NCR Voyix Corp (VYX) 2019 Q1 法說會逐字稿

Good day, and welcome to the NCR Corporation First Quarter Fiscal Year 2019 Earnings Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Michael Nelson, Vice President of Investor Relations.

Please go ahead.

Good afternoon, and thank you for joining our first quarter earnings call.

Joining me on the call today are Mike Hayford, President and CEO; Owen Sullivan, COO; and Andre Fernandez, CFO.

Before we get started, let me remind you that our presentation and discussions will include forward-looking statements.

These statements reflect our current expectations and beliefs, but they're subject to risks and uncertainties that could cause actual results to differ materially from those expectations.

These risks and uncertainties are described in our earnings release and our periodic filings with the SEC, including our annual report.

On today's call, we will also be discussing certain non-GAAP financial measures.

These non-GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials, the press release dated May 7, 2019, and on the Investor Relations page 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 Mike.

Thanks, Michael, and thank you, everyone, for joining us today for our first quarter earnings call.

I will begin with some of my views on the business before turning it over to Andre, who will review our financial performance as well as discuss our outlook for 2019.

And Owen, Andre and I will take your questions.

I'll begin on Slide 4, an overview of our first quarter performance.

The first quarter demonstrated solid performance, and we finished in line with our expectations.

Second, the hard work we've put in to improve execution is generating results and puts us on track to improve our growth profile.

Third, we had solid performance in our Banking segment where revenues increased 9% on a constant currency basis, fueled by strong ATM revenue growth of 27% on a constant currency basis.

The strong ATM revenue growth was driven by strength in North America across both large and small banks.

And fourth, consistent with our strategy to shift our revenue mix, we increased total recurring revenues by 6%, which represented 49% of total revenues in the first quarter.

Roughly half of the increase in recurring revenues were related to M&A activities.

We define recurring revenue as revenues for services under contract for which revenue is recognized over time.

Finally, today we are reaffirming our full year 2019 guidance.

Andre will discuss this in greater detail during his remarks.

Moving to Slide 5 and an overview of our financial performance in the quarter.

Consolidated revenue was $1.54 billion, up 1% as reported and up 4% on a constant currency basis.

The primary driver for the solid revenue performance was strength in our Banking segment.

Adjusted EBITDA was flat and was in line with our expectations.

Non-GAAP EPS was $0.48, also in line with our expectations.

FX headwinds, increased interest expense and a higher tax rate lowered EPS by $0.11 year-over-year.

Lastly, free cash outflow was $87 million, which improved from free cash outflow of $99 million during the first quarter of 2018 due to improvements in working capital.

As a reminder, our historical free cash flow linearity includes working capital requirements earlier in the year.

We remain confident in our full year free cash flow guidance.

Now turning to Slide 6 and an update on our strategic growth platforms.

These are the 6 areas where we are accelerating investment with the goal of advancing our shift to higher-margin recurring software and services revenue and accelerating revenue growth in the future.

Our investments in these areas are supported by established market share and differentiated product and solution offerings as well as recognized and trusted brands.

We'll begin with digital first banking where we have increased our investment in NCR's digital banking solution and have received positive feedback from customers on the new features and functionality.

We are starting to see improved growth.

In the first quarter, we signed 7 new digital banking customers.

In digital first restaurant, we recently launched our subscription model for our Aloha point-of-sale solution and have received positive customer feedback.

In digital first retail, Emerald, our next-generation cloud-based retail point-of-sale solution, currently has 4 customers that are in pilot, and we are ahead of schedule to release the product for general availability this year.

Northgate Markets, a chain of supermarkets in California, went into production in pilot mode with NCR's Emerald to drive its digital transformation during the first quarter.

Our global services continues to exhibit solid growth, including the rollout of our digital connected services.

We continue to invest in the areas of remote diagnostics, which we expect will result in increased efficiencies.

In digital convenience and fuel, we are in the process of rolling out our software-designed store with Pilot Flying J, the largest operator of travel centers in North America.

