NCR VOYIX CORPORATION The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included under Item 1. Financial Statements of this Form 10-Q and our Consolidated Financial Statements and notes thereto and related Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 (the "2021 Form 10-K").
Our discussion within MD&A is organized as follows:
•Overview. This section contains background information on our company, summary of significant themes and events during the quarter as well as strategic initiatives and trends in order to provide context for management's discussion and analysis of our financial condition and results of operations. •Results of operations. This section contains an analysis of our results of operations presented in the accompanying condensed consolidated statements of income by comparing the results for the three months endedMarch 31, 2022 to the results for the three months endedMarch 31, 2021 .
•Liquidity and capital resources. This section provides an analysis of our cash
flows and a discussion of our contractual obligations at
OVERVIEW BUSINESS OVERVIEWNCR Corporation ("NCR", the "Company", "we" or "us") was originally incorporated in 1884 and is a software- and services-led enterprise technology provider that runs stores, restaurants and self-directed banking for our customers, which includes businesses of all sizes. NCR is a global company that is headquartered inAtlanta, Georgia . Our software platform, which runs in the cloud and includes microservices and APIs that integrate with our customers' systems, and our NCR-as-a-Service solutions bring together all of the capabilities and competencies of NCR to power the technology to run our customers' operations. Our portfolio includes digital first software and services offerings for banking, retailers and restaurants, as well as payments processing and networks, multi-vendor connected device services, automated teller machines ("ATMs"), self-checkout ("SCO"), point of sale ("POS") terminals and other self-service technologies. We also resell third-party networking products and provide related service offerings in the telecommunications and technology sector. Our solutions are designed to support our transition to becoming a software platform and payments company. EffectiveJanuary 1, 2022 , the Company realigned its reportable segments to correspond with changes to its operating model, management structure and organizational responsibilities. The reportable segments effectiveJanuary 1, 2022 include: Payments & Network, Digital Banking, Self-Service Banking, Retail, and Hospitality. •Payments & Network - We provide a cost-effective way for financial institutions, fintechs, and neobanks to reach and serve their customers through our network of automated teller machines ("ATMs") and multi-functioning financial services kiosks. We offer credit unions, banks, digital banks, fintechs, stored-value debit card issuers, and other consumer financial services providers access to our Allpoint retail-based ATM network, providing convenient and fee-free cash withdrawal and deposit access to their customers and cardholders as well as the ability to convert a digital value to cash, or vice versa, via NCRPay360. We also provide ATM branding, management and services to financial institutions and businesses.
•Digital Banking - NCR Digital Banking helps financial institutions implement their digital-first platform strategy by providing solutions for account opening, account management, transaction processing, imaging, and branch services to enable financial institutions to offer a compelling customer experience.
•Self-Service Banking - We offer solutions to enable customers in the financial
services industry to reduce costs, generate new revenue streams and enhance
customer loyalty. These solutions include a comprehensive line of ATM hardware
and software, and related installation, maintenance, and managed and
professional services.
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•Retail - We offer software-led solutions to customers in the retail industry,
leading with digital to connect retail operations end to end to integrate all
aspects of a customer's operations in indoor and outdoor settings from POS, to
payments, inventory management, fraud and loss prevention applications, loyalty
and consumer engagement. These solutions include retail-oriented technologies
such as comprehensive API-point of sale retail software platforms and
applications, hardware terminals, self-service kiosks including self-checkout
("SCO"), payment processing solutions, and bar-code scanners.
•Hospitality - We offer technology solutions to customers in the hospitality
industry, including table-service, quick-service and fast casual restaurants of
all sizes, that are designed to improve operational efficiency, increase
customer satisfaction, streamline order and transaction processing and reduce
operating costs. Our solutions include POS hardware and software solutions,
installation, maintenance, managed and professional services as well as payment
processing solutions.
Corporate and Other includes income and expenses related to corporate functions
that are not specifically attributable to an individual reportable segment along
with any immaterial operating segment(s).
Eliminations includes revenues from contracts with customers and the related
costs that are reported in the Payments & Network segment as well as in the
Retail or Hospitality segments, including merchant acquiring services that are
monetized via payments.
NCR's reputation is founded upon over 137 years of providing quality products,
services and solutions to our customers. At the heart of our customer and other
business relationships is a commitment to acting responsibly, ethically and with
the highest level of integrity. This commitment is reflected in NCR's Code of
Conduct, which is available on the Corporate Governance page of our website.
SIGNIFICANT THEMES AND EVENTS
As more fully discussed in later sections of this MD&A, the following were significant themes and events for the first quarter of 2022.
