No rabbit in the hat: Q3 ATM orders fail to materialize for NCR
It was, in the words of NCR President and Chief Operating Officer Mark Benjamin, "a sobering quarter."
It certainly was not the third quarter the company had hoped for — and frankly, expected. ATM orders that were supposed to have materialized during the quarter didn't as markets from the U.S. to India continued to put off hardware purchases.
NCR did manage to eke out earnings per share on the high end of the range, but revenues fell short of the low end, forcing the company to recalculate its full-year projections and watch nearly 11 percent of its share value disappear overnight.
According to Benjamin, who recapped the quarter on the company's quarterly earnings call, the ATM market in general continued to show weakness in key markets, and in particular, several large NCR customers continued to delay spending on orders the company had expected to flow into the pipeline in Q2 — and when that didn't happen, had looked for in Q3.
"Unfortunately, these specific accounts have not accelerated to the levels we had anticipated, making our back half more challenging than expected," he said, adding, "The ATM market continues to be impacted by large customer delays in spending in North America, weakness in India, the Middle East and Africa and a more gradual conversion to the Windows 10 rollout."
With just three months left in the year — not enough time to make up the current shortfall — the company pared its 2017 revenue projections from the previous ambitious forecast of $6.63–$6.75 billion to a less bold $6.475–$6.525 billion.
This compares with $6.543 for all of 2016 — a slight drop in real terms, but a 1 percent increase year-over-year, thanks to constant currency effects that, for the first time in quite a while, are working to the company's benefit.
Still, it's a far cry from the 4–6 percent increase the company said just three months ago that it could deliver.
Not surprisingly, analysts on the call wanted to know why NCR hadn't taken a more conservative line on revenues in July, based on orders logged in the first half of the year.
Benjamin explained that management had anticipated a back-half order influx similar to the one the company had experienced the year before. In that case, NCR was able to sprint to the 2016 finish line with a 5 percent upswing in ATM revenues for the year.
That pattern simply did not hold up in 2017, he said. As a result, the company is looking at a 16 percent shortfall (17 percent in constant currency) in ATM revenues for the year.
Additionally, the company now expects a 12 percent (11 percent constant currency) downturn in the sale of software licenses, since much of that revenue attaches to hardware orders that aren't trending upward as expected.
Otherwise, numbers were positive across most segments. POS sales made an especially strong showing, up 18 percent based on a large order from a sizeable Midwest convenience store chain. Conversely, self-checkout orders suffered a 24 percent decline year-over-year due to an unusually large SCO sale in 2016.
Benjamin expects the company will eventually pull the delayed ATM orders out of the hat, too, since the customers in question are long-term NCR clients.
"They remain our customers; they remain committed to the programs," he said in response to an analyst's question. "We’ve been in place with them for many years. It’s just a question right now when they’ll ramp back up their spending, which we believe is just a question of when, not a question of if."
NCR also expects to see a ramp-up in spending for Windows 10 conversions, which Benjamin admitted the company might have jumped the gun with when calculating revenues for the year. "That will ultimately become a tailwind for us sometime in 2018," he said.
Chairman and CEO Bill Nuti did not speak during the formal earnings presentation but, in a press release, stated his own confidence in the company's direction, as it strives to reduce dependence on ATM results in the profit-and-loss column:
Despite our near-term ATM hardware challenges, our investment priorities across our markets remain the same, and our confidence in the business remains strong. We expect that the ATM market will recover in the medium-term and that may ultimately improve our revenue growth, but our strategic focus remains on driving software, cloud, and recurring revenue growth as priority number one.
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