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 27, 2020
(Exact name of registrant as specified in its charter)
Commission File Number 001-00395
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (937 ) 445-5000
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):
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02. Results of Operations and Financial Condition.
On October 27, 2020, the Company issued a press release setting forth its third quarter 2020 financial results. A copy of the press release is attached hereto as Exhibit 99.1 and hereby incorporated by reference.
Item 7.01. Regulation FD Disclosure.
On October 27, 2020, the Company will hold its previously announced conference call to discuss its third quarter financial results. A copy of supplementary materials that will be referred to in the conference call, and which were posted to the Company’s website, is attached hereto as Exhibit 99.2.
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 27, 2020 | ||||
| 99.2 | Supplemental materials, dated October 27, 2020 | ||||
| 104 | Cover Page Interactive Data File, formatted in Inline XBRL | ||||
Index to Exhibits
The following exhibits are attached with this current report on Form 8-K:
Exhibit No. Description
104 Cover Page Interactive Data File, formatted in Inline XBRL
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| NCR Corporation | ||||||||
| By: | /s/ Timothy C. Oliver | |||||||
| Timothy C. Oliver | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
Date: October 27, 2020
- 3 -
 | NEWS RELEASE | |||||||
October 27, 2020
NCR Announces Third Quarter 2020 Results
ATLANTA - NCR Corporation (NYSE: NCR) reported financial results today for the three months ended September 30, 2020. Third quarter and other recent highlights include:
•Year to date cash flow provided by operating activities of $495 million ($226 million in 2019);
Year to date free cash flow of $299 million (free cash outflow of $21 million in 2019)
•Revenue of $1.59 billion down 11%; Recurring revenue up 5%
•GAAP diluted EPS of $0.19; Non-GAAP diluted EPS of $0.54
•Executing strategy to shift the mix to more software, services and recurring revenue
•Reduced leverage and simplified capital structure
“Our third quarter performance reflects solid execution of our strategy and the resiliency of our solutions in a difficult operating environment that continues to be impacted by COVID-19,” said Michael Hayford, President and Chief Executive Officer. We generated healthy recurring revenue growth in the quarter and implemented productivity improvement initiatives to drive accelerated margin expansion. EBITDA margin expanded to 15.7%, representing sequential and year-over-year improvement. In addition, we delivered strong free cash flow and have recently taken steps to reduce our leverage and simplify our capital structure. Looking ahead, we still face a challenging operating environment but we remain confident in our ability to execute our strategy and grow recurring revenue, drive cash flow generation and expand margins. Our liquidity position remains solid and we are focused on finishing the year strong. We are positioning NCR to drive success for our customers and long-term sustainable growth for our stakeholders.”
In this release, we use certain non-GAAP measures, including presenting certain measures on a constant currency basis. These non-GAAP measures include "free cash flow" and others with the words “non-GAAP," or "constant currency" in their titles. These non-GAAP measures are listed, described and reconciled to their most directly comparable GAAP measures under the heading "Non-GAAP Financial Measures" later in this release.
Third Quarter 2020 Operating Results
Revenue
Third quarter revenue of $1,589 million was down 11% year over year. Foreign currency fluctuations did not have an impact on the revenue comparison. The COVID-19 pandemic had a significant impact to revenue and the shift from selling perpetual software licenses to recurring revenue lowered revenue by $27 million. The following table shows revenue for the third quarter:
| $ in millions | Q3 2020 | Q3 2019 | % Increase (Decrease) | % Increase (Decrease) Constant Currency | ||||||||||||||||||||||
| Banking | $ | 777 | $ | 942 | (18 | %) | (17 | %) | ||||||||||||||||||
| Retail | 556 | 539 | 3 | % | 2 | % | ||||||||||||||||||||
| Hospitality | 173 | 216 | (20 | %) | (20 | %) | ||||||||||||||||||||
| Other | 83 | 86 | (3 | %) | (5 | %) | ||||||||||||||||||||
| Total Revenue | $ | 1,589 | $ | 1,783 | (11 | %) | (11 | %) | ||||||||||||||||||
| Software | $ | 468 | $ | 512 | (9 | %) | (9 | %) | ||||||||||||||||||
| Services | 655 | 640 | 2 | % | 3 | % | ||||||||||||||||||||
| Hardware | 466 | 631 | (26 | %) | (26 | %) | ||||||||||||||||||||
| ATM | 219 | 368 | (40 | %) | (40 | %) | ||||||||||||||||||||
| SCO/POS | 247 | 263 | (6 | %) | (7 | %) | ||||||||||||||||||||
| Total Revenue | $ | 1,589 | $ | 1,783 | (11 | %) | (11 | %) | ||||||||||||||||||
| Software & Services % | 71 | % | 65 | % | ||||||||||||||||||||||
| Recurring Revenue | $ | 848 | $ | 806 | 5 | % | 6 | % | ||||||||||||||||||
| Recurring Revenue % | 53 | % | 45 | % | ||||||||||||||||||||||
Banking revenue decreased 18% due to the continued impact of the COVID-19 pandemic driven by a 40% decline in ATM hardware revenue. An accelerated shift from selling perpetual software licenses to recurring revenue also impacted the year-over-year revenue comparison. Foreign currency fluctuations had an unfavorable impact of 1% on the revenue comparison.
Retail revenue increased 3% due to an increase in self-checkout revenue and services revenue, partially offset by lower point-of-sale revenue. Foreign currency fluctuations had a favorable impact of 1% on the revenue comparison.
Hospitality revenue decreased 20% driven primarily by a decline in hardware revenue. Foreign currency fluctuations did not have an impact on the revenue comparison.
Gross Margin
Third quarter gross margin of $427 million decreased from $507 million in the prior year period. Gross margin rate was 26.9%, down from 28.4%. Third quarter gross margin (non-GAAP) of $446 million decreased from $513 million in the prior year period. Gross margin rate (non-GAAP) was 28.1%, down from 28.8%. The decreases in gross margin rate, both GAAP and non-GAAP, were driven by the reduction in revenue impacted by the COVID-19 pandemic as well as the impact from the shift to recurring revenue.
Operating Expenses
Third quarter operating expenses of $309 million decreased from $335 million in the prior year period. Third quarter operating expenses (non-GAAP) of $288 million decreased from $311 million in the prior year period. The decreases
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in operating expenses, both GAAP and non-GAAP, were primarily due to a reduction from initiatives implemented earlier in the year to address the business impacts from COVID-19, including among others, salary reductions, elimination of certain contractors and curtailing travel, as well as productivity improvement initiatives executed late in the third quarter, partially offset by an increase in account receivable reserves.
Operating Income
Third quarter income from operations of $118 million decreased from income from operations of $172 million in the prior year period. Third quarter operating income (non-GAAP) of $158 million decreased from $202 million in the prior year period. The decreases in operating income, both GAAP and non-GAAP, were driven by impacts to gross margin and operating expenses described above.
Other Expense/Income
Third quarter other expense (GAAP) of $86 million increased from $64 million in the prior year period. The increase in other expense (GAAP) was primarily driven by $20 million associated with the early extinguishment of bonds. Third quarter other expense (non-GAAP) of $66 million increased from $58 million. The increase in other expense, (non-GAAP) was due to $7 million of higher interest expense, partially offset by a decrease in foreign currency losses.
Income Tax Expense/Benefit
Third quarter income tax expense of zero decreased from an income tax expense of $4 million in the prior year period. The third quarter effective income tax rate was 0%, compared to 4% in the prior year period. The decrease in income tax expense (GAAP) was primarily driven by lower income before taxes, partially offset a decrease in discrete tax benefits. In the prior year period, the discrete tax benefits were primarily the release of a $25 million valuation allowance related to certain non-US deferred tax assets.
Third quarter income tax expense (non-GAAP) of $14 million decreased from $34 million in the prior year period. The third quarter effective income tax rate (non-GAAP) was 15%, compared to 24% in the prior year period. The decrease in income tax expense (non-GAAP) was primarily driven by an increase in discrete tax benefits, as well as lower income before taxes.
