Slide 1: Q3 2016 Earnings Conference Call
1 Q3 2016 EARNINGS CONFERENCE CALL k BILL NUTI, CHAIRMAN & CEO MARK BENJAMIN, PRESIDENT & COO BOB FISHMAN, CFO PAUL LANGENBAHN, SVP & PRESIDENT, HOSPITALITY October 25, 2016
Slide 2: Notes to Investors
2 NOTES TO INVESTORS FORWARD-LOOKING STATEMENTS. Comments made during this conference call and in these materials contain forward- looking statements. Statements that describe or relate to NCR's plans, goals, intentions, strategies or financial outlook, and statements that do not relate to historica
Slide 3: Q3 Update
Q3 UPDATE a3 EXCEEDS expectations on improving execution ACCELERATING revenue trends driven by strong growth in Software, Services and Hardware Operating margin EXPANSION lea by Software growth and productivity gains, including Services margin rate expansion OMNI-CHANNEL SOFTWARE, CHANNEL TRANSFORMA
Slide 4: Q3 2016 Financial Results
4 Q3 2016 FINANCIAL RESULTS Non-GAAP gross margin rate up 20 bps CC Non-GAAP EPS up 14% CC FCF up 44% due to improved cash from operations FX ~(20 bps) FX ~($0.02) 29.3% 29.3% Q3 2015 Q3 2015 Q3 2016 $0.78 $0.87 Q3 2015 Q3 2016 $106 million Q3 2015 $153 million Q3 2016 Revenue Non-GAAP Gross Margin
Slide 5: Q3 Operational Results
5 Q3 2016 Q3 2015 As Reported Constant Currency Revenue $1,677 $1,613 4% 10%(1) Gross Margin (non-GAAP) 491 473 4% 5% Gross Margin Rate (non-GAAP) 29.3% 29.3% — bps +20 bps Operating Expenses (non-GAAP) 261 259 1% 2% % of Revenue 15.6% 16.1% Operating Income (non-GAAP) 230 214 7% 10% % of Revenue 13
Slide 6: Q3 GAAP Results
6 Q3 2016 Q3 2015 % Change Revenue $1,677 $1,613 4% Gross Margin 477 457 4% Gross Margin Rate 28.4% 28.3% Operating Expenses 288 289 —% % of Revenue 17.2% 17.9% Income from Operations 189 168 13% % of Revenue 11.3% 10.4% Interest and other expense (49) (49) —% Income Tax Expense 31 16 94% Income Tax
Slide 7: Q3 Segment Results
7 n Software - 51.1% GM rate n Services - 21.8% GM rate n Hardware - 19.9% GM rate Q3 SEGMENT RESULTS Q3 2016 Operating Income $230M Software Revenue Q3 2015 Q3 2016 $434 $468 Services Revenue Q3 2015 Q3 2016 $563 $591 million million Hardware Revenue Q3 2015 Q3 2016 millionmillion Up 7% CC Up 6% CC
Slide 8: Q3 Revenue by Region
8 Q3 REVENUE BY REGION Q3 2016 Q3 2015 % Change % ChangeAdjusted CC Americas $986 $899 10% 15% Europe, Middle East Africa 464 489 (5)% 6% Asia Pacific 227 225 1% (2)% Total Revenue $1,677 $1,613 4% 10% $ in millions
Slide 9: Free Cash Flow
9 FREE CASH FLOW QTD YTD FY 2016e FY 2015 Q3 2016 Q3 2015 Q3 2016 Q3 2015 Cash Provided by Operating Activities $225 $170 $369 $416 $675 - $725 $681 Net capital expenditures (62) (54) (160) (164) (220) (229) Cash used in Discontinued Operations (10) (10) (30) (27) (30) (43) Free Cash Flow $153 $106
Slide 10: Net Debt & EBITDA Metrics
10 NET DEBT & EBITDA METRICS FY 2015 Q2 2016 Q3 2016 Debt $3,252 $3,457 $3,289 Cash (328) (332) (318) Net Debt $2,924 $3,125 $2,971 Adjusted EBITDA $1,005 $1,020 (1) $1,047 (1) Net Debt / Adjusted EBITDA 2.9x 3.1x 2.8x $ in millions, except metrics (1) Adjusted EBITDA for the trailing twelve-month p
Slide 11: Q4 2016 Guidance
11 Q4 2016 GUIDANCE Q4 2016e Q4 2015 Revenue (1) $1,729 - $1,759 $1,680 Diluted EPS (GAAP) (2) $0.87 - $0.92 $0.27 Diluted EPS (non-GAAP) (3) (4) $1.01 - $1.06 $0.89 $ millions, except per share amounts (1) Revenue is expected to be up approximately 3% to 5% as reported and 8% to 10% adjusted CC. Th
Slide 12: FY 2016 Guidance
12 2016 Guidance 2016 PreviousGuidance 2015 Revenue (1) $6,470 - $6,500 $6,325 - $6,400 $6,373 Diluted EPS (GAAP) (2) $2.25 - $2.30 $2.25 - $2.35 ($0.94) Diluted EPS (non-GAAP) (3) (4) $2.97 - $3.02 $2.90 - $3.00 $2.76 Free Cash Flow $425 - $475 $425 - $475 $409 FY 2016 GUIDANCE $ in millions, excep
Slide 13: 2016 Segment Revenue Guidance
13 2016 SEGMENT REVENUE GUIDANCE Segment 2016e CCGrowth (1) FY 2016 Guidance Prior FY 2016 Guidance FY 2015 Software 4 - 5% $1,825 - $1,835 $1,800 - $1,825 $1,747 Services 4- 5% $2,285 - $2,295 $2,240 - $2,270 2,218 Hardware (2) 7 - 8% $2,360 - $2,370 $2,285 - $2,305 2,408 Total (1) (2) 5 - 6% $6,47
