Q2 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to today's NCR Corporation second quarter fiscal year 2019 earnings call.
As a reminder, today's conference is being recorded at this time I'd like to turn the floor over to Mr., Michael Nelson Vice President of Investor Relations. Please go ahead Sir.
Good afternoon, and thank you for joining our second quarter earnings call. Joining me on the call today are Mike Hayford, President and CEO I wouldn't sell then see.
Yes, 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 are 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 FCC, 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 July Thirtyth 2019, and on the Investor Relations page of our website.
A replay of this call will be available later today.
Our website NCR dot 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 second 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 updated outlook for 2019.
Then Alan Andre and I will take your questions.
I'll begin on slide four and an overview of our second quarter performance, we continue to drive improved execution and our second quarter results exceeded our expectations.
We generated consolidated revenue growth of 14% on a constant currency basis with higher revenues in each of our segments.
A key driver of our second quarter performance with strong results in our banking segment, where total revenues were up 23% constant currency and ATM revenues were up 78%.
Constant currency.
The strong ATM revenue growth was driven by strength in the Americas and Europe . This was supported by increased ATM related software and services revenue growth.
This quarter, we also made progress advancing our strategic growth platforms as well as staying on track for a broader integrated payments processing platform launch later this year.
We also successfully targeted inorganic M&A opportunities that are consistent with our digital first and recurring revenue focus.
Finally, we are raising our full year 2019 revenue outlook and reaffirming earnings and cash flow guidance.
Andre will discuss this in greater detail during his remarks.
Moving to slide five and an overview of our financial performance in the second quarter consolidated revenue was 1.71 billion up 11% as reported and up 14% on a constant currency basis again, the strong top line performance was driven primarily by our banking segment.
Adjusted EBITDA increased 12% compared to the second quarter of last year.
non-GAAP EPS was 76 cents per share, which was up 17% as reported and 27% constant currency.
FX headwinds lowered EPS by five cents year over year.
Lastly, free cash flow was $9 million, which was down from 27 million during the second quarter of 2018 due to higher working capital.
As a reminder, our historical free cash flow at linear already include higher working capital requirements earlier in the first half of the year, we remain confident in our full year free cash flow guidance now turning to slide six and an update on our strategic growth platforms. These are the six areas, where we are accelerating investment with the goal of advancing our shift to higher margin recurring software and services revenue and driving accelerated revenue growth in the future.
We're making steady progress on the journey to bundle solutions that drive a shift to subscription pricing.
Our goal is to provide a better purchasing experience for our customers and simplified quoting a configuration process for our sales team.
Which should lead to profitable growth for NCR will begin with digital first banking, where we continue to see improved organic growth. We recently shifted eight products from perpetual licensing to recurring continuing our journey to become a recurring software and services led company.
We also acquired D. Three technology earlier, this month, which extends the reach of our digital banking solutions.
In digital first restaurant, we recently launched Aloha, Essentials, which bundle software services hardware and payments and have received positive customer feedback.
We've been making steady progress on the well has migration to the cloud with general availability targeted for early next year.
In digital first retail Emerald, our next generation cloud based retail point of sale solution is currently in pilot and on track for general availability later this year.
We've created an offering that includes all the essential is required to run at a grocery retail environment, including point of sale loyalty payments and frictionless shopping components in digital connected services, we continue to expand our customer base.
A top U.S. Bank recently selected NCR digital connected services capability for multi vendor service for the bank's fleet of more than 12000 ATM.
Our digital connected services include a portfolio of managed and support services that will help the bank reduced total cost of ownership drive higher ATM availability and enhance the customer experience.
In digital convenience and fuel we have created a package bundles of software services and hardware required to run a convenience in fuel retail chain and finally.
In digital small business essentially we launched NCR silver one all in one point of sale solution that integrates payment processing with NCR silver in their monthly subscription package. Overall these six strategic growth platforms. All remain investment priorities for NCR as we look to strengthen our software and services products for sustainable long term growth and increase in recurring revenue.
