NCR Corporation (NCR) reported financial results today for the three months endedSeptember 30, 2013. Reported revenue of $1.51 billion increased 5% from the third quarterof 2012. Third-quarter revenue includes an unfavorable impact of 2% as a result of foreigncurrency translation.
NCR Corporation (NCR) reported financial results today for the three months ended September 30, 2013. Reported revenue of $1.51 billion increased 5% from the third quarter of 2012. Third-quarter revenue includes an unfavorable impact of 2% as a result of foreign currency translation.
NCR reported third quarter income from continuing operations (attributable to NCR) of $98 million, or $0.58 per diluted share, compared to income from continuing operations (attributable to NCR) of $88 million, or $0.53 per diluted share, in the third quarter of 2012. Excluding pension and special items, non-GAAP income from continuing operations(2) in the third quarter of 2013 was $185 million, or $0.76 per diluted share, compared to $153 million, or $0.64 per diluted share, in the prior-year period. An identification of those special items, and the impact of pension and those special items on income from continuing operations and diluted earnings per share, are set forth in the supplemental non-GAAP reconciliation tables and accompanying footnotes that are included following the "Note to Investors" at the end of this earnings release.
"NCR delivered solid results in the third quarter, driven by continued strong demand for our Retail and Hospitality solutions and the impact of our ongoing transformation to a greater mix of higher-margin software revenue," said Bill Nuti, Chairman and CEO of NCR. "Overall execution and innovation across our businesses have been consistent and our outlook for the year remains unchanged. Looking forward, we believe our leadership in consumer transaction technologies and our commitment to reinvent NCR positions us to generate profitable growth in the remainder of 2013 and beyond."
Third Quarter 2013 Operating Segment Results(2)
NCR's Financial Services segment generated third quarter revenue of $767 million, a decrease of 4% from the third quarter of 2012. The decrease was driven by declines in the Americas and Europe theaters, partially offset by growth in the Asia Middle East Africa (AMEA) theater. Foreign currency fluctuations had an unfavorable impact on the year-over-year revenue comparison by 2%.
Operating income for Financial Services was $93 million in the third quarter of 2013 as compared to $84 million in the third quarter of 2012. The increase in operating income was driven by a higher mix of software revenue and reduced expenses.
The Retail Solutions segment generated revenue of $494 million in the third quarter of 2013, an increase of 17% from the third quarter of 2012. The increase was driven by growth in all of our theaters due to the impact of the Retalix business, which contributed $80 million of revenue in the third quarter of 2013. Foreign currency fluctuations had an unfavorable impact on the year-over-year revenue comparison by 3%.
Operating income for Retail Solutions was $50 million in the third quarter of 2013 as compared to $28 million in the third quarter of 2012. The increase in operating income was driven by a higher mix of software revenue and the contribution of the Retalix business as noted above.
The Hospitality segment generated revenue of $161 million in the third quarter of 2013, an increase of 25% from the third quarter of 2012. The increase was driven by growth in the Americas and Europe theaters. Foreign currency fluctuations had an unfavorable impact on the year-over-year revenue comparison by 2%.
Operating income for Hospitality was $26 million in the third quarter of 2013 as compared to $23 million in the third quarter of 2012. The increase in operating income was driven by a favorable mix of revenues, slightly offset by investment in sales and development resources.
The Emerging Industries segment generated revenue of $86 million in the third quarter of 2013, consistent with the third quarter of 2012. The results were driven by growth in the AMEA theater offset by declines in the Europe and Americas theaters. Foreign currency fluctuations had an unfavorable impact on the year-over-year revenue comparison by 1%.
Operating income for Emerging Industries was $16 million in the third quarter of 2013 as compared to $18 million in the third quarter of 2012. The decrease in operating income was due to an unfavorable mix of revenues.
Third Quarter 2013 Business Highlights
NCR continues to achieve recognition for its commitment to innovation and continuous improvement. NCR was ranked 24th on this year's InformationWeek 500, a list of the top technology innovators in the U.S. This marks the third consecutive year NCR has been recognized. InformationWeek identifies and honors the most innovative users of information technology. NCR's high ranking is consistent with the Company's commitment to driving business innovation, the success of NCR Predictive Services, and its cross functional innovation.
In the Financial Services segment, NCR maintained its global leadership position through the deployment of various advanced technologies and solutions, including APTRA™ Interactive Teller, and further expansion of its presence in China and other key geographies.
APTRA™ Interactive Teller is the only ATM-based technology that lets people talk to a live remote teller and gives the teller remote control over the machine to conduct transactions. APTRA™ Interactive Teller can conduct approximately 95% of typical in-person teller transactions.
