NCR Voyix Corp(VYX) - 2022 Q1 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of NCR Corporation for the three months ended March 31, 2022 and 2021, including statements of operations, comprehensive income, balance sheets, cash flows, changes in stockholder's equity, and detailed notes Condensed Consolidated Statements of Operations (Unaudited) The company reported a net loss of $35 million for the three months ended March 31, 2022, a significant decline from a net income of $31 million in the prior year period. Total revenue increased by 21% to $1,866 million, driven by growth in both product and service revenues. However, operating income decreased substantially, and interest expense rose Financial Performance (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (Millions) | Q1 2021 (Millions) | | :--------------------------------- | :----------------- | :----------------- | | Product revenue | $516 | $482 | | Service revenue | $1,350 | $1,062 | | Total revenue | $1,866 | $1,544 | | Income (loss) from operations | $33 | $110 | | Interest expense | $(63) | $(45) | | Net income (loss) | $(35) | $31 | | Basic EPS | $(0.28) | $0.20 | | Diluted EPS | $(0.28) | $0.19 | Condensed Consolidated Statements of Comprehensive Income (Unaudited) For the three months ended March 31, 2022, NCR reported a total comprehensive loss of $17 million, a decrease from a total comprehensive income of $23 million in the prior year. This shift was primarily influenced by currency translation adjustments and significant unrealized gains on derivatives, partially offset by the net loss Comprehensive Income (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (Millions) | Q1 2021 (Millions) | | :--------------------------------- | :----------------- | :----------------- | | Net income (loss) | $(35) | $31 | | Currency translation gains (loss) | $(26) | $(7) | | Unrealized gains (loss) on derivatives | $57 | $0 | | Total comprehensive income (loss) | $(17) | $23 | Condensed Consolidated Balance Sheets (Unaudited) As of March 31, 2022, total assets increased slightly to $11,715 million from $11,641 million at December 31, 2021. Key changes include an increase in accounts receivable and inventories, while cash and cash equivalents decreased. Total liabilities also saw a minor increase, with long-term debt remaining substantial Balance Sheet Highlights (March 31, 2022 vs December 31, 2021) | Metric | March 31, 2022 (Millions) | December 31, 2021 (Millions) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $412 | $447 | | Accounts receivable, net | $1,071 | $959 | | Inventories | $805 | $754 | | Total current assets | $2,976 | $2,876 | | Goodwill | $4,570 | $4,519 | | Total assets | $11,715 | $11,641 | | Total current liabilities | $2,830 | $2,808 | | Long-term debt | $5,516 | $5,505 | | Total liabilities | $10,116 | $10,108 | | Total stockholders' equity | $1,325 | $1,259 | Condensed Consolidated Statements of Cash Flows (Unaudited) Net cash provided by operating activities significantly decreased to $38 million for the three months ended March 31, 2022, from $155 million in the prior year, primarily due to lower operating earnings and unfavorable working capital movements. Net cash used in investing activities decreased, while financing activities provided a small net cash inflow Cash Flow Summary (Q1 2022 vs Q1 2021) | Activity | Q1 2022 (Millions) | Q1 2021 (Millions) | | :--------------------------------- | :----------------- | :----------------- | | Net cash provided by operating activities | $38 | $155 | | Net cash used in investing activities | $(86) | $(218) | | Net cash provided by financing activities | $1 | $98 | | Cash, cash equivalents and restricted cash at end of period | $692 | $391 | - Issued common stock and assumed unvested option awards in the acquisition of LibertyX for total non-cash consideration of $68 million, plus $2 million in assumed debt[18] Condensed Consolidated Statements of Changes in Stockholder's Equity (Unaudited) Total stockholders' equity attributable to NCR increased to $1,323 million as of March 31, 2022, from $1,256 million at December 31, 2021. This increase was mainly driven by stock issued in the acquisition of LibertyX ($68 million) and employee stock plans ($19 million), partially offset by a net loss and Series A preferred stock dividends Changes in Stockholder's Equity (Q1 2022) | Item | Amount (Millions) | | :--------------------------------- | :---------------- | | Balance as of December 31, 2021 | $1,259 | | Net income (loss) | $(34) | | Other comprehensive income (loss) | $18 | | Employee stock purchase and stock compensation plans | $19 | | Stock issued in acquisition of LibertyX | $68 | | Series A convertible preferred stock dividends | $(4) | | Balance as of March 31, 2022 | $1,325 | Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed disclosures and explanations for the condensed consolidated financial statements, covering significant accounting policies, business combinations, goodwill, segment information, debt, income taxes, stock compensation, employee benefits, commitments, contingencies, preferred stock, EPS, derivatives, fair value, and AOCI Note 1. Basis of Presentation and Summary of Significant Accounting Policies The financial statements are unaudited and prepared in accordance with SEC rules and GAAP. Effective January 1, 2022, NCR realigned its reportable segments to Payments & Network, Digital Banking, Self-Service Banking, Retail, and Hospitality. The company recognized a $19 million loss in Q1 2022 due to winding down operations in Russia - Effective January 1, 2022, reportable segments were realigned to Payments & Network, Digital Banking, Self-Service Banking, Retail, and Hospitality[27] - Recognized a $19 million loss for the three months ended March 31, 2022, primarily in Cost of products, Cost of services, and Selling, general and administrative expenses, due to winding down operations in Russia[28] - Recognized $228 million in revenue that was included in contract liabilities as of December 31, 2021, during the three months ended March 31, 2022[34] - Aggregate amount of transaction price allocated to remaining performance obligations was approximately $4.2 billion as of March 31, 2022, with three-quarters expected to be recognized over the next 12 months[35] Note 2. Business Combinations On January 5, 2022, NCR acquired Moon Inc., dba LibertyX, a cryptocurrency software provider, for approximately $69 million in total purchase consideration, including $1 million cash and 1.4 million shares of common stock. This acquisition aims to enhance NCR's digital currency solutions and was allocated to the Payments & Network segment - On January 5, 2022, NCR acquired Moon Inc., dba LibertyX, a cryptocurrency software provider, to provide a complete digital currency solution[43] - Total purchase consideration for LibertyX acquisition was approximately $69 million, consisting of $1 million cash and approximately 1.4 million shares of common stock[43][45] Preliminary Purchase Price Allocation for LibertyX Acquisition | Item | Fair Value (Millions) | | :--------------------------------- | :-------------------- | | Cash acquired | $2 | | Tangible assets acquired | $3 | | Acquired intangible assets other than goodwill | $38 | | Acquired goodwill | $41 | | Deferred tax liabilities | $(11) | | Liabilities assumed | $(4) | | Total purchase consideration | $69 | - Goodwill of $41 million from LibertyX acquisition was allocated to the Payments & Network segment[46] Note 3. Goodwill and Long-Lived Assets Following segment realignment on January 1, 2022, goodwill was reassigned to new reporting units. Total goodwill increased to $4,570 million as of March 31, 2022, from $4,519 million at December 31, 2021, primarily due to the LibertyX acquisition. Identifiable intangible assets, mainly reseller & customer relationships and intellectual property, totaled $2,387 million gross carrying amount Goodwill by Segment (March 31, 2022) | Segment | Goodwill (Millions) | | :------------------- | :------------------ | | Payments & Network | $1,035 | | Digital Banking | $596 | | Self-Service Banking | $1,538 | | Retail | $980 | | Hospitality | $269 | | Other | $152 | | Total goodwill | $4,570 | - Additions to goodwill during Q1 2022 totaled $45 million, including purchase accounting adjustments related to the Cardtronics acquisition and goodwill from the LibertyX transaction[51] Identifiable Intangible Assets (March 31, 2022) | Asset