Question-and-Answer Session
Operator
(Operator Instructions) Reik Read, you may ask your question, and please state your company name.
Reik Read - Robert W. Baird & Company
Hello.
Bill Nuti
Go ahead Reik. We can hear you.
Reik Read - Robert W. Baird & Company
Can you guys talk a little bit about the retail space? Bill you talked about the weakness you have seen there. It seems like it is an incremental step function down, and can you break it up between Teradata, point-of-sale, and the self-service area?
Bill Nuti
Sure I'll hit point-of-sale first and then Teradata; on the point-of-sale side. We typically in the first quarter are rolling out several large assisted point-of-sale opportunities with major customers. And we simply didn't have them in the first quarter.
We also were anticipating one large customer to close in Q4, and begin rollouts in Q1; we did end up closing that opportunity in Q1. It was with the Federated Department Store group for an extremely large rollout of point-of-sale. We'll begin that now in Q2 versus Q1, so the timing of major rollouts did impact us negatively in Q1.
On the Teradata side, it is simply a difficult compare as you well know; Teradata's retail business has traditionally been an engine of growth for us and a major driver. As we have expanded into new industries and have had success into new industries as well. It is certainly going to be a lower percentage of the business.
But we had some one time large transactions in the first quarter of last year that simply didn't repeat themselves in the first quarter of this year, so I would say it is a bit of a lumpiness that we saw that impacted us in the Teradata space. I don't know Pete, if you have any other...
Pete Bocian
No, I think the retail the backlog is very strong, that said, the move out of when the rollout started caused us to be a little more cautious on the volume potential for the year. Self-service activity in retail is strong and. I would call it, held its own in the first quarter. The decline was all in the traditional point-of-sale space, that's really the way I look at it.
Reik Read - Robert W. Baird & Company
So, it sounds like there was customer specific issues that you are citing there. But you guys have also, you lowered the guidance a little bit and Bill in your commentary. You identified some key issues. Can you talk a little about more broadly is there something in the marketplace. Or is there something that NCR has to do specifically to get that moving?
Bill Nuti
Yeah. I just to the last point, I think we are, as we discussed before as well, we certainly are working towards going down market more effectively in the retail space beyond the tier one customer base, certainly when a smaller number of your customers drives a great majority of your revenue. When you have one or two deals potentially fall out in a given quarter. You can end up where we did in Q1 on the assisted side.
As Pete mentioned, however we continue to see good traction in the self-service portion of the retail business, in terms of anything endemic in the space. I don't think that that's the case today. And we continue to keep a close eye on it.
Reik Read - Robert W. Baird & Company
Okay, and then just on the Teradata side. Can you talk about the factors behind the mix changes there and the expectations for mix, and how that might affect margins in the next couple of quarters?
Pete Bocian
What we tried to do in release was sequence, call it the relative size of the three factors; I think the first data point that we probably didn't talk about a lot last year was when we had a very low revenue quarter in Data Warehouse last year. We actually had a very strong mix; and to get above 20% margins with $326 million of revenue was a very, very strong mix.
So when you look at the number 1 driver. It was really the mix in the quarter; we expect that there will be other quarters that have a more favorable mix. Net, net the guidance for the year didn't change. Then the second one is, we had already baked into the plan the continued investment in demand creation. And I quantified that in the script as kind of a $9 million number.
And then the smaller piece was the legal reserve for a 2002 item, which was much smaller; so look at that as the kind of a three factors that impacted Q1; the mix we fully expect to normalize over time. Both from a software content and a relative hardware mix.
The demand creation was baked into the plan of record, and the initial guidance and then the smaller China component. We expect to recover from.
Reik Read - Robert W. Baird & Company
So, I guess what I am hearing you say Pete, is that is no real, we shouldn't expect any real change in mix from here. It's reasonably stable and then with respect to investments. Maybe a similar story is that you are not going to see a step function increase.
It is continued investment that you planned on for those areas, is that correct and then also. Can you just tell us what the China legal issue is, and how quickly that can be put to bed?