This allows them to virtualize their technology, making it easier and less expensive to maintain and upgrade.

And lastly in digital small business essentials, in the coming month, we will release NCR Silver 1 for general availability, our all-in-one point-of-sale solution that integrates payment processing with NCR server.

NCR Silver 1 further streamlines the entire payments process for small business, simplifying setup and delivering relevant transaction data to business owners so they can easily improve customer engagements.

Overall, these 6 strategic growth platforms will remain investment priorities for NCR this year as we look to strengthen our foundation for sustainable long-term growth generation and drive accelerated top line performance.

Now to Slide 7. We are also making progress integrating our payment processing platform into our solutions set.

Following the acquisition of JetPay, we moved to integrate JetPay with our point-of-sale solutions and established our go-to-market payment strategy and pricing.

We are executing in line with our plan and have several customers live on the platform.

We're on track for general availability of our full end-to-end payments processing platform for NCR Silver customers and Aloha customers in the second half of this year.

Now moving to Slide 8. We will provide an update on our productivity initiatives.

First, we continue to successfully execute our services performance and productivity initiatives, which are driving continued services revenue growth and margin expansion.

Second, our hardware manufacturing transformation initiatives are largely complete, and we are on track in 2019 to reduce the loss in our hardware business by over half compared to 2018.

In the first quarter, we benefited from improved price and mix.

Finally, our plan to improve productivity also includes the targeted reduction of SG&A and other discretionary items.

We remain on track to generate at least $100 million in savings in 2019.

Through the first quarter, we completed roughly 80% of the targeted actions, which include headcount reduction, evaluating our project spend to focus only on strategic priorities as well as focus on limiting discretionary spend.

The benefits will be recognized ratably throughout the year.

The $100 million in cost takeout largely offset the headwinds in 2019 from higher real estate costs and higher people costs, which we discussed on the last earnings call.

With that, let me pass on the call over to Andre.

Thank you, Mike.

I will begin with an overview of our segment results.

As we mentioned on our last earnings call, we have reorganized the business by industry, and beginning this quarter, have changed our reporting segments to Banking, Retail, Hospitality and Other.

This change will help us invest in a product mix unique to those industries and that focuses on recurring software and services to drive profitable growth.

Slide 9 shows our Banking segment results.

Banking revenue increased 9% constant currency, led by a 27% constant currency increase in ATM revenue, helped by Win 10 upgrades and replacements, with particular strength in the North American market.

Services also contributed to the revenue increase, as hardware maintenance revenue improved on the back of stronger ATM sales.

Software revenue in this segment was roughly flat to prior year, as higher attached software and digital banking revenue offset several large term license sales last year that did not repeat.

Operating income increased 20% constant currency, driven by higher hardware and services revenue and helped by lower OpEx resulting from our productivity initiatives.

We continue to see strength in both orders and backlog in our Banking segment.

Echoing Mike's previous remarks, our digital banking platform showed improved growth.

And we signed on 7 new digital banking customers, which will bring additional users and higher annual revenue.

Now moving on to Slide 10, which shows our Retail segment results.

Retail revenue increased 1% constant currency year-over-year, driven by an increase in revenue from our JetPay acquisition as well as self-checkout revenue, partially offset by a large implementation project and software license sale in the prior year that did not repeat.

We exited the quarter with a strong backlog position for self-checkout, which gives us confidence in our full year self-checkout revenue plans.

Operating income decreased 18% constant currency, primarily driven by an unfavorable revenue mix in terms of both products and customers, in part from the large software and service sales mentioned previously that did not repeat.

Slide 11 shows our Hospitality segment results.

Hospitality revenue decreased 4% constant currency, driven by lower hardware sales primarily driven by a large customer rollout in the prior year, partially offset by higher cloud and revenue from our JetPay acquisition.

Hardware revenue fell 20%, driven by a large customer rollout in Q1 2018 that did not repeat.