Now to slide seven we made great progress in our payments business during quarter, two and continue to execute the plan.
We have completed payments integration for NCR, silver and ARINC control deployment with a broad array of customers.
Our integrated NCR silver one offering is scheduled for general availability in August .
In parallel we are executing on our plan to integrate payments with Aloha and well be moving to a controlled deployment in the fourth quarter.
We have begun planning payments integration with other NCR Pos systems that serve other market segments.
We anticipate further profitable growth in our payments business as we penetrate additional market segments with those systems. We look forward to sharing more about these plans in future earnings calls.
Now turning to slide eight and an update on our recent M&A activity.
Our recent acquisitions are consistent with our strategy to add to our software product portfolio.
Further expand our global distribution and increase our services revenue.
Earlier this month, we announced the acquisition of D. Three technology, a provider of online and mobile banking solutions for the large F.I. institution market.
The addition of D. Three immediately unlocks new market segments for NCR digital banking, including large U.S. banks and eventually expansion into international markets.
Several months ago, we acquired Texas, Pos, which increases our sales and services presence through a local office in the Texas region.
Allowing us to reach more customers with our expanded product offerings.
We will expand the reach of our services offerings in Brazil.
Through the acquisition of Oaky, Brazil, I T services.
Upon closing this transaction will allow us to deliver expanded service offerings, including additional support options for banks retailers and restaurants.
Finally, we recently announced our intention to purchase of minority interest in NCR mouse that is indirectly owned by Banco Bradesco.
Once approved under local requirements. This deal will enable NCR to more broadly service our customers in Brazil by leveraging our manufacturing and engineering operations.
With that let me pass the call over to Andre.
Thank you Mike.
Slide number nine shows our banking segment results.
Banking revenue increased 23% constant currency led by a 78% constant currency increase in ATM revenue driven by both higher backlog conversion and still healthy order rates.
Software and services related to H <unk> also contributed to the year over year increase in segment revenue and we grew our hardware maintenance backlog of future annuity stream, both from the ATM revenue and several meaningful large customer wins in the quarter.
We are seeing a stronger than expected ATM replacement cycle. In addition to win Chen upgrades with particular strength in the quarter in the Americas and in Europe .
Operating income increased 47% constant currency, driven by higher volume and a favorable mix for our ATM as well as higher software margin pull through from the ATM.
And lower third party content on non ATM software sales.
As I just mentioned, we continue to see strength in both orders and backlog in our banking segment.
Additionally, our digital banking unit is poised for its next phase of growth with the addition of Omaha based D. Three technology to our digital banking business.
Now moving on to slide number 10, which shows our retail segment results.
Retail revenue increased 6% constant currency helped bio jet pay acquisition, which represented about two points of this growth.
In addition, our self checkout solution recorded solid revenue gains in the quarter. While the services side also grew due to higher hardware maintenance activity, both driven by customers in North America.
Operating income increased 14% constant currency, primarily driven by services productivity improvement initiatives, partially offset by jet pay related expenses.
Slide number 11 shows our hospitality segment results.
Hospitality revenue increased 3% constant currency driven by an increase in cloud revenue from our NCR silver and Aloha products as well as payments revenue from our jet pay acquisition.
Operating income decreased 36% constant currency driven by an unfavorable revenue mix and continued investment in customer satisfaction initiatives, including our channel programs.
We're also investing in programs to enhance our technology and shift of revenue to a recurring model, which includes a low has migration to the cloud.
During the quarter, we launched bundled subscription packages via our Aloha Central's offering.
Although there was minimal financial impact during the second quarter from the shift to subscription pricing. The change is a strategic focus for us as we will look to accelerate the investment in these programs.
Now to slide number 12, where we probably have a second quarter revenue results under our previous operating segments.
Software revenue increased 7% constant currency, driven primarily from our jet pay acquisition as well as ATM related software revenue.
