NCR Corporation reported financial results today for the three months ended March 31, 2012. Reported revenue of $1.24 billion increased 18 percent from the first quarter of 2011.
First-quarter revenues include a negative impact of 1 percent as a result of foreign currency translation.
NCR reported first-quarter income from continuing operations (attributable to NCR) of $38 million, or $0.23 per diluted share, compared to income from continuing operations (attributable to NCR) of $19 million, or $0.12 per diluted share, in the first quarter of 2011. Income from continuing operations in the first quarter of 2012 included $39 million ($28 million or $0.17 per diluted share, after-tax) of pension expense, $9 million ($6 million or $0.04 per diluted share, after tax) of acquisition related amortization of intangibles, $4 million ($3 million or $0.02 per diluted share, after tax) of acquisition related integration costs and a $3 million ($2 million or $0.01 per diluted share, after tax) impairment charge related to an investment. Income from continuing operations for the first quarter of 2011 included $51 million ($35 million or $0.22 per diluted share, after-tax) of pension expense, and $3 million ($2 million or $0.01 per diluted share, after-tax) of benefit from final settlement of a litigation matter. Excluding these items, non-GAAP income from continuing operations(2) in the first quarter of 2012 was $0.47 per diluted share compared to $0.33 in the prior year period.
The results and cash flows related to the company's Entertainment line of business have been classified as discontinued operations in each period, and in the guidance, included in this release.
"Our strong first quarter results were driven by continued momentum in our Financial Services business, particularly among U.S. regional banks and in emerging markets worldwide," said Bill Nuti, chairman and CEO of NCR. "This growth was supported by continued traction in our new Hospitality vertical, as-expected contributions from Retail Solutions, and continued penetration into emerging industry verticals. NCR is driving profitable growth in and around its core businesses, with a focus on increasing the software and services component of our revenue mix. Our excellent start to the year and continued good execution give us the confidence to raise our outlook for 2012."
First-Quarter 2012 Operating Segment Results(2)
As of January 1, 2012, the specialty retail business that was formerly part of the Hospitality and Specialty Retail segment is now included in the Retail Solutions segment, and the hospitality business that was formerly part of the Retail Solutions segment is now included in the Hospitality segment. As a result, the former Hospitality and Specialty Retail segment has been renamed Hospitality.
NCR's Financial Services segment generated first-quarter revenue of $694 million, an increase of 17 percent from the first quarter of 2011. The increase was driven primarily by growth in the Americas and Asia Middle East Africa (AMEA) theaters. The first-quarter year-over-year revenue comparison was negatively impacted by 2 percentage points of foreign currency translation.
Operating income for Financial Services was $56 million in the first quarter of 2012 as compared to $47 million in the first quarter of 2011. This increase was driven by the impact of higher revenue, including an improved mix of software and services revenue coupled with lower service delivery costs.
The Retail Solutions segment generated revenue of $347 million in the first quarter of 2012, a decrease of 9 percent from the first quarter of 2011, on both an actual and a constant currency basis. The decrease resulted from declines in the Americas and Europe theaters and the impact from the movement of specialty retail and hospitality accounts between the Retail Solutions segment and the Hospitality segment, as described above.
Operating income for Retail Solutions was $2 million in the first quarter of 2012 as compared to $8 million in the first quarter of 2011. The decrease was driven by the decline in revenues and the movement of accounts, as described above.
The Hospitality segment generated revenue of $113 million in the first quarter of 2012, driven largely by product volumes and services revenue in the Americas theater.
Operating income for Hospitality was $19 million in the first quarter of 2012.
The Emerging Industries segment generated first quarter revenue of $90 million, an increase of 5 percent. The increase was driven primarily from growth in the services business with our Telecom & Technology customers in the Americas and Europe theaters. The first quarter year-over-year revenue comparison included 1 percentage point of benefit from foreign currency translation.
Operating income for Emerging Industries was $24 million in the first quarter of 2012 as compared to $16 million in the first quarter of 2011. This increase was primarily driven by an improved product and services mix and lower service delivery costs.
First-Quarter 2012 Business Highlights
In the first quarter of 2012, NCR continued the introduction and deployment of its self-service solutions across its core and emerging industries while continuing to expand its global services business. The following are NCR's first quarter business highlights.