•Revenue of$1,866 million , up 21% •Cash flow from operations of$38 million ; Free cash outflow of$10 million •Completed acquisition of LibertyX onJanuary 5, 2022 , a leading cryptocurrency software provider •Numerous external macro factors impacted quarterly results
STRATEGIC INITIATIVES AND TRENDS
In order to provide long-term value to all our stakeholders, we set complementary business goals and financial strategies. NCR is continuing its transition to become a software platform and payments company with a shift to a higher level of recurring revenue. Our business goal is to be a leading enterprise technology provider that runs stores, restaurants and self-directed banking through our software platform and our NCR-as-a-Service solutions. In late 2021, we established aspirational five-year financial goals for 2026, which include annual recurring revenue of 80 percent by 2026, annual earnings per share (non-GAAP EPS)(1) growth of 15 percent, and annual non-GAAP free cash flow(1) of$1 billion in 2026. Execution of our goals and strategy is driven by the following key pillars: (i) focus on our customers; (ii) take care of our employees; (iii) bring high-quality, innovative products to market; and (iv) leverage our brand. As we strive to achieve these aspirational five-year goals, we plan to capitalize on opportunities presented by the acquisitions of Cardtronics and LibertyX to accelerate our Payments & Network business as we go to market with a more robust offering in this segment. We also plan to continue to improve our execution to drive solid returns and to transform our business to drive a re-rate of our valuation. (1) With respect to our goals of free cash flow and non-GAAP EPS growth, we are not providing a reconciliation to the respective GAAP measure because we are unable to predict with reasonable certainty the reconciling items that may affect GAAP EPS and Cash flow from operations without unreasonable effort. For our definition of free cash flow, see the Financial Condition, Liquidity and Capital Resources section within MD&A. For our definition of non-GAAP EPS and our use of the term annual recurring revenue, see the Key Strategic Financial Metrics section within MD&A. 36 -------------------------------------------------------------------------------- Table of Contents OnFebruary 8, 2022 , NCR announced that its Board of Directors unanimously approved commencing a comprehensive strategic review, with the assistance of outside advisors, which will evaluate a full range of strategic alternatives available to NCR to enhance value for all shareholders. Those strategic alternatives could include a disposition of a material business or assets of the Company, a spin-off, merger or sale of the Company, other structural changes, changes to branding or geographic footprint, or other transactions or alternatives. The Board has not set a timetable for the conclusion of its review of strategic alternatives. NCR does not intend to comment further on the strategic review process unless and until NCR has determined that further disclosure is beneficial or required by law. Shareholders are advised that there can be no certainty that the strategic review will result in a transaction, or if a transaction is pursued that such a transaction will be completed.
Cybersecurity Risk Management
Similar to most companies, NCR and its customers are subject to more frequent and increasingly sophisticated cybersecurity attacks. The Company maintains cybersecurity risk management policies and procedures including disclosure controls, which it regularly evaluates for updates, for handling and responding to cybersecurity events. These policies and procedures include internal notifications and engagements and, as necessary, cooperation with law enforcement. Personnel involved in handling and responding to cybersecurity events periodically undertake tabletop exercises to simulate an event. Our internal notification procedures include notifying the applicable Company attorneys, which, depending on the level of severity assigned to the event, may include direct notice to, among others, the Company's General Counsel, Ethics & Compliance Officer, and Chief Privacy Officer. Company attorneys support efforts to evaluate the materiality of any incidents, determine whether notice to third parties such as customers or vendors is required, determine whether any prohibition on insider trading is appropriate, and assess whether disclosure to stockholders or governmental filings, including with theSEC , are required. Our internal notification procedures also include notifying various NCR Information Technology Services managers, subject matter experts in the Company's software department and Company leadership, depending on the level of severity assigned to the event.
Impacts from Geopolitical, Macroeconomic, and COVID-19 Challenges
We continue to be exposed to macroeconomic pressures as a result of the lingering impacts of the COVID-19 pandemic, supply chain challenges, and spikes in commodity and energy prices as a result of geopolitical challenges, including the war inEastern Europe . We continue to navigate through these challenges with a sharp focus on and goal of safeguarding our employees, helping our customers and managing impacts on our supply chain. Despite the unprecedented environment, our teams are executing at a high level and we are advancing our strategy. The COVID-19 pandemic is complex and continues to evolve. While it is difficult to project the long-term impact of the pandemic, we expect it will negatively impact our business at least in the short-term. The ultimate impact on our overall financial condition and operating results will depend on the currently unknowable duration and severity of the pandemic, supply chain challenges and cost escalations including materials, labor and freight, and any additional governmental and public actions taken in response. The war inEastern Europe and related sanctions imposed onRussia and related actors have resulted in interest rate acceleration and inflation, including, but not limited to, a significant increase in the price of energy around the world, particularly in regions such asEurope that are significantly dependent onRussia for their energy needs, and continued commodity price increases due to disruption in the mining industry inUkraine and other factors. The war inEastern Europe has also contributed to further disruption in logistics due to the shipping difficulties in and around theBlack Sea and its ports, which have resulted in the rerouting of traffic to other ports and further logistics challenges. We expect that these factors will continue to negatively impact our business at least in the short-term. The ultimate impact on our overall financial condition and operating results will depend on the currently unknowable duration and severity of these activities. We continue to evaluate the long-term impact that these may have on our business model, however there can be no assurance that the measures we have taken or will take will completely offset the negative impact. For further information on the risks posed to our business from the COVID-19 pandemic, refer to Part I, Item 1A, "Risk Factors", of the Company's 2021 Form 10-K. 37 -------------------------------------------------------------------------------- Table of Contents Results from Operations
For the three months ended
Key Strategic Financial Metrics
The following tables show our key strategic financial metrics for the three
months ended
Recurring revenue as a percentage of total revenue
Three months ended March 31 Percentage of Total Revenue Increase (Decrease)
In millions 2022 2021 2022 2021 2022 v 2021
Recurring revenue (1) $ 1,179 $ 874 63.2 % 56.6 % 35 %
All other products and services 687 670 36.8 % 43.4 % 3 %
Total Revenue $ 1,866 $ 1,544 100.0 % 100.0 % 21 %
(1) Recurring revenue includes all revenue streams from contracts where there is
a predictable revenue pattern that will occur at regular intervals with a
relatively high degree of certainty. This includes hardware and software
maintenance revenue, cloud revenue, payment processing revenue, interchange and
network revenue, and certain professional services arrangements as well as
term-based software license arrangements that include customer termination
rights.