Operating income decreased 15% constant currency, driven by the decline in hardware revenue mentioned previously as well as continued investment in customer satisfaction initiatives, which were partially offset by an increase in higher-margin software and cloud revenue from Aloha and NCR Silver.

Now to Slide 12 where we provide our first quarter revenue results under our previous operating segments.

Software revenue increased 3% constant currency, driven by a favorable mix of more cloud and payments revenues, the latter from our JetPay acquisition.

Services revenue increased 1% constant currency, also driven by an increase in recurring revenue, partially offset by a large project in our Retail segment in the prior year mentioned previously.

Hardware revenue increased 9% constant currency, driven by ATM revenue growth of 27% constant currency and partially offset by a 3% decline constant currency in the combination of self-checkout and point-of-sale.

On Slide 13, you can see free cash flow for the quarter.

Free cash outflow was $87 million in the quarter, an improvement from an outflow of $99 million in the prior year.

The increase was primarily driven by working capital, with stronger cash management offsetting higher inventory.

Recall that the first quarter is typically a use of cash, following which free cash flow improves as the business ramps over the remainder of the year.

Slide 13 also shows our net debt to adjusted EBITDA metric with a net debt leverage ratio of 2.9x for Q1 2019, which is up slightly from 2.8x at year-end 2018 due to higher net debt.

Mirroring our free cash flow, our net debt leverage ratio also typically increases in the first half of the year, then declines in the second half of the year when we generate the majority of our cash.

On Slide 14, you will find our full year guidance for 2019, which we are reaffirming.

Total revenue growth is expected to remain in the 1% to 2% range.

Included in this revenue guidance are expected FX headwinds of approximately 1%, although it could trend slightly higher if the euro continues to weaken against the dollar.

Also recall, we mentioned on our year-end call that as our business model changes and we begin to bring new products to market that will generate higher recurring revenue streams, we will begin to shift from perpetual license revenue that is recognized upfront to either term- or subscription-based revenue that is recorded over time.

This shift may have a dampening effect on our overall revenue as we grow our recurring revenue base.

While this shift was immaterial in the first quarter, as we move through the remainder of 2019 and beyond and roll out our new offerings, we'll update you as to our progress as well as the impact of this shift on our financials.

As we stated on our last call, our 2019 adjusted EBITDA is expected to be $1.04 billion to $1.08 billion.

Our 2019 GAAP EPS is expected to be $1.91 to $2.01 and includes restructuring and transformation charges of approximately $60 million.

Our non-GAAP EPS is expected to be $2.75 to $2.85 for the year.

We have assumed a tax rate of 23% to 24% and a share count of 151 million shares.

We expect our tax rate to be lower in the first half of the year due to several discrete tax items that are helping the rate.

Again, we expect free cash flow for the year to be in the $300 million to $350 million range.

We expect the linearity of our cash flows to follow a similar pattern to previous years, with the majority of free cash flow generated in the fourth quarter and higher working capital requirements earlier in the year to meet our higher backlog.

We expect our EPS linearity to be consistent with our full year average, with approximately 23% to 24% of the full year generated in the second quarter.

Our Banking segment should have another strong revenue quarter in Q2, driven by our increased ATM backlog position.

Recall the hardware margin is lower than the company average, which will limit the flow-through to EPS.

With that, I'll turn it back to Mike for closing comments.

Thanks, Andre.

In summary, we are off to a good start to the year, and we remain confident in our strategy and are on track to bring new solutions to market.

We continue to prioritize customers first, spending when needed to improve product and service quality.

We are making the targeted investments needed to drive accelerated growth in the years ahead and best position NCR to deliver increasing value to our customers and our stockholders.

Our strategic mandate remains the same: strong execution and continue to transform our revenue mix to higher-margin recurring software and services revenues.

The performance we delivered in first quarter was consistent with that mandate.

I'm proud of the commitment and passion of the entire NCR team as we take on this journey to build a stronger NCR.

There's much left to be done, but we remain on the right path and on target to hit our full year financial and operational goals.

Thank you for your time.

