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 and nine months endedSeptember 30, 2022 to the results for the three and nine months endedSeptember 30, 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.
Effective
•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.
•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.
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•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.
•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.
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 include 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 third quarter of 2022.
•Revenue of$1,972 million , up 4% compared to the prior year period, and up 8% excluding foreign currency impacts •Strong performance despite numerous external macro factors, such as rising interest rates, the effects of the strongU.S. dollar, supply-chain challenges, and high component costs that continue to impact quarterly results •Continued strength in strategic initiatives •Planned separation of NCR into two independent, publicly traded companies was announced onSeptember 15, 2022
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. 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 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 enhance value for all shareholders. OnSeptember 15, 2022 , NCR announced a plan to separate into two independent, publicly traded companies - one focused on digital commerce, the other on ATMs. The digital commerce company is expected to be a growth business positioned to leverage NCR's software-led model to continue transforming, connecting and running global retail, hospitality and digital banking. We believe it will enhance common solutions to drive innovation and boost operational efficiency. The digital commerce company is expected to also reinvest in the business to accelerate growth and recurring revenue. The ATM company is expected to be a cash-generative business positioned to focus on delivering ATM as a Service to a large, installed customer base across banks and retailers. We believe it will build on NCR's leadership in self-service banking and ATM networks to meet global demand for ATM access and leverage new ATM transaction types, including digital currency 40 -------------------------------------------------------------------------------- Table of Contents solutions, to drive market growth. The ATM company is expected to also continue shifting to a highly recurring revenue model to drive stable cash flow and capital returns to shareholders.
The separation is intended to be structured in a tax-free manner. The separation
transaction will follow the satisfaction of customary conditions, including
effectiveness of appropriate filings with the
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, foreign currency fluctuations, 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 and other factors, refer to Part I, Item 1A, "Risk Factors", of the Company's 2021 Form 10-K. For further information on exposures to foreign exchange risk, refer to Item 3, "Quantitative and Qualitative Disclosures about Market Risk", in this Form 10-Q. 41 -------------------------------------------------------------------------------- Table of Contents Results from Operations
For the three and nine months ended
Consolidated Results
The following tables show our results for the three and nine months ended
Three months ended September 30 Percentage of Revenue (1) Increase (Decrease)
In millions 2022 2021 2022 2021 2022 v 2021
Product revenue $ 590 $ 520 29.9 % 27.4 % 13 %
Service revenue 1,382 1,381 70.1 % 72.6 % - %
Total revenue 1,972 1,901 100.0 % 100.0 % 4 %
Product gross margin 66 91 11.2 % 17.5 % (27) %
Service gross margin 425 429 30.8 % 31.1 % (1) %
Total gross margin 491 520 24.9 % 27.4 % (6) %
Selling, general and administrative
expenses 264 294 13.4 % 15.5 % (10) %
Research and development expenses 40 69 2.0 % 3.6 % (42) %
Income from operations $ 187 $ 157 9.5 % 8.3 % 19 %
Nine months ended September 30 Percentage of Revenue (1) Increase (Decrease)
In millions 2022 2021 2022 2021 2022 v 2021
Product revenue $ 1,720 $ 1,553 29.5 % 30.3 % 11 %
Service revenue 4,115 3,569 70.5 % 69.7 % 15 %
Total revenue 5,835 5,122 100.0 % 100.0 % 14 %
Product gross margin 160 263 9.3 % 16.9 % (39) %
Service gross margin 1,213 1,127 29.5 % 31.6 % 8 %
Total gross margin 1,373 1,390 23.5 % 27.1 % (1) %
Selling, general and administrative
expenses 886 835 15.2 % 16.3 % 6 %
Research and development expenses 164 204 2.8 % 4.0 % (20) %
Income from operations $ 323 $ 351 5.5 % 6.9 % (8) %
(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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Key Strategic Financial Metrics
The following tables show our key strategic financial metrics for the three and
nine months ended
Recurring revenue as a percentage of total revenue
Three months ended September 30 Percentage of Total Revenue Increase (Decrease)
In millions 2022 2021 2022 2021 2022 v 2021
Recurring revenue (1) $ 1,222 $ 1,181 62.0 % 62.1 % 3 %
All other products and services 750 720 38.0 % 37.9 % 4 %
Total Revenue $ 1,972 $ 1,901 100 % 100 % 4 %
Nine months ended September 30 Percentage of Total Revenue Increase (Decrease)
In millions 2022 2021
2022 2021 2022 v 2021
Recurring revenue (1) $ 3,618 $ 2,984 62.0 % 58.3 % 21 %
All other products and services 2,217 2,138 38.0 % 41.7 % 4 %
Total Revenue $ 5,835 $ 5,122 100.0 % 100.0 % 14 %
(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, cryptocurrency-related 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 September 30 Percentage of Total Revenue Increase (Decrease)
In millions 2022 2021 2022 2021 2022 v 2021
Net income (loss) from continuing
operations attributable to NCR $ 69 $ 12 3.5 % 0.6 % 475 %
Adjusted EBITDA $ 380 $ 352 19.3 % 18.5 % 8 %
Nine months ended September 30 Percentage of Total Revenue Increase (Decrease)
In millions 2022 2021 2022 2021 2022 v 2021
Net income (loss) from continuing
operations attributable to NCR $ 71 $ 33 1.2 % 0.6 % 115 %
Adjusted EBITDA $ 990 $ 891 17.0 % 17.4 % 11 %
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.
