NCR Corporation (now NCR Voyix) — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The filing is for NCR Corporation; “NCR Voyix” is the company name supplied in the request, not the registrant name shown in this 2018 filing. Financial amounts are in U.S. dollars unless noted.
Business context and results
NCR sold software, services and hardware solutions for financial services, retail and hospitality customers. Management’s strategy emphasized cloud and recurring revenue, software and services growth, and operating efficiencies.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $1.517 billion | $1.478 billion |
| Gross margin | $420 million; 27.7% | $412 million; 27.9% |
| Operating income | $109 million | $115 million |
| Continuing-operations income | $56 million | $57 million |
| Net income attributable to NCR | $20 million | $57 million |
| Net income (loss) attributable to common stockholders | $8 million; $0.07 diluted EPS | $(17) million; $(0.14) diluted EPS |
| Cash used in operating activities | $(24) million | Cash provided: $39 million |
| Free cash flow (non-GAAP) | $(99) million | $(16) million |
Revenue, margins and material changes
- Revenue increased 3% reported, but was flat on a constant-currency basis; favorable currency movements contributed 3 percentage points to reported growth.
- Software revenue rose 2% to $460 million. Cloud revenue grew 9% and professional services 8%, while license revenue declined 18%. Segment operating income fell to $109 million from $124 million; margin declined to 23.7% from 27.4%.
- Services revenue increased 8% to $601 million; operating income rose to $62 million from $44 million and margin expanded to 10.3% from 7.9%, reflecting efficiency initiatives and a higher-value services mix.
- Hardware revenue declined 3% to $456 million; the operating loss widened to $23 million from $10 million. ATM revenue fell 7% and self-checkout 24%, partly offset by 19% growth in POS.
- Consolidated operating income declined despite higher revenue. SG&A rose to $245 million from $230 million, while interest expense increased to $41 million from $39 million.
- Common-stockholder results include preferred-stock dividends. The prior-year common-stockholder loss also included $62 million of deemed preferred-stock dividends; Q1 2018 included a $35 million after-tax discontinued-operations loss.
Cash, debt and liquidity
- Cash and cash equivalents were $348 million at March 31, 2018, down from $537 million at year-end; cash including restricted cash was $355 million. Operating cash flow was negative, and capital spending plus capitalized software additions totaled $71 million.
- Total debt was approximately $3.07 billion: $34 million short-term and $3.04 billion long-term. The company reported approximately $1.0 billion of available revolving-credit capacity and $200 million of receivables-securitization capacity, subject to facility conditions.
- Management stated it expected available cash, operating cash flows and financing to cover requirements for the next 12 months. The senior secured facility has leverage and interest-coverage covenants; the filing reports a maximum permitted leverage ratio of 4.10:1 at quarter-end.
- NCR repurchased 4.7 million shares for $165 million during the quarter. Cash held by foreign subsidiaries was $331 million; repatriation could trigger additional taxes.
Outlook, unusual items and risks
- No specific revenue or earnings forecast is stated in the provided filing text. NCR expected transformation charges of approximately $200–$250 million over two years, including $100–$150 million in 2018; expected cash impact was $150–$200 million over two years, including $100 million in 2018. Management targeted about $150 million in annual run-rate savings by 2020.
- After quarter-end, NCR announced plans to close two Columbus-area plants and a Beijing plant, transitioning production to other NCR facilities and suppliers. It entered a manufacturing-services agreement with Jabil on April 23, 2018. The filing warns of execution, quality, delivery and third-party-supplier risks.
- On April 30, 2018, NCR announced that CEO William R. Nuti had retired and Michael D. Hayford had become President and CEO; Frank R. Martire was appointed Executive Chairman effective May 31, 2018.
- A March 2018 court ruling assigned NCR 40% of approximately $50 million in past Kalamazoo River costs. NCR increased its reserve to $46 million and recorded the quarter’s $35 million after-tax discontinued-operations loss. Future remediation exposure remains uncertain and the company planned to appeal; under alternative assumptions, the charge could approximately double.
- The Fox River environmental matter had a $32 million net reserve at quarter-end, with remediation expected to finish in 2019 or 2020. A Brazilian tax assessment remained contested; the company estimated possible exposure of zero to approximately $75 million and had not accrued it.
- Tax accounting remained provisional following U.S. tax reform. NCR said it could release a $50–$60 million U.K. deferred-tax valuation allowance in Q2 2018 and estimated unrecognized tax benefits could decrease by $50–$55 million during 2018; these were expectations, not guarantees.
- Key risks include hardware demand, business transformation and restructuring execution, manufacturing transition and supplier reliance, cybersecurity and data privacy, foreign exchange, leverage and covenant compliance, environmental liabilities, tax matters, and leadership transition.
Most important facts for investors to verify
- Whether recurring software and services growth can offset weaker hardware revenue and improve consolidated operating profit.
- Cash conversion and working-capital trends, given negative operating cash flow and the larger free-cash outflow.
- Debt, covenant headroom, borrowing availability and the cash-flow consequences of buybacks and preferred-stock obligations.
- Actual transformation charges, plant-transition costs, timing of savings and whether outsourcing affects product quality or delivery.
- Developments in the Kalamazoo and Fox River matters, the Brazilian tax appeal, and U.S. tax-reform estimates.
- Comparability effects from adopting the new revenue-recognition standard: the filing says Q1 2018 continuing-operations income was $4 million higher under the new guidance than under the previous guidance.