NCR Corporation Form 10-Q Summary
Entity and period: The filing is NCR Corporation’s unaudited Form 10-Q for the quarter and six months ended June 30, 2018. The supplied company metadata says NCR Voyix Corp; investors should verify the entity and filing match their intended review.
Business context and financial performance
NCR reported across Software, Services and Hardware. Its strategy emphasized cloud and recurring revenue, software and services growth, and restructuring and streamlining Hardware operations. Dollar amounts below are in millions except per-share data.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $1,537 | $1,593 | $3,054 | $3,071 |
| Gross margin | $403; 26.2% | $461; 28.9% | $823; 26.9% | $873; 28.4% |
| Operating income (loss) | $(106) | $175 | $3 | $290 |
| Net income (loss) attributable to NCR | $(145) | $102 | $(125) | $159 |
| Basic EPS | $(1.33) | $0.74 | $(1.26) | $0.60 |
| Operating cash flow | Not separately provided | Not separately provided | $95 | $134 |
| Free cash flow (non-GAAP) | Not separately provided | Not separately provided | $(72) | $2 |
Material changes and segment trends
- Q2 revenue declined 4% year over year, or 5% excluding favorable currency effects. For the first half, revenue declined 1%, or 3% on a constant-currency basis.
- Q2 Software revenue rose 1% to $470, led by 7% cloud growth, while segment operating income fell to $115 from $127. Services revenue rose 4% to $610 and operating income increased to $77 from $74.
- Hardware revenue fell 16% to $457; the segment posted a $27 operating loss versus $11 operating income a year earlier. ATM and POS declines, including supply-chain delays affecting new ATM introductions, contributed. First-half Hardware revenue fell 10% and the segment recorded a $50 operating loss.
- The $183 Q2 impairment comprised $146 of Hardware goodwill and $37 of long-lived assets. Management cited a lower 2018 forecast, including reduced expected Hardware revenue and gross margins in the third and fourth quarters.
- Cash and cash equivalents were $343 at June 30, down from $537 at year-end 2017. Current assets were $2,739 and current liabilities $1,879. Total liabilities were $6,144.
- Debt was approximately $3.13 billion per management; balance-sheet short-term borrowings of $160 plus long-term debt of $2,952 total $3,112. The company had $50 outstanding on its revolving credit facility and $100 on its receivables securitization facility. The filing does not provide a clear actual consolidated leverage ratio.
Outlook, commentary, risks and unusual items
- Management said its revised full-year forecast reflected weaker Hardware revenue and gross-margin expectations in the second half. The filing does not provide a clear numeric full-year revenue or earnings guidance figure.
- Transformation and restructuring charges were expected to total approximately $200–$250 over two years, including $100–$150 in 2018; expected cash impact was $150–$200 over two years, including $100 in 2018. NCR targeted approximately $150 of annual run-rate savings by 2020. It had recorded $82 of charges and paid $36 in cash in the first half.
- A Hardware transformation initiative included closing two Columbus-area plants and one Beijing plant and shifting production to other NCR facilities and third-party suppliers; completion was scheduled by the end of 2019. Management warned execution, supplier, delivery and productivity challenges could affect results.
- First-half free cash flow was negative $72, down from positive $2, reflecting operating cash flow of $95, capital spending of $70, capitalized software additions of $86, and $11 of discontinued-operation cash outflow. Management attributed lower operating cash flow to working-capital timing and stated it believed liquidity was sufficient for the next 12 months.
- Environmental matters include a $46 Kalamazoo River reserve, increased following a court allocation of 40% of certain past costs to NCR; the company appealed. Management said the charge could approximately double under other cost assumptions it did not then consider reasonably estimable or verifiable. The Fox River net reserve was approximately $27, with cleanup expected to finish in 2019 or 2020.
- NCR disclosed a possible $50–$55 decrease in gross unrecognized tax benefits during 2018 as tax matters are resolved. U.S. Tax Reform accounting remained provisional and could materially change the 2018 effective tax rate.
- Series A preferred stock carried cumulative 5.5% dividends and a $30 conversion price; the filing stated up to 28.2 million common shares could be issued upon conversion. NCR repurchased 6.1 million common shares for $210 in the first half.
Most important facts for investors to verify
- Confirm the filing issuer and period are the intended company and quarter, given the NCR Voyix metadata versus the NCR Corporation filing.
- Check subsequent results against management’s reduced second-half Hardware forecast, the $183 impairment, and the expected turnaround in Hardware operations.
- Track the transformation program’s charges, cash costs, plant closures, supplier transition, and delivery performance against the stated savings target.
- Assess liquidity and debt capacity, including covenant compliance, debt maturities, revolver availability, and the distinction between reported debt and management’s approximate total-debt figure.
- Monitor Kalamazoo and Fox River developments, potential reserve changes, appeals, recoveries from counterparties, and environmental cash payments.
- Review the effects of preferred-stock dividends and potential conversion dilution, as well as the company’s use of cash for share repurchases.