NCR Corporation shares rose 6.5% during Wednesday’s extended trading session after the company delivered better-than-expected second-quarter 2023 results. NCR’s second-quarter non-GAAP earnings increased 3% year over year to 63 cents per share and surpassed the Zacks Consensus Estimate of 43 cents.
Lower direct costs, such as reductions in fuel, shipping and component costs, along with a higher-margin revenue mix and indirect cost mitigation actions, were accretive to the company’s second-quarter bottom line. However, the strong U.S. dollar and a higher tax rate reduced non-GAAP earnings by 5 cents and 9 cents per share, respectively.
In the second quarter of 2023, NCR reported revenues of $1.99 billion, beating the consensus mark of $1.95 billion. However, the top line witnessed a year-over-year decrease of 1%. Unfavorable currency exchange rates negatively impacted second-quarter revenues by approximately $18 million. NCR stated that the second-quarter top line was flat year over year on a constant-currency basis.
NCR progressed significantly with its strategic growth initiatives, which are transforming it into a software platform and payments company. The company’s recurring revenues improved by 4% to $1.26 billion in the quarter under review.
From the first quarter of 2022, NCR changed its reporting segments to correspond with changes to its operating model, management structure and organizational responsibilities. The new reportable revenue segments are Payments & Network, Digital Banking, Self-Service Banking, Retail and Hospitality.
Payments & Network revenues remained flat at $333 million. NCR’s Digital Banking Solution revenues increased 7% to $140 million. Hospitality revenues decreased 1% to $235 million. Our estimates for the Payments & Network, Digital banking Solution and Hospitality segments were pegged at $324.7 million, $134.6 million and $232.4 million, respectively.
In the second quarter, Self-Service Banking revenues decreased 3% to $661 million, while Retail revenues grew 2% to $576 million. Our revenue estimates for the Self-Service Banking and Retail segments were pegged at $649.6 million and $561.1 million.
The non-GAAP gross profit of $576 million was up 12% year over year. Moreover, the non-GAAP gross margin rate expanded 310 basis points (bps) to 29%, mainly due to a reduction in direct costs (fuel, shipping and component costs), a richer revenue mix of high-margin software and services and the benefits of indirect cost-mitigation actions taken last year as well as in early 2023.
Non-GAAP operating expenses decreased 1% year over year to $279 million. As a percentage of revenues, non-GAAP operating expenses declined to 14% from 14.2% in the year-ago quarter due to improved productivity.
The non-GAAP operating income increased 27% year over year to $297 million, primarily driven by the higher gross profit and a reduction in operating expenses. As a result, the non-GAAP operating margin improved 330 bps to 15% in the second quarter.
Adjusted EBITDA increased 14.7% year over year to $389 million despite a negative impact of $6 million due to the unfavorable foreign currency exchange rate. The adjusted EBITDA margin expanded 260 bps to 19.6%.
Balance Sheet & Other Details
NCR exited the June-end quarter with cash and cash equivalents of $547 million compared with the $519 million reported during the March-end quarter.
The company generated operating cash flow of $227 million in the second quarter and $544 million in the first half of full-year 2023. NCR generated adjusted free cash flow – Unrestricted of $154 million in the second quarter and $363 million in the first half of 2023.
NCR reaffirmed its outlook for the full-year 2023. However, considering the strong first-half results, the company stated that it expects key metrics to come in at the higher end of the guided ranges. It continues to project revenues between $7.8 billion and $8 billion for the full-year 2023.
Furthermore, it still forecasts non-GAAP EPS in the band of $3.30-$3.50 under the new methodology. During its fourth-quarter 2022 results, NCR had stated that it would exclude the impact of stock-based compensation expenses from the non-GAAP diluted EPS calculation from 2023. Up to 2022, the company included stock-based compensation expenses in the non-GAAP calculation. The change in methodology will inflate its EPS.
Coming to the 2023 guidance, the company continues to project adjusted EBITDA in the range of $1.45-$1.55 billion. NCR still expects to generate free cash flow in the band of $400-$500 million in 2023.
Zacks Rank & Other Stocks to Consider
Currently, NCR carries a Zacks Rank #2 (Buy). Shares of NCR have increased 9.8% year to date (YTD).
Some other top-ranked stocks from the broader technology sector are
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