NCR turns the page on a challenging year
In a late afternoon earnings call on Feb. 8, NCR Corp. delivered the final word on Q4 2017 and full-year results — and turned the page on what President and Chief Operations Officer Mark Benjamin described as "a challenging year."
But, he said, "While the full year fell short of our original expectations, [the fourth quarter] demonstrates our focus around key areas of our strategy including cloud growth, modernizing our services business and accelerating our transformational efforts across the entire enterprise."
Under the nebulous heading of "transformational efforts," are numerous tangible initiatives. For one, the company is considering contracting out some aspects of its manufacturing business as a means to achieve sustainable higher margins on hardware.
"I can't tell you down to the specific percentage of ATM, [self-checkout], [point of sale] — what that would be and where that would be," he said. "It's a multiyear plan. So, it does have a two-year ramp to ultimately achieve what we want to achieve. And as we see success, we'll accelerate."
Benjamin said that shifting away from a fixed-cost structure will help to insulate the company from up-and-down hardware cycles.
Given ATM revenue woes in 2017, it isn't hard to see the upside to an outsourcing approach. Year-over-year ATM earnings declined 18 percent in constant currency during the fourth quarter. For the full year, they were down 17 percent.
On the mitigating side Q4 results compared to a strapping 29 percent increase in sales in Q4 2016 — "a tough compare," Benjamin said. Still, there's that full-year 17 percent decline.
In the Q&A portion of the call, Benjamin told an analyst that he sees upside later in the second half of 2018, pointing to the pending Windows 10 migration ("every quarter that clicks by, we get closer to decisions having to be made"), the growing demand for cash recycling ATMs, and the strong performance of the company's new 80 Series ATMs ("We'll see very good growth with that this year.")
Despite the positive outlook, NCR Chief Financial Officer Bob Fishman had to deliver the news that hardware revenues would be flat to down in the mid-single digits in the current quarter.
Fishman had better news when it came to segments of the business where transformation is already well underway.
For instance, cloud revenue grew 6 percent, or $7 million, in Q4, helping to offset the ill effect of slow ATM sales on revenues for attached software.
Annual contract value for the cloud segment increased 46 percent for the full year to $67 million, Fishman said. "Given our strong net ACV growth, along with the consistent progress we have made in expanding our cloud solutions and increased customer demand, we believe we are on track to approach double-digit top line cloud growth in 2018."
Services were another bright spot for the company, with margins improved 280 basis points in Q4 and 310 basis points for the full year.
"We are also focused on driving higher managed services which helps achieve stronger margins," Fishman said. "Our investment in big data analytics, predictive monitoring and customer onboarding continue to reduce the number of repair dispatches and allow customer service cases to be resolved more efficiently, increasing margins in the services segment."
Benjamin believes that branch transformation holds opportunity for NCR in 2018, as well. He mentioned the recent announcement by longtime customer JPMorgan Chase that the bank plans to add 400 branches and enter up to 20 new markets within the next five years.
"This is indicative of the importance of the branch network and the transformation taking place in the market," he said. "Branch transformation provides a combination of hardware and software products to achieve the right strategic mix of personnel-assisted and self-service channels to evolve the branch environment.
"The transformation of the branch allows a financial institution to evolve their service offering to their customers while managing costs, and NCR solutions sit in the epicenter of this transformation."
... Even as the company's own transformation marches on.
Companies: NCR Corporation
Suzanne’s editorial career has spanned three decades and encompassed all B2B and B2C communications formats. Her award-winning work has appeared in trade and consumer media in the United States and internationally. She is now the editor of ATMmarketplace.com and WorldofMoney.comwww