Based on Q1 earnings, NCR turns bullish on full-year outlook

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A look at NCR Corp. earnings for the first quarter of the year would seem to confirm that the company is on the right track with its “software-driven, hardware-enabled” refrain.

In Q1, the company reported a year-over-year increase in its software solutions business, despite continuing currency exchange head winds. On the hardware side, however, revenue was down significantly — including a double-digit drop in ATM income.

NCR Chairman and CEO Bill Nuti was upbeat about the company’s performance — except when it came to ATM sales.

“I was disappointed with ATM volume and margins in the quarter. While we expected these results, we were collectively driving towards strict goals in these areas and did not achieve them.”

Both Nuti and NCR CFO Bob Fishman said that Q1 ATM results were not representative of the segment’s outlook for the year, though.

“While Q1 ATM revenue was lower than expected, ATM backlog is up significantly entering Q2 and, along with higher revenue and improved backlog conversion, this will contribute to a better second half of 2016,” Fishman said.

Nuti later pegged the backlog at 19 percent.

ncr-q1-revenue-by-segmentIn contrast, branch transformation hardware revenue was up for the quarter. “NCR is on track to meet its 2016 objectives for this hardware segment,” Fishman said.

NCR posted a slight dip in total Q1 revenues — down 2 percent from the previous year at $1.44 billion, but up slightly on a constant currency basis.

Despite continuing FX head winds, Nuti expressed general satisfaction with the company’s performance during the first quarter of the year:

“Our first quarter results either met or exceeded our expectations and mark a good start to 2016. We generated revenue growth in software and services due to improved traction in our strategic solutions, global omnichannel leadership, and getting off to a fast start with regard to our business transformation initiative.

At the start of 2016, NCR began managing and reporting its business on a solution basis (i.e., software, services and hardware), rather than the line-of-business basis (i.e., financial, retail, hospitality, etc.) it had used for years. Prior-year results were recast in order to present comparisons from 2015 to 2016. (see graphic above)

In their earnings call presentations, Nuti and Fishman alluded to a strategic relationship in the works with Wells Fargo, as well as the largest NCR deals ever signed in Mexico and with a community financial institution in the United States.

Details about the Wells Fargo agreement were sparse in the earnings call. Nuti said that further information about the deal, which involves a single-vendor omnichannel model, would be released over the next 30 to 45 days.

During the Q&A portion of the call, Andy Heyman commented on what he saw as the implications of the decision by Wells Fargo to commit to a single-vendor omnichannel solution.

I think what we are seeing is a growing trend based on the desire for significant retail network transformation to simplify the technology infrastructure to enable the cost improvement and the revenue growth that financial institutions are striving to achieve. … [W]e are optimistic about this trend. And time will tell if that optimism proves out, but we do like a lot what we see, just like [the Wells Fargo agreement]. We have a similar win with our largest deal ever in Mexico; we had our largest deal ever on the same formula in the community financial institution space in the United States. And we are seeing that demand pick up globally.

Indeed, Nuti credited NCR customers’ omnichannel implementations, applications and upgrades for a considerable slice of the company’s success in Q1.

“Everywhere we look in our P&L, the implementation of omnichannel is growing and making an impact,” he said. “As we look ahead for the omnichannel market, it is important to note that NCR is on the forefront of helping our customers respond to the disruptive changes in globalization, digitalization, consumerism and the Internet-of-things. It is estimated that by 2020, 75 percent of businesses will have digital transformation underway.”

ncr-fy-2016-guidanceMeanwhile, NCR is moving ahead with its own transformation, assisted by investment and advisement from Blackstone, which closed in December and infused $820 million into the business.

Already, Nuti said, the company’s business relationship with Blackstone has been “a significant net positive.”

In fact, NCR is raising its full-year outlook based on Q1 results. (see graphic left)

“I am incrementally more positive on the year due to solid orders, software mix, a higher backlog and services file value, omnichannel solutions traction and a fast start on our business transformation initiative,” Nuti said. “Ultimately these are the factors that give us the confidence to raise our revenue and the EPS guidance on the year.”

graphics NCR

cover photo istock

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