Type | Gross Carrying Amount (Millions) | Accumulated Amortization (Millions) | | :--------------------------------- | :------------------------------- | :------------------------------- | | Reseller & customer relationships | $1,127 | $(409) | | Intellectual property | $1,041 | $(495) | | Customer contracts | $89 | $(89) | | Tradenames | $130 | $(85) | | Total identifiable intangible assets | $2,387 | $(1,078) | - Amortization expense related to identifiable intangible assets was $41 million for the three months ended March 31, 2022, compared to $20 million in the prior year[56] Note 4. Segment Information and Concentrations NCR's reportable segments are Payments & Network, Digital Banking, Self-Service Banking, Retail, and Hospitality. Segment performance is evaluated based on revenue and Adjusted EBITDA. Total segment revenue increased 21% to $1,863 million, and total Adjusted EBITDA increased 5% to $271 million for Q1 2022 compared to Q1 2021 Revenue by Segment (Q1 2022 vs Q1 2021) | Segment | Q1 2022 (Millions) | Q1 2021 (Millions) | Change (%) | | :------------------- | :----------------- | :----------------- | :--------- | | Payments & Network | $299 | $22 | 1,259% | | Digital Banking | $136 | $123 | 11% | | Self-Service Banking | $611 | $628 | (3%) | | Retail | $546 | $520 | 5% | | Hospitality | $211 | $179 | 18% | | Other | $68 | $77 | (12%) | | Total segment revenue | $1,863 | $1,544 | 21% | Adjusted EBITDA by Segment (Q1 2022 vs Q1 2021) | Segment | Q1 2022 (Millions) | Q1 2021 (Millions) | Change (%) | | :------------------- | :----------------- | :----------------- | :--------- | | Payments & Network | $98 | $3 | 3,167% | | Digital Banking | $56 | $54 | 4% | | Self-Service Banking | $112 | $137 | (18%) | | Retail | $67 | $98 | (32%) | | Hospitality | $41 | $36 | 14% | | Corporate and Other | $(97) | $(67) | 45% | | Total Adjusted EBITDA | $271 | $258 | 5% | - Recurring revenue increased 35% to $1,179 million in Q1 2022, representing 63.2% of total revenue, up from 56.6% in Q1 2021[64] Note 5. Debt Obligations As of March 31, 2022, NCR's total short-term borrowings were $83 million and long-term debt was $5,516 million. The Senior Secured Credit Facility includes $1.938 billion outstanding under term loan facilities and $415 million under the revolving credit facility, with a borrowing capacity of $861 million. The company also has various senior unsecured notes totaling $3.3 billion Debt Summary (March 31, 2022) | Type of Debt | Amount (Millions) | Weighted-Average Interest Rate | | :--------------------------------- | :---------------- | :----------------------------- | | Short-term borrowings | $83 | 2.31% | | Term loan facility | $1,857 | 2.47% | | Revolving credit facility | $415 | 2.54% | | Senior notes (various maturities) | $3,300 | N/A | | Total Long-Term Debt | $5,516 | N/A | - Borrowing capacity under the Revolving Credit Facility was $861 million at March 31, 2022[67] - The fair value of long-term debt was $5.54 billion as of March 31, 2022[73] Note 6. Trade Receivables Facility NCR maintains a trade receivables facility with PNC Bank, allowing its bankruptcy-remote subsidiaries to sell trade receivables on a revolving basis. As of March 31, 2022, approximately $300 million of trade receivables had been sold and derecognized, with an additional $326 million owned by the SPEs - Approximately $300 million of trade receivables were sold and derecognized as of March 31, 2022 and December 31, 2021[76] - The SPEs collectively owned $326 million of trade receivables as of March 31, 2022, compared to $228 million as of December 31, 2021[76] Note 7. Income Taxes Income tax expense for Q1 2022 was $13 million, down from $17 million in Q1 2021, primarily due to a pre-tax book loss offset by the removal of tax benefits in certain foreign jurisdictions. The company expects gross unrecognized tax benefits to decrease by $5 million to $13 million in the next 12 months Income Tax Expense (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (Millions) | Q1 2021 (Millions) | | :------------------- | :----------------- | :----------------- | | Income tax expense | $13 | $17 | - Gross unrecognized tax benefits are estimated to decrease by $5 million to $13 million in the next 