NCR Voyix Corp(VYX) - 2022 Q2 - Quarterly Report

Part I. Financial Information This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for NCR Corporation for the three and six months ended June 30, 2022, and 2021. It includes the statements of operations, comprehensive income, balance sheets, cash flows, and changes in stockholder's equity, along with detailed notes explaining the basis of presentation, business combinations, segment information, debt, and other significant accounting policies and events Condensed Consolidated Statements of Operations For the second quarter of 2022, NCR reported total revenue of $1,997 million, a 19% increase year-over-year, driven by a 23% rise in service revenue. Net income attributable to NCR was $41 million, a significant turnaround from a net loss of $9 million in the same period of 2021. For the six-month period, revenue grew 20% to $3,863 million, while net income attributable to NCR decreased to $7 million from $21 million year-over-year | In millions, except per share amounts | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $1,997 | $1,677 | $3,863 | $3,221 | | Income (loss) from operations | $103 | $84 | $136 | $194 | | Net income (loss) attributable to NCR | $41 | $(9) | $7 | $21 | | Diluted net income (loss) per common share | $0.26 | $(0.10) | $(0.01) | $0.10 | Condensed Consolidated Balance Sheets As of June 30, 2022, NCR's total assets were $11,756 million, a slight increase from $11,641 million at year-end 2021. Key changes include an increase in inventories to $858 million and accounts receivable to $1,085 million. Total liabilities remained stable at $10,108 million, with long-term debt at $5,497 million. Total stockholders' equity increased to $1,373 million from $1,259 million | In millions | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $398 | $447 | | Inventories | $858 | $754 | | Goodwill | $4,575 | $4,519 | | Total assets | $11,756 | $11,641 | | Long-term debt | $5,497 | $5,505 | | Total liabilities | $10,108 | $10,108 | | Total stockholders' equity | $1,373 | $1,259 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash provided by operating activities was $118 million, a decrease from $310 million in the prior-year period, primarily due to changes in working capital. Net cash used in investing activities was $177 million, mainly for capitalized software. Net cash used in financing activities was $7 million. The company's cash, cash equivalents, and restricted cash decreased by $85 million during the period | In millions | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $118 | $310 | | Net cash used in investing activities | $(177) | $(2,609) | | Net cash provided by (used in) financing activities | $(7) | $2,641 | | Increase (decrease) in cash, cash equivalents, and restricted cash | $(85) | $291 | | Cash, cash equivalents and restricted cash at end of period | $664 | $697 | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies and events. Key disclosures include a change in reportable segments effective January 1, 2022, the financial impact of winding down Russian operations, the acquisition of cryptocurrency software provider LibertyX, finalization of the Cardtronics acquisition purchase price allocation, segment performance details, debt obligations, and updates on major environmental contingencies - Effective January 1, 2022, the company realigned its reportable segments to: Payments & Network, Digital Banking, Self-Service Banking, Retail, and Hospitality. Prior period disclosures were reclassified to conform to this new structure[26] - The company commenced an orderly wind-down of its Russian operations in Q1 2022 due to the war in Eastern Europe, resulting in a pre-tax net loss of $22 million for the six months ended June 30, 2022[27][28] - On January 5, 2022, NCR completed the acquisition of LibertyX, a cryptocurrency software provider, for a total purchase consideration of approximately $69 million, including cash and stock. The acquisition is intended to provide a complete digital currency solution[45] - As of June 30, 2022, the aggregate amount of remaining performance obligations was approximately $3.8 billion, with about three-quarters expected to be recognized as revenue over the next 12 months[37] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial results for the second quarter and first half of 2022, highlighting a 19% revenue increase in Q2 driven by the Cardtronics acquisition and growth in service revenue. The discussion addresses the impact of macroeconomic factors like rising interest rates, supply-chain challenges, and the strong U.S. dollar, which have pressured gross margins. The report details performance by the newly realigned business segments, liquidity position, and strategic initiatives, including a comprehensive strategic review announced in February 2022 - Q2 2022 revenue grew 19% to $1,997 million (23% constant currency), but performance was impacted by external macro factors including rising interest rates, a strong U.S. dollar, and supply-chain challenges[196] - The company is continuing its transition to a software platform and payments company, with a goal of reaching 80% annual recurring revenue by 2026. Recurring revenue was 60.9% of total revenue in Q2 2022, up from 55.4% in Q2 2021[194][208] - On February 8, 2022, the Board of Directors initiated a comprehensive strategic review to evaluate alternatives for enhancing shareholder value. The process is ongoing with no set timetable[197] - Gross margin as a percentage of revenue declined from 27.2% in Q2 2021 to 23.6% in Q2 2022, primarily due to increased costs for fuel, component parts, and interest rates on vault cash agreements, along with other supply chain challenges[222][223] Results of Operations Consolidated revenue for Q2 2022 increased 19% to $1,997 million, with service revenue