NCR Voyix Corporation (VYX) Q1 2012 Earnings Report, Transcript and Summary

Welcome, and thank you for standing by. [Operator Instructions] I'd like to inform all parties the call is being recorded. If you have any objections, you may disconnect at this time. I'd now like to turn the call over to Gavin Bell, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Kimber. Good afternoon, everyone, and thanks for joining us for our First Quarter 2012 Earnings Call. Bill Nuti, NCR's Chairman and CEO will lead our conference call this afternoon. After Bill's opening remarks, Peter Dorsman, Executive Vice President of our Industry Solutions Group and Global Operations, will update you on progress with respect to certain key initiatives. Bob Fishman, NCR's Chief Financial Officer, will then provide comments on NCR's total company financial results. Our discussion today includes forecasts and other information that are considered to be forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to vary materially. These risk factors are described in NCR's periodic filings with the SEC and in our annual report to stockholders. On today's call, we will also be discussing certain non-GAAP financial information, such as free cash flow and results excluding the impact of pension and other items. Reconciliations of non-GAAP financial results to our reported and forecasted GAAP results and other information concerning such measures are included in our earnings press release and are also available on the Investor page of NCR's website. A replay of this conference call will be available later today on our website, ncr.com. For those listening to the replay of this call, please keep in mind that the information discussed is as of April 19, 2012, and NCR assumes no obligation to update or revise the information included in this conference call whether as a result of new information or future results. I'll now turn the call over to Bill.

