NCR made a strong start out of the gate in the first quarter of 2017 and, in an earnings call on Thursday, expressed confidence that business was on pace to exceed earlier expectations for the full year.
"We generated solid revenue growth and gross margin expansion across each of our business segments driven by our leading portfolio of global omnichannel and channel transformation solutions," CEO Bill Nuti said in a statement on Q1 results. " … Looking ahead, we will remain a global leader in omnichannel software, channel transformation and digital enablement and our solutions support customers of all sizes as they effectively transform their businesses and compete in the digital world. Our focus remains centered on strong execution, innovation, and driving customer success."
In the earnings call, NCR President and CEO Mark Benjamin seconded Nuti's optimism.
"We entered 2017 with strong momentum, and through focused execution, we transformed that momentum into solid revenue growth and balanced margin expansion across our software services and hardware segments," he said.
NCR reported revenue of $1.48 billion for the quarter, an improvement of 2 percent over Q1 2016, or 9 percent excluding the effects of unfavorable currency exchange and the sale of the company's Interactive Printer Solutions division early in 2016.
The software division — upon which NCR has hung great hopes for future growth in net revenue and gross margins — did particularly well in the first quarter.
Software revenue rose 8 percent in Q1, including a bump of 29 percent in software licensing income; 6 percent in cloud growth; and another 29 percent in net annual contract value.
"When taken together, our unique combination of robust software and cloud offerings, expensive services capabilities and leading hardware solutions uniquely positions NCR to capitalize on a strong momentum in the omnichannel, channel transformation in digital enablement markets," Benjamin said.
The "highlight of the quarter," he said was the NCR's year-over-year improvement in gross margin. The company's overall GAAP gross margin rose 160 basis points to 27.9 percent. In constant currency, the increase was 210 basis points, or 29.2 percent.
Importantly, the gains included an increase of 190 basis points in constant currency for the perennially margin-challenged hardware division.
The division overall managed a 15 percent increase in revenue in constant currency and excluding IPS revenue.
ATMs were not a contributor to earnings growth in hardware, though. Revenue for the segment tumbled from $226 million in Q1 2016 to $209 million in Q1 2017, an 8 percent drop, or 7 percent in constant currency.
Chief Financial Officer Bob Fishman attributed the decline in ATM revenue to a smaller backlog entering 2017 and reduced conversion rates in the first quarter. However, he said, the company expects improvement in the second half of the year as the result of larger customer rollouts.
As an example of this, Benjamin pointed to Banorte, one of the largest banks in Mexico, which plans to deploy more than 1,600 SelfServ ATMs in an effort to move banking transactions from the teller line to the self-service channel.
Benjamin said that margins will continue to be an area of focus for NCR.
"While we had a great quarter from this perspective, there is additional margin improvement we can capture as we drive further software revenue growth and continue building a more efficient NCR through our business transformation program."
Part of this program involves the buy-back of NCR shares, a project that began with an $820 million capital infusion from The Blackstone Group LP in November 2015.
At that time, Nuti said that Blackstone's purchase of a 17 percent stake in the company would allow NCR to return "significant cash to those shareholders who want to monetize their investment in the near term while preserving our ability to fund growth opportunities and increase shareholder value in the years ahead."
The company repurchased shares totaling $350 million worth in March; the board of directors has authorized the purchase of an additional $300 shares.
Fishman announced that, based on solid first quarter results and improving foreign exchange rates, NCR was making an upward revision to its full-year guidance.
The company raised revenue guidance to $6.63 billion to $6.75 billion for 2017, up from its previous estimate of $6.6 billion to $6.72 billion. "We are including expected FX headwinds on revenue of approximately $65 million compared to our previous guidance of $95 million," Fishman said.
The company has raised non-GAAP EPS guidance to $3.32 to $3.42 for the year, up from $3.27 to $3.37 or growth of 10 percent to 14 percent vs. the prior year on a constant currency basis.
GAAP EPS guidance will be considerably less, due to the impact of the Q1 Blackstone transaction in which NCR purchased preferred shares at a price that exceeded the carrying value, Fishman said. Revised GAAP expectations are $2.20 to $2.32.
In summary, Benjamin said, "We’re off to a solid start to the year and are confident in the underlying momentum across our business, as well as our ability to deliver on our full-year goals."