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'Solid': NCR and Diebold report positive Q2 revenues

In separate earnings calls, CEOs of both NCR and Diebold chose the same term to describe their quarterly revenues, up 8 and 3.7 percent respectively.

August 6, 2014 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

"Solid" was the term chosen by both NCR Corp. Chairman and CEO Bill Nuti and Diebold Inc. President and CEO Andy W. Mattes to describe their respective companies' earnings results for Q2 2014.

Following are recaps from both earnings calls — NCR's last Tuesday and Diebold's this Wednesday.

NCR Corp.

For NCR, the quarter was a continuation of the company's evolution from a hardware-based business to one revolving around the "recurring revenue" segment of software, which played a major role in an 8 percent rise in year-over-year revenues in the second quarter.

"From my perspective, our second quarter results are as I expected and continue to demonstrate the potential of the new NCR," Nuti said during his company's second quarter earnings call. "We had a solid quarter overall, which you can see in our financial highlights."

The brightest among them — software as a service — was up a whopping 247 percent year over year, as the result of the company's purchase in January of online and mobile banking services provider Digital Insight.

But even without DI contributions, software and SaaS revenues were up 15 percent and 17 percent, respectively, with the latter representing $125 million in revenue for the quarter. Overall, software represented $446 million of the company's total Q2 revenues of $1.66 billion.

"We have spent the last several years executing a transformation to a hardware-enabled, software-driven business model that delivers innovation to our customers and provides a life cycle services capability to be a leading global services organization," Nuti said. "This ongoing reinvention of our company places NCR in a far more strategic vendor position with our customers, while continuing to enhance our margins."

The company's financial services segment was a key growth driver netting $900 million in revenues, an improvement of 15 percent year over year. This was despite a decline of 4 percent in hardware sales.

The flagging performance of hardware is a situation that Nuti said the company is now prepared to address with a restructuring program that will reallocate resources to NCR's highest-growth, highest-margin opportunities.

"This is the right time for NCR to address this issue now that we have the operational assets we need for our future and have had adequate time to assess the impact of our acquisition, as well as organic investment," Nuti said.

NCR will embark on a strategic reallocation of resources, reducing headcount by 1,800 full-time positions over the next 12 to 24 months, Nuti announced. He added that potentially half of these positions would be added back as headcount in "higher-growth, higher-margin areas of the business, mainly in engineering and sales."

NCR will also discontinue older commodity hardware product lines that are costly to maintain, yet provide little to no return. The company plans to transfer commodity services positions to the areas of predictive services, remote service management and intelligent dispatch.

Nuti also said that the company will reduce overlap and redundancy in both hardware and software product lines, as well as reducing layers of management and continuing to reorganize around divisions.

"This action, beyond being strategically sound, is also economically compelling. As a result of this restructuring program, NCR will achieve run-rate savings reaching approximately $90 million per year by 2016."

As he turned the call over to John Bruno, EVP of industry and field operations and corporate development for a recap of earnings by line of business, Nuti announced that Bruno will end his five-year tenure with NCR at the end of August to assume the combined CTO/CIO role at Aon, a London-based provider of risk management, insurance and reinsurance brokerage, and HR consulting and outsourcing services.

Diebold Inc.

Diebold Inc. CEO and President Andy Mattes began his management remarks by congratulating 20-year company veteran Chris Chapman on his promotion in June from interim CFO to CFO.

"He did a great job in the interim role and of the dozens of candidates we've interviewed, the board and I felt he was by far the best fit," Mattes said.

From there, he turned to takeaways from Diebold's second quarter. Revenues for the period were up 3.7 percent year over year, and have improved 6.1 percent in the first half of 2014.

"We delivered strong performance, with solid revenue growth, in line with our expectations, especially in EMEA, where we continue to soundly execute on our focused account strategy," Mattes said. "Our EMEA team continues to generate momentum and to increase our footprint."

Additionally, Diebold has seen continuing improvement in its service business margins, which Mattes attributed to ongoing transformation efforts. He was also optimistic about positive growth in orders driven by the company's core financial self-service business. Total orders for products and services in the second quarter grew by around 7 percent, with growth in four of five regions.

Persistent sluggishness In North America showed signs of abating in Q2, with total orders up 7 percent year over year. Total orders for financial self-services in North America grew 14 percent, driven by product orders, which increased more than double that rate. The key to growth in this market were the Windows 7 migration and branch transformation, Mattes said.

In Asia-Pacific, total orders increased 22 percent for the quarter on strong growth in India and Southeast Asia. "Our competitive position remains strong in this growing region," Mattes said.

In Latin America, total orders for the quarter increased 10 percent driven mainly by Mexico, adding to the company's backlog in the region. The company should see the effects in the second half of 2014, Mattes said. He explained that a drop of 29 percent in Brazil was distorted by unusually large orders in 2013.

Reviewing initiatives in the "Diebold 2.0" turnaround strategy, Mattes reported "good progress" in the mission to improve IT infrastructure. The company will sunset a number of 30-year-old IT apps in the move to a more modern platform, Mattes said, but added, "We still have a great deal of work ahead in front of us as we overhaul our IT systems."

Diebold's relationship with Accenture, which was announced in May, is now early in the implementation phase. Accenture will provide business process outsourcing services in finance and accounting, human resources, and procurement, and will also help Diebold to improve its global business processes with standardized controls, improved operational transparency, lower spending and reduced costs.

Secondly, Mattes said, the company was investing in innovation, as evidenced by last week's announcement of its patent-pending ActivEdge card reader, which was designed to prevent skimming of mag stripe data by changing the orientation of the card as it goes into the reader.

Diebold is also digging deeper into branch transformation, with recently announced projects with regional FIs including Alpine Bank, Lakeland Bank, and Bellco Credit Union.

"This demonstrates that our full breadth of branch transformation services and solutions are relevant to customers of all sizes," Mattes said.

Thirdly, he said, Diebold has brought in a number of new executives to help drive change. Just one day earlier, the company announced Alan Kerr has joined the company to head up the global software division.

And finally, Mattes said, Diebold is beginning to make deals that support its transformation project and reflect the company's long term strategy. As an example, he cited the recently announced acquisition of Cryptera, a supplier of encrypting PIN pad technology.

During the call, Mattes seemed to offer reassurance that Diebold was not getting ahead of itself in the turnaround effort:

"We have been mindful as a company regarding the speed at which we ramp our investments, as we want to have confidence that our cost savings are coming through at a rate that enables us to fund our reinvestments, while delivering on our plan. Our focus remains on our four core pillars: cost; cash; talent; and growth — ultimately building a solid foundation for future profitable growth."

cover photo courtesy mark herpel | flickr

About Suzanne Cluckey

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.

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