Thank you, Gavin, and good afternoon to all of you and thank you for joining us. NCR delivered a terrific first quarter. For those of you who tuned in to our fourth quarter call a few months back, you will hear a lot of the same messages today, and that's a good thing from our point of view. Our first quarter performance came in ahead of our expectations pretty much across the board as our global teams continued to deliver profitable growth through market-leading innovation and superior customer experience. Total company as reported revenue increased 18% year-on-year, 19% on a constant currency basis. In addition, we delivered strong solid organic growth of 8%, excluding the Radiant acquisition with growth coming in all markets. We delivered Q1 records in gross margin and NPOI margin and produced $48 million in free cash flow. In short, the company is executing very well. The results suggest that the momentum we've seen over the last several quarters continues at a strong pace and as a result, we raised our outlook for 2012 for revenue, NPOI and EPS in a pre-announcement earlier this week. Our core business pipeline remains robust, particularly in Financial Services where we added to our backlog and generated 17% order growth in Q1. Total order growth was 5% during Q1 compared to a difficult prior-year compare. Backlog at the end of Q1 was $1.17 billion just shy of an all-time Q1 record by $7 million. It's also our 10th consecutive quarter where we have delivered year-over-year backlog growth. I want to remind you that our reported order growth and backlog does not include Hospitality, which understates these year-over-year comparisons. The Hospitality line of business generated multiple notable customer wins during Q1 and which we believe will be valuable contributors to our growth profile this year and in the future. Overall, the sustained growth in our business pipeline is indicative of NCR's ability to deliver proven value to customers' worldwide market through leading technologies that offer tangible productivity gains, robust multichannel integration capabilities and help enhance the customer and consumer experience. This value proposition successfully positions our customers at the intersection of technological advancement and consumer transaction preferences and is winning us business across each vertical we serve. We also continued the migration of our revenue mix towards more profitable software and services revenues. During Q1, our software and Software as a Service revenues increased 65% year-on-year to over $120 million, with software gross margins above 70%. We see NCR's future as a hardware-enabled, software-driven company, and we are on track to execute our goal of achieving software revenues in excess of $500 million this year or approximately 8% of total revenues. Another key contributor to our gross margin expansion is our services business where revenues increased 12% and gross margin was up 440 basis points year-over-year. We continue to win services contracts on a global basis, and our file value or services backlog is growing. Remember, file value and backlog are synonymous in the services business. In addition to our strong financial performance during Q1, we further strengthened our global leadership in our core financial and retail verticals, while capturing incremental share in Hospitality. This is consistent with our sharper focus on the core of our business. We are leveraging our competitive advantages and global market capability in financial, retail and Hospitality, while at the same time driving self-service adoption in a smaller set of high-potential, lower-risk emerging verticals. As part of this plan, we announced the sale of our Entertainment business to Redbox earlier this year, and we expect that transaction to close by the end of the second quarter with regulatory review and approval now behind us. Looking now at business performance in our core verticals. During Q1, our Financial Services business generated 17% revenue growth coupled with an increase in segment operating income of 19%. As I mentioned, global Financial Services orders increased 17% during the first quarter, which included growth across the majority of both our developed and emerging markets, including Europe where orders grew a very healthy 17% in Q1. U.S. regional banks remained a key area of strength as capital is being released for investment in advanced ATM solutions such as our Scalable Deposit Module for intelligent deposit. Revenues in this customer segment were up 210% in Q1 and orders increased 97% over a tough Q1 2011 compare. In addition to delivering to existing regional bank customers, we have been particularly aggressive in seeking to penetrate new competitor accounts. Over the last year, we've penetrated over 300 new regional bank accounts in the U.S. where NCR has not had a presence for 3 years or more. All of these accounts were purchasing 100% of their ATMs from the competition. We also continue to generate notable growth in emerging markets. A key point of differentiation for NCR is the Financial Services vertical is the competitive advantages we can provide banking customers, whether it is transaction processing gains through technology such as our Scalable Deposit Module, improved customer service via APTRA Interactive Teller or the superior multichannel banking integration capabilities of our APTRA suite. NCR helps our customer stand out from the pack, which is resulting in customer acquisitions and market share gains around the world. In Retail Solutions, NCR remains positioned at the forefront of self-service technologies while also continuing to enhance our advanced point-of-sale offerings and channel convergence capabilities. During Q1, our retail revenues declined 9% or down 5%, excluding the impact from the movement of customer accounts between retail and our new Hospitality line of business, while segment operating income came in at $2 million. We delivered a strong finish to the quarter, however, as backlog was up 15% versus the fourth quarter of last year. Moreover, I am increasingly bullish about our position in retail as we look out later this year and particularly 2013. The backlog we currently have, coupled with a strong presales funnel, are good signs that the retail business will get back on track. More importantly, we are reporting to launch a number of new exciting products. One example is NCR silver, which you will hear more about at our upcoming May Investor Day conference. NCR Silver is a bona fide potential game changer that enables retailers to use iPads and iPhones to not only collect payments but to connect with customers in meaningful, automated ways and run their business from anywhere. NCR Silver is more than a point-of-sale or a credit card swipe. It is a full Software as a Service-based retail solution for small businesses. NCR pioneered retail technology for the small business, and NCR Silver brings us back to our roots, bringing the full breadth of our history and experience in a simple yet powerful small business solution. While we are not first to market with a mobile retail product for iPad and iPhone, we do believe our offering is the most robust and sophisticated solution on the market, leveraging our full distribution channel and customer care capabilities to reach small business where they are and help them when they need it. It is a great example of how we're transforming NCR into a software and services-led business. While we will not be giving out forecast on revenue and profitability for NCR Silver today, we will provide some perspective on potential in the upcoming analyst conference. Hospitality, our third core vertical, had a very strong first quarter with revenues of $113 million and segment operating income of $19 million. This includes the shift of accounts between the retail line of business and hospitality that I referenced earlier. Stand-alone Radiant, or what we in prior quarters referred to as HSR, generated Q1 revenue of $98 million and NPOI of $19 million. We intend to keep you up to speed on our progress with Radiant at least through 2012 so you can follow the success of our integration more closely. Our Hospitality offerings continue to gain share and the business continues to exceed our expectations. We are winning key business such as our recent deal with Sonic, a large, drive-in food operator. The opportunity we won is for approximately 3,500 sites. This deal represents one of the industry's largest innovation deals, and they have selected us as their chain-wide solution. From an internal perspective, our integration and cost elimination efforts remain on target to achieve annualized pretax cost synergies in the $40 million to $50 million range over the course of the next 3 years. Peter Dorsman, who runs our Industry Solutions Group and Global Operations, will provide more detail on performance and business momentum in a few moments. Looking now at our consolidated financial results. Q1 revenues were $1.24 billion, up 18% or 19% compared to last year on a constant currency basis, while Q1 gross margin grew 280 basis points quarter-on-quarter to 26.2%. Our performance was strong worldwide, but our standout geography was the Americas where revenue was up 37%. The line of business star was a tie between the financial line of business and hospitality, where orders, revenue and profit were strong for both. NPOI in Q1 was $101 million, up 42% compared to $71 million in Q1 of 2011, while our non-GAAP EPS was $0.47 compared to $0.33 in the prior-year period. These strong results are indicative of the steady and consistent execution of the entire global NCR team. Our ability to capture share gains through a combination of innovative hardware-enabled, software-driven solutions and our ongoing focus on executing our multiyear continuous improvement program. During Q1, we advanced on our 3-year path towards eliminating $200 million to $300 million in annualized costs and remain squarely on track. Let's now discuss our revised outlook for 2012. We currently expect 2012 revenues to increase in the range of 11% to 13% on a constant currency basis, excluding that historical performance of our Entertainment business which is now reported in discontinued operations. NPOI is now expected to be in the range of $570 million to $585 million for the year, an increase of 19% to 22% compared to 2011. We expect non-GAAP earnings per share, which excludes pension expense, will be in the range of $2.40 to $2.47 for 2012, which is an increase of 17% or 20%. Finally, we expect to generate free cash flow in the range of $100 million to $150 million in 2012, which includes increased cash funding requirements for our U.S. and international pension plans. I will now turn the call over to Peter who will discuss our performance by line of business. Pete?

