NCR Corporation Form 10-Q Summary
Entity note: The supplied filing is for NCR Corporation, not NCR Voyix Corp. It covers the quarter ended September 30, 2021, and the nine months then ended; financial statements are unaudited. Cardtronics’ results are included from its June 21, 2021 acquisition date, including a full quarter in Q3, so reported growth is not wholly organic.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Year to date 2021 | Year to date 2020 |
|---|---|---|---|---|
| Revenue | $1.901 billion | $1.589 billion | $5.122 billion | $4.576 billion |
| Operating income | $157 million | $118 million | $351 million | $284 million |
| Net income attributable to NCR | $12 million | $31 million | $33 million | $118 million |
| Diluted EPS | $0.06 | $0.19 | $0.15 | $0.76 |
| Adjusted EBITDA (non-GAAP) | $352 million | $249 million | $891 million | $638 million |
- Q3 gross margin was 27.4% of revenue, versus 26.9%; operating margin was 8.3%, versus 7.4%; net margin attributable to NCR was approximately 0.6%, versus 2.0%. Adjusted EBITDA margin rose to 18.5% from 15.7%.
- For the first nine months, gross margin was 27.1% versus 26.1%, operating margin 6.9% versus 6.2%, and adjusted EBITDA margin 17.4% versus 13.9%. GAAP earnings fell despite higher revenue, reflecting, among other items, acquisition costs and amortization, higher taxes, interest, and debt-extinguishment expense.
- Q3 product revenue was essentially flat at $520 million; service revenue rose 29% to $1.381 billion. Recurring revenue increased 39% to $1.181 billion, or 62.1% of revenue. Software and services were 76.3% of revenue.
- Q3 segment revenue: Banking $1.050 billion (+35%), Retail $553 million (-1%), Hospitality $223 million (+29%), and Telecommunications & Technology $75 million (-10%). Banking includes Cardtronics.
- Q3 operating cash flow was $497 million and free cash flow was $125 million, as stated in the MD&A overview. For the first nine months, operating cash flow was $807 million versus $495 million and company-defined free cash flow was $360 million versus $306 million. The YTD free-cash-flow reconciliation adds back $274 million from the initial receivables sale and $55 million of transaction costs.
- At September 30, cash and cash equivalents were $383 million; restricted cash was $246 million. Total debt was approximately $5.63 billion, versus $3.28 billion at December 31, 2020. The company reported approximately $889 million of revolving borrowing capacity. Current assets were $2.778 billion and current liabilities $2.734 billion.
Material changes and unusual items
- Cardtronics was acquired for total consideration of $2.674 billion, including debt repaid on its behalf. NCR recorded preliminary acquisition goodwill of $1.594 billion and acquired intangibles of $877 million. Cardtronics contributed $335 million of revenue and $17 million of pretax continuing income from acquisition through September 30.
- Debt increased to fund the acquisition: NCR issued $1.2 billion of 5.125% notes and added term and revolving credit facilities. It redeemed $400 million of 8.125% notes, recording a $42 million loss on extinguishment, including a $37 million cash premium.
- Q3 included $9 million of acquisition-related costs and $45 million of acquisition-related intangible amortization; nine-month acquisition-related costs were $92 million. Q3 and nine-month adjusted EBITDA exclude various such items and is a non-GAAP measure.
- A new trade-receivables facility enabled the sale of $274 million of receivables at quarter-end. The company states this boosted operating cash flow; its free-cash-flow calculation removes the initial benefit.
- Remaining performance obligations were approximately $3.7 billion; about three-quarters were expected to be recognized over the next 12 months, subject to customer needs and schedules.
Outlook, risks, and contingencies
- No specific full-year revenue or earnings guidance is provided in the supplied filing. Management described its strategy as shifting toward software, services, and recurring revenue, with stated long-term targets of 80% software and services revenue, 60% recurring revenue, and a 20% adjusted EBITDA margin.
- Management said it believed available cash, operating cash flows, and financing were sufficient for the next 12 months. It also cautioned that COVID-19, supply constraints, and higher materials, labor, and freight costs could adversely affect results; the pandemic’s duration and effects remained uncertain.
- Key risks include successful Cardtronics integration and realization of synergies, substantially higher debt and related interest and covenant obligations, competition from non-cash payment methods affecting ATM usage, concentration in key merchant contracts, bank sponsorship and interchange exposure, vault-cash and cash-in-transit risks, cybersecurity and privacy, foreign exchange and interest rates, and environmental liabilities.
- Environmental reserves included approximately $119 million for the Kalamazoo River matter and $18 million for Japan’s Ebina disposal matter. Kalamazoo costs remain uncertain and remediation is expected to extend into the 2030s. Fox River’s reported net reserve was approximately $28 million; the filing notes potential backstop liability and uncertainty in future costs.
- The company disclosed a pending agreement to acquire cryptocurrency software provider LibertyX, subject to customary conditions and regulatory approvals. It also reported that Cardtronics agreed in October 2021 to settle the Schertzer matter as to Cardtronics on an individual-plaintiff basis.
Most important facts to verify
- Confirm the issuer identity: this document is NCR Corporation’s 2021 filing, despite the request metadata naming NCR Voyix Corp.
- Reconcile the MD&A overview’s Q3 cash flow figures ($497 million operating cash flow and $125 million free cash flow) with the detailed cash-flow statement and the company’s non-GAAP free-cash-flow definition; the detailed statement presents nine-month figures.
- Assess how much reported growth and Banking profitability came from Cardtronics, and track integration costs, synergies, and preliminary purchase-price allocations.
- Monitor leverage, interest expense, available revolver capacity, and compliance with the credit facility’s leverage covenant as acquisition financing is integrated.
- Review the assumptions and possible range of future environmental remediation costs, particularly Kalamazoo, and the collectability and timing of expected third-party contributions.
- Evaluate recurring-revenue growth and margin improvement alongside supply-chain pressures, customer demand, and the risks to Cardtronics’ ATM transaction volumes and merchant relationships.