Good day, everyone, and welcome to the NCR Corporation Fourth Quarter Fiscal Year 2016 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Michael Nelson, Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining our fourth quarter 2016 earnings call. Joining me on the call today as our host is Bill Nuti, Chairman and Chief Executive Officer; along with Mark Benjamin, President and Chief Operating Officer; and Bob Fishman, Chief Financial Officer. After prepared remarks, Bill, Mark and Bob will then take your question. Before we get started, let me remind you that our presentation and discussions today includes forward-looking statements. Forward-looking statements reflect our current expectations and beliefs, but they are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties are described in our earnings release, our periodic filings with the SEC, including our annual reports. On today's call, we will also be discussing certain non-GAAP financial measures. These non-GAAP measures are described and reconciled to their most directly comparable GAAP measures in today's presentation materials and on the Investor Relations section of our website. A replay of this call will be available later today on our website, ncr.com. With that, I would now like to turn the call over to Mark.

Thanks, Michael, and thank you to everyone for joining us today for our fourth quarter and full year 2016 earnings conference call. I'll begin the call by providing an update on key highlights of our business as well as the continued progress we have made to advance our omni-channel, channel transformation and digital enablement solutions. Bob will then walk you through the financials in further detail and our guidance, and then Bill, Bob and I will take your questions. Overall, NCR had a great 2016, and I want to recognize our employees and thank our customers as well as our partners for the important role they play in our success. We had strong performance in virtually every metric we track but particularly revenue, earnings and free cash flow. Throughout 2016, a common theme for NCR was the underlying momentum in our business, driven by improved operational execution and strategic traction with our omni-channel focus, which led to strong revenue trends and cash flow generation. Additionally, we delivered consistent results as software and recurring revenue continued to demonstrate improving growth trends. This theme is clearly evident in our fourth quarter results, which despite worse-than-forecasted currency headwind, exceeded our guidance for revenue, earnings and cash flow, and marked the end to a highly successful year for NCR. We drove higher revenue growth throughout the year and delivered an impressive $628 million of free cash flow in 2016. I mentioned that we are seeing increased interest in our omni-channel strategy, which includes the strong competitive positions we built in omni-channel software, channel transformation and digital enablement. The strength of our solution offerings has driven our diversified top-line growth. In Q4, Software revenues finished up an impressive 10% constant currency, which included a 9% increase in cloud SaaS revenue. You will recall in previous…

Thank you, Mark. Slide 6 shows our financial highlights for Q4. Revenue was up 14% on an adjusted constant currency basis, which exceeded our guidance of 8% to 10%, despite an unfavorable FX impact that was $25 million higher than we expected at the beginning of the quarter. Our recurring revenue was up 4% constant currency and comprises 40% of our total revenue. Looking at margins, Q4 non-GAAP gross margin was 29.4%, which was down 80 basis points on a constant currency basis. The margin rate decline was attributed primarily to a higher mix of hardware revenue, partially offset by gross margin rate improvement in our software business. Our strong hardware revenue will benefit future periods by driving higher margin attached and recurring revenue. In addition, gross margin and expenses were negatively impacted by higher employee-related costs year-on-year that we highlighted at the beginning of the quarter. Q4 non-GAAP EPS was $1.07, above our guidance range of $1.01 to $1.06 despite an additional FX headwind of $0.07 from what we had expected at the beginning of the quarter. The FX headwind was primarily driven by the unexpected devaluation of the Egyptian pound. Q4 non-GAAP EPS increased 30% year-over-year constant currency. We were especially pleased with free cash flow of $449 million in the quarter, which improved $265 million year-over-year, due to increased operating income and improvement in working capital. Free cash flow was also significantly above the top end of our guidance range. Slide 7 shows our financial highlights for the full year. We had strong top-line growth in 2016. Revenue was up 7% on an adjusted constant currency basis. Recurring revenue comprised 43% of our total revenue in the year. Non-GAAP gross margin was 28.8%, which was down 30 basis points on a constant currency basis as a result…

