % of
revenue 10.4% 0.4% 1.8% 0.1% 0.4% —% 13.1%
Interest and Other (expense) income, net (194) — — — — — (194)
Income (loss) from continuing operations
before income taxes 482 29 115 5 28 — 659
Income tax expense (benefit) 242 9 36 2 3 (130) 162
Effective tax rate 50% 25%
Income (loss) from continuing operations 240 20 79 3 25 130 497
Net income (loss) attributable to
noncontrolling interests 3 — — — — — 3
Income (loss) from continuing operations
(attributable to NCR) $237 $20 $79 $3 $25 $130 $494
Diluted earnings per share $1.01 $0.13 $0.51 $0.02 $0.16 $0.84 $3.20
Diluted shares outstanding 127.0 154.3
GAAP TO NON-GAAP RECONCILIATION
FY 2017
32
in millions (except per share amounts)
Q4 YTD 2017
GAAP
Q4 YTD 2017
non-GAAP
Income (loss) from continuing operations attributable to NCR common
stockholders:
Income from continuing operations (attributable to NCR) $237 $494
Dividends on convertible preferred shares (47) —
Deemed dividend on modification of convertible preferred shares (4) —
Deemed dividend on convertible preferred shares related to redemption value
accretion (58) —
Income from continuing operations attributable to NCR common
stockholders $128 $494
Weighted average outstanding shares:
Weighted average diluted shares outstanding 127.0 127.0
Weighted as-if converted preferred shares — 27.3
Total shares used in diluted earnings per share 127.0 154.3
Diluted earnings per share (1) $1.01 $3.20
(1) GAAP EPS is determined using the most dilutive measure, either including the impact of the dividends on NCR's Series A
Convertible Preferred Shares in the calculation of net income or loss available to common stockholders or including the impact
of the conversion of such preferred stock into common stock in the calculation of the weighted average diluted shares outstanding.
Non-GAAP EPS is always determined using the as-if converted preferred shares and shares that would be issued for stock
compensation awards. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may be calculated using different methods,
and may not mathematically reconcile.
GAAP TO NON-GAAP RECONCILIATION
FY 2017
33
in millions (except per share amounts)
FY 2016
GAAP
Restructuring /
Transformation
Costs
Acquisition-
related
amortization
of intangibles
Acquisition-
related
costs
Divestiture and
Liquidations
Losses
Pension mark-
to-market
adjustments
FY 2016
non-GAAP
Product revenue $2,737 $— $— $— $— $— $2,737
Service revenue 3,806 — — — — — 3,806
Total revenue 6,543 — — — — — 6,543
Cost of products 2,102 — (34) — — (34) 2,034
Cost of services 2,659 (4) (24) — — (4) 2,627
Gross margin 1,782 4 58 — — 38 1,882
Gross margin rate 27.2% 0.1% 0.8% —% —% 0.6% 28.8%
Selling, general and administrative expenses 926 (7) (65) (7) — (24) 823
Research and development expenses 242 — — — — (23) 219
Restructuring-related charges 15 (15) — — — — —
Total expenses 1,183 (22) (65) (7) — (47) 1,042
Total expense as a % of revenue 18.1% (0.3)% (1.0)% (0.1)% —% (0.7)% 15.9%
Income (loss) from operations 599 26 123 7 — 85 840
Income (loss) from operations as a % of
revenue 9.2% 0.4% 1.9% 0.1% —% 1.3% 12.8%
Interest and Other (expense) income, net (220) — — — 6 — (214)
Income (loss) from continuing operations before
income taxes 379 26 123 7 6 85 626
Income tax expense (benefit) 92 5 40 2 1 7 147
Effective tax rate 24% 23%
Income (loss) from continuing operations 287 21 83 5 5 78 479
Net income (loss) attributable to noncontrolling
interests 4 — — — — — 4
Income (loss) from continuing operations
(attributable to NCR) $283 $21 $83 $5 $5 $78 $475
Diluted earnings per share $1.80 $0.13 $0.53 $0.03 $0.03 $0.50 $3.02
Diluted Shares outstanding 157.4 157.4
GAAP TO NON-GAAP RECONCILIATION
FY 2016
in millions, except per share amounts
34
in millions (except per share amounts)
FY 2016 GAAP FY 2016non-GAAP
Income from continuing operations attributable to NCR common
stockholders $283 $475
Weighted average outstanding shares:
Weighted average diluted shares outstanding 129.2 129.2
Weighted as-if converted preferred shares 28.2 28.2
Total shares used in diluted earnings per share 157.4 157.4
Diluted earnings per share (1) $1.80 $3.02
(1) GAAP EPS is determined using the most dilutive measure, either including the impact of the dividends on NCR's Series A
Convertible Preferred Shares in the calculation of net income or loss available to common stockholders or including the impact
of the conversion of such preferred stock into common stock in the calculation of the weighted average diluted shares outstanding.