Slide 14: Revenue, OI, EPS and FCF Trending
14 REVENUE, OI, EPS AND FCF TRENDING Q3 YTD Fourth Quarter $ % of Total $ % of Total Revenue 2016 Guidance (mid-point) $4,741 73% $1,744 27% Last 3 years $4,656 73% $1,706 27% Last year $4,693 74% $1,680 26% Operating Income (non-GAAP) 2016 Guidance (mid-point) $576 69% $259 31% Last 3 years $542 69
Slide 15: Omni-Channel Market
15 OMNI-CHANNEL MARKET NCR's strategic offers include: • Enables revenue growth, productivity gains, and modernized consumer experiences from the transformation of physical and digital channels • Solutions include: Branch, Store, Restaurant, and Venue Transformation • Drives edge offerings: ATMs, SC
Slide 16: Software Q3 2016 Update
16 SOFTWARE Q3 2016 Update • Revenue up 8% as reported and up 7% CC ◦ Software License revenue up 26% CC; unattached license up 26% driven primarily by store transformation; attached license up 24% contributing to higher ATM and SCO revenue ◦ Software Maintenance revenue up 7% due to Software Licens
Slide 17: Services Q3 2016 Update
17 SERVICES Q3 2016 Update • Revenue up 5% as reported and up 6% CC ◦ Strong growth in implementation services, hardware maintenance and managed services • Operating income up $7M due to higher revenue, operating leverage and improved productivity and efficiency Key Metrics Q3 2016 Q3 2015 %Change %
Slide 18: Hardware Q3 2016 Update
18 HARDWARE Q3 2016 Update • Revenue was slightly up as reported and up 16% adjusted CC driven by continued momentum in Channel Transformation ◦ ATM revenue up 11% CC driven by new product introduction and acceptance of omni-channel ready products ◦ SCO revenue up significantly due to Store Transfor
Slide 19: Q3 Summary
19 ▪ Continuing to improve execution ▪ NCR's vision and strategy aligned with major trends and customer activity ▪ Strong backlog and key metrics point to a successful year; raising revenue and non-GAAP EPS guidance & reaffirming cash flow guidance ▪ Focused on sales funnel, orders, and revenue grow
Slide 20: Supplementary Non-GAAP Materials
SUPPLEMENTARY NON-GAAP MATERIALS
Slide 21: Non-GAAP Measures
21 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 22: Non-GAAP Measures: Net Debt and Adjusted EBITDA
22 NON-GAAP MEASURES Net Debt and Adjusted EBITDA. NCR believes that Net Debt provides useful information to investors because NCR’s management reviews Net Debt as part of its management of overall liquidity, financial flexibility, capital structure and leverage. In addition, certain debt rating age
Slide 23: Net Income to Adjusted EBITDA
23 Net Income from Continuing Operations Attributable to NCR (GAAP) to Adjusted EBITDA (non-GAAP) in millions 2015 Q2 2016LTM Q3 2016 LTM Net Income from Continuing Operations Attributable to NCR (GAAP) ($154) $258 $263 Pension Mark-to-Market Adjustments 454 30 29 Restructuring/Transformation Costs
Slide 24: Q3 QTD 2016 GAAP to Non-GAAP
24 in millions (except per share amounts) Q3 QTD 2016 GAAP Restructuring / Transformation Costs Acquisition- related amortization of intangibles Acquisition- related costs Q3 QTD 2016 non-GAAP Product revenue $708 $— $— $— $708 Service revenue 969 — — — 969 Total revenue 1,677 — — — 1,677 Cost of pr
Slide 25: GAAP to Non-GAAP Reconciliation Q3 2016 QTD
25 in millions (except per share amounts) Q3 QTD 2016 GAAP Q3 QTD 2016 non-GAAP Income (loss) from continuing operations attributable to NCR common stockholders: Income (loss) from continuing operations (attributable to NCR) $107 $135 Dividends on convertible preferred shares — — Income (loss) from
Slide 26: Q3 QTD 2015 GAAP to Non-GAAP
26 in millions (except per share amounts) Q3 QTD 2015 GAAP Restructuring / Transformation Costs Acquisition- related amortization of intangibles Acquisition- related costs Pension mark-to- market adjustments Q3 QTD 2015 non-GAAP Product revenue $688 $— $— $— $— $688 Service revenue 925 — — — — 925 T
Slide 27: Q3 YTD 2016 GAAP to Non-GAAP