Services revenue increased 5% constant currency, driven primarily by an increase in recurring maintenance revenue, while both our installation and hardware maintenance backlogs grew in the quarter.
And finally hardware revenue increased 33% constant currency, driven primarily by ATM revenue growth of 78% constant currency, while by combination of self checkout and point of sale added additional growth.
On slide number 13, you can see free cash flow net debt and adjusted EBITDA for the quarter.
Free cash flow was $9 million in the quarter down from $27 million in the prior year due to higher accounts receivable as a result of increased billings.
We exceeded our internal plan this quarter and remain on track to hit our free cash flow target for the full year.
Slide 13 also shows our net debt to adjusted EBITDA metric with a leverage ratio of 2.8 times for the second quarter of 2019, which is down slightly from 2.9 times at the end of the first quarter.
With no share repurchase this quarter.
Good cash repatriation and limited M&A activity as our acquisition of D. Three technology closed early in the third quarter.
We were able to reduce our leverage sequentially from the first quarter.
We are comfortable with our current debt leverage and maturity profile.
Well, the next maturities and our debt to stack or not until early 2021.
Oh, the bank pro rata and high yield bond markets are strong at the moment for our company with our credit profile and we believe represents a unique opportunity to refinance a portion of our debt.
As a result, we have initiated conversations with several members of our bank group and are proactively evaluating alternatives to optimize our debt capital structure in light of these favorable market conditions.
While the exact instruments pricing and tenors are being evaluated.
It is possible that we will complete a portion of this debt refinancing by the end of the third quarter.
On slide number 14, you will find our full year guidance for 2019.
We are raising our revenue growth guidance to a range of 3% to 4% up from the previous range of 1% to 2%.
The increase in guidance is primarily attributable to our solid revenue performance through Q2, driven primarily by higher ATM sales.
Recall the margin on these sales is lower than the company average, which will limit the flow through to EPS.
Also included in this revenue guidance, our expected FX headwinds of approximately 1.5%.
Although it could trend slightly higher if the dollar strengthens against other major currencies due to the global nature of our business.
Also 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 overtime.
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 second quarter as we move through the remainder of 2019 and beyond and roll out our new offerings, well update you as to our progress as well as the impact of the shift on our financials.
We are reaffirming our full year earnings and cash flow guidance.
We are also seeing the benefits of cost actions taken in the last several quarters, including the $100 million action taken at the end of last year.
In the second quarter operating expenses as a percentage of revenue was down 130 basis points constant currency year over year.
Although we expect further benefits, we will continue to invest in solutions that enhance the competitiveness of our products and an effort that improve customer satisfaction.
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 cents to two dollar and one son 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 153 million shares.
We enjoyed a lower tax rate in both the second quarter and the first half of this year.
Due to several discrete tax items that are not expected to repeat in the second half of the year.
Our guidance includes roughly five cents of dilution in the second half of the year related to our acquisitions year to date, while excluding any costs that may result from a potential refinancing of our debt.
Again, we expect free cash flow for the year to be in a $300 million to $350 million range.
We expect the linearity of our cash flows to follow a similar pattern to previous years with a majority of free cash flow generated in the fourth quarter.
The fourth quarter will represent a tougher revenue comp for us due to the revenue strength, we recorded in the fourth quarter of last year.
We expect approximately 23% to 24% of the full year EPS to be generated in the third quarter.
Our banking segment should have another strong revenue quarter in Q3, driven by our increased ATM backlog position.
With that I will turn it back to Mike for closing comments.
Thanks Andre.
In closing we delivered a solid first half the 2019 through improved execution and the relentless focus on our customers.
We will continue to invest in the strategic growth platforms that will help power the future of our industries and customers.
The targeted investments in our key growth initiatives will be supported by the broader roll out of our integrated payments platform. Later, this year and an ongoing commitment to driving productivity enhancements across our operations.
In addition, we are unlocking new markets for our solutions through strategic tuck in acquisitions and further advancing our mix shift to software services and recurring revenues.
