NCR Voyix Corporation (VYX) Q3 2012 Earnings Report, Transcript and Summary

Thank you for standing by. [Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect at this time. And I'd now like to introduce the Vice President of Investor Relations, Mr. Gavin Bell. Sir, you may begin.

Thank you, Michelle. Good afternoon, and thanks to everyone for joining us for our third quarter 2012 earnings call. Bill Nuti, NCR's Chairman and Chief Executive Officer, will lead our conference call this afternoon. After Bill's opening remarks, Peter Leav, EVP and President, Industry and Field Operations, will update you on progress with respect to certain key initiatives. Bob Fishman, NCR's Chief Financial Officer, will then provide comments on NCR's total company financial results. Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to vary materially. These risk factors are described in NCR's periodic filings with the SEC and in our annual report to stockholders. On today's call, Bill will be referring to a presentation posted on our website. We will also be discussing certain non-GAAP financial information such as free cash flow and results excluding the impact of pension and other items. Reconciliations of non-GAAP financial results to our reported and forecasted GAAP results and other information concerning such measures are included in our earnings press release and are also available on the Investor page of NCR's website. A replay of this conference call will be available later today on NCR's website, ncr.com. For those listening to the replay of this call, please keep in mind that the information discussed is as of October 18, 2012, and NCR assumes no obligation to update or revise this information, including this conference call, whether as a result of new information or future results. Before I turn the call over to Bill Nuti, I wanted to update you with respect to the company's internal investigation of the anonymous allegations of a purported whistleblower, as previously disclosed in our Form 8-K filed on August 14, 2012. Together with our outside counsel, we are making good progress towards completing our internal investigation in a thorough and expeditious manner. The goal of the investigation is to refute those allegations that are untrue and to take appropriate remedial action with respect to allegations that may be true. The company is cooperating fully with the authorities with respect to this matter, including with the Office of Foreign Assets Control; the Securities and Exchange Commission, which is investigating and has served a subpoena on the company; and the United States Attorney's Office for the Northern District of Georgia, through which the company has voluntarily provided requested copies of the whistleblower communications. In addition, the Board of Directors has received a demand letter from an individual shareholder demanding that the board investigate and take appropriate action in connection with certain of the whistleblower allegations. The board has formed a special committee to investigate and respond to the demand. Given that our investigation is ongoing, we will have no further comment on this matter during the earnings call. With that, I will now turn the call over to Bill Nuti.