Constant Currency NCR presents certain financial measures, such as
period-over-period revenue growth, on a constant currency basis, which excludes
the effects of foreign currency translation by translating prior period results
at current period monthly average exchange rates. Due to the overall variability
of foreign exchange rates from period to period, NCR's management uses constant
currency measures to evaluate period-over-period operating performance on a more
consistent and comparable basis. NCR's management believes that presentation of
financial measures without this result may contribute to an understanding of the
Company's period-over-period operating performance and provides additional
insight into historical and/or future performance, which may be helpful for
investors.
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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, 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 attributable to NCR (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 us to commence the orderly wind down of our operations in
Russia beginning in the first quarter of 2022. As of September 30, 2022 , we have
ceased operations in Russia and are in the process of dissolving our only
subsidiary in Russia . As a result, for the three and nine months ended September
30, 2022 , our non-GAAP presentation of the measures described above exclude the
immaterial 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 non-recurring 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 periods due to the immaterial impact
of Russia to revenue and income from continuing operations for the three and
nine months ended September 30, 2021 .
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 September 30 Nine months ended September 30
In millions 2022 2021 2022 2021
Net income (loss) from continuing operations
attributable to NCR (GAAP) $ 69 $ 12 $ 71 $ 33
Transformation and restructuring costs 17 5 93 20
Acquisition-related amortization of intangibles 44 45 130 88
Acquisition-related costs 1 9 9 92
Interest expense 74 68 204 174
Interest income (3) - (6) (4)
Depreciation and amortization (excluding
acquisition-related amortization of intangibles) 107 104 314 250
Income taxes 43 29 56 77
Stock-based compensation expense 28 38 97 119
Loss on debt extinguishment - 42 - 42
Russia - - 22 -
Adjusted EBITDA (non-GAAP) $ 380 $ 352 $ 990 $ 891
Revenue
Three months ended September 30 Percentage of Total Revenue Increase (Decrease)
In millions 2022 2021 2022 2021 2022 vs 2021
Product revenue $ 590 $ 520 29.9 % 27.4 % 13 %
Service revenue 1,382 1,381 70.1 % 72.6 % - %
Total revenue $ 1,972 $ 1,901 100.0 % 100.0 % 4 %
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Nine months ended September 30 Percentage of Total Revenue Increase (Decrease)
In millions 2022 2021 2022 2021 2022 vs 2021
Product revenue $ 1,720 $ 1,553 29.5 % 30.3 % 11 %
Service revenue 4,115 3,569 70.5 % 69.7 % 15 %
Total revenue $ 5,835 $ 5,122 100.0 % 100.0 % 14 %
Product revenue includes our hardware and software license revenue streams as
well as cryptocurrency-related revenues. 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 and nine months ended
Total revenue increased 4% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Foreign currency fluctuations had an unfavorable impact of 4% on the revenue comparison. Product revenue for the three months endedSeptember 30, 2022 increased 13% compared to the three months endedSeptember 30, 2021 due to growth in SCO, POS and ATM revenue as well as the addition of cryptocurrency revenue following the acquisition of LibertyX inJanuary 2022 , partially offset by a decline in software license revenue. Service revenue was flat for the three months endedSeptember 30, 2022 