Net Income from Continuing Operations Attributable to NCR
Third quarter net income from continuing operations attributable to NCR of $31 million decreased from $105 million in the prior year period. The decrease in net income from continuing operations attributable to NCR was driven by impacts to gross margin and operating expenses described above.
Adjusted EBITDA
Third quarter adjusted EBITDA of $249 million decreased from $278 million in the prior year period. The decrease in Adjusted EBITDA was driven by impacts to gross margin and operating expenses described above.
Cash Flow
Third quarter cash provided by operating activities of $212 million increased from cash provided by operating activities of $155 million in the prior year period. Third quarter free cash flow was $150 million, compared to free cash flow of $57 million in the prior year period. The increases in cash provided by operating activities and free cash flow were both driven primarily by working capital improvements.
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Capital Structure Update
We are taking steps to reduce our finance leverage and simplify our capital structure. In August, we closed two new bond offerings for $650 million at 5.00% and $450 million at 5.25% with maturities of 8- and 10- years. We used a portion of the proceeds to redeem the $600 million 5.00% senior notes and the $700 million 6.375% senior notes. In total, we redeemed $1.3 billion of debt and issued $1.1 billion of debt to delever by $200 million. At the beginning of the fourth quarter we repurchased 132,000 shares of the outstanding Series A Convertible Preferred Stock for $144 million, which represented approximately 32% of NCR's outstanding convertible preferred stock. Additionally, early in the fourth quarter, we paid down $470 million of the revolver based on the strong free cash flow performance year to date and our confidence in the outlook for our business.
Impact from COVID-19
We continue to navigate through the challenging times presented by COVID-19, with a sharp focus on safeguarding our employees and helping our customers. Despite the unprecedented environment, our teams are executing at a high level and we are advancing our strategy.
While it is difficult to project how disruptive and protracted the pandemic will be, we do expect it will negatively impact our business for the remainder of 2020 and into 2021. We expect all of our segment results to be negatively impacted by the COVID-19 pandemic. We expect our hardware revenues to be most impacted while our recurring revenue streams is expected to be more resilient.
The COVID-19 pandemic is complex and rapidly evolving. The ultimate impact on our overall financial condition and operating results will depend on the currently unknowable duration and severity of the pandemic, as well as any additional governmental and public actions taken in response. We are in the process of evaluating the long-term impact that COVID-19 may have on our business model which may result in charges in the fourth quarter of 2020. These charges may include both cash and non-cash items. There can be no assurance that the measures we have taken or will take will completely offset the negative impact of COVID-19.
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2020 Third Quarter Earnings Conference Call
A conference call is scheduled for today at 4:30 p.m. Eastern Time to discuss the third quarter 2020 results. Access to the conference call and accompanying slides, as well as a replay of the call, are available on NCR's web site at http://investor.ncr.com. Additionally, the live call can be accessed by dialing 888-820-9413 (United States/Canada Toll-free) or 786-460-7169 (International Toll) and entering the participant passcode 7622865.
More information on NCR’s Q3 2020 earnings, including additional financial information and analysis, is available on NCR’s Investor Relations website at http://investor.ncr.com/.
About NCR Corporation
NCR Corporation (NYSE: NCR) is a leading software- and services-led enterprise provider in the financial, retail and hospitality industries. NCR is headquartered in Atlanta, Ga., with 36,000 employees globally. NCR is a trademark of NCR Corporation in the United States and other countries.
Website: www.ncr.com
Twitter: @NCRCorporation
Facebook: www.facebook.com/ncrcorp
LinkedIn: https://www.linkedin.com/company/ncr-corporation
YouTube: www.youtube.com/user/ncrcorporation
News Media Contact
Scott Sykes
NCR Corporation
212.589.8428
scott.sykes@ncr.com
Investor Contact
Michael Nelson
NCR Corporation
678.808.6995
michael.nelson@ncr.com
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Cautionary Statements
This release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”), including statements containing the words “expect,” “intend,” “plan,” “believe,” “will,” “should,” “would,” “could,” “may” and words of similar meaning, as well as other words or expressions referencing future events, conditions or circumstances. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Act. Statements that describe or relate to NCR’s plans, goals, intentions, strategies, or financial outlook, and statements that do not relate to historical or current fact, are examples of forward-looking statements. Examples of forward-looking statements in this release include, without limitation, statements regarding NCR’s plans to manage its business through the novel strain of the coronavirus identified in late 2019 (“COVID-19”) pandemic and the health and safety of our customers and employees; the expected impact of the COVID-19 pandemic on NCR’s Banking, Retail and Hospitality segments including the impact on our customers’ businesses and their ability to pay; expectations regarding our operating goals and actions to manage these goals; expectations regarding our cash flow generation, cash reserve, liquidity, financial flexibility, and impact of the COVID-19 pandemic on our employee base; expectations regarding our ability to capitalize on market opportunities; expectations regarding long-term strategy; NCR’s financial outlook (including the section entitled “Impact from COVID-19”); expectations regarding our continued focus on our long-term fundamentals, including, but, not limited to, execution of NCR's recurring revenue strategy and expected areas of focus to drive growth and create long-term stockholder value. Forward-looking statements are based on our current beliefs, expectations and assumptions, which may not prove to be accurate, and involve a number of known and unknown risks and uncertainties, many of which are out of NCR’s control. Forward-looking statements are not guarantees of future performance, and there are a number of important factors that could cause actual outcomes and results to differ materially from the results contemplated by such forward-looking statements, including those factors relating to: the impact of the COVID-19 pandemic on our workforce, operations and financial results, including the impact on our customer’s businesses; manufacturing disruptions, including those caused by or related to outsourced manufacturing or disruptions in our supply chain due to the COVID-19 pandemic; strength of demand for the products we offer or will offer in the future consistent with our strategy and its effect on our businesses; 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 tax legislation across multiple jurisdictions, modified or new global or regional trade agreements, execution of the United Kingdom's exit from the European Union, uncertainty over further potential changes in Eurozone participation and fluctuations in oil and commodity prices; the transformation of our business and shift to increased software and services revenue, as well as recurring revenue; our ability to improve execution in our sales and services organizations; our ability to successfully introduce new solutions and compete in the 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; the impact of the March 2020 tornadoes in the greater Nashville area on an NCR Global Fulfillment Center in Mt. Juliet, Tennessee operated by a third party, including the sufficiency and effectiveness of our or our third-party logistics partner’s business continuity plans, the adequacy of our property damage and business interruption insurance coverage and our ability to recover under the applicable policies; 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 tax legislation; foreign currency fluctuations; the success of our restructuring plans and cost reduction savings initiatives; the availability and success of acquisitions, divestitures and alliances; our pension strategy and underfunded pension obligations; reliance on third party suppliers; the impact of the terms of 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; the impact of intellectual property litigation and claims; workforce turnover and the ability to attract and retain skilled employees; uncertainties or delays associated with the transition of key business leaders; environmental exposures from our historical and ongoing manufacturing activities; and uncertainties with regard to regulations, lawsuits, claims, and other matters across various jurisdictions. Additional information concerning these and other factors can be found in the Company’s filings with the U.S. Securities and Exchange Commission, including the Company’s most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Any forward-looking statement speaks only as of the date on which it is made. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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Non-GAAP Financial Measures
Non-GAAP Financial Measures. While NCR reports its results in accordance with Generally Accepted Accounting Principles in the United States, or GAAP, in this release NCR also uses the non-GAAP measures listed and described below.