Yes, thank you, Gavin, and good afternoon to all of you. I'm going to take you through some key takeaways from the third quarter, highlights of our lines of businesses and then really talk a bit about Radiant. And well, we're now about a year into the acquisition, and I promised all of you at this time to give you an update on how we are doing. I also want to talk a bit about operational excellence today from the point of view that while NCR has orchestrated a growth-oriented strategy and executed well, we remain focused on the fundamentals, on the basics of running our company. And then I'll close my section with a pension update and give you a view to where we are today vis-à-vis pension. Everything I discuss will be drilled down on both by Peter and Bob subsequent to my initial comments. Let me refer to you Slide #3 in the deck. The title slide is Q3 2012 Key Takeaways. The first comment I'd make is that I'm pleased with our overall revenue growth, 6% as reported, 9% growth on a constant currency basis. The growth really stems from a variety of areas, but it really does, I think, underpin the diversity of NCR, the great diversity of the number of industries we are in, the number of geographies we're in and product segments. Gross margin has been a great story for NCR for a long time. We have executed well relative to a consistent gross margin improvement plan, and we hit a record in Q3. Our gross -- operational gross margin was up 260 basis points to 27.3%, an excellent performance on the part of this team, driven by software and software revenues, as well as good performance on the part of the core business and hardware margins. Talking specifically about software, up 35% year-on-year, an area of great focus for NCR. We are on track to achieve the outlook I gave you at the beginning of the year and then reaffirmed last quarter. Our software revenues will eclipse $500 million this year, closing in on about $550 million of revenue, and that is without adding the PS business, or professional services business, to that number. So we're pleased with our focus in software and our growth across the board. One of the areas I'll talk about in a moment is SaaS because I think the Software-as-a-Service piece of that has been growing faster and an outstanding addition to our recurring revenue opportunity going forward. NPOI grew 24% year-on-year to $153 million. This is also an all-time high. NPOI margin for NCR at 10.7%. Many of you will remember the analyst meeting 2 years ago where we had thought we could hit 11% NPOI margins by sometime in 2014, and it's clear now that we will hit that margin rate much sooner than we originally expected. Free cash flow, a good story for us. Now you have to exclude the $500 million pension discretionary contribution in this number, but our overall free cash flow was up $61 million year-on-year in Q3, and we're up $65 million year to date. So I'm pleased with the traction we have in free cash flow, and I do expect that to get better in Q4 and significantly better in 2013. We are on track to achieve our updated guidance. Bob will give you our new guidance on the year. Essentially, we are holding our revenue guidance and improving in some areas like Financial, bringing up our guidance in the Financial Services space, and then we're bringing up our NPOI guidance on the year. And pension remains on track. I feel good about where we are now in pension Phase 2 and the work that's underway to achieve our Phase 3 aspirations sometime next year. If you go to the next slide, we talk about line of business highlights, and I'll start with Financial. When you adjust for currency, it was a good quarter for Financial, up 8% on a constant currency basis. We continued to get traction in the national bank and regional bank segment in Q3. We won 57 new customers in the quarter that we had not done business with for the preceding 3 years. That now takes our total new customer win up over 425, and we're pleased with our market share gains in that particular area. And we feel good about the progress we've made there and frankly, the environment going into 2013. One of the areas we focused on in the quarter and we've been focused on strategically is cash management. The acquisition of Transoft helps us tremendously in is a $1 billion market or a potential $1 billion market. And the acquisition of Transoft positions us well given it is a software asset and can be a SaaS asset to the regional banks as we move forward and obviously a key application, particularly when banks are looking to reduce cost and cash in transit. Some key developments. The SDM, or our Scalable Deposit Module, it just continues to really help our company, frankly, win new business. This innovation is now installed in over 10,000 ATMs and deployed in -- recently in SunTrust Bank here in the Georgia area and First Financial Bank. And we continue to see good opportunities and traction both in ATMs and soon to be in the branch. And we'll talk a bit more about that today. And on the branch front, APTRA Interactive Teller, one of the featured products of our branch transformation strategy, is going quite well. We won some new customers in the quarter. We feel good about that space, and that is a space you'll hear more about going into 2013 and beyond because we're encouraged about the potential for both revenue and margin given it's a much more software-rich solution set for NCR. And we have several pilots underway, and you can see we're winning new business in an adjacent market, frankly, that's bigger than the ATM market. Moving on to Retail. Retail had a good operating income quarter, and we're beginning to get very constructive about Retail. We're feeling good about Retail generally. Self-checkout as a solution in that segment grew 25% year-on-year in the quarter. And we are seeing strong momentum both in orders and backlog in Retail. We had a good Q3 in orders, and we're going to have a good Q4. We had some big wins in the quarter in the Retail space. We also continued to invest in and roll out Silver. Silver remains on target. We now have several hundred customers. We continue to pilot the technology. We continue to build an infrastructure to support the technology and build out our distribution capabilities. And we're hopeful that we're going to close and announce shortly a large office retailer, who will be putting Silver in their stores in over 1,000 stores or near 1,000 stores starting in November in a prominent section on an endcap in a store. The Hospitality business is doing well. I'm very pleased with this particular line of business. They were the standout, I think, in the quarter for us in many ways. Our revenue was close to $130 million, as you can see. But as I referenced earlier, our Software-as-a-Service application sites were up 40% year-on-year, and we passed the 100,000 mark in application sites, an outstanding accomplishment for us and terrific growth in what is a recurring revenue business at very high margin. The synergies we anticipated, along with their growth and continued execution, resulted in very good operating margins in the business, 17.8% in the quarter, an increase of 160 basis points from Q2. So sequentially, not year-on-year. We've had some big successes, Arby's being one of them. In the quarter, we completed a rollout, a large rollout, in Q3; and a new platform called Pulse, which you'll hear more about in subsequent calls, a new innovation from NCR that is essentially focused on workforce productivity and mobile enablement of that productivity in a store. And we've now got that platform in more than 1,000 restaurants installed. And it's the fastest we've ever gotten to 1,000 sites with any product in Hospitality. In the Emerging space, it was a good quarter. Revenues were up 10% on a constant currency basis. Operating income margins grew 290 basis points, so good improvement in profitability. And travel, in particular, is beginning to really demonstrate signs of good growth. We had nearly a 50% growth in orders in travel, and we won some significant business in that space. We signed, on the T&T front, a 5-year very large services agreement with British Telecom. That will help us extend our reach to multiple countries around the world. And in the mobile space in travel, we are now well over 2 million downloads a month of our mobile application that enables people to essentially download a 2D barcode to their phone and for passengers to board at the airport using a mobile device or smartphone. So those are some of the key highlights of the industries. Again, Peter will get into them in more detail in a moment. But let me switch you now over to a quick update on Radiant. I promised you a year ago that I would come back to you a year into the integration and give you a report card, and I'm pleased to tell you that I am excited about the opportunity to share with you what I think is excellent progress. I couldn't be more pleased with the impact the Radiant acquisition has had on NCR, not just from a revenue point of view, a gross margin expansion point of view, but talent and culture as well. And we continue to see good progress in the business, and the synergies that we bring to the table to Radiant are equally exciting. Our global platform, as an example, really allows us to now participate in opportunities we otherwise could not in years past. But you heard about some of the numbers in Hospitality. If you just take Radiant out of that, in the quarter, they did $112 million and $20 million in OI. That's all-in operating income, inclusive of G&A cost and expenses. So looking at them as a standalone business, they would have generated $20 million in operating income. We talked about synergy realization. Both cost and now revenue on track and SaaS earlier. If you think about our initial objectives with Radiant and the lens we used to integrate them, it was always about business continuity, retention of key talent and customer loyalty and satisfaction, meaning every decision we make uses those 3 principles of the lens. And the objectives were, along those lines, to achieve some level of cross-selling benefits, which we are doing, to make sure that the global platform of NCR could be used to extend their business, which is going well; and then of course, to execute financially, which of the team is doing quite well; and then to make sure we add to our recurring revenue stream high-margin revenue opportunities that are very sticky, and frankly, add a lot of value to our customers in their software platform, and SaaS applications do just that. So net-net, this probably couldn't have been done any better so far. I couldn't be more pleased with the success of this particular acquisition. And I feel good about the integration process and the contribution that they have made and will continue to make to NCR. If you flip the chart, one of the things we've not allowed ourselves to slip on is operational execution. When you are driving a high-growth strategy, you can sometimes see the foundation of your company slip at bit in areas that are important, and that is to be pragmatic and focused on the fundamentals, daily blocking and tackling. And I'm very proud of the NCR team and what they have done so far. And Q3 is another great example of the skill set this organization has to be able to, in a 3-dimensional way, focus on growth and do it in a responsible way. We talked about acquisition integration. Free cash flow, very good performance on the part of the team, largely as a result of excellent working capital focus both in terms of DSOs, which are down 4 days, and also inventories. Our turns were some of the best we've seen, and we also kept inventory at a relatively low level despite needing more for higher growth. So I compliment both the finance organization and the operations team for that performance. We continue to keep a lid on expenses, where -- I think, carefully spend our money at NCR where we need to in terms of making investments, areas like services in Silver, are areas where they're making investments, and then to continue to be responsible relative to making sure we're holding down expenses and driving up productivity where we need to. On the productivity front, the CI team continues to do a great job. We are on track to achieve our $100 million in savings this year. And as you all know, we have a variety of programs underway both in each function and then across functions to achieve those CI savings. And by December 31, 2012, we will now have about 14% of our entire employee base CI-certified, which is a big accomplishment in terms of the D&A that you need to have going forward to maintain this fundamentals focus and this -- the excellence that one needs to have as you drive a growth strategy. And we now have 30-plus master black belts, 100-plus black belts, 700-plus green belts and 2,200-plus yellow belts. And all of those folks are doing a great job in making sure that our processes are lean, our cost structure is appropriate and our quality is higher. Moving now to pension, Slide 7 in your deck. I won't remind you of our Phase 1 approach. You were all well aware of that. We announced that in April 2010. Phase 2 is well underway. We have already, of course, as you all know, have secured $600 million in 10-year bonds issued at, I think, the lowest rate in history for a company with our rating. We contributed $500 million to the pension. We had immediate savings of some deadweight costs like PBGC premiums in this year. And we -- as you know, I've done a lump sum offer to our term-vested employees and their processes still underway, and we will know the results of that sometime in mid-November. We also have begun the process of working towards Phase 3, and aspects of that we've talked about, some of which includes moving forward with our international pensions and what actions can be taken there to reduce risk and volatility, actions with regard to our retiree population, and ultimately the annuitization of the NCR pension plan. We have done a number of things to get to that state and begin to work towards that process. A lot is underway, and I feel good about our progress and think that we'll begin to talk to you in more detail about next steps in -- vis-à-vis Phase 3 sometime in 2013. With that, let me turn the call over to Peter Leav, and he'll give you a little bit more color on the lines of business. Peter?