12 months[81] Note 8. Stock Compensation Plans Stock-based compensation expense for Q1 2022 was $34 million, down from $44 million in Q1 2021. The primary types are restricted stock units and stock options. Unrecognized compensation costs total $228 million for restricted stock and $15 million for stock options, expected to be recognized over weighted average periods of 1.2 and 0.5 years, respectively Stock-based Compensation Expense (Q1 2022 vs Q1 2021) | Type | Q1 2022 (Millions) | Q1 2021 (Millions) | | :--------------------------------- | :----------------- | :----------------- | | Restricted stock units | $26 | $36 | | Stock options | $5 | $6 | | Employee stock purchase plan | $3 | $2 | | Total Stock-based compensation expense | $34 | $44 | - Total unrecognized compensation cost of $228 million related to unvested restricted stock grants is expected to be recognized over approximately 1.2 years[86] - Total unrecognized compensation cost of $15 million related to unvested stock option grants is expected to be recognized over approximately 0.5 years[86] Note 9. Employee Benefit Plans Net periodic benefit cost for pension plans was an income of $10 million in Q1 2022, compared to an income of $2 million in Q1 2021. Net benefit cost for postemployment plans increased to $13 million from $6 million. NCR anticipates contributing $17 million to international pension plans, $1 million to U.S. postretirement plans, and $30 million to postemployment plans in 2022 Net Periodic Benefit Cost (Income) - Pension Plans (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (Millions) | Q1 2021 (Millions) | | :--------------------------------- | :----------------- | :----------------- | | Net service cost | $1 | $1 | | Interest cost | $13 | $11 | | Expected return on plan assets | $(24) | $(14) | | Net periodic benefit cost (income) | $(10) | $(2) | Net Benefit Cost - Postemployment Plan (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (Millions) | Q1 2021 (Millions) | | :--------------------------------- | :----------------- | :----------------- | | Net service cost | $13 | $6 | | Interest cost | $1 | $1 | | Amortization of prior service benefit | $(1) | $(1) | | Net benefit cost | $13 | $6 | - Anticipates contributing $17 million to international pension plans, $1 million to U.S. postretirement plan, and $30 million to postemployment plan in 2022[92][93] Note 10. Commitments and Contingencies NCR is involved in various legal proceedings and environmental matters, including the Fox River, Kalamazoo River, and Ebina sites. The company has established reserves for these matters, with the net reserve for Fox River at $26 million and for Kalamazoo River at $96 million as of March 31, 2022. Environmental remediation estimates are subject to uncertainties - As of March 31, 2022, the gross reserve for the Fox River matter was approximately $4 million, and the net reserve was approximately $26 million[106] - As of March 31, 2022, the total reserve for the Kalamazoo River matter was $96 million, net of expected contributions from co-obligors and indemnitors (expected to range from $70 million to $150 million)[114] - The reserve for the Ebina environmental matter in Japan was $15 million as of March 31, 2022[118] Warranty Reserve Liability Activity (Q1 2022) | Item | Amount (Millions) | | :--------------------------------- | :---------------- | | Beginning balance as of January 1 | $19 | | Accruals for warranties issued | $5 | | Settlements (in cash or in kind) | $(7) | | Ending balance as of March 31 | $17 | Note 11. Series A Convertible Preferred Stock Holders of Series A Convertible Preferred Stock are entitled to a cumulative 5.5% annual dividend, payable quarterly in cash or in-kind. $4 million in cash dividends were paid in Q1 2022. The stock is convertible into common stock at $30.00 per share, with a maximum of 9.2 million common shares issuable upon conversion - Holders of Series A Convertible Preferred Stock are entitled to a cumulative dividend at the rate of 5.5% per annum, payable quarterly in arrears (cash or in-kind)[126] - Cash dividends of $4 million were paid for Series A preferred shares during the three months ended March 31, 2022[126] - Convertible at the option of holders