NCR Corporation 2022 Form 10-K Summary
Entity and period: This filing is NCR Corporation’s audited annual report for the fiscal year ended December 31, 2022, filed February 27, 2023. It is not a standalone fourth-quarter report; the supplied filing text does not provide a clear set of standalone Q4 results. The company subsequently became known as NCR Voyix. NCR provides software, services, payments, ATMs and point-of-sale solutions for retail, hospitality and banking. Effective January 1, 2022, it reported five segments: Retail, Hospitality, Digital Banking, Payments & Network, and Self-Service Banking.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $7.844 billion | $7.156 billion |
| Recurring revenue | $4.841 billion; 61.7% of revenue | $4.166 billion; 58.2% of revenue |
| Gross profit / margin | $1.858 billion / 23.7% | $1.893 billion / 26.5% |
| Operating income / margin | $489 million / 6.2% | $474 million / 6.6% |
| Net income attributable to NCR common stockholders | $44 million; diluted EPS $0.31 | $81 million; diluted EPS $0.58 |
| Adjusted EBITDA (non-GAAP) | $1.370 billion; 17.5% margin | $1.244 billion; 17.4% margin |
| Cash from operating activities | $447 million | $1.077 billion |
| Free cash flow (non-GAAP) | $164 million | $460 million |
- Revenue grew 10% reported and 13% in constant currency. Services revenue rose 11%; product revenue rose 7%. Foreign exchange reduced the year-over-year revenue comparison by 3%.
- Gross margin pressure reflected higher fuel, component, labor and supply-chain costs and higher interest costs on vault cash arrangements. Excluding specified restructuring, acquisition-related and Russia items, management said gross margin fell to 25.6% from 27.8%.
- Operating cash flow fell substantially, mainly from unfavorable working-capital movements. The 2021 comparison also included a $300 million benefit from the initial sale of trade receivables. Excluding that benefit, management reported 2022 operating cash flow declined $330 million and free cash flow declined $296 million.
- Income from continuing operations attributable to NCR was $64 million, compared with $97 million in 2021. The 2022 effective tax rate was 70%, including a $94 million valuation allowance charge on deferred tax assets in the U.K. and other foreign jurisdictions.
- At year-end, cash and cash equivalents were $505 million, total debt was approximately $5.71 billion, and $748 million of revolving-credit capacity was available. Current assets were $3.082 billion and current liabilities $2.713 billion. Management said liquidity was sufficient for expected requirements, including the next 12 months.
- Interest expense increased to $285 million from $238 million. About 58% of borrowings were fixed-rate; management estimated a 100-basis-point rise in variable rates would add about $24 million to annual pretax interest expense. A similar increase could add about $40 million to vault-cash rental expense, before applicable swap effects.
Segments and notable changes
| Segment | 2022 revenue | 2022 Adjusted EBITDA | Change versus 2021 |
|---|---|---|---|
| Retail | $2.258 billion | $415 million | Revenue +1%; EBITDA −6% |
| Hospitality | $926 million | $192 million | Revenue +9%; EBITDA +22% |
| Digital Banking | $543 million | $226 million | Revenue +6%; EBITDA +6% |
| Payments & Network | $1.286 billion | $405 million | Revenue +91%; EBITDA +70% |
| Self-Service Banking | $2.621 billion | $565 million | Revenue flat; EBITDA −3% |
Payments & Network growth primarily reflected the first full year including Cardtronics, acquired in June 2021, and LibertyX cryptocurrency-related revenue. Retail and Self-Service Banking profitability faced cost and supply-chain pressures; Hospitality and Digital Banking benefited from recurring, subscription and payments revenue. Prior-period segment figures were reclassified to match the 2022 reporting structure.
Outlook, risks and unusual items
- Planned separation: NCR announced plans to separate into a digital commerce company and an ATM company, targeting completion by the end of 2023, subject to customary conditions. The board remained open to alternatives, including a whole or partial company sale. The filing gives no specific numerical 2023 earnings or revenue guidance.
- Strategy and operating environment: Management emphasized the shift toward software, services and recurring revenue. It cited inflation, foreign-exchange movements, supply-chain constraints, elevated component and labor costs, higher interest rates and the war in Eastern Europe as continuing pressures.
- Leverage and obligations: The company disclosed substantial indebtedness, restrictive debt covenants and variable-rate exposure. Its U.S. and international pension plans were underfunded by a combined $415 million at year-end; expected 2023 contributions included $20 million to international pension plans and $75 million to the postemployment plan. Series A preferred stock had a $276 million redemption value, a 5.5% cumulative dividend and holder put rights beginning in March 2024.
- Environmental matters: Net reserves were approximately $90 million for the Kalamazoo River and $7 million for Ebina. Fox River remedial obligations were completed, but a $22 million liability remained subject to final reconciliation with indemnitors. The filing cautions that Kalamazoo remediation costs and recoveries remain uncertain and that the reserve could more than double under other assumptions the company could not then reasonably estimate.
- Litigation: A court ruling against NCR in the CloudofChange patent case was $13 million; NCR said a loss up to that amount was reasonably possible but not probable, recorded no accrual and appealed.
- Russia and accounting correction: NCR ceased Russian operations and recorded a $22 million pretax net loss related to the wind-down, impairments, severance and collectability assessments. In Q4, it corrected a $39 million overstatement of goodwill and related AOCI/OCI understatement for prior 2022 interim periods; it said the correction was not material and did not affect 2022 net income.
- Reporting and controls: The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. The auditor identified goodwill allocation following the segment realignment as a critical audit matter. Management reported effective controls and noted that implementation of a new ERP system had begun.
Most important facts for investors to verify
- Whether operating cash flow and free cash flow recover, given the sharp 2022 decline and working-capital impact.
- Whether recurring-revenue growth can offset lower reported gross margin and ongoing cost pressures.
- Debt repayment, refinancing access, covenant headroom and the effects of higher rates on debt and vault-cash costs.
- Progress, financing, costs, approvals and final terms of the proposed separation—or any alternative transaction.
- Updated estimates and recoveries for Kalamazoo River, Fox River and Ebina environmental obligations, plus the CloudofChange appeal outcome.
- Tax-audit resolutions and the realizability of deferred tax assets following the valuation allowance charge.
- Any impairment indicators affecting goodwill, especially given the substantial goodwill balance and the auditor’s critical audit matter.