NCR (NCR) Q2 2012 Earnings Call July 19, 2012 4:30 pm ET Executives Gavin Bell 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 Peter A. Leav - Executive Vice President of Global Sales, Industry Lines of Business, Professional Services and Consumables Analysts Gil B. Luria - Wedbush Securities Inc., Research Division Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division Daniel R. Perlin - RBC Capital Markets, LLC, Research Division Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division Kartik Mehta - Northcoast Research Julio C. Quinteros - Goldman Sachs Group Inc., Research Division Dan Dolev - Morgan Stanley, Research Division Presentation Operator
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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 July 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 Nuti.William R. Nuti Thank you, Gavin. Good afternoon and thank you all for joining us. Our second quarter results keep us on track to achieve our full year objectives and demonstrate the consistent execution and innovation that we are leveraging across all of our lines of business. Consolidated as-reported revenues increased 11% in the second quarter of 2012 compared to the same period last year. Revenues increased 15% on a constant currency basis and gross margin and NPOI margin once again reached record levels in Q2. We continue to execute our strategy to become a solutions company, where hardware, software and services are integrated to deliver more value to our customers. This strategy and our solid execution is resulting in NCR generating profitable growth. In addition to our strong revenue, gross margin and NPOI results, orders surged in the second quarter, growing 19% over the prior year period. Order growth was bolstered by a significant order in Brazil. We finished the quarter with backlog of $1.29 billion, a record high, and our 11th consecutive quarter of year-over-year backlog growth. As a reminder, this order and backlog growth does not include our hospitality line of business, which also expanded its business pipeline during Q2. In addition, it does not include our consumables line of business. Our focus on growing our core verticals, Financial Services, Retail and Hospitality, and solid execution across our product groups and our global services business are combining to drive strong financial performance and a robust business pipeline.
Outside of the core, we continue to leverage NCR's strengths in attractive Emerging Industries like Travel, as well as Telecom and Technology. Consistent with this strategy, we completed the previously announced sale of our Entertainment business to Redbox in the second quarter, consistent with the pricing and terms we announced at the time of the deal.One of our main goals is now to grow overall revenue contribution from higher margin software and services as we continue to transform into a solutions company. In the second quarter, software and SaaS revenues were up 47% compared to Q2 of last year, and our software gross margins were in excess of 65%. Our target for software revenues this year is $500-plus million, and we are well on our way to achieving that objective. We demonstrated growth in our services business as well, with revenues growing 7% and gross margin expanding 270 basis points over the prior year period. Earlier this month, we announced that we reached our highest-ranking to date in the 2012 Global Outsourcing 100 rankings, rising 2 spots to #6 overall. The rankings are established by the International Association of Outsourcing Professionals, the global standard setting organization and advocate for the outsourcing profession. The Global Outsourcing 100 is an annual ranking representation of the standard of excellence in outsourcing and NCR's services team clearly stands as one of the top outsourcing services providers. Customer references -- company recognitions, certifications and executive leadership. As one of the world's leading providers of software support and managed services, NCR performs 11 million service actions per year and maintains more than 2 million points of service worldwide. As we look ahead, NCR remains well-positioned to benefit from expected growth in expanding our front office technology across our verticals. Read the rest of this transcript for free on seekingalpha.com