All of this is consistent with our goal of building a stronger NCR. We've made notable progress strengthening our foundation for sustainable long term value creation.
The entire NCR team enters the second half of the year with a clear commitment to delivering competitive differentiation and success to our customers. Thank you for your time and now Andre Cohen and I will take your questions.
And ladies and gentlemen, if you do have any questions. Please join the queue by pressing star one on your telephone keypad.
And just make sure that your mute function is turned off.
So that we can receive that signal once again Thats star one for any questions well pause for just a moment.
[noise].
Okay, and first from RBC capital markets, we have Dan Perlin.
Thanks, Good afternoon, guys and congratulations on a nice print obviously there'll be a lot depends on the ATM, but I wanted to start on the area that looked a little weaker to us which is really in in hospitality and specifically I'm just trying to make sure I understand how the cadence of that business segment transitions.
From legacy license on a low onto more these recurring revenues and the margin in the quarter was was definitely a below our expectation and you called out mix, but I'm. Just wondering if you could put a little finer point on that and then how that might shift in in the back half of the year as you make that transition.
Yes, Dan Thanks.
Say two things on hospitality the first one I'd say is.
Maybe impacting margins is this we continue to focus on and Thats predominantly the restaurant business focus on customer said execution and we've put a little money into that this year, which is bringing down the margins a little bit.
And that was something we did.
By design.
And then secondly on the transition.
Andre talked about his comments that were continuing and I spoke to some of the specific products that we've rolled out.
Were continuing.
And second quarter, we did a number of different areas, including the Aloha, essentially where we started bundling and selling it on a monthly basis.
Those those numbers that we saw real through where we are in the bandwidth that we expected for the second quarter and we expect to see that for the full year in the guidance that weve, given just to see the kind of numbers and the impact but that's how it does have an impact when you look at year over year.
We are taking some what would have been sold as a license or a hardware upfront and we're rolling that into monthly subscription fees in hospitality. So.
I don't think there's anything for us that is of concern.
We know we've got to focus on customers customer set we know we have to focus on getting our next gen product out and at the same time, we're shifting the whole model for how we sell and and book revenues.
Great and if I could just yet.
Sorry, I was just going to say the third leg of that stool is the channel strategy. So we've spent a fair amount of time, along with the customer sat.
Challenges and issues in responding to that money behind that is it.
Addressing the channel strategy and I think there were some our view was there were some steps missteps in that area. We're trying to resolve those invest back in those and so theres some effort going into that group as well and we feel good about the progress we're making there.
Mark can just shift gears for a second and digital first banking, you're talking about a client I guess converting over to recurring revenues I'm wondering.
You have a D. Three now and then your digital insight I'm trying to understand kind of the interplay between those two I think that go after different sizes of the market.
And I'm, just wondering what kind of.
What kind of success you are kind of happening with.
And with the digital banking strategy in the quarter around Dci and then how that again kind of dovetails into ddrthree.
Given their different size banks. Thanks.
Well kind of two different questions you have they want the one on the eight that converted those where software license deals that we typically had in perpetual they're not done that really in digital banking to not India.
But theyre in our other suite of products that we go to market around the globe and we have.
Again made a conscious decision not to sell perpetual license so as we.
God market during the quarter, we would sell and recurring to us we'd like to do monthly subscription.
Or will do term if we have to be some kind of how the market how the customer wants to purchase.
So thats those eight so those were not related to the deal.
We had a really good sales quarter in the first quarter, we had really good sales momentum second quarter I don't think we announced a lot of new deals, but I think we feel pretty good about where that product is today particular versus a year ago in terms of product feature function. We've addressed a couple of areas that we felt competitively we needed to address we've put money into that we've rebuilt the team we've rebuilt the sales channel and.
As we go out and compete with some of the.
Newer companies out there, we actually think our project has a deeper.
More rich feature function and we've got a really strong platform is on delivering support and install a customers. So d. I will continue to get investments and in a focus.
