NCR Voyix Corporation (VYX) Q4 2012 Earnings Report, Transcript and Summary

Good afternoon. Thank you all for standing by. [Operator Instructions] Today's conference is being recorded. If you do have any objections, you may disconnect at this time. [Operator Instructions] At this time, I'd like to turn the call over to the NCR Vice President of Investor Relations, Tracy Krumme. Thank you. You may begin.

Thank you very much. Good afternoon, and thank you, everyone, for joining us on our Fourth Quarter 2012 Earnings Call. Bill Nuti, NCR's Chairman and Chief Executive Officer, will lead our conference call. After Bill's opening remarks, Peter Leav, Executive Vice President 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 our 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 that is 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 our website, www.ncr.com. For those of you listening to the replay of this call, please keep in mind that the information discussed is as of February 7, 2013, and NCR assumes no obligation to update or revise this information included in the call, whether as a result of new information or future results. With that, I would now like to turn the call over to Bill. Bill, please go ahead.

Thank you, Tracy, and welcome to the team. And thank you, Gavin. Gavin is in the room with us today doing a transition to Tracy. And many of you know him, he did a great job for our company. So thank you, Gavin. I'm on Slide 3, and I'm on the Q4 2012 Key Takeaways slide. Order growth in the quarter was strong, largely as a result of great order growth in retail, as well as travel. And really helped us position ourselves in Q1 for a relatively good start with backlog up 11% in the traditional businesses. Revenue growth of 3% exceeded our expectations in the quarter. And we felt pretty good about that given the fact that we came into the quarter, as we discussed on the prior call, with backlog around flat at that time. And that was driven largely by Hospitality, up 43% year-on-year in the quarter. So a great quarter for Hospitality. NPOI, solid quarter. We achieved a record NPOI margin of 11%. We feel good about that in the quarter. Software had a good quarter. And in particular, SaaS, which was up about 30% year-on-year. And the quarter was solid for us, and we'll talk about software as it relates to the year in a moment. And good cash flow. We were pleased with free cash in the quarter of $122 million, largely as a result of excellent progress in working capital in the quarter. Pension. We did make an additional contribution to pension in the quarter of $100 million, and we have landed in a position now where the total global underfunded status is about $440 million. We'll talk more about pension in the presentation and also during the Q&A. On the full year, next slide, we had a good year. I was really proud of the performance of the team this year. In particular, revenue growth up about 11% on a constant currency basis on the year, and we fought through some euro headwinds throughout the year. Gross margin is a great story for the company. We're up 190 basis points year-on-year. That's the third year in a row of triple digit expansion in gross margin. And NPOI growth, very, very solid for us. And again, another record in terms of NPOI margin. Here's the software story. We talked about it. We did exceed the expectations we set for you. We feel good about it. SaaS was up 124% year-on-year. So very solid growth for SaaS. EPS up 20% year-on-year, and again, thanks to Q4, solid free cash flow. Next slide, operating highlights. We had share gains in the quarter and on the year. In Financial Services, share gains in nationals. In Retail, share gains in self-checkout. Hospitality, share gains internationally. We felt good about those markets and feel good about the execution of the team on a global basis. I like the diversity we're building as a company. We have better industry diversity, geographic and product. And look, while we're doing all of this, we're investing. We're investing in R&D. We're investing in services, investing in our people and programs along those lines. And look, we're continuing to execute well, while planting seeds for tomorrow. In terms of M&A, a good quarter for us in terms of execution in Hospitality, but the full year as well. We're excited about Retalix and what they can bring to the company. And we've made a couple of other software acquisitions, primarily in Financial Services, we think will add value to us in '13, namely uGenius and Transoft. And we talked about Phase II of pension, Bob will reference that more in his remarks. But look, we've done a good job on pension, and we're in a great position as a company. And as you'll read in the press release, we did complete the internal investigations for OFAC and FCPA. Next chart. Okay. Lines of businesses. Some key highlights. We talked about Financial. Look, it was a good year for Financial, better first half than second half for that team, but we feel good about our positioning in that market space. Again, continue to invest. We continue to gain share in the national space, and we stood up the company for success tomorrow in branch with some acquisitions. And look, you can read the key developments, but we feel very good about some of the things that we've done in that business. In Retail, it was just a great quarter. Retail had a terrific quarter for NCR. We're very proud of the growth we had, both in orders and backlog. And that's a business that has great potential for us in '13 and beyond. Bob will talk more about that when we talk about guidance. Hospitality, terrific. It was a great year for that business. Hardware, software, SaaS growth. Great integration of the team. All in all, I'm very proud of that team. And in the Emerging space, it was a mixed story. But overall, solid profitability in that business. On to Retalix, the next chart. We have completed the acquisition this week. We feel good about that. We are excited about the implications of Retalix in our Retail business, profitability, strategic nature of that business, and what that can offer us in years to come. So we'll give you more perspective of this throughout the call today, but we are now beginning the integration process for that business. Next chart, pension. Again, Bob will cover this in more detail, but we will be coming back to you midyear or so with what we're going to do next vis-à-vis pension. We had a great Phase I execution, solid Phase II, and there will be a Phase III this coming year. The focus we have is simple. It's on continuing to reduce the liability, continuing to reduce the underfunded, continuing to improve cash flow. And all in all, continue to reduce deadweight costs. We have for the most part put pension in a box. We had a great 3 years. We did what we said we were going to do and pension for the most part as a risk is significantly less if not fully eliminated at this juncture. So we'll talk again more in detail about that and what we intend to do vis-à-vis Phase III in 2013. As you look at the year ahead, for us, we're proud of the guidance that we were able to issue today. We'll continue to focus on execution of our vision, on continued investments in innovation and services. And again, I think this year will be more of a focus on legacy versus growth, meaning you'll see us focused more on our balance sheet, acquisition integration will feature prominently, and of course, pension. We are on track with our 3-year goals that we laid out at Analyst Day. In fact, to some extent, ahead of those goals. And we do foresee relatively good growth across all of our lines of business and geographies this year. We'll give you some more perspective in Q&A, but we feel good about it. And then in terms of software, we're excited to outlook a $700-plus million software business for NCR in '13. And then, of course, we'll get Retalix done, invested. Same with Radiant and again pension will be something we'll talk more about in the coming months. With that, let me throw that over to Peter. Peter?