Thanks, Bill. Looking first at Financial Services, order growth remains healthy and was up 17% year-over-year during the first quarter. The continued momentum resulted in backlog growth of 15% compared to the fourth quarter of last year. We really feel that our robust solution offerings, with the support of our market-leading service offerings, are enabling NCR to truly differentiate its overall value proposition in just about every market we compete in. Growth was led by North America and the BRIC markets. A headline for us continues to be the high level of activity among the mid-sized and regional U.S. banks where, as Bill noted, we are gaining share. These institutions are unlocking capital spending in an effort to mitigate the competitive advantages secured by their larger financial counterparts who are ahead of them in migrating to advanced ATM solutions. Regional bank revenue more than doubled in the first quarter compared to the prior-year period, while orders continued on a torrid pace. One notable win was Legacy Texas Bank, a $1.5 billion financial institution who will be installing new NCR SelfServ ATMs with our Scalable Deposit Module technology. As part of our agreement with the bank, NCR will also be responsible for helping them ensure uptime and machine performance through our Total ATM services package. In addition to SDM, our APTRA Interactive Teller offering is quickly developing traction in the marketplace. APTRA Interactive Teller delivers an experience similar to a teller through an ATM. Consumers are increasingly starved for time and can't always visit a branch during typical hours. Keeping a branch open into the evening or on weekends isn't necessarily cost-efficient. APTRA Interactive Teller allows consumers to talk to and conduct transactions with a live remote teller in a very cost-efficient manner. We are on target to commence installations at financial institutions throughout the U.S., Canada, Australia and other countries over the coming months. In addition, Dollar Bank will be introducing APTRA Interactive Teller at its Pittsburgh locations. Other Financial Services segment developments include our APTRA Cash Connect software reseller agreement with GLORY LTD., which will make APTRA Cash Connect accessible on over 80% of the world's teller automation installed base. We also launched our smallest ever SelfServ ATM through a partnership with Cardtronics, who is the world's largest retail ATM owner/operator. Cardtronics has already ordered a significant number of these NCR SelfServ 14 machines, which it plans to deploy throughout the United States. In our retail segment, Q1 revenue declined 9% compared to last year or down 5% excluding the impact of the account shifts referenced earlier primarily due to declines in the Americas and Europe. As Bill mentioned, we were able to increase our quarter end backlog 15% compared to the fourth quarter of last year while the business funnel improved. While growth rates in retail are below what we're seeing in Financial Services, it's a dynamic market right now where innovation is critical as consumer preferences for interacting with retailers continue to change. Our focus is on delivering advanced self-service and point-of-sale hardware and software solutions that enhance the in-store experience while creating a multichannel experience. Bill already highlighted NCR Silver for you. These are the types of innovations that retailers want, and we are positioning the company to capitalize on what we believe will be an attractive retail upgrade cycle. Lastly, the sale of IBM's point-of-sale business could provide NCR with opportunities on a global basis in both the direct side of our business as well as our growing indirect or channel business. During Q1, Ahold USA selected our NCR Advanced Marketing Solution to manage its customer promotion programs. Our AMS software will be made available to all of Ahold USA's local retail divisions, which operate more than 750 supermarkets under banners including Stop & Shop and Giant Foods. In addition to powering Ahold USA's offer and promotion platform, NCR will be providing technology migration consulting services and ongoing software maintenance and support services. Other customer wins include Century 21, a discount designer department store chain, who will be upgrading its digital signage using NCR Netkey solution. Finally, we recently introduced the next generation of our NCR Advanced Store software, which allows retailers to bridge the gap between their digital and physical sales channels by delivering enhanced marketing capabilities at the point of sale. We also entered into a technology partnership with VendorNet, aimed at strengthening the Advanced Store's sales channel management platform through the integration of VendorNet's inventory management solution. The combined offering gives retail customers a robust platform from which to effectively manage their channel inventory. Our Hospitality segment generated Q1 revenues of $113 million, while operating income was $19 million, again adjusted for the shift of accounts. We remain highly enthusiastic about our hospitality vertical given the global growth opportunities it provides and its alignment to our strategy to migrate our revenue mix towards more profitable software solutions. As Bill mentioned, we continue to drive market adoption of our hospitality offerings. One industry sector for hospitality has increased share is in entertainment venues. During Q1, the Green Bay Packers selected NCR's Quest venue management solution for installation at Lambeau Field. The agreement calls for approximately 425 wired, wireless and touchscreen point-of-sale terminals and devices to be installed throughout the stadium by the 2012 and 2013 season. Our Quest solution will help enable the Packers to increase vendor speed of service through a faster payment processing and improve workflow technology while also providing a strong foundation from which to manage gift card and loyalty programs for season ticket holders. During Q1, we were also -- continued to strengthen our position in key emerging verticals. We had a particularly strong quarter in travel with revenue up 14% year-on-year and orders up 345%. This was one of the strongest quarters ever in travel, and we exited Q1 enthusiastic about the potential of this line of business. Our Telecom and Technology business continues to perform as well, with gross and operating margins expanding nicely in the quarter. We earned TL9000 certification, which is an ISO Quality Management System certification designed entirely for the telecom industry. This development follows closely on our achieving Data Center Unified Computing Authorized Technology Provider status from Cisco. Together, these certifications will allow NCR to better serve our global telecom and technology clients through the delivery of productivity gains and sustainable business process improvements. Looking finally at customer services, we saw a continued margin expansion as well as increased attached rates during Q1. Our professional services business saw revenue growth of 39%, expanded gross margins and order growth of 10%. We continue to grow our global footprint as advanced technologies such as Predictive Services gained further market penetration. During Q1, we announced our Predictive Services technology was now available for NCR RealPOS point-of-sale terminals. Sainsbury's which is one of the U.K.'s largest retailers, will be deploying Predictive Services on its point-of-sale and self checkout lanes as part of a 5-year managed services agreement under which NCR also provide helpdesk and multi-vendor support across 1,000 stores and 23 depots. In summary, NCR is executing exceptionally well across all of our solutions groups. We're being powered near-term by strong Financial Services and Hospitality performance, but we are also well positioned for the eventual upturn in retail and the exciting growth opportunities in high-potential verticals like travel and Telecom and Technology. Supported by a superior services portfolio in the industries we serve, we are able to offer a compelling value proposition that is driving our order growth and financial performance. I'll now turn the call over to Bob Fishman.

