Slide 1: Q2 2014 Earnings Conference Call
1 Q2 2014 EARNINGS CONFERENCE CALL BILL NUTI, CHAIRMAN AND CEO JOHN BRUNO, EVP BOB FISHMAN, CFO July 29, 2014
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, intentions
Slide 3: Q2 2014 Financial Highlights
3 Q2 2014 FINANCIAL HIGHLIGHTS (1) Post AT&T Spin-off, excluding Teradata. (2) NPOI as a percentage of revenue. REVENUE Q2 2013 Q2 2014 $1.54 billion Up 8% y/y / Up 9% constant currency Recurring revenue up 21%, 42% of total OPERATIONAL GROSS MARGIN Q2 2013 Q2 2014 28.9% 30.0% All-time high operatio
Slide 4: Strong Software-Related Revenue Growth
4 STRONG SOFTWARE-RELATED REVENUE GROWTH Q2 2014 Q2 2013 $36 Q2 • Q2 Software-related revenues up 42% y/y; up 15% excluding Digital Insight • Q2 Professional Services revenue up 20% y/y • Q2 SaaS revenue up 247% y/y; up 17% excluding Digital Insight $446 SaaS Professional Services SW Licenses & SW M
Slide 5: Software-Related Revenue Positively Impacting Margins
5 ($ in Millions) $5,730 $6,750 - $6,850 SOFTWARE-RELATED REVENUE POSITIVELY IMPACTING MARGINS $5,291 $6,123 Operational Gross Margin 22.0% 23.5% 24.9% 26.8% 28.5% ~31% ~900bp from 2009 $4,711 $4,579 Software-Related Revenue Hardware Revenue Other Services Revenue (Hardware Maintenance, Transaction
Slide 6: Aligning Resources for the New NCR
6 ALIGNING RESOURCES FOR THE NEW NCR Next Step Implementing a restructuring plan to strategically reallocate resources to our highest growth, highest margin revenue streams The timing is right to realign our resources with the new NCR, now that we have the operational assets we need for our future E
Slide 7: Key Restructuring Initiatives
7 KEY RESTRUCTURING INITIATIVES ▪ Expected annualized savings reaching ~$90M by 2016 ▪ Income statement charge of ~$150M to ~$200M, with majority in Q3 2014 and the remainder in Q4 2014 and 2015 ▪ Cash impact of ~$50M in 2014 and ~$50M in 2015 Moving lower productivity Services positions to our new
Slide 8: Financial Services Q2 2014 Update
8 FINANCIAL SERVICES Q2 2014 Update Performance HighlightsFinancial Highlights Revenue $900M Operating Income $137M +15% y/y +44% y/y ▪ Excluding Digital Insight, order growth of 14% driven by North America and Europe, small & mid- sized banks, software and Branch Transformation ▪ Backlog up 17%, du
Slide 9: Update: Digital Insight Acquisition
9 UPDATE: DIGITAL INSIGHT ACQUISITION Creates one of the most powerful FinTech companies with the most comprehensive suite of retail banking solutions ▪ Uniquely positions NCR software within the FinTech industry with an end-to-end technology platform for seamless banking services across both physic
Slide 10: Retail Solutions Q2 2014 Update
10 ▪ Orders up 11% driven by Europe and AMEA offset by challenges in North America ▪ Backlog up 32%; Rollout of large orders pushing revenue to end of year & 2015 ▪ Q2 revenue and operating income as expected ▪ Operating margin improved 220 basis points over Q1 2014 ▪ Software-related revenue up 14%
Slide 11: Hospitality Q2 2014 Update
11 ▪ Revenue growth across Americas and Europe ▪ Operating margin lower y/y due to a large software transaction in Q2 2013 ▪ Operating margin improved 540 basis points over Q1 2014 ▪ Software-related revenue down 4% ▪ SaaS revenue up 16% ▪ SaaS application sites up 16% y/y Financial Highlights Reven
Slide 12: Emerging Industries Q2 2014 Update
12 EMERGING INDUSTRIES Q2 2014 Update Telecom & Technology ▪ Global field services and support agreement with CradlePoint ▪ Maintenance and deployment services agreement with Easynet, the largest independent network and hosting integrator in Europe Travel ▪ Powering air travel innovation worldwide ▪
Slide 13: Q2 2014 Summary