On a segment the market that went to shared platform that gets them a really cost effective very strong feature function product that we feel is one of the best out there.
The three is going to focus on larger f. size in the US. So think 20 30 billion dollar utilize who won a customized platform. When we take our code that is also a cloud products. So it's going to run as a subscription product and then we eventually plan to take that into the international markets, where today, we do not have a.
Digital banking offering so thats going to be a new market for us.
Great and if I could just one quick one to Andre on the on the potential debt refinancing is there.
Is there any thought to taking advantage of.
A bridge now it's also kind of plug the unfunded pension liability with that and.
Jump off thank you.
Yes, I mean, its a listen I think when we when we project out the cash flows. We've got are we know what our pension required pension contributions are going to be because the pattern has been de risked and it's largely fixed income. So there are fairly set in stone, so they're not really sensitive to interest rates or what have you. So and those are pretty manageable I think until I think 2000 2020.
2021 is one the first starts at something around maybe $30 million and then it goes up to around 100 million after that and then stays at 100.
Few years, so I guess, just when we think about the capital structure. We we know listen we've got some required contributions that are going to be a use of cash flow in those years. So so we just need to make sure that we've got the appropriate.
Liquidity or at work and to build to build back payment into the covenants I don't think we're at we're looking into anything specific in any new credit package around the pension other than just to make sure that we've got sufficient liquidity to address it.
Thank you.
Sure.
Moving on from D.A. Davidson, we have Matt Summerville.
Couple of questions can you maybe talk about put some numbers to what you kind of saw from an incoming order rate and where your backlog stands in the ATM business and just for context kind of where you think we are at in the overall cycle here in the Americas and Europe .
Yes. This is Owen.
I would say as we look at the backlog and and the order rates, leaving the first half.
Both.
Are up year over year, and we feel good about that momentum.
From our perspective, North America, and Europe has continued to be very strong.
And and they were strong in delivering on the quarterly revenue. They are also strong in terms of the order rate and.
The backlog.
Conversion activity so.
Our view is we're getting participation from all of the key regions. We're not seeing the same kind of growth and haven't been quite honestly over the last several quarters out of the Asia Pacific market, but Europe and.
North America, even South America have been strong for us.
Where we are in the cycle, we clearly are seeing some win 10 tailwind.
We have a lot of internal discussions as to where we are in the cycle I would say, we're still early to mid cycle relative to the win win 10 activity.
We're seeing an awful lot of refresh.
Decisions being made by those clients that are dealing with the win 10.
Upgrade as opposed to just replacing the core which has been good news for us but.
Yes, I would say, we feel good with orders and with backlog going into the third and fourth quarter.
And then as it pertains to the hardware business year to date.
What's the score card look like in terms of how that business is tracking from an operating loss standpoint versus the prior year.
Yes, so we said that coming into the year, we were looking to cut our losses in half.
And our assessment right now at mid point, the team's doing a good job and we feel like we're on track to to beat and and hopefully improve on that.
Thank you.
Yep.
And next from Northcoast research, we have Kartik Mehta.
Hey, good afternoon wanted to just make sure on the outlook for 2019, obviously raised revenue guidance, but didn't raise as an is that strictly a function of all the hardware and the margins.
But youre or do you feel like now you will be at the upper end of the guidance from an EPS standpoint.
Yes, Kartik I think you hit hit it right on the head so as Owen said our plan for the year is to reduce the losses that we had in hardware last year and quite frankly to cut in half, which is a big step, but it's still it's still a loss our long term goal is to get that back to.
At worst neutral, we'd like to make some profit in hardware.
But as we as we have strong numbers that we saw in the second quarter, we have strong numbers through the first half of the year a lot of that hardware driven revenue.
And so that hardware revenues coming on at a negative margin. So it's coming on at loss pennies of loss.
It drags in.
Attached software, which obviously has a positive margin. So you can almost think of those as netting each other off.