Thank you, Bill. As Bill mentioned, Q3 revenues increased 6% on an as-reported basis and 9% on a constant currency basis. Excluding the impact of the timing of orders in Brazil, total global orders in Q3 were down 4% on a constant currency basis. Quarter-ending backlog was up 7% constant currency versus last year's Q3. Given our current outlook for Q4 orders, we expect total year-end backlog to be up approximately 10% on a constant currency basis. As a reminder, orders do not include hospitality, consumables or customer services. In Financial Services, our customers around the world remain enthusiastic about our technologies and solutions and continue to see NCR as a critical business partner that can help them improve customer service levels, deploy converged multichannel solutions and distinguish them from the competition. Overall, the business is healthy, and new technologies that help point the way to branch transformation serve as an underlying driver for ongoing demand for our solutions. Branch transformation can ultimately be larger than the ATM business, and we are extremely pleased with the results of current pilots underway. One solution under the umbrella of branch transformation is our APTRA Interactive Teller, which incorporates integrated 2-way video conferencing capabilities that give bank customers access to a live teller capable of delivering a multitude of in-branch transactions both during and after typical branch hours. APTRA Interactive Teller is securing new wins for us. The FirstOntario Credit Union became the first Canadian financial institution to deploy APTRA Interactive Teller, while Dollar Bank will be deploying the technology in multiple locations in Pittsburgh. Furthermore, we just announced wins at LowellBank in Massachusetts and Salin Bank in Indiana. APTRA Interactive Teller will enable these institutions to provide more personalized services to their customers around the clock and can run more efficient branch operations. Scalable Deposit Module, or SDM, is another advanced technology that continues to help our customers meet the changing needs of their customers. SDM lets consumers deposit both cash and up to 50 checks in any orientation via a single deposit slot. Over 10,000 SDM-enabled ATMs have been deployed in the U.S. since we introduced the technology in 2012. SDM wins during the quarter include SunTrust Bank, who will be deploying SDM-enabled ATMs in over 1,600 locations; and First Financial bank, who will be replacing their fleet of over 150 machines in Ohio, Indiana and Kentucky. SDM and APTRA Interactive Teller are great examples of how NCR helps financial institutions as they seek to reshape their branch operations to better serve customers and capture improved productivity and cost gains. We are also driving this transformational change through new technologies such as our automated recycling technology, one example being our teller cash recycling solution, or TCR. TCR offers fluid movement of cash from location to location within the branch for both tellers and banking customers. Spending less time on cash movement will free up time to spend with customers, and moving more discreetly and efficiently will help drive increased transaction privacy. Affinity Plus Federal Credit Union, the largest non-bank financial institution in Minnesota, will be piloting this technology as it seeks to deliver a unique and convenient experience to its customers. The American Bankers Association, ABA, recently endorsed our ATM and branch transformation solutions, citing our ability to deliver cost reductions, increase operational efficiencies, deliver an improved consumer experience and provide a platform for financial institutions to help grow their sales. We also received important recognition from Vantiv, who recently certified our APTRA Edge multivendor ATM software on its network. Vantiv has been a partner of NCR for many years, and its certification will help financial institutions realize the benefits of a single platform and offer a more consistent and deeper consumer experience across their self-service networks. Finally, we recently acquired Transoft, one of the global leaders in cash management software for financial institutions. Transoft's cash management software enables businesses to optimize their cash requirements and reduce costs related to cash-handling processes. NCR will greatly strengthen our cash management capabilities as we integrate Transoft software and SaaS-based products into our existing Financial Services offers. This acquisition is directly tied to our strategy with respect to adjacencies and building our software capabilities and grows our available market by an estimated $1 billion. One of the key attributes of NCR is the diversity of our businesses both from a geographic and line of business standpoint. As we stated on our 2 previous calls, we believe our Retail segment is showing signs of improvement. In Retail, we are seeing a transformation in how stores are managed and operated, how we're innovating in ways that will help drive that transformation. As Bill mentioned, we expect to see Retail recovery continue to gain steam as we move through 2013. We are making important innovation investments in our Retail offerings with a focus on software. One example of this is the recent integration of VendorNet's StoreNet In-store Pickup fulfillment technology with NCR's Advanced Store POS software. This new functionality will enable retailers to effectively integrate their online and in-store inventory and deliver improved customer experiences through in-store pick-up and return and exchange services for purchases made online. Our investment of an incremental $10 million in Silver, which we announced in Q2, is paying off as we're getting a great response. Silver marks our return to the small business market where so much of NCR's history and legacy resides. We have recently introduced additional features, including updated inventory management functionality, enhanced reporting and more email marketing tools. These new enhancements will give small business owners using Silver more tools that are necessary to compete in today's increasingly competitive business environment. As our newest technologies gain traction and provide promise for the future, we are also continuing to invest in our self-checkout technologies, which continue to steadily penetrate the Retail landscape. A recent survey we conducted demonstrated that shoppers appreciate the speed and efficiency gains provided by self-checkout and are eager to have self-checkout options available at additional Retail segments. This feedback is very consistent with our self-service thesis, and we continue to see indications of a pent-up investment cycle by Retail customers. Our third core vertical is Hospitality, which continues to generate excellent results, and customer activity remains robust. Our market-leading point-of-sale hardware and suite of SaaS offerings are enabling restaurant operators to strengthen their operations, while at the same time, enhancing multiple aspects of the consumer experience. The business model of recurring revenue, driven by additional SaaS application sites, continues to drive profitable revenue for the company. Looking now at our Emerging Industries. In the Telecom and Technology vertical, we signed a 5-year agreement with British Telecom to provide delivery and integration services for their multivendor Converged LAN Connect and IPT solution for enterprise customers in excess of 100 countries. Our services team will provide BT with the ability to a offer a more extensive, integrated and consistent solution set globally. In travel, wins such as the Oman Airport infrastructure and systems integration project leverage NCR's understanding of airports and airport systems and our network technology capabilities. As Bill mentioned, we also delivered more than 2 million boarding passes last month alone via a SaaS-based application that is pay-per-click. We also delivered more than 500,000 clicks with Fandango via SaaS-based 2D barcode. Finally, our services business experienced a strong third quarter, benefiting from the incremental $10 million investment announced in Q2 with revenues up 6%, supported by continued growth in attach rates and file value. Services-related revenues are a key component of our transition to becoming a solutions-based company that generates profitable revenue and growth via software, SaaS and services offerings, and we will continue to invest in service delivery capability. In summary, we are successfully executing across our core product groups through innovation and solid sales execution and driving higher-margin software and services revenue. The entire NCR team is operating with a disciplined focus on leveraging our experience and expertise to develop and introduce high-value solutions and technologies. We continue to help our customers achieve their sales, cost and productivity goals while also helping them to differentiate themselves from their competition and focus on their customers. I will now turn the call over to Bob.