Thank you, Bill. As Bill mentioned, Q4 orders increased 15% and quarter ending backlog was up 11% over the prior year period. The strong order growth we experienced during the fourth quarter positions us well for a solid start to 2013. Before providing you with an update on developments across each of our verticals, I want to take a moment to talk more broadly about our business. Technology is having an undeniable impact on how consumers interact with business and conduct transactions. The proliferation of smartphones and tablets, which is driving the omni-commerce movement, is steadily changing the consumer shopping experience. NCR is well-positioned through organic innovation, acquisitions and strategic alliances to win in this space. We have consistently invested in hardware, software and services offerings to address this dynamic shift. Our recently announced strategic alliance with PayPal is consistent with this approach. PayPal is the leader in online and mobile payments, with more than 117 million active accounts across 190 markets. Our partnership is a natural fit as it allows us to integrate NCR's broad retail and hospitality footprint with PayPal's market-leading digital payment technology. Together with PayPal, we will be able to provide restaurants and retailers with a simple and powerful way to offer consumers a rich mobile and digital payment experience. The initial stage of our partnership will include the integration of PayPal Mobile payment options into NCR's Mobile Pay application and online ordering solution, which will enable PayPal payments at over 60,000 sites using NCR's Aloha point-of-sale technology. We are excited about this partnership as it provides us with a solid opportunity to increase our software, Software-as-a-Service and services revenues in both the Hospitality and Retail verticals. Turning now to our lines of business. Financial Services revenue was up 1% on an FX-neutral basis in Q4 and up 9% on an FX-neutral basis in 2012. NCR continues to be the leading supplier of ATMs globally, a position we have held for 27 consecutive years. We have maintained this leadership position by winning share through the differentiated value we provide to our customers. Our expansive global coverage and industry expertise enables us to quickly address the changing needs of our clients and innovate rapidly to address local market requirements around the globe. We understand the importance of transforming the customer experience and have increasingly focused on solutions for emerging markets. The State Bank of India, which is India's largest bank, chose to deploy 600 NCR SelfServ 32 intelligent deposit ATMs across sites in India. This is the country's single largest order for cash deposit ATMs. These ATMs will empower the bank to make everyday life easier for its customers by migrating high-volume deposit transactions from the branch to the ATM. This will not only reduce long queues at the branch, but will also give customers the flexibility to execute cash deposit transactions beyond banking hours. NCR continues to be a leader in bringing new technologies to new markets, delivering the next generation of productivity improvements for financial institutions, while providing convenience to customers. In Canada, close to 1 billion checks are written annually. 80% of small businesses in Canada use checks because there is no effective electronic alternative. On October 1, 2012, new rules came into effect that enable image-based check processing. By year end, NCR has secured commitments from 2 Canadian customers for our market-leading APTRA Passport remote deposit capture solutions that will allow checks to be deposited directly from consumers' mobile smartphones. To help us accelerate our branch and retail network transformation capabilities, we acquired uGenius Technology in December, a pioneer and market leader in omni-channel video banking software. UGenius has been NCR's partner in the development and deployment of our APTRA Interactive Teller solution, which allows consumers to conduct remote assisted teller transactions at an ATM, while speaking to a live teller who has control of the machine. This transformational technology platform is critical for retail banks that are challenged with today's branch operating cost, and it can deliver up to 95% of all traditional teller transactions. Banks of all sizes across NCR's domestic and international markets are endorsing this assisted service solution to reduce operational costs, expand service distribution and extend banking hours for consumers. NCR has blurred the lines between the full-service and self-service. We understand the importance of moving in this direction as banks look to meet the growing needs of their customers. Our financial solutions enable a rich brand differentiated experience that is capable of extending service and flexible banking hours. An example of the value of our branch transformation portfolio is Partners Federal Credit Union, which serves the financial needs of over 100,000 members, including The Walt Disney Company cast members. Partners FCU has selected a range of NCR branch transformation solutions. They have chosen our SelfServ ATM and Scalable Deposit Module, and they plan to deploy our Teller Cash Recycling to automate the cash handling process in the branch. They have also selected our unique APTRA Interactive Teller technology to combine the best of video collaboration and remote transaction processing to provide expanded banking hours at both branch and park locations. Branch transformation, along with cash management optimization software that we acquired as a result of our acquisition of Transoft were 2 major contributors to our growth during the year. This growth enables us to expand our addressable market and grow our margins. Customers are embracing our new software and SaaS-based products as they look to drive cost efficiency in the cash process, drive higher channel availability and generate new revenue streams. We are utilizing APTRA OptiCash to deliver managed services to our customers. Customers who use our solutions save an average of $1,000 per ATM per year. Cash management is an example of NCR investing in our customer's business, with a focus on improved wallet share through great value delivery. We are pleased that in a highly competitive process, one of the world's largest banks invested in this solution during the fourth quarter. Turning to our Retail segment. Fourth quarter revenues increased 2% while achieving record order and backlog growth. As Bill mentioned, we are enthusiastic about our Retail business and expect to see accelerated growth this year. We continue to focus on successfully growing the software component of our Retail business. Software growth is a key priority driving our innovation investments in our market-leading portfolio. We see increasing demand for our solutions and believe the Retalix acquisition will help enable our Retail growth plan in 2013. The marketplace is speaking, and our customers are very enthusiastic about us collaborating as one company. The addition of Retalix's leading solutions puts us in a leadership position, providing a comprehensive platform of omni-commerce solutions across a global distribution network. The continued acceptance and demand for self-checkout solutions will be a major driver of growth in our Retail business as well. Consumers are embracing advanced transaction technologies as they look for quicker and more convenient checkout experiences. NCR is