Net income (loss) from continuing operations and Adjusted EBITDA as a percentage of total revenue
Three months ended March 31 Percentage of Total Revenue Increase (Decrease)
In millions 2022 2021 2022 2021 2022 v 2021
Net income (loss) from continuing
operations attributable to NCR $ (33) $ 30 (1.8) % 1.9 % (210) %
Adjusted EBITDA $ 271 $ 258 14.5 % 16.7 % 5 %
Non-GAAP Financial Measures and Use of Certain Terms:
The term "annual recurring revenue" is recurring revenue, excluding software
license sold as a subscription, for the last three months times four, plus the
rolling four quarters for term-based software license arrangements that include
customer termination rights.
Non-GAAP Earnings per Share ("Non-GAAP EPS") NCR's non-GAAP EPS is determined by
excluding, as applicable, pension mark-to-market adjustments, pension
settlements, pension curtailments and pension special termination benefits, as
well as other special items, including amortization of acquisition related
intangibles and transformation and restructuring activities, from NCR's GAAP
earnings per share. Due to the non-operational nature of these pension and other
special items, NCR's management uses this non-GAAP measure to evaluate
year-over-year operating performance. NCR believes this measure is useful for
investors because it provides a more complete understanding of NCR's underlying
operational performance, as well as consistency and comparability with NCR's
past reports of financial results.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("Adjusted EBITDA") NCR's management uses the non-GAAP measure Adjusted EBITDA
because it provides useful information to investors as an indicator of strength
and performance of the Company's ongoing business operations, including funding
discretionary spending such as capital expenditures, strategic acquisitions, and
other investments. NCR determines Adjusted EBITDA based on GAAP net income
(loss) from continuing operations attributable to NCR plus interest expense,
net; plus income tax expense (benefit); plus depreciation and amortization; plus
stock-based compensation expense; plus other income (expense); plus pension
mark-to-market adjustments, pension settlements, pension curtailments and
pension special termination benefits and other special items,
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including amortization of acquisition-related intangibles and restructuring
charges, among others. Refer to the table below for the reconciliations of net
income (loss) from continuing operations (GAAP) to Adjusted EBITDA (non-GAAP).
Special Item Related to Russia The war in Eastern Europe and related sanctions
imposed on Russia and related actors by the United States and other
jurisdictions required the orderly wind down of our operations in Russia
beginning in the first quarter of 2022. As a result, for the three months ending
March 31, 2022 , our non-GAAP presentation of the measures described above
exclude the impact of our operating results in Russia , as well as the impact of
impairments taken to write down the carrying value of assets and liabilities,
severance charges, and the assessment of collectability on revenue recognition.
We consider this to be a special item and management has reviewed the results of
its business segments excluding these impacts.
NCR's definitions and calculations of these non-GAAP measures may differ from
similarly-titled measures reported by other companies and cannot, therefore, be
compared with similarly-titled measures of other companies. These non-GAAP
measures should not be considered as substitutes for, or superior to, results
determined in accordance with GAAP.
Three months ended March 31
In millions 2022 2021
Net income (loss) from continuing operations attributable to NCR (GAAP)
$ (33) $ 30
Transformation and restructuring costs 27 8 Acquisition-related amortization of intangibles 41 20 Acquisition-related costs 5 27 Interest expense 63 45 Interest income (1) (3)
Depreciation and amortization (excluding acquisition-related amortization of intangibles)
103 70
Income taxes 13 17
Stock-based compensation expense 34 44
Russia 19 -
Adjusted EBITDA (non-GAAP) $ 271 $ 258
Consolidated Results
The following table shows our results for the three months ended March 31 , the
relative percentage that those amounts represent to revenue, and the change in
those amounts year-over-year.