when compared to the prior year period due to increases in software maintenance and other software related services fully offset by a decline in hardware maintenance and professional services revenue. Total revenue increased 14% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Foreign currency fluctuations had an unfavorable impact of 4% on the revenue comparison. Product revenue for the nine months endedSeptember 30, 2022 increased 11% compared to the nine months endedSeptember 30, 2021 due to growth in POS and SCO revenue as well as the addition of cryptocurrency revenue following the acquisition of LibertyX inJanuary 2022 , partially offset by a slight decline in ATM revenue. Service revenue for the nine months endedSeptember 30, 2022 increased 15% compared to the nine months endedSeptember 30, 2021 due to growth in software maintenance and software related services, which includes the results of Cardtronics, partially offset by a decline in hardware maintenance revenue. Gross Margin Three months ended September 30 Percentage of Revenue (1) Increase (Decrease) In millions 2022 2021 2022 2021 2022 v 2021 Product gross margin$ 66 $ 91 11.2 % 17.5 % (27) % Service gross margin 425 429 30.8 % 31.1 % (1) % Total gross margin$ 491 $ 520 24.9 % 27.4 %
(6) %
(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 endedSeptember 30, 2022 was 24.9% compared to 27.4% in the three months endedSeptember 30, 2021 . Gross margin in the three months endedSeptember 30, 2022 included$8 million of transformation and restructuring costs and$27 million of amortization of acquisition-related intangible assets. Gross margin for the three months endedSeptember 30, 2021 included$3 million of transformation and restructuring costs and$23 million of amortization of acquisition-related intangible assets. Excluding these items, gross margin as a percentage of revenue decreased from 28.7% to 26.7% due to increases in fuel costs, component parts, and increased interest rates driving higher cost on vault cash agreements as well as other supply chain challenges that continued to negatively impact our costs as compared to the prior year. The impact of these cost increases were partially offset by cost mitigation actions implemented. 45
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Nine months ended September 30 Percentage of Revenue (1) Increase (Decrease)
In millions 2022 2021 2022 2021 2022 v 2021
Product gross margin $ 160 $ 263 9.3 % 16.9 % (39) %
Service gross margin 1,213 1,127 29.5 % 31.6 % 8 %
Total gross margin $ 1,373 $ 1,390 23.5 % 27.1 % (1) %
For the nine months ended
Gross margin as a percentage of revenue in the nine months endedSeptember 30, 2022 was 23.5% compared to 27.1% in the nine months endedSeptember 30, 2021 . Gross margin in the nine months endedSeptember 30, 2022 included$29 million of transformation and restructuring costs,$73 million of amortization of acquisition-related intangible assets,$1 million of acquisition-related costs, and$10 million related to operating losses, impairments and other actions taken with respect to our operations inRussia . Gross margin for the nine months endedSeptember 30, 2021 included$14 million of transformation and restructuring costs and$39 million of amortization of acquisition-related intangible assets. Excluding these items, gross margin as a percentage of revenue decreased from 28.2% to 25.5% due to increases in fuel costs, component parts, and increased interest rates driving higher cost on vault cash agreements as well as other supply chain challenges that negatively impacted our costs. The impact of these cost increases were partially offset by cost mitigation actions implemented and an increase in the favorable higher margin software and services revenue.
