Q3 2011 Earnings Call
October 27, 2011 4:30 pm ET
Gavin Bell - Vice President Investor Relations
Peter A. Leav - Senior Vice President of Global Sales
William R. Nuti - Chairman, Chief Executive Officer, President and Chairman of Executive Committee
Robert P. Fishman - Chief Financial Officer, Chief Accounting Officer and Senior Vice President
John G. Bruno - Executive Vice President of Industry Solutions Group
Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division
Julio C. Quinteros - Goldman Sachs Group Inc., Research Division
Kartik Mehta - Northcoast Research
Paul Coster - JP Morgan Chase & Co, Research Division
Michael Saloio - Sidoti & Company, LLC
Unknown Analyst -
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Welcome, and thank you for standing by. [Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect at this time. And I would now like to turn the call over to Gavin Bell. Thank you, you may begin.
Thank you, Jared. Good afternoon, and thanks, everyone, for joining us for our Third Quarter 2011 Earnings Call. Bill Nuti, NCR's Chairman and Chief Executive Officer, will lead our conference call this afternoon. After Bill's opening remarks, John Bruno, Executive Vice President of our Industry Solutions Group, will update you on progress with respect to certain key initiatives; Bob Fishman, NCR's Chief Financial Officer, will then provide comments on NCR's total company financial results.
Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to vary materially. These risk factors are described in NCR's periodic filings with the SEC and in our annual report to stockholders.
On today's call, we will also be discussing certain non-GAAP financial information, such as free cash flow, and results excluding the impact of pension and other items. Reconciliation of non-GAAP financial results to our reported and forecasted GAAP results and other information concerning such measures are included in our earnings press release and are also available on the Investor page of NCR's website.
A replay of this conference call will be available later today on our website, www.ncr.com. For those listening to the replay of this call, please keep in mind that the information discussed is as of October 27, 2011, and NCR assumes no obligation to update or revise the information included in this conference call, whether as a result of new information or future results.
With that, I'll now turn the call over to Bill Nuti.
William R. Nuti
Thank you, Gavin, and good afternoon to all of you and thank you for joining us. Our record third quarter performance is a direct result of good execution across our businesses and solid demand for our core solutions. And the results give us the confidence to raise our full year revenue, non-GAAP operating income and free cash flow guidance.
In addition, we completed 2 important strategic transactions. The acquisition of Radiant Systems and our strategic alliance with Scopus Technology in Brazil, both of which will further accelerate our global growth prospects and help shape NCR's future. Despite heightening economic concerns including the sovereign debt issues in Europe, demand for our solutions remained healthy, particularly in the Financial Services segment, where Q3 orders grew 57% on a global basis versus the prior year period.
Financial Services order growth was balanced across the board with increases of 106% in North America, 109% in our emerging markets, either BICMEA, 20% in Caribbean, Latin America and 17% in Europe. Total company orders grew 36% in Q3 compared to the prior year period and are up 22% year-to-date. The third quarter of 2011 was the best quarter with respect to order volume in NCR's history, and our backlog at the end of Q3 was also at a record $1.2 billion, up 23% year-over-year.
It's important to note that these metrics are apples-to-apples as they exclude the impact of the Radiant Systems acquisition and are indicative of both the high level of execution across our core businesses, as well as the value proposition of our solutions we provide our customers. We are not immune to global macroeconomic forces, but we do deliver solutions to our customers that demonstrably increase productivity, reduce cost and improve the consumer experience.
I'll speak to specific lines of business more in a moment, but from a high-level, we had a record order growth in Financial Services, which is benefiting in the U.S. from ongoing upgrades by regional banks, many of whom delayed purchases over the past couple of years and Brazil, where we booked the largest order in the history of our company in Q3.
Our Scalable Deposit Module, or SDM technology, is playing an important role in our success. SDM has been widely adopted by the top 10 U.S. banks. However, in the last 2 quarters, we have seen increasing adoption by regional banks now that most major switching networks have certified the SDM. We are receiving orders from U.S. regionals and as well as the majors, and expect to deliver more than 5,000 SDMs -- units in 2011.
Meanwhile, our Retail business has generated year-to-date order growth, and our services business continues to achieve better-than-expected revenue growth, increasing gross margins and improving attach rates. We also continue to gain traction in our emerging verticals, particularly Telecom and Technology and Travel.
In August, we completed our acquisition of Radiant Systems, which gives us a leadership position in a highly complementary third vertical, hospitality. As we have previously discussed with you, this new vertical market offers significant revenue synergy opportunities for NCR from both a customer and geographic standpoint. And most importantly, the business's technologies and market approach accelerate our drive to a more software-enabled business model in the years ahead.