Thanks, Pete. One preliminary note as we mentioned in our earnings press release, the results of our Entertainment line of business are now classified as discontinued operations, so as a result are excluded for the period and the guidance that we are discussing on this call. NCR's total reported revenue in the first quarter was $1.24 billion, up 18% versus Q1 2011 and up 19% on a constant currency basis. We reported GAAP income from continuing operations of $38 million or $0.23 per diluted share. This compares to GAAP income from continuing operations of $19 million or $0.12 per diluted share in Q1 2011. NCR's results from continuing operations include special items in both periods. Income from continuing operations in the first quarter of 2012 included $39 million or $0.17 per diluted share after-tax of pension expense, $9 million or $0.04 per diluted share after-tax of acquisition-related amortization of intangible assets, $4 million or $0.02 per diluted share after-tax of acquisition-related integration costs and a $3 million or $0.01 per diluted share after-tax impairment charge related to an investment. Income from continuing operations in the first quarter of 2011 include a $51 million or $0.22 per diluted share after-tax of pension expense and a $3 million or $0.01 per diluted share after-tax benefit from final settlement of a litigation matter. Excluding these items, non-GAAP diluted income per share was $0.47 per share in Q1 2012 versus $0.33 in Q1 2011. To analyze NCR's operational performance without the effect of special items and pension expense, please see the Supplemental Financial Schedule included in our earnings press release that reconciles our GAAP to non-GAAP results. Excluding the impact of special items and pension expense, our Q1 2012 gross margin was 26.2%, up 280 basis points from 23.4% in the prior-year period, resulting from higher product and services sales, favorable customer and product mix, including significantly more software and the successful implementation of cost-reduction initiatives driven by our continuous improvement program. And operating expenses, excluding pension expense and special items, were approximately 18.1% as a percent of revenue due to continued investment in sales and R&D. Non-GAAP income from operations, or NPOI, was $101 million in the first quarter compared to $71 million in last year's Q1. Other expense was $11 million in Q1 2012, which included $9 million related to interest expense. Other income of $6 million in the prior-year period included benefits from final settlement of a litigation matter and from the sale of certain patents. Income tax benefit was $1 million in the first quarter compared to income tax expense of $6 million in Q1 2011. Excluding the effect of pension and nonrecurring items, the first quarter 2012 effective tax rate was 16% compared to 28% in Q1 2011. NCR's full year 2012 effective tax rate is expected to be approximately 27%. Turning to the balance sheet. Cash on hand at March 31, 2012, was $414 million, with long-term debt of $809 million at the end of the quarter down from approximately $852 million at the end of the fourth quarter. Moving to the cash flow statement. NCR generated $89 million of cash from operating activities in Q1 of 2012 versus $49 million in the prior-year period. Cash from operating activities in Q1 2012 was positively impacted by improvements in operating results period-over-period. Net capital expenditures totaled $31 million in Q1 2012 compared to $25 million in the prior-year period. Discontinued operations resulted in $10 million of cash outflow in Q1 2012 compared to $20 million of cash outflow in Q1 2011 largely as a result of cash outflow from the Entertainment business. NCR generated free cash flow of $48 million in Q1 2012 compared to free cash flow of $4 million in Q1 2011. NCR defines free cash flow as cash flow from operations and discontinued operations less capital expenditures for property, plant and equipment and additions to capitalized software. We continue to deliver good performance with our working capital, and we expect free cash flow for full year 2012 to be in the range of $100 million to $150 million, which includes a $90 million increase in pension cash funding contributions versus 2011. I'd like to conclude by providing our full year 2012 revenue growth expectations, including services and on a constant currency basis for each line of business. In Financial Services, we expect revenues to grow 7% to 9%, up from our prior guidance of 5% to 7%. As a reminder, effective 2012, our retail line of business now includes the specialty retail business from Radiant, and our Hospitality line of business now include all hospitality accounts across NCR. This change in 2012 moves approximately a net $50 million to $60 million of revenue from retail to hospitality. As a result, our revenue guidance is impacted as follows. In retail, we expect revenues to break even down from 2% to 4% growth expected previously. In Hospitality, we expect full year revenues to be in the range of $490 million to $500 million, up from prior guidance of $435 million to $445 million. In our Emerging Industries, we expect revenues to be up 7% to 12% similar to previous guidance. Now I'll turn the call back over to Bill for closing comments.