Apart a little bit and then I'll turn it over to Andre We live a few other things that is hitting us a few pennies here and there, but we feel good about the how the revenue and the growth.
I actually feel very good about that through the first half of the year and.
As we said we think for the full year, we raised our outlook based on that.
But from an earnings perspective, it's not it's not really driving additional earnings that aren't being offset by a few headwinds. Yes, just just adding we said in our prepared remarks that the are in your acquisitions are dilutive I think we said to the tune of about five cents and thats pulling us back a little also recall night on my prepared remarks, we took up the share count a little bit from 151 million to 153, that's just timing of share repurchase but over the year that slightly dilutive thats about.
At 53 to about three three cents.
Headwind.
And then and then a little bit more FX seems like in particular, the euro has been a little bit weaker we're very international euros, probably our largest exposure. So what was about a 1% headwind on revenue that we built into our plan is probably more like 1.5% on revenue and maybe a few more cents headwind on EPS. So so I think the combination of those three makes us a little bit more cautious about taking up ticking up earnings at this point.
Okay. Thank you.
What about the payments business as you look at jet and the integration where do you think that business can start having a positive impact on margins.
Well, we I mean, we talked about this kind of the timing of the sequence.
In our in our statements there.
So we'll continue to make progress second quarter, we attached and rolled out silver one which is the pillar product silly ship silver out the door will attach of payments.
We're well down the path of attaching our payments two aloha and getting ready to roll that out in the second half of the year in GA. So we knew we had some work to go on a number of fronts.
Obviously integrating the products, adding some capabilities to differentiated products.
When we go in the market, we can do some things.
With restaurants and with retailers.
And then.
And then obviously, we have built the operational backend because now we're underwriting.
All these customers so.
We're tracking right. The planned second half of the year get to GA, So you're going to see it start to tick up its one customer at a time, it's a recurring revenue stream, we think it clicks as they come through.
The new customers will get payments when they buy our products and by our Pos products, whether its restaurants or retailers.
And then we will also go after existing customers and trying to convert an up sell them to our.
Payments offering, but thats, obviously going to be.
A little bit more of a challenge and it will come in quarter by quarter, So you're going to look into 2020.
And we'll give you.
Now as we look so I was going to 2020 and Tim what those numbers would mean, but it's still up in the future a bit.
Thank you appreciate it.
Ladies and gentlemen, once again Thats star one for any questions next we have Dan Kurnos benchmark company.
Great. Thanks, Mike if I could just follow up a little bit on that.
Just in terms of the customer reception and the switch it sounds like from your last response that maybe waiting for licenses to come up but.
Just wanted to make sure there is no like incremental churn as you go from perpetual to monthly and just how that's being received and then you talked earlier about some of the customer sat stuff.
Obviously, you inherited a lot of issues I'm just curious how much more runway you think you have before that starts to trail off.
Yes, let me just kind of.
Kinda go backwards for the question. So I think the team's done a really nice job.
We've put a high high focus on customer and customer sat taking care of our clients one one client at a time and.
Yes, you have to fix each product we have to go out to the market in some cases, we had to go out where we maybe had done the best of implementing and go up and correct. Those things. So I think every literally every month, we get better at that.
Credit quality, we're shipping is much better today than it was a year ago.
Customer sat we shifted our our measurements to MPS is here. So we're we're asking them will they recommend entaire has a partner in that so an improvement year over year and so we feel good about that there is I would say some more work to continue and some areas are ahead of others, obviously manufacturing side did a really nice job year over year and some of the work sounds who had last year and you can see by just the volumes that were shipping that we've.
Address that.
We've got pockets like digital banking has done a really really good job of restoring confidence of our customers and restoring confidence.
Of the marketplace in our in our digital banking products.
We're still working as we talked about in hospitality and restaurants, and then we've got some of our retail products like Emerald, which is a cloud based.
Point of sale product that were rolling uncontrolled deployments. So we still have some work to go I would say that were done, but we feel pretty good and obviously.