currently engaged in a large-scale deployment of new self-service checkout units in North America, which is a strong testimony to growing self-service adoption. NCR engages our subject matter experts from our professional services team to provide specific insights in key areas, including user interface design, configurations, layouts and best practices, as we strive to optimize the self-checkout experience for the consumer. We continue to aggressively innovate and invest in other retail categories, including small business and convenience stores. In the small business market, we are making progress in establishing NCR Silver as an innovative solution for small and medium businesses. In the fourth quarter, we increased NCR Silver's sales footprint through an agreement with Staples, so that NCR Silver will be prominently displayed and available in select stores. Just last week, we announced that NCR Silver was going to be used at more than 600 locations of Cellairis, the world's largest franchise mobile device accessory company. We have also introduced a number of mobile technologies aimed at improving the shopping experience at convenience stores. Our third core vertical is Hospitality. Customer enthusiasm for our solutions remains strong across the globe, and we are generating solid financial results. Hospitality revenues grew 43% during the quarter. As Bill discussed, we have executed our integration plan successfully, preserving our talent base, while also driving efficiencies across the business. Our point-of-sale and SaaS solutions are scoring wins among venue, restaurant and theater operators. Our Hospitality SaaS fourth quarter revenues were up 36% year-over-year, and our application site install base was up 30% during the same period. We continue to see growth and success due to the variety of solutions we offer, such as marketing, loyalty and gift card solutions, online ordering, theft deterrence and realtime reporting as examples. Our realtime reporting solution gives insights into labor and sales performance by restaurant, which helps our customers drive revenue growth, improve customer service and drive efficiencies. We have also introduced NCR Mobile Pay, a new solution that lets restaurant patrons browse their bill, reorder menu items, alert their server and securely pay their bill using their smartphone. This solution is designed to improve customer service and loyalty, which will ultimately drive revenue growth. We have plans to release additional SaaS solutions in the near future, which will continue to build off of our current momentum. In addition to driving value for our customers in software and SaaS offerings, we have also built industry-specific point-of-sale solutions. We recently launched several new solutions, including our P1230 and P1530 point-of-sale terminals. These terminals deliver increased processing power, higher reliability and ease-of-use in a small footprint. In addition, their flexible design is tailored to meet the needs and space constraints of hospitality operations. During the fourth quarter, we secured a number of key deployments of our venue management platform. By utilizing Venue Manager, operators are able to better plan, manage and run their events more efficiently and provide customers with an improved experience. As an example, we will be implementing Venue Manager at Hunter Stadium in Newcastle, Australia, providing the 33,000 capacity venue with realtime information from each of the 90 NCR point-of-sale terminals located throughout the venue's food and beverage outlets. We will also be implementing our loaded ticket solution at Suncorp and Metricom stadiums in Australia. Looking now at our Emerging Industries business. Revenues decreased 16% in the fourth quarter and 3% for the full year due to a partial deduction of a customer contract. Our Emerging Industries business can be lumpy due to the size of customer contracts. We remain confident that we are well-positioned to capitalize on the large market opportunity. Our travel business is steadily gaining momentum, and we expect it to become more sizable during 2013. The market response to our mobile electronic boarding pass technology remains highly enthusiastic, and we are seeing strong deployments of that solution globally. As more and more travelers use their mobile device to connect and transact with travel companies, we will look to capitalize on this growing trend. We are pleased by the recent win of Oman airport infrastructure and systems integration project, which demonstrates our understanding of airports, airport systems and airport infrastructure. Air travel is key to the economic development of many regions in the world. As a result of the growing middle class in developing markets, more airports are being built to keep pace with an increasing number of air travelers, and NCR is well-positioned to participate in this growth. In the Telecom and Technology or T&T vertical, we secured a major win with a leading telecommunications company, while also launching our managed IT domain services offering. This offering enables support for remote monitoring and management of enterprise customers' IT environments as they transition from client server to cloud. This service supports more than 3,000 products for many leading networking and IT vendors. We see strong opportunity in this high-growth high-margin business. To put this into perspective, the T&T vertical is roughly a $5 billion addressable market. We are uniquely positioned to deliver services to telecoms, systems integrators and technology OEMs for a number of reasons. First, we have a global servicing footprint that delivers consistency on a global basis. Second, we have unique multi-vendor capabilities to support over 200 OEMs, which is particularly important to enterprises with heterogenous IT infrastructures. And last, we have deep relationships with top IT OEMs to ensure that we remain strong partners in services execution across their emerging and growing platforms. Finally, our services business continued its strong performance, with revenues up 3% during the fourth quarter and 7% for the full year, supported by new business wins and continued backlog growth. Fourth quarter highlights include an agreement with SoloHealth to provide on-site repair services for thousands of self-service health care kiosks that are being deployed at retailers nationwide during the first half of 2013. We also continue to receive meaningful third-party validation of our services capabilities as Gartner ranked NCR the global market share leader in the retail industry product support for 2011 based on product support revenue. In summary, the solid fourth quarter results provide evidence of continued business momentum across our core and emerging business verticals, as well as NCR services. Our performance is indicative of the success we are having diversifying across verticals, global markets and product mix. We are advancing our software and services strategy across each of our verticals, while continuing to focus on execution and investing in our future with a commitment to innovation. At the heart of NCR is a commitment to recognizing and addressing our customers' needs and providing them with advanced hardware, software and services solutions that help them grow, better serve customers and optimize their operating platforms. We made significant progress executing on this strategy in 2012 and are pleased to be entering 2013 in a strong position. I will now turn the call over to Bob.

