UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 19, 2017
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.) | |
3097 Satellite Boulevard
Duluth, Georgia 30096
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (937) 445-5000
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02. Results of Operations and Financial Condition.
On October 19, 2017, the Company issued a press release setting forth its third quarter 2017 financial results along with its fourth quarter 2017 and updated fiscal year 2017 financial outlook. A copy of the press release is attached hereto as Exhibit 99.1 and hereby incorporated by reference.
Item 7.01. Regulation FD Disclosure.
On October 19, 2017, the Company will hold its previously announced conference call to discuss its third quarter 2017 results, its fourth quarter 2017 financial outlook and updated fiscal year 2017 financial outlook. A copy of supplementary materials that will be referred to in the conference call, and which were posted to the Company’s website, is attached hereto as Exhibit 99.2.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits:
The following exhibits are attached with this current report on Form 8-K:
Exhibit No. | Description |
99.1 | Press Release issued by the Company, dated October 19, 2017 |
99.2 | Supplemental materials, dated October 19, 2017 |
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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: October 19, 2017
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Index to Exhibits
The following exhibits are attached with this current report on Form 8-K:
Exhibit No. Description
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 | NEWS RELEASE | |
October 19, 2017
NCR Announces Third Quarter 2017 Results
DULUTH, Ga. - NCR Corporation (NYSE: NCR) reported financial results today for the three months ended September 30, 2017. Third quarter highlights include:
• | GAAP diluted EPS of $0.77, up 12% from $0.69 in the prior year; Non-GAAP diluted EPS of $0.93, up 7% constant currency |
• | Revenue of $1.66 billion, down 1% as reported and constant currency |
• | Software revenue up 2%, Cloud up 5% and net ACV of $16 million in the quarter, up 37% |
• | Transformation initiatives drive Services gross margin expansion of 450 basis points |
• | Guidance reduced for full year 2017 due to lower than expected ATM revenue |
“Third quarter results were within the range of our Q3 guidance for revenue and earnings, but orders, particularly for ATMs, were disappointing, and the primary cause of our need to reduce our full year guidance", said Chairman and CEO Bill Nuti. "ATM orders continue to be negatively impacted by large customer delays in spending in North America, weakness in India, the Middle East and Africa, and the upcoming Windows 10 conversion. On the positive side, we saw strong net ACV growth again this quarter as a result of our customers embracing our SaaS solutions in digital banking and in our hospitality cloud portfolio. In addition, we significantly expanded our Services margins as a result of higher revenue and our ongoing productivity programs, continuing a trend we have seen throughout the year. Despite our near-term ATM hardware challenges, our investment priorities across our markets remain the same, and our confidence in the business remains strong. We expect that the ATM market will recover in the medium-term and that may ultimately improve our revenue growth, but our strategic focus remains on driving software, cloud, and recurring revenue growth as priority number one."
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.
Third Quarter 2017 Operating Results
Revenue
Third quarter revenue of $1.66 billion was down 1% year-over-year. Foreign currency fluctuations had no impact on the year-over-year comparison.
The following table shows the revenue by segment for the third quarter:
$ in millions | 2017 | 2016 | % Change | % Change Adjusted Constant Currency | |||||||||
Software License | $ | 79 | $ | 90 | (12 | %) | (11 | %) | |||||
Software Maintenance | 95 | 92 | 3 | % | 3 | % | |||||||
Cloud | 149 | 142 | 5 | % | 5 | % | |||||||
Professional Services | 153 | 144 | 6 | % | 6 | % | |||||||
Software Revenue | $ | 476 | $ | 468 | 2 | % | 2 | % | |||||
Services Revenue | $ | 609 | $ | 591 | 3 | % | 3 | % | |||||
ATM | $ | 273 | $ | 324 | (16 | %) | (17 | %) | |||||
SCO | 79 | 104 | (24 | %) | (24 | %) | |||||||
POS | 221 | 185 | 19 | % | 18 | % | |||||||
IPS | 5 | 5 | — | % | — | % | |||||||
Hardware Revenue | $ | 578 | $ | 618 | (6 | %) | (7 | %) | |||||
Total Revenue | $ | 1,663 | $ | 1,677 | (1 | %) | (1 | %) | |||||
Software revenue was up 2% primarily due to continued demand for NCR's channel transformation with increases in software maintenance of 3%, cloud of 5% and professional services of 6%. Software license revenue was down 12% due to a large unattached license in the prior year period and lower software license revenue attached to hardware in the recently completed quarter.
Services revenue was up 3% driven by hardware maintenance and implementation services growth as a result of improving channel transformation trends.
Hardware revenue was down 7% on a constant currency basis due to a 17% decline in ATM revenue and a 24% decline in SCO revenue, partially offset by an 18% increase in POS revenue. The ATM market continues to be challenging due to the timing of large customer rollouts and softness in certain geographic regions. SCO revenue was down due to a strong third quarter in the prior year but we expect it to continue its full year momentum and grow sequentially in the fourth quarter. POS revenue was up due to product replacements and new introductions.
Gross Margin
Third quarter gross margin of $473 million decreased 1% from $477 million. Third quarter gross margin (non-GAAP) of $486 million decreased 1% from $491 million. Gross margin rate was consistent at 28.4%. Gross margin rate (Non-GAAP) was 29.2%, down from 29.3%. The decrease in gross margin was primarily due to lower software license revenue and lower ATM and SCO volumes as well as new product introductions, offset by continued focus on productivity improvements in our Services segment.
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Expenses
Third quarter operating expenses of $273 million decreased from $288 million. Third quarter operating expenses (non-GAAP) of $251 million decreased from $261 million. The decrease in expenses is due to continued focus on expense management including lower employee-related expenses.
Operating Income
Third quarter operating income of $200 million increased 6% from $189 million. Third quarter operating income (non-GAAP) of $235 million increased 2% from $230 million. Operating margin rate was 12.0%, up from 11.3%. Operating margin rate (non-GAAP) was 14.1%, up from 13.7%.
Other (Expense)
Third quarter other (expense) and other (expense) (non-GAAP) of $50 million increased 2% from $49 million.
Income Tax Expense
Third quarter income tax expense remained consistent at $31 million. Third quarter income tax expense (non-GAAP) of $41 million decreased from $44 million in the prior year.
Net Income from Continuing Operations Attributable to NCR
Third quarter net income from continuing operations attributable to NCR of $118 million increased from $107 million. Third quarter net income from continuing operations attributable to NCR (non-GAAP) of $143 million increased from $135 million.
Cash Flow
Third quarter cash provided by operating activities of $133 million decreased from $225 million. Free cash flow was $45 million in the third quarter of 2017 as compared to $153 million in the third quarter of 2016. The decreases were due to higher working capital in the third quarter of 2017, which we expect to improve in the fourth quarter. Year-to-date cash provided by operating activities was $271 million compared to $369 million in the prior year, and year-to-date free cash flow was $51 million compared to free cash flow of $179 million in the prior year.
2017 Outlook
We are reducing our full year 2017 revenue guidance. We now expect revenue of $6.475 billion to $6.525 billion (previous guidance of $6.63 billion to $6.75 billion), due to a softer than expected ATM market. We anticipate foreign currency to be a favorable impact of $20 million versus our previous guidance of an unfavorable impact of $25 million.
We are also lowering our earnings per share guidance. We now expect GAAP diluted earnings per share to be $1.97 to $2.09 (previous guidance of $2.20 to $2.32) and non-GAAP diluted earnings per share to be $3.10 to $3.20 (previous guidance of $3.32 to $3.42). The decrease in earnings per share is due to lower ATM hardware and attached software licenses. The favorable impact of foreign currency on earnings per share is now expected to be $0.06 versus a favorable $0.01 in our previous guidance. For 2016, the actuarial mark-to-market pension adjustment is included in GAAP diluted earnings per share; however, 2017 guidance does not include actuarial mark-to-market pension adjustments, which will be determined in the fourth quarter of 2017.
Additionally, we are lowering our cash flow guidance. We now expect net cash provided by operating activities to be $745 million to $775 million (previous guidance of $805 million and $830 million) and free cash flow to be $440 million to $470 million (previous guidance of $500 million to $525 million). The decrease in the cash flow guidance is due to the impact of lower revenue.