Thanks, Bob. In closing, over the past decade, NCR has taken bold steps to transform itself into the omni-channel technology leader we are today. Our people design those experiences. Our software creates those experiences. Our edge devices deliver those experiences, and our services differentiate them. We are seeing the many benefits of that vision and strategy, as today we are the global leader in omni-channel software, channel transformation and digital enablement solutions. Our market position, strong backlog and key business metrics support our guidance, and the entire NCR team is excited about the year ahead. We are focused on maintaining the momentum in our business, a high level of execution, and continuing to drive strong order growth and revenues in the year ahead. As I mentioned, continuing to drive a mix shift in our revenues to software and cloud will continue to drive attractive margin expansion. Our efforts here will be supported by a continued focus on innovation and ongoing productivity initiatives as we work to build a stronger and more effective NCR. As we look ahead, we remain committed to partnering with our customers and enabling their success by helping them take the necessary steps in the development and implementation of their omni-channel and digital convergence strategies. Today, NCR has the vision, strategy, team and innovative solutions portfolio to accomplish this goal. We are focused on driving sustainable revenue, profit and free cash flow growth led by software and value-added industry-focused end-to-end solutions. Longer term, we are focused on accelerating revenue growth for software and cloud. That concludes our prepared remarks. Joining Bob and I for Q&A are Bill, who always loves a great question; as well as Paul Langenbahn, Head of Software; Rick Marquardt, Head of Services; and Bob Ciminera, Head of Hardware and Operations. We will now open the call for questions.

Thank you. And we'll go first to Katy Huberty with Morgan Stanley. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Good afternoon. Thanks. Big congrats on the free cash flow. So I want to start there. Clearly, the $300 million buyback is positive news, but curious how you've thought about buyback versus maybe introducing a dividend, given the outperformance on free cash flow, the strong guidance for 2017, and then also the outperformance on the leverage ratio this year. Then I have a follow-up.

Katy, we always look at capital structure in a way where we look at every single possible opportunity to deliver cash back to shareholders. And dividends are on the table every year, but we're not quite ready yet from our point of view. However, I would say that going to 2018, that topic will be on the agenda again, and the board will make that final call. So be assured we'd look at buybacks, dividends, M&A, debt paydown all with an equal eye. Right now, however, I and the board feel like given where we are, the confidence we have in the business, the fact that we're still undervalued, we think that a buyback makes more sense along with debt paydown and perhaps some small M&A. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Okay. That's helpful. And then, Bob, I'm a little surprised to see Hardware gross margins down 210 basis points. I think that was for the year. Just given the mix shift towards ATMs and self-checkout, which I would think would carry higher margins, so if you could just talk about some of the pressures in the Hardware business that you saw in 2016 and how that reverses this year.

Yeah, on Hardware gross margin rate, and I want to make sure we answered your leverage multiple question too. I don't know if we covered that one. But on Hardware gross margin rate, it was really a reflection of the new products that we introduced in year. Until those products ramp to the volumes we're expecting, we'll have some pressure on margin, which we saw in 2016. As those products ramp in 2017, we'll see margins in hardware that are at least flat with what we saw in 2016.

And, Katy, on that note, I might have Bob Ciminera to weigh in, but we did introduce a record number of new hardware platforms in 2016 beyond the Series 80. We introduced a new self-checkout device, the Version 6, and a number of new POS platforms. Well, Bob, did you want to weigh in?

That's right, Bill. I mean, last year, 2016 was a record year for new product introduction for NCR. As Bill said, we turned over our entire point of sale product line to have costs associated with that. We began the launch of a new self-checkout model. And as Bob mentioned, we launched our 80 Series product. So we had some cost pressure as we introduced those products even while we had record volumes. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Okay. And then just one last one from me. You had strong Hardware revenue growth the last couple of quarters helped by the self-checkout rollouts and the new ATM products. How should we think about the makeup of the 5% to 8% Hardware growth in 2017? Is it still a story of ATMs and self-checkout growing and point of sale declining or does the mix shift a little bit? Thank you.

Yeah, Katy, within our 5% to 8% Hardware revenue, we do expect growth in all of those businesses, point of sale, self-checkout and ATMs. I would say that the mix will follow very much the 5% to 8%, so you would see ATMs, self-checkout and point of sale all somewhat within that range. Maybe point of sale a little bit lower but still growing. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Great. Thanks so much. Congrats on the quarter.