And now Andre, Owen and I will take your questions.

(Operator Instructions) And we'll take our first question from Dan Perlin with RBC Capital.

I wanted to start off on the broader demand environment, in particular around the banking channel.

And clearly, the backlog on ATMs was good into this quarter, and it sounds like it's following through into next quarter.

I would say most of the co-providers are also saying good things about the banking channel.

And so I'm wondering, Mike, if you can just talk about what you're seeing there, what are those conversations like and to the extent that you take a lens of sustainability around ATMs and then maybe also parse back around the other digital banking channel.

Yes.

I mean, you can see by our results, we had a pretty good quarter in our Banking segment.

It was a little hard last year.

We talked about the orders and the backlog in the second half of last year.

And with our manufacturing challenges, that wasn't always translating to revenue, but we felt good heading into '19.

And you can see in the first quarter, the results are strong.

As Andre talked about, the backlog heading into the second quarter is also very strong.

So I feel very good about the second quarter.

I think we talked about this heading into the year, we felt that '19 would be a solid year for us in the ATM business, and it's starting to bear out that way.

On the digital banking that you referenced, I think we feel pretty good about -- I think -- actually probably better than pretty good.

We feel real good about the team we put in place late last year.

They've been in there for about 6 months, some of the new leadership.

And they've taken that business and really moved it into a kind of a winning attitude, exhibited by the deals that we signed in the first quarter.

I think we're back up in the market.

We put a dedicated sales team back in place to that had not been in place for digital banking.

We put a team focused on taking care of our customers.

We put additional CapEx in the software this year and have shared that road map with customers and our prospects.

So again, we feel great about the first quarter.

We feel good about the outlook for that going into the year.

So I -- first quarter was good, and we don't see anything going forward which would tell us to feel any less good about the rest of the year on the Banking side.

Okay.

And I'd like you to follow up on, I guess, it's kind of 2 parts.

One is on Hospitality in particular; and the other one is I think more broadly over this crossover point to recurring versus kind of traditional license.

So you talked about, I think, Aloha being available kind of in the third and fourth quarters of this year for that to be a cloud-based solution as opposed to licensed?

And I wanted to just get a sense of how much you think that is going to have an impact in terms of lumpiness in the back half of the year around that segment relative to, let's say, license sales and hardware sales from prior years.

And then secondly, more as an aggregate question, should we be preparing or should -- are there any call-outs, I should say, in the second half of the year that we need to be really concerned about as you go over this recurring kind of conversion to more of this cloud shift so that it won't get offset when we build out our cadence?

Yes.

So on Aloha, we just started to roll out what we call Aloha Essentials, which is really a bundled solution.

So it's more of a bundling of product that we have, the Aloha cloud extensions as well as the Aloha software product itself.

So that's starting to roll out.

And then in the third and fourth quarter, we'd be going to GA around our bundling with our payments integrated, so the JetPay integrated with Aloha.

So we're excited about going to market with more of a turnkey product to serve that segment and again turn that into a subscription-based offering.

I think -- and the broader question across the board, there's really 2 aspects to going to recurring revenue streams.

One is to move to subscription-based, whether it's cloud products or whether it's other products that we offer in a monthly subscription.

And obviously, payments would be part of that, maybe not in a flat subscription, but on a transaction-based pricing.

So that's one aspect, which really involves offering a new product to the marketplace.

Then a second aspect is taking software products that we traditionally sold upfront, that's perpetual license, and sell them in some other form, whether it's a term license or whether it's a subscription-based license as well.

When we put our '19 plan together and shared our outlook with The Street, we made some assumptions about how fast some of those traditional upfront license fees, that in the past we have recognized, would be shifting to either subscription or your term-based licenses where it wouldn't be booked upfront.

And we baked that into our plan.

So as Andre talked about, we'll keep updating you on the path and the success.

If we are more successful than we anticipate with the transition to recurring revenue streams, I think, Andre, would dampen or may dampen our revenue in the back half of the year.