Q4 2017 Outlook
For the fourth quarter of 2017, revenue is expected to be $1.74 billion to $1.79 billion, GAAP diluted earnings per share is expected to be $0.64 to $0.76, and non-GAAP diluted earnings per share is expected to be $0.83 to $0.93. The fourth quarter 2017 guidance includes an expected foreign currency benefit of $40 million for revenue and a $0.08 benefit on earnings per share. For the fourth quarter of 2016, the actuarial mark-to-market pension adjustment is included in GAAP
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diluted earnings per share; however, the fourth quarter of 2017 guidance does not include actuarial mark-to-market pension adjustments, which will be determined in the fourth quarter of 2017.
NCR will provide additional information regarding its fourth quarter and full year 2017 guidance during its third quarter earnings conference call and webcast.
2017 Third Quarter Earnings Conference Call
A conference call is scheduled for today at 4:30 p.m. (EDT) to discuss the third quarter 2017 results and guidance for fourth quarter and full year 2017. 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 1935288.
More information on NCR’s Q3 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 retail, financial, travel, hospitality, telecom and technology, and small business. NCR solutions run the everyday transactions that make your life easier. NCR is headquartered in Duluth, Ga., with over 30,000 employees and does business in 180 countries. NCR encourages investors to visit its web site, which is updated regularly with financial and other important information about NCR.
Web site: 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 growth trends in margins in NCR’s Services segment; the ATM market and our expectations for its recovery and the effects thereof; NCR's investment priorities and confidence in its business; NCR’s areas of strategic focus; momentum and fourth quarter growth in self-checkout revenue; expectations for improvements in working capital in the fourth quarter; and NCR’s full-year and fourth quarter financial guidance and outlook (including the sections entitled “2017 Outlook” and “Q4 2017 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 uncertainty in the “BRIC” economies, economic sanctions against Russia, the determination by Britain to exit the European Union, the potential for changes to global or regional trade agreements or the imposition of protectionist trade policies, and the imposition of import or export tariffs or border adjustments; the impact of our indebtedness and its terms on our financial and operating activities; the impact of the terms of our strategic relationship with Blackstone and our Series A Convertible Preferred Stock; the transformation of our business model and our ability to sell higher-margin software and services; the possibility of disruptions in or problems with our data center hosting facilities; cybersecurity risks and compliance with data privacy and protection requirements; our ability to successfully introduce new solutions and compete in the information technology industry; our ability to improve execution in our sales and services organizations; defects or errors in our products; manufacturing disruptions; collectability difficulties in subcontracting relationships in Emerging Industries; the historical seasonality of our sales; foreign currency fluctuations; the availability and success of acquisitions, divestitures and alliances, including the divestiture of our Interactive Printer Solutions business; our pension strategy and underfunded pension obligation; the success of our restructuring plans and cost reduction initiatives; tax rates; reliance on third party suppliers; 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.
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.
Diluted EPS (non-GAAP), 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 diluted earnings per share (non-GAAP), 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 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. 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. Free cash flow does not have a uniform definition under GAAP and, therefore, NCR's definition may differ from other companies' definitions of this measure.
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 or, in the case of quarterly free cash flow, in the body of this release.
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Reconciliation of Gross Margin (GAAP) to Gross Margin (non-GAAP)
$ in millions | Q3 2017 | Q3 2016 | |||||
Gross Margin (GAAP) | $ | 473 | $ | 477 | |||
Transformation Costs | 1 | — | |||||
Acquisition-related amortization of intangibles | 12 | 14 | |||||
Gross Margin (Non-GAAP) | $ | 486 | $ | 491 | |||
Reconciliation of Gross Margin Rate (GAAP) to Gross Margin Rate (non-GAAP)
$ in millions | Q3 2017 | Q3 2016 | |||
Gross Margin Rate (GAAP) | 28.4 | % | 28.4 | % | |
Transformation Costs | 0.1 | % | — | % | |
Acquisition-related amortization of intangibles | 0.7 | % | 0.9 | % | |
Gross Margin Rate (Non-GAAP) | 29.2 | % | 29.3 | % | |
Reconciliation of Operating Expenses (GAAP) to Operating Expenses (non-GAAP)
$ in millions | Q3 2017 | Q3 2016 | |||||
Operating Expenses (GAAP) | $ | 273 | $ | 288 | |||
Transformation/Restructuring Costs | (4 | ) | (8 | ) | |||
Acquisition-related amortization of intangibles | (17 | ) | (17 | ) | |||
Acquisition-related costs | (1 | ) | (2 | ) | |||
Operating Expenses (Non-GAAP) | $ | 251 | $ | 261 | |||
Reconciliation of Income from Operations (GAAP) to Operating Income (non-GAAP)
$ in millions | Q3 2017 | Q3 2016 | |||||
Income from Operations (GAAP) | $ | 200 | $ | 189 | |||
Transformation/Restructuring Costs | 5 | 8 | |||||
Acquisition-related amortization of intangibles | 29 | 31 | |||||
Acquisition-related costs | 1 | 2 | |||||
Operating Income (Non-GAAP) | $ | 235 | $ | 230 | |||
Reconciliation of Operating Margin rate (GAAP) to Operating Margin rate (non-GAAP)
$ in millions | Q3 2017 | Q3 2016 | |||
Operating Margin rate (GAAP) | 12.0 | % | 11.3 | % | |
Transformation/Restructuring Costs | 0.3 | % | 0.5 | % | |
Acquisition-related amortization of intangibles | 1.7 | % | 1.8 | % | |
Acquisition-related costs | 0.1 | % | 0.1 | % | |
Operating Margin rate (Non-GAAP) | 14.1 | % | 13.7 | % | |
Reconciliation of Income Tax Expense (GAAP) to Income Tax Expense (non-GAAP)
$ in millions | Q3 2017 | Q3 2016 | |||||
Income Tax Expense (GAAP) | $ | 31 | $ | 31 | |||
Transformation/Restructuring Costs | 1 | 1 | |||||
Acquisition-related amortization of intangibles | 9 | 11 | |||||
Acquisition-related costs | — | 1 | |||||
Income Tax Expense (Non-GAAP) | $ | 41 | $ | 44 | |||
Reconciliation of Net Income from Continuing Operations Attributable to NCR (GAAP) to
Net Income from Continuing Operations Attributable to NCR (non-GAAP)
$ in millions | Q3 2017 | Q3 2016 | |||||
Net Income from Continuing Operations Attributable to NCR (GAAP) | $ | 118 | $ | 107 | |||
Transformation/Restructuring Costs | 4 | 7 | |||||
Acquisition-related amortization of intangibles | 20 | 20 | |||||
Acquisition-related costs | 1 | 1 | |||||
Net Income from Continuing Operations Attributable to NCR (Non-GAAP) | $ | 143 | $ | 135 | |||
Reconciliation of Diluted Earnings Per Share (GAAP) to Non-GAAP Diluted Earnings Per Share (non-GAAP)
Q3 2017 Actual | Q3 2016 Actual | FY 2017 Guidance(2) | Prior FY 2017 Guidance (2) | Q4 2017 Guidance (2) | ||||||||||||
Diluted Earnings Per Share (GAAP) (1) | $ | 0.77 | $ | 0.69 | $1.97 - $2.09 | $2.20 - $2.32 | $0.64 - $0.76 | |||||||||
Transformation/Restructuring Costs | 0.02 | 0.05 | 0.14 - 0.17 | 0.14 - 0.17 | 0.02 - 0.05 | |||||||||||
Acquisition-related amortization of intangibles | 0.13 | 0.12 | 0.49 | 0.49 | 0.13 | |||||||||||
Acquisition-related costs | 0.01 | 0.01 | 0.03 | 0.03 | 0.02 | |||||||||||
Deemed dividends related to Blackstone transaction | — | — | 0.39 | 0.39 | — | |||||||||||
Diluted Earnings Per Share (non-GAAP) (1) | $ | 0.93 | $ | 0.87 | $3.10 - $3.20 | $3.32 - $3.42 | $0.83 - $0.93 | |||||||||
(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 | Q3 2017 QTD | Q3 2016 QTD | Q3 2017 YTD | Q3 2016 YTD | Current 2017 Guidance | Prior 2017 Guidance | |||||||||||||||
Net cash provided by operating activities | $ | 133 | $ | 225 | $ | 271 | $ | 369 | $745 - $775 | $805 - $830 | |||||||||||
Total capital expenditures | (79 | ) | (62 | ) | (206 | ) | (160 | ) | (285 | )* | (285 | )* | |||||||||
Net cash used in discontinued operations | (9 | ) | (10 | ) | (14 | ) | (30 | ) | (20 | ) | (20 | ) | |||||||||
Free cash flow | $ | 45 | $ | 153 | $ | 51 | $ | 179 | $440 - $470 | $500 - $525 | |||||||||||
* Note: The total capital expenditures of $285 million in 2017 includes $70 million related to the new world headquarters in Atlanta, Georgia. This $70 million is offset by $45 million of expected reimbursements by the lessor included in net cash provided by operating activities.