Thanks.

We'll go next to Paul Coster with JPMorgan.

Yeah, thanks. I'd like to dig in a bit deeper on the retail side a little bit if you don't mind. First one is explain a little bit the delta in the growth rate between self-checkout and point of sale. It sounds like it's going to close a little bit next year. But I'm curious why one is doing so well and the other is a relative laggard.

Paul, in the quarter, I think POS was largely flat, down 1%, on the year, down 2%. There are two reasons for that. One is around mix. We have a higher volume in terms of the number of units going out the door, but our lower price, given the configurations, our lower costs, lower price, that will change a bit in 2017. Number two, while the number of SCO deliveries dissipates more competitive POS than our own – remember, every time we sell a SCO, it does replace traditional point of sale. And look, I'll take that trade all day long. However, the good news for us is that in 2016, the number of SCO shipments we had, we placed more competitive bids than our own. However, it does have an impact on us.

So it brings me to my second question which is a vision seems to be coming together of a new customer experience centered on the mobile phone using existing infrastructure. It's a paradigm in which there's a lot less hardware inside the retail environment. Can you comment on that as well because it sort of points to one where your value per sale might decrease.

No, Paul, quite the opposite. I'll give you my point of view and then I'll have Paul Langenbahn jump in, but what you need to understand is that at the front end of retail, banking, hospitality, travel, in the physical channel, there are significant changes that are taking place, and by the way, they will accelerate the next decade. At the front end, you're seeing a combination of automation and digital coming together. So, technology like SCO, our mobile point of sale, a software that attaches to that omni-channel software, PS and services will drive in physical channel transformation. On the Internet side, digital, that will be moving to our mobile technologies. There is mainly a software play in that channel. However, do not forget that at the edge of the transformation going on is usually a piece of program. Paul?

Yeah, I think that says it well. Paul, the way I would think about it is we're at the very beginning of this ramp-up in channel transformation in terms of transforming from assisted to self-service at the front of the store. That's happening primarily in -think of it as kind of large format retail stores at this point. But we see it in very early stages in the other segments that we serve as well. So, for instance, in smaller format retail or in restaurants, what we see is customers planning a shift towards actually more hardware endpoints in a store. I'll give you an example. In a quick-service restaurant, in the future, you'll see a mixture of mobile point of sale devices and customer self-service kiosks, kind of think of those almost like a self-checkout for a restaurant, and probably less fixed position terminals, but the total number of endpoints actually going up. The other thing I'd say is important is as we move through the generations of channel transformation, the infrastructure, the software infrastructure we're laying now with things like FastLane, self-checkout and our Retail ONE platform is the same infrastructure that will plug in things like Mobile Shopper too. So we're building an infrastructure for our customers that they can very much grow into as they go through these different waves of channel transformation. But I think we're very early – there's a lot of room to run left in this retail self-checkout transformation phase.

Excellent. Thank you so much.

We'll go next to Dan Perlin with RBC Capital Markets.

Hey, guys. Thanks. Nice quarter and good guide. I had a question on the software license growth again was strong in the quarter. But I'm looking at the growth rates, third quarter, fourth quarter in the unattached line. I think in the fourth quarter it was up 5%, third quarter was up 26% constant currency. And so I'm wondering what's the call-out there for the deceleration. Was it something – a difficult comp or was it just a mix issue? Or anything you could provide would be great.

Yeah. I think by its nature, unattached software license can be a little bit lumpier. We had a very strong Hardware quarter, so as a result, the Software attached in Q4 was strong. So I think what's important to us is that both of them have continued growth momentum. We have a number of different offerings within unattached software licenses. Unattached software licenses grew for the year roughly 8%. Software attached grew for the year close to 20%. So we'll continue to add to our unattached software license portfolio but also benefit through channel transformation and the edge offerings and capture software attached.

Hey, Paul, any feedback from you?

