NCR Voyix Corporation (formerly NCR Corporation) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unless otherwise noted, amounts are in U.S. dollars. Results through September 30 include the ATM-focused businesses later spun off as NCR Atleos.
Business context and reporting period
NCR Voyix provides software, services, payment solutions and technology for retail, restaurants and banking. On October 16, 2023, after quarter-end, it completed the spin-off of NCR Atleos, which included self-service banking, payments and network, and telecommunications and technology businesses. Voyix retained no ownership interest. Future reporting will present Atleos as discontinued operations; Voyix expects to report Retail, Restaurant and Digital Banking segments beginning in Q4 2023.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2.017 billion | $1.972 billion | $5.894 billion | $5.835 billion |
| Operating income | $242 million | $187 million | $500 million | $323 million |
| Net income (loss) attributable to NCR | $(124) million | $69 million | $(96) million | $76 million |
| Adjusted EBITDA (non-GAAP) | $404 million | $380 million | $1.095 billion | $990 million |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $728 million | $245 million |
| Adjusted free cash flow-unrestricted (non-GAAP) | Not presented quarterly | Not presented quarterly | $421 million | $(38) million |
- Q3 total gross margin was 31.1%, versus 24.9%; nine-month gross margin was 27.7%, versus 23.5%. Reported Q3 gross margin included an $85 million gain from terminated interest-rate derivatives.
- Recurring revenue rose 7% to $1.305 billion in Q3 and was 64.7% of revenue; for nine months it rose 5% to $3.796 billion and was 64.4% of revenue.
- Q3 product revenue declined 5% to $560 million, while service revenue rose 5% to $1.457 billion. Nine-month product revenue fell 4% to $1.657 billion; service revenue increased 3% to $4.237 billion.
- At September 30, cash and cash equivalents were $675 million; restricted cash was $2.338 billion, much of it related to debt proceeds held in escrow for the spin-off. Current assets were $3.093 billion and current liabilities were $2.680 billion.
- Debt at September 30 included $113 million of short-term borrowings and $7.416 billion of long-term debt on the balance sheet. Management cited total debt of $7.65 billion, excluding deferred fees, and $833 million of available revolving-credit capacity. These quarter-end figures include Atleos-related financing and do not represent Voyix’s post-spin debt position.
Material changes versus the prior comparable period
- Revenue grew modestly, with recurring services growth offset in part by lower hardware sales. Q3 operating income increased 29%; nine-month operating income increased 55%.
- Adjusted EBITDA increased 6% in Q3 and 11% for the nine-month period. Segment performance was mixed: Retail, Hospitality and Self-Service Banking improved; Digital Banking EBITDA declined 3% in Q3 and 7% year to date; Payments & Network rose 5% in Q3 but fell 2% year to date.
- Q3 and nine-month net results turned to losses, largely reflecting substantially higher income-tax expense. The company recorded $195 million of discrete tax expense related to spin-off restructuring; approximately $171 million was non-cash deferred tax expense.
- Nine-month operating cash flow improved by $483 million year over year, driven primarily by a favorable $570 million movement in net working-capital accounts. Adjusted free cash flow-unrestricted improved by $459 million.
- Quarter-end debt rose from $5.561 billion of long-term debt at December 31, 2022, partly reflecting Atleos financing issued before the separation. After quarter-end, Atleos distributed approximately $3.0 billion to Voyix; Voyix used the funds to repay and terminate its former secured facility, entered new $700 million credit facilities, and borrowed $200 million under the term loan and $63 million under the revolver. Voyix also redeemed $1 billion of notes at premiums.
Outlook, management commentary, risks and unusual items
- No specific numerical earnings or revenue guidance is provided. Management expects macroeconomic pressures—including supply-chain challenges, foreign-exchange movements and elevated interest rates—to continue to negatively affect the business at least in the short term, and says mitigation measures may not fully offset the effects.
- Remaining performance obligations were approximately $3.6 billion at September 30; the company expects to recognize about three-quarters over the following 12 months, subject in part to customer needs and schedules.
- The April 2023 ransomware incident affected certain customers using specific Aloha cloud services and Counterpoint; the filing says functionality was restored and financial reporting systems were not affected. The company recorded $23 million of response and recovery costs for the nine months and warns that further costs or claims remain possible; the full impact is not yet determinable.
- Spin-off-related separation costs were $76 million in Q3 and $147 million for nine months. The company also recorded pension mark-to-market losses of $19 million for nine months and a $10 million out-of-period operating-expense adjustment in Q1, which management concluded was not material.
- Environmental and legal contingencies include a $96 million reserve for the Kalamazoo River matter at September 30, net of expected contributions. The company notes that under assumptions it does not currently consider reasonably estimable, the reserve could more than double. Fox River remediation obligations were completed, but certain related amounts remain subject to reconciliation and collection timing is uncertain.
- Other key risks include the costs and potential dis-synergies of operating as a smaller standalone company after the spin-off; debt, interest-rate and refinancing risks; cybersecurity and cloud-service disruption; foreign-exchange exposure; and uncertainty in environmental remediation and tax matters. Management stated it believes available liquidity is sufficient to meet expected obligations.
Most important facts for investors to verify
- Post-spin Voyix revenue, margins, cash generation and segment comparisons, since the reported quarter includes Atleos businesses that were subsequently separated.
- Voyix’s actual post-spin debt, interest expense, liquidity and covenant headroom after the $3.0 billion distribution, repayment of the prior facility, new borrowings and note redemptions.
- Underlying operating profitability excluding the $85 million derivative gain, separation costs, discrete tax expense and other adjustments; compare GAAP results with the company’s non-GAAP measures.
- Whether recurring-revenue growth and the $3.6 billion performance-obligation balance convert into revenue and cash on the expected timetable.
- Any further costs, customer claims or business effects from the ransomware incident, and developments in the Kalamazoo River reserve and expected indemnity recoveries.