Pete Bocian
Yeah. I think the way to look at it is the mix, large deals drive different mix in different quarters, we don't expect that to be a full year impact. And I reinforce the guidance around the NPOI targets; the demand creation is upticking, but it is the plan of record to continue to invest.
And then this is just a 2002 item where we had to take, we had an initial reserve and we had to adjust the reserve. So it's not material enough to go into any more detail than that.
Reik Read - Robert W. Baird & Company
Okay, great, thank you, guys.
Pete Bocian
Thanks, Reik.
Operator
Matt Summerville. You may ask your question, and please state your company name.
Matt Summerville - KeyBanc Capital Markets
Hey. It's Matt with Key, in terms of the duplicative costs you have with Scotland running and Budapest running. When do you think those costs come to an end, and Bill? Could you rank order or at least give us a sense of how the downward trajectory looks. And it would obviously be very helpful if you could quantify what that cost was in the first quarter.
Bill Nuti
As you mentioned, in the first quarter we had two factories full-out up and running as we were making this transition, and managing our way through it; I do expect, that we will get some slight benefit in Q2. As in Q2, we are now more so moving the headcount out and the transition is in midstream, most of the benefit.
Matt, will come in Qs 3 and 4 in this year, and I don't think we've provided any numbers today. But we are comfortable that in Qs 3 and 4 we should see the vast majority of that benefit from these most recent actions we took in January.
Matt Summerville - KeyBanc Capital Markets
Okay, and then based on what your, again just sticking with ATMs based on what your customers are telling you. Can you sort of talk about Europe and Asia how orders, backlog trends are there, and with Europe both Western and Eastern?
And then in the U.S., how you see the trajectory of Check 21 as well? What are you seeing among big banks, regionals, etcetera?
Bill Nuti
Yeah. Very strong International both order book and revenue, it continued in Q1. As we, in the Americas, the Americas continue to be weak. As we go forward, and by the way on the Americas side, when you look at the weakness in Q1 as well. I would cite that similar to retail but only in the financial sense, we had several deployments underway with large customers to roll out what was in the backlog in the quarter.
And so it did impact us to some extent this lack of, well, a timing issue in Q1 in the Americas. That being said as we go forward, we are looking towards deposit automation to continue to mature. We have several thousand units in the United States today that are Check 21, I should say intelligent deposit enabled.
Several pilots are now moving deeply into production, I don't expect there to be a material impact on the company in the Americas in 2007. I still expect however, that we'll see consistent maturation of these pilots and other customers moving in the direction of deposit automation. And I still continue to think 2008, will be a stronger year with respect to deposit automation upgrades as well as 2009.
Matt Summerville - KeyBanc Capital Markets
Okay, and then, you mentioned on Customer Services, kind of the two keys are continuing to get the mix of business right, do you see that revenue trend on the ATM line continuing at that sort of rate, one? And then going forward what are the other cost opportunities in that business?
Bill Nuti
Yes. So, just a couple of comments on the success we have had in services and in our annuity file value. We've, over the last few years we have seen a rate of growth decline in that space. So, we are playing catch up in many regards, so the year over year compares are favorable.
As we move forward, I do expect us to continue to work hard to drive greater annuity success and I won't give you a forecast right now, we don't have that crystal ball. But we are working hard to drive share on the services side.
And frankly our services delivery is improving, so the quality of what we deliver to customers is improving. And therefore, I think we have a good opportunity to continue with some of the successes we have, but we don't have a forecast for you now Matt.
Pete Bocian
Yeah, Matt, the only thing I would add is in the 2 to 3% revised guidance clearly the NCR content is going to lead the rest of the revenue portfolio. And Self-Service is going to lead all the NCR content.
So without saying it's going to be like the 10%. We just did its going to be the best performer based on, certainly getting more volume helps like we did in Q1, but think of it that way that's got the potential to grow the best. And then we have upticked the year for customer services, a piece of it related to the NCR content.
Matt Summerville - KeyBanc Capital Markets
Okay. And then, just lastly on Teradata, I assume, was that $9 million all Teradata related that net increase in demand creation?
Bill Nuti
Yes, it was Matt.