Non-GAAP EPS is always determined using the as-if converted preferred shares and shares that would be issued for stock
compensation awards. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may be calculated using different methods,
and may not mathematically reconcile.
GAAP TO NON-GAAP RECONCILIATION
FY 2016
in millions, except per share amounts
35
Gross Margin and Gross Margin Rate (non-GAAP) to
Gross Margin and Gross Margin Rate (GAAP)
Q4 2017 QTD Q4 2017 YTD
Gross
Margin
Gross Margin
Rate %
Gross
Margin
Gross Margin
Rate %
Software 270 53.1% 970 51.1%
Services 155 25.0% 586 24.7%
Hardware 102 15.6% 368 16.4%
Total Gross Margin (non-GAAP) 527 29.6% 1,924 29.5%
Less:
Restructuring/Transformation Costs — —% 11 0.1%
Acquisition-related amortization of intangibles 13 0.7% 50 0.8%
Pension mark-to-market adjustments (1) —% (1) —%
Total Gross Margin (GAAP) 515 28.9% 1,864 28.6%
GAAP TO NON-GAAP RECONCILIATION
Q4 2017 QTD & YTD
36
Gross Margin and Gross Margin Rate (non-GAAP) to
Gross Margin and Gross Margin Rate (GAAP)
Q4 2016 QTD Q4 2016 YTD
Gross
Margin
Gross Margin
Rate %
Gross
Margin
Gross Margin
Rate %
Software 270 53.8% 953 51.8%
Services 133 22.2% 497 21.6%
Hardware 127 18.1% 432 18.0%
Total Gross Margin (non-GAAP) 530 29.4% 1,882 28.8%
Less:
Restructuring/Transformation Costs — —% 4 0.1%
Acquisition-related amortization of intangibles 13 0.7% 58 0.8%
Pension mark-to-market adjustments 38 2.1% 38 0.6%
Total Gross Margin (GAAP) 479 26.6% 1,782 27.2%
GAAP TO NON-GAAP RECONCILIATION
Q4 2016 QTD & YTD
37
Operating Income and Operating Income Rate (non-GAAP) to
Operating Income and Operating Income Rate (GAAP)
Q4 2017 QTD Q4 2017 YTD
Operating
Income
Operating
Income Rate
Operating
Income
Operating
Income Rate
Software 166 32.7% 567 29.8%
Services 79 12.8% 288 12.1%
Hardware (2) (0.3)% (2) (0.1)%
Total Operating Income (non-GAAP) 243 13.6% 853 13.1%
Less:
Restructuring/Transformation Costs 3 0.2% 29 0.4%
Acquisition-related amortization of
intangibles 29 1.6% 115 1.8%
Acquisition-related costs 2 —% 5 0.1%
Pension mark-to-market adjustments 28 1.6% 28 0.4%
Total Operating Income (GAAP) 181 10.2% 676 10.4%
GAAP TO NON-GAAP RECONCILIATION
Q4 2017 QTD & YTD
38
Operating Income and Operating Income Rate (non-GAAP) to
Operating Income and Operating Income Rate (GAAP)
Q4 2016 QTD Q4 2016 YTD
Operating
Income
Operating
Income Rate
Operating
Income
Operating
Income Rate
Software 172 34.3% 577 31.3%
Services 62 10.4% 201 8.7%
Hardware 30 4.3% 62 2.6%
Total Operating Income (non-GAAP) 264 14.7% 840 12.8%
Less:
Restructuring/Transformation Costs 3 0.2% 26 0.4%
Acquisition-related amortization of
intangibles 28 1.6% 123 1.9%
Acquisition-related costs 2 0.1% 7 0.1%
Pension mark-to-market adjustments 85 4.7% 85 1.3%
Total Operating Income (GAAP) 146 8.1% 599 9.2%