into common stock at a conversion price of $30.00 per share, with a maximum of 9.2 million common shares issuable[127] Note 12. Earnings Per Share Basic EPS for Q1 2022 was $(0.28) and diluted EPS was $(0.28), reflecting a net loss attributable to NCR common stockholders of $(38) million. Due to the net loss, potential common shares (preferred stock, restricted stock units, stock options) were excluded from diluted EPS calculation as their effect would have been anti-dilutive Earnings Per Share (Q1 2022 vs Q1 2021) | Metric | Q1 2022 | Q1 2021 | | :--------------------------------- | :-------- | :-------- | | Basic EPS from continuing operations | $(0.27) | $0.20 | | Total Basic EPS | $(0.28) | $0.20 | | Diluted EPS from continuing operations | $(0.27) | $0.19 | | Total Diluted EPS | $(0.28) | $0.19 | - For Q1 2022, 9.2 million Series A Convertible Preferred Stock shares and 11.2 million weighted average restricted stock units and stock options were excluded from the diluted share count due to their anti-dilutive effect[133] Note 13. Derivatives and Hedging Instruments NCR uses derivative instruments, including foreign currency forward/option contracts and interest rate swap/cap agreements, to manage foreign currency exchange risk and interest rate risk. In Q1 2022, the company executed a $250 million interest rate swap and terminated $2 billion notional interest rate cap agreements for $64 million proceeds - Manages foreign currency transaction exposure using foreign currency forward and option contracts, hedging a portion of forecasted non-functional currency denominated cash flows for up to 15 months[136][138] - Utilizes interest rate swap contracts or interest rate cap agreements to add stability to interest cost and manage exposure to interest rate movements[139] - In January 2022, executed a $250 million notional interest rate swap contract (fixed rate 1.43%) terminating January 1, 2025, designated as a cash flow hedge of floating interest rate cost associated with U.S. Dollar vault cash agreements[141] - In March 2022, terminated outstanding $2 billion notional interest rate cap agreements maturing in 2024 for proceeds of $64 million, with gains recognized ratably through July 1, 2024[142] - As of March 31, 2022, the balance in Accumulated Other Comprehensive Income (AOCI) related to Interest Rate Derivatives was $53 million, up from $8 million at December 31, 2021[144] Note 14. Fair Value of Assets and Liabilities Assets and liabilities measured at fair value on a recurring basis primarily include deposits in money market mutual funds (Level 1), foreign exchange contracts, and interest rate swap/cap agreements (Level 2). As of March 31, 2022, total assets measured at fair value were $41 million, and total liabilities were $16 million Fair Values of Derivative Instruments (March 31, 2022) | Item | Total (Millions) | Level 1 (Millions) | Level 2 (Millions) | | :--------------------------------- | :--------------- | :----------------- | :----------------- | | Assets: | | | | | Deposits held in money market mutual funds | $17 | $17 | $0 | | Foreign exchange contracts | $1 | $0 | $1 | | Interest rate swap agreements | $23 | $0 | $23 | | Total Assets | $41 | $17 | $24 | | Liabilities: | | | | | Interest rate swap agreements | $13 | $0 | $13 | | Foreign exchange contracts | $3 | $0 | $3 | | Total Liabilities | $16 | $0 | $16 | Note 15. Accumulated Other Comprehensive Income (Loss) (AOCI) AOCI changed from a loss of $291 million at December 31, 2021, to a loss of $273 million at March 31, 2022. This was primarily due to a $44 million increase in effective cash flow hedges, partially offset by a $26 million decrease from currency translation adjustments Changes in Accumulated Other Comprehensive Income (AOCI) by Component (Q1 2022) | Component | Balance as of Dec 31, 2021 (Millions) | Net Current Period Other Comprehensive (Loss) Income (Millions) | Balance as of Mar 31, 2022 (Millions) | | :--------------------------------- | :------------------------------------ | :------------------------------------------------------------ | :------------------------------------ | | Currency Translation Adjustments | $(275) | $(26) | $(301) | | Employee Benefit Plans | $(24) | $(1) | $(25) | | Effective