Diebold Nixdorf, Incorporated
Q1 2019 Earnings Call Transcript

Published: 30 Apr 2019

[Operator:]

Good day, and welcome to the Diebold Inc. Hosted First Quarter 2019 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Steve Virostek. [Ma’am] please go ahead.

[Steve Virostek:]

Thank you, [Katy] and welcome to Diebold Nixdorf's First Quarter Earnings Call for 2019. Joining me today on the call are Gerrard Schmid, President and Chief Executive Officer; and Jeff Rutherford, our Chief Financial Officer. For your benefit, we’ve posted presentation slides, which will accompany our prepared remarks on the Investor Relations page of dieboldnixdorf.com. Later this afternoon, an audio replay of today’s webcast will also be posted to the IR website. On Slide 2 of our presentation, we have a reminder that today’s comments will include non-GAAP financial information, which we believe is helpful in assessing the company's performance. In the supplemental schedules of our slides, we have reconciled each non-GAAP metric to its most directly comparable GAAP metric. Moving to Slide 3, we inform all participants that certain comments made today may be characterized as forward-looking statements and that there are a number of factors that could cause actual results to differ materially from these statements. You may find additional information on these risk factors in the company's SEC filings. Also, please keep in mind that forward-looking information is current as of today and subsequent events may render this information out of date. And now I’ll hand the call to Gerrard.

[Gerrard Schmid:]

