NCR VOYIX Corp

The following results of operations present the continuing operations of NCR Voyix for the years ended December 31, 2023, 2022 and 2021. All results from NCR Atleos are presented within income (loss) from discontinued operations for these periods.

Key Strategic Financial Metrics

The following tables show our key strategic financial metrics for the years ended December 31, the relative percentage that those amounts represent to total revenue, and the change in those amounts year-over-year.

Recurring revenue as a percentage of total revenue

(1)Recurring revenue includes all revenue streams from contracts where there is a predictable revenue pattern that will occur at regular intervals with a relatively high degree of certainty. This includes hardware and software maintenance revenue, cloud revenue, payment processing revenue, and certain professional services arrangements as well as term-based software license arrangements that include customer termination rights.

Revenue by type

Net income (loss) from continuing operations attributable to NCR Voyix and Adjusted EBITDA(2)as a percentage of total revenue

(2)Refer to our definition of Adjusted EBITDA in the section entitled “Non-GAAP Financial Measures and Use of Certain Terms” below.

Non-GAAP Financial Measures and Use of Certain Terms:

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)Our management uses the non-GAAP measure Adjusted EBITDA because it provides useful information to investors as an indicator of strength and performance of the Company’s ongoing business operations, including funding discretionary spending such as capital expenditures, strategic acquisitions, and other investments. We determine Adjusted EBITDA based on GAAP net income (loss) from continuing operations attributable to NCR Voyix plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization (excluding acquisition-related amortization of intangibles); plus stock-based compensation expense; plus other income (expense); plus pension mark-to-market adjustments and other special items, including amortization of acquisition-related intangibles, separation-related costs, cyber ransomware incident recovery costs, net of insurance recoveries, fraudulent ACH disbursements costs, and transformation and restructuring charges (which includes integration, severance and other exit and disposal costs), among others. The special items are considered non-operational or non-recurring in nature, so are excluded from the Adjusted EBITDA metric utilized by our chief operating decision maker in evaluating segment performance and are separately delineated to reconcile back to total reported income (loss) from continuing operations attributable to NCR Voyix. This format is useful to investors because it allows analysis and comparability of operating trends. It also includes the same information that is used by our management to make decisions regarding the segments and to assess our financial performance. Refer to the table below for the reconciliations of net income (loss) from continuing operations attributable to NCR Voyix (GAAP) to Adjusted EBITDA (non-GAAP).

Our definitions and calculations of these non-GAAP measures may differ from similarly-titled measures reported by other companies and cannot, therefore, be compared with similarly-titled measures of other companies. These non-GAAP measures should not be considered as substitutes for, or superior to, results determined in accordance with GAAP.

(1)Represents integration, severance, and other exit and disposal costs, which are considered non-operational in nature.

(2)Represents company identified fraudulent ACH disbursements from a company bank account. Additional details regarding this item are discussed in Note 1, “Basis of Presentation and Significant Accounting Policies”.

(3)Represents professional fees, retention bonuses, and other costs incurred related to acquisitions, which are considered non-operational in nature.

(4) During the three months ended September 30, 2023, it was determined that the transactions underlying the unrealized gains on terminated interest rate swap and cap agreements reported in Accumulated other comprehensive income were probable of not occurring under ASC 815, Derivatives and Hedging. As such, $18 million of unrealized gains were recognized in Interest expense. Refer to Note 15, “Derivatives and Hedging Instruments”.

(5) Represents costs incurred as a result of the Spin-Off. Professional fees to effect the spin-off of NCR Atleos including separation management, organizational design, and legal fees have been classified within discontinued operations through October 16, 2023, the separation date.

(6) Represents expenses to respond to, remediate and investigate the April 13, 2023 cyber ransomware incident as well as settlements with customers impacted by the incident, net of insurance recoveries. Additional details regarding this cyber ransomware incident are discussed in Note 1, “Basis of Presentation and Significant Accounting Policies”.

Consolidated Results

The following table shows our results for the years December 31, the relative percentage that those amounts represent to revenue, and the change in those amounts year-over-year.

(1) The percentage of revenue is calculated for each line item divided by total revenue, except for product gross margin, service gross margin and total gross margin, which are divided by the related component of revenue.

Revenue

Product revenue includes our hardware and software license revenue streams. Service revenue includes hardware and software maintenance revenue, implementation services revenue, cloud revenue, payments processing revenue as well as professional services revenue.

Total revenue increased 1% for the year ended December 31, 2023 compared to the year ended December 31, 2022. Product revenue decreased 3% due to a decline in SCO and POS hardware revenues partially offset by an increase in software license revenue. Service revenue increased 3% due primarily to growth in cloud services revenue, hardware maintenance revenue and recurring software related services.

