NCR's CEO Discusses Q4 2011 Results - Earnings Call Transcript

NCR (NCR)

Q4 2011 Earnings Call

February 06, 2012 4:30 pm ET

Executives

Gavin Bell -

William R. Nuti - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Peter A. Dorsman - Executive Vice President of Industry Solutions Group and Global Operations

Robert P. Fishman - Chief Financial Officer, Chief Accounting Officer and Senior Vice President

John G. Bruno - Chief Technology Officer and Executive Vice President of Corporate Development

Analysts

Roman Leal - Goldman Sachs Group Inc., Research Division

Dan Dolev - Morgan Stanley, Research Division

Gil B. Luria - Wedbush Securities Inc., Research Division

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Michael Saloio - Sidoti & Company, LLC

Kartik Mehta - Northcoast Research

Zahid Siddique - Gabelli & Company, Inc.

Presentation

Operator

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Welcome, and thank you for standing by. [Operator Instructions] Today's conference call is being recorded. If you have any objections to this, you may disconnect at any time. And now I would like to introduce your host for today's conference call, Gavin Bell, Vice President of Investor Relations. Sir, please go ahead.

Gavin Bell

Thanks, Brad. Good afternoon, and thank you, everyone, for joining us for our Fourth 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, Peter Dorsman, Executive Vice President of our Industry Solutions Group and Global Operations 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. Reconciliations 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 NCR's website, ncr.com. For those listening to the replay of this call, please keep in mind that the information discussed is as of February 6, 2012, 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.

I'll now turn the call over to Bill.

William R. Nuti

Thank you, Gavin. Good afternoon, and thank you all for joining us. 2011 was a highly successful year for NCR featuring record revenue, gross margin and NPOI and $151 million or more than 400% year-over-year increase in free cash flow. We finished the year well ahead of expectations as full year revenues grew 13% and nonpension operating income, or NPOI, totaled $434 million, an increase of 28% versus 2010.

Our operating margins continue to improve as evidenced by full year NPOI margin of 9.1%, excluding the Entertainment business, an increase of 110 basis points compared to 2010 and the highest since the 2007 Teradata spinoff.

We ended the year with order growth up 18% versus last year. It is important to note that this growth does not include Hospitality and Specialty Retail, or HSR, a segment that we expect to be a key growth driver in 2012 and beyond.

Backlog at the end of the year was over $1 billion, up 14% versus the prior year period. We've now delivered 9 consecutive quarters of year-on-year backlog growth, and we entered 2012 with our highest backlog for the first quarter in our history.

Our financial results and strong pipeline demonstrates that our business strategy to deliver profitable revenue growth, gross margin expansion and an improved consumer experience is delivering tangible returns. Our discipline in the areas of strategy execution, investment and innovation, continuous improvement and a focus on delivering great service are all the reasons why 2011 was a successful year and why we entered 2012 with confidence.

In terms of gross margin expansion, we are continuing to make progress in building our capabilities in 2 critical areas, software and services. Software revenues, including our rapidly growing software-as-a-service business, grew 52% in Q4 versus the prior quarter and 31% in full year 2011. And we expect in 2012 to drive total software revenues to well over $500 million.

Looking at our services business, we continued our momentum in Q4 and delivered full year revenue growth of 12% and gross margin expansion of 230 basis points versus the prior year on a non-GAAP basis. In addition, services file value, the equivalent of backlog, was up 8% on both a reported and FX neutral basis versus the prior year period positioning us for a very solid 2012.

It's important to put this in perspective. NCR services generates a recurring revenue stream and drives about half of total company revenue, and file value is a record $1.77 billion, with an improving margin profile. The combination of services file value and solutions backlog of $1 billion is an important metric as we enter 2012. Bear in mind that hospitality and consumables are not represented in these backlog numbers.

Frankly speaking, our focus on changing our business model to being software- and services-led is working. Assuming we continue to execute, which we have every intention to do, it will have lasting implications on NCR's growth and margin profile, as well as the value we deliver to our customers for many years to come. Simply put, the reinvention of NCR is on an excellent path.

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