Diebold Nixdorf Incorporated Common stock

Hello, everyone, and welcome to our first quarter 2025 earnings call. To accompany our prepared remarks, we posted our slide presentation to the investor relations section of our website. Before we start, I will remind all participants that you will hear forward-looking statements during this call. These statements reflect the expectations and beliefs of our management team at the time of this call, but they are subject to risks that could cause actual results to differ materially from these statements. You can find additional information on these factors in the company's periodic and annual filings with the SEC. Participants should be mindful that subsequent events may render this information to be out of date. We will also discuss certain non-GAAP financial measures on today's call. As noted on slide three, a reconciliation between GAAP and non-GAAP measures can be found in the supplemental schedules of the presentation. With that, I'll turn the call over to Octavio.

Good morning, everyone, and thank you for joining us. Starting on slide four, 2025 is off to a strong start with Q1 performance on track with our expectations. By staying focused on execution and exceeding customer expectations, we delivered another quarter of standout results. Importantly, we are maintaining our financial outlook for 2025 while monitoring the tariff situation. Our market-leading automation and self-service technologies drove a significant 36% year-over-year growth in product orders, with growth across banking and retail and in all major geographies. We saw continued strength in the adoption of cash recyclers. This robust momentum positioned us well to achieve our revenue growth in the second half of the year. Our lean operating model and continuous improvement mindset are delivering. Gross margin expanded 20 basis points year over year and 140 basis points sequentially. We are starting 2025 on solid footing and are making solid progress to hit our three-year targets. Growing product gross margins 25 to 50 basis points annually and service gross margins approximately 100 basis points annually. We are maintaining our fortress balance sheet with low net leverage to support our capital allocation priorities while strengthening our free cash flow generation. We generated $6 million in positive free cash flow in the quarter, the best first quarter in our company's history as we deliberately take steps towards improving our cash flow seasonality. And we are delivering for shareholders. taking off our 100 million share repurchase program in March by repurchasing 8 million of VN shares. We are proud to take this important first step to increasing capital returns. We believe there is upside potential to our stock, and we expect to continue executing this initial program in a prudent manner. In line with our commitment of maximizing value, we remain focused on returning capital to shareholders in the form of share repurchases. Regarding the geopolitical backdrop and the new tariff policies, we are prepared for tariffs, giving our long-time global operations and investment in local-to-local manufacturing. There are some areas of potential impact in our supply chain, but the team is already taking actions. leveraging our local manufacturing and lead principles to keep costs in check. Tom will dive deeper into this in a moment. I am incredibly proud of our global team for staying focused on delighting customers and advancing our continuous improvement culture. Let's move to slide five. Taking a step back, we wanted to reiterate what we see as the key drivers of value creation for DeWolf Nix. which we communicated at our February 2025 investor day. We are focused on delivering on the three-year growth acceleration plan we set to drive meaningful value as a global leader, providing mission-critical hard work, service, and software, transforming the way people bank and shop. To that end, we are delivering across three key pillars. First, we're capturing secular tailwinds across our two complementary businesses, banking and retail, where customers continue to seek more self-service and automation solutions. Both banking and retail are large and growing opportunities, representing a combined $32 billion total addressable market. Second, we are driving growth and improved profitability. In banking, we are accelerating growth through branch automation solutions and fit-for-purpose devices and through a long-term ATM refresh cycle. In retail, we are driving enhanced AI-driven checkout capabilities and penetration of the North American market. We are improving profitability through our lean operations. There are significant operational efficiencies being unlocked across the organization. This is really becoming part of our culture and ingrained in the minds and hearts of our employees We are seeing great action from our team and we expect continued benefit from these initiatives. Third, we are increasing our cash generation. Higher free cash flow conversion enables us to increase shareholder returns via share repurchase. Taken together, we believe our plan will enable us to deliver mid-single digit annual revenue growth by 2027, as well as double digit adjusted EBITDA growth and 15% margins by 2027. This works out to $800 million in cumulative free cash flow over the next three years and 60% plus free cash flow conversion in 2027, while maintaining a fortress balance sheet and increasing capital return for our shareholders. With that, I would like to turn to slide six, where we will discuss our growth acceleration strategy progress. I'm excited to share that Q1 shows we're already advancing on the priorities we outlined. In banking, we are transforming how financial institutions operate with cutting-edge branch automation and tailored ATMs for high-growth regions like Asia Pacific and the Middle East. Our branch automation solutions integrate advanced ATM and teller cash recyclers with our prepackaged managed service and software offering. enabling banks to streamline operations and enhance customer experience. We're gaining traction with a number of large national and regional banks in the U.S., and our pipeline continues to grow. Meanwhile, our tailored, fit-for-purpose ATMs and recyclers, like the India-made units now rolling out, are designed for local needs. Compact, energy and cost-efficient, and paired with bundled