Three months ended March 31 Percentage of Revenue (1) Increase (Decrease)
In millions 2022 2021 2022 2021 2022 v 2021
Product revenue $ 516 $ 482 27.7 % 31.2 % 7 %
Service revenue 1,350 1,062 72.3 % 68.8 % 27 %
Total revenue 1,866 1,544 100.0 % 100.0 % 21 %
Product gross margin 24 74 4.7 % 15.4 % (68) %
Service gross margin 387 340 28.7 % 32.0 % 14 %
Total gross margin 411 414 22.0 % 26.8 % (1) %
Selling, general and administrative
expenses 313 238 16.8 % 15.4 % 32 %
Research and development expenses 65 66 3.5 % 4.3 % (2) %
Income from operations $ 33 $ 110 1.8 % 7.1 % (70) %
(1) The percentage of revenue is calculated for each line item divided by total
revenue, except for product gross margin and service gross margin, which are
divided by the related component of revenue.
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Revenue
Three months ended March 31 Percentage of Total Revenue Increase (Decrease)
In millions 2022 2021 2022 2021 2022 vs 2021Product revenue $ 516$ 482 27.7 % 31.2 % 7 % Service revenue 1,350 1,062 72.3 % 68.8 % 27 % Total revenue$ 1,866 $ 1,544 100.0 % 100.0 % 21 %
Product revenue includes our hardware and software license revenue streams. Service revenue includes hardware and software maintenance revenue, implementation services revenue, cloud revenue, payments processing revenue, interchange and network revenue, as well as professional services revenue.
For the three months ended
Total revenue increased 21% for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . Product revenue for the three months endedMarch 31, 2022 increased 7% compared to the three months endedMarch 31, 2021 due to growth in SCO and POS revenue partially offset by a decline in ATM revenue. Service revenue for the three months endedMarch 31, 2022 increased 27% due to growth in software related services, which includes the results of Cardtronics, and hardware maintenance. Gross Margin Three months ended March 31 Percentage of Revenue (1) Increase (Decrease) In millions 2022 2021 2022 2021 2022 v 2021 Product gross margin $ 24$ 74 4.7 % 15.4 % (68) % Service gross margin 387 340 28.7 % 32.0 % 14 % Total gross margin $ 411$ 414 22.0 % 26.8 % (1) %
(1) The percentage of revenue is calculated for each line item divided by the related component of revenue.
For the three months ended
Gross margin as a percentage of revenue in the three months endedMarch 31, 2022 was 22.0% compared to 26.8% in the three months endedMarch 31, 2021 . Gross margin in the three months endedMarch 31, 2022 included$5 million of transformation costs,$19 million of amortization of acquisition-related intangible assets, and$14 million related to operating losses, impairments and other actions taken with respect to our operations inRussia . Gross margin for the three months endedMarch 31, 2021 included$4 million of transformation costs and$7 million of amortization of acquisition-related intangible assets. Excluding these items, gross margin as a percentage of revenue decreased from 27.5% to 24.1% due to increases in fuel costs, component parts, and interest rates as well as other supply chain challenges that negatively impacted our costs. The impact of these cost increases were partially offset by an increase in the favorable higher margin software and services revenue.
Selling, General and Administrative Expenses
Three months ended March 31 Percentage of Total Revenue Increase (Decrease)
In millions 2022 2021 2022 2021 2022 vs 2021
Selling, general and administrative
expenses $ 313 $ 238 16.8 % 15.4 % 32 %
40-------------------------------------------------------------------------------- Table of Contents For the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 Selling, general, and administrative expenses were$313 million compared to$238 million in the three months endedMarch 31, 2022 and 2021, respectively. As a percentage of revenue, selling, general and administrative expenses were 16.8% compared to 15.4% in the three months endedMarch 31, 2022 and 2021, respectively. In the three months endedMarch 31, 2022 , selling, general and administrative expenses included$21 million of transformation costs,$22 million of amortization of acquisition-related intangible assets,$5 million of acquisition-related costs and$4 million of costs related to actions taken with respect to our operations inRussia . In the three months endedMarch 31, 2021 , selling, general and administrative expenses included$2 million of transformation costs,$13 million of amortization of acquisition-related intangible assets, and$10 million of acquisition-related costs. Excluding these items, selling, general and administrative expenses increased slightly as a percentage of revenue from 13.8% to 14.0%.