Good morning, everyone. I'm pleased to join you today for a discussion of our first quarter results. An update to our DN Now initiatives, and the reiteration of our outlook for 2019. On Slide 3, we’ve highlighted the company’s first quarter performance. Overall, I am pleased with the results, which show our sustained execution against our priorities. Total orders decreased 1% in constant currency during the quarter versus one-year ago. We delivered strong growth in Americas banking where our success was supported by orders for more than $70 million of Windows 10 capable machines. Key wins included a multi-year agreement with Keybanc to digitally transform more than 1,400 ATMs with dynamic, with DN’s Vynamic software, a $5 million contract to provide recyclers and installation services with a top 5 financial institution in Brazil. A contract with teacher’s credit union to upgrade their entire feet of ATMs to Windows 10 in Midwestern states. This win indicates we’re seeing Win10 demand from financial institutions of all sizes and we renewed a $40 million three-year service contract with one of the top financial institutions in The United States. Eurasia Banking orders declined modestly in Q1 with very different trends across the sub-regions. Orders from European customers were down slightly, while customer orders increased nicely in the Middle East and Africa. Orders in Asia Specific declined meaningfully year-over-year as we maintained our biding discipline and focused on profitable opportunities. Important wins included an expanded partnership with the major financial institution in Belgium to upgrade more than 2,400 devices, including a large number of cash recyclers to Windows10, and averaging Diebold Nixdorf all-connect services and our DN Vynamic Software suite. Secondly, a multiyear managed services contract renewal with a top-tier bank in Western Europe, a cash recycling win at Halkbank in Turkey and Bank Pekao in Poland, and a new contract to provide over 250 cash dispensers at DN Vynamic Connection points to a Taiwanese financial institution. Retail orders declined slightly in the quarter due to strong performance in the year-ago period. In the quarter, DN won a five-year agreement valued at more than 60 million with one of the world’s largest fuel and convenience retailers to deploy a new centralized card acceptance platform. Our contract includes software licenses, professional and maintenance services for stores located in ten European markets. In addition, we secured an $18 million contract with the French retailers’ supermarket cooperative with 600 self-checkout systems and a 4-year services contract. We’re experiencing good growth for our self-checkout solutions in several European countries. Changing over to revenue, the company increased our top line by 3% in constant currency versus one year ago, excluding approximately 6.5% points of headwinds. During Jeff’s comments, he will discuss the impact of currency on our profitability in the quarter. We delivered 11% revenue growth from Americas Banking and 4% growth from retail, both in constant currency. In Eurasia banking, revenue declined 4% in constant currency reflecting lower volume from Asia and modest growth in Europe, The Middle East, and Africa. Our profitability improvement in the quarter is encouraging as we’re starting to realize benefits from our DN Now initiatives. Gross margin expanded 60 basis points led by 140 basis point expansion in services and a 230-basis points improvement in products. Our software margins reflect a combination of lower volume, solution mix, higher delivery costs, and accounting changes. Operating profits increased by $9 million or 54% year-over-year to $27 million, due to our continued focus on streamlining our expenses. Adjusted EBITDA increased by $3 million year-over-year and our adjusted EBITDA margin increased 50 basis points to 6.3%. Moving on to cash flow. As most of you know our business tends to use cash during the first half of the year and generate cash late in the year. Through proactively managing our collections, payables, inventory, and other cash uses, the company was able to reduce cash use by more than $90 million versus the prior year period or a 56% improvement. Moving on to Slide 4. Our recent improvement to profitability and cash flow are largely driven by momentum from our DN Now initiatives that we laid out last year. This program is simplifying our operations, reducing costs, and enabling a greater focus on our customers. Slide 4 is a reminder of those initiatives, the time lines and expected realization of $400 million of gross savings through the year 2021. I like to expand upon on a few of these initiatives. Starting with our new streamline operating model, approximately 1,400 employees have [departed] from the company through March 31st, and we have [indiscernible] to find exist dates for more than 95% of the remaining 300 employees. As a remainder, we expect this initiative will generate about $100 million in gross savings through 2019 and $130 million of savings by 2020. Equally as important, our new structure has clarified roles and responsibilities, which is driving increased accountability across the organization. Second, we are simplifying our ATM product portfolio and manufacturing footprint. During the quarter, we successfully relocated the production of certain ATM products to lower cost locations and we’ve stood up transition teams in preparation for closing a few subscale facilities. Third, with respect to improving our net working capital, the company demonstrated good progress in the first quarter. Jeff will comment on these initiatives in a few minutes, but let me say that I’m very encouraged by our ability to reduce networking capital as a percent of revenue to 19.1% in the first quarter down from 24% in the year-ago period. I’ll discuss our progress with service modernization and a reduction of selling, general and administrative expenses in just a moment. And finally, with respect to our noncore assets, during the first quarter we terminated our unprofitable business in Venezuela, liquidated a cash and transit business for retail customers in Europe, and divested our program management IT consulting business serving European financial customers. This month we divested our Netherlands based cash-in-transit business for banking customers and net proceeds were approximately $10 million. One large divesture is taking longer than we originally envisioned and we continue to make progress on several others. On Slide 5, I’ll spend a bit more time discussing our Services Modernization Plan. As discussed on prior earnings calls, our key actions include automating incident reporting and response, standardizing our contract terms and other processes, which enable the company to realize scale benefits, and upgrading older customer hardware and software, which typically generates higher volume service calls. On the prior earnings call, we introduced three key performance metrics to help track our progress. The first metric is a trailing 12-month service renewal rate, which remained solidly above our 95% target for the first quarter. Next is the contract base of ATMs, which we maintained at approximately 630,000 versus the prior year. And most importantly, the key financial metric is our gross services margin, which increased 140 basis points year-over-year in the first quarter to 24.7% made by gains in both banking segments. At the country level, we drove notable improvements in The United States, Canada, Mexico, Germany, France, The UK, and several other markets. In fact, our gross service margin in The United States was just about 30% for the quarter. These results coupled with the strong service level quality for our customers and strong engagement from our services team is highly encouraging. Moving to Slide 6, we described our work streams and early progress to further reduce our selling, general, and administrative expenses. Using Global Spend Analytics, we have identified significantly sources of savings from consolidating and reducing the company’s spend with third parties. About [18 leaders] within the company have taken ownership for this procurement initiative and we’re using a well-renowned model to track our progress at a granular level using five different degrees of implementation. Additionally, we’re beginning to consolidate our real estate footprint with a particular focus on under-utilized office space. During the first quarter, we announced plans to close seven European leased offices. Our analysis indicates that we have incremental cost reduction opportunities across all our regions. In our finance organization, we implemented initial actions to streamline certain finance functions during the first quarter. This program is expected to build more momentum in the latter part of 2019 as we make greater use of shared services and increased automation of finance and accounting. Also, during the quarter, the company’s information technology leaders successfully contracted to reduce our global telecommunication spend, as well as our storage costs in The United States. We expect the collective impact of first quarter SG&A decisions to drive future annualized run rate savings of about $20 million once they are fully reflected in our P&L. On the bottom half of the slide, we’ll see a key performance metric. SG&A expense as a percent of revenue for the last five quarters and our 2021 target of 13% to 14%. During Q1, the company’s SG&A, as a percent of revenue was 17.7% or unchanged on a year-over-year basis. However, there were a few items working against this metric in the quarter and they include normalized compensation expenses, unfavorable mark-to-market entries resulting from legacy Wincor options, which are linked to the Diebold Nixdorf share price and other benefits in the first quarter of 2018, which did not recur. Collectively, these factors accounted for about $13 million or 120 basis points of headwinds versus the prior year. In summary, our first quarter results demonstrate solid execution from the leadership team and good alignment on our priorities. For 2019, we continue to expect our DN Now initiatives will generate approximately $160 million of gross savings. Since the majority of these actions are within our control, we remain confident in our clearly defined path for value creation. As a result, we are reiterating our outlook for 2019 for revenue, adjusted EBITDA, and free cash flow, which Jeff will detail in a few minutes. And now, I’ll hand the call over to Jeff.