GAAP TO NON-GAAP RECONCILIATION
Q4 2016 QTD & YTD
39
Revenue Growth % (GAAP) to
Revenue Growth Adjusted Constant Currency % (non-GAAP)
Q4 2017 QTD Q4 2017 YTD
Revenue
Growth %
(GAAP)
Favorable
(unfavorable)
FX impact
Revenue
Growth
Constant
Currency %
(non-GAAP)
Revenue
Growth %
(GAAP)
Favorable
(unfavorable)
FX impact
Divestiture
impact
Revenue
Growth
Adjusted
Constant
Currency %
(non-GAAP)
Software License (8)% 2% (10)% (1)% 1% —% (2)%
Attached License (18)% 3% (21)% (19)% 1% —% (20)%
Unattached License —% —% —% 12% —% —% 12%
Software Maintenance —% 2% (2)% 1% 1% —% —%
Cloud 6% —% 6% 6% —% —% 6%
Professional Services 3% 2% 1% 5% —% —% 5%
Software 1% 1% —% 3% —% —% 3%
Services 4% 2% 2% 3% —% —% 3%
ATMs (21)% 1% (22)% (17)% 1% —% (18)%
Self-Checkout (SCO) (1)% —% (1)% 16% —% —% 16%
Point-of-Sale (POS) 23% 3% 20% 20% 1% —% 19%
Interactive Printer
Solutions (IPS) (63)% —% (63)% (88)% —% (56)% (32)%
Hardware (7)% 2% (9)% (6)% 1% (5)% (2)%
Total Revenue (1)% 2% (3)% —% —% (1)% 1%
GAAP TO NON-GAAP RECONCILIATION
40
Gross Margin Growth % (GAAP) to
Gross Margin Growth % on a Constant Currency Basis (non-GAAP)
Q4 2017 QTD 2017 YTD
Gross Margin
Growth %
Reported
Favorable
(unfavorable)
FX impact
Constant
Currency
Gross Margin
Growth %
(non-GAAP)
Gross Margin
Growth %
Reported
Favorable
(unfavorable)
FX impact
Constant
Currency
Gross Margin
Growth %
(non-GAAP)
Software —% 1% (1)% 2% —% 2%
Services 17% 1% 16% 18% (2)% 20%
Hardware (20)% 5% (25)% (15)% 2% (17)%
Total Gross
Margin (1)% 2% (3)% 2% —% 2%
GAAP TO NON-GAAP RECONCILIATION
41
Operating Income Growth % (GAAP) to
Operating Income Growth % on a Constant Currency Basis (non-GAAP)
Q4 2017 QTD 2017 YTD
Operating
Income
Growth %
Reported
Favorable
(unfavorable)
FX impact
Constant
Currency
Operating
Income
Growth %
(non-GAAP)
Operating
Income
Growth %
Reported
Favorable
(unfavorable)
FX impact
Constant
Currency
Operating
Income
Growth %
(non-GAAP)
Software (3)% 2% (5)% (2)% —% (2)%
Services 27% —% 27% 43% (7)% 50%
Hardware (107)% (2)% (105)% (103)% 1% (104)%
Total Operating
Income (8)% 3% (11)% 2% —% 2%
GAAP TO NON-GAAP RECONCILIATION
42
GAAP TO NON-GAAP RECONCILIATION
Gross Margin Growth bps (GAAP) to
Gross Margin Growth bps on a Constant Currency Basis (non-GAAP)
Q4 2017 QTD 2017 YTD
Gross Margin
bps Growth
Reported
Favorable
(unfavorable)
FX impact
Constant
Currency
Gross Margin
bps Growth
(non-GAAP)
Gross Margin
bps Growth
Reported
Favorable
(unfavorable)
FX impact
Constant
Currency
Gross Margin
bps Growth
(non-GAAP)
Software (70) bps 10 bps (80) bps (70) bps (10) bps (60) bps
Services 280 bps — bps 280 bps 310 bps (30) bps 340 bps
Hardware (250) bps 80 bps (330) bps (160) bps 30 bps (190) bps
Total Gross
Margin bps 20 bps 30 bps (10) bps 70 bps — bps 70 bps
43
Operating Income Growth bps (GAAP) to