Our clients are going to buy from us if they are dissatisfied with our credit quality or service. So.
Our service team Global services professional services have done a really nice job as well.
In terms of so the recurring shift I think you're probably referencing aloha essentials and going out there. So.
As we sell Newland that package is actually very well received some of our competitors as you might be aware on the lower end of the marketplace have already gone to market with a bundled offering I think our bundled offering is more complete because we can bundle literally every piece of hardware in a restaurant.
All the software.
And then a service component to install operate and support that so.
We feel pretty good about that offering and the reception has been.
Strong.
When we bring when we go for upgrades and renewals, we will try to convert people from a perpetual product to a.
Subscription based product you have to remember, though in in the low hub product base, a big piece of that revenue today is aloha cloud. So a lot of the products already delivered in the cloud.
Format.
And then again all the payments when payments come onboard they will all be subscription by by their nature.
Got it that's helpful. And then just on on sort of the new offerings you go to market.
I've asked this question a few times in the past, but now it seems maybe a little bit more.
Timely just in terms of the analytics offering that you can provide to the table here to your restaurants other its threepi blind date or whatever it is it seems like you could kind of layer that in in terms of incremental upsells. So is that something that you're thinking about as you as you go through layering in the payments integration bundle, especially on the restaurant hospitality side.
Yes, absolutely I mean, we've got some really nice tools has got a really nice mobile app that we give to our clients. So again our clients the restaurant space are.
The a lot of them are the higher end full table service customers, where they might have.
A grouping of five or 10 restaurants, and we've got some great tools that we're rolling out we're on your.
On your mobile phone, whether it's a Mac grills for Apple or Android you can actually get an update on status and it'll actually do some trending for what's actually selling or competing we're looking at how do you add external data that so you can actually do trends in the neighborhood or from your location.
But that those kind of things, where we have a lot of data or data rich in that regard and adding analytics are a big focus of that team.
Great and then just last one if I could squeeze one in for Andre did you mention how much the new acquisitions are expected to contribute in the back half of the year, both either dilutive to EPS and or from a revenue perspective.
Yeah, We said in your in your acquisitions, the most materially all of which is the three which closed early in July not in second quarter. So we said that will be about five cents is that is the sum of all the in your acquisitions.
Three being the most significant of them.
As a.
Yes, I got it.
All right. Thanks, guys appreciate it.
Thanks.
And next we have Paul Coster with JP Morgan.
Yes, Thanks for taking my question. So it sounds like the gym business was stronger than expected what was the nature of the upside surprise was.
Was there a specific reason for or specific market segment market share. Once it was all windows 10, driven.
Well you know I don't I don't know that we have a specific reason the own talked about the markets obviously.
Europe was very strong for us.
In North America is very strong for US we've had good success in Latin America. Good success in EMEA in the Middle East.
So we always go through this debate, we talk or sales team how much is when 10 versus how much is renewal cycle you still have some branch transformation, taking place I'd say more than some where banks and credit unions are rolling out ATM or items interactive teller devices are replacing drive through lanes.
Putting the front of their branches. So I think it's a little bit of all those things and obviously then when 10 as they look at.
Needing to upgrade and making a decision is an ATM is there any ATM at end of life or these two core upgrade and we've seen more replacement with new ATM than Weve seen core.
Upgrade so.
Yes stronger than probably we anticipated going into the year, but we're pretty pleased with.
The results.
Yes, the other thing I'd say, Paul is that the the confidence within our sales team and within the marketplace that we've addressed the production issues, both ability to deliver and the quality.
You can feel that resonating throughout the organization. So there is a there is a step.
And that the organization is now feeling, especially with the 80 series model being out in the market and the marketplaces, giving strong validation and they had to the product now that we are delivering the on time and with the quality I think everyone is feeling good about it and you can see that coming through in the numbers.
Sure sure sure the feedback loop will be very positive as well.