[Jeff Rutherford:]

Thank you, Gerrard and good morning to everyone. During my prepared remarks today, please keep in mind that my comments will focus on non-GAAP metrics unless otherwise noted. On Slide 7, our revenue table provides a year-over-year comparison for the segments and the business lines, both as reported and on a constant currency basis. The foreign currency headwind in the quarter was significant at nearly 6.5% points or about $66 million, due to the strengthening of the US Dollar against the Euro, the Brazilian Real, and the British Pound. For this reason, we believe the currency adjusted growth rates provide the most meaningful comparison. Total revenue increased 3% in constant currency led by 11% growth in Americas Banking, 4% growth in retail, and a 4% decline in Eurasia Banking. Looking at the business lines, product revenue increased 15% in constant currency, due to growth in banking and retail volumes. Our services revenue decline of 3% is largely attributable to our focus on more profitable contracts, particularly in Eurasia. Software revenue is down versus the prior period, due to lower retail activity, and the divestiture of our program management business in Europe. Our next three slides provide segment level financial information. Starting with the Eurasia Banking on Slide 8, revenue could decline 4% in constant currency to $383 million during the first quarter, due to four factors. Number one

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Matt Summerville with D.A. Davidson.

[Matt Summerville:]

Thanks. A couple of questions, Gerrard, could you maybe give just a little bit more of granular overview on the Americas Banking business, the kind of order moment you’re seeing there, perhaps qualifying that? And then talk about the Windows 10 cycle in the context of whether you’re finding it to be more replacement versus upgrade heavy and perhaps tilting a bit more towards small banks versus big banks?

[Gerrard Schmid:]

Good morning, Matt. Thanks for your questions. So, for the Americas, you know, we’re very pleased that we’re seeing solid order momentum or if in the double-digit plus range across the board, across Latin America, Mexico, The United States and Canada. So, it’s broad brush regionally and when we take a look at it on an institutional side basis, we’re seeing it play out across both the bigger banks and the small banks at a relatively similar momentum level. So, you know, that really is pointing to a broad-brush growth over what we’ve seen in prior periods. We expect that to, you know, continue as we look at our order activity for the next couple of quarters and obviously things will likely flatten up given the exceptionally strong result that we posted in Q4 of last year. In terms of your second question as to the mix between replacement versus upgrades, you know, I think that this is a topic where we’re seeing a relatively even balance between those two with some institutions favoring a software upgrade, others favoring a full-on machine replacement. So, it’s a relatively even mix today when you take a look at our over activity.

[Matt Summerville:]

Then maybe can you spend a minute perhaps talking a bit about the new product pipeline you have, more specifically in the ATM business as we think about the balance of 2019? And then Jeff, can you comment based on where currency rates are today, how much top and bottom-line headwind that you expect related to FX? Thank you.

[Gerrard Schmid:]

You know Matt, I think I’ve already provided the comments vis-à-vis the Americas in terms of new order activity. We are continuing to see very strong pipeline and sales momentum in the Americas and expect that to continue on a go-forward basis. You know, in Europe, what we’re starting to see, and we mentioned this in a couple of quarters ago, that we’re starting to see Europe show some early signals of momentum in particular in Western Europe. Middle East is showing very strong momentum for us right now, and as we’ve pointed out, for the past several quarters, we’ve maintained a very, very disciplined focus upon Asia, and as a result, we’re willing to concede market shares in favor of profitable business. So, we’re seeing our order activity moderate in that market.

[Jeff Rutherford:]

And then Matt, as far as currency, obviously the euro is the most impactful currency for us. We expect, based on where the euro is trading today that there’ll be an impact in the second quarter. We are actually modeling it somewhere between 3% and 4% impact on the topline and then it will level up as we go into the third and fourth quarter as the levels will be less. It'll be, you know, less than 1% in the third and fourth quarter, based on the current euro level trade.

[Matt Summerville:]

Thank you, guys.