Thanks, Peter. NCR's total reported revenue in the second quarter was $1.44 billion, up 6% versus Q3 2011 and up 9% on a constant currency basis. We reported GAAP income from continuing operations of $58 million or $0.35 per diluted share. This compares to GAAP income from continuing operations of $23 million or $0.14 per diluted share in Q3 2011. NCR's results from continuing operations include special items in both periods. Excluding pension and special items, non-GAAP diluted income per share was $0.64 per share in Q3 2012 versus $0.57 in Q3 2011. To analyze NCR's operational performance without the effect of special items and pension expense, please see the supplemental financial schedule included in our earnings press release and the supplementary non-GAAP materials in the slides that Bill referred to earlier that reconcile our GAAP to non-GAAP results. Excluding the impact of special items and pension expense, our Q3 2012 gross margin was 27.3%, up 260 basis points from 24.7% in the prior year period, resulting from higher product and services sales, favorable customer and product mix, including significantly more software, and the continued successful implementation of cost-reduction initiatives. And operating expenses, excluding pension expense and special items, were approximately 16.7% as a percent of revenue due to continued investment in sales and R&D. Non-GAAP income from operations, or NPOI, was $153 million in the third quarter compared to $123 million in the prior year period, an increase of 24%. Segment operating margins for Financial Services slightly decreased to 10.1% versus 10.5%, mainly due to an increased mix of revenues from emerging markets and investment in services and R&D. Retail Solutions increased to 6.7% from 4.1%, mainly due to a favorable mix of revenue, including more software. Hospitality increased to 17.8% from 13.9%. And Emerging Industries increased to 23.4% from 20.5%, mainly due to a favorable mix of revenue and lower service delivery costs. Other expense was $7 million in Q3 2012, which is mainly related to interest expense. Income tax expense was $23 million in the third quarter compared to income tax expense of $2 million in Q3 2011. Excluding the effect of pension and nonrecurring items, the third quarter 2012 effective tax rate was 27% compared to 23% in Q3 2011. NCR's full year 2012 effective tax rate is expected to be approximately 26%, better than the initial forecast of 27%. Turning to the balance sheet. Cash on hand at September 30, 2012, was $581 million, up from $377 million at June 30, 2012. Total debt of $1.46 billion at the end of the quarter increased $722 million from Q2 2012 due to $150 million for the incremental credit facility and $600 million for the issuance of the high-yield bond, the proceeds of which were primarily used in the execution of Phase 2 of our pension strategy. Moving to the cash flow statement. NCR had $400 million of cash used in operating activities in Q3 2012 compared to $6 million in the prior year period. Excluding the $500 million discretionary contribution that we made to the U.S. qualified pension plan during the quarter, free cash flow was $16 million in Q3 2012, up $61 million from the prior year period. We continue to deliver excellent performance with our working capital. NCR defines free cash flow as cash flow from operations and discontinued operations less capital expenditures property, plant and equipment in addition to capitalized software. The company still expects free cash flow of $100 million to $150 million for the full year excluding the discretionary contribution previously mentioned. I'd like to conclude by discussing our full year guidance. Full year 2012 revenue growth expectations include services and are on a constant currency basis. We are raising revenue guidance for our Financial Services and Hospitality lines of business. In Financial Services, we expect revenues to grow 8% to 10%, up from the previous guidance of 7% to 9%. In Hospitality, we now expect full year revenues to be in the range of $505 million to $515 million, up from the previous guidance of $490 million to $500 million. In Retail, despite the momentum gained from improved order performance in Q3 and the strong backlog position entering Q4, we expect revenue growth to decrease in the low single digits versus our previous guidance of breakeven. We are optimistic that Retail is recovering and will position us for a fast start in 2013. In our Emerging Industries line of business, we now expect revenues to be up low single digits compared to our previous guidance of up 7% to 12%. In terms of total revenue, we are maintaining our revenue guidance at 11% to 13% on a constant currency basis. This is a good example of driving growth through an improved diversification of revenue streams that Peter and Bill discussed previously. In terms of profit, we now expect our full year 2012 NPOI to be in the range of $580 million to $590 million, up from our previous guidance of $570 million to $585 million. As a reminder, full year guidance includes an approximate $10 million incremental investment in the back half of the year in customer services and a $10 million investment in our Silver business, as discussed in our Q2 earnings call. As a result of Phase 2 of our pension strategy, we have more interest in Q4. And as a result, we are increasing our estimate of other expense from $40 million to $45 million for the full year 2012. I also previously mentioned that we have improved our full year operational tax rate from 27% to 26%. And finally on operational EPS, although we have higher interest expense and a more dilutive share count than originally forecast, we are maintaining our guidance for the full year at $2.40 to $2.47 per share based on the improved NPOI and the better full year tax rate. Now I will turn the call back over to Bill for closing comments.

