NCR Corporation 2021 Q2 Form 10-Q Summary
Entity and period: This is NCR Corporation’s unaudited quarterly report for the three and six months ended June 30, 2021. The filing is for NCR Corporation, not NCR Voyix Corp.; the supplied company metadata does not match the registrant named in the filing.
Business context
NCR provides software, services and hardware across Banking, Retail, Hospitality, and Telecommunications & Technology (T&T). Its strategy is to become a software- and services-led, “NCR-as-a-Service” business. The Cardtronics acquisition closed June 21, 2021, with only ten days of its results included in the quarter.
Key financial results
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $1,677 million | $1,484 million | $3,221 million | $2,987 million |
| Operating income | $84 million | $89 million | $194 million | $166 million |
| Net income (loss) | $(9) million | $64 million | $22 million | $88 million |
| Adjusted EBITDA | $281 million | $201 million | $539 million | $389 million |
| Operating cash flow | — | $310 million | $283 million | |
| Free cash flow (non-GAAP) | — | $235 million | $146 million |
Q2 revenue grew 13% year over year; first-half revenue grew 8%. Q2 gross margin was 27.2%, up from 25.1%, while operating margin was 5.0%, down from 6.0%. Adjusted EBITDA margin rose to 16.8% from 13.5%. Q2 diluted loss per share was $0.10, versus earnings of $0.44 a year earlier; first-half diluted EPS was $0.10 versus $0.57.
Q2 product revenue increased 15% and service revenue increased 12%. Recurring revenue, excluding Cardtronics, grew 11% in Q2 to $900 million and represented 54.6% of NCR standalone revenue. First-half recurring revenue rose 10% to $1,774 million, or 55.6% of standalone revenue.
At June 30, cash and cash equivalents were $449 million and restricted cash was $241 million. Total debt was approximately $6.04 billion, up substantially following acquisition financing; total current liabilities were $2.97 billion versus current assets of $3.11 billion. The company reported about $1.17 billion of available revolving-credit capacity. Operating cash flow improved, while investing cash use was $2.61 billion, primarily reflecting $2.46 billion of net acquisition spending.
Changes versus comparable periods
- Revenue growth and gross-margin expansion reflected stronger self-checkout and POS demand, growth in maintenance and SaaS revenue, favorable revenue mix, and cost-saving actions. Management also cited higher supply-chain costs as a partial offset.
- Adjusted EBITDA increased 40% in Q2 and 39% in the first half. GAAP net income declined, including a Q2 loss, despite higher operating income for the half-year; elevated acquisition-related costs, interest and tax effects are important context.
- Retail and Hospitality led segment growth. First-half revenue increased 16% in Retail and 20% in Hospitality; Banking grew 3%, while T&T declined 13%.
- Cardtronics added $32 million of Q2 revenue and $8 million of adjusted EBITDA after closing. NCR also completed the Freshop, Terafina and Dumac acquisitions for $126 million in the first quarter.
Outlook, risks and unusual items
- The filing provides no specific consolidated revenue, earnings or cash-flow guidance. NCR stated that COVID-19 was expected to continue negatively affecting its business, with duration and severity uncertain.
- The UK Competition and Markets Authority’s Initial Enforcement Order required NCR and Cardtronics to operate separately pending review, delaying integration and potential synergies; remedies could include divestitures. Management said it believed liquidity was sufficient for the next 12 months based on cash, operating cash flow and financing.
- Cardtronics financing materially increased leverage and interest obligations. The secured credit facility includes a leverage covenant, and failure to generate cash or comply with debt terms could require additional financing. In August 2021, after quarter-end, NCR announced redemption of its $400 million 8.125% notes.
- Q2 included $56 million of acquisition-related costs in the adjusted EBITDA reconciliation, including $44 million of Cardtronics transaction costs. First-half acquisition-related costs were $83 million. A $34 million US valuation allowance expense and a $14 million UK tax benefit affected Q2 tax expense.
- Environmental matters remain a contingency: the Kalamazoo River reserve was $121 million at June 30, down from $164 million at year-end; NCR noted remediation costs and contribution recoveries remain uncertain. The Fox River net reserve was approximately $28 million, and the Ebina, Japan reserve was $19 million.
- Other identified risks include cybersecurity and data privacy, foreign-exchange exposure, supply-chain costs, customer and credit risk, Cardtronics ATM usage and merchant concentration, and acquisition integration. A pending CMA review and COVID-19 uncertainty may affect results.
- On July 31, 2021, NCR agreed to acquire LibertyX, subject to customary closing conditions and regulatory approvals.
Important facts for investors to verify
- Whether the intended filing is NCR Corporation’s 2021 Q2 10-Q, given the mismatch with the NCR Voyix Corp. metadata.
- Cardtronics integration progress, CMA review outcome, any required remedies, and realized synergies versus acquisition costs.
- Debt repayment, covenant headroom, refinancing and interest burden following acquisition financing and the announced note redemption.
- Underlying GAAP performance versus adjusted EBITDA and free cash flow, including the effects of acquisition costs, taxes and working-capital movements.
- Updated estimates and recoveries for Kalamazoo, Fox River and other environmental matters, and the effect of COVID-19 and supply-chain pressures on operations.