NCR results in line with revised guidance

Source: NCR

NCR Corporation (NYSE: NCR) reported financial results today for the three months ended December 31, 2014.

"Our fourth quarter and full year results were in-line with our revised expectations," said Chairman and CEO Bill Nuti. "Financial Services finished 2014 with a solid quarter, as global demand for our branch transformation solutions and the impact of Digital Insight drove results. While 2014 had its challenges, particularly in Retail Solutions, we made great progress this year continuing to transform NCR, including progress in executing our software and cloud strategy and ongoing success addressing legacy issues. We also remain positioned at the forefront of consumer transaction technologies across our markets. Looking ahead, we are excited about 2015 and the opportunities for NCR. Our focus is on driving improved execution, with an emphasis on our sales and services organizations, as well as taking the next steps in our reinvention. We will continue to deliver innovative solutions to our customers that help drive their success and make running their businesses easier."

Revenue increased 6% to $1.77 billion, up 11% constant currency; 32% growth in software-related revenue to $477 million, including 231% growth in cloud revenue to $129 million
Non-pension operating income (NPOI) increased 14% to $251 million; GAAP income from operations decreased 88% to $35 million, primarily related to restructuring and pension expense
Non-GAAP diluted EPS of $0.88 versus $0.83 in prior year; GAAP diluted EPS of $0.22, lower than prior year by $0.99, primarily due to restructuring and pension expense
Q4 and FY free cash flow of $229 million and $313 million; Q4 and FY GAAP net cash provided by operating activities of $289 million and $524 million

Software-related revenue increased 32% in the fourth quarter, including 231% growth in cloud revenues. Excluding the contribution of Digital Insight, software-related revenue increased 8% and cloud revenue increased 15%.

Revenue increased 6% compared to the prior year led by solid growth in Financial Services where branch transformation revenues continued to increase and Digital Insight contributed $93 million in the fourth quarter of 2014. Retail Solutions was lower than the prior year as we continued to face redirected information technology spending and delayed customer rollouts. Hospitality was lower due to decreased spend by certain global quick-service restaurants. Emerging Industries was lower due to the impact of the travel business. Foreign currency fluctuations negatively impacted total revenue by 5%.

Segment operating income increased 14% compared to the prior year. The increase was led by Financial Services, where growth was driven by a higher mix of software-related revenue. Retail Solutions operating income was as expected, and improved as a percentage of Retail Solutions revenue compared to Q3 2014. Hospitality operating income was higher than the prior year due to a favorable mix of revenue. Emerging Industries operating income was negatively impacted by costs associated with managed services contracts and continued investment in Small Business.

Free cash flow decreased in the fourth quarter of 2014 as compared to the fourth quarter of 2013 mainly due to changes in working capital and the timing of cash outflows related to discontinued operations. Free cash flow improved in quarterly linearity in 2014 as compared to 2013 and increased mainly due to working capital improvements and recoveries related to the Fox River environmental matter.

2015 Outlook

The 2015 revenue guidance is expected to be roughly flat on an as-reported basis, and up 4% to 6% on a constant currency basis. We expect revenue growth to be driven by higher value solutions in Financial Services, Retail Solutions and Hospitality. NPOI is expected to be between $830 million and $870 million, primarily due to continued improvements in the software mix across the businesses and the benefit of the restructuring plan, partially offset by approximately $50 million of unfavorable foreign currency impacts. Non-GAAP diluted EPS is expected to be approximately $2.60 to $2.80, due to higher NPOI offset by approximately $0.20 per share of unfavorable foreign currency impacts and a higher effective income tax rate. We expect free cash flow of $325 million to $375 million, which includes restructuring spending of approximately $70 million to $85 million.

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