Matt Summerville - KeyBanc Capital Markets
And then is that kind of the rate you expect on a quarterly basis. So, should we be thinking about somewhere in the neighborhood of $35 to $40 million of net extra spend this year in that division versus 2006?
Pete Bocian
Yeah, we are continuing to invest it's baked into the Op margins. We continue to get strong gross margins from the business, and we believe we can balance the revenue growth with the gross margin potential and deliver the 22, 23 and still invest for the future. And $9 million is what we did in Q1.
Matt Summerville - KeyBanc Capital Markets
Okay, that's all I have. Congratulations, Pete.
Pete Bocian
Thank you Matt.
Operator
Richard Farmer you may ask your question. And please state your company name.
Richard Farmer - Merrill Lynch
Richard Farmer, Merrill Lynch. Just a few questions first, a follow up on the Teradata pipeline and the enterprise spending environment. I think you indicated that there wasn't really a weakness in enterprise demand like some of the other companies like IBM and Sun talked about in March. And this was more of a kind of customer-specific, Teradata-specific pipeline trend that got you to your revenue in the March quarter, but could I just clarify that that's the correct interpretation?
Bill Nuti
Yes, Richard, the activity level in Teradata also continues to improve, so we're, I'm encouraged with what we call our funnel. And we've described in the past on this call as our funnel, which is a review of future potential opportunity that has continued to improve.
We had good traction in the first quarter with regard to new customer wins, and so, I think looking out both Pete and I remain relatively encouraged with the pipeline, sales activity and potential new customer wins for the rest of the year.
Pete Bocian
And Richard, I would say the 10% growth we had in the quarter was pretty much in line, so there weren't a lot of puts and takes around the revenue story in total for Teradata in Q1.
Bill Nuti
Yeah. And on the macro environment, just to answer this question. Richard, on the macro environment in terms of the U.S., I'm out of the forecast business on the economy. So, I'm going to leave that to those economists out there in the market.
Richard Farmer - Merrill Lynch
Okay, Thanks. Switching to the ATM business, I am just trying to understand, obviously very strong growth 20% in the quarter. The revenue guidance that you provided for the year is only slightly higher and why wouldn't that strengthen the revenue continue into the full year?
Bill Nuti
Yeah, Richard, I think it's too early right now. We did have favorable timing of large transactions in the International markets come in and play, in that Q1 success. And I agree with strong revenue growth, just too early right now, to call the ball for the rest of the year.
Richard Farmer - Merrill Lynch
Okay, thanks. And Pete you made some comments on capital structure, I wonder if you might elaborate a little, you talked about no share repurchase and maintaining flexibility for the capital structure for each of the entities.
Would you consider a recapitalization similar to I guess the debt finance share buyback that IBM announced? Or could you elaborate a little on your plans for capital structure?
Bill Nuti
Yeah, I will take that Richard. First of all to maintain maximum flexibility as we go through the separation process. We really are focused on building two strong balance sheets and two strong capital structures for these two new companies.
So, we are likely to maintain a more conservative posture until the spin-off. However, that being said, everything is really on the table subsequent to the spin in terms of what these two companies need to do to achieve the very best shareholder value.
And we are really working through those strategic plans as we speak. But, would we consider a recap? Yes. But there are a variety of other things that we would consider as well to drive shareholder value.
Richard Farmer - Merrill Lynch
Okay, one final one, please. Just on ATM pricing trends and your expectations there going forward, any comments you may provide? Thank you.
Bill Nuti
Relative pricing stability would be my macro comment around the world. I would say we did see some more aggressiveness in the Americas market over the last few months, but nothing of substance.
And certainly the internationally emerging markets continue to be more price-aggressive, the India's, the China's, and to some extent the Eastern Europe's.
Pete Bocian
Yeah, Richard, the way I look at it as less of an in-market year on year pricing. It's much more of a mix. So clearly as we talked about before, there are certain markets where the profit potential and let's call it the overall functionality of the ATM can give us a better opportunity to get higher margins.
So, I would call it more of a mix, which is why we talked about the Americas and other markets, more than it is a year on year pricing aggressiveness for that market.