Selling, General and Administrative Expenses
Three months ended September 30 Percentage of Total Revenue Increase (Decrease)
In millions 2022 2021 2022 2021 2022 vs 2021
Selling, general and administrative
expenses $ 264 $ 294 13.4 % 15.5 % (10) %
For the three months ended
Selling, general, and administrative expenses were$264 million compared to$294 million in the three months endedSeptember 30, 2022 and 2021, respectively. As a percentage of revenue, selling, general and administrative expenses were 13.4% compared to 15.5% in the three months endedSeptember 30, 2022 and 2021, respectively. In the three months endedSeptember 30, 2022 , selling, general and administrative expenses included$8 million of transformation and restructuring costs,$17 million of amortization of acquisition-related intangible assets, and$1 million of acquisition-related costs. In the three months endedSeptember 30, 2021 , selling, general and administrative expenses included$2 million of transformation and restructuring costs,$22 million of amortization of acquisition-related intangible assets and$8 million of acquisition-related costs. Excluding these items, selling, general and administrative expenses decreased slightly as a percentage of revenue from 13.8% to 12.1% primarily due to cost mitigation actions implemented. Nine months ended September 30 Percentage of Total Revenue Increase (Decrease) In millions 2022 2021 2022 2021 2022 vs 2021 Selling, general and administrative expenses $ 886$ 835 15.2 % 16.3 % 6 %
For the nine months ended
Selling, general, and administrative expenses were$886 million compared to$835 million in the nine months endedSeptember 30, 2022 and 2021, respectively. As a percentage of revenue, selling, general and administrative expenses were 15.2% compared to 16.3% in the nine months endedSeptember 30, 2022 and 2021, respectively. In the nine months endedSeptember 30, 2022 , selling, general and administrative expenses included$54 million of transformation and restructuring costs,$57 million of amortization of acquisition-related intangible assets,$8 million of acquisition-related costs and$6 million of costs related to actions taken with respect to our operations inRussia . In the nine months endedSeptember 30, 2021 , selling, general and administrative expenses included$5 million of transformation and restructuring costs,$49 million of amortization of acquisition-related intangible assets, and$77 million of acquisition-related costs. Excluding these items, selling, general and administrative expenses decreased slightly as a percentage of revenue from 13.7% to 13.1%. 46 -------------------------------------------------------------------------------- Table of Contents Research and Development Expenses Three months ended September 30 Percentage of Total Revenue Increase (Decrease) In millions 2022 2021 2022 2021 2022 v 2021 Research and development expenses $ 40$ 69 2.0 % 3.6 % (42) %
For the three months ended
Research and development expenses were$40 million compared to$69 million in the three months endedSeptember 30, 2022 and 2021, respectively. As a percentage of revenue, these costs were 2.0% and 3.6% in the three months endedSeptember 30, 2022 and 2021, respectively, and were lower due to an increase in capitalization as well as cost-mitigation actions that were implemented. Nine months ended September 30 Percentage of Total Revenue Increase (Decrease) In millions 2022 2021 2022 2021 2022 v 2021 Research and development expenses $ 164$ 204 2.8 % 4.0 % (20) %
For the nine months ended
Research and development expenses were$164 million compared to$204 million in the nine months endedSeptember 30, 2022 and 2021, respectively. As a percentage of revenue, these costs were 2.8% and 4.0% in the nine months endedSeptember 30, 2022 and 2021, respectively. In the nine months endedSeptember 30, 2022 , research and development expenses included$10 million of transformation and restructuring costs. In the nine months endedSeptember 30, 2021 , research and development expenses included$1 million of transformation and restructuring costs. After considering this item, research and development expenses decreased as a percentage of revenue from 4.0% to 2.6%, respectively, and were lower due to an increase in capitalization in 2022 as well as cost-mitigation actions that were implemented. Loss on Debt Extinguishment Three months ended September 30 Nine months ended September 30 In millions 2022 2021 2022 2021 Loss on extinguishment of debt $ -$ 42 $ -$ 42 Loss on extinguishment of debt of$42 million for the the three and nine months endedSeptember 30, 2021 is related to the premium paid for early redemption of$400 million 8.125% senior secured notes due 2025, which includes the write-off of deferred financing fees of$5 million and a cash redemption premium of$37 million . Interest Expense Three months ended September 30 Increase (Decrease) In millions 2022 2021 2022 v 2021 Interest expense $ 74$ 68 9 %
For the three months ended
Interest expense was$74 million compared to$68 million in the three months endedSeptember 30, 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 interest rates on the Senior Secured Credit Facility and slightly higher average outstanding principal balances. 47
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Nine months ended September 30 Increase (Decrease)
In millions 2022 2021 2022 v 2021
Interest expense $ 204 $ 174 17 %
For the nine months ended
Interest expense was$204 million compared to$174 million in the nine months endedSeptember 30, 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, combined with an increase in interest rates on the Senior Secured Credit Facility.