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Reconciliation of Revenue Growth % (GAAP) to
Revenue Growth Adjusted Constant Currency % (non-GAAP)
Three months ended September 30, 2017 | |||||
Revenue Growth % (GAAP) | Favorable (unfavorable) FX impact | Revenue Growth Adjusted Constant Currency % (non-GAAP) | |||
Software License | (12)% | (1)% | (11)% | ||
Software Maintenance | 3% | —% | 3% | ||
Cloud | 5% | —% | 5% | ||
Professional Services | 6% | —% | 6% | ||
Software | 2% | —% | 2% | ||
Services | 3% | —% | 3% | ||
ATMs | (16)% | 1% | (17)% | ||
SCO | (24)% | —% | (24)% | ||
POS | 19% | 1% | 18% | ||
IPS | —% | —% | —% | ||
Hardware | (6)% | 1% | (7)% | ||
Total Revenue | (1)% | —% | (1)% | ||
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 | NCR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in millions, except per share amounts) | Schedule A |
For the Periods Ended September 30 | |||||||||||||||
Three Months | Nine Months | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue | |||||||||||||||
Products | $ | 657 | $ | 708 | $ | 1,829 | $ | 1,932 | |||||||
Services | 1,006 | 969 | 2,905 | 2,809 | |||||||||||
Total Revenue | 1,663 | 1,677 | 4,734 | 4,741 | |||||||||||
Cost of products | 528 | 528 | 1,430 | 1,487 | |||||||||||
Cost of services | 662 | 672 | 1,955 | 1,951 | |||||||||||
Total gross margin | 473 | 477 | 1,349 | 1,303 | |||||||||||
% of Revenue | 28.4 | % | 28.4 | % | 28.5 | % | 27.5 | % | |||||||
Selling, general and administrative expenses | 220 | 225 | 676 | 678 | |||||||||||
Research and development expenses | 53 | 56 | 178 | 159 | |||||||||||
Restructuring-related charges | — | 7 | — | 13 | |||||||||||
Income from operations | 200 | 189 | 495 | 453 | |||||||||||
% of Revenue | 12.0 | % | 11.3 | % | 10.5 | % | 9.6 | % | |||||||
Interest expense | (42 | ) | (41 | ) | (122 | ) | (130 | ) | |||||||
Other (expense), net | (8 | ) | (8 | ) | (22 | ) | (33 | ) | |||||||
Total other (expense), net | (50 | ) | (49 | ) | (144 | ) | (163 | ) | |||||||
Income before income taxes and discontinued operations | 150 | 140 | 351 | 290 | |||||||||||
% of Revenue | 9.0 | % | 8.3 | % | 7.4 | % | 6.1 | % | |||||||
Income tax expense | 31 | 31 | 78 | 75 | |||||||||||
Income from continuing operations | 119 | 109 | 273 | 215 | |||||||||||
(Loss) income from discontinued operations, net of tax | — | (2 | ) | 5 | (2 | ) | |||||||||
Net income | 119 | 107 | 278 | 213 | |||||||||||
Net income attributable to noncontrolling interests | 1 | 2 | 1 | — | |||||||||||
Net income attributable to NCR | $ | 118 | $ | 105 | $ | 277 | $ | 213 | |||||||
Amounts attributable to NCR common stockholders: | |||||||||||||||
Income from continuing operations | $ | 118 | $ | 107 | $ | 272 | $ | 215 | |||||||
Dividends on convertible preferred stock | (12 | ) | (13 | ) | (36 | ) | (37 | ) | |||||||
Deemed dividend on modification of convertible preferred stock | — | — | (4 | ) | — | ||||||||||
Deemed dividend on convertible preferred shares related to redemption | — | — | (58 | ) | — | ||||||||||
Net income from continuing operations attributable to NCR common stockholders | 106 | 94 | 174 | $ | 178 | ||||||||||
Income from discontinued operations, net of tax | — | (2 | ) | 5 | (2 | ) | |||||||||
Net income attributable to NCR common stockholders | $ | 106 | $ | 92 | $ | 179 | $ | 176 | |||||||
Net income per share attributable to NCR common stockholders: | |||||||||||||||
Net income per common share from continuing operations | |||||||||||||||
Basic | $ | 0.87 | $ | 0.76 | $ | 1.43 | $ | 1.41 | |||||||
Diluted | $ | 0.77 | $ | 0.69 | $ | 1.37 | $ | 1.37 | |||||||
Net income per common share | |||||||||||||||
Basic | $ | 0.87 | $ | 0.74 | $ | 1.47 | $ | 1.40 | |||||||
Diluted | $ | 0.77 | $ | 0.68 | $ | 1.41 | $ | 1.36 | |||||||
Weighted average common shares outstanding | |||||||||||||||
Basic | 121.5 | 123.9 | 121.9 | 126.0 | |||||||||||
Diluted | 153.1 | 155.4 | 126.9 | 156.8 | |||||||||||
(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.
