NCR Corporation reported financial results for the three months and twelve months ended December 31, 2016. Fourth quarter and full year highlights include:

• Fourth quarter revenue of $1.80 billion, up 7% as reported and up 14% excluding FX and the IPS divestiture; Unfavorable FX impact was $25 million higher than expected

• Fourth quarter software revenue up 9%, software license growth of 21% and cloud growth of 10%; Full year net annual contract value for cloud, a leading indicator of future cloud revenue, of $70 million, up 79% from $39 million in the prior year

• Fourth quarter GAAP diluted EPS of $0.43, up from $0.27 in the prior year, an increase of 59%; Fourth quarter non-GAAP diluted EPS of $1.07, up from $0.89 in the prior year, an increase of 30% constant currency; Unfavorable FX impact was $0.07 higher than expected

• Full year cash flow from operations of $894 million, and free cash flow of $628 million versus free cash flow guidance of $425 to $475 million

• $300 million share repurchase planned for 2017; approximately $70 million completed year-to-date

• 2017 guidance announced; Revenue growth of 1% to 3% as reported and 5% to 7% excluding FX and the IPS divestiture; GAAP diluted EPS growth of 42% to 49%; Non-GAAP diluted EPS growth of 9% to 12% constant currency; free cash flow conversion rate of 95% to 100%

“Continued fourth-quarter momentum led to a highly successful 2016 and ability to exceed revenue, earnings, and free cash flow expectations," said Chairman and CEO Bill Nuti. “We were pleased with our top-line growth in every business, but especially in Software, where revenues continue to expand, particularly for our cloud and software license offerings. Hardware experienced another very strong quarter from ongoing demand for our Self-Checkout and A/ITM edge platforms that deliver channel transformation solutions. Overall, our global omni-channel leadership resulted in strong financial results throughout 2016, and our consistent performance speaks to the value we provide customers as they transform their businesses to effectively compete in the rapidly developing digital economy. We enter 2017 with a focus on maintaining our high level of execution, continuing to enable customer success, and further expanding our omni-channel leadership via investment in innovation. Also, based on our confidence in free cash flow generation, we are pleased to announce our intention to repurchase $300 million of shares in 2017.”

In this release, we use certain performance metrics as well as certain non-GAAP measures, including presenting certain measures on a constant currency and adjusted constant currency basis. The performance metrics include net annual contract value, and the non-GAAP measures include free cash flow and others with the words “non-GAAP” or “adjusted” in their titles. The performance metrics are listed and described, and the non-GAAP measures are listed, described and reconciled to their most directly comparable GAAP measures, under the heading “Performance Metrics and Non-GAAP Financial Measures” later in this release. Additionally, effective January 1, 2016, NCR began management of its business on a solution basis, changing from the previous model of management on a line of business basis, which resulted in a corresponding change to our reportable segments. Prior results have been recast under the new segment model for comparison purposes.

Fourth Quarter 2016 Operating Results

Revenue

Fourth quarter revenue of $1.80 billion was up 7% year-over-year. On an adjusted constant currency basis, fourth quarter revenue was up 14%. Foreign currency fluctuations and the IPS divestiture had an unfavorable impact on the revenue comparison of 1% and 6%, respectively.

The following table shows the revenue by segment for the fourth quarter:

Gross Margin

Fourth quarter gross margin of $479 million increased 1% from $476 million. Fourth quarter gross margin (non-GAAP) of $530 million increased 4% from $512 million. The increases were primarily due to higher revenue.

Expenses

Fourth quarter operating expenses of $333 million decreased from $338 million. Fourth quarter operating expenses (non-GAAP) of $266 million increased from $252 million. Operating expenses decreased as a percentage of revenue.

Operating Income

Fourth quarter operating income of $146 million increased 6% from $138 million. Fourth quarter operating income (non-GAAP) of $264 million increased 2% from $260 million. During the fourth quarter of 2016, we recorded the annual pension mark-to-market adjustment which was $85 million compared to $29 million in the prior year.

Other (Expense)

Fourth quarter other (expense) of $57 million decreased (33)% from $85 million, primarily due to the $34 million loss on the sale of the IPS business recorded in the fourth quarter of 2015. Fourth quarter other (expense) (non-GAAP) of $56 million increased 10% from $51 million, primarily due to foreign currency losses from a devaluation of the Egyptian pound recorded in the fourth quarter of 2016.

Income Tax Expense

Fourth quarter income tax expense of $17 million increased from $5 million due to a less favorable mix of earnings partially offset by an increase in discrete tax benefits. Fourth quarter income tax expense (non-GAAP) of $36 million decreased from $53 million due to an increase in discrete tax benefits.

Net Income from Continuing Operations Attributable to NCR

Fourth quarter net income from continuing operations attributable to NCR of $68 million increased from $48 million. Fourth quarter net income from continuing operations attributable to NCR (non-GAAP) of $168 million increased from $156 million.

Cash Flow

Fourth quarter cash provided by operating activities of $525 million increased from $265 million. Free cash flow was $449 million in the fourth quarter of 2016 as compared to $184 million in the fourth quarter of 2015. The increases were driven by higher operating income and working capital improvements.

Full Year 2016 Operating Results

Full year 2016 revenue of $6.54 billion was up 3% from 2015. On an adjusted constant currency basis, full year 2016 revenue was up 7%. Foreign currency fluctuations and the IPS divestiture had an unfavorable impact on the full year revenue comparison of 1% and 3%, respectively.

Full year 2016 GAAP diluted EPS of $1.80 was up from $(0.94) in 2015. Full year 2016 diluted EPS (non-GAAP) of $3.02 was up from $2.76, or an increase of 15%, on a constant currency basis. Foreign currency fluctuations had an unfavorable impact on the full year diluted EPS comparison of $0.14.

Full year 2016 cash provided by operating activities of $894 million increased from $681 million. Full year 2016 free cash flow was $628 million in 2016 up from $409 million. The increases were driven by higher operating income and working capital improvements.

Share Repurchase Programs

During 2017, NCR plans to repurchase approximately $300 million of its common stock under its previously authorized share repurchase programs. NCR has repurchased shares of its common stock for approximately $70 million through the date of this release. Any share repurchases will be made by NCR in compliance with, and at such times as permitted by, federal securities laws and may be suspended or discontinued at any time.

2017 Outlook

In 2017, our revenue is expected to be $6.60 billion to $6.72 billion, up 1% to 3% as reported and 5% to 7% adjusted constant currency. Our GAAP diluted earnings per share is expected to be $2.56 to $2.69, up 42% to 49%, and our non-GAAP diluted earnings per share is expected to be $3.25 to $3.35, up 9% to 12% constant currency. Net cash provided by operating activities is expected to be $805 million to $830 million and free cash flow is expected to be $500 million to $525 million, or approximately 95% to 100% of non-GAAP net income. The 2017 guidance includes expected foreign currency headwinds of $95 million in revenue and $0.03 in diluted earnings per share. The 2017 guidance also excludes approximately $143 million of IPS revenue from 2016.

For the first quarter of 2017, revenue is expected to be $1.45 billion to $1.47 billion, GAAP diluted earnings per share is expected to be $0.17 to $0.25, and non-GAAP diluted earnings per share is expected to be $0.43 to $0.48. The first quarter 2017 guidance includes expected foreign currency headwinds of $17 million in revenue and $0.03 in diluted earnings per share.