Research and Development Expenses
Three months ended March 31 Percentage of Total Revenue Increase (Decrease)
In millions 2022 2021 2022 2021 2022 v 2021
Research and development expenses $ 65 $ 66 3.5 % 4.3 % (2) %
For the three months ended
Research and development expenses were$65 million compared to$66 million in the three months endedMarch 31, 2022 and 2021, respectively. As a percentage of revenue, these costs were 3.5% and 4.3% in the three months endedMarch 31, 2022 and 2021, respectively. In the three months endedMarch 31, 2022 , research and development expenses included$1 million of transformation costs. In the three months endedMarch 31, 2021 , research and development expenses included$2 million of transformation costs. After considering this item, research and development expenses decreased slightly as a percentage of revenue from 4.1% to 3.4% due to an increase in revenue year over year. Interest Expense Three months ended March 31 Increase (Decrease) In millions 2022 2021 2022 v 2021 Interest expense $ 63$ 45 40 %
For the three months ended
Interest expense was$63 million compared to$45 million in the three months endedMarch 31, 2022 and 2021, respectively. Interest expense is primarily related to the Company's senior unsecured notes and borrowings under the Company's senior secured credit facility. The main driver was related to the increase in total outstanding debt as a result of the closing of the acquisition of Cardtronics in the second quarter of 2021.
Other Income (Expense), net
Other income (expense), net was income of
Three months ended March 31
In millions 2022 2021
Interest income $ 1 $ 3
Foreign currency fluctuations and foreign exchange
contracts - (4)
Bank-related fees (2) (19)
Employee benefit plans 11 3
Other, net (1) -
Other income (expense), net $ 9 $ (17)
41-------------------------------------------------------------------------------- Table of Contents In the three months endedMarch 31, 2021 , the Company incurred bank-related fees of$17 million related to certain structuring and commitment fees as a result of the financing transactions entered into during the first quarter of 2021 related to the transaction with Cardtronics. Income Taxes Three months ended March 31 In millions 2022 2021 Income tax expense (benefit) $ 13$ 17
For the three months ended
Income tax provisions for interim (quarterly) periods are based on an estimated annual effective income tax rate calculated separately from the effect of significant, infrequent or unusual items. Income tax expense was$13 million for the three months endedMarch 31, 2022 compared to$17 million income tax expense for the three months endedMarch 31, 2021 . The change was primarily driven by a pre-tax book loss offset by the removal of tax benefit in certain foreign jurisdictions where the benefit will not be realized. Additionally, during the three months endedMarch 31, 2022 , the Company did not recognize any material discrete tax consistent with the three months endedMarch 31, 2021 . The Company is subject to numerous federal, state and foreign tax audits. While we believe that appropriate reserves exist for issues that might arise from these audits, should these audits be settled, the resulting tax effect could impact the tax provision and cash flows in 2022 or future periods.
Loss from Discontinued Operations
In the three months endedMarch 31, 2022 , the$1 million loss from discontinued operations, net of tax, was driven by immaterial updates to various environmental remediation matters. In the three months endedMarch 31, 2021 , there was no activity related to discontinued operations.
Revenue and Adjusted EBITDA by Segment
The Company manages and reports its businesses in the following segments: Payments & Network, Digital Banking, Self-Service Banking, Retail, and Hospitality. Segments are measured for profitability by the Company's chief operating decision maker based on revenue and segment Adjusted EBITDA. Adjusted EBITDA is defined as GAAP net income (loss) from continuing operations attributable to NCR plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization; plus stock-based compensation expense; plus other income (expense); plus pension mark-to-market adjustments, pension settlements, pension curtailments and pension special termination benefits and other special items, including amortization of acquisition-related intangibles, restructuring charges, among others. The special items are considered non-operational so are excluded from the Adjusted EBITDA metric utilized by our chief operating decision maker in evaluating segment performance and are separately delineated to reconcile back to total reported income (loss) from continuing operations attributable to NCR. This format is useful to investors because it allows analysis and comparability of operating trends. It also includes the same information that is used by NCR management to make decisions regarding the segments and to assess our financial performance. Corporate and Other includes income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment along with any immaterial operating segment(s). Special Item Related to Russia The war inEastern Europe and related sanctions imposed onRussia and related actors bythe United States and other jurisdictions required us to orderly wind down our operations inRussia beginning in the first quarter of 2022. As a result, for the three months endingMarch 31, 2022 , our non-GAAP presentation of the measures described above exclude the impact of our operating results inRussia , as well as the impact of impairments taken to write down the carrying value of assets and liabilities, severance charges, and the assessment of collectability on revenue recognition. We consider this to be a special item and management has reviewed the results of its business segments excluding these impacts. We have not adjusted the presentation of the prior year period due to the immaterial impact ofRussia to income from continuing operations for the three months endedMarch 31, 2021 . 42
