NCR Corporation (filing period: Q1 2020)
The filing is NCR Corporation’s unaudited Form 10-Q for the three months ended March 31, 2020. The registrant named in this filing is NCR Corporation; the supplied metadata identifies NCR Voyix Corp.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $1.503 billion | $1.536 billion |
| Gross margin | $397 million; 26.4% | $411 million; 26.8% |
| Operating income | $77 million | $100 million |
| Net income attributable to NCR | $23 million | $37 million |
| EPS attributable to common stockholders | $0.13 basic and diluted | $0.20 basic and diluted |
| Cash from operating activities | $61 million | ($16 million) |
| Free cash flow (non-GAAP) | ($15 million) | ($87 million) |
At March 31, cash and cash equivalents were $1.214 billion, versus $509 million at year-end 2019. Total debt was reported as $4.42 billion; balance-sheet short-term borrowings and long-term debt totaled $4.385 billion. Cash rose principally after NCR drew the remaining $630 million available on its revolver. Current assets were $3.777 billion and current liabilities $2.406 billion. The filing states management believed liquidity was sufficient for the next 12 months, while noting pandemic uncertainty.
Changes versus the prior-year quarter
- Revenue fell 2% reported and 1% at constant currency. Management estimated COVID-19 and the Nashville fulfillment-center outage together reduced Q1 revenue by approximately $75–$80 million.
- Product revenue declined to $474 million from $539 million; service revenue increased to $1.029 billion from $997 million. Recurring revenue, including maintenance, cloud and payments, rose to $802 million from $759 million.
- Operating income declined $23 million. Adjusted for specified restructuring and acquisition-amortization items, gross margin decreased to 26.9% from 27.7%, principally reflecting lower hardware volume and services investment.
- Banking revenue increased 1% to $763 million and segment operating income rose to $103 million. Retail revenue fell 8% to $472 million and operating income fell to $5 million. Hospitality revenue fell 12% to $169 million and shifted to a $9 million operating loss. Other revenue rose 34% to $99 million, while operating income declined to $5 million.
- Interest expense increased to $50 million from $45 million, attributed to higher average debt and interest rates. Foreign-currency translation reduced other comprehensive income by $61 million.
Outlook, management commentary and risks
- NCR withdrew its full-year 2020 outlook on March 31 because of COVID-19 uncertainty and said it expected the pandemic to negatively affect the business for at least the remainder of 2020. Management expected Retail and Hospitality to be most affected, with negative impacts also possible in Banking.
- Management described steps to preserve liquidity and reduce costs, including suspending share repurchases, limiting acquisitions, reducing certain salaries and planned capital expenditures, and freezing hiring and merit increases. NCR had repurchased $41 million of shares in Q1 before suspending the program.
- The Nashville tornado damaged a third-party-operated fulfillment center. Of $151 million of inventory at the site, approximately $105 million was written off with an offsetting insurance receivable and no net cost-of-sales impact; recoverability of the remaining $46 million was still under assessment. NCR received $25 million in insurance advances by quarter-end and another $40 million afterward.
- After quarter-end, NCR issued $400 million of 8.125% senior notes due 2025. Hospitality goodwill was tested in light of pandemic uncertainty; no impairment was recorded, but a slower recovery could lead to further testing and possible impairment.
- Notable contingencies include a Boston Consulting Group lawsuit seeking more than $80 million, environmental remediation exposures (including an $81 million Kalamazoo reserve and a $20 million Ebina reserve), and the Fox River matter. The Kalamazoo consent decree was awaiting approval. NCR reported a $21 million net Fox River reserve.
- Other material risks include customer payment and demand deterioration, supply-chain and installation disruptions, cybersecurity and data-protection risks, foreign exchange and interest-rate exposure, significant indebtedness and covenant requirements, and uncertainty over insurance recoveries and environmental costs.
Important facts for investors to verify
- Whether the $75–$80 million estimated Q1 impact from COVID-19 and the Nashville outage, and the related inventory insurance recovery, were ultimately realized or revised.
- Subsequent revenue, segment profitability and cash generation, especially in Retail and Hospitality, and any updated outlook.
- Debt, revolver usage, covenant headroom and the cost and use of the April 2020 notes proceeds.
- Recovery and impairment assumptions underlying Hospitality goodwill, plus the status and eventual cost of environmental matters and the BCG litigation.
- The relationship between the metadata’s NCR Voyix Corp. name and the NCR Corporation registrant identified in this 2020 filing.