9
| NCR CORPORATION REVENUE AND OPERATING INCOME SUMMARY (Unaudited) (in millions) | Schedule B |
For the Periods Ended September 30 | |||||||||||||||||||||||
Three Months | Nine Months | ||||||||||||||||||||||
2017 | 2016 | % Change | % Change Constant Currency | 2017 | 2016 | % Change | % Change Adjusted Constant Currency | ||||||||||||||||
Revenue by segment | |||||||||||||||||||||||
Software | $ | 476 | $ | 468 | 2% | 2% | $ | 1,392 | $ | 1,339 | 4% | 4% | |||||||||||
Software Gross Margin Rate | 50.4 | % | 51.1 | % | 50.3 | % | 51.0 | % | |||||||||||||||
Services | 609 | 591 | 3% | 3% | 1,754 | 1,708 | 3% | 4% | |||||||||||||||
Services Gross Margin Rate | 26.3 | % | 21.8 | % | 24.6 | % | 21.3 | % | |||||||||||||||
Hardware | 578 | 618 | (6)% | (7)% | 1,588 | 1,694 | (6)% | 1% | |||||||||||||||
Hardware Gross Margin Rate | 14.9 | % | 19.9 | % | 16.8 | % | 18.0 | % | |||||||||||||||
Total Revenue | $ | 1,663 | $ | 1,677 | (1)% | (1)% | $ | 4,734 | $ | 4,741 | —% | 3% | |||||||||||
Gross Margin Rate | 29.2 | % | 29.3 | % | 29.5 | % | 28.5 | % | |||||||||||||||
Operating income by segment | |||||||||||||||||||||||
Software | $ | 148 | $ | 146 | $ | 401 | $ | 405 | |||||||||||||||
% of Revenue | 31.1 | % | 31.2 | % | 28.8 | % | 30.2 | % | |||||||||||||||
Services | 89 | 56 | 209 | 139 | |||||||||||||||||||
% of Revenue | 14.6 | % | 9.5 | % | 11.9 | % | 8.1 | % | |||||||||||||||
Hardware | (2 | ) | 28 | — | 32 | ||||||||||||||||||
% of Revenue | (0.3 | )% | 4.5 | % | — | % | 1.9 | % | |||||||||||||||
Subtotal-segment operating income | $ | 235 | $ | 230 | $ | 610 | $ | 576 | |||||||||||||||
% of Revenue | 14.1 | % | 13.7 | % | 12.9 | % | 12.1 | % | |||||||||||||||
Other adjustments (1) | 35 | 41 | 115 | 123 | |||||||||||||||||||
Total income from operations | $ | 200 | $ | 189 | $ | 495 | $ | 453 | |||||||||||||||
(1) | The following table presents the other adjustments for NCR: |
For the Periods Ended September 30 | |||||||||||||||
Three Months | Nine Months | ||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Transformation/Restructuring costs | $ | 5 | $ | 8 | $ | 26 | $ | 23 | |||||||
Acquisition-related amortization of intangible assets | 29 | 31 | 86 | 95 | |||||||||||
Acquisition-related costs | 1 | 2 | 3 | 5 | |||||||||||
Total other adjustments | $ | 35 | $ | 41 | $ | 115 | $ | 123 | |||||||
10
| NCR CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except per share amounts) | Schedule C |
September 30, 2017 | June 30, 2017 | December 31, 2016 | |||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 405 | $ | 377 | $ | 498 | |||||
Accounts receivable, net | 1,408 | 1,321 | 1,282 | ||||||||
Inventories | 824 | 828 | 699 | ||||||||
Other current assets | 263 | 290 | 278 | ||||||||
Total current assets | 2,900 | 2,816 | 2,757 | ||||||||
Property, plant and equipment, net | 321 | 304 | 287 | ||||||||
Goodwill | 2,741 | 2,736 | 2,727 | ||||||||
Intangibles, net | 591 | 618 | 672 | ||||||||
Prepaid pension cost | 115 | 107 | 94 | ||||||||
Deferred income taxes | 595 | 611 | 575 | ||||||||
Other assets | 587 | 575 | 561 | ||||||||
Total assets | $ | 7,850 | $ | 7,767 | $ | 7,673 | |||||
Liabilities and stockholders’ equity | |||||||||||
Current liabilities | |||||||||||
Short-term borrowings | $ | 269 | $ | 267 | $ | 50 | |||||
Accounts payable | 720 | 731 | 781 | ||||||||
Payroll and benefits liabilities | 202 | 205 | 234 | ||||||||
Deferred service revenue and customer deposits | 465 | 521 | 468 | ||||||||
Other current liabilities | 390 | 389 | 432 | ||||||||
Total current liabilities | 2,046 | 2,113 | 1,965 | ||||||||
Long-term debt | 2,984 | 3,015 | 3,001 | ||||||||
Pension and indemnity plan liabilities | 771 | 764 | 739 | ||||||||
Postretirement and postemployment benefits liabilities | 127 | 127 | 127 | ||||||||
Income tax accruals | 138 | 140 | 142 | ||||||||
Other liabilities | 197 | 161 | 138 | ||||||||
Total liabilities | 6,263 | 6,320 | 6,112 | ||||||||
Redeemable noncontrolling interests | 14 | 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 September 30, 2017, June 30, 2017 and 0.9 shares issued and outstanding as of December 31, 2016 | 799 | 786 | 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 September 30, 2017, June 30, 2017 and December 31, 2016 | — | — | — | ||||||||
Common stock: par value $0.01 per share, 500.0 shares authorized, 121.5, 121.4 and 124.6 shares issued and outstanding as of September 30, 2017, June 30, 2017 and December 31, 2016 | 1 | 1 | 1 | ||||||||
Paid-in capital | 44 | 25 | 32 | ||||||||
Retained earnings | 913 | 806 | 867 | ||||||||
Accumulated other comprehensive loss | (188 | ) | (190 | ) | (205 | ) | |||||
Total NCR stockholders' equity | 770 | 642 | 695 | ||||||||
Noncontrolling interests in subsidiaries | 4 | 5 | 4 | ||||||||
Total stockholders' equity | 774 | 647 | 699 | ||||||||
Total liabilities and stockholders' equity | $ | 7,850 | $ | 7,767 | $ | 7,673 | |||||
11
| NCR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions) | Schedule D |
For the Periods Ended September 30 | |||||||||||||||
Three Months | Nine Months | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Operating activities | |||||||||||||||
Net income | $ | 119 | $ | 107 | $ | 278 | $ | 213 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||
(Income) loss from discontinued operations | — | 2 | (5 | ) | 2 | ||||||||||
Depreciation and amortization | 91 | 84 | 263 | 259 | |||||||||||
Stock-based compensation expense | 19 | 16 | 60 | 45 | |||||||||||
Deferred income taxes | 15 | 19 | 19 | 39 | |||||||||||
Gain on sale of property, plant and equipment and other assets | (1 | ) | — | (2 | ) | — | |||||||||
Loss on divestiture | — | — | — | 1 | |||||||||||
Impairment of long-lived and other assets | 1 | — | 1 | 2 | |||||||||||
Changes in assets and liabilities: | |||||||||||||||
Receivables | (79 | ) | (17 | ) | (107 | ) | (138 | ) | |||||||
Inventories | 6 | (5 | ) | (120 | ) | (128 | ) | ||||||||
Current payables and accrued expenses | (39 | ) | 64 | (132 | ) | 68 | |||||||||
Deferred service revenue and customer deposits | (30 | ) | (53 | ) | 20 | 78 | |||||||||
Employee benefit plans | (7 | ) | (12 | ) | (13 | ) | (38 | ) | |||||||
Other assets and liabilities | 38 | 20 | 9 | (34 | ) | ||||||||||
Net cash provided by operating activities | 133 | 225 | 271 | 369 | |||||||||||
Investing activities | |||||||||||||||
Expenditures for property, plant and equipment | (38 | ) | (21 | ) | (81 | ) | (45 | ) | |||||||
Proceeds from sales of property, plant and equipment | 6 | — | 6 | — | |||||||||||
Additions to capitalized software | (41 | ) | (41 | ) | (125 | ) | (115 | ) | |||||||
Proceeds from divestiture | — | — | — | 47 | |||||||||||
Other investing activities, net | — | — | — | (8 | ) | ||||||||||
Net cash used in investing activities | (73 | ) | (62 | ) | (200 | ) | (121 | ) | |||||||
Financing activities | |||||||||||||||
Short term borrowings, net | (3 | ) | (3 | ) | 10 | (2 | ) | ||||||||
Payments on term credit facilities | (12 | ) | (11 | ) | (37 | ) | (84 | ) | |||||||
Payments on revolving credit facilities | (495 | ) | (305 | ) | (1,110 | ) | (736 | ) | |||||||
Borrowings on revolving credit facilities | 480 | 150 | 1,335 | 856 | |||||||||||
Debt issuance costs | — | — | — | (8 | ) | ||||||||||
Repurchases of Company common stock | — | — | (350 | ) | (250 | ) | |||||||||
Proceeds from employee stock plans | 3 | 4 | 11 | 10 | |||||||||||
Tax withholding payments on behalf of employees | — | — | (24 | ) | (7 | ) | |||||||||
Other financing activities | — | (2 | ) | (1 | ) | (2 | ) | ||||||||
Net cash used in financing activities | (27 | ) | (167 | ) | (166 | ) | (223 | ) | |||||||
Cash flows from discontinued operations | |||||||||||||||
Net cash used in discontinued operations | (9 | ) | (10 | ) | (14 | ) | (30 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | 4 | — | 16 | (5 | ) | ||||||||||
(Decrease)/increase in cash and cash equivalents | 28 | (14 | ) | (93 | ) | (10 | ) | ||||||||
Cash and cash equivalents at beginning of period | 377 | 332 | 498 | 328 | |||||||||||