NCR saw increased adoption of APTRA™ Interactive Teller among credit unions in North America, including Tobyhana Federal Credit Union in northeastern Pennsylvania, Lake State Credit Union in Minnesota and North Peace Savings and Credit Union (NPSCU) in British Columbia. In July, NPSCU won the National Credit Union Innovation Award, Canada, for its implementation of NCR's interactive video technology. According to NPSCU, in the 12 month period following installation of the technology, nearly half of NPSCU's retail members used the solution and provided a satisfaction rating of 79.1%; in the same period, NPSCU saw net assets grow 13% and membership grow 5.7%.
During the quarter, NCR enhanced its leadership position in China. NCR secured a significant order from Industrial and Commercial Bank of China for more than 2,000 NCR SelfServ™ automated teller machines. NCR also secured a volume order from Agricultural Bank of China (ABC) for more than 1,500 NCR SelfServ™ ATMs, including NCR SelfServ™ 22 and SelfServ™ 25 models. The new ATMs will be deployed by ABC in 18 provinces across China and NCR will provide post-sales maintenance services to ABC. NCR also secured an ATM order of over 500 units from ATMU (China) Technology Co. Ltd, the largest ATM cooperation operator and service provider in China. The order includes NCR SelfServ™ ATMs with cash dispense, deposit and cash recycling functions. NCR also signed a five-year technology services agreement with China Resources Bank of Zhuhai. NCR will provide hardware maintenance services for ATMs installed at the bank to help drive higher availability and improve the bank's customer satisfaction. China Resources Bank of Zhuhai currently owns over 200 NCR-branded ATMs and plans to add to more than 500 units within the year. Finally, Bank of Ningbo successfully went live with NCR APTRA™ Edge, a multi-vendor software application, across its fleet of over 500 ATMs.
Also, in AMEA, NCR announced that National Australia Bank (NAB) agreed to deploy NCR Predictive Services, a unique monitoring solution designed to predict ATM hardware failures before they occur in order to maximize ATM uptime and provide a better consumer experience. NCR also designed a "virtual" first line maintenance capability for Bank of New Zealand (BNZ) to help maximize ATM uptime and customer satisfaction levels. The innovative service leverages BNZ's use of NCR Predictive Services and can help diagnose and resolve common ATM service opportunities significantly faster via a central help desk, which can reduce or eliminate the need to deploy services personnel to the customer location.
FNB, one of South Africa's largest financial institutions, agreed to install 1,250 NCR SelfServ™ 4 ATM units in order to automate routine banking transactions and improve the overall customer experience. In addition, Sparkasse KölnBonn, the second largest savings bank and one of the largest regional financial institutions in Germany, began deployment of 74 NCR SelfServ™ 26 ATMs to modernize its ATM network.
In Retail Solutions, NCR was selected to provide retail technology solutions to four major shopping malls in China: Beijing Baishang Life Mall, Chengdu Global Shopping Mall Ocean Amusement Park, Chengde Golden Dragon Royal Shopping Mall and Baoding Ginza Mall. The malls are partnering with NCR to enhance the shopping experience with faster, more personalized check-out experiences. The solution also is designed to drive increased sales opportunities for shop owners and higher customer satisfaction levels. The 240 NCR RealPOSTM point-of-sale (POS) terminals were sold through NCR's major retail distributor in China and will be installed this year.
NCR also announced that, following Globus Russia's successful introduction of NCR's self-checkout technology in the cities of Vladimir and Korolev last year, Globus will expand its deployment of NCR self-checkout solutions to additional areas in Russia. Globus has partnered with NCR to further enhance the shopping experience through reduced queues and faster checkouts while streamlining business operations via increased capacity and cost efficiency.
In the Hospitality segment, Boston Market Corporation began deployment of the NCR RealPOS™ 72XRT point-of-sale solution in all of its locations. RealPOS™ 72XRT continues NCR's innovative development of high-performance POS systems, and is expected to provide more intelligent processing power to drive new applications, remote manageability and enhanced security to deliver value and create a competitive advantage for Boston Market.
Trinity Groves, a recently created mixed-use development project in West Dallas, TX, implemented NCR's Aloha POS as a Service (POSaaS) program in its restaurants. POSaaS is a subscription-based program with a predictable monthly fee. Trinity Groves selected NCR POSaaS for its low risk, flexibility and ability to combine industry leading software, hardware, data security services, maintenance and helpdesk support services in one inclusive package.
