Slide 1: Q3 2014 Earnings Conference Call
1 Q3 2014 EARNINGS CONFERENCE CALL BILL NUTI, CHAIRMAN AND CEO BOB FISHMAN, CFO October 23, 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: Retail Solutions Q3 2014 Update
3 ▪ Orders down 27% driven by challenges primarily in North America with additional weakness in Europe ▪ Backlog up 9% but further delays in solution rollouts ▪ Q3 revenue and operating margin down due to continued weakness in the North America market and lower software license revenue ▪ Software-re
Slide 4: Q3 2014 Financial Highlights
4 Q3 2014 FINANCIAL HIGHLIGHTS (1) NPOI as a percentage of revenue. REVENUE Q3 2013 Q3 2014 $1.51 billion Up 9% y/y / Up 10% constant currency Recurring revenue up 18%, 41% of total OPERATIONAL GROSS MARGIN Q3 2013 Q3 2014 28.6% 28.9% Up 30 bps y/y NPOI Up 10% y/y; lower than expected Q3 NPOI margin
Slide 5: Software-Related Revenue Growth
5 SOFTWARE-RELATED REVENUE GROWTH Q3 2014 Q3 2013 $37 Q3 • Q3 Software-related revenue up 34% y/y; up 7% excluding Digital Insight • Q3 Professional Services revenue up 14% y/y • Q3 SaaS revenue up 238% y/y; up 11% excluding Digital Insight $430 SaaS Professional Services SW Licenses & SW Maintenanc
Slide 6: Software-Related Revenue Positively Impacting Margins
6 ($ in Millions) $5,730 $6,575 - $6,625 SOFTWARE-RELATED REVENUE POSITIVELY IMPACTING MARGINS $5,291 $6,123 Operational Gross Margin 22.0% 23.5% 24.9% 26.8% 28.5% ~29.5% ~750bp from 2009 $4,711 $4,579 Software-Related Revenue Hardware Revenue Other Services Revenue (Hardware Maintenance, Transactio
Slide 7: Favorable Rulings in Fox River Appeals
7 Seventh Circuit Favorable Rulings in Fox River Appeals ▪ Overturned decisions that held NCR 100% liable for certain Fox River cleanup costs ▪ Vacated cleanup injunction and declaratory judgment as to NCR ▪ Upheld ruling that NCR does not have “arranger liability” at the Fox River ▪ Cases will retu
Slide 8: Q3 Operational Results
8 Revenue $1,647 $1,508 9 % (1) / 10%(2) Operational Gross Margin 476 431 10 % Operational Gross Margin Rate 28.9% 28.6% Expenses (non-GAAP) 272 246 11 % % of Revenue 16.5% 16.3% NPOI 204 185 10 % % of Revenue 12.4% 12.3% Non-GAAP Diluted EPS(3) $0.67 $0.76 (12)% Q3 OPERATIONAL RESULTS 2014 2013 % C
Slide 9: Q3 GAAP Results
9 Revenue $1,647 $1,508 9 % Gross Margin (1) 404 415 (3)% Gross Margin Rate 24.5% 27.5% Expenses (1) 363 270 34 % % of Revenue 22.0% 17.9% Income from Operations (1) 41 145 (72)% % of Revenue 2.5% 9.6% GAAP Diluted EPS(1) $— $0.58 (100)% Q3 GAAP RESULTS $ millions, except per share amounts 2014 2013
Slide 10: Q3 Revenue by Segment
10 Q3 REVENUE BY SEGMENT Financial Services $899 $767 17 % 18 % Excluding Digital Insight $806 5 % 6 % Retail Solutions 489 494 (1)% (1)% Hospitality 168 161 4 % 4 % Emerging Industries 91 86 6 % 6 % Total Revenue $1,647 $1,508 9 % 10 % Excluding Digital Insight $1,554 3 % 4 % 2014 2013 % Change % C
Slide 11: Q3 Operating Income by Segment
11 Q3 OPERATING INCOME BY SEGMENT For the three months ended September 30 2014 2013 Financial Services $144 $93 % of Financial Services Revenue 16.0% 12.1% Retail Solutions 24 50 % of Retail Solutions Revenue 4.9% 10.1% Hospitality 27 26 % of Hospitality Revenue 16.1% 16.1% Emerging Industries 9 16
