NCR Corporation (historical filing; not NCR Voyix)
Reporting period: Form 10-Q for the quarter and six months ended June 30, 2019, filed August 2, 2019. The filing is from NCR Corporation; the supplied “NCR Voyix Corp” label does not match the registrant named in this 2019 report. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Business context and results
NCR sold hardware, software, and services across Banking, Retail, Hospitality, and Other markets. Effective January 1, 2019, it reorganized reporting around these industry segments and recast prior segment disclosures. Management described a strategy focused on software- and services-led growth, recurring revenue, customer experience, and cost optimization.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $1,710 | $1,537 | $3,246 | $3,054 |
| Gross margin | $471; 27.5% | $403; 26.2% | $882; 27.2% | $823; 26.9% |
| Operating income (loss) | $157 | $(106) | $257 | $3 |
| Net income (loss) attributable to NCR | $88 | $(145) | $125 | $(125) |
| Diluted EPS attributable to common stockholders | $0.58 | $(1.33) | $0.81 | $(1.26) |
Revenue increased 11% in Q2 and 6% in the first half year over year; growth excluding foreign-exchange effects was 14% and 9%, respectively. Q2 product revenue rose to $664 from $525, while service revenue was $1,046 versus $1,012. Q2 operating margin was approximately 9.2%; reported gross margin improved, although management said adjusted gross margin declined because of a higher hardware mix.
Segments and material changes
- Banking: Q2 revenue grew 20% to $868 and operating margin increased to 14.9% from 13.0%. ATM and related software growth, backlog conversion, services, and productivity supported results. First-half revenue rose 12%.
- Retail: Q2 revenue rose 4% to $558, but operating margin fell to 7.2% from 7.6%. First-half revenue increased 1%, while operating income declined.
- Hospitality: Q2 revenue rose 2% to $202, but operating margin declined to 6.4% from 9.6%. First-half revenue fell 2%; lower hardware revenue and customer-satisfaction investment weighed on profit.
- Prior-period comparison: Q2 2018 included $183 of asset impairment charges—$146 related to goodwill and $37 to long-lived hardware assets—contributing to that quarter’s operating loss. No impairment charge was recorded in 2019.
Cash flow, debt, and liquidity
- First-half operating cash flow was $71, down from $95, primarily due to higher working capital. Capital expenditures were $35 and capitalized software additions were $103; reported free cash flow was a $78 outflow, versus a $72 outflow.
- Cash and cash equivalents were $335 at June 30, 2019, down from $464 at year-end 2018. Current assets were $3,035 and current liabilities $2,303 (current ratio approximately 1.32).
- Short-term borrowings were $198 and long-term debt $2,918, or approximately $3.12 billion combined. The company reported total debt of approximately $3.13 billion. The debt stack included senior notes due 2021, 2022, and 2023, as well as secured credit facilities.
- Management reported approximately $1.0 billion of revolving-credit borrowing capacity and $100 of available receivables-facility capacity. It believed liquidity was sufficient for the next 12 months, including debt service, operating requirements, benefit contributions, and environmental payments.
- Approximately 70% of borrowings were fixed-rate. A hypothetical 100-basis-point increase in variable rates was estimated to add approximately $6 of first-half-equivalent pretax interest expense. Actual Q2 interest expense was $45, compared with $41.
Outlook, commentary, risks, and unusual items
- No quantified full-year revenue, earnings, or cash-flow guidance is stated in the supplied filing text. Management expected at least $100 of savings from its spend-optimization program in 2019. For all transformation and restructuring initiatives, it expected 2019 pretax charges of $60 and cash impact of $70–$80; first-half charges were $40 with $27 cash impact. Manufacturing transformation was described as substantially complete.
- NCR expected 2019 contributions of $28 to international pension plans, $30 to postemployment plans, and $2 to postretirement plans.
- On July 2, 2019, after quarter-end, NCR announced its approximately $80 cash acquisition of D3 Technology to expand digital banking.
- Environmental exposures remain significant contingencies. Fox River net reserve was approximately $11 at June 30, down from $17 at year-end; cleanup was expected to finish in 2019 or 2020. A contractor arbitration asserted claims of approximately $46–$53; NCR disputed them, and a decision was not expected before at least Q4 2019. Kalamazoo River reserve was $46, net of expected co-obligor and indemnitor contributions; future remediation costs remain uncertain, and the company noted that under assumptions it did not then consider reasonably estimable, the reserve could more than double.
- Key disclosed business risks include demand and economic conditions, tariffs and trade policy, foreign exchange, competition, cybersecurity and data privacy, product defects, third-party manufacturing and suppliers, execution of restructuring and new-product launches, indebtedness, and pension and environmental obligations. NCR stated that there were no material changes to previously disclosed risk factors.
- Adoption of the new lease standard on January 1, 2019 added lease assets and liabilities to the balance sheet; prior-year figures were not recast. At June 30, operating lease assets were $414 and operating lease liabilities were $488 in total across current and noncurrent classifications.
Important facts for investors to verify
- Confirm the issuer and security identity: this is NCR Corporation’s 2019 filing, not a filing under the later NCR Voyix name.
- Review the sustainability of Banking-led growth and the margin deterioration in Retail and Hospitality, including hardware mix and foreign-exchange effects.
- Assess cash conversion and investment needs: first-half free cash flow was negative $78, with higher working capital and software investment.
- Check debt maturities, facility covenant headroom, and refinancing needs, particularly the secured facility maturing in 2021 and senior notes due in 2021.
- Monitor Fox River arbitration and cleanup outcomes, Kalamazoo remediation estimates and appeal, and the collectability of expected third-party contributions.
- Track whether the targeted 2019 savings and restructuring cost/cash forecasts were achieved, and assess the D3 acquisition’s subsequent performance.