DBD
#Yes, to answer the latter question first, if you look at the year-over-year change, you have got the inventory increase as a big portion of it and there still is some pent up cash flow sitting in the AR balance that is primarily tied to North America.
So, those are the two big pieces that are driving a little bit of the higher use year on year, it's the inventory and the AR from what we have seen there.
With regards to the third quarter, adjusting for the items that we talked about, we are looking in a positive area of improvement quarter on quarter.
Clearly we are going to be driving that as hard as we can to maximize the performance as we go forward.
I think that is a great question, <UNK>.
As you know, the Brexit decision was a few days prior to the end of the quarter.
So the quarter is clearly not impacted by any of this.
So far we don't see any impact.
Our solution portfolio, as much as sometimes we regret it, it is not an impulse buy decision type of thing.
And whenever a market gets under additional pressures, as I pointed out earlier in Canada, then people look for new ways to improve the bottom line, to improve their services and to even offload some of the activities that they have.
So, we see Europe as a fertile hunting ground going forward.
And it might indicate a little shift from the product to the services side, but that is still too early to call.
But from a level of interest it is all very, very active.
Now you have got to be country specific.
Canada, the regionals are very active, so we see that and it shows up in our order book.
In the US it is still more tilted towards the large accounts, but we see interest starting to take up on the regional front.
And you can see it with the software wins that the regionals that the credit unions are really taking a look at how can we provide new services to the community.
And I am extremely encouraged with the multivendor software deals that we were able to place this quarter.
And many of them were actually with credit unions.
So, relatively small institutions who want to make sure that they include innovative technology into their offerings going forward.
I would agree with you that we are a lot closer to it than we were a few years back.
When it is really going to happen, the jury is out.
The rate discussion will have some impact on it.
As you know we are on the opposite side of the rate discussion for our customers.
If interest rates go up our customers have a wider spread.
That is usually a good thing when it comes to additional investments.
So, whether it is a year out, whether it is 18 months out, whether it is 24 months out I think it is a little too early to call.
But I agree with your underlying thesis that we are approaching a point in time where a regional upgrade cycle ought to come back into the picture.
I assume you are talking China.
<UNK>, I have long given up to predict cycles of government agencies when certain things will get approved.
The big milestone in China was the MOFCOM approval that is in the rearview mirror.
But also, as you very well know, market prices in China have gotten extremely competitive.
So we want to make sure, together with our friends at Inspur, that the JV has a very positive launch.
So we are working very hard in ways to reduce the cost of our product and our solutions, which includes relocating the factory from Shanghai to one of the new government-related zones.
And there are local approvals required, and we're just going to work our way through them.
I would hope we will get them done sooner rather than later, but that is not for us to influence.
Yes, as we outlined, we are looking at from an EBITDA and EPS standpoint for the second half basically a 30/70 split between Q3 and Q4 as the project activity starts to ramp up.
I think two other key items to note that we have talked about historically, obviously you get a little bit of the lull in Europe in the summertime, so that typically impacts the third-quarter performance.
And we have also already highlighted multiple times here the impact that China is having.
So clearly the overall performance in Asia when you look year on year is going to be down.
And if you look at where the current performance is at, that is a little more of an indication of what you would expect for Asia in Q3 as well.
So those are two areas that will be a bit of a lull in the third quarter.
<UNK>, as you very well know, I am not at liberty to publicly talk about any of the Wincor activity.
That is going to be an area that we will give more clarity on after we have consolidated companies.
Well, look, our industry is not going to change just because we will combine with Wincor.
Nevertheless, there is a benefit in a larger number.
And usually when you take a look at North America and Europe and if you were to draw the curves, they don't swing in unison.
Usually they kind of offset each other, so that will help.
What will definitely help is if you keep in mind that we will be roughly $3 billion in services.
So you have got the amount of recurring revenue is going to go up.
The currency hedging between dollars and euro you would assume is probably going to balance itself out a little bit more, because everything that you do especially in the service-side kind of hedges itself.
So I would expect it to be a little less volatile on the numbers, but the market is what the market is.
No.
The bug and the kinks in the system, we worked through those in Q1.
As I noted, we really peaked on catching up on the service billings in that March/April timeframe.
And now it is just a matter of just working through the collections process.
Obviously, when you have aged invoices and you have the size of the backlog that we built up in those, it takes a little more time to work through with our customers.
We have been doing that.
We are not seeing higher write-off activity or bad debt.
And it just takes a little bit more to work through those with our customers, which is what we have been doing and seeing the progress.
Yes, let me start off, and I will let <UNK> talk about the timing of the close here.
Specific to the hedging strategy when we entered into the agreements back in 2015, we hedged a very large portion of the overall transaction, not understanding the full amount that we were going to have in terms of fares tendered, and having a basic understanding but not a full understanding of the full euro exposure.
So at that point, we entered into a hedging strategy that was essentially hedging 100% of the overall tender offer.
As we moved forward and we saw the results of the tender offer, we saw where that euro was at, we were able to update and move forward with our hedging strategy.
We locked in a gain.
And that gain, year to date or life to date, on that original contract, we have outlined.
So we ran that piece, and then we entered into a forward contract to then lock in any remaining exposures that we have.