Slide 12: Financial Services Q3 2014 Update
12 FINANCIAL SERVICES Q3 2014 Update Performance HighlightsFinancial Highlights Revenue $899M Operating Income $144M +17% y/y +55% y/y • Core order growth of 7% driven by North America community financial institutions, Europe, Southeast Asia, and MEA ▪ Backlog up 14% driven by Branch Transformation
Slide 13: Hospitality Q3 2014 Update
13 ▪ Revenue growth across North America and Europe ▪ Operating margin up 260 bps over Q2 2014 ▪ Software-related revenue down 2% ▪ SaaS revenue up 21% ▪ SaaS application sites up 21% y/y Financial Highlights Revenue $168M Operating Income $27M +4% y/y +4% y/y HOSPITALITY Q3 2014 Update Performance
Slide 14: Emerging Industries Q3 2014 Update
14 EMERGING INDUSTRIES Q3 2014 Update Telecom & Technology ▪ Globe Telecom (Phillipines) using NCR Bill Pay solution to provide differentiated customer service Travel ▪ Added omni-channel capabilities to NCR Wayfinding • Deployment with Spring Airlines (Japan) • Delivered a record 35M mobile airline
Slide 15: Q3 Supplemental Revenue Information
15 Q3 SUPPLEMENTAL REVENUE INFORMATION SaaS $125 $37 238 % Software License and Software Maintenance 157 155 1 % Professional Services 148 130 14 % Total Software-Related Revenue 430 322 34 % Hardware 650 626 4 % Other Services 567 560 1 % Total Revenue $1,647 $1,508 9 % 2014 2013 % Change $ million
Slide 16: Free Cash Flow
16 FREE CASH FLOW Q3 2014 Q3 2013 FY 2014e FY 2013 Cash Provided by Operating Activities $124 $27 $442 - $477 $281 Net capital expenditures (58) (66) (250) - (260) (226) Cash Provided by (Used In) Discontinued Operations 66 (27) 0 - (5) (52) Pension discretionary contributions and settlements — — 48
Slide 17: Free Cash Flow Generation
17 FREE CASH FLOW GENERATION Current 2014e Prior 2014e 2013 Free Cash Flow (FCF) ~$225 - $275 ~$250 - $300 $207 plus: Pension 50 50 79 plus: Discontinued Ops 0-5 (2) 45-55 (1) 52 plus: Acquisition-related costs 25-35 25-35 43 plus: Restructuring plan 50 50 — Adjusted FCF ~$350 - $415 ~$420 - $490 $3
Slide 18: Net Debt & EBITDA Metrics
18 NET DEBT & EBITDA METRICS 2013 Q1 2014 Q2 2014 Q3 2014 Debt $3.4 $3.9 $3.9 $3.7 Cash 0.5 0.5 0.5 0.4 Net Debt $2.9 $3.4 $3.4 $3.3 Adjusted EBITDA $0.9 $0.9 (1) $1.0 (1) $1.0 (1) Net Debt / Adjusted EBITDA 3.2x 3.7x 3.4x 3.3x $ in billions, except metrics (1) Adjusted EBITDA for the trailing twelv
Slide 19: FY 2014 Guidance
19 Current 2014 Guidance Prior 2014 Guidance 2013 Revenue $6,575 - $6,625 (1) $6,750 - $6,850 (1) $6,123 Year-over-Year Revenue Growth 7% - 8% (1) 10% - 12% (1) 7% Income from Operations (GAAP)(2) (4) $499 - $519 $580 - $600 $666 Non-Pension Operating Income (NPOI) $810 - $830 $900 - $920 $717 Adjus
Slide 20: 2014 Segment Revenue Guidance
20 2014 SEGMENT REVENUE GUIDANCE Line of Business Current 2014e Prior 2014e FY 2013 Financial Services 15% - 16% 15% - 17% $3,115 Financial Services excluding Digital Insight 4% - 5% 4% - 5% Retail (2)% - (3)% 3% - 5% $2,034 Hospitality 5% - 7% 8% - 10% $626 Emerging Industries 1% - 4% 10% - 14% $34
Slide 21: Q4 2014 Guidance