13 Q2 2014 SUMMARY • Q2 as expected; Strong software/SaaS growth, both with Digital Insight and organically • Financial Services continues to execute well, both strategically and tactically • Strong branch transformation and software growth • Orders/ backlog up solidly; both volume and mix • Continu
Slide 14: Financial Performance & Guidance
14 FINANCIAL PERFORMANCE & GUIDANCE July 29, 2014
Slide 15: Q2 Operational Results
15 Revenue $1,658 $1,535 8% (1) / 9%(2) Operational Gross Margin 498 443 12% Operational Gross Margin Rate 30.0% 28.9% Expenses (non-GAAP) 288 261 10% % of Revenue 17.4% 17.0% NPOI 210 182 15% % of Revenue 12.7% 11.9% Non-GAAP Diluted EPS $0.68 $0.68 —% Q2 OPERATIONAL RESULTS 2014 2013 % Change (1)
Slide 16: Q2 GAAP Results
16 Revenue $1,658 $1,535 8% Gross Margin 480 426 13% Gross Margin Rate 29.0% 27.8% Expenses 311 287 8% % of Revenue 18.8% 18.7% Income from Operations 169 139 22% % of Revenue 10.2% 9.1% GAAP Diluted EPS $0.53 $0.51 4% Q2 GAAP RESULTS $ millions, except per share amounts 2014 2013 % Change For the t
Slide 17: Q2 Revenue by Segment
17 Q2 REVENUE BY SEGMENT Financial Services $900 $782 15 % 16 % Excluding Digital Insight $813 4 % 5 % Retail Solutions 503 515 (2)% (2)% Hospitality 170 158 8 % 8 % Emerging Industries 85 80 6 % 6 % Total Revenue $1,658 $1,535 8 % 9 % Excluding Digital Insight* $1,571 2 % 3 % 2014 2013 % Change % C
Slide 18: Q2 Operating Income by Segment
18 Q2 OPERATING INCOME BY SEGMENT For the three months ended June 30 2014 2013 Financial Services $137 $95 % of Financial Services Revenue 15.2% 12.1% Retail Solutions 48 49 % of Solutions Revenue 9.5% 9.5% Hospitality 23 27 % of Hospitality Revenue 13.5% 17.1% Emerging Industries 2 11 % of Emerging
Slide 19: Q2 Supplemental Revenue Information
19 Q2 SUPPLEMENTAL REVENUE INFORMATION SaaS $125 $36 247 % Software License and Software Maintenance 172 154 12 % Professional Services 149 124 20 % Total Software-Related Revenue 446 314 42 % Hardware 637 664 (4)% Other Services 575 557 3 % Total Revenue $1,658 $1,535 8 % 2014 2013 % Change $ milli
Slide 20: Free Cash Flow
20 FREE CASH FLOW Q2 2014 Q2 2013 FY 2014e FY 2013 Cash Provided by Operating Activities $80 ($32) $519 - $549 $281 Net capital expenditures (73) (44) (250) - (260) (226) Cash Provided by (Used In) Discontinued Operations (22) (25) (45) - (55) (52) Pension discretionary contributions and settlements
Slide 21: Free Cash Flow Generation
21 FREE CASH FLOW GENERATION 2014e 2013 Free Cash Flow (FCF) (1) ~$250 - $300 $207 plus: Pension 50 79 plus: Discontinued Ops 45-55 52 plus: Acquisition-relatedcosts 25-35 43 plus: Restructuring plan 50 — Adjusted FCF ~$420 - $490 $381 Adjusted FCF as a % of non-GAAP net income ~85% 80% $ millions,
Slide 22: Net Debt & EBITDA Metrics
22 NET DEBT & EBITDA METRICS 2013 Q1 2014 Q2 2014 Debt $3.4 $3.9 $3.9 Cash 0.5 0.5 0.5 Net Debt $2.9 $3.4 $3.4 Adjusted EBITDA $0.9 $0.9 (1) $1.0 (1) Net Debt / Adjusted EBITDA 3.2x 3.7x 3.4x $ in billions, except metrics (1) Adjusted EBITDA for the trailing twelve-month period. Goal of reducing Net
Slide 23: FY 2014 Guidance
23 2014e 2013 Revenue $6,750 - $6,850 (1) $6,123 Year-over-Year Revenue Growth 10% - 12% (1) 7% Income from Operations (GAAP)(2) (4) $580 - $600 $666 Non-Pension Operating Income (NPOI) $900 - $920 $717 Adjusted EBITDA $1,085 - $1,105 $886 Diluted EPS (GAAP)(2) (4) $1.75 - $1.85 $2.67 Non-GAAP Dilut
Slide 24: 2014 Segment Revenue Guidance
24 2014 SEGMENT REVENUE GUIDANCE Line of Business 2014e FY 2013 Financial Services 15-17% $3,115 Financial Services excluding Digital Insight 4-5% Retail 3-5% $2,034 Hospitality 8-10% $626 Emerging Industries 10-14% $348 Total 10-12% $6,123 $ in millions
Slide 25: Q3 2014 Guidance
25 Q3 2014 GUIDANCE Q3 2014e Q3 2013 Income from Operations (GAAP) (1) $50 - $60 $145 Non-Pension Operating Income (Non-GAAP) $215 - $225 $185 Tax rate 28% 18% Other expense ~$50 $26 $ millions (1) Q3 2014e income from operations reflects the estimated pre-tax charge of $125 million related to the r