software and services. Similarly, our high-capacity recycler unit developed for the Middle East and Africa has allowed us to win several new logos this quarter. By expanding our install base in these high-growth regions, we will drive high-margin recurring service and software revenue. In retail, we are redefining self-checkout with AI-driven solutions like dynamic smart vision. This technology uses advanced computer vision to reduce shrink by detecting unscanned items and streamlining checkout with automatic produce recognition, saving time for shoppers and cutting costs for retailers. Pilots are underway with major changes showing strong results, including a 70% reduction in fraud for one of our European customers. Beyond applying AI-driven solutions at self-checkouts, we are leveraging our deep expertise to deploy fraud prevention solutions at the traditional point-of-sale terminal and the store aisles. And as we execute our North America expansion strategy, our investments in local manufacturing in Ohio and expanding our North America sales team, are showing steady progress with opportunities identified that would contribute to the expected second half recovery in 2025. On manufacturing supply chain and product, we remain well-positioned to achieve our targets, given our established strategy of local for local manufacturing and the initial impact of applying lean principles. We're acting swiftly to deploy mitigating actions for our supply chain in face of rising tariffs and accelerating our development of an in-country supplier base to help mitigate rising costs. We also implemented targeted price adjustments in North America. And in services, we are rolling out Oracle Field Services and combining it with our all-connect data engine analytics platform to deliver faster, smarter support, making our customers' lives easier. These solutions aren't just about innovation. They're about solving real problems and creating lasting value for customers and shareholders. Now on to slide seven. Service is the heartbeat of our business. And in 2025, we're doubling down on making it world class. In Q1, we held intensive Tyson events across six countries, from Canada to India. And as you can see from the pictures, hundreds of employees participated. We are advancing our cultural transformation and helping streamline how we serve our customers. The results are clear. Improved safety for our teams, faster repairs, fewer repeat calls, happier customers, and a reduction in average days of inventory on hand. As I met with many of our customers this quarter, I was encouraged by the recognition of the positive impact we're driving in their operations. These improvements do more than delight our customers. They boost margins, strengthen loyalty, and ensure technicians work safer, fueling our team well-being and profitability. By pairing lean principles with tools like Oracle Field Services, we're not just meeting service agreements. we're focused on exceeding them consistently. This is our path to becoming the undisputed leader in service, delivering unmatched value to our customers and shareholders alike. With that, I'll turn it over to Tom to walk us through our financial results. Thank you, Octavio.

Starting on slide A, we provide a five-quarter financial trend, which shows how our business typically builds throughout the year. Overall, first quarter results represent a solid start to the year. Most importantly, we delivered in areas that position us well to achieve our full year objectives. First quarter product backlog increased to approximately 900 million, up from approximately 800 million at year end, on strong new order entry, which was up 36% year over year, with improvements across both banking and retail. Coming into the year, we expected a 45-55 revenue split weighted to a strong second half of the year, and our teams are converting on those opportunities. Our first quarter performance, along with achievable due to order entry targets, will give us approximately 80% to 90% visibility into full-year product revenue, and this is supported by our April order entry levels. Gross margin continued to improve. up 20 basis points year over year and 140 basis points sequentially, primarily due to better geographic and product mix, as well as the impact from our lean initiatives. We are maintaining our cost discipline and continuing our work to improve our overall cost profile. In the first quarter, operating expense was up year over year strategic growth initiatives that Octavio outlined earlier. Continuing on to slide nine, we remain committed to strengthening our profitability and improving our free cash flow generation. We delivered adjusted EBITDA of $87 million in the first quarter. We also generated $6 million of free cash flow in Q1, which is the best first quarter performance in Diebold Mixed Stores history during our seasonally weakest quarter. This is a solid start on our journey to improve free cash flow conversion to 40% plus in 2025, which was driven by lower interest expense, working capital efficiency around inventory and accounts payable, reduced professional fees, as well as a better process around timing of non-income tax-related payments that benefited the quarter. I also want to reiterate our commitment to increasing transparency for investors in our results. Our first quarter results represent an initial step for us in delivering simpler, easy to understand results with fewer adjustments to EBITDA. Moving to slide 10, banking delivered another solid quarterly performance with accelerated adoption of cash recycling technology and its associated software and service business. Order entry was very strong, up approximately 50% year over year, and supports our revenue outlook for the year. Banking revenue was up $9 million year over year, excluding the impact of FX and a non-recurring Brazil tax item in Q1 of 2024. Gross margin was up 20 basis points year over year and 180 basis points compared to the prior quarter, with margin expansion across both product and service, driven by the impact of lean initiatives and improving North America service performance. We continue to see strong ATM refresh activity and the adoption of recycling. The initial traction we are gaining with branch automation solutions and our fit for purpose product portfolio, plus our outstanding order entry performance, gives us confidence for the remainder