Okay. Thanks, Peter. NCR's total reported revenue in the fourth quarter was $1.64 billion, up 3% versus Q4 2011 on a constant currency basis. We reported a GAAP loss from continuing operations of $23 million or $0.14 per share, which includes a onetime pension charge of $119 million in the fourth quarter of 2012. This compares to GAAP income from continuing operations of $59 million or $0.37 per diluted share in Q4 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 $0.72 per share in Q4 2012 versus $0.66 in Q4 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 material 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 Q4 2012 gross margin was 26.4%, compared to 26.5% in the prior year period. This 10 basis point decrease was primarily the result of continued investment in our services business, partially offset by a favorable mix of revenue and continued focus on cost. For the full year of 2012, gross margin was 26.8% versus 24.9% in 2011. This gross margin expansion of 190 basis points was primarily driven from higher software revenues and improved mix of business and continued focus on cost improvement initiatives. Operating expenses, excluding pension expense and special items, were approximately 15.3% as a percent of revenue in Q4 2012, compared to 15.7% in Q4 of the prior year. The company continues to invest in sales and R&D, while reducing our overall G&A expenses. Non-GAAP income from operations or NPOI was $181 million in the fourth quarter compared to $173 million in the prior year period, an increase of 5%. For the full year of 2012, NPOI was $589 million, up 22% from 2011. At the beginning of 2012, we gave NPOI guidance of $560 million to $575 million. The year-end result of $589 million is $29 million higher than the lower end of guidance and $14 million higher than the upper end. Fourth quarter 2012 segment operating margins were as follows: Financial Services decreased to 10.7% versus 11.9%, mainly due to an increased proportion of revenues from emerging markets and investments in services and R&D; Retail Solutions increased to 9% from 5.2%, mainly due to a favorable mix of revenue, including more software; Hospitality decreased to 14.7% from 16.2%, as the prior year number did not include the movement of accounts between Retail and Hospitality; and Emerging Industries decreased to 18.9% from 21.5%, primarily driven by the lower revenue that Peter mentioned earlier. Overall, for the year, Retail saw operating margin improvement of 210 basis points. Hospitality improved by 70 basis points to 16.3%, and Emerging Industries improved to 23%, up from 20.6% in 2011. Financial Services achieved an operating margin of 10%, down slightly from the prior year due to continued investment in services and R&D. We continue to expect operating margin expansion in line with the estimates that we gave as part of our Analyst Day in May of 2012. Other expense was $19 million in Q4 2012, which is mainly related to interest expense. Income tax was a benefit of $1 million in the fourth quarter compared to expense of $30 million in Q4 2011. Excluding the effect of pension and nonrecurring items, the fourth quarter 2012 effective tax rate was 28% compared to 34% in Q4 2011. NCR's full year 2012 effective tax rate was 25%, better than the initial forecast of 27%. Turning to the balance sheet. Cash on hand at December 31, 2012, was $1.07 billion, up from $581 million at September 30, 2012. Total debt was $1.96 billion at the end of the quarter. The increases in cash and debt from Q3 2012 were due to the issuance of the $500 million 8-year bond in December, the proceeds of which were primarily used in the acquisition of Retalix which closed yesterday. Moving to the cash flow statement. NCR had $100 million of cash generated in operating activities in Q4 2012, compared to $274 million in the prior year period. Excluding the $100 million discretionary contribution that we made to the U.S. qualified pension plan during the quarter, free cash flow was $122 million in Q4 2012 compared to $229 million in the prior year period. The decrease was primarily due to the timing of working capital improvement. NCR defines free cash flow as cash flow from operations and discontinued operations less capital expenditures for property, plant and equipment and additions to capitalized software. The company generated free cash flow of $146 million for the full year, excluding the discretionary pension contributions during the year. This was at the high end of the $100 million to $150 million guidance we gave last year at this time. We expect free cash flow for full year 2013 to be in the range of $200 million to $250 million, up significantly from 2012. This number includes pension contributions of approximately $135 million, primarily for our international plan, with no contributions to the U.S. qualified plan due to the improvements in the underfunded position. Total CapEx for the company will be about $215 million and depreciation and amortization will be approximately $212 million, including roughly $77 million for the amortization of intangibles that are not included in NPOI. Cash taxes are expected to be approximately $85 million in 2013. Cash funding requirements for the Fox River environmental matter are expected to be a $40 million cash outflow in 2013. And finally, we'd expect working capital to be higher as revenues are expected to grow in 2013. I'd like to conclude by discussing our 2013 full year guidance and providing an update on pension. Full year 2013 revenue