But right now, we think the numbers we gave you are solid, that we'll continue to work on our plan.

We'll execute the shift to recurring kind of on the pace that we anticipate.

And again, we will share every quarter as we make progress on what that means.

But you -- so first quarter, we have not done much shifting yet.

The products are just starting to roll out.

And for the full year, we've already anticipated some level of that in the guidance that we've given you.

And if things change, we'll give you updates each quarter.

And we'll take our next question from Katy Huberty with Morgan Stanley.

Just going back to the ATM discussion.

Can you talk about how much of the strength in the quarter was tied to upgrading of existing technologies, upgrading to Win 10 versus adoption of new technologies versus -- or like branch transformation?

Then I have a follow-up.

Yes.

I -- so we have this debate with our sales team.

So we call Win 10 a tailwind for our company, particularly in '19.

And while we have -- I don't know if Andre has exact number of the core installs, the core install or upgrade is a relatively -- it's a smaller transaction for us.

So we think what's happening is there's a little bit of core upgrades going on.

It's not a huge number for us.

But more likely, we're seeing people who have ATMs that are on the latter end.

So maybe instead of stretching to 10 years, they're 7, 8 or 9 years old and they're upgrading the ATM to a whole new device.

We think part of that is, again, we think the Series 80 we came out with last year, the demand, as you know, took off on a little faster than we anticipated last year.

We continue to see strength in that product.

So I think what's driving the numbers is more new ATM sales than strictly core upgrades.

Okay.

And Andre, can you just walk through some of the gross margin dynamics, particularly in Retail and Hospitality?

Just based on the comment, it sounded like hardware was weak, but then it doesn't necessarily connect to the fact that the margins were down year-over-year.

Yes, it's a little tricky and probably confusing.

You'll have to go back and listen as -- we had some onetimers to that impact of the revenue and the margin year-over-year.

But maybe I'll -- let me take you through Retail first and then Hospitality, if that will help.

So I think in -- first of all in retail, I mentioned we had a pretty good quarter and also -- but point-of-sale less.

And so overall, the margins were down.

I think the good thing, whether it's Retail, Hospitality or even ATMs, we're seeing a better overall pricing environment.

So we're not seeing too much pricing pressure across all the hardware lines.

That said, we -- and we're also improving our -- some of the hardware cost issues we had last year.

As Mike said, we're still on track to have a loss, which is in our plan this year.

But we've got -- still a little bit of residual overruns that are coming through that we didn't have last year at this time that is impacting the gross margins on the hardware.

So that's Retail hardware.

On the software side, again, we saw -- I think it's in my prepared remarks, we saw some revenue growth, but really more of a shift going on in Retail software.

Remember, we're now shifting to acquisitions.

JetPay accounted for more -- for a lot of our revenue growth this year, whereas we had a drop in licenses.

So we had -- overall, we had revenue growth in software, but we had a little bit of margin degradation due to the shift.

And then finally in services, again, we had -- we talked a bit a few times, we had this big implementation project last year in services that we didn't have this year.

So that dropped our revenue, but it actually improved our margin on services.

So you saw 2 things there.

You saw a drop in revenue, but an improvement on services.

So that was the Retail margin dynamic.

If you move then to Hospitality, to answer your question, you also saw -- I think I mentioned, you had some large onetime customers last year that didn't repeat.

So you had a hardware revenue drop that was also accompanied by a margin drop.

Again, for similar reasons, you still got some residual cost increases that are coming in this year that you didn't have last year.

On software, I think on Hospitality, is a pretty good story.

We had revenue growth.

I think we mentioned it not only from the acquisition, but also from our cloud business, Aloha and NCR Silver.

And overall the software margins in Hospitality were pretty flat.

So that was a good story.

And then on the services side, you saw a little bit of margin degradation, although the revenue was flattish and a little bit of degradation, but not too much.

So overall, I think a pretty good margin story, and again, a little bit of a -- most of the margin degradation coming from hardware side.

If I could just squeeze one more in for Mike.