Other Income (Expense), net
Other income (expense), net was expense of$1 million and$5 million in the three months endedSeptember 30, 2022 and 2021, respectively, and income of$9 million and expense of$23 million in the nine months endedSeptember 30, 2022 and 2021, respectively, with the components reflected in the following table: Three months ended September 30 Nine months ended September 30 In millions 2022 2021 2022 2021 Interest income $ 3 $ - $ 6$ 4 Foreign currency fluctuations and foreign exchange contracts (13) (5) (20) (12) Bank-related fees (3) (4) (8) (25) Employee benefit plans 10 3 31 9 Other, net 2 1 - 1 Other income (expense), net $ (1) $
(5) $ 9
Employee benefit plans within Other income (expense), net includes the components of pension, postemployment and postretirement expense, other than service cost. The increase in Employee benefit plans in 2022 compared to the prior year period is primarily related to actuarial gains related to the pension plans that are being amortized throughout the year. In the nine months endedSeptember 30, 2021 , the Company incurred bank-related fees of$19 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 September 30 Nine months ended September 30
In millions 2022 2021 2022 2021
Income tax expense (benefit) $ 43 $ 29 $ 56 $ 77 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$43 million for the three months endedSeptember 30, 2022 compared to$29 million income tax expense for the three months endedSeptember 30, 2021 . The change was primarily driven by higher income before taxes in the three months endedSeptember 30, 2022 , compared to the prior year. The company did not recognize any material discrete tax expenses or benefits in either period. . For the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 Income tax expense was$56 million for the nine months endedSeptember 30, 2022 compared to expense of$77 million for the nine months endedSeptember 30, 2021 . The change was primarily driven by discrete tax expenses and benefits. In the nine months endedSeptember 30, 2022 , the Company recognized a$7 million benefit from provision to return adjustments and a$7 million benefit related to uncertain tax position settlements and statute of limitation lapses. In the nine months ended September 48 -------------------------------------------------------------------------------- Table of Contents 30, 2021, the Company recognized a$34 million expense from recording a valuation allowance against interest limitation carryforwards in theU.S. and a$14 million benefit from the deferred tax impact of a tax law change in theU.K. 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.
Income (Loss) from Discontinued Operations
There was no activity related to discontinued operations for the three months endedSeptember 30, 2022 , whereas the Company recognized income from discontinued operations, net of tax, of$5 million in the nine months endedSeptember 30, 2022 . The income from discontinued operations, net of tax, was primarily driven by insurance recoveries partially offset by immaterial updates to various environmental remediation matters. In the three and nine months endedSeptember 30, 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: Retail, Hospitality, Digital Banking, Payments & Network, and Self-Service Banking. 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 commence the orderly wind down of our operations inRussia beginning in the first quarter of 2022. As ofSeptember 30, 2022 , we have ceased operations inRussia and are in the process of dissolving our only subsidiary inRussia . As a result, for the three and nine months endedSeptember 30, 2022 , our non-GAAP presentation of the measures described above exclude the immaterial 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 non-recurring 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 periods due to the immaterial impact ofRussia to revenue and income from continuing operations for the three and nine months endedSeptember 30, 2021 . 49