[Operator:]

Thank you. Our next question comes from Justin Bergner with G. Research.

[Justin Bergner:]

Hi, good morning, Gerrard. Good morning, Jeff.

[Jeff Rutherford:]

Good morning.

[Gerrard Schmid:]

Good morning, Justin.

[Justin Bergner:]

My first question just related to non-core asset sales, I think you gave a brief synopsis, could you just remind us what was completed in the first quarter? I heard the mention of the 10 million sale this month, and, you know, progress towards remaining asset sales and where do you ultimately intend to end up versus your initial goals on asset sales?

[Gerrard Schmid:]

Yes. So, Jus, let me start with the latter part and then back into the actions in the quarter. We’re still tracking towards divesting around 5% of our revenues. There’s obviously a number of assets in that mix, and as I said in my prepared remarks, the broad range of those are tracking in line with our expectation. There’s one slightly larger one that’s taking a little bit longer than we had expected. In the specific quarter for Q1, we exited Venezuela. We also divested our banking cash and transit business in Europe, as well as a retail cash and transit business in Europe. And further more in April, we concluded the divesture of our IT consulting business geared towards European financial institutions.

[Justin Bergner:]

Okay, that’s helpful. And then, were the first quarter proceeds pretty minimal? Or could you quantify what the proceeds were in the first quarter?

[Gerrard Schmid:]

There were $10 million.

[Justin Bergner:]

I’m sorry, they were 10.

[Gerrard Schmid:]

Yes, don’t forget Justin, as I – yes, they were 10 and as I believe I’ve said in the past as well, if you were to think about the sequence of divestures that we’re executing against, not only are we targeting proceeds, but also divesting businesses that have a drive on earnings, so a number of those that we exited in the quarter. We’re a drag on earnings, so we’ll increase our EBITDA on a go-forward basis given that we exited those.

[Justin Bergner:]

Okay, great. Did I hear correctly in the opening comments that the April divestiture was another 10 million?

[Gerrard Schmid:]

No, it’s $10 million accumulatively across that, plus the once I mentioned.

[Justin Bergner:]

Okay, great. Shifting gears, I just wanted to dig a little bit deeper into the service performance. You know how should we think about the trajectory going forward for service gross margins? And I know you mentioned a 30% plus gross margin figure in the Americas, I'm not sure sort of what to reference that to and is that's indication that the service gross margin improvement is more pronounced in the Americas or sort of there’s more to be gained in the Americas than the rest of the world?

[Gerrard Schmid:]

So, if you look at Diebold before the Wincor acquisition, Justin, we were doing, you know, 30% service margins in North America. So, we raised this to simply make reference to the fact that we really have made up a bunch of lost ground in prior quarters, while still delivering very strong service levels for our customers. And if a step that up to a more global level, you know, last quarter we provided, you know, a three-year outlook on where we saw our services margins heading to, to north of 27% and we’re still on the view that that’s the right way to think about this business on a global basis. Obviously, we’re seeing some very good momentum and we’re pleased with the fact that for three consecutive quarters we’ve started to see some real process coming out of that services business, but – and we’re still holding firm that on a consolidated basis globally, we’re targeting north of 27.

[Justin Bergner:]

Okay, thank you.

[Jeff Rutherford:]

And that was by the year 2021, so we’ll make steady progress in 2019.

[Justin Bergner:]

Thank you for taking my questions.

[Gerrard Schmid:]

Sure, welcome.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from Kartik Mehta with Northcoast Research.

[Kartik Mehta:]

Hi, good morning, Gerrard and Jeff. Gerrard, I wanted to get your perspective on Asia and what you think the long term – thank you. I wanted to get your perspective on Asia and what you think the long-term perspective – you know what the long-term business model could be there for you? Is this a market that you see yourself kind of just continuing to divest? Or are there opportunities to have a bigger impact in those markets?

[Gerrard Schmid:]

Hi, Kartik. So, I think at the end of the day, you know, we need to split Asia into a more nuanced view than simply one macro market. You know, I’d tell you that from our vantage point, markets like China and India are incredibly challenging to generate a reasonable, return and therefore, you know, it’s not clear to us that over the medium term that those markets improve substantially. You know when we look at other markets in Asia, I think there are markets in the Southeast Asia region, plus further south, there are certainly markets where margins remain very robust. We have banks who are buying not only on price, but also buying on services, machine quality and the depth of the software portfolio. So, those are markets that we see as remaining attractive. So, I think – what I broadly say, Kartik is, we’re going pick and choose where we choose to compete in Asia. And as I’ve commented on past, we have a number of competitors out there with just a very, very different perspective on pricing and we’re just not willing to, you know, participate in deals of that nature. So, we’re being selective in where we choose participate, and those markets that are attractive for us, we think are likely to remain attractive over the medium-term.