Well, I think it's a great question. I think the thing I'm always reminded by is if you look back not too many years, a huge percentage of NCR's Software revenue would have been attached. And so we've gotten to the point where it's actually very balanced. And Bob said it well about attached revenue will generally follow things like SCO and ATM shipments, and that's clearly where our customers' priorities were in Q4 if you look at the revenue associated with those. But if you think about our enterprise solutions that really make up unattached, things like transaction processing software in financial institutions, payments software in retail hospitality, loyalty and consumer marketing applications, and soon-to-be our omni-channel platform software, these are the things we've been investing in significantly over recent years, and they've become a very meaningful share now of our software license revenue, and I expect them to actually be our fastest-growing portion of our catalogue over the coming years.

A lot of the things...

Yeah.

I'm sorry. Go ahead.

Go ahead, Dan. I think what Bob and Paul are really highlighting is that we're really pleased with driving our hardware sales because of our great attached software that comes along with it, and downstream we get great attach of professional services, transactions services, and really the ability to go back with unattached offerings, really an end-to-end solution, if you will, driving the transformation, whether it's in our vertical and retail or hospitality or financial. So for us it's all good news. I think Bob accurately points out the unattached lumpiness that we're susceptible because Hardware drives the attached very predictably.

Yeah. No, and I think it's a great mix. We've been around long enough to certainly appreciate that mix, for sure. One of the questions I had though is as you were outlining all of those unattached solutions, I just want to make sure, is there – do you predict some seasonality in how this should play out as opposed to maybe just lumpiness? I mean, a lot of those things that we think retailers in particular aren't putting in the fourth quarter for the holiday but certainly want in the third year. And so just modeling next year, I want to make sure I don't get surprised by this. And then the second question I had is completely unrelated. I'm just wondering, in the conversations you're having with your financial services companies, in particular banks, kind of post-election and this kind of euphoria about rolling back regulation and higher rates, what are they saying and what are they looking for? It would seem like DI is in a pretty good position to capture that. And then the 80 Series ATM, can you kind of flesh out what exactly incremental -I know that's a new series, been a long time since you were introduced one like that? But I'm not sure exactly what it's bringing to the market. Thanks.

Hey, Paul, why don't you take question number one and then Mark will take number two and three?

Sure. On the seasonality, that's a great question, and my sense is it's a little less seasonality. Our orders of unattached software were actually really strong in Q4. Might be a little deployment seasonality, but I think it's more just as that business grows, it's going to smooth out, you know, and become a little less lumpy. So I think that would be our goal. As our sales force every year gets more and more proficient at enterprise software sales, as the portfolio gets bigger, as the number of customers we have gets bigger, I actually think it'll smooth out over time.

Yeah. And, Dan, I would also add on the other parts of your question. Obviously, we work very closely in partnership with really all financial institutions today. I think there's some optimism around the interest rate environment and potentially some policy changes coming from the administration, but I still think it's a bit early to understand the implications to their budgets and perhaps any changes. We haven't seen anything noticeably. As far as the Series 80 you ask about, it's a very exciting new product launch for us, one of many this year. It really is our flagship financial ATM. It provides truly superior functionality as compared to the market today from technology in the actual hardware around recycling and just great functionality, essentially replacing up to 80% or greater of what a teller function can actually provide to a customer, really making that seamless to an end consumer, as well as really tying in our Interactive Teller and really all of our software solutions to provide that omni-channel experience for the customer. In addition to some of our other solutions around Digital Insights, our banking, our mobile banking applications, and some others. So it's very exciting. It's in the market today with a few of our large customers, and we continue to see good promise there.

Hey, Bob, Bob Ciminera, did you want to add anything from a serviceability or common parts platform perspective?

Yeah. The 80 Series has nice industrial design. We're a finalist in International Design Excellence Award. Customers love it. It's better performance, as Mark said. It's mobile-enabled so that you can, with our software, you can leverage a dislocated omni-channel experience where you can start a transaction on your mobile phone, walk up to the ATM and withdraw cash. And it's more serviceable and more reliable. So all those features are elements of what our customers require as not only, let's say, have the ATM outside their branches but also, as Mark said, these ATMs become integral as a piece of furniture inside of the branch.

That's great. Thank you, guys.

