With a year-over-year increase of 21% (27% constant currency) to report in ATM revenues, NCR Corp. President and CEO Mike Hayford was in a positive frame of mind on Tuesday afternoon during the company's Q1 earnings call, telling analysts "We're off to a good start to the year."
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 the first quarter was consistent with that mandate.
NCR clearly is getting a boost from Windows 10 migration, which Hayford referred to as "a tailwind." He said that, instead of trying to stretch their ATMs' lifecycle to 10 years, some financial institutions were deciding to replace machines that were seven years old or more.
The NCR Series 80, which was introduced last year and took off even faster than expected, was providing additional impetus for FIs to trade out their older ATMs, Hayford said.
NCR Chief Financial Officer Andre Fernandez reported that the company's banking segment was up 9% year over year in constant currency, and operating income was up 20% in constant currency, an improvement driven by higher volume and the impact of productivity initiatives.
Importantly to NCR, the strong showing in the company's banking segment was also partly attributable to wins in digital banking, an area of growing emphasis for the company.
"We have increased our investment in NCR's Digital Banking Solution and have received positive feedback from customers on the new features and functionality," Hayford said. "We are starting to see improved growth. In the first quarter we signed seven new digital banking customers."
Banking is just one of six areas where NCR is sharpening its focus on the delivery of digital solutions. Hayford said the company is accelerating its investment in digital platforms with the goal of achieving higher margins, recurring software and services revenue, and greater revenue growth overall in the future.
The six areas are:
- Digital-first banking.
- Digital-first restaurant.
- Digital-first retail.
- Digital connected services.
- Digital convenience and fuel.
- Digital small business essentials.
"Overall these six 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," Hayford said.
Investment in digital solutions is largely coming from productivity initiatives that the company pushed hard in 2018, and which have begun to pay off on several fronts, Hayford said.
Firstly, he cited revenue growth and margin expansion in services. Secondly, he highlighted the company's transformation in hardware manufacturing, which he said is largely complete.
Thirdly, Hayford pointed to the company's targeted reduction of selling, general and administrative expenses, as well as other discretionary items, which together are expected to general $100 million in savings in 2019, which will "largely offsets the headwinds in 2019 from higher real estate costs and higher people costs," the latter related to development of digital services on which the company is pinning its fortunes.
In closing, Hayford said, "We're pleased with the progress we made in this first quarter. We remain focused on our goals which include our commitment to generate profitable growth, investments to drive a mix shift to recurring software and services revenues, and enhanced free cash flow generation."
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