NCR also continued to secure wins with its venue management solutions. NCR announced a four-year agreement with the Atlanta Falcons of the National Football League aimed at significantly reducing wait times for fans. Official Falcons Gear, the Atlanta Falcons retail arm, is utilizing the NCR Netkey Endless Aisle solution, and NCR's POS Counterpoint software technology and mobile applications to allow fans and suite holders to order merchandise from their seat. Also, the NCR Wayfinding interactive self-service solution makes it easier for fans to find their way around the large, multi-tier stadium with a touch of the finger.
NCR entered into an agreement with Adelaide Oval SMA Ltd to deploy NCR's Venue Management solution at the recently redeveloped Adelaide Oval, which serves crowds of up to 50,000. The solution is centered on NCR Venue Manager, an advanced POS and reporting system, that was selected for its ability to streamline operations, deliver an unparalleled level of service and help deliver a world-class experience to fans.
NCR also successfully deployed its Venue Management solution at 1300SMILES Stadium in North Queensland, the home ground of the North Queensland Toyota Cowboys National Rugby League team, where it is being used to provide the stadium management with real-time sales information from each of the 75 NCR POS terminals in its food and beverage outlets.
In Emerging Industries, NCR continued to advance its self-service technologies for the travel industry. China Eastern Airlines selected NCR to provide 40 additional self-service check-in kiosks, making NCR the largest airport check-in solution provider for the carrier. NCR will also provide multi-vendor, on-site support services for the airline's entire fleet of 130 airline check-in kiosks, including both NCR-branded kiosks and those made by another technology company.
Copa Airlines selected NCR to deploy multiple technologies aimed at delivering an exceptional experience to its passengers. Copa launched its free NCR-developed iPhone app, which allows users to search Copa's flight schedules, check their flight status, check in for flights and download mobile boarding passes.
Third Quarter 2013 Financial Highlights
Income from operations was $145 million in the third quarter of 2013, which included $5 million of pension expense, $17 million of acquisition-related amortization of intangibles, $14 million of acquisition-related costs, $3 million of acquisition-related purchase price adjustments and $1 million of legal costs related to the previously disclosed OFAC and FCPA investigations. This compares to $129 million of income from operations in the third quarter of 2012, which included $10 million of pension expense, $10 million of acquisition-related amortization of intangible assets and $4 million of acquisition-related costs. Excluding these items, non-GAAP income from operations(2) was $185 million in the third quarter of 2013 compared to $153 million in the third quarter of 2012.
Net cash provided by operating activities was $27 million during the third quarter of 2013 compared to net cash used in operating activities of $400 million in the year-ago period. Capital expenditures of $66 million in the third quarter of 2013 increased from $43 million in the third quarter of 2012. Discontinued operations resulted in $27 million of cash outflow from operations in the third quarter of 2013 as compared to $41 million of cash outflow from operations in the third quarter of 2012. Free cash flow (net cash from operations and discontinued operations, less capital expenditures for property, plant and equipment, and additions to capitalized software)(3) was a cash outflow of $66 million in the third quarter of 2013, compared to a cash outflow of $484 million in the third quarter of 2012. Both cash used in operating activities and free cash used in the third quarter of 2012 were negatively impacted by a $500 million discretionary contribution to the Company's U.S. qualified pension plan. Excluding the discretionary contribution, free cash flow was a cash outflow of $66 million in the third quarter of 2013 compared to a cash inflow of $16 million in the third quarter of 2012. The decrease in free cash flow, excluding the discretionary contribution, was primarily driven by increases in capital expenditures and changes in working capital.
NCR contributed approximately $20 million to its international, executive and U.S. qualified pension plans in the third quarter of 2013 compared to $534 million in the third quarter of 2012. The net unfunded status of the Company's global pension plans was $(461) million as of December 31, 2012.
Other expense, net was $26 million in the third quarter of 2013 compared to other expense, net, of $7 million in the prior year period, mainly due to higher interest expense in the current period.
Income tax expense was $19 million in the third quarter of 2013 compared to income tax expense of $33 million in the third quarter of 2012.
NCR ended the third quarter of 2013 with $460 million in cash and cash equivalents, consistent with the balance as of June 30, 2013. As of September 30, 2013, NCR had a total debt balance of $2.23 billion compared to a total debt balance of $2.16 billion as of June 30, 2013.
As previously announced, effective in the first quarter of 2013, NCR changed the accounting methodology for recognizing expense for its Company-sponsored U.S. and international pension benefit plans. From 2013 forward, NCR will recognize changes in fair values of plan assets and net actuarial gains and losses in the year incurred, generally in the fourth quarter of each year, which were previously deferred and amortized over time into pension expense. The results and guidance included in this release give effect to the change in accounting methodology.
Full figures can be viewed here.