Non-GAAP Diluted Earnings Per Share (EPS), Gross Margin (non-GAAP), Gross Margin Rate (non-GAAP), Operating Expenses (non-GAAP), Operating Income (non-GAAP), Operating Margin Rate (non-GAAP), Other (Expense) (non-GAAP), Income Tax Expense (non-GAAP), Effective Income Tax Rate (non-GAAP), and Net Income from Continuing Operations Attributable to NCR (non-GAAP). NCR’s non-GAAP diluted EPS, gross margin (non-GAAP), gross margin rate (non-GAAP), operating expenses (non-GAAP), operating income (non-GAAP), operating margin rate (non-GAAP), other (expense) (non-GAAP), income tax expense (non-GAAP), effective income tax rate (non-GAAP), and net income from continuing operations attributable to NCR (non-GAAP) are determined by excluding, as applicable, pension mark-to-market adjustments, pension settlements, pension curtailments and pension special termination benefits as well as other special items, including amortization of acquisition related intangibles and transformation and restructuring activities, from NCR’s GAAP earnings per share, gross margin, gross margin rate, expenses, income from operations, operating margin rate, other (expense), income tax expense, effective income tax rate and net income from continuing operations attributable to NCR, respectively. Due to the non-operational nature of these pension and other special items, NCR's management uses these non-GAAP measures to evaluate year-over-year operating performance. NCR also uses operating income (non-GAAP) and diluted EPS (non-GAAP), to manage and determine the effectiveness of its business managers and as a basis for incentive compensation. NCR believes these measures are useful for investors because they provide a more complete understanding of NCR's underlying operational performance, as well as consistency and comparability with NCR's past reports of financial results.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) NCR believes that Adjusted EBITDA (adjusted earnings before interest, taxes, depreciation and amortization) provides useful information to investors because it is an indicator of the strength and performance of the Company's ongoing business operations, including its ability to fund discretionary spending such as capital expenditures, strategic acquisitions and other investments. NCR determines Adjusted EBITDA for a given period based on its GAAP net income from continuing operations attributable to NCR plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization; plus other income (expense); plus pension mark-to-market adjustments, pension settlements, pension curtailments and pension special termination benefits and other special items, including amortization of acquisition related intangibles.
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 uniform definitions under GAAP and, therefore, NCR's definitions may differ from other companies' definitions of these measures.
Constant Currency. NCR presents certain financial measures, such as period-over-period revenue growth, on a constant currency basis, which excludes the effects of foreign currency translation by translating prior period results at current period monthly average exchange rates. Due to the overall variability of foreign exchange rates from period to period, NCR’s management uses constant currency measures to evaluate period-over-period operating performance on a more consistent and comparable basis. NCR’s management believes that presentation of financial measures without this result is more representative of the company's period-over-period operating performance and provides additional insight into historical and/or future performance, which may be helpful for investors.
NCR's definitions and calculations of these non-GAAP measures may differ from similarly-titled measures reported by other companies and cannot, therefore, be compared with similarly-titled measures of other companies. These non-GAAP measures should not be considered as substitutes for, or superior to, results determined in accordance with GAAP. These non-GAAP measures are reconciled to their most directly comparable GAAP measures in the tables below.
Use of Certain Terms
Recurring revenue includes all revenue streams from contracts where there is a predictable revenue pattern that will occur at regular intervals with a relatively high degree of certainty. This includes hardware and software maintenance revenue, cloud revenue, payment processing revenue, certain professional services arrangements as well as term-based software license arrangements that include customer termination rights.
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Reconciliation of Gross Margin (GAAP) to Gross Margin (Non-GAAP)
| $ in millions | Q3 2020 | Q3 2019 | |||||||||
| Gross Margin (GAAP) | $ | 427 | $ | 507 | |||||||
| Transformation and restructuring costs | 14 | 1 | |||||||||
| Acquisition-related amortization of intangibles | 5 | 5 | |||||||||
| Gross Margin (Non-GAAP) | $ | 446 | $ | 513 | |||||||
Reconciliation of Gross Margin Rate (GAAP) to Gross Margin Rate (Non-GAAP)
| Q3 2020 | Q3 2019 | ||||||||||
| Gross Margin Rate (GAAP) | 26.9 | % | 28.4 | % | |||||||
| Transformation and restructuring costs | 0.9 | % | 0.1 | % | |||||||
| Acquisition-related amortization of intangibles | 0.3 | % | 0.3 | % | |||||||
| Gross Margin Rate (Non-GAAP) | 28.1 | % | 28.8 | % | |||||||
Reconciliation of Operating Expenses (GAAP) to Operating Expenses (Non-GAAP)
| $ in millions | Q3 2020 | Q3 2019 | |||||||||
| Operating Expenses (GAAP) | $ | 309 | $ | 335 | |||||||
| Transformation and restructuring costs | (5) | (6) | |||||||||
| Acquisition-related amortization of intangibles | (16) | (17) | |||||||||
| Acquisition-related costs | — | (1) | |||||||||
| Operating Expenses (Non-GAAP) | $ | 288 | $ | 311 | |||||||
Reconciliation of Income from Operations (GAAP) to Operating Income (Non-GAAP)
| $ in millions | Q3 2020 | Q3 2019 | |||||||||
| Income (Loss) from Operations (GAAP) | $ | 118 | $ | 172 | |||||||
| Transformation and restructuring costs | 19 | 7 | |||||||||
| Acquisition-related amortization of intangibles | 21 | 22 | |||||||||
| Acquisition-related costs | — | 1 | |||||||||
| Operating Income (Non-GAAP) | $ | 158 | $ | 202 | |||||||
Reconciliation of Other (Expense) (GAAP) to Other (Expense) (non-GAAP)
| $ in millions | Q3 2020 | Q3 2019 | |||||||||
| Income (Loss) from Operations (GAAP) | $ | (86) | $ | (64) | |||||||
| Debt Refinancing | 20 | 6 | |||||||||
| Operating Income (Non-GAAP) | $ | (66) | $ | (58) | |||||||
Reconciliation of Income Tax (Benefit) Expense (GAAP) to Income Tax Expense (Non-GAAP)
| $ in millions | Q3 2020 | Q3 2019 | |||||||||
| Income Tax (Benefit) Expense (GAAP) | $ | — | $ | 4 | |||||||
| Transformation and restructuring costs | 5 | 2 | |||||||||
| Acquisition-related amortization of intangibles | 4 | 4 | |||||||||
| Acquisition-related costs | — | (2) | |||||||||
| Debt refinancing | 5 | 1 | |||||||||
| Valuation allowance release & other tax adjustments | — | 25 | |||||||||
| Income Tax Expense (Non-GAAP) | $ | 14 | $ | 34 | |||||||
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Reconciliation of Net Income from Continuing Operations Attributable to NCR (GAAP) to Earnings Before Interest, Depreciation, Taxes and Amortization (Adjusted EBITDA)
| $ in millions | Q3 2020 | Q3 2019 | |||||||||
| Net Income (Loss) from Continuing Operations Attributable to NCR (GAAP) | $ | 31 | $ | 105 | |||||||
| Transformation and restructuring costs | 19 | 7 | |||||||||
| Acquisition-related amortization of intangibles | 21 | 22 | |||||||||
| Acquisition-related costs | — | 1 | |||||||||
| Depreciation and amortization (excluding acquisition-related amortization of intangibles) | 70 | 59 | |||||||||
| Loss on extinguishment of debt | 20 | — | |||||||||
| Interest expense | 60 | 53 | |||||||||
| Interest income | (3) | (1) | |||||||||
| Income tax expense (benefit) | — | 4 | |||||||||
| Stock-based compensation expense | 31 | 28 | |||||||||
| Adjusted EBITDA (Non-GAAP) | $ | 249 | $ | 278 | |||||||
Reconciliation of Diluted Earnings Per Share from Continuing Operations (GAAP) to
Non-GAAP Diluted Earnings Per Share from Continuing Operations (Non-GAAP)
| Q3 2020 | Q3 2019 | ||||||||||
Diluted Earnings Per Share (GAAP) (1) | $ | 0.19 | $ | 0.21 | |||||||
| Transformation and restructuring costs | 0.10 | 0.03 | |||||||||
| Acquisition-related amortization of intangibles | 0.12 | 0.12 | |||||||||
| Acquisition-related costs | — | 0.02 | |||||||||
| Debt refinancing | 0.10 | 0.03 | |||||||||
| Valuation allowance release & other tax adjustments | — | (0.17) | |||||||||
Diluted Earnings Per Share (Non-GAAP) (1) | $ | 0.54 | $ | 0.73 | |||||||
(1) Non-GAAP diluted EPS is determined using the conversion of the Series A Convertible Preferred Stock into common stock in the calculation of weighted average diluted shares outstanding. GAAP EPS is determined using the most dilutive measure, either including the impact of dividends or deemed dividends on the Company's Series A Convertible Preferred Stock in the calculation of net income or loss available to common stockholders or including the impact of the conversion of the Series A Convertible Preferred Stock into common stock in the calculation of the weighted average diluted shares outstanding. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may not mathematically reconcile.