[Kartik Mehta:]

And then, Gerrard, as you look into the U.S., as far as the retail business is concerned, I know one of the goals was to try to expand the retail business in the U.S. You know where do you stand as far as getting more traction in the U.S.? Are you targeting maybe different retailers anywhere previously?

[Gerrard Schmid:]

Yes. So, Kartik, I think in prior management teams, there was a view that we could pursue the U.S. in broad brush terms across the full range of our retail portfolio. You know I’d say that we’re taking a much more targeted approach focusing on those products where we believe we have a strong competitive advantage and that would be most notably in our self-checkout area where we’re seeing very, very strong growth in Europe, and on a, you know, feature function basis, we believe we actually stand tall. So, I think we’re being much more selective on our opportunities. By that very nature, it will take more time for us to show that momentum. If I take a step back though, you know, I definitely am not on the view that, you know, our retail growth is purely predicated on accessing the U.S. market. There’s no doubt that there remain interesting opportunities for us in our existing core market of Europe, as well as in Asia, and that's why I think it's worth calling out that we look at the competitive dynamics between banking and retail very differently in the Asia-Pacific market, and we think that Asia remains an attractive area for us to grow into.

[Kartik Mehta:]

And then just one last question for you Jeff, you know, I know that the next set of maturities for you, really the big maturities are 2020 and the Term Loan A and the credit facility, and I’m wondering how do you – the opportunity to maybe reduce interest expense with those – with those debt maturities coming up?

[Jeff Rutherford:]

Yes. You know, when we look at our maturity’s debt, we have a short-term opportunity and a long-term opportunity. The short-term opportunity is to address the revolver and Term A stack and move it out toward the Term A1. It's not feasible to move those stacks beyond the Term A1. So, that’s the first step. The second opportunity then will be once that is accomplished and addressed and as we move through this model, and you know, we’ve given long-term goals, we’ve given three-year goals and you can think about what the potential is for refinancing, and are qualified by saying it all depends on the capital market still, but there are going to be opportunities that are not available to us today as we progress through the maturity of the model and realize higher levels of EBITDA and free cash flow. So, we actually look at it as two tranches, a short-term tranche, and opportunities to address the revolver and Term A in the short-term and in the long term. So, to answer your question, the ability to reduce our weighted average cost of capital is really going to come in the long-term addressing of our capital structure, not necessarily in the short-term.

[Kartik Mehta:]

Okay. Thank you very much, Jeff. Appreciate it.

[Jeff Rutherford:]

Sure.

[Operator:]

Thank you. Our next question comes from Rob Jost with Invesco.

[Rob Jost:]

Hi, thanks. Going back to the retail segment, I guess a couple of things. You know you pointed of the profits being down for a number of reasons. If we were to strip out some of these one-time things, is there a way to see what that would have looked like on a year-over-year basis? Would have it been up?

[Gerrard Schmid:]

Good morning, Rob. So, as we said in our prepared remarks, retail was down due to slightly higher software delivery expenses in the quarter, plus some headwinds due to a non-core business that’s underperforming in that area. So, when you look at our outlook for retail profitability for the balance of the year, we remain very encouraged that our retail profitability will show meaningful momentum year-over-year. So, you know, I think there’s a bunch of one-off items in the quarter that are not symptomatic [indiscernible] upper trend in our retail business.

[Rob Jost:]

Okay. And in the past, you’ve talked about investing in that business, I think the – it was on a sales capacity, and I wanted to say it was probably more of a North American than a European thing. I guess first of all, can you just clarify if what I'm remembering is correct? And secondly, are you still investing there or have you reached a level that you’re comfortable with?

[Gerrard Schmid:]

So, I’ll go back to the comments I made to the prior question. The heavier investment in sales was certainly something that was done quite frankly before I joined the organization. As I said in my prior comments, we’re taking a more targeted view towards our retail focus in the Americas, and by definition, you know, we don't see ourselves facing higher investment expenses in that market.

[Rob Jost:]

Okay, great. And then, my last question is, is on the Eurasia Banking. We’re talking to different people who are familiar with the ATM markets. We’ve been led to believe that the ATM refresh in Europe will be a slight delay behind the U.S. I’m just curious, is that what you're seeing? Would you expect the European markets – are you seeing European markets going a slower pace and perhaps, you know, will serve as a bit of a tailwind after the U.S. market close-off?