Cash Flow Hedges | $8 | $45 | $53 | | Total AOCI | $(291) | $18 | $(273) | Note 16. Supplemental Financial Information Accounts receivable, net, increased to $1,071 million as of March 31, 2022, from $959 million at December 31, 2021, with an allowance for credit losses of $26 million. Total inventories increased to $805 million, driven by increases in finished goods and service parts Accounts Receivable (March 31, 2022 vs Dec 31, 2021) | Metric | March 31, 2022 (Millions) | December 31, 2021 (Millions) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Accounts receivable, gross | $1,097 | $983 | | Less: allowance for credit losses | $(26) | $(24) | | Total accounts receivable, net | $1,071 | $959 | Inventories (March 31, 2022 vs Dec 31, 2021) | Type | March 31, 2022 (Millions) | December 31, 2021 (Millions) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Work in process and raw materials | $176 | $184 | | Finished goods | $241 | $185 | | Service parts | $388 | $385 | | Total inventories | $805 | $754 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on NCR's financial condition and results of operations for the three months ended March 31, 2022, discussing business overview, strategic initiatives, macroeconomic impacts, consolidated results, segment performance, and liquidity Overview NCR is a software- and services-led enterprise technology provider for stores, restaurants, and self-directed banking. The company realigned its segments in Q1 2022 and is transitioning to a software platform and payments company, aiming for 80% annual recurring revenue and 15% non-GAAP EPS growth by 2026 - NCR is a software- and services-led enterprise technology provider for stores, restaurants, and self-directed banking, with a focus on digital-first software and services[165] - Aspirational five-year financial goals for 2026 include 80% annual recurring revenue, 15% annual non-GAAP EPS growth, and $1 billion annual non-GAAP free cash flow[172] - The Board of Directors approved a comprehensive strategic review to evaluate a full range of strategic alternatives, including disposition, spin-off, merger, or sale of the company[175] - The company continues to be exposed to macroeconomic pressures from the COVID-19 pandemic, supply chain challenges, and spikes in commodity and energy prices due to geopolitical challenges, including the war in Eastern Europe[177][179] Results from Operations For Q1 2022, total revenue increased 21% to $1,866 million, driven by service revenue growth. However, net income from continuing operations attributable to NCR shifted to a loss of $33 million from a $30 million income in Q1 2021, and Adjusted EBITDA increased modestly by 5% to $271 million. Gross margin percentage declined due to increased costs Key Strategic Financial Metrics (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (Millions) | Q1 2021 (Millions) | % of Total Revenue (2022) | % of Total Revenue (2021) | Change (%) | | :--------------------------------- | :----------------- | :----------------- | :------------------------ | :------------------------ | :--------- | | Recurring revenue | $1,179 | $874 | 63.2% | 56.6% | 35% | | All other products and services | $687 | $670 | 36.8% | 43.4% | 3% | | Total Revenue | $1,866 | $1,544 | 100.0% | 100.0% | 21% | | Net income (loss) from continuing operations attributable to NCR | $(33) | $30 | (1.8%) | 1.9% | (210%) | | Adjusted EBITDA | $271 | $258 | 14.5% | 16.7% | 5% | - The non-GAAP presentation of financial measures for Q1 2022 excludes the impact of operations in Russia, including $19 million from impairments, severance charges, and collectability assessment, due to the orderly wind down of operations[190] Consolidated Results Total revenue grew 21% YoY, with product revenue up 7% and service revenue up 27%. Total gross margin decreased by 1% to $411 million, and as a percentage of revenue, it declined from 26.8% to 22.0%, primarily due to increased costs (fuel, components, interest rates) and impacts from Russia operations and acquisition-related amortization Revenue Breakdown (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (Millions) | Q1 2021 (Millions) | % of Revenue (2022) | % of Revenue (2021) | Change (%) | | :--------------------------------- | :----------------- | :----------------- | :------------------ | :------------------ | :--------- | | Product revenue | $516 | $482 | 27.7% | 31.2% | 7% | | Service revenue | $1,350 | $1,062 | 72.3% | 68.8% | 27% | | Total revenue | $1,866 | $1,544 | 100.0% | 100.0% | 21% | Gross Margin (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (Millions) | Q1 2021 (Millions) | % of Revenue (2022) | % of Revenue (2021) | Change (%) | | :--------------------------------- | :----------------- | :----------------- | :------------------ | :------------------ | :--------- | | Product gross margin | $24 | $74 | 4.7% | 15.4% | (68%) | | Service gross margin | $387 | $340 | 28.7% | 32.0% | 14% | | Total gross margin | $411 | $414 | 22.0% | 26.8% | (1%) | - Gross margin percentage decreased from 26.8% to 22.0% due to increases in fuel costs, component parts, interest rates, and other supply chain challenges, as well as $14 million related to Russia operations and $19 million of acquisition-related intangible asset amortization[198] Operating Expenses (Q1 2022 vs Q1 2021) | Expense Type | Q1 2022 (Millions) | Q1 2021 (Millions) | Change (%) | | :--------------------------------- | :----------------- | :----------------- | :--------- | | Selling, general and administrative | $313 | $238 | 32% | | Research and development | $65 | $66 | (2%) | | Interest expense | $63 | $45 | 40% | | Other income (expense), net | $9 | $(17) | N/A | | Income tax expense (benefit) | $13 | $17 | (24%) | - Loss from discontinued operations was $1 million in Q1 2022, driven by immaterial updates to environmental remediation matters[211] Segment Revenue and Adjusted EBITDA Payments & Network revenue and Adjusted EBITDA saw significant increases due to the Cardtronics and LibertyX acquisitions. Digital Banking and Hospitality also showed growth. Self-Service Banking and Retail experienced declines in Adjusted EBITDA, primarily due to supply chain challenges, increased fuel costs, and product mix - Payments & Network revenue increased 1,259% and Adjusted EBITDA increased 3,167% due to additional payments processing revenue from the Cardtronics and LibertyX acquisitions[216][217][222] - Digital Banking revenue increased 11% and Adjusted EBITDA increased 4% due to growth in software license and cloud services[216][218][223] - Self-Service Banking revenue decreased 3% and Adjusted EBITDA declined 18% due to lower ATM hardware sales (supply chain challenges) and increased costs, partially offset by software and services revenue growth[216][219][224] - Retail Adjusted EBITDA declined 32% primarily due to product cost and mix, increased labor costs, and other supply chain challenges, despite a 5% increase in revenue[216][220][225] - Hospitality revenue increased 18% and Adjusted EBITDA increased 14%, driven by point-of-sale solutions, services, and payments processing revenue, partially offset by supply chain challenges and increased fuel costs[216][221][226] Financial Condition, Liquidity, and Capital Resources Cash provided by operating activities decreased significantly to $38 million in Q1 2022 from $155 million in Q1 2021, resulting in a non-GAAP free cash outflow of $10 million. The company's total debt was $5.66 billion, with $861 million available under its revolving credit facility. NCR believes it has sufficient liquidity to meet its obligations - Net cash provided by operating activities decreased to $38 million in Q1 2022 from $155 million in Q1 2021, driven by lower operating earnings and unfavorable working capital movements[228] Free Cash Flow (Non-GAAP) (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (Millions) | Q1 2021 (Millions) | | :--------------------------------- | :----------------- | :----------------- | | Net cash provided by operating activities | $38 | $155 | | Expenditures for property, plant and equipment | $(15) | $(10) | | Additions to capitalized software | $(65) | $(51) | | Restricted cash settlement activity | $28 | $(5) | | Pension contributions | $4 | $4 | | Free cash flow (non-GAAP) | $(10) | $93 | - Total debt was $5.66 billion as of March 31, 2022 (excluding deferred fees), with $861 million borrowing capacity under the revolving credit facility[240] - Cash and