Operating Income Growth bps on a Constant Currency Basis (non-GAAP)
Q4 2017 QTD 2017 YTD
Operating
Income bps
Growth
Reported
Favorable
(unfavorable)
FX impact
Constant
Currency
Operating
Income bps
Growth (non-
GAAP)
Operating
Income bps
Growth
Reported
Favorable
(unfavorable)
FX impact
Constant
Currency
Operating
Income bps
Growth (non-
GAAP)
Software (160) bps — bps (160) bps (150) bps — bps (150) bps
Services 240 bps (20) bps 260 bps 340 bps (30) bps 370 bps
Hardware (460) bps 80 bps (540) bps (270) bps 50 bps (320) bps
Total Operating
Income (110) bps 20 bps (130) bps 30 bps 30 bps — bps
GAAP TO NON-GAAP RECONCILIATION
44
GAAP TO NON-GAAP RECONCILIATION
Diluted Earnings per Share (GAAP) to
Diluted Earnings per Share (non-GAAP)
2018
Guidance
Q1 2018
Guidance
Diluted EPS (GAAP) (1) (2) $2.08 - $2.48 $0.16 - $0.29
Restructuring/Transformation costs 0.50 - 0.75 0.05 - 0.09
Acquisition-Related Amortization of Intangibles 0.42 0.10
Acquisition-Related Costs 0.05 0.01
Non-GAAP Diluted EPS (1) (3) $3.30 - $3.45 $0.41 - $0.47
((1) Non-GAAP diluted EPS is determined using the conversion of the Series A Convertible Preferred Stock into common stock in the calculation of weighted average
diluted shares outstanding. GAAP EPS is determined using the most dilutive measure, either including the impact of dividends or deemed dividends on the Company's
Series A Convertible Preferred Stock in the calculation of net income or loss available to common stockholders or including the impact of the conversion of the Series
A Convertible Preferred Stock into common stock in the calculation of the weighted average diluted shares outstanding. Therefore, GAAP diluted EPS and non-GAAP
diluted EPS may not mathematically reconcile.
(2) Except for the adjustments noted herein, this guidance does not include the effects of any future acquisitions/divestitures, restructuring activities, pension mark-to-
market adjustments, taxes or other events, which are difficult to predict and which may or may not be significant.
(3) For FY 2018, we have assumed OIE of approximately $204 million, an effective tax rate of 24% and a share count of 154 million compared to OIE of $198 million,
an effective tax rate of 25% and a share count of 154 million in FY 2017. For Q1 2018, we have assumed OIE of approximately $52 million, an effective tax rate of
28% and a share count of 153 million compared to OIE of $46 million, an effective tax rate of 24% and a share count of 156.7 million in Q1 2017.
1) Except for the adjustments noted herein, this guidance does not include the effects of any future acquisitions/divestitures, restructuring activities, pension mark-to-
market adjustments, taxes or other events, which are difficult to predict and which may or may not be significant.
45