Cash and cash equivalents at end of period | $ | 405 | $ | 318 | $ | 405 | $ | 318 | |||||||
12
1
October 19, 2017
BILL NUTI, CHAIRMAN & CEO
MARK BENJAMIN, PRESIDENT & COO
BOB FISHMAN, CFO
Q3 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 expected improvements in working capital in the fourth quarter; trends in backlog and file value in NCR's Services business;
the ATM market and expected softness in demand for ATMs and the reasons therefor; the expected areas of focus for NCR’s Services segment
in 2017; momentum and fourth quarter growth in self-checkout revenue; expected capital expenditures for 2017, including with respect to
NCR’s new world headquarters; NCR’s full year 2017 financial guidance, 2017 and fourth quarter segment financial guidance, and fourth
quarter 2017 financial guidance, and the expected type and magnitude of the non-operational adjustments included in any forward-looking
non-GAAP measures; NCR’s solution offerings and their alignment with major market trends and customer demands; NCR’s areas of focus
to drive momentum going into 2018; expectations for margin expansion and the drivers of margin expansion; the expected drivers of NCR’s
growth; and the prioritization of free cash flow generation and a balanced 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 October 19, 2017, 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), operating 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, 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
Q3 earnings at HIGHER END and revenue at
LOWER END of guidance range
Continued CLOUD growth of 5% with Net
ACV up 37%
Operating Margin RATE EXPANSION
driven by strength in Services
Guidance LOWERED for full year due to
softness in ATM market
OVERVIEW
4
Non-GAAP gross margin rate down 10 bps; Non-
GAAP operating margin rate expanded 40 bps
Non-GAAP Diluted EPS up 7% Decrease in FCF due to higher working capital; Improvements expected in Q4 2017
FX
0 bps
FX
$0.00
$1.68
billion
29.3% 29.2%
Q3 2016 Q3 2016Q3 2017
$0.93
Q3 2016 Q3 2017
$153
million
Q3 2016
$45
million
Q3 2017
Revenue
Non-GAAP Gross
Margin Rate
Non-GAAP Diluted EPS Free Cash Flow
Revenue down 1%
Recurring revenue up 4% CC, 44% of total revenue
$1.66
billion
Q3 2017
$0.87
FX
$8 million
Q3 2017 FINANCIAL RESULTS
13.7%
Q3 2016
14.1%
Q3 2017
FX
0 bps
Non-GAAP
Operating Margin
Rate
5
OMNI-CHANNEL MARKET
Omni Channel
Software
• NCR's Omni-Channel
Platform Hub and
Applications
• Enables seamless consumer
experiences across physical
and digital channels
• Solutions Include: Retail
One, Customer Experience
Platform (CxP), Aloha
Enterprise, NCR Silver
Channel Transformation
• Enables revenue growth,
productivity gains, and modernized
consumer experiences from the
transformation of physical and
digital channels
• Solutions include: Branch,
Store, Restaurant, and Venue
Transformation
• Drives smart-edge offerings: ATMs,
SCO, mPOS, ePOS, Peripherals
• Drives service offerings: Consulting
Services, Implementation Services,
Hardware Maintenance, Managed
Services, High Availability
Digital Enablement
• Enables new business
models driven by the
growing digitalization
movement
• Solutions include: Real-Time
Actionable Insights, Loyalty,
Cloud/ATM Security, Loss &
Fraud Prevention, Inventory
and Labor Management,
Cash Management, Secure
Payments, Transaction
Processing, Remote Deposit,
Digital Check Processing
6
Up 2%
CC
Up 3%
CC
Down
7% CC
Down 70
bps CC
Up 460
bps CC
Down
540 bps
CC51.1% 50.4%
21.8%
26.3%
Q3 2016 Q3 2017 Q3 2016 Q3 2017
Software Gross Margin Services Gross Margin
19.9%
14.9%
Q3 2016 Q3 2017
Hardware Gross Margin
$468
million
$476
million
Q3 2016 Q3 2017
$591
million
$609
million
Q3 2017Q3 2016
Software Revenue Services Revenue
$618
million $578
million
Hardware Revenue
Q3 2017Q3 2016
Q3 2017 SEGMENT RESULTS
7
Q3 2017 Q3 2016 % Change
% Change
Constant
Currency
Software License $79 $90 (12)% (11)%
Attached License 32 41 (22)% (23)%
Unattached License 47 49 (4)% (4)%
Software Maintenance 95 92 3% 3%
Cloud 149 142 5% 5%
Professional Services 153 144 6% 6%
Software Revenue $476 $468 2% 2%
Software Gross Margin $240 $239 —% —%
Software Gross Margin Rate 50.4% 51.1% (70) bps (70) bps
Operating Income $148 $146 1% 1%
Operating Income as a % of Revenue 31.1% 31.2% (10) bps (10) bps
$ in millions
SOFTWARE
Q3 2017 Update
KEY HIGHLIGHTS
• Cloud revenue up 5% with accelerated sequential growth of $4 million; Net ACV of $16 million, up 37%
• Software License down 11% due to a large unattached license in the prior year period and lower software license
revenue attached to hardware; Unattached Software License up 17% year-to-date
• Professional Services up 6% due to strength in channel transformation and digital enablement
• Software Maintenance up 3%, with accelerated sequential growth of $4 million
• Gross Margin rate down driven by lower Software License revenue partially offset by improved efficiency and scale
in Software Maintenance and Cloud
8
Q3 2017 Q3 2016 % Change
% Change
Constant
Currency
Services Revenue $609 $591 3% 3%
Services Gross Margin $160 $129 24% 25%
Services Gross Margin Rate 26.3% 21.8% +450 bps +460 bps
Operating Income $89 $56 59% 64%
Operating Income as a % of Revenue 14.6% 9.5% +510 bps +530 bps
$ in millions
SERVICES
Q3 2017 Update
KEY HIGHLIGHTS
• Hardware maintenance growth as a result of improving channel transformation trends, combined with increased
managed and implementation services, drove higher revenue in the quarter; Backlog improving in form of higher
file value
• Gross margin rate increased due to on-going business process improvement initiatives and mix of higher value
services
• Key areas of focus to drive future margin rate improvements: 1) Drive a higher mix of managed services; 2)
Productivity and efficiency improvements; 3) Remote diagnostics and repair; and 4) Product life-cycle management
9
Q3 2017 Q3 2016 % Change
% Change
Constant
Currency
ATMs $273 $324 (16)% (17)%
Self-Checkout (SCO) 79 104 (24)% (24)%
Point-of-Sale (POS) 221 185 19% 18%
Interactive Printer Solutions (IPS) 5 5 —% —%
Hardware Revenue $578 $618 (6)% (7)%
Hardware Gross Margin $86 $123 (30)% (32)%
Hardware Gross Margin Rate 14.9% 19.9% (500) bps (540) bps
Operating Income ($2) $28 (107)% (106)%
Operating Income as a % of Revenue (0.3%) 4.5% (480) bps (520) bps
$ in millions
HARDWARE
Q3 2017 Update
KEY HIGHLIGHTS
• Strong growth in POS revenues, primarily due to market gains and the introduction of a forecourt Omni-Channel
solution in the Petroleum & Convenience market
• ATM market continues to be impacted by large customer delays in spending in North America, weakness in
Middle East and Africa, and the upcoming Windows 10 conversion
• SCO revenue was down due to a strong Q3 in the prior year but is expected to continue its full year momentum
and grow sequentially in the fourth quarter
• Gross margin rate decrease due to lower ATM and SCO volumes and new product introductions
10
QTD YTD
Q3 2017 Q3 2016 Q3 2017 Q3 2016 FY 2017E FY 2016
Cash Provided by Operating Activities $133 $225 $271 $369 $745 - $775 $894
Total capital expenditures (1) (79) (62) (206) (160) (285) (227)
Cash used in Discontinued Operations (9) (10) (14) (30) (20) (39)
Free Cash Flow $45 $153 $51 $179 $440 - $470 $628
Free Cash Flow as a % of non-GAAP net income(2) 90% - 95% 132%
$ in millions
(1) The total capital expenditures of $285 million in 2017 includes $70 million related to the new world headquarters in Atlanta, Georgia. This $70 million
is offset by $45 million of expected reimbursements by the lessor included in net cash provided by operating activities.
(2) Also referred to as Free Cash Flow Conversion Rate.
FREE CASH FLOW
11
Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016
Debt $3,253 $3,282 $3,328 $3,051 $3,289
Cash (405) (377) (401) (498) (318)
Net Debt $2,848 $2,905 $2,927 $2,553 $2,971
Adjusted EBITDA (1) $1,129 $1,111 $1,091 $1,057 $1,047
Net Debt / Adjusted EBITDA 2.5x 2.6x 2.7x 2.4x 2.8x
$ in millions, except metrics(1) Adjusted EBITDA for the trailing twelve-month period.