Thank you, Bob, and thank you, Peter. We are delighted with the overall results for Q1, and we feel very good about our outlook for 2012. We are executing well on both the revenue and cost sides of our business, and we believe we have continued to strengthen our competitive position worldwide in the industries and geographies we serve. I want to take this opportunity to especially thank NCR's employees across our global organization for their energy, their hard work and commitment to delivering on our business objectives. In a few weeks, May 16 to be precise, we will be hosting our next Analyst Day event at the New York Stock Exchange where we will be sharing more insight on our strategy and plans for delivering profitable growth, both in the core and in our more focused set of emerging verticals that sit just outside the core. We will also share some thinking about our capital structure strategy. You will hear more about how we are building a formidable software enterprise within NCR and more about our focus around delivering innovation, world-class services and operational excellence. If you have not received an invite or have questions, please get in touch with Gavin. We look forward to seeing you all there. That concludes my or our prepared remarks, and in addition to Bob and Peter, I've asked John Bruno to join us for the Q&A portion of the call. Let's open that up right now. Operator?

And our first question comes from Gil Luria from Wedbush Securities.

First of all, you continue to grow orders in spite of the fact that you're now comping quarters where you had very high order growth, specifically in the U.S. Now that we passed the deadlines for ADA, do you expect that order rate to drop off post March 15 deadline? Have you seen that order rate drop off? Should we expect that to happen this year?

