NCR Corporation (now identified in the request as NCR Voyix Corp) — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; year-over-year comparisons are to Q1 2022. The filing registrant is NCR Corporation. NCR describes itself as a software- and services-led provider for retail, hospitality, digital banking, payments and self-service banking. Its financial statements are unaudited.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $1.891 billion | $1.866 billion |
| Recurring revenue | $1.229 billion; 65% of revenue | $1.179 billion; 63.2% of revenue |
| Gross margin | $466 million; 24.6% | $411 million; 22.0% |
| Operating income | $110 million; 5.8% of revenue | $33 million; 1.8% |
| Net income (loss) attributable to NCR | $9 million | $(34) million |
| EPS attributable to common stockholders | $0.04 | $(0.28) |
| Adjusted EBITDA (non-GAAP) | $302 million; 16.0% of revenue | $271 million; 14.5% |
| Operating cash flow | $317 million | $38 million |
| Free cash flow (non-GAAP) | $209 million | $(10) million |
- Revenue grew 1% reported and 4% excluding foreign-exchange effects. Product revenue was $521 million and service revenue was $1.370 billion. Currency movements reduced reported revenue growth by 3 percentage points.
- Gross margin improved, with management citing lower component, fuel and shipping costs, cost actions and a higher mix of software and services. Excluding specified items, management said gross margin rate increased from 24.3% to 26.2%.
- Interest expense rose 32% to $83 million, primarily from higher variable rates on secured borrowings. GAAP net income remained modest despite stronger operating income.
- Operating cash flow benefited from higher operating income and favorable working-capital movements. Free cash flow deducts capital spending and capitalized software additions and includes specified adjustments; it is a non-GAAP measure.
Balance sheet, debt and liquidity
- At March 31, 2023, cash and cash equivalents were $519 million; restricted cash was another $257 million, largely settlement-processing cash. Total cash, cash equivalents and restricted cash was $780 million.
- Debt was approximately $5.56 billion excluding deferred financing fees, per management; balance-sheet short- and long-term debt totaled $5.511 billion. Long-term debt included $393 million drawn on the revolving facility. Available revolving capacity was approximately $878 million, with $29 million of letters of credit outstanding.
- Total current assets were $3.070 billion and current liabilities were $2.816 billion. The company reported total stockholders’ equity of $1.488 billion and Series A preferred stock with a $276 million redemption amount.
- Management stated it believed current cash, operating cash flows and available financing were sufficient for expected obligations, including debt service, benefit contributions, environmental remediation and separation costs. That assessment depends on cash generation, economic conditions and continued access to financing.
Material changes and operating trends
- Adjusted EBITDA increased 11% to $302 million. Retail rose 45% to $97 million, Hospitality rose 29% to $53 million, and Self-Service Banking rose 23% to $138 million. Digital Banking fell 13% to $49 million and Payments & Network fell 15% to $83 million; higher vault-cash and cash-in-transit costs weighed on the latter.
- Payments & Network revenue increased 8% and Hospitality revenue increased 6%; Digital Banking and Self-Service Banking revenue were flat. “Other” revenue declined 21%, mainly due to lower one-time telecommunications and technology parts sales.
- Q1 2023 included $19 million of separation costs in SG&A. Q1 2022 included $27 million of transformation and restructuring costs, $19 million of Russia-related charges and other specified items. NCR said it recorded no Russia-related charges in Q1 2023 and had ceased Russian operations.
- In Q1 2023, NCR recorded a $10 million out-of-period adjustment increasing operating expenses and an employee-related liability for an understatement in Q4 2022. Management concluded it was not material to prior statements or expected 2023 results.
Outlook, risks and contingencies
- NCR continued to target a tax-free separation into a digital commerce company and an ATM-focused company in Q4 2023, subject to customary conditions, SEC filings and completion of audited financial statements. The board remained open to alternative transactions. The filing gives no specific full-year revenue or earnings guidance.
- Management expected geopolitical and macroeconomic pressures—including supply-chain issues, foreign exchange, and higher interest, commodity and energy costs—to continue to negatively affect the business in the short term. It cautioned that mitigation efforts may not fully offset those effects.
- On April 13, 2023, after quarter-end, NCR determined that a data-center outage affecting certain commerce customers resulted from a ransomware incident. It said the issue appeared limited to specific Aloha cloud and Counterpoint functionality and that financial reporting systems were not affected. Investigation, recovery and customer remediation were ongoing; the ultimate financial and operational impact was not yet known. NCR said it did not then believe the incident would ultimately have a material adverse effect, while acknowledging uncertainty and potential legal, reputational and remediation costs.
- Environmental exposure includes an $86 million Kalamazoo River reserve at March 31, 2023, net of expected contributions; NCR said possible remediation costs under other assumptions could more than approximately double that reserve. A $54 million Fox River funding-agreement receivable remained outstanding, with collection timing uncertain. Japan environmental-waste reserves were $7 million.
- A patent case involving CloudofChange could result in a loss of up to $13 million; NCR considered a loss reasonably possible but not probable and recorded no accrual. The filing also describes ongoing legal, regulatory, tax, cybersecurity, foreign-exchange and interest-rate risks.
- Interest-rate sensitivity disclosures estimate that a 100-basis-point increase could raise quarterly interest expense on variable-rate debt by about $6 million and vault-cash rental expense by about $10 million, before the impact of applicable swaps. Approximately 59% of borrowings were fixed-rate.
Key facts for investors to verify
- Confirm the registrant and corporate identity relevant to the requested issuer: this filing is under NCR Corporation.
- Track separation milestones, final structure, financing and tax treatment, and whether the Q4 2023 target remains achievable.
- Monitor ransomware recovery, customer impacts, costs, potential claims and any subsequent disclosures about materiality.
- Assess debt-service capacity and refinancing needs against elevated interest costs, available revolver capacity and covenant requirements.
- Follow recurring-revenue growth and segment profitability, particularly the pressure on Payments & Network and Digital Banking EBITDA.
- Review updates to Kalamazoo remediation estimates and expected indemnitor or co-obligor contributions, and the timing of the Fox River receivable.
- Distinguish GAAP results from Adjusted EBITDA and free cash flow, and review the adjustments used to calculate those non-GAAP measures.