NCR Corporation (historical issuer; filing period: Q1 2019)
The supplied filing is NCR Corporation’s unaudited Form 10-Q for the three months ended March 31, 2019, not a filing under the NCR Voyix Corp name. NCR reported Banking, Retail, Hospitality and Other segments after changing to industry-based segment management on January 1, 2019; prior-period segment figures were reclassified.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $1.536 billion | $1.517 billion |
| Gross margin | $411 million; 26.8% | $420 million; 27.7% |
| Operating income | $100 million | $109 million |
| Income from continuing operations | $38 million | $56 million |
| Net income attributable to NCR common stockholders | $24 million | $8 million |
| Diluted EPS | $0.20 | $0.06 |
| Cash used in operating activities | $16 million | $24 million |
| Free cash outflow (non-GAAP) | $87 million | $99 million |
Revenue grew 1% as reported and 4% excluding unfavorable foreign-exchange effects. Product revenue was $539 million and service revenue $997 million. Recurring revenue, including maintenance, cloud and payments, was $759 million.
Gross margin declined 90 basis points. Excluding restructuring/transformation and acquisition-related amortization, management said gross margin fell from 28.4% to 27.7%, primarily due to unfavorable revenue mix, partly offset by services transformation gains. Interest expense rose to $45 million from $41 million, which management attributed to higher interest rates.
Segments
| Segment | Revenue | Operating income | Year-over-year change |
|---|---|---|---|
| Banking | $758 million | $95 million; 12.5% margin | Revenue +5%; margin rose from 11.7% |
| Retail | $511 million | $26 million; 5.1% margin | Revenue −2%; margin fell from 6.7% |
| Hospitality | $193 million | $16 million; 8.3% margin | Revenue −5%; margin fell from 9.3% |
| Other | $74 million | $10 million; 13.5% margin | Revenue +4%; operating income flat |
Banking growth reflected a 21% increase in ATM revenue and higher recurring revenue. Retail benefited from payments and self-checkout but faced comparison with a large prior-year implementation project. Hospitality weakness reflected lower hardware revenue, partly offset by recurring revenue.
Balance sheet, debt and liquidity
- At March 31, 2019, cash and cash equivalents were $414 million; total debt was approximately $3.23 billion, comprising $297 million of short-term borrowings and $2.914 billion of long-term debt.
- Current assets were $3.016 billion and current liabilities $2.381 billion. Cash declined from $464 million at year-end 2018.
- Debt included $743 million outstanding under the term loan, $75 million under the revolving credit facility and $200 million under the receivables securitization facility. The latter was fully drawn, leaving no availability. The company reported approximately $1.0 billion of borrowing capacity under its revolving credit facility.
- The secured credit facility matures March 31, 2021; senior notes mature in 2021, 2022 and 2023. NCR reported a maximum permitted leverage ratio of 4.10-to-1.00 at quarter-end and an interest coverage covenant of at least 3.50-to-1.00.
- Management said existing cash, operating cash flows and financing were sufficient for expected needs over the next 12 months, including debt service, benefit contributions and environmental payments. This is management’s assessment, not a guarantee.
- Adoption of the lease accounting standard added lease assets and liabilities to the balance sheet; at March 31, operating lease assets were $433 million and operating lease liabilities $508 million. Adoption materially increased reported assets and liabilities but did not materially affect quarterly earnings or cash flows.
Changes, outlook and management commentary
- Compared with Q1 2018, revenue increased modestly, but operating income and continuing-operations income declined. Common-stockholder net income and EPS increased largely because Q1 2018 included a $35 million discontinued-operations loss related to the Kalamazoo environmental matter.
- Management said its spend-optimization program was on track to deliver at least $100 million of savings in 2019. For all transformation and restructuring initiatives, it expected approximately $60 million of pre-tax charges and $70–$80 million of cash impact in 2019. Q1 charges were $26 million, with an $18 million cash impact.
- The manufacturing transformation was described as substantially complete. NCR’s strategy emphasized recurring software and services revenue, customer care, product introductions, targeted acquisitions and cost optimization. The filing does not provide a specific full-year revenue or EPS forecast.
- Remaining performance obligations were approximately $3.6 billion; NCR expected to recognize about three-quarters over the following 12 months, subject to customer needs and schedules.
Risks, contingencies and unusual items
- Environmental matters remain significant. The Fox River net reserve was approximately $15 million; remediation was expected to finish in 2019 or 2020. A contractor arbitration sought approximately $46–$53 million, which NCR disputed; the company estimated its share, if the claims succeeded, at about one-quarter of an award.
- The Kalamazoo River reserve was $46 million, net of expected co-obligor and indemnitor contributions. NCR’s liability and future remediation costs remain uncertain; the company noted that under other assumptions the reserve could more than double. NCR appealed court rulings concerning liability and allocation of past costs.
- A Brazilian tax dispute had an estimated aggregate risk of zero to $16 million; no accrual was recorded. The company also estimated unrecognized tax benefits could decrease by $5–$10 million over the next 12 months as certain matters are resolved.
- Key business risks cited included demand and economic conditions, foreign exchange, tariffs and trade policy, competition, cybersecurity and data privacy, product defects, execution of the software-and-services transition, manufacturing and supplier disruption, acquisitions, pensions and environmental exposures.
- Series A convertible preferred stock carried a 5.5% cumulative dividend. Dividends-in-kind were $12 million in the quarter and reduced income attributable to common stockholders; potential conversion could result in up to 29.4 million common shares.
Important facts for investors to verify
- Confirm the issuer and reporting history: this source is an NCR Corporation 10-Q for 2019, not a filing identified as NCR Voyix Corp.
- Assess whether Banking growth and the recurring-revenue mix can offset weakness in Retail and Hospitality, and whether margin pressure persists.
- Track operating cash flow, free cash outflow, working capital and access to the revolving facility; the receivables securitization facility was fully utilized.
- Review debt maturities, interest-rate exposure and compliance headroom under secured-credit covenants.
- Monitor delivery of the stated 2019 savings target and the forecast restructuring cash costs, alongside Fox River and Kalamazoo exposure and related recoveries.