NCR Announces First Quarter 2019 Results

NCR Corporation (NYSE: NCR) reported financial results today for the
three months ended March 31, 2019. First quarter and other recent
highlights include:

• Revenue of $1.54 billion, up 1% as reported and up 4%
  constant currency
• Banking revenue up 5% as reported; Recurring revenue up 3% as
  reported
• Net income attributable to NCR of $37 million; Adjusted EBITDA of
  $218 million
• GAAP diluted EPS of $0.20; Non-GAAP diluted EPS of $0.48
• Program to achieve at least $100 million cost savings in 2019 is on
  track
• 2019 guidance reaffirmed

“Our first quarter results represent a solid start to the year and keep
us on track to achieve our full year targets,” said Michael Hayford,
President and Chief Executive Officer. “Our performance included a
return to growth and a strong quarter in our banking segment. We
continue to improve execution and are making progress on the targeted
investments needed to accelerate our mix shift towards higher margin
software, services and recurring revenues. We remain confident our
strategy will strengthen our long term growth profile and deliver
increased value and competitive advantage to our customers.”

In this release, we use certain non-GAAP measures, including presenting
certain measures on a constant currency basis. These non-GAAP measures
include “free cash flow” and others with the words “non-GAAP,” or
“constant currency” in their titles. These non-GAAP measures are listed,
described, and reconciled to their most directly comparable GAAP
measures under the heading “Non-GAAP Financial Measures” later in this
release.

First Quarter 2019 Operating Results

Revenue
First quarter revenue of $1,536 million was up
1% year-over-year. Foreign currency fluctuations had an unfavorable
impact on the revenue comparison of 3%. The following table shows
revenue for the first quarter:

Banking revenue increased 5% due to 21% growth in ATM revenue driven by
higher backlog conversion. The revenue growth was mainly driven by
strength in North America. Foreign currency fluctuations had an
unfavorable impact of 4% on the revenue comparison.

Retail revenue decreased 2% driven by a large implementation services
project in the prior year partially offset by higher payment processing
revenue and strength in self-checkout revenue. Foreign currency
fluctuations had an unfavorable impact of 3% on the revenue comparison.

Hospitality revenue decreased 5% driven by lower hardware revenue
partially offset by higher cloud and payments revenue. Foreign currency
fluctuations had an unfavorable impact of 1% on the revenue comparison.

Gross Margin
First quarter gross margin of $411 million
decreased from $420 million in the prior year period. Gross margin rate
was 26.8%, down from 27.7%. First quarter gross margin (non-GAAP) of
$425 million decreased from $431 million in the prior year period. Gross
margin rate (non-GAAP) was 27.7%, down from 28.4%. The decreases in
gross margin were primarily due to decreases in the Retail and
Hospitality segments partially offset by an increase in the Banking
segment.

Expenses
First quarter operating expenses of $311 million
was flat with the prior year period. First quarter operating expenses
(non-GAAP) of $278 million decreased from $283 million in the prior year
period. The decrease in operating expenses (non-GAAP) was primarily due
to cost reduction benefits realized.

Operating Income
First quarter income from operations of
$100 million decreased from $109 million in the prior year period. First
quarter operating income (non-GAAP) of $147 million decreased from $148
million in the prior year period.

Other (Expense)
First quarter other (expense) of $53 million
increased from $46 million in the prior year period. First quarter other
(expense) (non-GAAP) of $53 million increased from $46 million in the
prior year period. The increase was due to higher interest expense.

Income Tax Expense (Benefit)
First quarter income tax
expense of $9 million increased from $7 million in the prior year
period. The first quarter effective income tax rate was 19% compared to
11% in the prior year period. First quarter income tax expense
(non-GAAP) of $20 million increased from $16 million in the prior year
period. The first quarter effective income tax rate (non-GAAP) was 21%
compared to 16% in the prior year period. Income tax increased primarily
due to favorable audit settlements realized in the prior year period
offset by lower income before taxes in the quarter.

Net Income from Continuing Operations Attributable to NCR
First
quarter net income from continuing operations attributable to NCR of $37
million decreased from net income from continuing operations of $55
million in the prior year period. First quarter net income from
continuing operations attributable to NCR (non-GAAP) of $73 million
decreased from $85 million in the prior year period.

Cash Flow
First quarter cash used by operating activities of
$16 million decreased from cash used by operating activities of $24
million in the prior year period. Free cash outflow was $87 million in
the first quarter of 2019 as compared to $99 million in the first
quarter of 2018.