In the Financial Services segment, LegacyTexas Bank, a $1.5 billion, locally owned financial institution serving North Texas, agreed to install new NCR SelfServ(TM) ATMs with scalable deposit module to speed up deposit process time and deliver an enhanced experience to its customers. NCR will also help enhance the uptime and performance of the ATMs through its Total ATM Services package.
NCR and Cardtronics, the world's largest retail ATM owner, recently launched the smallest-ever SelfServ(TM) ATM. The SelfServ(TM) 14 offers a well-established cash dispenser with high availability while taking up just 0.27 square meters of floor space. It also can run APTRA(TM) software, enabling customers to deploy a single software solution across their entire organization. Cardtronics has already purchased a significant number of NCR SelfServ(TM) 14 ATMS for deployment in various locations throughout the U.S.
NCR also announced a strategic investment in uGenius Technology, LLC, a Utah-based pioneer in video banking solutions. During 2011, NCR and uGenius collaborated to build NCR APTRA(TM) Interactive Teller, the first ATM that lets consumers talk and bank with a live, remote teller. NCR APTRA(TM) Interactive Teller allows bank branches to stay open longer and offer more services to their customers. NCR is scheduled to begin installations at various financial institutions throughout the U.S., Canada, Australia, and other countries over the coming months. Another customer, Dollar Bank, plans to introduce NCR APTRA(TM) Interactive Teller into its Pittsburgh locations in the near future.
In addition, NCR reached a reseller agreement for its APTRA(TM) Cash Connect software with Glory, Ltd., one of the largest providers of cash handling devices in the world. Under the agreement, Glory will resell NCR APTRA(TM) Cash Connect as a software offering with its teller cash recycler hardware globally. NCR's relationship with Glory makes APTRA(TM) Cash Connect accessible on more than 80 percent of the world's teller automation installed base.
In Retail Solutions, NCR continued to win business with its suite of point-of-sale technologies and suite of APTRA(TM) eMarketing solutions.
NCR announced that Ahold USA, the U.S. division of Amsterdam-based Ahold, selected the NCR Advanced Marketing Solution to manage offers and promotions to customers. The software will be available to all of Ahold USA's local retail divisions, which operate more than 750 supermarkets as Stop & Shop, Giant Foods of Landover, Giant Foods of Carlisle and Martin's regional brands. NCR will also provide consulting services to help Ahold USA manage the technology migration, in addition to ongoing software maintenance and support.
Century 21, a discount designer department store chain, agreed to upgrade its digital signage software to the most current version of the NCR Netkey digital signage solution. The latest version of the NCR Netkey digital signage solution will provide Century 21 with the ability to improve the shopping experience for customers by delivering informative, rich multimedia content and enhancing the effectiveness and reach of its various marketing programs.
NCR announced a new release of its NCR Advanced Store software that will help retailers bridge the gap between digital and physical channels and enhance their ability to market to consumers at the point-of-sale. The new release will help retailers quickly and cost-effectively power loyalty programs, create offers and drive cross-selling initiatives directly at the point-of-sale through native integration with the NCR Advanced Marketing Solution, NCR's promotions and offer management software. The unification of digital and physical channels will be further facilitated through technology integration with inventory management software from VendorNet Inc., which now provides retailers a cost-effective, out-of-the-box solution to link their e-commerce channels with store inventory, enabling consumers to buy products on-line and easily pick them up in physical store locations.
In Hospitality, NCR secured additional client wins for its Aloha enterprise solution and hardware. NCR recently announced an agreement with the Green Bay Packers to implement NCR's Quest venue management solution at Lambeau Field. The solution is designed to help the Packers increase speed of service with faster payment processing, consolidate operations across foodservice and retail, and build a foundation to better manage gift card and loyalty programs for season ticket holders. Approximately 425 wired, wireless and touchscreen point-of-sale terminals are scheduled to be installed throughout the stadium by the 2012-2013 season.
Envysion, Inc. announced the integration of its innovative Managed Video as a Service (MVaaS) platform with NCR's Aloha Restaurant Guard, the leading exception reporting and theft deterrence tool for restaurant owners. The integration of these solutions enables restaurant owners to monitor cash handling and exception reports, identify trends and validate suspicious transactions identified by Restaurant Guard by viewing the video taken at the time of the transaction.