Reconciliation of Net Cash Provided by Operating Activities (GAAP) to Free Cash Flow (Non-GAAP)
| QTD | QTD | YTD | YTD | ||||||||||||||||||||
| $ in millions | Q3 2020 | Q3 2019 | Q3 2020 | Q3 2019 | |||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 212 | $ | 155 | $ | 495 | $ | 226 | |||||||||||||||
| Total capital expenditures | (60) | (82) | (200) | (220) | |||||||||||||||||||
| Net cash provided by (used in) discontinued operations | (2) | (16) | 4 | (27) | |||||||||||||||||||
| Free cash flow | $ | 150 | $ | 57 | $ | 299 | $ | (21) | |||||||||||||||
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Reconciliation of Revenue Growth % (GAAP) to
Revenue Growth Constant Currency % (Non-GAAP)
| Three months ended September 30, 2020 | |||||||||||||||||
| Revenue Growth % (GAAP) | Favorable (unfavorable) FX impact | Revenue Growth Constant Currency % (Non-GAAP) | |||||||||||||||
| Banking | (18)% | (1)% | (17)% | ||||||||||||||
| Retail | 3% | 1% | 2% | ||||||||||||||
| Hospitality | (20)% | —% | (20)% | ||||||||||||||
| Other | (3)% | 2% | (5)% | ||||||||||||||
| Total Revenue | (11)% | —% | (11)% | ||||||||||||||
| Three months ended September 30, 2020 | |||||||||||||||||
| Revenue Growth % (GAAP) | Favorable (unfavorable) FX impact | Revenue Growth Adjusted Constant Currency % (Non-GAAP) | |||||||||||||||
| Software | (9)% | —% | (9)% | ||||||||||||||
| Services | 2% | (1)% | 3% | ||||||||||||||
| Hardware | (26)% | —% | (26)% | ||||||||||||||
| ATM | (40)% | —% | (40)% | ||||||||||||||
| SCO/POS | (6)% | 1% | (7)% | ||||||||||||||
| Total Revenue | (11)% | —% | (11)% | ||||||||||||||
| Three months ended September 30, 2020 | |||||||||||||||||
| Revenue Growth % (GAAP) | Favorable (unfavorable) FX impact | Revenue Growth Adjusted Constant Currency % (Non-GAAP) | |||||||||||||||
| Recurring Revenue | 5% | (1)% | 6% | ||||||||||||||
10
| 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 | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Product | $ | 521 | $ | 712 | $ | 1,476 | $ | 1,915 | |||||||||||||||
| Service | 1,068 | 1,071 | 3,100 | 3,114 | |||||||||||||||||||
| Total Revenue | 1,589 | 1,783 | 4,576 | 5,029 | |||||||||||||||||||
| Cost of products | 452 | 555 | 1,254 | 1,547 | |||||||||||||||||||
| Cost of services | 710 | 721 | 2,126 | 2,093 | |||||||||||||||||||
| Total gross margin | 427 | 507 | 1,196 | 1,389 | |||||||||||||||||||
| % of Revenue | 26.9 | % | 28.4 | % | 26.1 | % | 27.6 | % | |||||||||||||||
| Selling, general and administrative expenses | 254 | 271 | 743 | 775 | |||||||||||||||||||
| Research and development expenses | 55 | 64 | 169 | 185 | |||||||||||||||||||
| Income (loss) from operations | 118 | 172 | 284 | 429 | |||||||||||||||||||
| % of Revenue | 7.4 | % | 9.6 | % | 6.2 | % | 8.5 | % | |||||||||||||||
| Loss on extinguishment of debt | (20) | — | (20) | — | |||||||||||||||||||
| Interest expense | (60) | (53) | (167) | (143) | |||||||||||||||||||
| Other expense, net | (6) | (11) | (10) | (28) | |||||||||||||||||||
| Total other expense, net | (86) | (64) | (197) | (171) | |||||||||||||||||||
| Income (loss) from continuing operations before income taxes | 32 | 108 | 87 | 258 | |||||||||||||||||||
| % of Revenue | 2.0 | % | 6.1 | % | 1.9 | % | 5.1 | % | |||||||||||||||
| Income tax expense (benefit) | — | 4 | (33) | 28 | |||||||||||||||||||
| Income (loss) from continuing operations | 32 | 104 | 120 | 230 | |||||||||||||||||||
| Loss from discontinued operations, net of tax | — | (15) | — | (15) | |||||||||||||||||||
| Net income (loss) | 32 | 89 | 120 | 215 | |||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | 1 | (1) | 2 | — | |||||||||||||||||||
| Net income (loss) attributable to NCR | $ | 31 | $ | 90 | $ | 118 | $ | 215 | |||||||||||||||
| Amounts attributable to NCR common stockholders: | |||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 31 | $ | 105 | $ | 118 | $ | 230 | |||||||||||||||
| Dividends on convertible preferred stock | (6) | (79) | (19) | (104) | |||||||||||||||||||
| Income (loss) from continuing operations attributable to NCR common stockholders | 25 | 26 | 99 | 126 | |||||||||||||||||||
| Loss from discontinued operations, net of tax | — | (15) | — | (15) | |||||||||||||||||||
| Net income (loss) attributable to NCR common stockholders | $ | 25 | $ | 11 | $ | 99 | $ | 111 | |||||||||||||||
| Income (loss) per share attributable to NCR common stockholders: | |||||||||||||||||||||||
| Income (loss) per common share from continuing operations | |||||||||||||||||||||||
| Basic | $ | 0.19 | $ | 0.21 | $ | 0.77 | $ | 1.05 | |||||||||||||||
Diluted (1) | $ | 0.19 | $ | 0.21 | $ | 0.76 | $ | 1.03 | |||||||||||||||
| Net income (loss) per common share | |||||||||||||||||||||||
| Basic | $ | 0.19 | $ | 0.09 | $ | 0.77 | $ | 0.92 | |||||||||||||||
Diluted (1) | $ | 0.19 | $ | 0.09 | $ | 0.76 | $ | 0.90 | |||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||
| Basic | 128.5 | 121.4 | 128.2 | 120.3 | |||||||||||||||||||
Diluted (1) | 129.7 | 123.4 | 129.8 | 122.7 | |||||||||||||||||||
(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.