up 23% and product revenue up 11%. Gross margin percentage fell to 23.6% from 27.2% due to cost pressures. Income from operations rose to $103 million from $84 million. For the first half, revenue increased 20% to $3,863 million, but income from operations declined to $136 million from $194 million, reflecting sustained margin pressure | In millions | Three months ended June 30, 2022 | Three months ended June 30, 2021 | % Change | | :--- | :--- | :--- | :--- | | Total revenue | $1,997 | $1,677 | 19% | | Total gross margin | $471 | $456 | 3% | | Gross Margin % | 23.6% | 27.2% | (3.6 pts) | | Income from operations | $103 | $84 | 23% | | In millions | Six months ended June 30, 2022 | Six months ended June 30, 2021 | % Change | | :--- | :--- | :--- | :--- | | Total revenue | $3,863 | $3,221 | 20% | | Total gross margin | $882 | $870 | 1% | | Gross Margin % | 22.8% | 27.0% | (4.2 pts) | | Income from operations | $136 | $194 | (30)% | Revenue and Adjusted EBITDA by Segment For Q2 2022, Payments & Network revenue surged 515% to $332 million due to the Cardtronics acquisition. Self-Service Banking revenue grew 5% to $679 million, and Hospitality revenue increased 11% to $238 million. Retail revenue was flat at $562 million. Adjusted EBITDA performance was mixed, with Payments & Network growing significantly, while Retail declined 14% due to cost pressures and supply chain issues | Revenue (in millions) | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Payments & Network | $332 | $54 | 515% | | Digital Banking | $131 | $129 | 2% | | Self-Service Banking | $679 | $645 | 5% | | Retail | $562 | $562 | 0% | | Hospitality | $238 | $215 | 11% | | Adjusted EBITDA (in millions) | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Payments & Network | $97 | $19 | 411% | | Digital Banking | $56 | $55 | 2% | | Self-Service Banking | $142 | $140 | 1% | | Retail | $104 | $121 | (14)% | | Hospitality | $46 | $39 | 18% | Financial Condition, Liquidity, and Capital Resources As of June 30, 2022, NCR had $398 million in cash and cash equivalents and total debt of $5.66 billion. Cash from operations for the first six months was $118 million, down from $310 million in the prior year, due to lower earnings and unfavorable working capital changes. Free cash flow was negative $10 million for the first half of 2022, compared to positive $235 million in 2021. The company believes it has sufficient liquidity to meet its obligations - Cash provided by operating activities decreased to $118 million in the first six months of 2022 from $310 million in the same period of 2021, driven by lower operating earnings and unfavorable working capital movements[266] - As of June 30, 2022, total debt was $5.66 billion, and borrowing capacity under the Revolving Credit Facility was approximately $856 million[279] | In millions | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $118 | $310 | | Capital Expenditures & Software | $(174) | $(140) | | Free cash flow (non-GAAP) | $(10) | $235 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is primarily exposed to market risks from changes in foreign currency exchange rates and interest rates. A substantial portion of operations and revenue is outside the U.S., creating foreign exchange risk, which is partially managed through hedging. Interest rate risk exists due to variable-rate debt and vault cash rental expenses. The company uses interest rate swaps and caps to manage this exposure - A hypothetical 10% appreciation of the U.S. dollar would decrease the fair value of the company's hedge portfolio by $8 million as of June 30, 2022[292] - A hypothetical 100 basis point increase in variable interest rates would increase pre-tax interest expense by approximately $10 million for the six months ended June 30, 2022[294] - A hypothetical 100 basis point increase in variable interest rates would increase vault cash rental expense by approximately $10 million for the three months ended June 30, 2022, excluding the impact of interest rate swaps[295] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the second quarter of 2022. There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[298] - No material changes to internal control over financial reporting occurred during the second quarter of 2022[299] Part II. Other Information This section provides information on legal proceedings, risk factors, equity security sales, and required exhibits Item 1. Legal Proceedings This section incorporates by reference the information on legal proceedings detailed in Note 10, "Commitments and Contingencies," of the financial statements. The key legal matters discussed are environmental remediation liabilities related to the Fox River, Kalamazoo River, and a site in Ebina, Japan - Information regarding legal proceedings is detailed in Note 10 of the financial statements, covering significant environmental matters[104][302] Item 1A. Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its 2021 Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the Company's 2021 Form 10-K[303] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company discusses its share repurchase programs. As of June 30, 2022, $153 million was available under the March 2017 program and approximately $782 million was available under the October 2016 dilution offset program. Repurchases are subject to market conditions and restrictions under the company's debt agreements - As of June 30, 2022, the company had two active share repurchase programs with a total availability of approximately $935 million[306] - The company's ability to repurchase shares is restricted by its Senior Secured Credit Facility and senior note indentures[308] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act and iXBRL data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32) and financial data in iXBRL format (101, 104)[312]