Total revenue increased 3% for the year ended December 31, 2022 compared to the year ended December 31, 2021. Product revenue increased 8% due to an increase in SCO and POS hardware revenues as well as software license revenue. The change in service revenue was flat comparing the year ended 2022 to 2021.

Gross Margin

(1)The percentage of revenue is calculated for each line item divided by the related component of revenue.

Gross margin as a percentage of revenue was 25.1% in 2023 compared to 25.8% in 2022. Gross margin for the year ended December 31, 2023 included $6 million related to transformation and restructuring costs, $16 million of stock-based compensation expense, $38 million related to amortization of acquisition-related intangible assets, $32 million of separation-related costs and $16 million related to the cyber ransomware incident recovery costs. Gross margin for the year ended December 31, 2022 included $28 million related to transformation and restructuring costs, $15 million of stock-based compensation expense, $41 million related to amortization of acquisition-related intangible assets. Excluding these items, gross margin as a percentage of revenue was 28.0% in 2022 compared to 27.9% in 2023.

Gross margin as a percentage of revenue was 25.8% in 2022 compared to 25.1% in 2021. Gross margin for the year ended December 31, 2022 included $28 million related to transformation and restructuring costs, $15 million of stock-based compensation expense, $41 million related to amortization of acquisition-related intangible assets. Gross margin for the year ended December 31, 2021 included $32 million related to transformation and restructuring costs, $19 million of stock-based compensation expense and $34 million related to amortization of acquisition-related intangible assets. Excluding these items, gross margin as a percentage of revenue increased from 27.4% in 2021 to 28.0% in 2022 due to an increase in the higher margin software and services revenue.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses were $740 million in 2023 as compared to $695 million in 2022. As a percentage of revenue, selling, general and administrative expenses were 19.3% in 2023 and 18.3% in 2022. In 2023, selling, general and administrative expenses included $25 million of transformation and restructuring costs, $23 million related to the fraudulent ACH disbursements, $121 million of stock-based compensation expense, $33 million of acquisition-related amortization of intangibles, $1 million of acquisition-related costs, and $57 million in separation-related costs. In 2022, selling, general and administrative expenses included $40 million of transformation and restructuring costs, $65 million of stock-based compensation expense, $30 million of acquisition-related amortization of intangibles and $2 million of acquisition-related costs. Excluding these items, selling, general and administrative expenses decreased as a percentage of revenue from 14.7% in 2022 to 12.5% in 2023, due to cost actions implemented, partially offset by an increase in employee-related costs.

Selling, general, and administrative expenses were $695 million in 2022, compared to $704 million in 2021. In 2022, selling, general and administrative expenses included $40 million of transformation and restructuring costs, $65 million of stock-based compensation expense, $30 million of acquisition-related amortization of intangibles and $2 million of acquisition-related costs. In 2021, selling, general and administrative expenses included $15 million of transformation and restructuring costs, $82 million of stock-based compensation expense, $42 million of acquisition-related amortization of intangibles and $3 million of acquisition-related costs. Excluding these items, selling, general and administrative expenses as a percentage of revenue decreased from 15.2% in 2021 to 14.7% in 2022 related to a reduction in employee-related costs in 2022.

Research and Development Expenses

Research and development expenses were $185 million in 2023, compared to $147 million in 2022. As a percentage of revenue, these costs were 4.8% in 2023 and 3.9% in 2022. In 2023, research and development expenses included $3 million of costs related to our transformation and restructuring initiatives, $7 million of separation related costs, and $13 million of stock-based compensation expense. In 2022, research and development expenses included $20 million of transformation and restructuring costs and $10 million of stock-based compensation expense. After considering these items, research and development expenses increased as a percentage of revenue from 3.1% in 2022 to 4.2% in 2023 due to an increase in employee-related costs.

Research and development expenses were $147 million in 2022, compared to $195 million in 2021. In 2022, research and development expenses included $20 million of transformation and restructuring costs and $10 million of stock-based compensation expense. In 2021, research and development expenses included $21 million of stock-based compensation expense. After considering these items, research and development expenses decreased as a percentage of revenue from 4.7% in 2021 to 3.1% in 2022 related to a reduction in employee-related costs in 2022.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $46 million in 2023 related to the premium paid for early redemption of $24 million of the 5.750% senior notes due 2027 and the 6.125% senior notes due 2029, as well as the write-off of deferred financing fees of $22 million related to the senior unsecured notes, the senior secured credit facilities, and the revolving credit facility. Loss on extinguishment of debt was $42 million in 2021 related to the premium paid for early redemption of $400 million aggregate principal amount of 8.125% senior secured notes due 2025, which includes the write-off of deferred financing fees of $5 million and a cash redemption premium of $37 million. Refer to Note 6, “Debt Obligations” of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for additional discussion on the financing transactions.

