Slide 1: Q4 2014 Earnings Conference Call
1 Q4 2014 EARNINGS CONFERENCE CALL BILL NUTI, CHAIRMAN AND CEO BOB FISHMAN, CFO February 10, 2015
Slide 2: Notes to Investors: Forward-Looking Statements
2 NOTES TO INVESTORS FORWARD-LOOKING STATEMENTS. Comments made during this conference call and in these materials contain forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that describe or relate to NCR's future plans, goals, intention
Slide 3: Q4 2014 Financial Results
3 Q4 2014 FINANCIAL RESULTS REVENUE Q4 2013 Q4 2014 $1.67 billion Up 6% y/y / Up 11% constant currency Organic revenue up 5% constant currency Recurring revenue up 13%, 39% of total OPERATIONAL GROSS MARGIN Q4 2013 Q4 2014 29.0% 30.2% Up 120 bps y/y; up 10 bps y/y organically NPOI NPOI up 14% y/y; o
Slide 4: FY 2014 Financial Results
4 FY 2014 FINANCIAL RESULTS REVENUE FY 2013 FY 2014 $6.12 billion Up 8% y/y / Up 10% constant currency Organic revenue up 4% constant currency Recurring revenue up 19%, 41% of total OPERATIONAL GROSS MARGIN FY 2013 FY 2014 28.5% 29.5% Up 100 bps y/y; down 30 bps y/y organically NPOI NPOI up 14% y/y;
Slide 5: Software-Related Revenue Growth
5 SOFTWARE-RELATED REVENUE GROWTH Q4 2014 Q4 2013 $39 Q4 • Q4 Software-related revenue up 32% y/y; up 8% excluding Digital Insight • Q4 Professional Services revenue up 5% y/y • Q4 Cloud revenue up 231% y/y; up 15% excluding Digital Insight $477 Cloud Professional Services SW Licenses & SW Maintenan
Slide 6: Software-Related Revenue Positively Impacting Margins
6 ($ in Millions) $6,123 SOFTWARE-RELATED REVENUE POSITIVELY IMPACTING MARGINS $5,730 $6,591 Operational Gross Margin 23.5% 24.9% 26.8% 28.5% 29.5% Up 600bp from 2010 $5,291 $4,711 Software-Related Revenue Hardware Revenue Other Services Revenue (Hardware Maintenance, Transaction Services) FY 2010 F
Slide 7: 2014 Summary
7 2014 SUMMARY Financial Services Transformation • Improved margins via software and cloud expansion • Customer Experience Software Platform, CxP, our multichannel software architecture gaining momentum Software and Cloud • Further expansion of higher margin revenues • NCR is a top 100 software comp
Slide 8: 2015: The Year Ahead
8 2015: THE YEAR AHEAD Deliver market leading solutions that power consumer transactions today and tomorrow Continue to innovate and deliver value to customers Growth Driven by Innovation Software & Cloud Key Initiatives Build high performing global sales force backed by leading services delivery St
Slide 9: Q4 & Full-Year Operational Results
9 For the Periods Ended December 31 Three Months Twelve Months 2014 2013 % Change 2014 2013 % Change Revenue $1,768 $1,670 6% (1) / 11%(2) $6,591 $6,123 8%(1) / 10%(2) Excluding Digital Insight 1,675 1,670 — % (1) / 5 % (2) 6,242 6,123 2 % (1) / 4 % (2) Operational Gross Margin 534 484 10% 1,942 1,7
Slide 10: Q4 & Full-Year GAAP Results
10 Revenue $1,768 $1,670 6% $6,591 $6,123 8% Gross Margin (1) 432 530 (18)% 1,732 1,740 —% Gross Margin Rate 24.4% 31.7% 26.3% 28.4% Expenses (1) 397 233 70% 1,379 1,074 28% % of Revenue 22.5% 14.0% 20.9% 17.5% Income from Operations (1) 35 297 (88)% 353 666 (47)% % of Revenue 2.0% 17.8% 5.4% 10.9%
Slide 11: Restructuring Update
11 RESTRUCTURING UPDATE ▪ Expected savings of ~$18M in 2014, ~$70M in 2015 and ~$105M in 2016 with ~50% of the savings benefiting NPOI in each year ▪ Income statement charge of $200M to $225M in 2014 and 2015; $163M recorded in 2014 ▪ Cash impact of $100M to $115M in 2014 and 2015; $29M paid in 2014
Slide 12: Q4 & Full-Year Revenue by Segment
12 Q4 & FULL-YEAR REVENUE BY SEGMENT Financial Services $968 $852 14 % 20 % $3,561 $3,115 14% 17% Excluding Digital Insight $875 $852 3 % 9 % $3,212 $3,115 3% 6% Retail Solutions 526 536 (2)% 2 % 2,008 2,034 (1)% —% Hospitality 172 176 (2)% (1)% 659 626 5 % 6% Emerging Industries 102 106 (4)% (1)% 3
Slide 13: Q4 & Full-Year Operating Income by Segment
13 Q4 & FULL-YEAR OPERATING INCOME BY SEGMENT Financial Services (FS) $159 $111 $543 $356 % of Financial Services Revenue 16.4% 13.0% 15.2% 11.4% FS Excluding Digital Insight 132 111 439 356 % of FS Revenue Excluding Digital Insight 15.1 % 13.0 % 13.7 % 11.4 % Retail Solutions 47 65 155 205 % of Ret