Thank you, Bob and thank you, Peter. Well, as I mentioned in the upcoming statements or the original statements I made about the quarter, I'm pretty pleased with how Q3 shaped up for the company. We had solid revenue growth. I'm particularly pleased in terms of where we are going and the progress we've made on gross margins. Our focus in terms of shaping our revenue stream for tomorrow, more software, more recurring high-margin revenue, is on track and in some cases, ahead of our expectations. We are pleased with the increasing guidance vis-à-vis NPOI, and in doing so, making investments in the business we know will pay dividends long term and with some headwinds, a higher share count being one of them and higher interest expense being the other. We're generating more cash as an organization. That, to me, is always an important -- or the important metric in running a company. And I feel great about the kind of cash flow we'll be able to deliver next year. And operationally, this company is performing quite well across the board. On the balance sheet, we're on the right path vis-à-vis pension to continue to de-risk and also to improve volatility going forward, and we'll be better positioned next year to take the next steps. With that, we'll go to questions. Thanks. Operator, please open up to questions.

[Operator Instructions] We have a question from Katy Huberty.

Great quarter on a tough environment. I just want to ask about order growth in Retail and ATMs. How did it compare to the single-digit growth last quarter if you exclude Brazil? And then specifically on the Retail business, you talk about 5 big customer wins this quarter, improving order and backlog growth. What is the offset in the business that's causing the downtick in growth for the year as you look to the fourth quarter?

Yes. The way I'd characterize it for you, Katy, is Financial Services, when you kind of strip out everything and you look at it in a company level, I think the company level number is more telling, it was -- we're down slightly year-on-year. But again, very difficult compares. And frankly, the order volume we're seeing in Q4 is encouraging across the board but particularly in Retail. Retail, frankly, was up on a like-for-like basis in Q3. Again, that's the second quarter in a row. In the mid-single digits, very solid. And we're encouraged with the Q4 outlook for Retail as well. So I think we're in good position in both markets. I think Financial Services had a more difficult quarter than Retail but not by much. And again, the tough compare doesn't make that any easier.

And the reason you're not seeing an uptick in revenues in 4Q off of the better orders in Retail is just a matter of timing?

It's all about timing, yes. Some of these deals will be large, and they'll roll out over time. In fact, I suspect we'll be announcing one of them here shortly in the next week or 2 that you'll see and you'll recognize, and you'll understand why it will take some time to roll out. So these are big deals, important deals for us and in great segments like self-checkout, and they'll take several quarters to roll out.