Interest Expense

Interest expense was $294 million in 2023 compared to $285 million in 2022. Interest expense is primarily related to our senior unsecured notes and borrowings under the senior secured credit facilities. The increase in interest expense was due to the significant increase in variable interest rates on the senior secured credit facilities, partially offset by the recognition of $18 million of unrealized gains on terminated interest rate derivative contracts included in Accumulated other comprehensive loss due to the determination that the underlying transactions were no longer probable of occurring as a result of the Spin-Off of NCR Atleos from the Company.

Interest expense was $285 million in 2022 compared to $238 million in 2021. Interest expense is primarily related to our senior unsecured notes and borrowings under the Senior Secured Credit Facility. The main driver of the increase in interest expense from 2021 to 2022 was the increase in total debt outstanding as a result of the closing of the acquisition of Cardtronics in the second quarter of 2021, combined with an increase in variable interest rates on the Senior Secured Credit Facility.

Other Income (Expense), net

Other income (expense), net was expense of $79 million in 2023, income of $18 million in 2022 and expense of $13 million in 2021, with the components reflected in the following table:

Employee benefit plans within other income (expense) net includes the components of pension, postemployment expense, other than service cost, as well as actuarial gains and losses from the annual pension mark-to-market adjustment. In 2023, there was an actuarial loss of $7 million compared to an actuarial gain of $41 million in 2022. The net actuarial loss in 2023 was primarily due to plan experience losses as well as a decrease in discount rates, partially offset by favorable returns on plan assets. The actuarial gain in 2022 was primarily due to an increase in discount rates, partially offset by unfavorable returns on the fair value of plan assets. The actuarial gain in 2021 was $7 million primarily due to favorable returns on plan assets.

In 2023, Other, net includes a $9 million loss recognized on the divestitures of certain non-strategic businesses. In 2022, Other, net includes a $9 million loss recognized on the divestiture of a non-strategic business.

In 2023, the Company incurred bank-related fees of $28 million, mainly related to higher interest rates incurred on the trade receivables facility compared to prior years. In 2021, the Company incurred bank-related expenses of $19 million related to certain structuring and commitment fees as a result of the financing transactions entered into during the first quarter of 2021.

Income Taxes

Our effective tax rate was (53)% in 2023, (55)% in 2022, and (26)% in 2021. During 2023, our tax rate was impacted by a net $226 million expense related to the Spin-Off of NCR Atleos. Also during 2023, our tax rate was impacted by a $20 million expense from recording a valuation allowance against deferred tax assets and a $17 million expense from nondeductible executive compensation. During 2022, our tax rate was impacted by a $103 million expense from recording a valuation allowance against deferred tax assets in the United Kingdom and other jurisdictions. During 2021, our tax rate was impacted by a $56 million expense from recording a valuation allowance against deferred tax assets and a $55 million expense resulting from an internal entity restructuring.

While we are subject to numerous federal, state and foreign tax audits, we believe that appropriate reserves exist for issues that might arise from these audits. Should these audits be settled, the resulting tax effect could impact the tax provision and cash flows in future periods. During 2024, the Company expects to resolve certain tax matters related to U.S. and foreign jurisdictions. These resolutions could have a material impact on the effective tax rate in 2024.

We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on the evaluation of positive and negative evidence. This evidence includes historical taxable income/loss, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies.

Income (Loss) from Discontinued Operations, net of tax

In 2023, the income from discontinued operations was $163 million, net of tax, related to income of discontinued operations for NCR Atleos of $213 million, as described in Note 2, “Discontinued Operations”of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report, offset by a loss of $50 million, net of tax, due to updates in estimates and assumptions for the Kalamazoo River and other environmental reserves.

In 2022, the income from discontinued operations was $262 million, net of tax, related to income of discontinued operations for NCR Atleos of $267 million, as described in Note 2, “Discontinued Operations”of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report, offset by a loss of $4 million, net of tax, due to updates in estimates and assumptions for the Kalamazoo River and Fox River environmental reserves.

In 2021, the income from discontinued operations was $435 million, net of tax, all of which is related to income of discontinued operations for NCR Atleos, as described in Note 2, “Discontinued Operations” of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.