NET DEBT AND EBITDA METRICS
12
2017 Guidance 2017 CCGrowth Rates
2017 Prior
Guidance
2017 Prior CC
Growth Rates 2016
Revenue (1) $6,475 - $6,525 1% $6,630 - $6,750 4% - 6% $6,543
GAAP Diluted EPS (2) $1.97 - $2.09 9% - 16% $2.20 - $2.32 22% - 29% $1.80
Non-GAAP Diluted EPS (1)(3) $3.10 - $3.20 1% - 4% $3.32 - $3.42 10% - 13% $3.02
(1) The 2017 revenue guidance and growth rates include an expected favorable foreign currency impact of $20 million, or ~0%, compared to our previous
expectation of negative $25 million, or ~1%. Revenue growth rates also exclude ~$124 million million of IPS revenue, or ~2%, from 2016. The 2017
current non-GAAP diluted EPS guidance includes $0.06 favorable impact from expected foreign currency compared to our previous expectation of
favorable $0.01.
(2) FY 2017 Guidance does not include an estimate of the pension mark-to-market adjustments.
(3) For the 2017 guidance, we have assumed OIE of approximately $201 million (previous guidance of $205 million), an effective tax rate of 25% and a
share count of 155 million (previous guidance of 157 million) compared to OIE of $214 million, an effective tax rate of 23% and a share count of 157
million in 2016.
$ millions, except per share amounts
FY 2017 GUIDANCE
2017 Guidance 2017 ConversionRate
2017 Prior
Guidance
2017 Prior CC
Growth Rates 2016
Free Cash Flow $440 - $470 90% - 95% $500 - $525 95% - 100% $628
13
Segment 2017E CC Growth Rates(1)
FY 2017 Current
Guidance
FY 2017 Prior
Guidance FY 2016
Software 2% - 3% $1,885 - $1,905 $1,945 - $1,965 $1,841
Cloud Revenue ~ 6% ~ $590 $590 - $600 $556
Services 3% $2,360 - $2,370 $2,335 - $2,375 2,306
Hardware (2) (2%) - (3%) $2,220 - $2,250 $2,350 - $2,410 2,396
Total (1) (2) 1% $6,475 - $6,525 $6,630 - $6,750 $6,543
$ in millions
(1) The 2017 revenue guidance and growth rates include an expected foreign currency positive impact of $20 million for revenue, or
~0%, compared to prior guidance of negative $25 million, or 1%.
(2) The growth rates for Hardware revenue and total revenue are normalized for the sale of the IPS business, which was $124 million
of Hardware revenue in 2016.
FY 2017 SEGMENT REVENUE GUIDANCE
14
Q4 2017E Q4 2016 CC GrowthRates
Revenue (1) $1,740 - $1,790 $1,802 (6%) - (3%)
GAAP Diluted EPS (2) $0.64 - $0.76 $0.43 49% - 77%
Non-GAAP Diluted EPS (1) (3) $0.83 - $0.93 $1.07 (28%) - (19%)
$ in millions, except per share amounts
(1) The Q4 2017 revenue guidance and growth rates are expected to include a favorable foreign currency impact of $40 million, or ~2%.
The Q4 2017 non-GAAP diluted EPS guidance and growth rates are expected to include a favorable foreign currency impact of $0.08.
(2) Q4 2017 guidance does not include an estimate of the pension mark-to-market adjustments. Q4 2016 included pension mark to market
expense of $78 million after tax, or $0.50 per share.
(3) For Q4 2017, we have assumed OIE of approximately $56 million, an effective tax rate of 27% and a share count of 155 million
compared to OIE of $56 million, an effective tax rate of 17% and a share count of 157 million in Q4 2016.
Q4 2017 GUIDANCE
15
Segment Q4 2017Guidance
Q4 2017 CC
Growth Rates Q4 2016
Q4 2016 CC
Growth Rates
Software $493 - $513 (4%) - 0% $502 10%
Services $606 - $616 (1%) - 1% $598 3%
Hardware $631 - $661 (13%) - (8%) $702 30%
Total $1,740 - $1,790 (6%) - (3%) $1,802 14%
$ in millions
• Hardware decrease in Q4 2017 includes approximately 30% drop in ATM hardware. Prior year
ATM hardware grew 29% constant currency.
• As a result, software license revenue attached to hardware is expected to be down
approximately 35% in Q4 2017. Prior year attached software license revenue grew 50%.
Q4 2017 SEGMENT REVENUE GUIDANCE
16
n Software 50.3% GM rate
n Services 24.6% GM rate
n Hardware 16.8% GM rate
YTD 2017 Operating
Income Mix
Software
65%
Services
24%
Up 4%
CC
Up
4% CC Up 1%
Adj. CC
$1.34
billion
$1.39
bilion
YTD 2016 YTD 2017
$1.71
billion
$1.75
billion
Software Revenue Services Revenue
$1.69
billion
$1.59
billion
Hardware Revenue
YTD 2017 SEGMENT RESULTS
YTD 2016 YTD 2017 YTD 2016 YTD 2017
Software
66%
Services
34%
• Cloud revenue growth of 7%;
Net ACV growth of 26%
• Unattached SW license
revenue growth of 17%
• Services margin expansion of
330 bps
• Recurring revenue at 45% of
total revenue, up 100 bps
17
LOOKING FORWARD
Improving execution and operational efficiencies
NCR's solution offerings aligned with major market
trends and customer demands
Focused on sales funnel, orders and revenue growth
to drive momentum going into 2018
Software growth combined with our business
transformation program is the key to margin expansion
Omni-Channel, Channel Transformation, and Digital
Enablement expected to be growth drivers
Free cash flow generation and balanced capital allocation
strategy remains a top priority
18
SUPPLEMENTARY
MATERIALS
19
Q3 2017 Q3 2016 As Reported
Revenue $1,663 $1,677 (1)%
Gross Margin 473 477 (1)%
Gross Margin Rate 28.4% 28.4%
Operating Expenses 273 288 (5)%
% of Revenue 16.4% 17.2%
Operating Income 200 189 6%
% of Revenue 12.0% 11.3%
Interest and other expense (50) (49) 2%
Income Tax Expense 31 31 —%
Income Tax Rate 21% 22%
Net Income $118 $107 10%
Diluted EPS $0.77 $0.69 12%
in millions, except per share amounts
Q3 2017 GAAP RESULTS
20
Q3 2017 Q3 2016 As Reported
Constant
Currency
Revenue $1,663 $1,677 (1)% (1)% (1)
Gross Margin (non-GAAP) 486 491 (1)% (2)%
Gross Margin Rate (non-GAAP) 29.2% 29.3% (10) bps (10) bps
Operating Expenses (non-GAAP) 251 261 (4)% (4)%
% of Revenue 15.1% 15.6%
Operating Income (non-GAAP) 235 230 2% 1%
% of Revenue 14.1% 13.7% +40 bps +40 bps
Interest and other expense (50) (49) 2% (3)%
Income Tax Expense (non-GAAP) 41 44 (7)%
Income Tax Rate (non-GAAP) 22% 24%
Net Income (non-GAAP) $143 $135 6% 6%
Diluted EPS (non-GAAP) (2) $0.93 $0.87 7% 7%
(1) The impact of FX was $8 million favorable.