11
| NCR CORPORATION REVENUE AND OPERATING INCOME SUMMARY (Unaudited) (in millions) | Schedule B | ||||||
| For the Periods Ended September 30 | |||||||||||||||||||||||||||||||||||||||||||||||
| Three Months | Nine Months | ||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | % Change | % Change Constant Currency | 2020 | 2019 | % Change | % Change Constant Currency | ||||||||||||||||||||||||||||||||||||||||
| Revenue by segment | |||||||||||||||||||||||||||||||||||||||||||||||
| Banking | $ | 777 | $ | 942 | (18)% | (17)% | $ | 2,303 | $ | 2,568 | (10)% | (9)% | |||||||||||||||||||||||||||||||||||
| Retail | 556 | 539 | 3% | 2% | 1,511 | 1,608 | (6)% | (6)% | |||||||||||||||||||||||||||||||||||||||
| Hospitality | 173 | 216 | (20)% | (20)% | 502 | 611 | (18)% | (17)% | |||||||||||||||||||||||||||||||||||||||
| Other | 83 | 86 | (3)% | (5)% | 260 | 242 | 7% | 8% | |||||||||||||||||||||||||||||||||||||||
| Total Revenue | $ | 1,589 | $ | 1,783 | (11)% | (11)% | $ | 4,576 | $ | 5,029 | (9)% | (8)% | |||||||||||||||||||||||||||||||||||
| Operating income by segment | |||||||||||||||||||||||||||||||||||||||||||||||
| Banking | $ | 99 | $ | 146 | $ | 294 | $ | 370 | |||||||||||||||||||||||||||||||||||||||
| Banking operating income margin % | 12.7 | % | 15.5 | % | 12.8 | % | 14.4 | % | |||||||||||||||||||||||||||||||||||||||
| Retail | 45 | 36 | 67 | 102 | |||||||||||||||||||||||||||||||||||||||||||
| Retail operating income margin % | 8.1 | % | 6.7 | % | 4.4 | % | 6.3 | % | |||||||||||||||||||||||||||||||||||||||
| Hospitality | 7 | 10 | (2) | 39 | |||||||||||||||||||||||||||||||||||||||||||
| Hospitality operating income margin % | 4.0 | % | 4.6 | % | (0.4) | % | 6.4 | % | |||||||||||||||||||||||||||||||||||||||
| Other | 7 | 10 | 19 | 30 | |||||||||||||||||||||||||||||||||||||||||||
| All Other operating income margin % | 8.4 | % | 11.6 | % | 7.3 | % | 12.4 | % | |||||||||||||||||||||||||||||||||||||||
| Subtotal-segment operating income | $ | 158 | $ | 202 | $ | 378 | $ | 541 | |||||||||||||||||||||||||||||||||||||||
| Total Revenue operating income margin % | 9.9 | % | 11.3 | % | 8.3 | % | 10.8 | % | |||||||||||||||||||||||||||||||||||||||
Other adjustments (1) | 40 | 30 | 94 | 112 | |||||||||||||||||||||||||||||||||||||||||||
| Total income from operations | $ | 118 | $ | 172 | $ | 284 | $ | 429 | |||||||||||||||||||||||||||||||||||||||
(1)The following table presents the other adjustments for NCR:
| For the Periods Ended September 30 | |||||||||||||||||||||||
| Three Months | Nine Months | ||||||||||||||||||||||
| In millions | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Transformation and restructuring costs | $ | 19 | $ | 7 | $ | 32 | $ | 47 | |||||||||||||||
| Acquisition-related amortization of intangible assets | 21 | 22 | 62 | 64 | |||||||||||||||||||
| Acquisition-related costs | — | 1 | — | 1 | |||||||||||||||||||
| Total other adjustments | $ | 40 | $ | 30 | $ | 94 | $ | 112 | |||||||||||||||
12
| NCR CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except per share amounts) | Schedule C | ||||||
| September 30, 2020 | June 30, 2020 | December 31, 2019 | |||||||||||||||
| Assets | |||||||||||||||||
| Current assets | |||||||||||||||||
| Cash and cash equivalents | $ | 1,605 | $ | 1,681 | $ | 509 | |||||||||||
Accounts receivable, net of allowances of $55, $54, and $44 as of September 30, 2020, June 30, 2020 and December 31, 2019, respectively | 1,248 | 1,249 | 1,490 | ||||||||||||||
| Inventories | 748 | 782 | 784 | ||||||||||||||
| Other current assets | 396 | 424 | 361 | ||||||||||||||
| Total current assets | 3,997 | 4,136 | 3,144 | ||||||||||||||
| Property, plant and equipment, net | 384 | 394 | 413 | ||||||||||||||
| Goodwill | 2,828 | 2,823 | 2,832 | ||||||||||||||
| Intangibles, net | 547 | 562 | 607 | ||||||||||||||
| Operating lease assets | 347 | 347 | 391 | ||||||||||||||
| Prepaid pension cost | 193 | 182 | 178 | ||||||||||||||
| Deferred income taxes | 871 | 849 | 821 | ||||||||||||||
| Other assets | 661 | 656 | 601 | ||||||||||||||
| Total assets | $ | 9,828 | $ | 9,949 | $ | 8,987 | |||||||||||
| Liabilities and stockholders’ equity | |||||||||||||||||
| Current liabilities | |||||||||||||||||
| Short-term borrowings | $ | 222 | $ | 217 | $ | 282 | |||||||||||
| Accounts payable | 676 | 680 | 840 | ||||||||||||||
| Payroll and benefits liabilities | 289 | 249 | 308 | ||||||||||||||
| Contract liabilities | 512 | 563 | 502 | ||||||||||||||
| Other current liabilities | 579 | 585 | 606 | ||||||||||||||
| Total current liabilities | 2,278 | 2,294 | 2,538 | ||||||||||||||
| Long-term debt | 4,266 | 4,473 | 3,277 | ||||||||||||||
| Pension and indemnity plan liabilities | 875 | 864 | 858 | ||||||||||||||
| Postretirement and postemployment benefits liabilities | 119 | 114 | 111 | ||||||||||||||
| Income tax accruals | 94 | 91 | 92 | ||||||||||||||
| Operating lease liabilities | 336 | 334 | 369 | ||||||||||||||
| Other liabilities | 253 | 254 | 240 | ||||||||||||||
| Total liabilities | 8,221 | 8,424 | 7,485 | ||||||||||||||
Series A convertible preferred stock: par value $0.01 per share, 3.0 shares authorized, 0.4 issued and outstanding as of September 30, 2020, June 30, 2020 and December 31, 2019, respectively; redemption amount and liquidation preference of $411 as of September 30, 2020, $405 as of June 30, 2020 and $399 as of December 31, 2019 | 408 | 402 | 395 | ||||||||||||||
| 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, 2020, June 30, 2020 and December 31, 2019, respectively | — | — | — | ||||||||||||||
Common stock: par value $0.01 per share, 500.0 shares authorized, 128.5, 128.2 and 127.7 shares issued and outstanding as of September 30, 2020, June 30, 2020 and December 31, 2019, respectively | 1 | 1 | 1 | ||||||||||||||
| Paid-in capital | 332 | 300 | 312 | ||||||||||||||
| Retained earnings | 1,159 | 1,134 | 1,060 | ||||||||||||||
| Accumulated other comprehensive loss | (297) | (315) | (269) | ||||||||||||||
| Total NCR stockholders' equity | 1,195 | 1,120 | 1,104 | ||||||||||||||
| Noncontrolling interests in subsidiaries | 4 | 3 | 3 | ||||||||||||||
| Total stockholders' equity | 1,199 | 1,123 | 1,107 | ||||||||||||||
| Total liabilities and stockholders' equity | $ | 9,828 | $ | 9,949 | $ | 8,987 | |||||||||||
13
| NCR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions) | Schedule D | ||||||
| For the Periods Ended September 30 | |||||||||||||||||||||||
| Three Months | Nine Months | ||||||||||||||||||||||
| 2020 | 2019 As Revised(1) | 2020 | 2019 As Revised(1) | ||||||||||||||||||||
| Operating activities | |||||||||||||||||||||||
| Net income (loss) | $ | 32 | $ | 89 | $ | 120 | $ | 215 | |||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||
| Loss from discontinued operations | — | 15 | — | 15 | |||||||||||||||||||
| Loss on debt extinguishment | 20 | — | 20 | — | |||||||||||||||||||
| Depreciation and amortization | 93 | 89 | 269 | 249 | |||||||||||||||||||
| Stock-based compensation expense | 31 | 28 | 76 | 76 | |||||||||||||||||||
| Deferred income taxes | (16) | (18) | (46) | (35) | |||||||||||||||||||
| Impairment of other assets | — | — | 4 | — | |||||||||||||||||||
| Gain on sale of property, plant and equipment | — | — | (2) | (6) | |||||||||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||||||||
| Receivables | 13 | (83) | 266 | (154) | |||||||||||||||||||
| Inventories | 42 | (14) | 28 | (78) | |||||||||||||||||||
| Current payables and accrued expenses | 36 | 76 | (194) | (68) | |||||||||||||||||||
| Contract liabilities | (50) | (39) | 6 | 37 | |||||||||||||||||||
| Employee benefit plans | 12 | (4) | 9 | (13) | |||||||||||||||||||
| Other assets and liabilities | (1) | 16 | (61) | (12) | |||||||||||||||||||