So if you look at the net $15 million that we have talked about, you will have the gain that we have locked in and then you'll have the cost of the forward contract and the movement that you will have in the ultimate euro that will lock in the ultimate purchase price of the overall transaction that we have.
And from a timing point of view, <UNK>, we are pretty optimistic that we will stick to the timeline that we have outlined from the very beginning.
We are down to one country approval, which is a condition for the close, which is Poland.
The good news is we had to go through 11 countries; 10 out of the 11 we have got now in the rearview mirror.
And in not a single one of them did we get any onerous or painful stipulations from the regulatory authorities.
But these countries go through their own processes and it is a process, whether it is for a small number or whether it is for a big number, you have just got to work your way through.
We are pretty sure that Poland is not going to be any different than the previous 10, so we don't expect any major hiccups.
And as soon as we have got the Polish clearance, we will then take the next step and go to closing.
Yes, the gain was realized; that was approximately $50 million.
So that is locked in.
So if you look at it from an overall cash flow, that is a realized gain.
Then you have the mark-to-market impact on the current forward.
That is not realized.
Obviously, that is going to move up until the point that we then finalize that forward contract at the closing of the deal.
So that benefit would run through the overall cash flow, not operating but the overall cash flow of the Company.
Yes, you have multiple pieces moving there, so you have the gain portion coming through and then you have the mark-to-market impact.
A portion of that gain was also, from an income statement standpoint, was recognized as it was re-measured at the end of 2015.
So you have a portion of the gain that was in 2016, and you have a portion of it that was in 2015 that gets to the full contract-to-date amount that was ultimately recognized.
Well, if you take a look at service there is always three elements to service: there is break-fix, there is the managed services, and then there is the installation fees.
So I would expect break-fix and managed services to continue on the trajectory that they are on, which is steadily improving.
And needless to say, the more product we install, you would also see an uptick on the installation side of the services house.
And as you also know, every hour that we can bill a service technician translates into margin ---+ being margin accretive.
So higher utilization is usually a good thing for a service workforce.
So we are very encouraged on the services front.
But the important thing is we are very encouraged ---+ and that is what you see in the first half ---+ that the recurring monthly revenue is trending up.
It is consistently trending up and that is a clear result of the managed services and the multivendor services contract strategy that we have embraced, the wins that we had last year and, of course, the wins that we are getting this year.
Yes, I mean as you bring forward in the third quarter, for example, you have a little bit of that higher hardware revenue.
You would have a little bit of a dilution impact on the overall total gross margins.
But our continued performance in the service ---+ and improvements in the service margins helped to offset some of that.
And a lot of that comes down just to the mix of revenue we have as well.
As North America and Latin America, we run a little bit higher volumes there, helps out.
More Asia, obviously that's single-digit type of margins and it moves a bit.
No.
A lot of the reinvestment we have were foundational items that we have talked about, our IT systems, and also updating and moving to a new hardware line which we hadn't upgraded in a long time.
A lot of that work has largely gone forward.
We have those solutions out in the market.
So we are not trying to be penny wise, pound foolish here, and hurting the long-term business.
We are really taking out some of the investments that were foundational items that we did before, and we are trying to be very measured as we look at the combination in front of us as well.
Let me just add to that.
For the last two years, we have been talking about a turtle curve on the reinvestments.
We had to do some stuff that were neglected for a long period of time.
We invested the money.
I am actually very encouraged to see that ---+ it is always easy to throttle forward on the spend side.
I am very encouraged to see that the throttling back part of it is working just as well as the throttling forward.
And the organization truly understood the concept that we have put forward, and I am very proud of the team that we were able to accomplish this just as we had predicted.
We are out there selling.
I mean we are having tons ---+ we are having tons of conversations.
It is not a question of visibility.
We have got a lot of visibility.
It is a question of timing.
Any time you have a large project, I cannot even begin to tell you how many times in my sales career I thought I'm close to closing a deal, and then it took another eight weeks to get it into the end zone.
You just never know.
Some of these things get done faster than you anticipate and some of them might run into a pothole, and it takes a little longer.
That is the only piece that you cannot predict.
The activity level overall, if I take a look where branch transformation was two years ago and where branch transformation is today, it is just night and day.
<UNK>, that is a great question.
So let me take it in three steps here.
Primarily, a China issue for China.
But you are absolutely correct, there is the usual spheres where the Chinese companies go into, usually somewhere in Asia.
You also will start seeing them show up probably in Africa.
But the biggest differentiator is when you ask yourself, "well, why arethey not in Europe or why they are not in the US" It is just service.
And if you think this thing through, when you automate a branch, when all your cash, when all your mundane functionality, when all your customer interaction on the usual day-to-day stuff sits on a machine, the very last thing that you can afford is this machine to be down.
And we both have seen the movie on the telecom side; usually far Eastern players woefully underappreciate the importance of service and quite honestly, in many cases, also the importance of software, which is why we did the transaction with Wincor because we are saying bolstering our service business.
We are going to be the largest service provider in our industry in a few weeks here.
That makes a very important differentiating factor and it gives us a very defendable position going forward.
Okay, I want to thank everybody for joining us on today's second-quarter earnings call.
If you have follow-up questions, please reach out to us at investor relations.
