And on the retail side, we’re now very focused on — over the past two years, we’ve grown significantly in Europe. We’ve made our first inroads into the US market, and this is the year where we’re really focused on how do we accelerate our expansion into the US. So, I would tell you that those are the kind of the key drivers, but, particularly, it’s a strong focus of our teams to keep winning in the market and serving our customers.
Matt Bryson: Awesome. The gross margin improvement in the quarter was nice to see. And I know you talked about the ability to continue to improve that metric, same time, you’re keeping your EBITDA and free cash flow guidance unchanged. Were the improvements that you’re seeing or think that you can manage already envisioned when you provided your initial guide? Or can we assume that if you execute in terms of getting gross margin higher that we’ll see upside, assuming all else is unchanged?
Octavio Marquez: Yes, Matt. So, clearly, we had built some of these things into our planning. I would say, particularly, we’re seeing faster return on some of the actions that we took. Particularly, on the product side, we do see component pricing working favorably, pricing taking hold in our — across our enterprise with all our sales teams. So, some of those benefits that we were hoping would be more Q2, Q3 we were realizing before. We need to maintain those improvements throughout the year, and we’re confident that we can do that. Before we change anything, we want to make sure that we provide consistent operational execution over the coming quarters. We still need to linearize more of the quarters. As I said at the beginning, we are off to a good start.
Now we’re working on a strong Q2, a strong Q3, and taking risk off the table as we keep linearizing things. But that is the spirit. And as we do that, yeah, clearly, we will have opportunities to keep improving throughout the year.
Matt Bryson: Excellent. Thank you so much for your time, and answering my questions.
Octavio Marquez: Thank you.
Operator: We now have a follow-up question from Matt Summerville of D.A. Davidson.
Matt Summerville: Thanks. Just two quick ones maybe. Octavio, can you maybe describe the recycling adoption level you’re seeing in North America? Is it still primarily relegated to the largest kind of Tier-1 financial institutions? Are you starting to see that migrate down market into the small bank, regional bank market? In addition, if you could maybe use a baseball analogy inning-wise to describe where we’re at with recycling adoption in North America and how that will likely play out this year and heading into ’25?
Octavio Marquez: Yes, Matt, so again, as you know, the large banks have started on that journey, but I would say that we’re still in the early innings with those large banks. We’ve had significant wins in Q1 with large banks that are just starting down that journey. Remember, recycling provides better customer service, but clearly a lot of operational efficiency. So, as these larger banks start adopting this, and remember, they need to change part of their software and different things that provide other opportunities for us. As these banks mature in that journey, I think it’s still multiple years, there are large fleets to refresh. But clearly, smaller financial institutions take note of that. And remember, particularly in the U.S. market, many of these smaller financial institutions are connected to large national switches, which are all investing heavily in building recycling capabilities.
So, I would say that we’re very early in the stages of adopting recycling. We’re also seeing recycling not just at the ATM, think of our recently launched teller cash recycler, which is starting to gain traction as part of the whole cash ecosystem that you have in a branch, which is a very important part. Recycling provides benefits not just at the ATM, but at the whole branch level. So, I would say that we still have significant runway to go, but it’s a process. We need the switches to adjust to recycling. The big banks are doing it on their own. So, we see this as early stages of our process. We’re probably still in the early innings of doing this.
Matt Summerville: Got it. And then, as a follow-up, can you just put a finer point on the headwind we should expect in 2024 overall from some of that deliberate revenue exit that you guys undertook in the retail business? And can you maybe just put a little bit of finer point on exactly how that relationship would have worked in the past, just a little bit more around exactly what you exited there?
Octavio Marquez: Yeah. So, Matt, I want to say, I think the important part is we are very focused on our — we still believe SCO is a great avenue of growth. I have no doubt of that. Retailers facing some of the same challenges and want to continue investing in those technologies. And we are developing the complementary solutions as our SHRINK solution, our age verification solutions, to make the solution even more robust. In the past, as we look at a retail environment, we were selling third-party products into many of these large retailers. Think about electronic shelf labels that we would integrate, handheld scanners, different products that were part of providing a service to a customer, but we were just basically being a reseller for somebody else.
So, we’ve made the decision that it’s better to utilize our cash in different ways. I would say that this — while it’d be a revenue headwind, you can — it’ll be a profitability increase for our retail business. So that’s why we are focused on that. I think overall, the growth in SCO and electronic point of sale throughout the year will more than offset that decline in those third-party sales. So, we do see a stable retail business, but with a much better product mix.
Matt Summerville: Got it. Thank you.
Operator: We now have a follow-up question from Matt Bryson of Wedbush Securities. Your line is open. Please go ahead.
Matt Bryson: Hey, thanks for taking the follow-up. So, free cash flow with the solid operating profit and — there doesn’t seem to have been any headwinds from inventories or accounts receivable or working capital at all. So, a lot of the reason it seems cash flow was negative was — that was in another category. Jim, you mind just walking us through what exactly was — what that other category is that led to free cash flow being negative?
Jim Barna: Yeah, I would say — Matt, thanks for the question. And again, I think we talked about this at year-end with respect to how we group cash flow items. And so, I think the incremental disclosure that we’ve given in the deck breaks apart how we look at working capital. And so, what portions of current liabilities and current assets are outside of what flows through those receivables, payables, inventory deferred revenue lines. And so, the biggest driver of the other category here in the first quarter is timing on indirect tax payments. And so, if we think about the fourth quarter, we typically have timing items to the positive in terms of sources, and then that flips around in the first quarter here, where the cash goes out.