growth expectations include services and are on a constant currency basis. In Financial Services, we expect revenues to grow 2% to 4%. In Hospitality, we expect revenues to increase 15% to 18%. In Retail, we expect revenues to rise 22% to 25%, driven by the momentum from improved order performance in Q4, the strong backlog position entering the year and the Retalix acquisition. Retalix revenue is prorated from the acquisition date and includes an estimated reduction for purchase accounting. Excluding the $250 million to $260 million revenue forecast for Retalix, Retail revenues are expected to grow 7% to 9% in 2013. We're optimistic that Retail is recovering, and will position us for a fast start in 2013. In our Emerging Industries line of business, we expect revenues to be up 3% to 5%. In terms of total revenue, our guidance is 9% to 11% growth on a constant currency basis. This is a good example of driving growth through an improved diversification of revenue streams that Peter discussed previously. In terms of profit, we expect our full year 2013 NPOI to be in the range of $695 million to $710 million. This includes estimated NPOI for Retalix of between $35 million to $40 million. As a reminder, full year guidance excludes pension expense and M&A related items. As a result of Phase II of our pension strategy and the Retalix acquisition, we expect higher interest expense in 2013 and as a result, our estimated other expense is $100 million for the full year. We expect our full year operational tax rate to be approximately 26%. We are using a fully diluted share count of approximately 166 million shares for the year. And finally on operational EPS, our guidance for the full year is $2.65 to $2.75 per share based on the improved NPOI and the assumptions just mentioned. As a reminder, we are on track to deliver the guidance that we gave as part of our Investor Day in May of 2012. Specifically, we talked about a revenue CAGR of 7% to 9% from 2012 to 2015 and NPOI and operational EPS growth of 15% to 20%. We are tracking towards our goal of achieving $3.65 to $4.25 per share in 2015 and between $400 million to $500 million of free cash flow in 2015. Now for an update on pension. We are very pleased with the results of the successful completion of Phase I and Phase II of our pension strategy. We have done what we said we would do, and we have had excellent success since we first announced Phase I of our pension strategy in April 2010. You will remember Phase I was primarily about reducing the volatility of our pension plan. We said we would move to approximately 100% fixed income in the U.S. plan by the end of 2012, and that is what we have done. This initiative has been completed, and we have saved close to $100 million to $150 million in underfunding by undertaking this strategy. But more importantly, we have significantly reduced the volatility of the U.S. pension plan. In addition, we have approximately 60% to 70% of our international plan assets invested in fixed income at year end. In July of 2012, we announced Phase II of the pension strategy. This is primarily focused on reducing the underfunded position of the U.S. plan through a lump sum offer to deferred vested participants in Q4 of 2012. Phase II was extremely successful. We raised 10-year debt at a very attractive interest rate and reduced the underfunded position in the U.S. by approximately $750 million. This transaction was NPV-positive, in excess of $100 million and eliminated a significant amount of administration fees, PBGC premiums and other deadweight cost. In December of 2012, we continue to de-risk the portfolio by contributing an additional $100 million into the U.S. plan. As a result, our global underfunded position has improved over the year by approximately $880 million. We ended the year with an overall underfunded position of approximately $440 million, down from $1.32 billion at the beginning of the year. While I believe that we have significantly de-risked pension within the company by moving to fixed income and reducing the size of the underfunded position, there are still some additional initiatives that makes sense for the company to undertake. We expect to announce Phase III of our pension strategy by the middle of the year. Phase III will focus on reducing the remaining portion of the underfunded position, addressing any remaining volatility and improving free cash flow. This will be accomplished through a number of different actions. We will continue to look at our U.S. and international plans and review options that give us an economically positive result, help improve free cash flow and reduce our underfunded position and overall pension liability. We are also on track to move to mark-to-market accounting for our pension in 2013. This projected accounting change will take our GAAP pension expense from $173 million, excluding the onetime U.S. settlement charge in 2012, to approximately $20 million in 2013, which is at the lower end of the $20 million to $40 million we projected earlier in 2012. This change significantly reduces the difference in our GAAP to non-GAAP reporting and simplifies pension accounting for our investors. Once again, we are pleased with our progress so far. We have addressed our biggest enterprise risk head on and eliminated the majority of the volatility and significantly reduced the underfunded position. Our decisions have been economically sound, and have had a meaningful impact on NCR. And with that, I will now open the call up for questions.

