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Article Excerpt
GIL LURIA, ANALYST, WEDBUSH MORGAN SECURITIES, INC.: With us today, Bill Nuti and Tony Massetti from NCR. NCR has been a global leader not only in the ATM market, but also in the broader self-service automation market with 25,000 employees and over $5 billion in revenue. Bill Nuti has served as Chairman and Chief Executive Officer of NCR since joining in 2005, after serving as President and CEO of Symbol Technologies. Under his leadership, NCR has grown its earnings by a 45% CAGR over the last three years based on the ability to improve margins and capitalize on the growth of the ATM market, while executing a complicated spinoff of Teradata without a hitch.
Tony joined NCR a little over a year ago, and in that very short time span has reduced working capital at an extraordinary rate, contributing to free cash flow of over $100 million just from the reduction of working capital. So, a very quick contribution.
The format we're going to take today is a little different. We're not going to do a formal presentation. We're going to do some question-and-answers and a little bit of a discussion format, but still leave some time at the end for questions from the audience.
I thought I would start maybe with a big question. You guys put out a release yesterday about your guidance, and it was very helpful. And I wanted to ask, just to kick things off, you've reconfirmed the NPOI and EPS guidance in a very challenging environment. What gave you the confidence to take that step?
BILL NUTI, CHAIRMAN, CEO, NCR CORPORATION: Thank you, Gil. First of all, appreciate the introduction for Tony and I. The confidence stems from our collective confidence in our ability to reduce the cost structure at a rate required to meet our NPOI goals. I think we also have a fairly stable revenue stream inside the Company. When you look at our revenue stream, approximately 40% of it is services, annuity-based services maintenance, which has contracts that stem from a year to five years in length, and fairly stable revenue stream.
Another percent of our revenue is in consumables. That tends to be fairly stable. This would be purchasing of paper rolls for point of sale or two-sided thermal paper technologies and printers. Another 20% or so comes in the year vis-a-vis backlog. Backlog coming into the year that we expected to turn in the year.
So, you've got about 70% of the revenue stream that's relatively reliable, strong revenue stream. The rest, of course, comes from success within the year. I think large banks in the US will continue to roll out deposit automation at a fairly aggressive rate in 2009. We have a very good position in that particular segment of the banking market.
We're very well positioned outside the US in the emerging markets. It's one of the strengths of our Company. Our revenue distribution geographically is a strength of ours. And while I think the mid-size banks will remain challenging, and we have a great opportunity there over the course of the next several years, our position is a little bit less strong.
Retail, of course, is the wild card vis-a-vis revenue stream for us and the one that's probably the most impacted. But we took that all into consideration when we thought about this year. We also took into consideration the many levers that we have to reduce cost, and that's why we feel confident in $360 million to $400 million guidance relative to NPOI. Tony?
TONY MASSETTI, CFO, NCR CORPORATION: No, I think that's good commentary, Bill. We're accelerating as many of the cost and expense reduction initiatives that were underway coming into the year into the first half, and particularly Q1, to realize as much of the cost and expense savings as we can. And, as Bill said, that's given us further confidence that we can achieve the $360 million to $400 million NPOI, which translates to $0.85 and $1.00 EPS.
GIL LURIA: So, I wanted to discuss -- I'd like to come back to the guidance you provided yesterday. I actually thought there was some very helpful pieces beyond what we just talked about. But I wanted to step back a little bit and talk about your business by geography. Are we going to have pass the mike around? Okay. Well, we'll just pass the actual mike.
In terms of the US, you mentioned a little bit the different dynamic between national banks and regional banks. National banks, mostly the three big ones, Bank of America, Chase and Wells Fargo, already well on their way to upgrading to deposit automation. How long do you still think the process of those three banks and then the really large banks upgrading and taking a leadership position, how many more years of that do we have? And at what point is the pressure from customers on the smaller and medium banks going to start getting those guys to adopt, and how long of a cycle do you have that built in?
BILL NUTI: The large banks will roll out deposit automation through 2010. You could imagine if they weren't executing perfectly going into the beginning of 2011 in many ways, shapes and forms. So, it's the next two years, is the way I see it.
National banks, or mid-size banks, using our nomenclature inside the Company, are going to have to move at some point because of the pressure that's going to be applied from larger banks moving into their local neighborhoods with this kind of technology, this new deposit-taking technology. And while today they are reticent, I think, to move forward as aggressively as they would have in what was expected to be a much better economy a year ago, I would say 2010 and 2011 are years when you're going to see the mid-size banks move forward.
We do have some mid-size banks piloting this technology today, so they are not standing still. But if you would have asked...
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