| Net cash provided by operating activities | 212 | 155 | 495 | 226 | |||||||||||||||||||
| Investing activities | |||||||||||||||||||||||
| Expenditures for property, plant and equipment | (5) | (18) | (23) | (53) | |||||||||||||||||||
| Proceeds from sale of property, plant and equipment | — | — | 7 | 11 | |||||||||||||||||||
| Additions to capitalized software | (55) | (64) | (177) | (167) | |||||||||||||||||||
| Business acquisitions, net | — | (74) | (25) | (86) | |||||||||||||||||||
| Purchases of investments | (8) | — | (14) | — | |||||||||||||||||||
| Proceeds from sales of investments | 9 | — | 20 | — | |||||||||||||||||||
| Other investing activities, net | (2) | — | (3) | 5 | |||||||||||||||||||
| Net cash used in investing activities | (61) | (156) | (215) | (290) | |||||||||||||||||||
| Financing activities | |||||||||||||||||||||||
| Short term borrowings, net | — | — | — | 4 | |||||||||||||||||||
| Payments on term credit facilities | (3) | (720) | (7) | (759) | |||||||||||||||||||
| Payments on revolving credit facilities | (50) | (1,165) | (716) | (2,079) | |||||||||||||||||||
| Payments of senior unsecured notes | (1,300) | (500) | (1,300) | (500) | |||||||||||||||||||
| Borrowings on term credit facilities | 1 | 350 | 4 | 350 | |||||||||||||||||||
| Borrowings on revolving credit facilities | 56 | 1,562 | 1,460 | 2,459 | |||||||||||||||||||
| Proceeds from issuance of senior unsecured notes | 1,100 | 1,000 | 1,500 | 1,000 | |||||||||||||||||||
| Debt issuance costs | (13) | (28) | (21) | (28) | |||||||||||||||||||
| Call premium paid for debt extinguishment | (15) | — | (15) | — | |||||||||||||||||||
| Series A Preferred Stock Dividends | — | (302) | (6) | (302) | |||||||||||||||||||
| Repurchases of Common Stock | — | (96) | (41) | (96) | |||||||||||||||||||
| Proceeds from employee stock plans | 3 | 2 | 12 | 12 | |||||||||||||||||||
| Tax withholding payments on behalf of employees | (2) | (13) | (27) | (29) | |||||||||||||||||||
| Net change in client funds obligations | (3) | (2) | (6) | (2) | |||||||||||||||||||
| Principal payments for finance lease obligations | (3) | — | (9) | — | |||||||||||||||||||
| Other financing activities | (1) | (1) | (1) | (1) | |||||||||||||||||||
| Net cash provided by (used in) financing activities | (230) | 87 | 827 | 29 | |||||||||||||||||||
| Cash flows from discontinued operations | |||||||||||||||||||||||
| Net cash provided by (used in) discontinued operations | (2) | (16) | 4 | (27) | |||||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | — | (8) | (16) | (7) | |||||||||||||||||||
| Increase (decrease) in cash, cash equivalents, and restricted cash | (81) | 62 | 1,095 | (69) | |||||||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 1,739 | 401 | 563 | 532 | |||||||||||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 1,658 | $ | 463 | $ | 1,658 | $ | 463 | |||||||||||||||
(1) Certain amounts have been revised for the three and nine months ended September 30, 2019 to correct for errors related to the business activities of JetPay Corporation, a wholly-owned subsidiary, which will be more fully described in our upcoming Form 10-Q filing.
14
Q3 2020 EARNINGS CONFERENCE CALL MICHAEL HAYFORD, PRESIDENT & CEO OWEN SULLIVAN, COO TIM OLIVER, CFO October 27, 2020 1
NOTES TO INVESTORS FORWARD-LOOKING STATEMENTS. Comments made during this conference call and in these materials contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”), including statements containing the words “expect,” “intend,” “plan,” “believe,” “will,” “should,” “would,” “could,” "may," and words of similar meaning, as well as other words or expressions referencing future events, conditions or circumstances. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Act. Statements that describe or relate to NCR’s plans, goals, intentions, strategies, or financial outlook, and statements that do not relate to historical or current fact, are examples of forward-looking statements. Examples of forward-looking statements in these materials include, without limitation, statements regarding NCR’s plans to manage its business through the novel strain of the coronavirus identified in late 2019 (“COVID-19”) pandemic and the health and safety of our customers and employees; the expected impact of the COVID-19 pandemic on NCR’s Banking, Retail and Hospitality segments including the impact on our customers’ businesses and their ability to pay; expectations regarding our operating goals and actions to manage these goals; expectations regarding our cash flow generation, cash reserve, liquidity, financial flexibility and impact of the COVID-19 pandemic on our employee base; expectations regarding our ability to capitalize on market opportunities; expectations regarding long-term strategy and our ability to create stockholder value; NCR’s financial outlook; expectations regarding our continued focus on our long- term fundamentals, including, but, not limited to, execution of NCR's recurring revenue strategy and accelerated growth including its transformation to an as-a-Service company; and NCR’s expected areas of focus to drive growth and create long- term stockholder value. Forward-looking statements are not guarantees of future performance, and there are a number of important factors that could cause actual outcomes and results to differ materially from the results contemplated by such forward-looking statements, including those factors listed in Item 1a "Risk Factors" of NCR's Annual Report on Form 10-K filed with the U. S. Securities and Exchange Commission (SEC) on February 28, 2020, and those factors detailed from time to time in NCR's other SEC reports including quarterly reports on Form 10-Q and current reports on Form 8-K. These materials are dated October 27, 2020, and NCR does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. 2 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 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 (CC) basis; gross margin rate (non-GAAP); diluted earnings per share (non-GAAP); free cash flow; gross margin (non-GAAP); net debt; adjusted EBITDA; the ratio of net debt to adjusted EBITDA; operating income (non-GAAP); interest and other expense (non-GAAP); income tax expense (non-GAAP); effective income tax rate (non-GAAP); and net income (non-GAAP). These measures are included to provide additional useful information regarding NCR's financial results, and are not a substitute for their comparable GAAP measures. Explanations of these non-GAAP measures, and reconciliations of these non-GAAP measures to their directly comparable GAAP measures, are included in the accompanying "Supplementary Materials" and are available on the Investor Relations page of NCR's website at www.ncr.com. Descriptions of many of these non-GAAP measures are also included in NCR's SEC reports. USE OF CERTAIN TERMS. As used in these materials: (i) the term "CC" means constant currency, and; (ii) the term "recurring revenue" includes all revenue streams from contracts where there is a predictable revenue pattern that will occur at regular intervals with a relatively high degree of certainty. This includes hardware and software maintenance revenue, cloud revenue, payment processing revenue, certain professional services arrangements as well as term-based software license arrangements that include customer termination rights. These presentation materials and the associated remarks made during this conference call are integrally related and are intended to be presented and understood together. 3
Q3 2020 OVERVIEW FREE CASH FLOW of $150M in Q3 and $299M YTD EBITDA margin rate EXPANSION to 15.7% RECURRING REVENUE up 6% CC REDUCED LEVERAGE while maintaining STRONG LIQUIDITY Position ADJUSTING to COVID-19 environment; Hardware Challenged 4