We'll go next to Ian Zaffino with Oppenheimer. Ian Zaffino - Oppenheimer & Co., Inc.: Hi. Thank you very much. The question would be on the competitive environment. What are you seeing as far as, particularly on the ATM side but then also on the point of sale side as far as competition, pricing? Maybe walk us through some of the trends you're seeing and whether or not they've kind of changed or maybe improved over the past, call it, six months, nine months. Thanks.

Sure. Sure. So, on the competitive front, we're really seeing an unchanged market. It remains competitive really across our verticals. We had a consolidation in the financial side of the ATM business with two competitors of ours, and certainly, when two become one, that's one less that we have to face in the market, so we feel that's a benefit to NCR. We also feel as if we're winning market share. And our results we're very pleased with, certainly in the quarter. We have great growth rates around our Hardware sales, and we're really pleased. I think that our sales force is really energized with our new offers in the field, and I think that will continue to help drive more market share gains and some really nice competitive wins. Ian Zaffino - Oppenheimer & Co., Inc.: Okay. Thanks. And then, Bob, a question for you might be on the share count. How should we be thinking about the share count just given that you have this buyback in place? So you would expect it to go down throughout the year or is there something else, another moving part I'm not thinking of?

Yeah. On our full-year guidance page, we've listed out the share counts, roughly 158 million, which is flat year-on-year. Included in there is, actually, it was 157 million in 2016, so a little bit up. But we have built in the $300 million share repurchase in that 158 million number. It's offsetting that dilution that happens during the year. Ian Zaffino - Oppenheimer & Co., Inc.: The dilution from what?

It's the dilution from a couple different, the Blackstone pick and just the general equity grants. Ian Zaffino - Oppenheimer & Co., Inc.: Okay. Okay. And then final question would be the environment, what are you seeing as far as the European banks right now? The ATMs over there are extraordinarily old. They kind of skipped over the last upgrade cycle. Are you seeing any desire now for those to be upgraded, or are they still kind of working their way out? I guess we saw Greece in the news again. What are you seeing there?

Yeah. So I'd say in general we're fairly pleased with our ATM growth in Europe. There certainly, it's a little bit of a country-by-country story. We had a good fourth quarter as far as our sales activity and orders which we were pleased with. And truly, branch transformation is we still believe in the early innings, and certainly, Europe will certainly continue to expand that model for us and drive ATMs and attached business. So we feel pretty good where we are right now. Ian Zaffino - Oppenheimer & Co., Inc.: Okay. Thank you very much.

And we'll go next to Kartik Mehta with Northcoast Research.

Hi. Good evening. I wanted to ask you a little about Digital Insight and the progress you're making. I noticed on the presentation you said the ACV was increased $16 million in this quarter, and if I remember it correctly, that's mostly DIs. I wondered, was hoping that you maybe could provide kind of the current environment for DI and what you anticipate for 2017 for that business.

Yeah. So it's a good question, and actually we're thrilled you asked. 2016 for DI was really, I think, a great turning point for the business really since joining the NCR family. We saw great organic growth within the business. We saw utilization rates among the end users of our existing customers climb. And we've seen the churn, which we experienced in the initial period post-acquisition really decline and start to turn positive. So you see the cloud growth that it's helping the business drive. And we love our market position. We love the solution. In fact, if you heard in my earlier comments, 8 out of the 10 top mobile banking apps are run with an NCR digital app solution. So we're thrilled with the way that business is performing for us, and we feel it has a great future.

Hey, Paul, anything to add there?

Well, just real quickly, I'd say it was also a record year for our Net Promoter Score on that solution. And so you see churn down, new sales up, usage up by consumers. I think it all kind of follows the investments we've made in that business over the last several years to make our customers, the FIs and their customers, the consumers extremely happy with the app. And so you see it through in all those dimensions now.

And then the only thing I would add, Kartik, is DI makes up roughly two-thirds of our cloud business, so we do have cloud businesses within retail and hospitality as well.

So, I wanted to ask you a little about the Wincor acquisition and maybe – the impact, both the NCR and the industry, I guess the near-term impact where it's, I believe you said you're gaining some market share. I was hoping you could talk about maybe what the near-term impact is to NCR from this acquisition, maybe longer-term impact for the industry as well and to NCR.