Slide 26: 2014 Goals
26 Improve Free Cash Flow generation and working capital Further expand software/SaaS and services contribution and improve margin profile Use strong, growing NPOI to de-lever the balance sheet Implement next stage of cost reduction initiatives and complete final stages of pension strategy Continue
Slide 27: Supplementary Non-GAAP Materials
SUPPLEMENTARY NON-GAAP MATERIALS
Slide 28: Non-GAAP Measures
28 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 29: Non-GAAP Measures: Adjusted EBITDA
29 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 30: GAAP to Non-GAAP Reconciliation: Operating Income and Adjusted EBITDA
30 Income from Operations (GAAP) to Non-Pension Operating Income (non-GAAP) and Adjusted EBITDA (non-GAAP) in millions Q2 2014 LTM Q1 2014 LTM FY 2013 FY 2014e Q3 2014e Income from Operations (GAAP) $719 $689 $666 $580 - $600 $50 - $60 Pension Expense (Benefit) (93) (86) (78) 8 3 Restructuring Plan
Slide 31: Q2 QTD 2014 GAAP to Non-GAAP Reconciliation
31 in millions (except per share amounts) Q2 QTD 2014 GAAP Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Pension (expense) benefit Q2 QTD 2014 non-GAAP Product revenue $722 $— $— $— $— $— $722
Slide 32: Q2 QTD 2013 GAAP to Non-GAAP Reconciliation
32 in millions (except per share amounts) Q2 QTD 2013 GAAP Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Pension (expense) benefit Q2 QTD 2013 non-GAAP Product revenue $743 — — — — — $743 Servi
Slide 33: Q2 YTD 2014 GAAP to Non-GAAP Reconciliation
33 in millions (except per share amounts) Q2 YTD 2014 GAAP Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Pension (expense) benefit Q2 YTD 2014 non-GAAP Product revenue $1,356 — — — — — $1,356 S
Slide 34: Q2 YTD 2013 GAAP to Non-GAAP Reconciliation
34 in millions (except per share amounts) Q2 YTD 2013 GAAP Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Pension (expense) benefit Q2 YTD 2013 non-GAAP Product revenue $1,410 — — — — — $1,410 S
Slide 35: Q3 QTD 2013 GAAP to Non-GAAP Reconciliation
35 in millions (except per share amounts) Q3 QTD 2013 GAAP Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Pension (expense) benefit Q3 QTD 2013 non-GAAP Product revenue $701 — — — — — $701 Servi
Slide 36: Q4 YTD 2013 GAAP to Non-GAAP Reconciliation
36 in millions (except per share amounts) Q4 YTD 2013 GAAP Acquisition- related amorti zation of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Japan valuation reserve release Pension (expense) benefit Q4 YTD 2013 non-GAAP Product
Slide 37: GAAP to Non-GAAP Reconciliation: FY 2014e Diluted EPS
37 GAAP TO NON-GAAP RECONCILIATION FY 2014e Diluted EPS (GAAP) $1.75 - $1.85 Pension Expense (Benefit) 0.03 Restructuring Plan 0.61 Acquisition-Related Costs 0.11 Acquisition-Related Amortization of Intangibles 0.47 Acquisition-Related Purchase Price Adjustment 0.02 OFAC and FCPA Investigations(1) 0
Slide 38: GAAP to Non-GAAP Reconciliations: Operational Gross Margin Rate
38 GAAP TO NON-GAAP RECONCILIATIONS FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 Gross Margin as a % of Revenue (GAAP) 22% 22.9% 18.0% 28.7% 28.4% Pension expense (benefit) (0.5)% 0.6% 6.8% (2.2)% (0.7)% Impairment of assets related to an equity investment 0.5% - - - - Acquisition-related purchase price
Slide 39: GAAP to Non-GAAP Reconciliations: Constant Currency Revenue Growth
39 GAAP TO NON-GAAP RECONCILIATIONS Revenue Growth % (GAAP) to Revenue Growth % on a Constant Currency Basis (non-GAAP) Q2 2014 Revenue Growth % (GAAP) 8% Unfavorable foreign currency fluctuation impact 1% Revenue Growth % on a Constant Currency Basis (non-GAAP) 9%
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