No, you shouldn't, Gil. We're seeing improved or increased activity in the funnel in the U.S. and in the Americas. Now the funnel increase is a combination of financial continuing to grow, but also retail kicking in, in the U.S. a bit. So we remain optimistic that the U.S. market and the Americas in particular -- North America in particular will continue to grow this year. Frankly, right now I think I could see Q2 orders being, for the total NCR, being quite positive year-on-year as well.

Got it. And then on the Radiant side, Sonic, that's a very big signing. Sounds like there's a couple of other big signings in the pipeline. Have you seen a noticeable difference in your ability to close these deals since you acquired Radiant with increased scale and geographic reach?

No question, Gil. I have to tell you, we've been pleasantly surprised that a number of customers, not just in the U.S. but outside the U.S., have come to us and have said, "Look, we think the world of Radiant, they're a great company. But the fact that they have your global scale and your capability gives us a lot more confidence you can support as large an opportunity as the one we potentially want to give you." So Sonic is a good example of that and there, to your point, are others in the pipeline that would, I think, would be equal to Sonic.

Next question comes from Julio Quinteros from Goldman Sachs.

I was wondering if you might be able to just sort of parse out the retail segment in terms of the soft spots and where -- when you expect some of those things to turn around, what the key drivers would be for that. And then just as a point of clarification, the Hospitality segment, I want to make sure that when we think about that, the majority of that I think is still the Radiant business. Or is there something else in there just relative to the way that you guys are disclosing it now as well?

Sure. On retail, the soft spots are -- the U.S. was actually a soft spot in Q1 as was Europe. And as I said to Gil earlier, we're seeing a better funnel in the U.S. right now for retail. I'm expecting to have a better second quarter in retail to be very candid with you in the U.S. Europe will continue to be somewhat of a challenge in Western Europe. We're doing really well in Eastern Europe. As I said earlier in the prepared remarks, financial orders grew 17% for us in Europe overall in Q1. So we had a great quarter there. But the soft spot for retail was the Americas and Europe. We've had good performances in the Middle East and Africa, in Australia, throughout other markets. So it's been more emerging markets than developed markets to be candid with you.

Got it. And then the performance of the Radiant business, how is that tracking versus expectations? I think that's where the bump up was, right, the $435 million to $445 million, now $490 million to $500 million?

Yes, if you think about the $115 million -- $113 million of total revenue for Hospitality we reported in Q1, $98 million of that was what we would consider to be the old Radiant and $15 million of that was the Hospitality accounts that we had at NCR that we transferred over to Radiant. These were traditional hospitality customers that NCR had won in previous years, but are better served by the business unit that does business in that space. So we moved them to what we're now calling Hospitality, which is essentially the Radiant business is operating that for us.

And some of that Radiant business is also in retail?

Well, that's a net number that Bill gave. Just to explain a little bit further. I gave full year guidance and I talked about a net $50 million to $60 million coming over to the Hospitality business. So maybe just to clarify a little further, call that $55 million. And roughly speaking, the gross numbers are you've got $100 million of specialty retail going from the old Radiant business to retail, and you've got $155 million of Hospitality accounts from the old NCR moving into our new Hospitality line of business. That's really the way to think about it.

Next question comes from Ian Zaffino from Oppenheimer. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Bill, I know you've thrown a teaser of the capital structure discussion you're going to have at the Investor Day. Can you give us an idea what you meant?

Well, look, Ian, we're always looking at our capital structure and trying to figure out what is the optimal capital structure we should have as a company, how can we best use our capital structure to deal with some of our issues. I'll be very frank with you, pension, we think could possibly be solved, but we don't know the answer to that yet. We are at historic lows in terms of the debt markets. We're going to look at that. We're going to look at a whole bunch of other things though relative to capital structure. It may not get solved between now and when I see you in May, but we're certainly at the board level always looking at capital structure strategy. And yes, very candidly, we want to take advantage of these what we think are historic lows in the debt markets and do some good things with our capital structure. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Okay. Because the way I look at it, as you know there's been a couple of other companies out there who have taken the steps to fund their pensions, and I believe it's been well received. I think also when you go through the math, it seems like it's somewhat accretive to free cash flow particularly in the near-term, if you were to do something like that. I don't know if you have any comments surrounding those thoughts, or we should just discuss that at the Investor Day.

I think you're right. And so I mean there's no question that your comments are correct, and we see it the same way. Again, our board will be looking at this, and we'll continue to study the best uses of our capital structure, but your comments are correct. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Okay. Yes, I mean I just look at this and you've historically repurchased shares and you stopped for a while for Radiant, and it would always be nice to maybe resume that with the additional free cash flow.