(2) Q3 2017 includes zero impact of foreign currency on EPS. Diluted share count of 153 million in Q3 2017 and 155 million in Q3 2016.
in millions, except per share amounts
Q3 2017 OPERATIONAL RESULTS
21
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), Operating 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), operating 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, operating 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
22
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
23
Net Income from Continuing Operations (GAAP) to
Adjusted EBITDA (non-GAAP)
in millions
Q3 2017
LTM
Q2 2017
LTM
Q1 2017
LTM
Q4 2016
LTM
Q3 2016
LTM
Net Income from Continuing Operations (GAAP) $345 $335 $312 $287 $263
Pension Mark-to-Market Adjustments 85 85 85 85 29
Transformation/Restructuring Costs 29 32 35 26 61
Acquisition-Related Amortization of Intangibles 114 116 120 123 126
Acquisition-Related Costs 5 6 6 7 9
Reserve related to a subcontract in MEA — — — — 20
Divestiture and Liquidation Losses 1 1 6 6 39
Net Income (Loss) from Continuing Operations Attributable to
Noncontrolling Interests (5) (6) (4) (4) —
Interest Expense 162 161 163 170 172
Interest Income (4) (4) (4) (4) (5)
Depreciation and Amortization 226 217 212 208 198
Income Taxes 95 95 93 92 80
Stock Compensation Expense 76 73 67 61 55
Adjusted EBITDA (non-GAAP) $1,129 $1,111 $1,091 $1,057 $1,047
GAAP TO NON-GAAP RECONCILIATION
in millions
24
in millions (except per share amounts)
Q3 QTD 2017
GAAP
Transformation
Costs
Acquisition-
related
amortization of
intangibles
Acquisition-
related
costs
Q3 QTD 2017
non-GAAP
Product revenue $657 $— $— $— $657
Service revenue 1,006 — — — 1,006
Total revenue 1,663 — — — 1,663
Cost of products 528 — (6) — 522
Cost of services 662 (1) (6) — 655
Gross margin 473 1 12 — 486
Gross margin rate 28.4% 0.1% 0.7% —% 29.2%
Selling, general and administrative expenses 220 (3) (17) (1) 199
Research and development expenses 53 (1) — — 52
Total operating expenses 273 (4) (17) (1) 251
Total operating expense as a % of revenue 16.4% (0.2)% (1.0)% (0.1)% 15.1%
Income (loss) from operations 200 5 29 1 235
Income (loss) from operations as a % of revenue 12.0% 0.3% 1.7% 0.1% 14.1%
Interest and Other (expense) income, net (50) — — — (50)
Income (loss) from continuing operations before income taxes 150 5 29 1 185
Income tax expense (benefit) 31 1 9 — 41
Effective tax rate 21% 22%
Income (loss) from continuing operations 119 4 20 1 144
Net income (loss) attributable to noncontrolling interests 1 — — — 1
Income (loss) from continuing operations (attributable to NCR) $118 $4 $20 $1 $143
Diluted earnings per share $0.77 $0.02 $0.13 $0.01 $0.93
Diluted shares outstanding 153.1 153.1
GAAP TO NON-GAAP RECONCILIATION
Q3 2017 QTD
in millions, except per share amounts
25
in millions (except per share amounts)
Q3 QTD 2017
GAAP
Q3 QTD
2017
non-GAAP
Income from continuing operations attributable to NCR common
stockholders $118 $143
Weighted average outstanding shares:
Weighted average diluted shares outstanding 126.2 126.2
Weighted as-if converted preferred shares 26.9 26.9
Total shares used in diluted earnings per share 153.1 153.1
Diluted (loss) earnings per share (1) $0.77 $0.93
(1) GAAP EPS is determined using the most dilutive measure, either including the impact of the dividends on NCR's Series A
Convertible Preferred Shares in the calculation of net income or loss available to common stockholders or including the impact
of the conversion of such preferred stock into common stock in the calculation of the weighted average diluted shares outstanding.
Non-GAAP EPS is always determined using the as-if converted preferred shares and shares that would be issued for stock
compensation awards. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may be calculated using different methods,
and may not mathematically reconcile.
GAAP TO NON-GAAP RECONCILIATION
Q3 2017 QTD
in millions, except per share amounts
26
in millions (except per share amounts)
Q3 QTD 2016
GAAP
Restructuring /
Transformation
Costs
Acquisition-
related
amortization of
intangibles
Acquisition-
related costs
Q3 QTD
2016
non-GAAP
Product revenue $708 $— $— $— $708
Service revenue 969 — — — 969
Total revenue 1,677 — — — 1,677
Cost of products 528 — (8) — 520
Cost of services 672 — (6) — 666
Gross margin 477 — 14 — 491
Gross margin rate 28.4% —% 0.9% —% 29.3%
Selling, general and administrative expenses 225 (1) (17) (2) 205
Research and development expenses 56 — — — 56
Restructuring-related charges 7 (7) — — —
Total operating expenses 288 (8) (17) (2) 261
Total operating expense as a % of revenue 17.2% (0.5)% (1.0)% (0.1)% 15.6%
Income (loss) from operations 189 8 31 2 230
Income (loss) from operations as a % of revenue 11.3% 0.5% 1.8% 0.1% 13.7%
Interest and Other (expense) income, net (49) — — — (49)
Income (loss) from continuing operations before income
taxes 140 8 31 2 181
Income tax expense (benefit) 31 1 11 1 44
Effective tax rate 22% 24%
Income (loss) from continuing operations 109 7 20 1 137
Net income (loss) attributable to noncontrolling interests 2 — — — 2
Income (loss) from continuing operations
(attributable to NCR) $107 $7 $20 $1 $135
Diluted earnings per share $0.69 $0.05 $0.12 $0.01 $0.87
Diluted shares outstanding 155.4 155.4
GAAP TO NON-GAAP RECONCILIATION
Q3 2016 QTD in millions, except per share amounts
27
in millions (except per share amounts)
Q3 QTD 2016
GAAP
Q3 QTD
2016
non-GAAP
Income from continuing operations attributable to NCR common
stockholders $107 $135
Weighted average outstanding shares:
Weighted average diluted shares outstanding 127.0 127.0
Weighted as-if converted preferred shares 28.4 28.4
Total shares used in diluted earnings per share 155.4 155.4
Diluted earnings per share (1) $0.69 $0.87
GAAP TO NON-GAAP RECONCILIATION
Q3 2016 QTD
(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.
in millions, except per share amounts
28
in millions (except per share amounts)
Q3 YTD 2017
GAAP
Transformation
Costs
Acquisition-
related
amortization of
intangibles
Acquisition-
related
costs
Q3 YTD 2017
non-GAAP
Product revenue $1,829 $— $— $— $1,829
Service revenue 2,905 — — — 2,905
Total revenue 4,734 — — — 4,734
Cost of products 1,430 (2) (19) — 1,409
Cost of services 1,955 (9) (18) — 1,928
Gross margin 1,349 11 37 — 1,397
Gross margin rate 28.5% 0.3% 0.8% —% 29.5%
Selling, general and administrative expenses 676 (10) (49) (3) 614
Research and development expenses 178 (5) — — 173
Total operating expenses 854 (15) (49) (3) 787
Total operating expense as a % of revenue 18.0% (0.3)% (1.0)% (0.1)% 16.6%
Income (loss) from operations 495 26 86 3 610
Income (loss) from operations as a % of revenue 10.5% 0.4% 1.8% 0.1% 12.9%
Interest and Other (expense) income, net (144) — — — (144)
Income (loss) from continuing operations before income taxes 351 26 86 3 466
Income tax expense (benefit) 78 7 27 1 113
Effective tax rate 22% 24%
Income (loss) from continuing operations 273 19 59 2 353
Net income (loss) attributable to noncontrolling interests 1 — — — 1
Income (loss) from continuing operations (attributable to NCR) $272 $19 $59 $2 $352
Diluted earnings per share $1.37 $0.12 $0.38 $0.01 $2.28
Diluted shares outstanding 126.9 154.2
GAAP TO NON-GAAP RECONCILIATION
Q3 2017 YTD
29
in millions (except per share amounts)
Q3 YTD 2017
GAAP
Q3 YTD
2017
non-GAAP
Income (loss) from continuing operations attributable to NCR common
stockholders:
Income from continuing operations (attributable to NCR) $272 $352
Dividends on convertible preferred shares (36) —
Deemed dividend on modification of convertible preferred shares (4) —
Deemed dividend on convertible preferred shares related to redemption value
accretion (58) —
Income from continuing operations attributable to NCR common
stockholders $174 $352
Weighted average outstanding shares:
Weighted average diluted shares outstanding 126.9 126.9
Weighted as-if converted preferred shares — 27.3
Total shares used in diluted earnings per share 126.9 154.2
Diluted earnings per share (1) $1.37 $2.28
(1) GAAP EPS is determined using the most dilutive measure, either including the impact of the dividends on NCR's Series A
Convertible Preferred Shares in the calculation of net income or loss available to common stockholders or including the impact
of the conversion of such preferred stock into common stock in the calculation of the weighted average diluted shares outstanding.