STRATEGIC UPDATE • Successful progress on 80/60/20 goals • Banking - Accelerating shift to recurring software revenue • Retail - Gaining traction on self-checkout solutions • Hospitality - Momentum in Aloha Essentials continues • Accelerating NCR as a Service transformation • Continue to invest in strategic platforms 5
Q3 2020 FINANCIAL RESULTS $ in millions, except for EPS Margin % YoY CC Growth Revenue Adjusted EBITDA 48% 45.0% $400 $1,783 $2,000 $1,589 $278 30.0% 24% $249 $200 15.0% $1,000 —% 15.6% 15.7% (11)% —% $0 (24)% $0 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Revenue down 11% as reported and CC Adjusted EBITDA down 10% Decline due to COVID-19 and shift to recurring Decline due to COVID-19 and shift to recurring Non-GAAP Diluted EPS Free Cash Flow $1.00 $300 $0.73 $0.54 $200 $150 $0.50 $100 $57 $0 $0.00 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Non-GAAP EPS down due to Free cash flow up due to working decline in operating earnings capital improvements 6
BANKING $ in millions Revenue YoY CC Operating Income Growth Margin % $1,200 60% $180 20.0% $942 $146 $777 17.5% $800 30% $120 $99 15.0% 15.5% $400 —% $60 12.5% 12.7% (17)% $0 (30)% $0 10.0% Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Key Highlights • Revenue down 17% CC due to a 40% decline in ATM hardware revenue. An accelerated shift from selling perpetual software licenses to recurring revenue also impacted the year-over-year revenue comparison. • Operating Income down driven by the decline in revenue partially offset by a reduction in operating expenses. 7
RETAIL $ in millions Revenue YoY CC Operating Income Growth Margin % $750 40% $60 15.0% $539 $556 $45 $500 20% $40 $36 10.0% 8.1% 6.7% $250 —% $20 5.0% 2% $0 (20)% $0 —% Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Key Highlights • Revenue up 2% CC due to increase in self-checkout revenue and services revenue partially offset by lower point-of-sale revenue. • Operating Income up driven by higher revenue and reduction in operating expenses. 8
HOSPITALITY $ in millions Revenue YoY CC Operating Income Growth Margin % $300 15% $20 20.0% $216 $10 $200 $173 —% $10 $7 10.0% 4.6% 4.0% $100 (15)% $0 —% (20)% $0 (30)% -$10 (10.0)% Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Key Highlights • Revenue down 20% CC driven primarily by a decline in hardware revenue. • Operating Income down driven by the reduction in revenue partially offset by a reduction in operating expenses. 9
SUPPLEMENTAL REVENUE $ in millions Q3 2020 Q3 2019 % Change % Change CC Software $468 $512 (9%) (9%) Services $655 $640 2% 3% Hardware $466 $631 (26%) (26%) ATM $219 $368 (40%) (40%) SCO/POS $247 $263 (6%) (7%) Total Revenue $1,589 $1,783 (11%) (11%) Software & Services % 71% 65% Recurring Revenue $848 $806 5% 6% Recurring Revenue % 53% 45% Key Highlights • Software decline driven by the shift from perpetual to recurring revenue • Services growth driven by an increase in hardware maintenance and managed services revenue • Hardware decline driven by lower ATM and point-of-sale revenue partially offset by higher self-checkout revenue • Recurring Revenue growth driven by success shifting from perpetual to recurring model as well as continued growth in recurring services revenue 10
FREE CASH FLOW, NET DEBT & EBITDA $ in millions QTD YTD Free Cash Flow Q3 2020 Q3 2019 Q3 2020 Q3 2019 Cash provided by Operating Activities $212 $155 $495 $226 Total capital expenditures ($60) ($82) ($200) ($220) Cash used in Discontinued Operations ($2) ($16) $4 ($27) Free Cash Flow $150 $57 $299 ($21) Net Debt & EBITDA Q3 2020 Q2 2020 Q3 2019 Debt $4,488 $4,690 $3,630 Cash ($1,605) ($1,681) ($388) Net Debt $2,883 $3,009 $3,242 Adjusted EBITDA LTM $937 $966 $1,045 Net Debt / Adjusted EBITDA 3.1x 3.1x 3.1x 11
CAPITAL STRUCTURE UPDATE SUMMARY OF BENEFITS TRANSACTIONS • Redeemed notes due in 2022 and 2023 • Extended weighted average debt for $1.3B maturity • New bond offering for 8-yr and 10-yr • Reduced refinancing risk notes for $1.1B • Reduces interest expense $19M annually • Retired 132,000 Series A Convertible • Eliminates $7M annual dividends in 2021 Preferred Stock for $144M in Q4 2020 • Reduces dilutive share count by 4.4M • Reduces interest expense by $8M • Paid down $470M of revolver in Q4 2020 annually ~$800M deployed in capital transactions Expected to reduce annual interest by $27M plus annual dividends by $7M for $34M total savings 12
LOOKING FORWARD • Execute NCR As-A-Service 80/60/20 Strategy • Maintain strong cash reserve and financial flexibility • Drive cash flow generation • Building momentum for 2021 execution • Virtual Investor Day December 3, 2020 13
SUPPLEMENTARY MATERIALS 14
Q3 2020 GAAP RESULTS $ in millions, except per share amounts % Change Q3 2020 Q3 2019 As Reported Revenue $1,589 $1,783 (11%) Gross Margin 427 507 (16)% Gross Margin Rate 26.9% 28.4% Operating Expenses 309 335 (8)% % of Revenue 19.4% 18.8% Operating Income 118 172 (31)% % of Revenue 7.4% 9.6% Interest and other expense (86) (64) 34% Income Tax Expense (Benefit) — 4 (100%) Effective Income Tax Rate —% 3.7% Net Income from Continuing Operations (attributable to NCR) $31 $105 (70%) Diluted EPS $0.19 $0.21 (10)% 15
Q3 2020 OPERATIONAL RESULTS $ in millions, except per share amounts % Change Q3 2020 Q3 2019 % Change Constant As Reported Currency Revenue $1,589 $1,783 (11%) (11%) Gross Margin (non-GAAP) 446 513 (13)% (13)% Gross Margin Rate (non-GAAP) 28.1% 28.8% (70 bps) (70 bps) Operating Expenses (non-GAAP) 288 311 (7%) (8%) % of Revenue 18.1% 17.4% 70bps 60bps Operating Income (non-GAAP) 158 202 (22%) (21%) % of Revenue 9.9% 11.3% (140)bps (130)bps Interest and other expense (non-GAAP) (66) (58) 14% 10% Income Tax Expense (non-GAAP) 14 34 (59)% (59)% Effective Income Tax Rate (non-GAAP) 15.2% 23.6% Net Income (Loss) From Continuing Operations (attributable to NCR) (non-GAAP) 77 111 (31)% (27)% Diluted EPS (non-GAAP) $0.54 $0.73 (26%) (25%) 16
NON-GAAP MEASURES 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), Effective 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), effective 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 as well as transformation and restructuring charges, from NCR's GAAP income (loss) from operations, earnings per share, gross margin, gross margin rate, interest and other expense, effective income 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. 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' definition of this measure. 17
NON-GAAP MEASURES Constant Currency. NCR presents certain financial measures, such as period-over-period revenue growth, on a constant currency basis, which excludes the effects of foreign currency translation by translating prior period results at current period monthly average exchange rates. Due to the overall variability of foreign exchange rates from period to period, NCR’s management uses constant currency measures to evaluate period-over-period operating performance on a more consistent and comparable basis. NCR’s management believes that presentation of financial measures without 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. 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 net income from continuing operations attributable to NCR plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization; plus other income (expense); plus pension mark-to-market adjustments, pension settlements, pension curtailments and pension special termination benefits, and other special items, including amortization of acquisition related intangibles as well as transformation and restructuring charges. 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. 18
NON-GAAP MEASURES 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. 19