-------------------------------------------------------------------------------- Table of Contents The following tables show our segment revenue and Adjusted EBITDA for the three months endedMarch 31 , the relative percentage that those amounts represent to segment revenue, and the change in those amounts year-over-year. Three months ended March 31 Percentage of Revenue (1) Increase (Decrease) In millions 2022 2021 2022 2021 2022 v 2021 Revenue Payments & Network $ 299$ 22 16.0 % 1.4 % 1,259 % Digital Banking 136 123 7.3 % 8.0 % 11 % Self-Service Banking 611 628 32.8 % 40.7 % (3) % Retail 546 520 29.3 % 33.7 % 5 % Hospitality 211 179 11.3 % 11.6 % 18 % Other 68 77 3.7 % 5.0 % (12) % Eliminations (2) (8) (5) (0.4) % (0.3) % 60 % Total segment revenue$ 1,863 $ 1,544 100.0 % 100.0 % 21 % Other adjustment (3) 3 - Total revenue$ 1,866 $ 1,544 Adjusted EBITDA by Segment Payments & Network $ 98$ 3 32.8 % 13.6 % 3,167 % Digital Banking 56 54 41.2 % 43.9 % 4 % Self-Service Banking 112 137 18.3 % 21.8 % (18) % Retail 67 98 12.3 % 18.8 % (32) % Hospitality 41 36 19.4 % 20.1 % 14 % Corporate and Other (97) (67) (142.6) % (87.0) % 45 % Eliminations (2) (6) (3) 75.0 % 60.0 % 100 % Total Adjusted EBITDA $ 271$ 258 14.5 % 16.7 % 5 % (1) The percentage of revenue is calculated for each line item divided by total revenue, except for Adjusted EBITDA, which are divided by the related component of revenue. (2) Eliminations includes revenues from contracts with customers and the related costs that are reported in the Payments & Network segment as well as in the Retail or Hospitality segments, including merchant acquiring services that are monetized via payments. (3) Other adjustment reflects the revenue attributable to the Company's operations inRussia for the three months endingMarch 31, 2022 that were excluded from management's measure of revenue due to our announcement to suspend sales toRussia and anticipated orderly wind down of our operations inRussia . The revenue attributable to theRussia operations for the prior period of$8 million are included in the respective segments.
Segment Revenue
For the three months ended
Payments & Network revenue increased significantly for the three months endedMarch 31, 2022 compared to the prior year period, primarily due to additional payments processing revenue from the acquisition of Cardtronics, which occurred in the second quarter of 2021. Additionally, the three months endingMarch 31, 2022 includes cryptocurrency transaction processing revenue following the acquisition of LibertyX inJanuary 2022 . Digital Banking revenue increased 11% for the three months endedMarch 31, 2022 compared to the prior year period, due to an increase in software license and cloud services revenues. Self-Service Banking revenue decreased 3% for the three months endedMarch 31, 2022 compared to the prior year period, due to a decline in ATM hardware sales partially offset by an increase in software and services revenues, including hardware maintenance and professional services. The decline in ATM hardware sales was due in part to supply chain challenges that 43 -------------------------------------------------------------------------------- Table of Contents resulted in temporary order fulfillment delays. Software and services revenue as a percent of total Self-Service Banking segment revenue increased from 68% in the first quarter of 2021 to 72% in the first quarter of 2022. Retail revenue increased 5% for the three months endedMarch 31, 2022 compared to the prior year period, primarily due to higher self check-out hardware and point-of-sale solutions revenue partially offset by a decrease in services revenue.
Hospitality revenue increased 18% for the three months ended
For the operations grouped as Other, revenue decreased 12% for the three months
ended
Segment Adjusted EBITDA
For the three months ended
Payments & Network Adjusted EBITDA increased significantly for the three months
ended
Digital Banking Adjusted EBITDA increased 4% for the three months endedMarch 31, 2022 compared to the prior year period, driven by an increase in recurring revenue. Self-Service Banking Adjusted EBITDA declined 18% for the three months endedMarch 31, 2022 compared to the prior year period, primarily due to supply chain challenges and increased fuel costs which drove up component and other costs, particularly in ATM hardware, hardware maintenance and transaction services. These headwinds were partially offset by an increase in recurring revenue. Retail Adjusted EBITDA declined 32% for the three months endedMarch 31, 2022 compared to the prior year period, primarily driven by product cost and mix, increased labor costs, and other supply chain challenges, partially offset by an increase in recurring revenue. Hospitality Adjusted EBITDA increased 14% for the three months endedMarch 31, 2022 compared to the prior year period, primarily driven by an increase in recurring and non-recurring revenue driven by subscription and payments processing. These improvements were partially offset by supply chain challenges and increased fuel costs which drove up component and other costs, particularly in transaction services and hardware.