Non-GAAP EPS is always determined using the as-if converted preferred shares and shares that would be issued for stock
compensation awards. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may be calculated using different methods,
and may not mathematically reconcile.
GAAP TO NON-GAAP RECONCILIATION
Q3 2017 YTD
30
in millions (except per share amounts)
Q3 YTD 2016
GAAP
Restructuring /
Transformation
Costs
Acquisition-
related
amortization of
intangibles
Acquisition-
related
costs
Divestiture and
Liquidation
Losses
Q3 YTD 2016
non-GAAP
Product revenue $1,932 $— $— $— $— $1,932
Service revenue 2,809 — — — — 2,809
Total revenue 4,741 — — — — 4,741
Cost of products 1,487 — (27) — — 1,460
Cost of services 1,951 (4) (18) — — 1,929
Gross margin 1,303 4 45 — — 1,352
Gross margin rate 27.5% 0.1% 0.9% —% —% 28.5%
Selling, general and administrative expenses 678 (6) (50) (5) — 617
Research and development expenses 159 — — — — 159
Restructuring-related charges 13 (13) — — — —
Total expenses 850 (19) (50) (5) — 776
Total expense as a % of revenue 17.9% (0.4)% (1.0)% (0.1)% —% 16.4%
Income (loss) from operations 453 23 95 5 — 576
Income (loss) from operations as a % of revenue 9.6% 0.5% 1.9% 0.1% —% 12.1%
Interest and Other (expense) income, net (163) — — — 5 (158)
Income (loss) from continuing operations before
income taxes 290 23 95 5 5 418
Income tax expense (benefit) 75 3 31 2 — 111
Effective tax rate 26% 27%
Income (loss) from continuing operations 215 20 64 3 5 307
Net income (loss) attributable to noncontrolling
interests — — — — — —
Income (loss) from continuing operations
(attributable to NCR) $215 $20 $64 $3 $5 $307
Diluted earnings per share $1.37 $0.13 $0.41 $0.02 $0.03 $1.96
Diluted shares outstanding 156.8 156.8
GAAP TO NON-GAAP RECONCILIATION
Q3 2016 YTD
in millions, except per share amounts
31
in millions (except per share amounts)
Q3 YTD 2016
GAAP
Q3 YTD 2016
non-GAAP
Income from continuing operations attributable to NCR common
stockholders $215 $307
Weighted average outstanding shares:
Weighted average diluted shares outstanding 128.8 128.8
Weighted as-if converted preferred shares 28.0 28.0
Total shares used in diluted earnings per share 156.8 156.8
Diluted earnings per share (1) $1.37 $1.96
(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
Q3 2016 YTD
in millions, except per share amounts
32
in millions (except per share amounts)
Q4 YTD 2016
GAAP
Restructuring /
Transformation
Costs
Acquisition-
related
amortization of
intangibles
Acquisition
- related
costs
Pension
mark-to-
market
adjustments
Divestiture
and
Liquidation
Losses
Q4 YTD 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
33
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
34
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
35
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
36
Revenue Growth % (GAAP) to
Revenue Growth Adjusted Constant Currency % (non-GAAP)
Q3 2017 QTD
Revenue Growth %
(GAAP)
Favorable (unfavorable)
FX impact
Revenue Growth Adjusted
Constant Currency %
(non-GAAP)
Software License (12)% (1)% (11)%
Attached License (22)% 1% (23)%
Unattached License (4)% —% (4)%
Software Maintenance 3% —% 3%
Cloud 5% —% 5%
Professional Services 6% —% 6%
Software 2% —% 2%
Services 3% —% 3%
ATMs (16)% 1% (17)%
Self-Checkout (SCO) (24)% —% (24)%
Point-of-Sale (POS) 19% 1% 18%
Interactive Printer Solutions (IPS) —% —% —%
Hardware (6)% 1% (7)%
Total Revenue (1)% —% (1)%
GAAP TO NON-GAAP RECONCILIATION
37
Gross Margin Growth % (GAAP) to
Gross Margin Growth % on a Constant Currency Basis (non-GAAP)
Q3 2017 QTD
Gross Margin Growth %
Reported
Favorable (unfavorable)
FX impact
Constant Currency
Gross Margin Growth %
(non-GAAP)
Software —% —% —%
Services 24% (1)% 25%
Hardware (30)% 2% (32)%
Total Gross Margin (1)% 1% (2)%
GAAP TO NON-GAAP RECONCILIATION
38
Operating Income Growth % (GAAP) to
Operating Income Growth % on a Constant Currency Basis (non-GAAP)
Q3 2017 QTD
Operating Income
Growth % Reported
Favorable (unfavorable)
FX impact
Constant Currency
Operating Income
Growth % (non-GAAP)
Software 1% —% 1%
Services 59% (5)% 64%
Hardware (107)% (1)% (106)%
Total Operating
Income 2% 1% 1%
GAAP TO NON-GAAP RECONCILIATION
39
GAAP TO NON-GAAP RECONCILIATION
Gross Margin Growth bps (GAAP) to
Gross Margin Growth bps on a Constant Currency Basis (non-GAAP)
Q3 2017 QTD
Gross Margin bps
Growth Reported
Favorable (unfavorable)
FX impact
Constant Currency
Gross Margin bps
Growth (non-GAAP)
Software -70 bps — bps -70 bps
Services +450 bps -10 bps +460 bps
Hardware -500 bps +40 bps -540 bps
Total Gross Margin
bps -10 bps — bps -10 bps
40
Operating Income Growth bps (GAAP) to
Operating Income Growth bps on a Constant Currency Basis (non-GAAP)
Q3 2017 QTD
Operating Income bps
Growth Reported
Favorable (unfavorable)
FX impact
Constant Currency
Operating Income bps
Growth (non-GAAP)
Software -10 bps — bps -10 bps
Services +510 bps -20 bps +530 bps
Hardware -480 bps +40 bps -520 bps
Total Operating
Income +40 bps — bps +40 bps
GAAP TO NON-GAAP RECONCILIATION
41
Revenue Growth % (GAAP) to
Revenue Growth Adjusted Constant Currency % (non-GAAP)
Q3 2017 YTD
Revenue
Growth %
(GAAP)
Favorable
(unfavorable)
FX impact
Divestiture
Impact
Revenue Growth Adjusted
Constant Currency %
(non-GAAP)
Software 4% —% —% 4%
Services 3% (1)% —% 4%
Hardware (6)% —% (7)% 1%
Total Revenue —% —% (3)% 3%
GAAP TO NON-GAAP RECONCILIATION
42
Revenue Growth % (GAAP) to
Revenue Growth Adjusted Constant Currency % (non-GAAP)
Q4 2016 QTD
Revenue
Growth %
(GAAP)
Favorable
(unfavorable)
FX impact
Divestiture
Impact
Revenue Growth Adjusted
Constant Currency %
(non-GAAP)
Software 9% (1)% —% 10%
Services 1% (2)% —% 3%
Hardware 11% (2)% (17)% 30%
Total Revenue 7% (1)% (6)% 14%
GAAP TO NON-GAAP RECONCILIATION
43
GAAP TO NON-GAAP RECONCILIATION
Diluted Earnings per Share (GAAP) to
Diluted Earnings per Share (non-GAAP)
2017
Guidance
Prior 2017
Guidance
Q4 2017
Guidance
Diluted EPS (GAAP) (1) $1.97 - $2.09 $2.20 - $2.32 $0.64 - $0.76
Transformation costs 0.14 - 0.17 0.14 - 0.17 0.02 - 0.05
Acquisition-Related Amortization of Intangibles 0.49 0.49 0.13
Acquisition-Related Costs 0.03 0.03 0.02
Deemed dividends related to Blackstone Transaction 0.39 0.39 —
Non-GAAP Diluted EPS (1) $3.10 - $3.20 $3.32 - $3.42 $0.83 - $0.93
((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.
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.
44