NCR's CEO Discusses Q1 2012 Results - Earnings Call Transcript

NCR (NCR)

Q1 2012 Earnings Call

April 19, 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

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

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division

Katy Huberty - Morgan Stanley, Research Division

Anthony McCready - Northcoast Research

Michael Saloio - Sidoti & Company, LLC

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

Zahid Siddique - Gabelli & Company, Inc.

Presentation

Operator

Welcome, and thank you for standing by. [Operator Instructions] I'd like to inform all parties the call is being recorded. If you have any objections, you may disconnect at this time. I'd now like to turn the call over to Gavin Bell, Vice President of Investor Relations. Thank you. You may begin.

Gavin Bell

Thank you, Tamara. Good afternoon, everyone, and thanks for joining us for our First Quarter 2012 Earnings Call. Bill Nuti, NCR's Chairman and CEO 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 to be 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 our website, ncr.com. For those listening to the replay of this call, please keep in mind that the information discussed is as of April 19, 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, and good afternoon to all of you and thank you for joining us. NCR delivered a terrific first quarter. For those of you who tuned in to our fourth quarter call a few months back, you will hear a lot of the same messages today, and that's a good thing from our point of view. Our first quarter performance came in ahead of our expectations pretty much across the board as our global teams continued to deliver profitable growth through market-leading innovation and superior customer experience.

Total company as reported revenue increased 18% year-on-year, 19% on a constant currency basis. In addition, we delivered strong solid organic growth of 8%, excluding the Radiant acquisition with growth coming in all markets. We delivered Q1 records in gross margin and NPOI margin and produced $48 million in free cash flow.

In short, the company is executing very well. The results suggest that the momentum we've seen over the last several quarters continues at a strong pace and as a result, we raised our outlook for 2012 for revenue, NPOI and EPS in a pre-announcement earlier this week. Our core business pipeline remains robust, particularly in Financial Services where we added to our backlog and generated 17% order growth in Q1.

Total order growth was 5% during Q1 compared to a difficult prior-year compare. Backlog at the end of Q1 was $1.17 billion just shy of an all-time Q1 record by $7 million. It's also our 10th consecutive quarter where we have delivered year-over-year backlog growth. I want to remind you that our reported order growth and backlog does not include Hospitality, which understates these year-over-year comparisons. The Hospitality line of business generated multiple notable customer wins during Q1 and which we believe will be valuable contributors to our growth profile this year and in the future.

Overall, the sustained growth in our business pipeline is indicative of NCR's ability to deliver proven value to customers' worldwide market through leading technologies that offer tangible productivity gains, robust multi-channel integration capabilities and help enhance the customer and consumer experience. This value proposition successfully positions our customers at the intersection of technological advancement and consumer transaction preferences and is winning us business across each vertical we serve.

We also continued the migration of our revenue mix towards more profitable software and services revenues. During Q1, our Software and Software as a Service revenues increased 65% year-on-year to over $120 million, with Software gross margins above 70%. We see NCR's future as a hardware-enabled, software-driven company, and we are on track to execute our goal of achieving Software revenues in excess of $500 million this year or approximately 8% of total revenues.

Another key contributor to our gross margin expansion is our Services business where revenues increased 12% and gross margin was up 440 basis points year-over-year. We continue to win services contracts on a global basis, and our file value or services backlog is growing. Remember, file value and backlog are synonymous in the Services business. In addition to our strong financial performance during Q1, we further strengthened our global leadership in our core financial and retail verticals, while capturing incremental share in Hospitality. This is consistent with our sharper focus on the core of our business.

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