First thing I'd say, Kartik, is they're a really good competitor, and they're run by smart, capable people. We do not take them for granted at all. Now, they do have a tough road ahead in terms of integration, everything from people to process, technology, platforms, and depending on how they execute, there will either be a bigger opportunity for us or not. Now, we're expecting them to execute really well, so I would say that in the interim, to Mark's point, the industry is smaller today, so, for example, if you're a combined Diebold and Wincor account and you're dedicated to being to a vendor, that's an opportunity for NCR. And there are plenty of customers out there that are combined Diebold and Wincor. Number two, we do feel good about the fact that we're not in a position where we are disrupted by anything. I mean, we're moving forward with great speed and vigor in terms of new products, services, innovation, and so on. So I would say, look, right now I think our share gains are as a result of the basic fundamental challenges you have when two of those companies come together of that size and complexity. But they will get their act together, and hopefully the industry being a bit smaller is helpful to all of us.

Thanks, Bill. I really appreciate it.

And we'll go next to Matt Summerville from Alembic Global Advisors.

Hi. Thanks. A couple of questions. First, I want to talk about margins at the segment level starting with Software. At what point do we start seeing those margins start to gap up more meaningfully on a year-over-year basis? When you look at the revenue performance up 10% on constant currency, margins were up 10 basis points. That, to me, just seems a little underwhelming.

Matt, it's a great question. I'm going to give it to Paul Langenbahn.

Well, Matt, we share your sentiments. We are investing a lot in the Software business now, and that's starting to show through in the growth rates improving. We have – if you look at the way we've assemble the business over the last several years, we do have opportunities to make the business more efficient, and we're at the point this year where that's becoming a pretty big focus for us. So through better product life cycle management, portfolio management, and as we build our platform and share more components across solutions, we start to make that Software business a lot more efficient. So it's a very important part of how we shape our vision for what the Software business looks like in the future. Its revenue growth to focus on through SaaS, and its margin expansion that comes largely from those three things that I mentioned, and those will be top of mind and top of our internal goals, if you will, for the next few years for sure.

And, Matt, this is Mark. So, what I would also add, if you recall, that we reorganized NCR into our lines of business. And we see the opportunities that you're recognizing here, and as Paul is taking you through. So today Paul runs NCR's Software business, which is essentially a $2 billion business, with upwards of 8,000 NCR associates. So for us to go find the margin improvements, which we know we can, we feel greater efficiency, greater line of sight into the Software business will help us, and we've structured the company in such a way where that will be one of the major benefits and focus items for the Software business.

And then just in terms of the cost inefficiency you saw in Hardware during the quarter, when you look that revenue, it was up $70 million, profit was down $12 million, so you lost $0.17 on every incremental revenue dollar. When does that trend specifically? Is it in the first half of the year? Is it in the second half of the year? When does that reverse? And it would probably be helpful to also remind us for every box you sell on average, how much do you get in Software and Services as a percent of the box sale? Thank you.

Yeah, I think, Matt, you've hit on exactly the right point there, which is for us the Hardware revenue drives the higher margin attached and the recurring revenue. And, Bob Ciminera, I'll turn it over to you to kind of describe those pieces. But when we're talking about the additional revenue streams, you're talking about adding professional services, implementation services, you've obviously got the hardware and software maintenance on the recurring piece. Those are all drivers. So don't get me wrong, Matt, we're laser-focused on margin within Hardware and being as efficient as we can, but for us, it's about driving those more profitable revenue streams. I do think you'll see 2017 as the new product introductions that Bob talked about roll out. You'll see Hardware margins start to flatten as opposed to decreasing. Bob?

You captured it on the attached, Bob. For Hardware, as Bob said and we talked about earlier, it comes down to scaling the volumes on the new models and then the incremental cost reduction that we'll drive this year. We have a very intense focus on cost, not only just for a solution going out the door but also for the total costs of ownership through its life cycle. So that is an intense focus for us, and we expect to see improvement this year.

Thank you.

And with no further questions in the queue at this time, I'd like to turn the conference back to Mr. Bill Nuti for any additional or closing remarks.

Thank you, all, for joining us today, and we'll see you in April.