Okay, operator, you can now open up the call for questions.

[Operator Instructions] Our first question comes from Katy Huberty from Morgan Stanley.

I don't think Radiant and Retalix are included in the 11% backlog growth number that you gave. So is there a scenario that when you add those businesses, you could actually do much better than the top end of the full year revenue growth range or does that backlog not fully convert in 2013? And what would be the other offsets?

The backlog does not fully convert in the year, Katy. A good proportion of it does convert in the year, but it's not 1 for 1. Meaning, if the backlog grows 11%, you can grow the business 11%, because you have to have that kind of backlog growth quarterly in order to maintain that kind of traditional or core line of business growth. So I want to make sure you understand the backlog from that point of view. It does give you a lift in the first quarter or 2, but the overall year is highly dependent upon keeping that backlog at double-digit kind of growth every single quarter, which is, of course, what we focus on vis-à-vis orders, which is why the order number is so critical to track.

Okay. Great. And then as a follow-up, you pointed out, Bill, that Financial Services had a better first half than second half. You exited 2012 with a lower growth rate. How do you think about the new revenue streams like branch automation impacting 2013? Is that something that could impact the first half or is it more skewed to the second half of 2013 or is it even longer tailed than that?

2013 will be a year of pilots and small-scale production branch environments with a number of customers. You'll see a bigger impact, in fact, a significant impact to revenues coming in, in '14 and '15 in that space. So consider '13 as kind of the step-up year for the future.

Meghna Ladha from Susquehanna.

So your guidance for Financial for 2013 at 2% to 4% for -- so what are some of the key growth drivers? Are you seeing any specific areas where you're picking up market share in this segment?

Yes, I think we're doing a great job in picking up share around the world, particularly Brazil would be one area I would focus on. India would be the second area I would focus on. We've had a concerted focused effort to win in the emerging markets over the long term. Again, it drives better balance to our revenues. But importantly, these are the big growth markets for ATMs as more of the mature markets stabilize and will mature over time. So I would say in the international space, India, Brazil come to mind immediately as good growth markets. Russia continues to be a great growth market for us, where market share gains can be had. And in the U.S., we've done a terrific job in the nationals or midsized bank space so far the last 2 years, and I continue to feel like we can gain share going forward. If you were to look at Financial Services, the real shift I think that's occurred in the last 12 months has been in that midsized bank space where ADA and regulatory compliance was driving revenues higher than secular growth would normally occur in those spaces. So I think people are normalizing a bit in that space. And as you can imagine, the back half of this year going into next year, your comps will be easier. And as that market continues to rollout deposit, assuming we're gaining share, I feel good about the potential to continue to drive both success in terms of share gains, but also growth in the long term.

Okay. And then moving on to Retail, so you won a big deal with Wal-Mart in self-checkout in Q4. So how should we think about the revenue opportunity from this relationship going forward and have you received any indications from other retailers?