Corporate and Other increased 45% for the three months ended
Financial Condition, Liquidity, and Capital Resources
Cash provided by operating activities was$38 million in the three months endedMarch 31, 2022 compared to cash provided by operating activities of$155 million in the three months endedMarch 31, 2021 . The decrease in cash provided by operating activities in the three months endedMarch 31, 2022 was driven by lower operating earnings as well as the unfavorable movement in net working capital accounts. NCR's management uses a non-GAAP measure called "free cash flow" to assess the financial performance of the Company. We define free cash flow as net cash provided by (used in) operating activities less capital expenditures for property, plant and equipment, less additions to capitalized software, plus/minus restricted cash settlement activity, plus acquisition-related items, less the impact from the initial sale of trade accounts receivables under the agreement entered into during the 3rd quarter of 2021, and plus pension contributions and settlements. We believe free cash flow information is useful for investors because it relates the operating cash flows from the Company's continuing and discontinued operations to the capital that is spent to continue and improve business operations. In particular, free cash flow indicates the amount of cash available after capital expenditures for, among other things, investments in the Company's existing businesses, strategic acquisitions, repurchases of NCR stock and repayment of debt obligations. Free cash flow does not represent the residual cash flow available for discretionary expenditures, since there may be other non-discretionary expenditures that are not deducted from the measure. Free cash flow does not have a uniform definition under GAAP, and therefore NCR's definition may differ from other 44
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Table of Contents companies' definitions of this measure. This non-GAAP measure should not be considered a substitute for, or superior to, cash flows from operating activities under GAAP.
The table below reconciles net cash provided by operating activities to NCR's
non-GAAP measure of free cash flow for the three months ended
Three months ended March 31
In millions 2022 2021
Net cash provided by operating activities $ 38 $ 155
Expenditures for property, plant and equipment (15) (10)
Additions to capitalized software (65) (51)
Restricted cash settlement activity 28 (5)
Pension contributions 4 4
Free cash flow (non-GAAP) $ (10) $ 93
Financing activities and certain other investing activities are not included in
our calculation of free cash flow. Other investing activities primarily include
business acquisitions, divestitures and investments. During the three months
ended March 31, 2022 , the payments for business combinations totaled $1 million ,
net of cash acquired, for the cash consideration paid related to the acquisition
of LibertyX completed in January of 2022 and the acquisition of Cardtronics in
June of 2021. The LibertyX acquisition was completed via issuance of NCR common
stock in exchange for the outstanding shares of LibertyX. During the three
months ended March 31, 2021 , the payments for business combinations was
$157 million , mainly related to the acquisitions completed in the first quarter
of 2021.
Our financing activities include borrowings and repayments of credit facilities.
Financing activities during the three months ended March 31, 2022 also included
dividends paid on the Series A preferred stock of $4 million , proceeds from
employee stock plans of $6 million as well as tax withholding payments on behalf
of employees for stock based awards that vested of $36 million . Financing
activities during the three months ended March 31, 2021 included dividends paid
on the Series A preferred stock of $4 million , proceeds from stock employee
plans of $8 million , and tax withholding payments on behalf of employees for
stock based awards that vested of $22 million .
Long Term Borrowings The senior secured credit facility consists of term loan
facilities in an aggregate principal amount of $2.055 billion , of which
$1.94 billion was outstanding as of March 31, 2022 . Additionally, the senior
secured credit facility provides for a five-year revolving credit facility with
an aggregate principal amount of $1.3 billion , of which $415 million was
outstanding as of March 31, 2022 . The Revolving Credit Facility also contains a
sub-facility to be used for letters of credit, and as of March 31, 2022 , there
were $24 million letters of credit outstanding.
As of March 31, 2022 , we had outstanding $1.2 billion in aggregate principal
balance of 5.125% senior unsecured notes due in 2029, $500 million in aggregate
principal balance of 5.750% senior unsecured notes due in 2027, $650 million
aggregate principal balance of 5.000% senior unsecured notes due in 2028, $500
million in aggregate principal balance of 6.125% senior unsecured notes due in
2029, and $450 million in aggregate principal balance of 5.250% senior unsecured
notes due in 2030.
See Note 5, "Debt Obligations", of the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Report for further information on the senior secured credit facility.
Employee Benefit Plans In 2022, we expect to make contributions of$17 million to our international pension plans,$30 million to our postemployment plan and$1 million to our postretirement plan. For additional information, refer to Note 9, "Employee Benefit Plans" of the Notes to Condensed Consolidated Financial Statements. Series A Convertible Preferred Stock As ofMarch 31, 2022 , the redemption value of the Series A Preferred Stock was approximately$276 million . Holders of Series A Convertible Preferred Stock are entitled to a cumulative dividend at the rate of 5.5% per annum, payable quarterly in arrears. Beginning in the first quarter of 2020, dividends are payable in cash or in-kind at the option of the Company. During the three months endedMarch 31, 2022 and 2021, the Company paid cash dividends of$4 million . The Series A Convertible Preferred Stock is convertible at the option of the holders at any time into shares of common stock at a conversion price of$30.00 per share, or a conversion rate of 33.333 shares of common stock per share of Series A Convertible Preferred Stock. As ofMarch 31, 2022 andDecember 31, 2021 , the maximum number of common shares that 45 -------------------------------------------------------------------------------- Table of Contents could be required to be issued upon conversion of the outstanding shares of the Series A Convertible Preferred Stock was 9.2 million shares. Cash and Cash Equivalents Held by Foreign Subsidiaries Cash and cash equivalents held by the Company's foreign subsidiaries atMarch 31, 2022 andDecember 31, 2021 were$336 million and$412 million , respectively. Under current tax laws and regulations, if cash and cash equivalents and short-term investments held outside theU.S. are distributed to theU.S. in the form of dividends or otherwise, we may be subject to additionalU.S. income taxes and foreign withholding taxes, which could be significant. Summary As ofMarch 31, 2022 , our cash and cash equivalents totaled$412 million and our total debt was$5.66 billion , excluding deferred fees. As ofMarch 31, 2022 , our borrowing capacity under the revolving credit facility was approximately$861 million . Our ability to generate positive cash flows from operations is dependent on general economic conditions, the competitive environment in our industry, and is subject to the business and other risk factors described in Item 1A of Part I of the Company's 2021 Annual Report on Form 10-K and Item 1A of Part II of this Quarterly Report on Form 10-Q (as applicable). If we are unable to generate sufficient cash flows from operations, or otherwise comply with the terms of our credit facilities, we may be required to seek additional financing alternatives. We believe that we have sufficient liquidity based on our current cash position, cash flows from operations and existing financing to meet our expected pension, postemployment, and postretirement plan contributions, remediation payments related to environmental matters, debt servicing obligations, payments related to transformation initiatives, and in the long-term (i.e., beyondMarch 31, 2023 ) to meet our material cash requirements.