[Gerrard Schmid:]

Yes, Rob. If you take a look at our comments through most of last year and even this year as well, there was no doubt that North America and broad Americas led the refresh cycle and we weren’t seeing the same growth momentum in Europe as we were seeing in the Americas last year. Nearing the back end of last year, and now as we start to more into Q1, we’re starting to see European activity pickup. So, we do see a lag in the Americas, and as I’ve commented in the past, you know, our sense is that that will add some tailwind to our European activity as we look out over the next several quarters.

[Rob Jost:]

Okay, thanks.

[Operator:]

Thank you. Our next question comes from Ishfaque Faruk with Sidoti & Company.

[Ishfaque Faruk:]

Hi, good morning. Just piggybacking on the – on a prior question that was asked, in terms of the digital transformation work that you did for – that you’re going to do for Keybanc, do you like similar pipeline of work outside of the Americas?

[Gerrard Schmid:]

We absolutely do. So, when we take a look at software pipeline and some of the comments that we made in our prepared remarks, there have been software wins in most of our markets. In my prepared remarks, I talked about a large Western European financial institution that included hardware sales, service sales, as well as a very large software deployment, as well as other markets in EMEA. So, it’s pretty consistent across the board in terms of our pipeline of opportunities.

[Ishfaque Faruk:]

Got it, got it. Okay, and another one for me. In terms of – in your – the DN Now modernization plan, you highlight around like a 230 basis points jump in your services gross margin. Could you give a little more color on how you're going to get there?

[Gerrard Schmid:]

Well, so we realized a 230-basis points improvement in the quarter over last quarter, and if you go back and look at our prior releases, we have targeted a goal of over 27% services gross margins. We’re seeing now three consecutive quarters of momentum flowing from our service and modernization program, and the key drivers around how we do that are

[Ishfaque Faruk:]

Alright, thank you for taking my questions.

[Operator:]

Thank you. Our next question comes from Ash Thomas with Bybrook Capital.

[Ash Thomas:]

This is just a question on the balance sheet. It looks like there's $172 million there about the lease liability, which appeared this quarter. Would you be able to talk about what that’s in relation to?

[Jeff Rutherford:]

Well, that is the adoption of the new GAAP requirement to capitalize leases effectively, and that’s – so that – we basically take in all of our leases, which are generally our fleet for services and then any leases associated with offices and buildings. And the U.S. GAAP now requires you to basically capitalize that and put it on the balance sheet. So, there's an offsetting asset and liability that’s grossed up our balance sheet. You'll see it in the Q, which should be filed today or early tomorrow, and it has no real effect on our operations or any other metrics that we talked about today.

[Ash Thomas:]

Okay, great. Thank you.

[Operator:]

Thank you. Our last question will be from Justin Bergner with G. Research.

[Justin Bergner:]

Thank you for the follow-up. I just wanted to ask if the order activity in the first quarter met your expectations or fell fairly short of your expectations? And it seems like you’re, you know, reaffirming your revenue guidance despite somewhat stronger currency headwind, so is there something that's a tailwind that's not a positive offset to that?

[Gerrard Schmid:]

Yes, Justin. So, you know, obviously order activity moves around a little bit quarter-over-quarter, so we try not to pay too much attention to any one quarter, but look at it over a trending basis, and we are encouraged by the momentum we’re seeing in our order activity. As I said, if you take a look at our operating performance in the Americas and match that to what we’re seeing in our pipeline, that's really fueling the growth in our order book coupled by ongoing strength in our retail business with Eurasia being more of mixed view. So, I would its broadly in-line with our expectations, and – you know, and as we look forward to Q2, you know, we’re very encouraged with the order activity to match against what we hoped to achieve for our plan.

[Justin Bergner:]

Great, that’s good to hear. And then secondly, the SG&A initiatives that were listed on Slide 6 seems like some good initiatives there, is any of that incremental to the DN Now program as it was updated last quarter or is that just more spelling out some of the individual initiatives? These would be the reduction in SG&A.

[Gerrard Schmid:]

It’s spelling out the additional initiatives. So, we [indiscernible]. Yes, it’s a subset of the 400 million that we talked about Justin. We’re just adding more color so that you can get a sense of how it [indiscernible].

[Justin Bergner:]

Alright, thank you.

[Operator:]

Thank you. This does conclude today’s teleconference. You may now disconnect. Thank you for joining us.