Richard Farmer - Merrill Lynch
Thanks very much.
Pete Bocian
Thank you.
Operator
Katie Huberty, you may ask your question and please state your company name.
Katie Huberty - Morgan Stanley
Katie Huberty from Morgan Stanley. Bill, you mentioned deposit automation uptake as a factor in Western Europe's strength. Are we actually seeing a faster adoption rate in Europe versus the U.S. or is that strength just relative to expectations?
Bill Nuti
No, we have seen a faster adoption with regard to deposit automation in Europe. Now it is different than Check 21 in the United States. It is important that you understand the difference by country there.
I won't get into the specifics except to say actually, Katie, our largest deposit automation customer in the world is in Europe and they have been further ahead. The implementation of which is different by country and slightly different or very different in most circumstances to Check 21 in the United States.
Katie Huberty - Morgan Stanley
Okay. And then just quickly on Teradata, could we see the revenue mix start to shift back towards software as soon as the June quarter? Is that something you are just looking for over the next two or three quarters?
Pete Bocian
Yeah, I think it is just different deals have different mix depending on where the customer is and what additional slices of capacity they need. So, we had a great mix in 2006 first quarter.
We had a less favorable mix in first quarter of 2007. I expect it to normalize through the year and not be a full year factor as we go forward.
Bill Nuti
Katie, this is Bill. The way I would view it is more of a quarterly thing. There's really nothing new here. There's no dynamic that should change or affect the mix from normalizing throughout the rest of the year.
Katie Huberty - Morgan Stanley
Great, thanks.
Operator
Gil Luria, you may ask your question, and please state your company name.
Gil Luria - Wedbush Morgan Securities
Wedbush. Just one question today. When you talk about handing off production to Selectron in the U.S., are you referring in the first stage to them taking over production in your existing plants? Or what is the timeline for them moving production to their own plant?
Bill Nuti
Yeah. We bit to answer the last question first, because it is an important precursor. These are their plants and they are already up and running. We have been working with them for several months now to get them prepared to kickoff.
And really what we are looking at, Gil, is a transition that is starting in Q3. We're being very careful about our transition here, despite the fact that they are experts in manufacturing.
In one instance, for one product line, which has already been launched through Selectron in the company and not in the Financial Services based FastLanes. We've also have experienced extremely high quality off of the end of the line and some additional cost savings.
So we have been encouraged with our FastLane product line going through Selectron. We continue to work with them on the ATM side. The transition starts in Q3.
Gil Luria - Wedbush Morgan Securities
Thank you.
Operator
We have time for one more question. Matt Summerville. You may ask your question and please state your company name.
Matt Summerville - KeyBanc Capital Markets
And just to follow up here on, Pete, I think it was you that mentioned you anticipate $50 million of expenses related to the separation. Can you talk about what that encompasses?
Pete Bocian
Yeah, those are characterized as one time costs associated with developing, executing the transaction of creating two public companies. That would include investment banker costs, external counsel.
We have some expertise from organizations that have been involved in spins before as far as developing our shared services, G&A, blueprint. Setting up tax entities in each country has a cost to it. We have defined where Teradata is going to have a legal entity going forward.
Then we've got to go execute establishing those legal entities. So it's really the tax investment banking, legal council, and some element of internal knowledge of how to do, what to look for and how to effectively execute a spin-off.
Matt Summerville - KeyBanc Capital Markets
Okay. Then assuming the companies, which are together for the full year for my model, what is the depreciation, amortization, and CapEx?
Pete Bocian
Yeah, just assuming starting the year and finishing the year in the same state, the expenditures is $175 million.
Matt Summerville - KeyBanc Capital Markets
Okay.
Pete Bocian
As you know, that is PP&E and capitalized software, no service parts in that number. And the D&A number is $165 million.
Matt Summerville - KeyBanc Capital Markets
Okay. Thank you.
Bill Nuti
Thank you, Matt and I wanted to just take an opportunity to thank everybody for being, I am sorry we had allotted less time for this particular call. It was a little bit short. But I appreciate you all being on the call and we will look forward to speaking to you again in July.
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