There was a headline earlier that there could be strategic interests in the company, which I assume you're not going to comment on directly.

But can you just, from a high level, talk about how you and the board think the team is doing on the path to value creation?

Obviously, there's a lot more work to do.

But do you think the market is giving you credit for the execution thus far?

And if not, what are the avenues that you think about that could close the gap between valuation and fundamentals?

Yes.

I mean, I think that as you've seen us, we rolled out our strategy last November -- November 7, and have kind of laid out the focus on shifting, getting to more top line growth, shifting the mix to recurring revenues and shifting mix to software and services.

So that was literally fourth quarter last year.

We rolled that strategy out internally.

We obviously worked very closely with our board.

We mapped out a multiyear plan for how we get there.

And then we obtained and elevated our level of investment in our internal products as well.

You've seen us do a handful of acquisitions to continue to push to recurring and this shift to software and service.

But we know it's a multiyear path.

So I think again, we look at the first quarter results and we go -- we're going to make incremental headway on our targets.

I don't think we're going to try to get our words ahead of our actions and our results.

I think our board is 100% behind us on what it's going to take and how we're going to get there.

Our focus is executing on the products, executing taking of our customers and executing the plan.

I think our board understands that, that execution will yield value to our shareholders at some point in the future, and I think they're pretty patient enough to stick with us on that.

We'll take our next question from Matt Summerville with D. A. Davidson.

A couple of questions, first, just on sort of the Banking or ATM, I should say, order and backlog.

Can you get a little more granular from a numbers standpoint?

That's something you've been willing to provide in the past.

And then also in the context of the backlog, are you still shipping, for lack of a better term, delinquent stuff that in an ideal world still would have gone out last year?

Is that still a component of the backlog that you come into Q2 with?

Yes.

I don't know if I'd use the word delinquent, but -- so there's 2 parts.

So first of all, we did give a little bit of color on orders and backlog last year, I think, primarily because we were pretty open about the fact that we had some manufacturing transition issues to get our hardware out the door, particularly around ATMs and self-checkout.

We felt that the sales environment in our orders were strong, so we gave that color.

I don't -- we won't be giving that going forward.

I don't think every quarter we're going to share with you orders and the level of our backlog.

We'll give you directionally where it stands.

So I don't -- we ran into the year with a pretty strong backlog, which just helps us fill out our manufacturing, both the plants that we own as well as the plants that we leverage third parties for.

But I don't know if I'd say that there's a bunch of delinquent or latent demand, if you will.

I think demand environment has been pretty solid.

We feel like we've caught up with the backlog and the demand.

And now we're heading into each quarter, at least in the second quarter, with a pretty solid look at it and continue to see good order flow.

Then as a follow-up, you gave some color on the North American ATM environment.

Can you maybe talk about what you're seeing within EMEA, Asia Pac and Latin America?

And then I was curious as to whether the DI adds you mentioned, the 7 new customers, I was curious as to whether that's a gross or net number and if you see that kind of momentum continuing in the balance of the year.

Digital banking, that's a gross number, so it's new adds.

I don't have it in front of me, whether we lost anybody during the quarter.

I don't -- I'm not aware of any, but those are new adds, those are new sales victories.

I don't know, Andre or Owen, somebody want to give EMEA or...

This is Owen.

I'd just say from an ATM across-the-board both in North America across the various segments, we saw really positive momentum on both the installation activity as well as the order rate.

EMEA was equally very positive across all of the metrics that we would look at.

Asia was slightly off.

And we continue to see more of a softer Asian market.

But as we look across EMEA, South America, Central America and North America, we saw positive trends across all those markets.

We will take our next question from Dan Kurnos with The Benchmark Company.

Mike, just -- we saw there was a small -- another small acquisition.

You talked about kind of some more tuck-ins.

It sounds like the POS space in general has gotten, I don't know, a little bit more competitive.

I'd just love to hear sort of what you're seeing from sort of filling out that stack and kind of going to that one throat-to-choke philosophy here, how much more you need to tuck in, if you're sort of on pace to reach the target M&A for the year?