27 in millions (except per share amounts) Q3 YTD 2016 GAAP Restructuring / Transformation Costs Acquisition- related amortization of intangibles Acquisition- related costs Divestiture and Liquidation Losses Q3 YTD 2016 non-GAAP Product revenue $1,932 $— $— $— $— $1,932 Service revenue 2,809 — — — —
Slide 28: GAAP to Non-GAAP Reconciliation Q3 2016 YTD
28 in millions (except per share amounts) Q3 YTD 2016 GAAP Q3 YTD 2016 non-GAAP Income (loss) from continuing operations attributable to NCR common stockholders: Income (loss) from continuing operations (attributable to NCR) $215 $307 Dividends on convertible preferred shares — — Income (loss) from
Slide 29: Q3 YTD 2015 GAAP to Non-GAAP
29 in millions (except per share amounts) Q3 YTD 2015 GAAP Restructuring plan Acquisition- related amortization of intangibles Acquisition- related costs OFAC and FCPA Investigations Pension (expense) benefit Q3 YTD 2015 non-GAAP Product revenue $1,995 $— $— $— $— $— $1,995 Service revenue 2,698 — —
Slide 30: Q4 QTD 2015 GAAP to Non-GAAP
30 in millions (except per share amounts) Q4 QTD 2015 GAAP Restructuring plan Acquisition- related amortization of intangibles Acquisition- related costs Loss on terminated contract receivable Loss on pending sale of IPS business Pension (expense) benefit Q4 QTD 2015 non-GAAP Product revenue $716 —
Slide 31: GAAP to Non-GAAP Reconciliation Q4 2015 QTD
31 in millions (except per share amounts) Q4 QTD 2015 GAAP Q4 QTD 2015 non-GAAP Income (loss) from continuing operations attributable to NCR common stockholders: Income (loss) from continuing operations (attributable to NCR) $48 $156 Dividends on convertible preferred shares (4) — Income (loss) from
Slide 32: FY 2015 GAAP to Non-GAAP
32 in millions (except per share amounts) FY 2015 GAAP Restructuring / Transformation Costs Acquisition- related amortization of intangibles Acquisition- related costs Reserve related to a subcontract in MEA Loss on pending sale of IPS business OFAC and FCPA Investigations Pension mark-to- market ad
Slide 33: GAAP to Non-GAAP Reconciliation FY 2015
33 in millions (except per share amounts) FY 2015 GAAP FY 2015 non-GAAP Income (loss) from continuing operations attributable to NCR common stockholders: Income (loss) from continuing operations (attributable to NCR) ($154) $476 Dividends on convertible preferred shares (4) — Income (loss) from cont
Slide 34: GAAP to Non-GAAP Reconciliation 2016 Guidance
34 GAAP TO NON-GAAP RECONCILIATION 2016 Guidance Q4 2016e Diluted EPS (GAAP) (1) $2.25 - $2.30 $0.87 - $0.92 Restructuring Plan 0.14 0.01 Acquisition-Related Amortization of Intangibles 0.53 0.13 Acquisition-Related Costs 0.02 — Divestiture and Liquidation Losses 0.03 — Non-GAAP Diluted EPS $2.97 -
Slide 35: Revenue Growth to Adjusted Constant Currency
35 GAAP TO NON-GAAP RECONCILIATION Revenue Growth % (GAAP) to Revenue Growth Adjusted Constant Currency % (non-GAAP) Q3 2016 QTD Revenue Growth % (GAAP) Favorable (unfavorable) FX impact Divestiture impact Revenue Growth Adjusted Constant Currency % (non-GAAP) Software License 25% (1)% —% 26% Softwa
Slide 36: Revenue Growth by Region to Adjusted Constant Currency
36 GAAP TO NON-GAAP RECONCILIATION Revenue Growth % (GAAP) to Revenue Growth Adjusted Constant Currency % (non-GAAP) Q3 2016 QTD Revenue Growth % (GAAP) Favorable (unfavorable) FX impact Divestiture impact Revenue Growth Adjusted Constant Currency % (non-GAAP) Americas 10% 1% (6)% 15% Europe, Middle
Slide 37: Operating Income Growth % Constant Currency
37 GAAP TO NON-GAAP RECONCILIATION Operating Income Growth % (GAAP) to Operating Income Growth % on a Constant Currency Basis (non-GAAP) Q3 2016 QTD Operating Income Growth % Reported Favorable (unfavorable) FX impact Constant Currency Operating Income Growth % (non-GAAP) Software 8% —% 8% Services
Slide 38: Operating Income Growth bps Constant Currency
38 GAAP TO NON-GAAP RECONCILIATION Operating Income Growth bps (GAAP) to Operating Income Growth bps on a Constant Currency Basis (non-GAAP) Q3 2016 QTD Operating Income bps Growth Reported Favorable (unfavorable) FX impact Constant Currency Operating Income bps Growth (non- GAAP) Software +10 bps -
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