Kartik Mehta.

Bill, I was just wondering if you could provide a little bit more perspective on ATM growth by region just because I saw that on a constant currency basis, the segment was up pretty good at 8%. But I think you also made some comments that maybe Middle East, Africa might be a little slow. So just getting just your perspective on how the regions currently look.

Yes. On the revenue side -- let me just give you some perspective and color here. So if you look at region revenue and you look at the Americas, for example, in financial, they were up slightly year-on-year. It was a pretty good quarter, actually, for the Americas. Europe was about flat year-on-year, which is a good -- actually, good outcome. I think I've been signaling that Europe will be flat for the most part for a while now, and that's been consistent. On the AMEA side, which is Asia, Middle East and Africa, the MEA portion of that is doing well. It's very solid and continues to do well. It's really portions of Asia that are a bit slower. So the fact that we were down a bit in AMEA is largely as a result of some secular markets. I think China was probably one of the ones that were down a bit for us, but MEA was strong. Japan, Korea, really not a lot to talk about there, Kartik. And then in Brazil, just a very difficult compare because of the lumpiness of that business. But from a revenue perspective, it was up almost 350%. So obviously, it looks big, and the dollars are getting a lot bigger. But again, it's lumpy.

And then just finally, Bill, on the margins on the ATM side, year-over-year decline. And one of the reasons you stated in the press release, and you said so on the call, was just the growth in the emerging markets. And then it sounds like from the order perspective and everything you're doing, the emerging markets are doing well there. Would that imply that the margin pressure could continue into -- over the next couple of years as that business continues to grow?

Well, that's not the plan. And I don't mean that to sound cute, Kartik. It's just the good news is that we're having great success in markets like Brazil and other emerging markets. And we're still young from an operational point of view in these markets and learning how to be better and drive out cost. I do think we're going to get better and better over time in places like India and in Brazil and other low-margin markets. So I would not characterize these markets as having a dampening effect frankly on our gross margins going forward or operating margins going forward. As we get better there, and we compare ourselves to where we are today, they're going to get better, and in some cases, significantly better. So I feel good about the penetration we've had in the emerging markets. I feel good that our team is working on cost improvement programs and taking ourselves from immaturity to maturity, and our operational supply chain is an example. And I feel good about the extension of our business into other spaces in these markets, like branch automation being an example. I mean, just to put something in perspective for you, there are 200,000 branches in China alone, and that's a market we're just now getting into. So I'd say that I think on an operating income basis, what you're seeing in Q3, yes, some mix of emerging market revenue that impacts us because it's at lower margin, and we'll fix that, but also the investments in services we made in the quarter negatively impacted the operating income margin. And that won't go on forever as well. But we are going to continue to invest there because we want to make sure our service levels are best in class, and we're dedicated to doing that. We think by developing a service capability that's really, quite frankly, a competitive advantage in the market, we can gain even more share over time.

Ian Zaffino. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: A couple of questions here. Can you give us a little -- and I might have missed this because I hopped in a little bit late. But can you give us an update on what OFAC [ph] is doing as far as internal investigations, how you look at it when we should get a resolution, what they found and kind of where you're leaning?

It's Bill. Yes, at the front end of the call, you missed it. But Gavin kind of went through an overview, and he can take you through that offline if you like. We'd love to talk about this issue more than we can today, but we want to respect the process underway. We want to respect the fact that we're working with the regulators on closing this out. We did -- by the way, we do think we're getting closer to the end of the internal investigation. So we feel good about that. So ultimately, I think the best option is to talk with Gavin after the call, and he'll kind of run you through the script. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Okay. But basically -- I mean, I can pull it up myself. But basically, I mean, the resolution is something that we should expect in the next, call it, 3 to 6 months? Or is it something that we should expect to drag on for longer than that?

So the goal is to have the internal investigation done, the independent internal investigation on our side, shortly. So I think 3 to 6 months is reasonable. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Okay, good. And then help me square the circle a little bit. We've seen some of your competitors report less-than-stellar results, and yours have been significantly better. Maybe just a different way, maybe help us understand how the market is growing, where the market is growing and how you're growing vis-à-vis the market and kind of what's helping that or what's aiding that?

So I think both myself and Peter will take this one on. First of all, I think what is important to recognize about NCR is the diversity of the businesses we are in and the number of industries we're in and how big they have become. This is a message for my team. I don't think they get enough credit for the strategic execution over the many years we've been working on our plan together here to build a very diverse business that can, if needed, withstand any particular issues in any geography or industry. So we're not, if you will, so sensitive to an industry that may move in a different direction or a particular geography. Secondly, as it relates to financial, in particular, first of all, I have a lot of respect for Diebold and Wincor and all of our competition in that space, and I think they're great companies. I want to say that at the outset. But they are niche competitors in a given industry for us. And they're international competitors when we're a global company, meaning most of our competition is competing with us in key markets. For example, you might find one of them just a European-based company, another just really a U.S. and Brazilian-based company. NCR is a global platform in financial. We also have executed well with regard to market share gains, to be very candid with you, and we're proud of that. We've put a lot of focus on gaining more share in the Financial Services space, and the team under Peter's leadership has executed brilliantly, particularly in the Americas and the U.S. So when it comes to individual markets, we have competitors in each one of these markets. We are very focused on them. We're quite a competitive culture here, and we have a great deal of respect for them and understand on any given day that we have to have enough healthy paranoia as a culture to really get focused in a way that gives us the best odds of winning. I also think we have great innovation, great technology. I think we have a clear lead vis-à-vis innovation in the industries we serve. We spend a lot more time and effort on R&D today and on innovation. We have regained our proverbial fastball as a company in innovation, and it's showing up. SDM is a good example of that in the Financial Services space and helped us gain share here as well. You can see an example of that in every industry we have. But I feel -- I do feel good about the execution of the company, too. And I would be remiss before I turn it over to Peter to say this is a good team. It's a good executive team and a good leadership team, and they execute quite well, and a strong team and a cohesive team. And we work closely together as a group and have done a good job of driving growth and not letting expenses or operational execution slip in the process. Peter?