The.
The software.
She has to these gyms boost the revenue recognition take place in the same quarter or is it really sort of on the like what you see in other words, so we so setting up to a higher margin.
Revenues associated with the software that flows through in 2020.
Well the Soffe the software.
On the attached soft because the ATM as is booked as a license upfront over time, we may look at whether we can.
Well thats, a subscription very announce booked upfront services, which will become part of recurring revenue stream.
Going forward.
In year, and it varies by customer and by region.
There's anywhere from a three or six or 12 month warranty period, where we we provide services, but we don't get paid an additional fee outside of what we got paid for the ATM. So it does build a backlog of service revenue growth that will start to hit us next year.
Yes, so just adding I think.
You might you might see I think it was on page 12, you got services revenue only up 5% constant currency, but remember that.
In some of these the installation is not happening until months later, and then and then the maintenance stream won't happen until the warranty period, and so you could have a maintenance stream, it's not even starting until after a year out. So the good thing now because all these hardware hardware sales, where we are building a backlog pretty nicely that will set us up well for the future.
All right.
My last question, so it sounds like you're pretty confident that the three.
That's got some traction this confidence originating from business that was already in the Portland form of requiring through as it develops.
Yes, I mean, how how how are you able to expand backlog. So quickly it is the latter.
Not accurately at so I think we're excited about DC, but I think those comments from are related to digital insight and the product that we've had out there.
In some of the improvements we've made so yes, we're very excited about where that's going to be positioned and where we can take a both in larger size and international but it will become part of our digital banking offering and again right now.
What we've done to digital insight and restore the confidence of our customers and.
And really we still are the confidence of the marketplace is what what the comments regarding.
Okay got it thank you very much.
Thanks.
Dan from Morgan Stanley , we have Katy Huberty.
My second question has to do with revenue in the in the second half so.
Your full year revenue guidance of 3% to 4% assumes a deceleration from the 6% in the first half.
So how do you see that deceleration spread across three Q4, Q and is a deceleration all ATM driven or do you see slower growth in other segments as well. Thank you.
Bob I'll start with free cash flow. So it was a it was down year over year, but remember we had a we had a significant revenue and billing quarter. So temporarily remember that impacts working capital. So we felt a lot. The receivables are are high and that's why that's a better use of cash on the receivables, but I think I mentioned in my prepared remarks, even making $9 million free cash flow in the quarter was better than our internal plan because we typically don't generate cash for really much most of the third three core first three quarters of the year and then we generate all of our cash in the in the in the fourth quarter. So that was very much.
Very much.
On track and I think the full year cash flow. We're still we said we're still reaffirming the three to 350, our free cash flow and that's in line with reaffirming the EPS.
And on the revenue question I mean the.
I'd say kind of nets out to wait led a very strong start to the year. We've obviously bumped up our outlook, we have a pretty.
Difficult comp in the fourth quarter difficult because we had a very very strong fourth quarter with hardware, specifically ATM sales in the fourth quarter of 18, so while we still expect the second half to be as we expected to be to be a real solid finish to the year. The first half was a little bit faster growth than we had anticipated and for the full year were going to have a.
We see a stronger year than we had originally started with.
Great. Thank you.
Okay.
Okay and it looks like that does conclude our question and answer session I'd like to turn the floor back to Mr., Mike Crawford for any additional or closing remarks.
Thank you in closing I'm proud of the progress we've made in the first half of the year.
We are clearly in the early innings of a multiyear strategy, but we remain confident that our strategy will create long term shareholder value.
We continue to improve execution with the goal to drive a mix shift to recurring software and services revenue and enhance our free cash flow generation.
I am very proud.
The work that our entire NCR team did.
And for their focus on taking care of our customers and continuing to improve our products and services.
Thank you everyone for joining us today, and we look forward to speaking with you on our third quarter call.
Yeah.
Once again, ladies and gentlemen that concludes our call for today. Thanks for joining US you may now disconnect.