In Emerging Industries, NCR announced it earned TL 9000 certification, an ISO Quality Management System certification designed specifically for the telecommunications industry. The certification was received following an audit by Bureau Veritas, a global leader in conformity assessment and certification services, who evaluated various aspects of NCR's global Services organization. The criteria reviewed included process documentation, corrective action and metric collection for specialized service functions, such as installation and engineering, as well as requirements to address communications between telecom network operators and suppliers. The TL 9000 certification recognizes NCR's ability to provide services that help drive productivity gains and sustainable improvements for its global telecom customers.
NCR's services business continues to grow its global footprint. NCR Predictive Services, a unique managed service offer for assisted- and self-service technologies, is now available for NCR RealPOS(TM) point-of-sale terminals. Sainsbury's, one of the U.K.'s largest retailers, has entered into a five-year managed services agreement through which Sainsbury's will deploy NCR Predictive Services on its point-of-sale and self-checkout lanes. NCR will also provide helpdesk and multivendor support across 1,000 stores and 23 depots through its Managed Services Retail Centre of Expertise. NCR Predictive Services is also being evaluated by a major U.S. grocer.
First-Quarter 2012 Financial Highlights
Income from operations was $49 million in the first quarter of 2012, which included $39 million of pension expense, $9 million of acquisition related amortization of intangibles, and $4 million of acquisition related integration costs. This compares to $20 million of income from operations in the first quarter of 2011, which included $51 million of pension expense. Excluding these items, non-GAAP income from operations(2) was $101 million in the first quarter of 2012 compared to $71 million in the first quarter of 2011.
Net cash provided by operating activities was $89 million during the first quarter of 2012 compared to $49 million in the first quarter of 2011. Cash from operating activities in the first quarter of 2012 was positively impacted by improvement in operating results period over period. Net capital expenditures of $31 million in the first quarter of 2012 increased slightly from the $25 million in the first quarter of 2011. Discontinued operations resulted in $10 million of cash outflow in the first quarter of 2012 compared to $20 million of cash outflow in the first quarter of 2011, largely a result of cash outflow from the Entertainment business. 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 $48 million in the first quarter of 2012, compared to $4 million in the first quarter of 2011.
NCR contributed approximately $18 million to its international and executive pension plans in the first quarter of 2012 compared to $20 million in the first quarter of 2011. The Company expects to contribute approximately $215 million in aggregate to its international, executive, and US qualified pension plans in 2012. The net funded status of the company's global pension plans was approximately $(1.3) billion as of December 31, 2011.
Other expense, net was $11 million in the first quarter of 2012 compared to other income, net, of $6 million in the prior year period, mainly due to higher interest expense in the current period.
Income tax benefit was $1 million in the first quarter of 2012 compared to income tax expense of $6 million in the first quarter of 2011.
NCR ended the first quarter of 2012 with $414 million in cash and cash equivalents compared to a balance of $398 million as of December 31, 2011. As of March 31, 2012, NCR had a long term debt balance of $809 million compared to a long term debt balance of $852 million as of December 31, 2011.
NCR expects full-year 2012 revenues to increase in the range of 11 to 13 percent on a constant currency basis compared with 2011, up from previous guidance of 7 to 9 percent growth.
NCR expects its full-year 2012 Income from Operations (GAAP) to be $366 million to $381 million, non-pension operating income (NPOI)(2) to be in the range of $570 to $585 million, GAAP diluted earnings per share to be $1.48 to $1.55 and non-GAAP diluted earnings per share(2) to be in the range of $2.40 to $2.47 per diluted share. The 2012 non-pension operating income (NPOI) and non-GAAP diluted EPS guidance excludes estimated pension expense of $165 million (approximately $119 million after-tax) compared with actual pension expense of $222 million ($155 million after-tax) in 2011 and amortization of intangibles from the Radiant acquisition of approximately $35 million ($24 million after tax). NCR expects approximately $40 million of Other Expense, net including interest expense in 2012 and its full-year 2012 effective income tax rate to be approximately 27 percent.
The company expects second quarter 2012 non-pension operating income (NPOI)(2) to be in the range of $143 million to $148 million, compared to $116 million in the second quarter of 2011, and second quarter 2012 income from operations to be in the range of $95 million to $100 million, compared to $62 million in the second quarter of 2011.