Well, winning Wal-Mart in the fourth quarter was important for a number of reasons, not the least of which of course, it was a large transaction. But in terms of validation of the technology as well on a global basis, it certainly helps given people follow Wal-Mart as an influencer in retail. That particular transaction will rollout over the course of 2013. It's quite large, and it will take us time to fulfill all of the orders for Wal-Mart throughout the year. That being said, I would expect us to continue to have success in that space. We are feeling very good about self-checkout growth in the retail space, not just here in the U.S. but globally, and we are seeing more interest as a result of that particular win.

Ian Zaffino from Oppenheimer. [Technical Difficulty]

Are you there Ian? Can we move on to the next -- until Ian gets a good connection, can we move on to the next call?

Paul Coster from JPMorgan. Paul Coster - JP Morgan Chase & Co, Research Division: Can you just give us a little bit of color on what's happening in Europe across each of your segments by geography and what your sort of sense of the sort of shape of the year is from a revenue perspective in that region.

We had a good quarter in Europe, Paul. A surprisingly good quarter, in particular with Financial in Europe. Now as you know, we have a good position in Eastern Europe and in Western Europe. But Western Europe has been traditionally slower than Eastern Europe. Overall growth in the quarter was solid in that space. For Retail, we continue to make progress in Europe. Obviously, the acquisition of Retalix changes the game for NCR in Europe. Retalix has significant customers in Europe, particularly the U.K., and that will help us better diversify our revenues going forward, and they're higher-margin revenues as a result of them being software transactions and customers in that space. Hospitality continues to grow in Europe, but they are smaller, more nascent, and we're making investments in new headcount sales and initiatives in Europe to grow our Hospitality business over time. And of course, not Europe, but the Middle East, the big win we had in the quarter in travel was Oman airport, where that's a bellwether win for us in that we can replicate that kind of win in travel on a global basis once we get it right. And the Oman win was significant for us. Our travel orders in the quarter were significant for the company. Now significant for the size of that business is not something that I would point to as being a game changer for us in the quarter. It didn't really contribute that much to our growth in the quarter in terms of order growth, but for that particular business, it was sizable. So I think it gives you a sense -- I'm more optimistic, Paul, about Europe generally. Now that's a relative statement, meaning, I think it's less worse than we anticipated going forward, and I like our position in Europe. I like the position we have with Financial Services. I really like our position now in Retail as a result of Retalix. The investments we're making in Hospitality should pay off and our travel team there is doing a great job. Paul Coster - JP Morgan Chase & Co, Research Division: Okay. Just a quick follow-up. Can you give us some sense perhaps, Bob, of the cost of the internal investigations for OFAC and FCPA compliance and what maybe the next step is if there -- if you got some sense for the timeline.

Yes. The overall cost was around $4.8 million, of which, $4 million as you can see we called out this quarter and $800,000 or so that we actually included in operational results in Q3 that we did not call out in Q3. Going forward, we're not anticipating a cost because the internal investigation is complete. Our special committee has completed their investigation on behalf of our board, and we will continue to work very transparently, very openly with the SEC, DOJ and OFAC towards hopefully successful resolution with them. But we're not anticipating anything material on cost given the findings of our internal investigation.

Roman Leal from Goldman Sachs.

First, a follow-up question in Retail. Even excluding the Retalix contribution there, the underlying growth expectations are pretty solid. Can you help us think through -- obviously, there's the Wal-Mart deal, help us think through like what are the other factors that help you be more confident there, maybe the pipeline, and then also maybe any indication between what the growth in self-service versus traditional cash registers will be helpful as well.

Yes, I think I began to talk to you all about what I suspected would be better growth in Retail this year about 3 quarters ago or so. Kind of giving you some indication that I expected 2013 to be a better year for Retail. And that's what has transpired. There is an upgrade cycle in place that we anticipated a while back. We're responding to it. We've positioned the company well to respond to it. So the underlying growth beyond self-checkout relates to that, in the core of what was NCR. Obviously, Retalix is on top of that and additive to the core growth. Self-checkout obviously had a terrific year for NCR. The self-checkout growth was, what was it Bob in '12?

Revenue, let me get that for you.

Yes, we'll get you the revenue growth we have in self-checkout, in a moment. It was a very solid year in that space, and we anticipate obviously another great year for self-checkout. So net-net, we feel good about the self-service business. We feel good about the point-of-sale business. And now with the significant software assets we've acquired, we feel good about our growth in that space, both for software and SaaS. Importantly, I want to point out that NCR did have 125% SaaS growth in the year. We have a large growing, fast-growing SaaS business at NCR. And the Retalix acquisition will give us another $20 million or so of additional SaaS business and make that business now -- in aggregate, when you combine NCR and what is Retalix, about $125 million to $150 million a year SaaS business inside that $725 million to $775 million outlook for software for NCR. A lot of that SaaS business will come from Hospitality and Retail.