And then I've got a follow-up to that.

Well, the deal we announced yesterday was Texas P.O.S., it's a Houston-based reseller of Aloha.

And just a little background, so when Radiant started going out to market years ago, they used a distributor model, so think about it as the captive distributor, as a way to reach the marketplace faster by deploying a lot of capital across the whole country.

And I think that model works extremely well, and we still have a lot of distributors who are very integral to our success.

We actually had them all in about a month ago to meet with them and talk about our plans and our future.

So that will continue to be a big part of our business on the Aloha side with the distributors.

We've got a couple of opportunities.

The one we did in Denver last fall and then Texas P.O.S.

in Houston where we had distributors who were interested in kind of monetizing the business they had built, and we went and worked out a deal.

So a couple of aspects.

One is, anytime we get closer to the end customers and we have about half of our business in Aloha is direct, and the other half is through distributors.

So this shifts over to the direct side.

As we look at our strategy, you kind of referenced the marketplace is becoming more and more vertical.

And so as we look at our business there having direct access to customers so that we can cross-sell our Aloha Essentials, so we can cross-sell and integrate our payments offering.

So I think as part of our strategy, we'd like to have a more vertically integrated offering.

I think having access to our customers directly, we feel it helps in some aspects.

But again, we'll still have a large distributor segment of that marketplace as well.

Got it.

That's helpful.

And then just strategically -- look, I guess, to the potential strategic interest, I don't know that -- where banking would fit.

But obviously, on the restaurant side, we've seen -- and I think you might have even talked about this or asked you this to a degree or lesser degree last call.

But we've seen a bunch of the food delivery guys getting more vertically integrated, level up caviar, et cetera.

It seems like you guys, if you get large enough, have an opportunity to be maybe a partner with somebody else who -- or acquired or at least partner with somebody else, which would certainly benefit you with your analytics capabilities.

Are you guys -- is that a consideration?

Or is that in the game plan?

Or do you need to get, like you just said, more vertically integrated before that becomes maybe a reality?

Yes.

I mean, I think our model, say, in the restaurant -- to be a point-of-sale or to help them as they navigate into an environment where they have to handle kind of a multimode delivery model, integrate with the different access points that a consumer has to make those orders, I think we feel pretty good about our strategy to get there.

I don't know that we would say we have to be part of a service like that as opposed to being interoperable.

Our customers are the restaurants or the hospitality entities who have to operate in that mode.

So I think the technology we bring to them helps them compete.

I don't think I'd say vertically integrated within a specific food delivery service is really critical for our success.

We'll take our next question from Paul Coster with JPMorgan.

So you seem to be having a good deal of success in executing on your productivity initiatives, but I wonder how we're supposed to interpret them at this point.

Because for instance, on the hardware side, where I think everyone will acknowledge there's somewhat elevated demand at the moment, the net effects of the productivity is to reduce the loss by half.

And over on the send optimization side, the $100 million of savings is essentially being given back on real estate and personnel expense.

So are we just now -- is this sort of housekeeping and then we've got to wait for the growth initiatives to kick in?

Or do you think this is the starting point for another round of productivity?

Well, I mean, I think we've been pretty upfront about where we exited '18 and what the challenges are we faced in '18 and then what we felt we needed to do going into '19.

So the 2 areas you referenced, the one is the SG&A cost takeout, we needed to do that to address some decisions that were made in the past that were going to cost increase to us in 2019.

So we've done that.

We feel good about that to the extent that it's not necessarily a drop to the bottom line, we get that.

I think that's part of your point is that we're doing those cost actions to address some other costs that were fully onboard.

Same issue on the hardware.

We did not have a great year in hardware profitability last year.

And as we build the plan in '19, we couldn't get all the way to breakeven, but we took a big chunk out of it.

We believe we're going to take more than 50% of that loss out in '19.

And Andre talked about in the first quarter, we were right on the targets that we've set.

