NCR Corporation (NCR) — Q2 2022 Form 10-Q
Period and context. This filing is for the quarter and six months ended June 30, 2022. The registrant in the filing is NCR Corporation; the supplied company name, NCR Voyix Corp, does not match the filing’s registrant name. NCR provides software, services, payments and technology for banking, retail and hospitality. It realigned reportable segments in 2022 to Payments & Network, Digital Banking, Self-Service Banking, Retail and Hospitality.
Financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1.997 billion | $1.677 billion | $3.863 billion | $3.221 billion |
| GAAP operating income | $103 million | $84 million | $136 million | $194 million |
| Net income (loss) attributable to NCR | $41 million | $(9) million | $7 million | $21 million |
| Adjusted EBITDA (non-GAAP) | $339 million | $281 million | $610 million | $539 million |
| Cash from operating activities | Not presented here by quarter | $118 million | $310 million | |
| Free cash flow (company-defined, non-GAAP) | Not presented here by quarter | $(10) million | $235 million |
Q2 diluted EPS was $0.26, including $0.22 from continuing operations; six-month diluted EPS was $(0.01), including $(0.04) from continuing operations. Six-month net income attributable to NCR common stockholders was a $1 million loss after preferred-stock dividends.
Q2 gross margin was 23.6%, down from 27.2%; product gross margin fell to 11.4% from 17.8%, while service gross margin was 29.0% versus 31.8%. Operating margin was 5.2% versus 5.0%. For the first half, gross margin was 22.8% versus 27.0%, and operating margin was 3.5% versus 6.0%. Adjusted EBITDA margin was 17.0% in Q2 versus 16.8%, and 15.8% for the first half versus 16.7%.
Recurring revenue rose 31% to $1.217 billion in Q2 and represented 60.9% of revenue, compared with 55.4% a year earlier. For the first half, recurring revenue increased 33% to $2.396 billion, or 62.0% of revenue.
Liquidity, debt and cash flow
At June 30, NCR reported $398 million of cash and cash equivalents, $255 million of restricted cash and $5.66 billion of total debt, excluding deferred fees. Revolving-credit availability was approximately $856 million. Current assets were $3.054 billion and current liabilities were $2.833 billion. Long-term debt was $5.497 billion; short-term borrowings were $108 million.
First-half operating cash flow declined to $118 million from $310 million. Company-defined free cash flow was negative $10 million versus positive $235 million, reflecting operating cash flow less capital expenditures and capitalized software, with the company’s specified adjustments. Receivables and inventory uses of cash were $209 million and $202 million, respectively. NCR cited lower operating earnings and unfavorable working-capital movements as drivers.
Changes and management commentary
- Revenue grew 19% in Q2 and 20% in the first half; excluding foreign-exchange effects, growth was 23% in both periods. Service revenue growth outpaced product revenue growth.
- Revenue and Adjusted EBITDA in Payments & Network increased sharply, primarily reflecting the Cardtronics acquisition. The prior-year comparison includes Cardtronics only from its June 21, 2021 acquisition date. LibertyX, acquired in January 2022, added cryptocurrency-related activity.
- Management attributed margin pressure to fuel and component costs, higher interest rates on vault-cash arrangements, supply-chain constraints and other cost increases. Retail Adjusted EBITDA declined 14% in Q2 and 22% for the first half; Hospitality Adjusted EBITDA increased 18% and 16%, respectively.
- NCR’s stated five-year goals for 2026 are 80% annual recurring revenue, 15% annual non-GAAP EPS growth and $1 billion of annual non-GAAP free cash flow. These are aspirational goals, not quarterly guidance. The filing gives no specific near-term revenue or earnings forecast.
- The Board began a comprehensive strategic review in February 2022. It set no completion timetable, and NCR cautioned that there is no certainty of a transaction or its completion.
Risks, contingencies and unusual items
- Macroeconomic and operating risks: Management cited COVID-19, supply-chain disruptions, inflation, energy and freight costs, foreign-exchange movements, geopolitical conditions and rising interest rates as continuing pressures. A hypothetical 100-basis-point increase in variable rates would increase six-month pre-tax interest expense by about $10 million, including swaps; the same increase would raise quarterly vault-cash rental expense by about $10 million before swaps.
- Russia wind-down: NCR had substantially ceased Russian operations and was dissolving its subsidiary. Related pre-tax losses were $3 million in Q2 and $22 million for the first half, including impairments, severance and collectability assessments.
- Environmental matters: Reserves at June 30 included $95 million for Kalamazoo River and a $25 million net reserve for Fox River. Kalamazoo remediation costs and expected contributions from co-obligors and indemnitors remain uncertain; NCR said the reserve could more than double under cost assumptions it did not consider reasonably estimable or verifiable. Fox River work was substantially complete, with a Certificate of Completion expected in summer 2022. A $54 million Fox River-related receivable was recorded, but collection timing is uncertain.
- Other items: Discontinued-operations income was $6 million in Q2 and $5 million for the first half, primarily from insurance recoveries. In July 2022, after quarter-end, NCR entered an agreement to transfer Budapest manufacturing to Ennoconn; the transition took effect July 25. NCR also disclosed a $3.8 billion remaining performance-obligation balance, about three-quarters expected to be recognized within 12 months, subject to customer needs and schedules.
Most important facts for investors to verify
- Confirm the entity and security being analyzed: the filing is for NCR Corporation, trading as NCR, not a registrant named NCR Voyix Corp.
- Assess whether revenue growth is translating into durable margins and cash generation, given the decline in gross margins and first-half free cash flow.
- Review debt servicing capacity, floating-rate exposure, credit-facility covenant headroom and the effects of higher rates on debt and vault-cash costs.
- Track the strategic review, the 2026 aspirational goals and the execution and cost risks associated with the manufacturing transfer.
- Monitor environmental reserve adequacy and collectability of the Fox River receivable and expected indemnitor contributions, as well as ongoing supply-chain, FX and geopolitical risks.