Slide 14: Financial Services Q4 2014 Update
14 FINANCIAL SERVICES Q4 2014 Update Key MetricsFinancial Results Revenue Reported Constant Currency $968M Operating Income $159M +14% y/y +43% y/y • Organic orders down 11% driven by y/y declines in Russia, China, Americas and FX impact • Backlog up 1% affected by Russia, China, and FX impact offse
Slide 15: Retail Solutions Q4 2014 Update
15 ▪ Orders down 16% y/y driven by challenges in Tier I hardware offset by software-related growth in North America. Backlog, adjusted for a Q4 customer order cancellation, down 6% ▪ Q4 revenue and operating margin as expected, impacted by redirected IT spend and delays in customer rollouts; Revenue
Slide 16: Hospitality Q4 2014 Update
16 ▪ Total revenue lower y/y due to decreased spend by certain global quick service restaurants ▪ Software-related revenue up 17% ▪ Cloud revenue up 19% ▪ Cloud application sites up 16% y/y ▪ Operating income increased due to favorable mix, driven by growth in software-related revenues Financial Res
Slide 17: Emerging Industries Q4 2014 Update
17 EMERGING INDUSTRIES Q4 2014 Update Telecom & Technology ▪ Base expansion wins in new portfolios: Advanced and Managed Services ▪ Added two new Telecom expansion accounts ▪ Launched strategic partnership to deliver next-gen security solution Travel ▪ Delivered a record 37M mobile airline boarding
Slide 18: Q4 Supplemental Revenue Information
18 Q4 SUPPLEMENTAL REVENUE INFORMATION For the Periods Ended December 31 Three Months Twelve Months 2014 2013 % Change % Change (Constant Currency) 2014 2013 % Change % Change (Constant Currency) Cloud $129 $39 231% 233% $492 $145 239% 240% Excluding Digital Insight 45 39 15% 17% 167 145 15% 16% Sof
Slide 19: Free Cash Flow
19 FREE CASH FLOW Cash Provided by Operating Activities (1) $289 $265 $595 - $625 $524 $281 Net capital expenditures (61) (71) (215) - (235) (258) (226) Cash Used In Discontinued Operations (29) (1) (35) (1) (52) Pension discretionary contributions and settlements 30 124 — 48 204 Free Cash Flow $229
Slide 20: Free Cash Flow Generation
20 FREE CASH FLOW GENERATION 2015e 2014 2013 Free Cash Flow (FCF) $325 - $375 $313 $207 plus: Pension 35 39 79 plus: Discontinued Ops 35 1 52 plus: Acquisition-related costs 10 28 43 plus: Restructuring plan 70 - 85 29 — Adjusted FCF ~$490 - $525 $410 $381 Adjusted FCF as a % of non-GAAP net income
Slide 21: Working Capital Metrics
21 WORKING CAPITAL METRICS Q4 2014 Q4 2013 Accounts Receivable $1,404 $1,339 Days Sales Outstanding 71 72 Inventory $669 $790 Days on Hand 45 62 Accounts Payable $712 $670 Days Payable Outstanding 48 53 Deferred Revenue $494 $525 Working Capital $867 $934 % of last 12 months revenue 13.2% 15.3% Cash
Slide 22: Net Debt & EBITDA Metrics
22 NET DEBT & EBITDA METRICS Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Debt $3,354 $3,949 $3,923 $3,745 $3,659 Cash 528 515 483 424 511 Net Debt $2,826 $3,434 $3,440 $3,321 $3,148 Adjusted EBITDA $870 $904 (1) $941 (1) $963 (1) $1,000 Net Debt / Adjusted EBITDA 3.2x 3.8x 3.7x 3.4x 3.1x $ in millions,
Slide 23: Pension Update
23 PENSION UPDATE 2011 2012 2013 2014 2015e Pension Assets $4.7B $5.2B $5.0B $4.2B Pension Liability $6.1B $5.7B $5.1B $4.4B Pension Funded Status(1) $(1.4B) $(0.5B) $(0.1B) $(0.2B) Pension Contributions(2) $125M $152M $79M $39M $35M Pension Expense (Benefit)(3) $582M $(224M) $(78M) $152M $4M (1) Th
Slide 24: FY 2015 Guidance
24 2015 Guidance 2014 Revenue $6,525 - $6,675 (1) $6,591 Year-over-Year Revenue Growth (1%) to 1% (1) 8% Constant Currency Year-Over-Year Revenue Growth 4% to 6% 10% Income from Operations (GAAP)(2) $625 - $690 $353 Non-Pension Operating Income (NPOI) $830 - $870 $820 Adjusted EBITDA $1,046 - $1,086
Slide 25: 2015 Segment Revenue Guidance
25 2015 SEGMENT REVENUE GUIDANCE Segment 2015e 2015e Constant Currency FY 2014 Financial Services (2%) to 0% 3% to 5% $3,561 Retail Solutions (1%) to 1% 4% to 6% $2,008 Hospitality 3% to 7% 5% to 9% $659 Emerging Industries (6%) to (1%) (2%) to 3% $363 Total (1%) to 1% 4% to 6% $6,591 $ in millions