Any additional future actions, I don't think that's really what we're talking about yet.

I think right now, we're still focused on executing quarter-to-quarter, hitting our plan, hitting our numbers and delivering quite frankly to The Street what you guys expect.

And Paul, here's how I think about it in 3 buckets.

So first, at the hardware, I think we've given you our goal and that's to halve -- try to more than halve the loss in 2019 versus '18.

I think we said in our prepared remarks that we're on plan.

So we're feeling good about that.

Services, we didn't give you a goal, but I think you've seen historically the margin expansion.

And so we're hoping -- I think we've been more conservative in our revenue outlook, but we're optimistic that you're going to continue to see services margin expansion into 2019 as a result of those efforts.

And then finally on this $100 million, remember, we did $100 million, because we saw -- it was largely SG&A, because we saw SG&A tick up.

And actually if you go to your material there, you'll see that SG&A and R&D went up by about 1 point from '17 to '18.

The nice thing now if you look at Q1 '19, that same measure, we're down about 0.6% SG&A and R&D Q1 '19 to '18.

And then our hope is that we can achieve some reduction in that same measure for full year '19 versus '18.

So that's what we're going at.

We're offsetting the headwinds, as Mike said, but hopefully it's enough where we can get down maybe 0.1% or 0.2% on that measure by the end of the year.

Very helpful.

On the hardware front, if I may just ask one question there, the mix of customers in this first quarter, did it shift towards Tier 1s in the Banking sector?

Or did it go down market?

Was there any customer concentration that you wanted to call out?

Yes.

This is Owen, Paul.

The mix on the Banking side in particular was -- continue to be well-balanced, especially in North America.

So we had a handful of our Tier 1 clients.

But I would -- momentum in our namer accounts, which are the middle market accounts, strengthened in the quarter.

And we saw that with the backlog and order rate that came out of the first quarter.

And that was true overseas as well, so no imbalance of concentration.

And we'll take our next question from Rob Wildhack with Autonomous Research.

I wanted to get your thoughts on self-checkout and POS in the quarter.

What are the drivers of the decline here?

And then what's your outlook for those products for the remainder of the year?

Yes, I mentioned self-checkout.

We talked about strength that we had.

We had good orders, I think, particularly coming from European market.

I think you mentioned that.

And then likewise, I think on point-of-sale, we had very strong orders last year -- revenue, I should say, that didn't repeat this year.

So we had a difficult comp that we were going after.

That said, if you -- we did say I think in the prepared remarks that the combination of self-checkout and POS was down slightly.

But you have those 2 dynamics that were going on to deliver a slightly down year-over-year for the quarter.

And we remain focused on the outlook for the year in both SCO and POS to be on plan with their numbers.

We would expect growth on both product lines.

The combined first quarter, we were down 3% between SCO and POS.

But again, order rates were positive and from our outlook for the year, we're feeling comfortable with playing that card and that calls for growth on both.

Okay.

And then just on the payments business, can you talk about the attach rates for JetPay and the results you're seeing with that business so far?

Yes.

I mean, we're still in very early stage.

But we did that deal fourth quarter last year.

We moved quickly to start to integrate JetPay with both Aloha and Silver, so the Hospitality side, and then Silver the SMB side, and we've done that.

We've got some customers up and running.

The team is building on use cases, so we can do a broader set of transaction.

And then as we talked about later this year, it'd go GA probably end of second quarter into third quarter.

And then we'll start rolling it out more broadly.

So right now, the volumes of growth on the payments are de minimis.

So there's not much payment growth revenue in the first quarter for us.

I'd like to turn the conference back over to Mike Hayford for closing remarks.

I want to thank everyone today for joining us.

In closing, we're pleased with the progress we made in this first quarter.

We remain focused on our goal, which include our commitment to generate profitable growth, investments to drive a mix shift to recurring software and services revenues and enhance free cash flow generation.

Again, thanks for joining us today.

Thanks for your time.

We look forward to speaking with you on our second quarter call.