I think just to echo a few comments and add a few, we've been very focused on the strategy in Financial, and much of that had to do with the opportunities that we saw globally from a market share gain perspective. So Bill talked a bit earlier about hundreds of new accounts in the U.S. market. And as Bill outlined, much of that had to do with technology, as we discussed, SDM and other technology that you'll continue to see on the branch side that continues to help us differentiate ourselves and our customers differentiate themselves. We also have been very focused on market share gains, as you all know, in Brazil, more recently in India, which has been a big focus for us, and in Latin America. So that continues to be a key area for us within the confines of financial. But I think looking at the company, the balance and the broad portfolio, we talked about Radiant contribution, our bullishness on Retail and where we're headed, the travel business continuing to really make strides. And I think one other key differentiator is we are a truly global services organization that cover the gamut, and that's continuing to serve us well. So just a few additional comments on differentiation.

Zahid Siddique. Zahid Siddique - Gabelli & Company, Inc.: I have a couple of questions. One, in your ATM business, did your margins get impacted by a higher portion of regional banking business? Or was the margin compression mainly from emerging markets? That's my first...

Let me answer the first one, Zahid. The answer is no. We had a good regional mix in the quarter, frankly. So -- and by the way, regional bank revenue was up 60% year to date. So we had a good mix in the quarter. We are having great success on the year, and that does help us. This particular quarter, the margins were slightly down as a result of a higher mix coming from emerging markets like India, like Brazil in particular, and of course, the investments we decided to make proactively in services, which were significant and obviously would hit the Financial Services line of business in terms of contribution more than others. Zahid Siddique - Gabelli & Company, Inc.: How much was the regional revenue up in the quarter?

I don't know the answer. Do you know the answer to that?

Largely flat to up slightly in the quarter in just Q3, Zahid. Zahid Siddique - Gabelli & Company, Inc.: Yes, yes. And then I might have missed this, did you mention the ATM orders for Q3?

No, we did not. No, we did not. Zahid Siddique - Gabelli & Company, Inc.: Is that something that you can mention?

I think on an overall basis, what we're trying to get focused on, Zahid, is the company's overall orders. What's happening, I think, for us and for you that you need to be mindful of is while orders is a very important metric, it's becoming less relevant because what's not included in the orders metric, for example, orders for consumables, orders for Radiant, for Hospitality and orders for other areas of the business like services and customer services. So we're getting a bit more cautious about using it for each of the lines of business because it's not necessarily reflective of the future quite that well. But I would say this about Financial Services. I think the company is in good position. We wouldn't be raising guidance on revenue if we didn't feel comfortable about our position on the year. And there's no question that to some extent, it slowed down a bit around the world. But we're also encouraged about what can happen in 2013, particularly in branch transformation.

Matt Summerville.

Bill, just to your last comment, I'm still not sure I understand what you said when you mentioned that orders aren't necessarily reflective of the future. Can you help me understand that? And then for a number of quarters now, you've actually given pretty good order granularity, and it sort of looks to me at a time when things have slowed a little bit, you don't want to give that granularity anymore. And I would sort of argue that you can have it both ways.

I don't think you can have it both ways, Matt. We're not trying to be cute. I think that when you look at the order numbers for the company and you look at the order numbers for Financial, there's a lot not included in there. And we want to be careful we don't mislead you with regard to what's occurred in the quarter and what's in backlog and what's going forward. So if you look at NCR, we're giving you NCR order numbers. We're kind of telling you where everything is landing for the company in aggregate so you can understand the company outlook for orders and revenue even though the company outlook for orders, again, does not include any activity in Radiant or consumables or customer services. So it's not picking and choosing per se, it's starting to redefine a bit the metrics we use to define our success as a company and what we want to give you going forward.

Okay. From a regional standpoint, can you give some sort of granularity -- I mean, well, here. I'll just ask it this way. So basically, you've gone from giving a lot of order data to just giving the total company, and that's the way it is going forward even though you've consistently mentioned that your historical order data doesn't include consumables, doesn't include Radiant and Hospitality. I still don't get this change.

Well, if you can -- if you look at our results this quarter, Matt, it's pretty simple. At the end of the day, we had a great quarter. And last quarter, when we gave you order information about Financial, it didn't look so good, but we're raising guidance for Financial. So as you can see, it's not reflective of the business. So we're not trying to not give information to be less transparent, we're actually trying to give information to be more transparent about NCR and NCR's success. So the information we gave in the past was, for example, in regionals, which I just gave I think by the way, was to give you a sense for success we're having in a segment that we were not really participating in. And now we're quite mature in that segment. We're doing quite well. We've had a number of customers that have moved over to NCR. So again, we think that it's important to make sure you have enough information to model out what the company's future looks like. But in financial, had I gave you last quarter's numbers, you would have thought this quarter might not have been so good and our guidance might have come down, but it didn't.