Next question comes from Katy Huberter (sic) [Huberty] from Morgan Stanley.

The NPOI beat of about $13 million in the first quarter seems like it's followed by another strong guide for the second quarter, but you're only raising the full year NPOI number by $10 million. Is there a message in the guidance about the second half, or is that just a function of conservatism in the outer quarters?

So the beat in Q1 from an NPOI versus consensus was $11 million, and we're upping the full year $10 million, so pretty close to the beat. From an operational EPS, the beat was closer to $0.09. I would call half of that as being operational. The rest was really the tax rate and the timing of that, so that's why I'm only giving back really $0.04 on the full year operational EPS. From a NPOI perspective, when you look at it in total and the guidance that we've given, the $570 million to $585 million, hopefully we'll be able to increase that throughout the year. We want to take a look at the Q2 orders that come in and the backlog. It's the first quarter of the year. So hopefully, we'll be in a position to increase that in the future.

Okay. And then Bill, since we're in the baseball season, question on the regional bank upgrade cycle, what inning do you think we're in at this point in the U.S.?

Fourth inning, third or fourth inning right now to use a baseball analogy. One thing I'll do is I'm happy to point you back to prior-year calls, right. I think we called this year is the year the regional banks will do those upgrades right on the nose. And what I said back in '08, '09 was I thought '11 was the regional banks start, and it is. That will go into '12 and possibly into early '13. By the time we get to late '12 and early '13, the large banks will begin to refresh their deposit automation program with new technology. We're not standing still relative to technology. SDM is not the final SDM. And I think that we probably did an injustice early on, Katy, to calling this kind of a more of a onetime event, this whole deposit discussion, because it really isn't. It's an ongoing change to the ATM landscape and frankly, it's going to increase the growth in this market, not just in the U.S., but outside the U.S. Brazil is not -- is on the fringes of being able to start their Intelligent Deposit upgrade cycle. That's a 2013, '14 kind of play. India, the same. Recycling technology, we haven't even discussed that, but that's a massive opportunity on a global basis and will come onshore in the U.S. So I think as cash management and the cost of handling cash continues to escalate as it has, there are a number of secular growth opportunities that can help us, assuming we continue to innovate at the pace that we are, to maintain the kind of growth we've had in this business.

And is the double-digit order growth in Europe this quarter telling us that the issues with the European banks or potential issues are behind us and we should see continued good orders in Europe through the remainder of this year? Or do you think it's still choppy?

It's still choppy in my opinion, Katy. I'd like to believe that we can continue with that kind of growth. By the way, I remain encouraged because the signs we're getting are positive in Europe. I think I said last year that I thought if we can maintain flat kind of year-on-year order growth in Europe, it would be a good year. We did that in Q1, so I was pleased with the team's performance even though on a relative basis I wouldn't have been pleased if it were another theater. And I remain skeptical still that, that kind of high order growth can be achieved, but I wouldn't be surprised if we were low double digits on the year in Financial Services in Europe. Again, I think the key driver for us I have to say, Katy, is we're just not going to cover off the ball in Eastern Europe.

Next question comes from Kartik Mehta from Northcoast Research.

This is Anthony in for Kartik. I'm just hoping to get some color on the overall strength in the ATM business. When would you say was the last time it was this strong?

I don't think it's ever been this strong for us. Perhaps the only other time I can point to would be early '08. Q1 2008 we had a great quarter, but we've now strung together many quarters in a row of success and 10 quarters of increasing backlog in that business. It's now become a trend, so it's -- we're doing real well.

Okay. Great. And then what is the status of the Brazil operation at Scopus? And what would you anticipate is the timeframe for market improvement there?

The status is that we continue to move forward. It's a wonderful relationship. We're absolutely focused on margin improvement. We've made great strides in the manufacturing facility, some as a result of volume, some as a result of our continuous improvement efforts, but the combination is absolutely improving margins.

Next question comes from Michael Saloio from Sidoti & Co. Michael Saloio - Sidoti & Company, LLC: Can you speak to Western Europe a little more given that Wincor reported earlier this week citing some pretty poor demand there. Would you say that the strength that you're seeing is coming more from share gains or simply just, as you said, kind of spotty demand?

