NCR Corporation Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2017. The supplied filing identifies the registrant as NCR Corporation, not NCR Voyix Corp.
Financial results
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $1.663 billion | $1.677 billion | $4.734 billion | $4.741 billion |
| Gross margin | 28.4% | 28.4% | 28.5% | 27.5% |
| Operating income | $200 million | $189 million | $495 million | $453 million |
| Net income attributable to NCR | $118 million | $105 million | $277 million | $213 million |
| Basic EPS attributable to common stockholders | $0.87 | $0.74 | $1.47 | $1.40 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $271 million | $369 million |
| Free cash flow (non-GAAP) | Not provided for quarter | Not provided for quarter | $51 million | $179 million |
Cash and debt: At September 30, cash was $405 million, total debt was reported as $3.28 billion, and balance-sheet short- and long-term debt summed to $3.253 billion. The revolving credit facility had approximately $1.1 billion available; the $200 million receivables securitization facility was fully drawn. Cash was down from $498 million at year-end 2016.
Business trends and changes
- Q3 revenue declined 1% year over year. Software revenue rose 2% and Services 3%, while Hardware fell 6%.
- Services operating income increased to $89 million from $56 million, with operating margin rising to 14.6% from 9.5%, attributed to process improvements and a shift toward higher-value services.
- Hardware operating income fell to a $2 million loss from $28 million of income. Management cited lower ATM and self-checkout sales, including delayed customer spending and project timing; POS revenue grew.
- For the first nine months, revenue was essentially flat as reported; adjusted for the prior-year IPS divestiture, revenue grew 3% on a constant-currency basis. Software and Services grew, while Hardware declined 6% as reported.
- Nine-month operating cash flow fell $98 million, primarily due to higher working capital. Free cash flow declined to $51 million from $179 million, reflecting lower operating cash flow and higher capital spending.
Outlook, risks and unusual items
- The filing provides no numeric revenue or earnings guidance. Management’s stated priorities include sales execution, services transformation, growing software and cloud offerings, innovation, and cost management. Management said it expects available cash, operating cash flow and financing to meet obligations and operating needs for the next 12 months.
- Key business risks include demand for ATM and other financial hardware, competition and pricing, foreign exchange, global economic and trade uncertainty, cybersecurity and data privacy, hosting disruptions, and collectability in subcontracting relationships.
- The approved Fox River settlement commits NCR to complete remediation, currently expected in 2018 or 2019. The net Fox River reserve was approximately $12 million at quarter-end. NCR retains potential “backstop” exposure for certain future oversight and monitoring costs. A remediation contractor also initiated an arbitration over contract interpretation.
- The Kalamazoo River allocation case remained unresolved; potential costs were not clearly quantified. A Brazilian tax assessment had no accrual and an estimated risk range of zero to approximately $77 million. NCR maintained an approximately $20 million reserve for disputed amounts related to Oman projects.
- After quarter-end, Appvion filed for bankruptcy; NCR expected no material Fox River impact, citing BAT’s joint and several obligations for the relevant liability. On October 11, 2017, a federal court dismissed the contribution/allocation case; the government enforcement action continued, but NCR was no longer a party.
- NCR repurchased $350 million of common stock in the first nine months, compared with $250 million a year earlier; no program repurchases occurred in Q3. The Series A preferred stock carries a 5.5% cumulative dividend and reduced income attributable to common holders. Nine-month common earnings also included $58 million of deemed redemption dividends and $4 million from a preferred-stock modification.
- Adoption of share-based payment accounting guidance added approximately $39 million to opening retained earnings. The company planned to adopt the new revenue recognition standard in Q1 2018 and was still evaluating its financial statement effects.
Important facts for investors to verify
- Reconcile the filing entity and period to the intended issuer: this filing is for NCR Corporation for Q3 2017.
- Assess whether the Hardware downturn and weaker Q3 segment profitability persist, particularly for ATMs and self-checkout.
- Track working-capital trends, capital spending, and whether operating and free cash flow recover.
- Review debt, revolver availability, covenant compliance, and the effects of preferred-stock dividends and potential conversion dilution.
- Monitor Fox River remediation and backstop exposure, Kalamazoo allocation, and the Brazilian tax and Oman claims.