-------------------------------------------------------------------------------- Table of Contents The following tables show our segment revenue and Adjusted EBITDA for the three and nine months endedSeptember 30 , the relative percentage that those amounts represent to segment revenue, and the change in those amounts year-over-year. Three months ended September Increase Increase (Decrease) 30 Percentage of Revenue (1) (Decrease) Constant Currency In millions 2022 2021 2022 2021 2022 v 2021 2022 v 2021 Revenue Retail$ 575 $ 541 29.2 % 28.5 % 6 % 12 % Hospitality 238 224 12.1 % 11.8 % 6 % 8 % Digital Banking 137 128 6.9 % 6.7 % 7 % 7 % Payments & Network 336 304 17.0 % 16.0 % 11 % 14 % Self-Service Banking 640 637 32.5 % 33.5 % - % 6 % Other 58 75 2.9 % 3.9 % (23) % (18) % Eliminations (2) (12) (8) (0.6) % (0.4) % 50 % 50 % Total segment revenue$ 1,972 $ 1,901 100.0 % 100 % 4 % 8 % Total revenue$ 1,972 $ 1,901 4 % 8 % Adjusted EBITDA by Segment Retail$ 128 $ 104 22.3 % 19.2 % 23 % Hospitality 51 44 21.4 % 19.6 % 16 % Digital Banking 60 52 43.8 % 40.6 % 15 % Payments & Network 114 111 33.9 % 36.5 % 3 % Self-Service Banking 150 155 23.4 % 24.3 % (3) % Corporate and Other (112) (109) (193.1) % (145.3) % 3 % Eliminations (2) (11) (5) 91.7 % 62.5 % 120 % Total Adjusted EBITDA$ 380 $ 352 19.3 % 18.5 % 8 % (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 include 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. 50
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Nine months ended September Increase Increase (Decrease)
30 Percentage of Revenue (1) (Decrease) Constant Currency
In millions 2022 2021 2022 2021 2022 v 2021 2022 v 2021
Revenue
Retail $ 1,683 $ 1,623 28.9 % 31.7 % 4 % 8 %
Hospitality 687 618 11.8 % 12.1 % 11 % 12 %
Digital Banking 404 380 6.9 % 7.4 % 6 % 6 %
Payments & Network 967 380 16.6 % 7.4 % 154 % 162 %
Self-Service Banking 1,930 1,910 33.1 % 37.3 % 1 % 5 %
Other 187 229 3.2 % 4.5 % (18) % (15) %
Eliminations (2) (32) (18) (0.5) % (0.4) % 78 % 78 %
Total segment revenue $ 5,826 $ 5,122 100 % 100.0 % 14 % 17 %
Other adjustment (3) 9 -
Total revenue $ 5,835 $ 5,122 14 % 18 %
Adjusted EBITDA by Segment
Retail $ 299 $ 323 17.8 % 19.9 % (7) %
Hospitality 138 119 20.1 % 19.3 % 16 %
Digital Banking 172 161 42.6 % 42.4 % 7 %
Payments & Network 309 133 32.0 % 35.0 % 132 %
Self-Service Banking 404 432 20.9 % 22.6 % (6) %
Corporate and Other (307) (265) (164.2) % (115.7) % 16 %
Eliminations (2) (25) (12) 78.1 % 66.7 % 108 %
Total Adjusted EBITDA $ 990 $ 891 17.0 % 17.4 % 11 %
(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 include 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 in Russia that were excluded from management's measure of revenue due
to our announcement to suspend sales to Russia and anticipated orderly wind down
of our operations in Russia . The revenue attributable to the Russian operations
for the prior period of $33 million is included in the respective segments.
The following table provides a reconciliation of segment and total revenue
percentage growth (GAAP) to revenue percentage growth constant currency
(non-GAAP) for the three and nine months ended
Three months ended September 30, 2022 Nine
months ended
Favorable Revenue Growth % Favorable Revenue Growth %
Revenue Growth (Unfavorable) FX Constant Currency Revenue Growth (Unfavorable) FX Constant Currency
$ in millions % (GAAP) Impact (non-GAAP) % (GAAP) Impact (non-GAAP)
Retail 6 % (6) % 12 % 4 % (4) % 8 %
Hospitality 6 % (2) % 8 % 11 % (1) % 12 %
Digital Banking 7 % - % 7 % 6 % - % 6 %
Payments & Network 11 % (3) % 14 % 154 % (8) % 162 %
Self-Service Banking - % (6) % 6 % 1 % (4) % 5 %
Other (23) % (5) % (18) % (18) % (3) % (15) %
Eliminations 50 % - % 50 % 78 % - % 78 %
Total segment revenue 4 % (4) % 8 % 14 % (3) % 17 %
Total revenue 4 % (4) % 8 % 14 % (4) % 18 %
51-------------------------------------------------------------------------------- Table of Contents Segment Revenue
For the three and nine months ended
Retail revenue increased 6% for the three months endedSeptember 30, 2022 compared to the prior year period and increased 4% for the nine months endedSeptember 30, 2022 compared to the prior year period. Foreign currency fluctuations had an unfavorable impact of 6% and 4% on the three and nine month revenue comparisons, respectively. Revenue results for the quarter-to-date period were primarily due to higher self checkout hardware and point-of-sale solutions revenue partially offset by a decrease in software license, point-of-sale hardware, and hardware maintenance revenue. For the nine months endedSeptember 30, 2022 , the increase in revenue compared to the prior period is due to an increase in self checkout and point-of-sale hardware revenue and an increase in point-of-sale solutions revenue partially offset by a decrease in software license and hardware maintenance revenue.