Slide 26: Q1 2015 Guidance
26 Q1 2015 GUIDANCE Q1 2015e Q1 2014 Income from Operations (GAAP) $90 - $100 (1) $108 Non-Pension Operating Income (Non-GAAP) $140 - $150 (2) $155 Tax rate 23% 17% Other expense ~$55 $50 $ millions (1) Includes an estimated pre-tax charge of $15M related to the ongoing restructuring plan in Q1 2015
Slide 27: Q4 and FY 2014 Summary
27 Q4 AND FY 2014 SUMMARY • Q4 and FY 2014 results in-line with revised outlook • Strong y/y expansion of software, cloud and recurring revenues • Financial Services delivered a strong quarter and year • Balanced geographic performance • Branch Transformation solutions winning share and driving reta
Slide 28: Supplementary Non-GAAP Materials
SUPPLEMENTARY NON-GAAP MATERIALS
Slide 29: Non-GAAP Measures
29 NON-GAAP MEASURES While NCR reports its results in accordance with generally accepted accounting principles (GAAP) in the United States, comments made during this conference call and in these materials will include non-GAAP measures. These measures are included to provide additional useful inform
Slide 30: Non-GAAP Measures: Adjusted EBITDA
30 NON-GAAP MEASURES Adjusted EBITDA. NCR believes that Adjusted EBITDA (adjusted earnings before interest, taxes, depreciation and amortization) provides useful information to investors because it is an indicator of the strength and performance of the Company's ongoing business operations, includin
Slide 31: Income from Operations to NPOI and Adjusted EBITDA
31 Income from Operations (GAAP) to Non-Pension Operating Income (non-GAAP) and Adjusted EBITDA (non-GAAP) in millions FY 2013 Q1 2014 LTM Q2 2014 LTM Q3 2014 LTM FY 2014 FY 2015e Q1 2015e Q1 2014 Income from Operations (GAAP) $666 $689 $719 $615 $353 $625 -$690 $90 - $100 $108 Pension Expense (Bene
Slide 32: Q4 2014 GAAP to Non-GAAP Reconciliation
32 in millions (except per share amounts) Q4 QTD 2014 GAAP Restructuring plan Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Pension (expense) benefit Q4 QTD 2014 non-GAAP Product revenue $815 $
Slide 33: FY 2014 GAAP to Non-GAAP Reconciliation
33 in millions (except per share amounts) FY 2014 GAAP Restructuring plan Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Pension (expense) benefit FY 2014 non-GAAP Product revenue $2,892 — — — —
Slide 34: Q4 2013 GAAP to Non-GAAP Reconciliation
34 in millions (except per share amounts) Q4 QTD 2013 GAAP Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Japan valuation reserve release Pension (expense) benefit Q4 QTD 2013 non-GAAP Product r
Slide 35: FY 2013 GAAP to Non-GAAP Reconciliation
35 in millions (except per share amounts) FY 2013 GAAP Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Japan valuation reserve release Pension (expense) benefit FY 2013 non-GAAP Product revenue $
Slide 36: GAAP to Non-GAAP Reconciliation FY 2015e Diluted EPS
36 GAAP TO NON-GAAP RECONCILIATION FY 2015e Diluted EPS (GAAP) $1.80 - $2.10 Pension Expense (Benefit) 0.01 Restructuring Plan 0.18 - 0.28 Acquisition-Related Costs 0.04 Acquisition-Related Amortization of Intangibles 0.47 Acquisition-Related Purchase Price Adjustment — OFAC and FCPA Investigations(
Slide 37: GAAP to Non-GAAP Reconciliations: Operational Gross Margin Rate
37 GAAP TO NON-GAAP RECONCILIATIONS FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Gross Margin as a % of Revenue (GAAP) 22.9% 18% 28.7% 28.4% 26.3% Pension expense (benefit) 0.6% 6.8% (2.2)% (0.7)% 1.3% Restructuring plan - - - - 0.8% Acquisition-related purchase price adjustments - - - 0.2% 0.1% Acquisit
Slide 38: GAAP to Non-GAAP Reconciliations: Constant Currency Revenue Growth
38 GAAP TO NON-GAAP RECONCILIATIONS Revenue Growth % (GAAP) to Revenue Growth % on a Constant Currency Basis (non-GAAP) Q4 2014 FY 2014 Revenue Growth % (GAAP) 6% 8% Unfavorable foreign currency fluctuation impact 5% 2% Revenue Growth % on a Constant Currency Basis (non-GAAP) 11% 10%
Slide 39: 39
39