DULUTH, Georgia - NCR Corporation (NYSE: NCR) reported financial results today for the three months ended September 30, 2015.
"Consistent execution across NCR delivered third-quarter earnings in line with our expectations and puts us in position to achieve our full year objectives for earnings and free cash flow," said Chairman and CEO Bill Nuti. Revenue was up 5% on a constant currency basis with improving growth in software and services. Despite a worsening FX environment and challenging geographies, our Financial Services business experienced continued demand for our omni-channel software solutions, including cloud applications, as well as our branch transformation offers. In Retail Solutions, we are executing better in a moderately improving retail environment and generated solid results. And, our Hospitality Division had a very good quarter, led by software and cloud growth. I am most pleased about our improving free cash flow execution, both in terms of quarterly linearity and overall operational results. In a consolidating industry, we believe our competitive position can significantly improve given our industry aligned strategy, rich software portfolio, cloud and mobile first applications, global Services excellence, and unmatched hardware platforms. Given recent industry developments we are particularly excited about our business opportunities ahead."
Q3 Financial Summary
|$ in millions, except per share amounts||2015||2014||As Reported||Constant Currency|
|Income from operations *||$168||$41||310%|
|Non-pension operating income (NPOI)||$218||$204||7%||15% **|
|Diluted earnings per share ***||$0.59||$—||100%|
|Non-GAAP diluted earnings per share||$0.78||$0.67||16%||25% **|
* Income from operations in the third quarter of 2015 and 2014 includes charges of $12 million and $127 million, respectively, related to the ongoing restructuring plan.
** NPOI includes approximately $17 million, and non-GAAP diluted earnings per share includes approximately $0.06, of unfavorable foreign currency impacts.
*** Diluted earnings per share in the third quarter of 2015 and 2014 includes $0.05 and $0.58, respectively, related to the ongoing restructuring plan.
In this release, we use the non-GAAP measures non-pension operating income (NPOI), non-GAAP diluted earnings per share and free cash flow, and we present certain measures on a constant currency basis. These non-GAAP measures are described and reconciled to their most directly comparable GAAP measures elsewhere in this release.
Q3 Supplemental Revenue Information
|$ in millions||2015||2014||% Change||% Change Constant Currency|
|Software License/Software Maintenance||158||157||1||%||6||%|
|Total Software-Related Revenue||434||430||1||%||5||%|
* Referred to as Software-as-a-Service or SaaS in prior Company earnings releases.
Software-related revenue increased 5% on a constant currency basis, including 7% constant currency growth in cloud revenue driven by Hospitality. Additionally, on a constant currency basis, hardware revenue increased 4% in the third quarter and other services revenue increased 7%.
Q3 Operating Segment Results
|$ in millions||2015||2014||% Change||% Change Constant Currency|
|Revenue by segment|
|Operating income by segment|
|% of Financial Services Revenue||16.5||%||16.0||%|
|% of Retail Solutions Revenue||8.2||%||4.9||%|
|% of Hospitality Revenue||16.9||%||16.1||%|
|% of Emerging Industries Revenue||10.8||%||9.9||%|
|Segment operating income||$||218||$||204||7%||15%|
|% of Total Revenue||13.5||%||12.4||%|
Financial Services Constant currency revenue growth was flat, with growth in the Americas, South Pacific, and Middle East Africa offset by declines in China and Russia. Excluding the impact of foreign currency, operating income increased due to a more favorable mix of revenue and expense management.
Retail Solutions Constant currency revenue growth was driven by growth in North America and Europe. Operating income increased due higher revenue, including more software-related revenue and expense management.
Hospitality Constant currency revenue growth was driven by improvements in software-related revenue in the Americas. The increase in operating income was driven by higher software-related revenue, including cloud and professional services revenue.
Emerging Industries Constant currency revenue growth was driven by our Telecom & Technology business. Operating income increased due to higher services margins.
Free Cash Flow
|$ in millions||2015||2014|
|Net cash provided by operating activities||$||170||$||124|
|Total capital expenditures||(54||)||(58||)|
|Net cash (used in) provided by discontinued operations||(10||)||66|
|Free cash flow||$||106||$||132|
Free cash flow was lower in the third quarter of 2015 as compared to the third quarter of 2014 due to $93 million in recoveries associated with the Fox River environmental matter in the third quarter of 2014. Excluding the recoveries, free cash flow improved in the third quarter of 2015 as compared to the third quarter of 2014 driven by an increase in cash from operations.
