NCR Corporation reported financial results today for the three months ended December 31, 2014.

"Our fourth quarter and full year results were in-line with our revised expectations," said Chairman and CEO Bill Nuti. "Financial Services finished 2014 with a solid quarter, as global demand for our branch transformation solutions and the impact of Digital Insight drove results. While 2014 had its challenges, particularly in Retail Solutions, we made great progress this year continuing to transform NCR, including progress in executing our software and cloud strategy and ongoing success addressing legacy issues. We also remain positioned at the forefront of consumer transaction technologies across our markets. Looking ahead, we are excited about 2015 and the opportunities for NCR. Our focus is on driving improved execution, with an emphasis on our sales and services organizations, as well as taking the next steps in our reinvention. We will continue to deliver innovative solutions to our customers that help drive their success and make running their businesses easier."

Q4 Financial Summary

* Revenue growth of 11% on a constant currency basis.

** Income from operations in the fourth quarter of 2014 includes a $33 million charge related to the ongoing restructuring plan and pension expense of $150 million primarily due to a non-cash, mark-to-market charge related to an update in the U.S. mortality table. Income from operations in the fourth quarter of 2013 includes $99 million of pension benefit.

*** Diluted earnings per share in the fourth quarter of 2014 includes $0.10 related to the ongoing restructuring plan and $0.43 related to pension expense. Diluted earnings per share in the fourth quarter of 2013 includes $0.41 related to pension benefit.

In this release, we use the non-GAAP measures non-pension operating income (NPOI), non-GAAP diluted earnings per share, free cash flow and revenue growth on a constant currency basis. These non-GAAP measures are described and reconciled to their most directly comparable GAAP measures elsewhere in this release.

Q4 Supplemental Revenue Information

* Referred to as Software-as-a-Service or SaaS in prior Company earnings releases.

Software-related revenue increased 32% in the fourth quarter, including 231% growth in cloud revenues. Excluding the contribution of Digital Insight, software-related revenue increased 8% and cloud revenue increased 15%.

Q4 Operating Segment Results

Revenue increased 6% compared to the prior year led by solid growth in Financial Services where branch transformation revenues continued to increase and Digital Insight contributed $93 million in the fourth quarter of 2014. Retail Solutions was lower than the prior year as we continued to face redirected information technology spending and delayed customer rollouts. Hospitality was lower due to decreased spend by certain global quick-service restaurants. Emerging Industries was lower due to the impact of the travel business. Foreign currency fluctuations negatively impacted total revenue by 5%.

Segment operating income increased 14% compared to the prior year. The increase was led by Financial Services, where growth was driven by a higher mix of software-related revenue. Retail Solutions operating income was as expected, and improved as a percentage of Retail Solutions revenue compared to Q3 2014. Hospitality operating income was higher than the prior year due to a favorable mix of revenue. Emerging Industries operating income was negatively impacted by costs associated with managed services contracts and continued investment in Small Business.

Free Cash Flow

Free cash flow decreased in the fourth quarter of 2014 as compared to the fourth quarter of 2013 mainly due to changes in working capital and the timing of cash outflows related to discontinued operations. Free cash flow improved in quarterly linearity in 2014 as compared to 2013 and increased mainly due to working capital improvements and recoveries related to the Fox River environmental matter.

2015 Outlook

The 2015 revenue guidance is expected to be roughly flat on an as-reported basis, and up 4% to 6% on a constant currency basis. We expect revenue growth to be driven by higher value solutions in Financial Services, Retail Solutions and Hospitality. NPOI is expected to be between $830 million and $870 million, primarily due to continued improvements in the software mix across the businesses and the benefit of the restructuring plan, partially offset by approximately $50 million of unfavorable foreign currency impacts. Non-GAAP diluted EPS is expected to be approximately $2.60 to $2.80, due to higher NPOI offset by approximately $0.20 per share of unfavorable foreign currency impacts and a higher effective income tax rate. We expect free cash flow of $325 million to $375 million, which includes restructuring spending of approximately $70 million to $85 million.

⁽¹⁾ Includes 5% of expected unfavorable foreign currency fluctuations.

⁽²⁾ For 2014, actuarial mark-to-market pension adjustment included; for 2015, actuarial mark-to-market pension adjustments to be determined in Q4 2015 excluded. The impact of the transfer of the UK London pension plan to an insurer expected to occur in 2015 or early 2016 is excluded from the 2015 guidance. The UK London pension plan was approximately $420 million overfunded as of December 31, 2014.

⁽³⁾ NCR expects approximately $215 million to $220 million of other expense, net including interest expense in 2015 and that its full-year 2015 effective income tax rate will be approximately 25% compared to 22% in 2014.

Related to the ongoing restructuring plan, NCR expects to incur a pre-tax charge of approximately $200 million to $225 million that will be included in income from continuing operations, with $163 million recorded in 2014 and the remainder recorded in 2015. The estimate includes both severance and asset related charges. The cash impact of the restructuring plan is expected to be approximately $100 million to $115 million, with $29 million incurred in 2014 and the remainder in 2015. Savings are expected to be approximately $70 million in 2015 and $105 million in 2016, with about 50% of the savings benefiting NPOI.

Q1 2015 Outlook

For the first quarter of 2015, the Company expects non-pension operating income (NPOI) to be in the range of $140 million to $150 million, compared to $155 million in the first quarter of 2014, and income from operations to be in the range of $90 million to $100 million, compared to $108 million in the first quarter of 2014. NCR expects its first quarter 2015 effective income tax rate to be approximately 23% and other expense, net including interest expense to be approximately $55 million.