Okay. And one last one in U.S. ATM. Your competitor obviously has cited a little weakness in regional, in the regional space, and I think you kind of echoed that. But what's really interesting is that they called out that mix shift that's having significant implications for their margins. It doesn't seem to be impacting you as much. Is that because of just the diversification of your business or are you positioned differently in U.S. ATMs?

No, it is -- it does relate back to the diversification of our business in Financial Services, the fact that we're a global player, not an international player. We are not as sensitive as some of our peers do given segmenting in markets like the U.S. So we have a wonderful balance of our revenue stream that includes, of course, the U.S. But as you know in Financial Services, well over 50% of our revenues are outside the U.S.

Matt Summerville from KeyBanc.

Just a follow-up on the ATM business. Your growth outlook in constant currency, up 2% to 4%. Bill, can you give a little bit of a sense in terms of what you're expecting by region, Europe versus Asia versus South America and North America around that 2% to 4% number?

Yes, Matt some color there. I expect the U.S. to be flat to down on the year and rest of world to be up, frankly in the mid-single digit range. Obviously for us, Brazil has been a major contributor to our growth in terms of revenue growth. They'll continue to be. They had a terrific 2012. Revenue growth in Brazil was off the charts for us. And I would think that we're going to see a bit better contribution coming from Europe in 2012 (sic) as well. But the real -- if I were to isolate the issue for you, which is somewhat less of an issue for NCR, of course, it's really in the U.S. and in nationals.

And then just as a follow-up on Hospitality. The business was up very strongly in the quarter, and even sequentially, it was up about $20 million, operating income fell $1 million on a sequential basis. Can you talk about what's going on in that business from a mix standpoint, and how we should think about the margin evolution in 2013?

Yes, I think Bob gave the margins in his outlook for that business. But in Q4 in Hospitality, again, remember, we had a larger mix of customers from, what was old NCR, and we have made significant investments in hospitality. And we're going to continue to do that. Investments in Silver come out of Hospitality. Investments in SaaS, new salespeople and R&D come out of Hospitality. Investments in international growth and sales headcount in places like Europe. So we recognize that we have significant growth in that space. We recognize the opportunity long time is outstanding, and we want to make sure we're balancing investment with near-term profitability.

Ian Zaffino from Oppenheimer. Gil Luria from Wedbush Securities.

Bob, you pointed out in your prepared remarks that you well exceeded your NPOI guidance from the beginning of the year by the end of this year. Should we view the NPOI guidance for this year as just as conservative as when we started this year last year?

The answer is, I don't know, Gil. I mean, we start the year doing a risk-adjusted view of the year based on what we know in January. And as you all know, things change materially throughout the year. And the one thing I would tell you is that, we kind of hit exactly kind of the guidance we gave in Q4. So we did beat and raise last year's several quarters, and throughout the year we've always given you updates in terms of where we think we're going to land. The answer is, based on what we know right now, we think that's responsible guidance and what we see today.

And my follow-up is, what are you assuming for the economic backdrop mostly in Europe and emerging markets to come up with your guidance for the year? Are you assuming an improvement in Europe? Are you assuming the same scenario in the emerging markets? What are the assumptions in terms of the backdrop?

The assumptions are very consistent with what we saw in '12, Gil. So global growth of around 1.75% to 2.25%, broken down where you'd have the U.S. at 1.5% to 2%. Looking at Europe, flat to down 1%. And then emerging markets, in a basket of 5% to 10%, depending upon whether you're in Brazil or China. So I don't think that we're expecting any better global economic environment in '13 than we did in '12. The only thing I would say is, what I am seeing, it's a slightly -- and again this is difficult to quantify because we're talking about Europe here, but a slightly better Europe than perhaps than we anticipated doing our planning process.

And then just one more follow-up, if you don't mind. In terms of the Hospitality business and the Retail business, you just rolled out the cell phone company with 600 locations. Sounds like you're developing a lot of solutions within the Hospitality segment around mobility. Are you seeing any share losses from some of the upstarts in mobility or is this really an opportunity to get incremental business in the Retail and Hospitality verticals?

It's an incredible opportunity for us, Gil. I mean, we're finding ourselves now in the center point of the mobile payment revolution, whether it's people like PayPal wanting to partner with us and go to market with us or other customers wanting to go to market with us that we have not yet announced or what we're seeing in the small business space and/or travel with our Mobile Wallet application. I mean, we're just seeing a ton of interest in. One thing you have to recognize with Retalix is, Retalix's software, R10, is an enterprise platform that has incredibly good capability vis-à-vis omni-commerce and mobile in particular. So now we can enable more mobile applications, more mobile payment capabilities, both SaaS and enterprise software as a result of Retalix and what we've grown internally at NCR than we ever can before as we can continue to work with strategic alliance partners like PayPal. I think we have a great opportunity to become a very central player in this space. So thank you all for joining us today. And we look forward to talking to you in April. Bye-bye.

Thank you. That does conclude today's conference. Thank you for your participation. You may now disconnect from the audio portion.