cash equivalents held by foreign subsidiaries totaled $336 million as of March 31, 2022[239] - Management believes the company has sufficient liquidity to meet expected pension, postemployment, postretirement plan contributions, environmental remediation payments, debt servicing, and transformation initiatives[241] Item 3. Quantitative and Qualitative Disclosures about Market Risk NCR is exposed to market risks from foreign currency exchange rates and interest rates. The company uses derivatives to manage these exposures, hedging foreign currency transaction risk and using interest rate swaps/caps to manage variable-rate debt and vault cash rental obligations - Primary market risks are changes in foreign currency exchange rates and interest rates[249] - Manages foreign exchange risk by hedging transactional exposures using foreign currency forward and option contracts, with exposure to approximately 50 functional currencies[250] - Approximately 58% of borrowings were on a fixed rate basis as of March 31, 2022[254] - A hypothetical 100 basis point increase in variable interest rates would increase pre-tax interest expense by approximately $6 million and vault cash rental expense by approximately $11 million (excluding swaps)[254][256] - Credit risk on accounts receivable and financial instruments is managed through credit approvals, limits, and monitoring procedures[257] Item 4. Controls and Procedures NCR's Chief Executive and Chief Financial Officers concluded that the company's disclosure controls and procedures were effective as of March 31, 2022. There have been no material changes in internal control over financial reporting during the quarter - The Company's Chief Executive and Chief Financial Officers concluded that NCR's disclosure controls and procedures were effective as of March 31, 2022[258] - There have been no material changes in internal control over financial reporting during the three months ended March 31, 2022[259] PART II. Other Information Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 10, "Commitments and Contingencies," in the Notes to Condensed Consolidated Financial Statements - Information required by this item is included in Note 10, "Commitments and Contingencies," of the Notes to Condensed Consolidated Financial Statements[262] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's 2021 Annual Report on Form 10-K. The company acknowledges that additional unknown risks could still materially affect its business - There have been no material changes to the risk factors previously set forth under Part I, Item IA ("Risk Factors") of the Company's 2021 Annual Report on Form 10-K[263] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds NCR has two share repurchase programs: one to offset dilution (approx. $768 million available) and another for general repurchases (approx. $153 million available). Repurchases are subject to market conditions and restrictions under debt agreements. In Q1 2022, 0.5 million shares were purchased to cover withholding taxes - Approximately $768 million was available for repurchases under the October 2016 dilution offset program as of March 31, 2022[266] - Approximately $153 million was available for repurchases under the March 2017 share repurchase program as of March 31, 2022[266] - For the three months ended March 31, 2022, 0.5 million shares were purchased at an average price of $39.03 per share to cover withholding taxes[267] - The Company's ability to repurchase common stock is restricted under its senior secured credit facility and senior unsecured notes indentures[268] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including various certifications (Rule 13a-14(a), 18 U.S.C. Section 1350), iXBRL financial statements, and the Cover Page Interactive Data File - Key exhibits include certifications (31.1, 31.2, 32), iXBRL formatted financial statements (101), and the Cover Page Interactive Data File (104)[271] Signatures The report is signed on April 29, 2022, by Timothy C. Oliver, Senior Executive Vice President and Chief Financial Officer of NCR Corporation, affirming due authorization - The report was signed by Timothy C. Oliver, Senior Executive Vice President and Chief Financial Officer, on April 29, 2022[275]