Diebold Nixdorf Incorporated Common stock

Good morning, my name is Charlie and I'll be your conference operator today. At this time, I'd like to welcome everybody to the Diebold Nixdorf third quarter 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. Thank you. Ms. Malczewska, your conference now may begin.

Hello everyone and welcome to our third quarter 2022 earnings call. I'm Christine Marcheska, Vice President of Investor Relations for Diebold Nixdorf. To accompany our prepared remarks, we have posted our press release and shareholder letter to the investor relations section of our corporate website. I would encourage investors to review the shareholder letter as it contains additional information regarding the progress of the company. Later this morning, a replay of this webcast will be available on the investor relations section of our website. Before we begin, I will remind all participants that during this call, you will hear forward-looking statements, including related to an update on our outlook. These statements reflect the expectations and beliefs of our management team at the time of this call, but they are subject to risks and uncertainties that could cause actual results to differ materially from these statements. Additional information on these factors can be found in the company's periodic and annual filings with the FCC. Participants should be mindful that subsequent events may render this information to be out of date. We will also be discussing certain non-GAAP financial measures on today's call. A reconciliation between GAAP and non-GAAP measures can be found in the tables of today's earnings release. And now, I'll hand the call over to Octavio.

Thank you, Christine, and thanks to all of you for joining us today. Today, I'd like to cover some main points, including our recent transaction support agreement. But before that, I want to spend some time talking about the consistent market demand for our banking and retail solutions during the quarter and how our backlog is positioning us for success. Next, we'll discuss our operating model. Progress on our savings plan and our 3 year financial model and then before I hand it over to Jeff. To discuss financials and details, we'll share a brief update on the transaction contemplated by the. As we set throughout the year. Our banking and retail solutions continue to generate consistent demand in the market as evidenced by the backlog trends. Backlog remains near historic highs at approximately $1.4 billion in the third quarter and will subsequently work its way down in Q4, given our product delivery expectations. We also see continued strong demand for DN series as the shift from legacy devices continues and as DN series cash recyclers continue to comprise the vast majority of our new banking orders in North America. Momentum in our retail solution also remains strong, and our self-checkout business is continuing to grow as we start to see results from our market expansion efforts in the U.S. and outside of Europe. We are also seeing tangible benefits from our new streamlined operating model. During the past two quarters, our company has taken deliberate and strategic steps to become more lean, agile, customer-focused, and better equipped to deliver our solutions to the market. We are continuing to focus on our operational rigor. We have significantly improved our cost management by eliminating redundancies. We are creating more efficient processes globally and are considerably decreasing our indirect spend. To date, we have executed on approximately $170 million of savings through these efforts and are modeling an additional $25 million of savings, which we are implementing as quickly and efficiently as possible. In addition, we are taking deliberate steps to further improve key aspects of our operations, such as regionalizing our manufacturing footprint and normalizing and wrapping up our supply chain to drive unit growth and revenue conversion. From a financial modeling perspective, moving forward, we will reference unit economics to discuss our performance as it reflects how we measure the business. We believe unit economics provides a strong correlation to our product revenue and allows us to better highlight the relationship between volume and mix. We have solid fundamentals as we have consistently seen stable demand for our product solution set. As provided in our current report from Form 8K, filed and updated on October 20th, given our elevated backlog, we have 100% coverage for product revenue in 2022. and we expect to ship 52,000 ATMs, 25,000 self-checkout units, and 127 point-of-sale terminals this year. This is the basis for the model we disclosed in October. As Jeff will discuss, we still have work to do in the coming months to achieve this target. A few weeks ago, As part of our TSA disclosures, we provided our full 2023 forecast for units. From our backlog and the demand we are seeing to what I'm hearing from customers, I am confident in our product revenues as we enter the next year. By year end 2022, we expect our backlog to be approximately 1.3 billion, which secures approximately 80% of our 2023 product revenue. As we disclosed, we are forecasting unit sales of 60,000 ATMs with the majority being our industry leading DN series recyclers. We're also forecasting 35,000 self checkouts and 134,000 point of sale devices for 2023. These numbers include product revenue deferral of approximately 2,500 ATMs, 2,000 self-checkouts, and 7,000 EPOS units, which will be recognized in 2023 versus 2022 to supply chain velocity issues. Looking further out to pool year 2024, we provided a forecast to deliver 63,000 ATMs, 40,000 self-checkouts, and 134 point-of-sales units. As you know, services is also core to our business. And as shown in our operating forecast, in 2023, we expect to generate approximately $2.1 billion in revenue from this business by the end of this year. And we have already secured approximately $1.4 billion, roughly 70% of our service revenue, through existing contract coverage. Additionally, we expect another 10% or $200 million from product-related installations, And we have professional service work executed through the year that generates another 10% with the remainder of our service revenue coming from build work. Given this insight into our expectation over the next three years, we are confident in our multi-year strategic operating model and financial forecast, especially considering the demand for our solutions. And finally, as I mentioned earlier, we announced a few weeks ago that we entered into a Transaction Support Agreement, or TSA, to help us extend our near-term debt maturities and obtain additional liquidity. We conducted a rigorous due diligence process with our lenders and note holders to reach this milestone and firmly believe that the productive conversations we have with our lenders and note holders, especially around the execution of our savings plans and our operational initiatives for the business, demonstrate the financial community's confidence in our long-term strategic operating model and reflect the progress we have made despite the challenging macroeconomic environment. As noted in our current report on Form 8K filed yesterday, I am pleased to say that following the initial execution of the TSA, additional eligible creditors have executed joiners to the agreement, which increases the percentage of the company's term loan holders and the company's 2024 senior note holders that are party to the TSA to approximately 97% and 87% respectively. Please see our current report on Form 8K filed with the SEC yesterday for more details. We are working towards completing the transaction contemplated by the TSA in December. And from there, we will work to normalize our business and continue to execute on our model. As always, we will remain focused on our goals and maintaining our position as a leader in banking and retail technology, automation, and related services. To do so, we intend to accelerate market share growth in ATM products and terminal software, build momentum in self-checkout and next-generation cloud software for retailers, and lead the industry evolution with our service solutions while also pursuing opportunities to leverage our global services operations. I also want to reiterate What we said during our last earnings call to address questions we often receive from investors about mergers and acquisitions, including potential divestitures and other value creating opportunities. We remain committed to delivering on our strategy, supporting our employees, customers and business partners and making strategic investments in the business. We also will. continue to evaluate strategic alternatives that will benefit our shareholders as part of our constant efforts to maximize shareholder value. We look forward to capturing all opportunities that lie ahead with our enhanced financial flexibility. Before Jess provides more detail on our Q3 financials, I'd like to recognize our incredible employees for their hard work and dedication over the past quarter. and I want to thank our customers for their commitment and patience as we have worked through this process. As I have said before, we remain confident in our long-term strategic operating model, and we will continue to execute on our goals to remain a global leader in banking and retail technology. With that, I will now turn it over to Jeff.