Hospitality revenue increased 6% and 11% for the three and nine months ended
Digital Banking revenue increased 7% and 6% for the three and nine months endedSeptember 30, 2022 , respectively, compared to the prior year periods, due to an increase in software license and cloud services revenues. Payments & Network revenue increased 11% for the three months endedSeptember 30, 2022 and increased significantly for the nine months endedSeptember 30, 2022 compared to the prior year periods. For the three months endedSeptember 30, 2022 , the increase in revenue compared to the prior year period is due to cryptocurrency transaction processing revenue following the acquisition of LibertyX inJanuary 2022 as well as additional payments processing revenue. For the nine months endedSeptember 30, 2022 , the revenue increase is primarily due to additional payments processing revenue from the acquisition of Cardtronics, which occurred onJune 21, 2021 . Additionally, the nine months endedSeptember 30, 2022 includes cryptocurrency transaction processing revenue following the acquisition of LibertyX inJanuary 2022 . Self-Service Banking revenue growth was flat for the three months endedSeptember 30, 2022 and increased 1% for nine months endedSeptember 30, 2022 , compared to the prior year periods. Foreign currency fluctuations had an unfavorable impact of 6% and 4% on the three and nine month revenue comparisons, respectively. For the three months endedSeptember 30, 2022 , increases in ATM hardware revenue compared to the prior year period were fully offset by declines in software related revenues. For the nine months endedSeptember 30, 2022 , the increase in revenue compared to prior year period is due to an increase in services revenues, including hardware maintenance and professional services partially offset by a decline in ATM hardware sales. The decline in ATM hardware sales for the year-to-date period was due in part to supply chain challenges that resulted in temporary order fulfillment delays during the first quarter of 2022. Software and services revenue as a percent of total Self-Service Banking segment revenue was 69% in the third quarter of 2022 and 2021. For the operations grouped as Other, revenue decreased 23% and 18% for the three and nine months endedSeptember 30, 2022 , respectively, compared to the prior year period, primarily due to a decrease in hardware maintenance revenue in the telecommunications and technology business.
Segment Adjusted EBITDA
For the three and nine months ended
Retail Adjusted EBITDA increased 23% and declined 7% for the three and nine months endedSeptember 30, 2022 , respectively, compared to the prior year period. The increase in Adjusted EBITDA for the three months endedSeptember 30, 2022 compared to the prior year period is primarily due to cost mitigation and pricing actions as well as product mix during the quarter. For the nine months endedSeptember 30, 2022 , the decline in Adjusted EBITDA compared to the prior year period is primarily driven by product cost and mix, increased labor costs, and other supply chain challenges. Hospitality Adjusted EBITDA increased 16% for the three and nine months endedSeptember 30, 2022 , respectively, compared to the prior year period, primarily driven by an increase in 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. 52
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Digital Banking Adjusted EBITDA increased 15% and 7% for the three and nine
months ended
Payments & Network Adjusted EBITDA increased by 3% for the three months endedSeptember 30, 2022 whereas it increased significantly for the nine months endedSeptember 30, 2022 compared to the prior year period. This was primarily due to additional payments processing revenue from the acquisition of Cardtronics, which occurred in the second quarter of 2021. Payments & Network Adjusted EBITDA for the three and nine months endedSeptember 30, 2022 has been negatively impacted by higher interest rates, which increases the cost of our vault cash rental obligations. Self-Service Banking Adjusted EBITDA declined 3% and 6% for the three and nine months endedSeptember 30, 2022 , respectively, compared to the prior year period. The decrease in Adjusted EBITDA for the three and nine months endedSeptember 30, 2022 compared to the prior year period was 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. Corporate and Other Adjusted EBITDA loss increased 3% and 16% for the three and nine months endedSeptember 30, 2022 , respectively, compared to the prior year period, primarily due to infrastructure costs of the Cardtronics business that was acquired onJune 21, 2021 .
Financial Condition, Liquidity, and Capital Resources
Cash provided by operating activities was$245 million in the nine months endedSeptember 30, 2022 compared to cash provided by operating activities of$807 million in the nine months endedSeptember 30, 2021 . The decrease in cash provided by operating activities in the nine months endedSeptember 30, 2022 was driven by the unfavorable movement in net working capital accounts, partially offset by cash received upon termination of interest rate swap contracts in the first and second quarters of 2022. Additionally, cash provided by operating activities in the nine months endedSeptember 30, 2021 reflects the agreement entered into during the third quarter of 2021 to sell short-term receivables from certain trade accounts to an unaffiliated financial institution, which provided a$274 million benefit to operating cash flows. Refer to Note 6, "Trade Receivables Facility", of the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Report for more information. 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 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. 53