Restructuring and Transformation Initiatives

Our previously announced transformation and restructuring initiatives
continue to progress. Our services performance and profit improvement
program continues to deliver revenue growth and margin expansion. Our
manufacturing transformation initiatives to move to a variable cost
structure by reducing the number of manufacturing plants and ramping up
production with contract manufacturers is substantially complete.
Additionally, we are executing our spend optimization program to drive
cost savings through operational efficiencies to generate at least $100
million of savings in 2019. This initiative will create efficiencies in
our corporate functions, reduce spend in the non-strategic areas and
limit discretionary spending. The benefits generated from the spend
optimization program will largely offset higher real estate and people
costs incurred in 2019. We incurred a pre-tax charge of $26 million in
the first quarter of 2019 with a cash impact of $18 million. In 2019,
for all initiatives, we expect to incur a pre-tax charge of $60 million
and a cash impact of $70 million to $80 million.

Full Year 2019 Outlook

We are reaffirming our 2019 guidance. Our revenue growth is expected to
be approximately 1% to 2%. Our GAAP diluted earnings per share guidance
is expected to be $1.91 to $2.01, and our non-GAAP diluted earnings per
share guidance is expected to be $2.75 to $2.85. Non-GAAP diluted
earnings per share guidance assumes an effective tax rate of 23% to 24%
for 2019 compared to 21% in 2018. We expect net income attributable to
NCR to be $290 million to $305 million and adjusted earnings before
interest, taxes, depreciation and amortization (Adjusted EBITDA) to be
$1.04 billion to $1.08 billion. Additionally, we expect cash flow from
operations to be $705 million to $730 million and free cash flow to
be $300 million to $350 million.

2019 First Quarter Earnings Conference Call

A conference call is scheduled for today at 4:30 p.m. (EDT) to discuss
the first quarter 2019 results and guidance for full year 2019. Access
to the conference call and accompanying slides, as well as a replay of
the call, are available on NCR’s web site at http://investor.ncr.com/.
Additionally, the live call can be accessed by dialing 888-820-9413
(United States/Canada Toll-free) or 786-460-7169 (International Toll)
and entering the participant passcode 6612880.

More information on NCR’s Q1 2019 earnings, including additional
financial information and analysis, is available on NCR’s Investor
Relations website at http://investor.ncr.com/.

About NCR Corporation

NCR Corporation (NYSE: NCR) is a leading software- and services-led
enterprise provider in the financial, retail, hospitality, telecom and
technology industries. NCR is headquartered in Atlanta, Ga., with 34,000
employees and does business in 180 countries. NCR is a trademark of NCR
Corporation in the United States and other countries.

Website: www.ncr.com
Twitter:
@NCRCorporation
Facebook:
www.facebook.com/ncrcorp
LinkedIn:
https://www.linkedin.com/company/ncr-corporation
YouTube:
www.youtube.com/user/ncrcorporation

Note to Investors This release contains forward-looking
statements. Forward-looking statements use words such as “expect,”
“anticipate,” “outlook,” “intend,” “plan,” “believe,” “will,” “should,”
“would,” “could,” and words of similar meaning. 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. The forward-looking
statements in this release include statements about NCR’s financial
guidance and outlook (including the section entitled “Full Year 2019
Outlook” and the tables entitled “Reconciliation of Diluted Earnings Per
Share from Continuing Operations (GAAP) to Non-GAAP Diluted Earnings Per
Share from Continuing Operations (non-GAAP)” and “Reconciliation of Net
Income for Continuing Operations Attributable to NCR (GAAP) to Earnings
Before Interest, Depreciation, Taxes and Amortization (Adjusted
EBITDA)”; NCR’s areas of focus on strategic growth and expected results
and impact of its spend optimization program in 2019; NCR’s expected
areas of focus to drive growth and create long-term stockholder value;
NCR’s cost savings program and its expected benefits in 2019; NCR’s
expected free cash flow generation and capital allocation strategy;
earnings per share; the effective tax rate in 2019; and the expected
impact of NCR’s previously announced restructuring and transformation
activities. 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 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: the strength of demand
and pricing for ATMs and other financial services hardware and its
effect on the results of our businesses and reportable segments;
domestic and global economic and credit conditions including, in
particular, those resulting from the imposition or threat of
protectionist trade policies or import or export tariffs, global and
regional market conditions and spending trends in the financial services
and retail industries, new comprehensive U.S. tax legislation, modified
or new global or regional trade agreements, the determination by the
United Kingdom to exit the European Union, uncertainty over further
potential changes in Eurozone participation and fluctuations in oil and
commodity prices; the transformation of our business model and our
ability to sell higher-margin software and services; our ability to
improve execution in our sales and services organizations; our ability
to successfully introduce new solutions and compete in the information
technology industry; cybersecurity risks and compliance with data
privacy and protection requirements; the possibility of disruptions in
or problems with our data center hosting facilities; defects or errors
in our products; the impact of our indebtedness and its terms on our
financial and operating activities; the historical seasonality of our
sales; tax rates and new U.S. tax legislation; foreign currency
fluctuations; the success of our restructuring plans and cost reduction
initiatives, including those in our Hardware segment; manufacturing
disruptions, including those caused by or related to outsourced
manufacturing; the availability and success of acquisitions,
divestitures and alliances; our pension strategy and underfunded pension
obligation; reliance on third party suppliers; the impact of the terms
of our strategic relationship with Blackstone and our Series A
Convertible Preferred Stock; our multinational operations, including in
new and emerging markets; collectability difficulties in subcontracting
relationships in certain geographical markets; development and
protection of intellectual property; workforce turnover and the ability
to attract and retain skilled employees; uncertainties or delays
associated with the transition of key business leaders; environmental
exposures from our historical and ongoing manufacturing activities; and
uncertainties with regard to regulations, lawsuits, claims, and other
matters across various jurisdictions. 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.