And then just one last one, and then I'll hop off. Just sticking with regionals, when do you think that group of banks or that market segment starts to come back and go down the road in a more firm fashion towards deposit automation? And what's your assessment of how ready their back office is for that, if you will?

I think in the regional space, Matt, you're going to continue to see steady implementation in deposit automation. We are seeing it. We're experiencing it. So it hasn't stopped. I think that it depends upon your size though, frankly. Small institutions, credit unions and small banks may not move as aggressively as a result of productivity gains or labor arbitrage or transaction migration simply because the math doesn't work for them. The larger you get, the more the math works for you. There are about 150-ish thousand ATMs left out there to upgrade in that segment and when you combine nationals and regionals together. I think what people tend to take a look at is about half of that space being essentially the market for an Intelligent Deposit Solutions so, call it, 75,000 left to go. And as I said in the past, I think that, that rolls out over the next few years, call it, 2013, '14. And by the way, I think you're also going to see the next generation of deposit automation start to roll out in '14, '15 for large banks. So that's coming next.

Our final question is from Gil Luria.

I had a couple. You talked a little bit about mobility, but it seems to be a big area of focus. Your acquisition of Radiant was very timely. They were very early innovators in terms of introducing mobility in the Retail and the restaurant context. Can you talk about how that changes your economics in those verticals? So if you have a large Retail or a large restaurant chain that tells you they want to extend their sales force or their servers to more of a mobile platform, but at the same time, buy less cash registers, buy less of the one -- of the hardware that they're buying now, how does that impact your economics? Is this a positive trend for you? What kind of products do you have to serve that population?

It's a great question, Gil, because it's one of the areas we're focused on internally in terms of development of application. So we cited today on the phone call the fact that we're now delivering about 2.1 million boarding passes a month for mobile check-in at the airport on NCR technology. And we get -- the business model for that is we get paid about $0.11 per download. Similarly, the same business model is in place for Fandango where we're downloading about 0.5 million movie passes right now. And that application alone will be rolled out across all vertical markets over the course of the next few years. And there's various applications. You can think of downloading a ticket to your phone to enter an arena, a stadium, a football game, a soccer game, a concert. You can think about using it for rail and bus and mass transit. You can think about using it for coupons in the Retail space to download mobile coupons. You can think about it in a variety of different applications, and we're working on all of those. So the fact that the Mobiqa acquisition, which was done a few years ago, came with this unique IP and the growth of this space has on fire, we think that we've got a good opportunity to take this technology across all lines of business, including Hospitality, to your point, where Radiant is using this technology or will be using this technology for a variety of loyalty and couponing reasons. Any other comments, John, on that?

Sure, Bill. This is John Bruno. I'd say that your question surrounded, in addition to Bill's comment, something about the endpoint, it's impact potentially on point-of-sale itself, potentially ATMs themselves and Financial and maybe even self-checkout. And I'll answer your question this way. As a platform, if mobile's integrated into POS, into our self-checkout and into our Financial Services included branch automation, it actually adds greater value to those devices. So we do not see a trend where many people talk about the absence of a point-of-sale terminal in a large retail environment or even in a mid-tier environment because mobile's been introduced into that space. What we're finding is, is that what people are looking for is integration, and that integration is the innovation that we're delivering. Because today, whether it's promotions on a mobile phone or potentially even integration between you as a consumer in a restaurant interacting more directly with the point-of-sale platform to add items to your bill, to see your bill in real time or ultimately to pay for your bill, is driving more value. It's optimizing more workflow, but it is not, it is not slowing down right now the amount of innovation that's going into the POS platform itself. Now we see that over time, change is based on segment, but there's still a lot of rich client functionality that our Tier 1 and Tier 2 customers require in this space, and they're looking for extensions with the mobile platform. And we're working very hard to ensure that our POS software platform integrates not only in the hardware at front end but in the aisles with a mobile phone as well. So that's really the trend we're on, and it's still very early days in that space. And my last point is it's not just the consumer. We have as much demand for store associates, management and others that want to use consumer devices in the aisle to do inventory check, realtime check, see what the performance a particular POS is doing, self-checkout lanes and others. So we're seeing a lot of integration, which Bill mentioned a product called Pulse that we see has a very promising future because it extends operating analytics and customer intimacy and customer resource management across that platform. That's where our focus is, and we see a nice future to that integration.

And then as a follow-on, you bid -- you built NCR Silver really mobile first, and you're talking about having 2,600 sales reps contracted, another 7,500 in the pipeline. What's the nature of those sales reps? Are those your traditional Radiant distributors? Are those merchant acquirers? What's the nature of the sales reps that you referred to?

Most of them initially, Gil, will be merchant acquirers. We will have a retail channel up and running in Q4 for the Christmas season and the tax season, and that retail channel will be announced, we hope, within the next 30 days or sooner than that. We'll have a distribution channel made up of the following: merchant acquirers, where most of the headcount that we talked about today are in that space; we will also have traditional distributors, who sell to the small and medium-sized business, so think about large Master VARs, who have a great network of channel partners that sell into that space, participate. We'll use also online Internet-based retailers, of whom we're talking to right now, and we can't announce anyone yet in that space. And then we'll have feet on the street. We'll have NCR feet on the street, and we'll go out there and on an inside sales and external sales basis, cover some opportunities in dense urban areas.

There are no more questions.

Great. Well, thank you all for joining us today. We look forward to talking to you again in February.

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