-------------------------------------------------------------------------------- Table of Contents The table below reconciles net cash provided by operating activities to NCR's non-GAAP measure of free cash flow for the nine months endedSeptember 30, 2022 : Nine months ended September 30 In millions 2022 2021 Net cash provided by operating activities $ 245$ 807 Expenditures for property, plant and equipment (72) (68) Additions to capitalized software (217) (174) Restricted cash settlement activity (6) 1 Transaction costs - 55 Initial sale of trade accounts receivable - (274) Pension contributions 12 13 Free cash flow (non-GAAP) $ (38)$ 360 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 nine months endedSeptember 30, 2022 , the payments for business combinations totaled$12 million , net of cash acquired, for the cash consideration paid primarily related to the acquisition of the India ATM Business ofFIS Payment Solutions & Services Private Limited completed in July of 2022 and the LibertyX acquisition completed in January of 2022. The LibertyX acquisition was completed via issuance of NCR common stock in exchange for the outstanding shares of LibertyX. During the nine months endedSeptember 30, 2021 , the payments for business acquisitions was$2,466 million , mainly related to the acquisition of Cardtronics completed in the second quarter of 2021. Our financing activities include borrowings and repayments of credit facilities and notes. Financing activities during the nine months endedSeptember 30, 2022 also included dividends paid on the Series A preferred stock of$11 million , proceeds from employee stock plans of$19 million as well as tax withholding payments on behalf of employees for stock based awards that vested of$38 million . Financing activities during the nine months endedSeptember 30, 2021 included dividends paid on the Series A preferred stock of$11 million , proceeds from stock employee plans of$33 million , and tax withholding payments on behalf of employees for stock based awards that vested of$28 million . During the nine months endedSeptember 30, 2021 , in connection with the acquisition of Cardtronics, we issued new senior unsecured notes for an aggregate principal amount of$1.2 billion and amended and restated the Senior Secured Credit Facility to add an incremental term loan for$1.505 billion , of which$200 million converted into the Revolving Credit Facility. Additionally, we paid$52 million of deferred financing fees related to these transactions. Long Term Borrowings The Senior Secured Credit Facility consists of term loan facilities in an aggregate principal amount of$2.055 billion , of which$1.91 billion was outstanding as ofSeptember 30, 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$558 million was outstanding as ofSeptember 30, 2022 . The Revolving Credit Facility also contains a sub-facility to be used for letters of credit, and as ofSeptember 30, 2022 , there were$24 million letters of credit outstanding. As ofSeptember 30, 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,$80 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 ofSeptember 30, 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 54 -------------------------------------------------------------------------------- Table of Contents the option of the Company. During the nine months endedSeptember 30, 2022 and 2021, the Company paid cash dividends of$11 million , respectively. 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 ofSeptember 30, 2022 andDecember 31, 2021 , the maximum number of common shares that 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 atSeptember 30, 2022 andDecember 31, 2021 were$328 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 ofSeptember 30, 2022 , our cash and cash equivalents totaled$434 million and our total debt was$5.77 billion , excluding deferred fees. As ofSeptember 30, 2022 , our borrowing capacity under the Revolving Credit Facility was approximately$718 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 and restructuring initiatives, and in the long-term (i.e., beyondSeptember 30, 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," "planned," "likely," "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
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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;
•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
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
•Planned Separation: an unexpected failure to complete, or unexpected delays in
completing, the necessary actions for the planned separation, or to obtain the
necessary approvals to complete these actions; that the potential strategic
benefits, synergies or opportunities expected from the separation may not be
realized or may take longer to realize than expected; costs of implementation of
the separation and any changes to the configuration of businesses included in
the separation if implemented; the potential inability to access or reduced
access to the capital markets or increased cost of borrowings, including as a
result of a credit rating downgrade; the potential adverse reactions to the
planned separation by customers, suppliers, strategic partners or key personnel
and potential difficulties in maintaining relationships with such persons and
risks associated with third party contracts containing consent and/or other
provisions that may be triggered by the planned separation; the risk that any
newly formed entity to house the digital commerce or ATM business would have no
credit rating and may not have access to the capital markets on acceptable
terms; unforeseen tax liabilities or changes in tax law; requests or
requirements of governmental authorities related to certain existing
liabilities; and the ability to obtain or consummate financing or refinancing
related to the transaction upon acceptable terms or at all.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those set forth in the forward-looking statements. There can be no guarantee
that the planned separation will be completed in the expected form or within the
expected time frame or at all. Nor can there be any guarantee that the digital
commerce business and ATM business after a separation will be able to realize
any of the potential strategic benefits, synergies or opportunities as a result
of these actions. Neither can there be any guarantee that shareholders will
achieve any particular level of shareholder returns. Nor can there be any
guarantee that the planned separation will enhance value for shareholders, or
that NCR or any of its divisions, or separate digital commerce and ATM business,
will be commercially successful in the future, or achieve any particular credit
rating or financial results. Additional information concerning these and other
factors can be found in the Company's filings with the U.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 . 56
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