In Western Europe, it's a share gain story for us to be honest with you, Michael. We have an excellent services platform in Europe, and frankly, none of our competitors have as good -- have a services infrastructure as wide and as deep as we do across Europe in every country, and we leverage that. We have a technology advantage. We've talked about that several times in this call. It helps us as well in the marketplace. But we're actually doing okay in Western Europe despite the issues there. Again, it's a relative term. Eastern Europe is without question stronger than Western Europe for us, but we are gaining share in Western Europe right now, particularly the large markets in the U.K., France, Germany and even Iberia. Michael Saloio - Sidoti & Company, LLC: Okay. Great. And my second question is on the travel business. Pretty strong or very strong growth in the travel business. Does that have to do with a refresh going on in the U.S.? Or are you seeing an acceleration of that business overseas?

We're seeing an acceleration overseas, particularly Middle East, Africa geographically. There is also a refresh going on domestically, and our portfolio has expanded dramatically. It was a hardware-centric business early on. It has a significant software component to it now.

Michael, and just to add to that. I don't mean to pile on, but take travel out of the equation. Software for us was in Q1, if you added software and our Software as a Services business, we were 65% year-on-year. We're over $120 million in revenue. That's a big number for NCR. I mean it's a big number. We expected to be over $100 million, and our software funnel has grown tremendously in the last 6 months. So we're encouraged by the success we've had in software where margins have grown pretty significantly and encouraged by the funnel we have in that business.

Last question comes from Matt Summerville from KeyBanc.

I just had 2 quick questions on the ATM business. First, as I look at, the revenue growth was excellent, up more than $100 million, operating profit up $9 million year-over-year. Can you talk about the different dynamics influencing a contribution margin that was under 10%? And then I have just one quick follow-up on that.

Yes, I would say the good news is there the software piece of financial really contributed to that profitability, as well as the services. Where we were a little bit challenged was in the hardware margins. So good news from a software and services. Hardware margins, a little bit challenged, but that had more to do with the mix by country. We continue to drive our CRVE program to win the price-cost battle with hardware. So I think we can improve those margins, but mix was as big a component on the hardware piece, and then again, very pleased with the software and service contribution for margin.

With regards to the hardware mix, does it get better from here or worse from here? And can you put that in the context of Wincor's comment the other day, talking about meaningful price pressure in emerging markets?

It stays about the same for the next quarter or 2. To be very specific with you, Matt, once we get Brazil margins where we want them, this gets fixed quickly. Our issue is not broad based in terms of hardware margin. It's really Brazil right now. So once we get our hardware margins in Brazil right and we intend to do that, you'll see that pickup. As I've said on multiple calls, the emerging markets are always a challenge with regard to margins. Some quarters they'll be lower, some quarters they'll be better depending upon mix. But it's a Brazil story, and then I'd like to see China get a little bit better on occasion.

Next question comes from Zahid Siddique from Gabelli. Zahid Siddique - Gabelli & Company, Inc.: A couple of questions, one on the Redbox sale or I guess the blockbuster sale to Redbox that you expect to close in the quarter. Is the cash expectation still about $100 million? And what's the after-tax number for that?

This is John. There's no change to what we've given out with regard to the position on our cash expectations as we close the transaction, so still steady as it goes. Zahid Siddique - Gabelli & Company, Inc.: And we should just assume a 27% tax rate on that?

I'm sorry, the tax rate on the... Zahid Siddique - Gabelli & Company, Inc.: On the cash that you would get?

From the cash that would be coming from -- to us from Redbox.

Yes, I mean, depending on -- 27% would be a fair rate to use. Zahid Siddique - Gabelli & Company, Inc.: Okay. And the second question is, I was trying to do apples-to-apples comparison and last year, you had the Entertainment business and I believe it was losing money. Do you have the EPS, total EPS loss for last year for that Entertainment business?

The best thing to do is we put out on the web page a non-GAAP view that now excludes Entertainment, treats it as discontinued ops. So it's almost easier to go back. You'll be able to look and see by quarter and for the full year the business with Entertainment excluded.

The number we gave, Zahid, before is the number, the $0.33 last year Q1 versus $0.47 this year. So Entertainment's out of both. Zahid Siddique - Gabelli & Company, Inc.: Right. And I remember last year, the actual number was $0.24, maybe $0.25. So probably the delta is $0.06 or $0.07 in that.

I think you're right. Well, thank you all for joining the call today. We appreciate it. We hope we see you on May 16 at the investor conference and appreciate your compliments and your time. Take care. Have a good one.

That concludes today's call. Thank you for participating. You may disconnect at this time.