Non-GAAP Financial Measures

Non-GAAP Financial Measures. While NCR reports its results in
accordance with Generally Accepted Accounting Principles in the United
States, or GAAP, in this release NCR also uses the non-GAAP measures
listed and described below.

Non-GAAP Diluted Earnings Per Share (EPS), Gross Margin (non-GAAP),
Gross Margin Rate (non-GAAP), Operating Expenses (non-GAAP), Operating
Income (non-GAAP), Operating Margin Rate (non-GAAP), Other (Expense)
(non-GAAP), Income Tax Expense (non-GAAP), Effective Income Tax Rate
(non-GAAP), and Net Income from Continuing Operations Attributable to
NCR (non-GAAP). NCR’s non-GAAP diluted EPS, gross margin (non-GAAP),
gross margin rate (non-GAAP), operating expenses (non-GAAP), operating
income (non-GAAP), operating margin rate (non-GAAP), other (expense)
(non-GAAP), income tax expense (non-GAAP), effective income tax rate
(non-GAAP), and net income from continuing operations attributable to
NCR (non-GAAP) are determined by excluding, as applicable, pension
mark-to-market adjustments, pension settlements, pension curtailments
and pension special termination benefits and other special items,
including amortization of acquisition related intangibles, from NCR’s
GAAP earnings per share, gross margin, gross margin rate, expenses,
income from operations, operating margin rate, other (expense), income
tax expense, effective income tax rate and net income from continuing
operations attributable to NCR, respectively. Due to the non-operational
nature of these pension and other special items, NCR’s management uses
these non-GAAP measures to evaluate year-over-year operating
performance. NCR also uses operating income (non-GAAP) and diluted EPS
(non-GAAP), to manage and determine the effectiveness of its business
managers and as a basis for incentive compensation. NCR believes these
measures are useful for investors because they provide a more complete
understanding of NCR’s underlying operational performance, as well as
consistency and comparability with NCR’s past reports of financial
results.

Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization (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, including its ability to fund discretionary
spending such as capital expenditures, strategic acquisitions and other
investments. NCR determines Adjusted EBITDA for a given period based on
its GAAP net income attributable to NCR plus interest expense, net; plus
income tax expense (benefit); plus depreciation and amortization; 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.

Free Cash Flow. NCR defines free cash flow as net cash provided
by/used in operating activities and cash flow provided by/used in
discontinued operations less capital expenditures for property, plant
and equipment, additions to capitalized software, discretionary pension
contributions and pension settlements. NCR’s management uses free cash
flow to assess the financial performance of the Company and believes it
is useful for investors because it relates the operating cash flow of
the Company to the capital that is spent to continue and improve
business operations. In particular, free cash flow indicates the amount
of cash generated after capital expenditures, which can be used for,
among other things, investment in the Company’s existing businesses,
strategic acquisitions, strengthening the Company’s balance sheet,
repurchase of Company stock and repayment of the Company’s debt
obligations. Free cash flow does not represent the residual cash flow
available for discretionary expenditures since there may be other
nondiscretionary expenditures that are not deducted from the measure.
Free cash flow does not have uniform definitions under GAAP and,
therefore, NCR’s definitions may differ from other companies’
definitions of these measures.

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 is more
representative 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.

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. These non-GAAP measures are reconciled to their most directly
comparable GAAP measures in the tables below.

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