21 Q4 2014 GUIDANCE Q4 2014e Q4 2013 Income from Operations (GAAP) $181 - $201 (1) $297 Non-Pension Operating Income (Non- GAAP) $241 - $261 $221 Tax rate 30% 25% Other expense ~$55 $32 $ millions(1) Includes an estimated pre-tax charge of $20 million related to the previously announced restructurin
Slide 22: Q3 2014 Summary
22 Q3 2014 SUMMARY • Software and SaaS y/y revenue increased; outlook adjusted but expect continued growth • Financial Services performed well • Strong performance driven by branch transformation and software growth • Solid order and backlog growth • Continued strong performance from Digital Insight
Slide 23: Supplementary Non-GAAP Materials
SUPPLEMENTARY NON-GAAP MATERIALS
Slide 24: Non-GAAP Measures
24 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 25: Non-GAAP Measures: Adjusted EBITDA
25 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 26: Income from Operations to NPOI and Adjusted EBITDA
26 Income from Operations (GAAP) to Non-Pension Operating Income (non-GAAP) and Adjusted EBITDA (non-GAAP) in millions Q3 2014 LTM Q2 2014 LTM Q1 2014 LTM FY 2013 Current FY 2014e Prior FY 2014e Q4 2014e Income from Operations (GAAP) $615 $719 $689 $666 $499 - $519 $580 - $600 $181 - $201 Pension Ex
Slide 27: Q3 QTD 2014 GAAP to Non-GAAP
27 in millions (except per share amounts) Q3 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 Q3 QTD 2014 non-GAAP Product revenue $721 $
Slide 28: Q3 QTD 2013 GAAP to Non-GAAP
28 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 29: Q3 YTD 2014 GAAP to Non-GAAP
29 in millions (except per share amounts) Q3 YTD 2014 GAAP Restructuring plan Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Pension (expense) benefit Q3 YTD 2014 non-GAAP Product revenue $2,077
Slide 30: Q3 YTD 2013 GAAP to Non-GAAP
30 in millions (except per share amounts) Q3 YTD 2013 GAAP Acquisition- related amortization of intangibles Acquisition- related costs Acquisition- related purchase price adjustments OFAC and FCPA Investigations Pension (expense) benefit Q3 YTD 2013 non-GAAP Product revenue $2,111 — — — — — $2,111 S
Slide 31: Q4 QTD 2013 GAAP to Non-GAAP
31 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 32: FY 2013 GAAP to Non-GAAP
32 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 33: GAAP to Non-GAAP Reconciliation FY 2014e Diluted EPS
33 GAAP TO NON-GAAP RECONCILIATION FY 2014e Diluted EPS (GAAP) $1.30 - $1.40 Pension Expense (Benefit) 0.03 Restructuring Plan 0.66 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 34: Gross Margin to Operational Gross Margin Rate Reconciliation
34 GAAP TO NON-GAAP RECONCILIATIONS FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 Gross Margin as a % of Revenue (GAAP) 22.0% 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 pric
Slide 35: Revenue Growth to Constant Currency Reconciliation
35 GAAP TO NON-GAAP RECONCILIATIONS Revenue Growth % (GAAP) to Revenue Growth % on a Constant Currency Basis (non-GAAP) Q3 2014 Revenue Growth % (GAAP) 9% Unfavorable foreign currency fluctuation impact 1% Revenue Growth % on a Constant Currency Basis (non-GAAP) 10%
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