Material Cash Requirements from Contractual and Other Obligations
There have been no significant changes in our contractual and other commercial
obligations as described in our Form 10-K for the year ended
Critical Accounting Policies and Estimates
Critical accounting policies are those that are most important to the portrayal of our financial position and results of operations. These policies require highly subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Our most critical accounting estimates pertain to revenue recognition, inventory valuation, goodwill and intangible assets, pension, postretirement and postemployment benefits, environmental and legal contingencies, and income taxes, which are described in Item 7. of our 2021 Form 10-K.
New Accounting Pronouncements
See discussion in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" of the Notes to Condensed Consolidated Financial Statements for new accounting pronouncements.
Forward-Looking Statements
This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking statements use words such as "expect," "anticipate," "outlook," "intend," "plan," "confident," "believe," "will," "should," "would," "potential," "positioning," "proposed," "objective," "could," "may," and words of similar meaning, as well as other words or expressions referencing future events, conditions or circumstances. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Act. Statements that describe or relate to NCR's plans, goals, intentions, strategies, or financial outlook, and statements that do not relate to historical or current fact, are examples of forward-looking statements. Forward-looking statements are based on our current beliefs, expectations and assumptions, which may not prove to be accurate, and involve a number of known and unknown risks and uncertainties, many of which are out of NCR's control. Forward-looking statements are not guarantees of future performance, and there are a number of important factors that could cause actual outcomes and results to differ materially from the results contemplated by such forward-looking statements, including those factors relating to: •Strategy and Technology: transforming our business model; development and introduction of new solutions; competition in the technology industry; integration of acquisitions and management of alliance activities; our multinational operations; and our strategic review announced onFebruary 8, 2022 •Business Operations: domestic and global economic and credit conditions; risks and uncertainties from the payments-related business and industry; disruptions in our data center hosting and public cloud facilities; retention and attraction 46 -------------------------------------------------------------------------------- Table of Contents of key employees; defects, errors, installation difficulties or development delays; failure of third-party suppliers; the impact of the coronavirus (COVID-19) pandemic and geopolitical and macroeconomic challenges; environmental exposures from historical and ongoing manufacturing activities; and climate change •Data Privacy & Security: impact of data protection, cybersecurity and data privacy including any related issues •Finance and Accounting: our level of indebtedness; the terms governing our indebtedness; incurrence of additional debt or similar liabilities or obligations; access or renewal of financing sources; our cash flow sufficiency to service our indebtedness; interest rate risks; the terms governing our trade receivables facility; the impact of certain changes in control relating to acceleration of our indebtedness, our obligations under other financing arrangements, or required repurchase of our senior unsecured notes; and any lowering or withdrawal of the ratings assigned to our debt securities by rating agencies; our pension liabilities; and write down of the value of certain significant assets •Law and Compliance: protection of our intellectual property; changes to our tax rates and additional income tax liabilities; uncertainties regarding regulations, lawsuits and other related matters; and changes to cryptocurrency regulations •Governance: impact of the terms of our Series A Convertible Preferred ("Series A") Stock relating to voting power, share dilution and market price of our common stock; rights, preferences and privileges of Series A stockholders compared to the rights of our common stockholders; and actions or proposals from stockholders that do not align with our business strategies or the interests of our other stockholders Additional information concerning these and other factors can be found in the Company's filings with theU.S. Securities and Exchange Commission , including the Company's most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Any forward-looking statement speaks only as of the date on which it is made. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Information About NCR NCR encourages investors to visit its web site (http://www.ncr.com), which is updated regularly with financial and other important information about NCR. The contents of the Company's web site are not incorporated into this quarterly report or the Company's other filings with theU.S. Securities and Exchange Commission . 47
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