of the year. Turning to slide 11, the macro environment continues to impact retail product revenue, but as we mentioned before, we are seeing signs of stabilization that point to a second half recovery and sequential quarter improvement throughout the year. This is supported by our improved order entry in the quarter, up approximately 10% with stronger demand for our self-service solutions. In the U.S., we are gaining traction and building a strong pipeline with several new customers conducting proof of concepts and pilots with our solutions. Despite declining volumes, gross margin was up year over year and sequentially as we continue to implement our lean operating principles and maintain pricing discipline. We are confident in our ability to improve service margins in 2025 given that most of our self-service deliveries represent new deployments in the market. Despite the near-term market challenges, our long-term outlook in retail remains positive. We are especially excited about our dynamic smart vision capabilities and early positive signs in North America with a growing pipeline. Moving to slide 12, we wanted to share additional details with you on how we are framing the tariff policy risk. Keep in mind that we have dealt with tariffs in the past as we are a global company operating in more than 100 countries. As we have previously stated, our local-to-local manufacturing structure means we don't anticipate a material impact from tariffs. However, given the evolution of the tariffs announced, we wanted to provide a little bit more context. Importantly, even despite broader and higher tariff policies announced since we last spoke, we continue to reiterate our original 2025 financial guidance. Based on enacted or proposed tariffs, we estimate the gross impact for 2025 is approximately 20 million, and we are working to mitigate up to approximately 50% of the headwind for the year. Our 2025 guidance ranges incorporates this framework. However, we will continue to monitor and adjust if required as the tariff landscape continues to evolve and our mitigation efforts take hold. We see the largest impact from our imports from China and Germany, collectively about 15 million based on current tariff conditions of 145% for China and 10% for all other countries. Our framework assumes these conditions remain in place for the full year. Our mitigation strategies prioritize the impacts from China and Germany with accelerated productivity efforts from our lean initiatives, sourcing alternative parts, negotiating with our suppliers and where appropriate pricing initiatives, and as required, greater SG&A controls. Keeping this in mind and turning to our guidance on slide 13, we are maintaining our 2025 guidance ranges Our solid start to the year, combined with the current demand levels and our backlog, reinforces this outlook. However, as a global company, our visibility is affected by the recent macroeconomic uncertainty, and we will continue to monitor this going forward. We are still planning for low single-digit banking and retail revenue growth in constant currency. The FX environment has been volatile, so we'll continue actively monitoring for potential impacts. As it relates to quarterly cadence, we continue to expect revenue to be weighted towards the second half of the year, with a 45% first half and a 55% second half. This split is based on our customer orders currently in our backlog. In 2025, we expect adjusted EBITDA to be in the range of $470 to $490 million, primarily driven by continued focus on service gross margin with the team targeting approximately 100 basis points of gross margin expansion through lean operations. In manufacturing, we expect small incremental improvement in full year product gross margin by maintaining operating expense discipline. Free cash flow is expected to be in the range of 190 to 210 million, representing 40% plus free cash flow conversion. We remain confident in our ability to deliver another strong year of results and build upon our improving say-do ratio. Moving on to slide 14, with more details on our free cash flow outlook, there is nothing more important to the company than strengthening our free cash flow. We are pleased with the progress so far in the first quarter, generating $6 million of positive free cash flow, as this helps to de-risk the year and is a key step toward improving our seasonality. We have line of sight to deliver on our free cash flow guidance range based on the debt pay down and refinancing we completed in December of 2024, which provides $70 million in annual cash interest savings, $30 million contribution from higher adjusted EBITDA using the midpoint of our guidance range, driven primarily by service gross margin expansion, approximately $20 million contribution from reduced professional fees related to our corporate restructuring, and we are also factoring into our bridge approximately $30 million of impact from strategic investments, including CapEx, combined with the impact of strong accounts receivable harvesting in 2024. This outlines what we can achieve this year as we drive towards our goal of free cash flow conversion of 60 plus percent over the next three years. Turning to slide 15, we are benefiting from our fortress balance sheet and bolstered liquidity position that support our capital allocation priorities. At the end of the quarter, we have more than 635 million of liquidity comprised of 328 million of cash and short-term investments and 310 million of capacity on our revolving credit facility. Our net leverage ratio is 1.5 times, well within the range we have set for the company of 1.3 to 1.7 times, representing one of the strongest balance sheets in the industry. And after executing the first 8 million of share repurchase in March, we expect to continue strategically executing on our remaining 92 million authorization throughout the year. This is not the Diebold-Nixdorf of old. The work we have done to build our fortress balance sheet and implement our local-to-local manufacturing footprint are foundational elements for the company and position us well to serve our customers and respond operationally to the current macro uncertainty. Lastly, this is another quarter of DN doing what we said we would do, and we intend to keep this positive momentum through the remainder of the year. With that, I'll turn it back to Octavio for some closing comments.