Revenue and Adjusted EBITDA by Segment

The Company manages and reports its businesses in the following segments: Retail, Restaurants (formerly reported as Hospitality), and Digital Banking. Segments are measured for profitability by the Company’s chief operating decision maker based on revenue and segment Adjusted EBITDA. Refer to the section above entitled “Non-GAAP Financial Measures and Use of Certain Terms” for our definition of Adjusted EBITDA and the reconciliation of net income (loss) from continuing operations attributable to NCR Voyix (GAAP) to Adjusted EBITDA (non-GAAP).

Corporate and Other includes income and expenses related to corporate functions that are not specifically attributable to any of our three individual reportable segments along with certain non-strategic businesses that are considered immaterial operating segment(s), certain countries which are expected to transfer to NCR Atleos during 2024, and commercial agreements with NCR Atleos.

The following table shows our segment revenue and Adjusted EBITDA for the years ended December 31, the relative percentage that those amounts represent to revenue, and the change in those amounts year-over-year.

(1) The percentage of revenue is calculated for each line item divided by total revenue, except for Adjusted EBITDA, which are divided by the related component of revenue.

Segment Revenue

For the year ended December 31, 2023 compared to the year ended December 31, 2022

Retail revenue was flat for the year ended December 31, 2023 compared to the prior year period. The change in revenue compared to the prior period includes increases in software license revenue and transaction services revenue, offset by declines in hardware revenue.

Restaurants revenue increased 3% for the year ended December 31, 2023 compared to the prior year period driven by an increase in software and services revenue, driven by connecting to the platform and payments processing growth, partially offset by declines in hardware revenue.

Digital Banking revenue increased 6% for the year ended December 31, 2023 compared to the prior year period due to an increase in recurring cloud services and software maintenance revenues.

For the operations grouped as Other, revenue decreased 9% for the year ended December 31, 2023 compared to the prior year period due to the divestiture of a non-strategic business and declines in revenues not attributable to a reportable segment, offset by revenues from commercial agreements in 2023 with NCR Atleos following the Spin-Off.

For the year ended December 31, 2022 compared to the year ended December 31, 2021

Retail revenue increased 2% for the year ended December 31, 2022 compared to the prior year period. The change in revenue compared to the prior period was driven by an increase in hardware-related revenues and a non-recurring software-related payment from our largest client, as well as an increase in cloud services revenues, partially offset by declines in hardware maintenance, professional services and software maintenance revenues.

Restaurants revenue increased 8% for the year ended December 31, 2022 compared to the prior year period. The change in revenue compared to the prior period was driven by an increase in both hardware-related and services-related revenues.

Digital Banking revenue increased 5% for the year ended December 31, 2022 compared to the prior year period. The change in revenue compared to the prior period was driven by an increase in software license revenues, cloud services revenues and software maintenance revenues, slightly offset by a decline in professional services revenues.

For the operations grouped as Other, revenue decreased 13% for the year ended December 31, 2022 compared to the prior year period due to declines in revenues not attributable to a reportable segment.

Segment Adjusted EBITDA

For the year ended December 31, 2023 compared to the year ended December 31, 2022

Retail Adjusted EBITDA increased 7% for the year ended December 31, 2023 compared to the prior year period. The increase in Adjusted EBITDA compared to the prior year period is driven by improved revenue mix from growth in software and services as well as operating efficiencies and productivity improvements.

Restaurants Adjusted EBITDA increased 23% for the year ended December 31, 2023 compared to the prior year period driven by positive revenue mix and growth in services offsetting the impact of higher labor costs.

Digital Banking Adjusted EBITDA decreased 6% for the year ended December 31, 2023 compared to the prior year period driven by investment in selling expenses and research and development expenses and the impact of prior year employee-related benefits.

For the year ended December 31, 2022 compared to the year ended December 31, 2021

Retail Adjusted EBITDA decreased 10% for the year ended December 31, 2022 compared to the prior year period. The decrease in Adjusted EBITDA compared to the prior year period is driven by product cost and mix, increased labor challenges and other supply chain challenges during the period.

Restaurants Adjusted EBITDA increased 7% for the year ended December 31, 2022 compared to the period year period. The increase in Adjusted EBITDA compared to the prior period is driven by an increase in both hardware-related and services-related revenues. These improvements were partially offset by supply chain challenges and increased fuel costs, which drove up component and other costs, particularly in transaction services and hardware.

Digital Banking Adjusted EBITDA increased 8% for the year ended December 31, 2022 compared to the prior year period. The increase in Adjusted EBITDA compared to the prior period in driven by an increase in recurring revenue.