GAAP TO NON-GAAP RECONCILIATION $ in millions Net Income from Continuing Operations (GAAP) to Adjusted EBITDA (non-GAAP) Q3 2020 Q2 2020 Q3 2019 LTM LTM LTM Q3 2020 Q3 2019 Net (Loss) Income from Continuing Operations Attributable to NCR (GAAP) $ 502 $ 576 $ 197 $ 31 $ 105 Pension Mark-to-Market Adjustments 75 75 (45) — — Transformation & Restructuring Costs 43 31 172 19 7 Acquisition-Related Amortization of Intangibles 84 85 85 21 22 Acquisition-Related Costs 2 3 6 — 1 Internal reorganization & IP Transfer (37) (37) — — — Loss on Debt Extinguishment 20 — — 20 — Interest Expense 221 214 186 60 53 Interest Income (6) (4) (5) (3) (1) Depreciation and Amortization 260 249 235 70 59 Income Taxes (334) (330) 121 — 4 Stock Compensation Expense 107 104 93 31 28 Adjusted EBITDA (non-GAAP) $ 937 $ 966 $ 1,045 $ 249 $ 278 20
GAAP TO NON-GAAP RECONCILIATION Q3 2020 $ in millions, except per share amounts Acquisition- Q3 QTD 2020 Transformation related Q3 QTD 2020 GAAP Costs amortization of Debt Refinancing non-GAAP intangibles Product revenue $521 $— $— $— $521 Service revenue 1,068 — — — 1,068 Total revenue 1,589 — — — 1,589 Cost of products 452 (10) (2) — 440 Cost of services 710 (4) (3) — 703 Gross margin 427 14 5 — 446 Gross margin rate 26.9% 0.9% 0.3% —% 28.1% Selling, general and administrative expenses 254 (2) (16) — 236 Research and development expenses 55 (3) — — 52 Total operating expenses 309 (5) (16) — 288 Total operating expense as a % of revenue 19.4% (0.3)% (1.0)% —% 18.1% Income from operations 118 19 21 — 158 Income from operations as a % of revenue 7.4% 1.2% 1.3% —% 9.9% Interest and Other (expense) income, net (86) — — 20 (66) Income from continuing operations before income 32 19 21 20 92 taxes Income tax (benefit) expense — 5 4 5 14 Effective income tax rate —% 15.2% Income from continuing operations 32 14 17 15 78 Net income (loss) attributable to noncontrolling 1 — — — 1 interests Income from continuing operations (attributable to $31 $14 $17 $15 $77 NCR) Diluted earnings per share $0.19 $0.10 $0.12 $0.10 $0.54 Diluted shares outstanding 129.7 143.3 21
GAAP TO NON-GAAP RECONCILIATION Q3 2020 $ in millions, except per share amounts Q3 QTD 2020 Q3 QTD 2020 non- GAAP GAAP Income from continuing operations attributable to NCR common stockholders: Income from continuing operations (attributable to NCR) $31 $77 Dividends on convertible preferred shares (6) — Income from continuing operations attributable to NCR common stockholders $25 $77 Weighted average outstanding shares: Weighted average diluted shares outstanding 129.7 129.7 Weighted as-if converted preferred shares — 13.6 Total shares used in diluted earnings per share 129.7 143.3 Diluted earnings per share (1) $0.19 $0.54 (1) GAAP EPS is determined using the most dilutive measure, either including the impact of the dividends or deemed dividends on NCR's Series A Convertible Preferred Shares in the calculation of net income or loss available to common stockholders or including the impact of the conversion of such preferred stock into common stock in the calculation of the weighted average diluted shares outstanding. Non-GAAP EPS is always determined using the as-if converted preferred shares and shares that would be issued for stock compensation awards. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may be calculated using different methods, and may not mathematically reconcile. 22
GAAP TO NON-GAAP RECONCILIATION Q3 2019 $ in millions, except per share amounts Transformati Acquisition- Q3 QTD 2019 on & related Acquisition- Debt Valuation Q3 QTD 2019 GAAP Restructuring amortization related costs Refinancing Allowance non-GAAP Costs of intangibles Release Product revenue $712 $— $— $— $— $— $712 Service revenue 1,071 — — — — — 1,071 Total revenue 1,783 — — — — — 1,783 Cost of products 555 — (2) — — — 553 Cost of services 721 (1) (3) — — — 717 Gross margin 507 1 5 — — — 513 Gross margin rate 28.4% 0.1% 0.3% —% —% —% 28.8% Selling, general and administrative expenses 271 (6) (17) (1) — — 247 Research and development expenses 64 — — — — — 64 Total expenses 335 (6) (17) (1) — — 311 Total expense as a % of revenue 18.8% (0.3)% (1.0)% (0.1)% —% —% 17.4% Income from operations 172 7 22 1 — — 202 Income from operations as a % of revenue 9.6% 0.4% 1.2% 0.1% —% —% 11.3% Interest and Other (expense) income, net (64) — — — 6 — (58) Income from continuing operations before 108 7 22 1 6 — 144 income taxes Income tax expense 4 2 4 (2) 1 25 34 Effective income tax rate 3.7% 23.6% Income from continuing operations 104 5 18 3 5 (25) 110 Net income attributable to noncontrolling interests (1) — — — — — (1) Income from continuing operations (attributable to NCR) $105 $5 $18 $3 $5 ($25) $111 Diluted (loss) earnings per share $0.21 $0.03 $0.12 $0.02 $0.03 ($0.17) $0.73 Diluted shares outstanding 123.4 151.2 23
GAAP TO NON-GAAP RECONCILIATION Q3 2019 $ in millions, except per share amounts Q3 QTD 2019 Q3 QTD 2019 GAAP non-GAAP Income from continuing operations attributable to NCR common stockholders: Income from continuing operations (attributable to NCR) $105 $111 Dividends on convertible preferred shares ($79) $— Income from continuing operations attributable to NCR common $26 $111 stockholders Weighted average outstanding shares: Weighted average diluted shares outstanding 123.4 123.4 Weighted as-if converted preferred shares — 27.8 Total shares used in diluted earnings per share 123.4 151.2 Diluted earnings per share (1) $0.21 $0.73 (1) GAAP EPS is determined using the most dilutive measure, either including the impact of the dividends or deemed dividends on NCR's Series A Convertible Preferred Shares in the calculation of net income or loss available to common stockholders or including the impact of the conversion of such preferred stock into common stock in the calculation of the weighted average diluted shares outstanding. Non-GAAP EPS is always determined using the as-if converted preferred shares and shares that would be issued for stock compensation awards. Therefore, GAAP diluted EPS and non-GAAP diluted EPS may be calculated using different methods, and may not mathematically reconcile. 24
GAAP TO NON-GAAP RECONCILIATION Q3 2020 $ in millions Q3 2020 Q3 2019 Operating Income Operating Income Banking $99 $146 Retail 45 36 Hospitality 7 10 Other 7 10 Total Operating Income (non-GAAP) 158 202 Less: Transformation and restructuring costs 19 7 Acquisition-related amortization of intangibles 21 22 Acquisition-related costs — 1 Total Operating Income (GAAP) $118 $172 25
GAAP TO NON-GAAP RECONCILIATION Q3 2020 Q3 2020 Favorable (unfavorable) FX Constant Currency Revenue Revenue Growth % Reported impact Growth % (non-GAAP) Banking (18%) (1%) (17%) Retail 3% 1% 2% Hospitality (20%) —% (20%) Other (3%) 2% (5%) Total Revenue (11%) —% (11%) 26
GAAP TO NON-GAAP RECONCILIATION Q3 2020 Q3 2020 Favorable (unfavorable) FX Constant Currency Revenue Revenue Growth % Reported impact Growth % (non-GAAP) Software (9%) —% (9%) Services 2% (1%) 3% Hardware (26%) —% (26%) ATM (40%) —% (40%) SCO/POS (6%) 1% (7%) Total Revenue (11)% —% (11%) Recurring Revenue 5% (1%) 6% 27
GAAP TO NON-GAAP RECONCILIATION Q3 2020 Favorable % Change Q2 2020 Operational Results % Change As (unfavorable) FX Constant Reported impact Currency Revenue (11%) —% (11%) Gross Margin (non-GAAP) (13%) —% (13%) Gross Margin Rate (non-GAAP) (70 bps) — bps (70 bps) Operating Expenses (non-GAAP) (7%) 1% (8%) % of Revenue 70 bps 10 bps 60 bps Operating Income (non-GAAP) (22%) (1%) (21%) % of Revenue (140 bps) (10 bps) (130 bps) Interest and other expense (non-GAAP) 14% 4% 10% Income Tax Expense (non-GAAP) (59%) —% (59%) Net Income (Loss) From Continuing Operations (attributable to NCR) (non-GAAP) (31%) (4%) (27%) Diluted EPS (non-GAAP) (26%) (1%) (25%) 28
THANK YOU 29