Other Third Quarter Developments
The Company's progress to date with its restructuring plan is on track. NCR incurred a pre-tax charge of $36 million in the first nine months of 2015, and expects to incur a pre-tax charge of approximately $20 million to $28 million in the fourth quarter of 2015. Cash payments in 2015 were $51 million in the first nine months, and are expected to be approximately $20 million to $35 million in the fourth quarter. Savings are in line with previous expectations with $18 million in 2014, approximately $70 million in 2015 and approximately $105 million in 2016, with about 50% of the savings benefiting NPOI.
We are decreasing our revenue guidance to 3% - 4% constant currency growth, due to continued challenges in certain developing markets and slower backlog rollouts pushing into 2016. Expected foreign currency headwinds on revenue increased by $65 million from previous guidance provided in July. The NPOI range is expected to be $830 million to $840 million, at the low end of the previous range due to lower revenue and $20 million of additional negative foreign currency impacts from our beginning of the year guidance. Our non-GAAP diluted EPS is expected to be $2.70 to $2.80, the high end of our previous range, due to other expense, effective tax rate and share count lower than previously expected. Expected foreign currency headwinds increased by $0.10 from beginning of year guidance. Free cash flow guidance is reaffirmed. We expect unfavorable foreign currency impacts of 6%, or approximately $420 million, in revenue, $70 million to $75 million in NPOI and $0.30 per share in non-GAAP diluted EPS for full-year 2015.
|$ in millions, except per share amounts||Current 2015
|Prior 2015 Guidance||2014
|Revenue||$6,380 - $6,410||$6,525 - $6,675||$6,591|
|Year-over-year revenue growth||(3%) - (2%)||(1%) to 1%||8%|
|Constant currency revenue growth||3% - 4%||(1)||5% to 7%||10%|
|Income from operations (GAAP)||$196 - $214||(2)||$194 - $259||$353||(2)|
|Non-pension operating income (NPOI)||$830 - $840||$830 - $870||$820|
|Diluted earnings per share (GAAP)||($0.60) - ($0.45)||(2)||($0.70) - ($0.40)||$1.06||(2)|
|Non-GAAP Diluted EPS||$2.70 - $2.80||(3)||$2.60 - $2.80||$2.74|
|Net cash provided by operating activities||$620 - $650||$620 - $650||$524|
|Free cash flow||$350 - $400||$350 - $400||$313|
(1) Includes unfavorable foreign currency impacts of approximately 6% in revenue.
(2) For 2014, actuarial mark-to-market pension adjustment is included; 2015 guidance does not include actuarial mark-to-market pension adjustments, which will be determined in Q4 2015.
(3) NCR now expects approximately$204 million of other expense, net including interest expense in 2015 , that its full-year 2015 effective income tax rate will be approximately 24% to 25% compared to 22% in 2014, and that its dilutive share count will be 173 million. Previously, NCR expected $215 million to $220 million of other expense, net in 2015, a full-year 2015 effective tax rate of approximately 25%, and a dilutive share count of 175 million.
Q4 2015 Outlook
For the fourth quarter of 2015, the Company expects its as reported revenue to be in the range of $1,687 million to $1,717 million, compared to $1,768 million in the fourth quarter of 2014. Revenue includes an expected 5% unfavorable foreign currency impact. Additionally, the Company expects non-pension operating income (NPOI) to be in the range of $264 million to $274 million, compared to $251 million in the fourth quarter of 2014, and income from operations to be in the range of $199 million to $217 million, compared to $35 million in the fourth quarter of 2014. The unfavorable foreign currency impact on NPOI is expected to be approximately $19 million in the fourth quarter of 2015. NCR expects its fourth quarter 2015 effective income tax rate to be approximately 27% to 30% and other expense, net including interest expense to be approximately $55 million.
2015 Third Quarter Earnings Conference Call
A conference call is scheduled for today at 4:30 p.m. (EDT) to discuss the third quarter 2015 results and guidance for fourth quarter and full-year 2015. Access to the conference call and accompanying slides, as well as a replay of the call, are available on NCR's web site at http://investor.ncr.com/. Additionally, the live call can be accessed by dialing 888-219-1420 and entering the participant passcode 8552634.
More information on NCR’s Q3 2015 earnings, including additional financial information and analysis, is available on NCR’s Investor Relations website at http://investor.ncr.com/.
About NCR Corporation
NCR Corporation (NYSE: NCR) is the global leader in consumer transaction technologies, turning everyday interactions with businesses into exceptional experiences. With its software, hardware, and portfolio of services, NCR enables nearly 550 million transactions daily across the financial, retail, hospitality, travel, telecom and technology industries. NCR solutions run the everyday transactions that make your life easier.
NCR is headquartered in Duluth, Georgia with over 30,000 employees and does business in 180 countries. NCR is a trademark of NCR Corporation in the United States and other countries. NCR encourages investors to visit its web site which is updated regularly with financial and other important information about NCR.
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