Diebold Nixdorf Incorporated Common stock

Hello everyone and welcome to our second quarter 2025 earnings call. To accompany our prepared remarks, we post our slide presentation to the investor relations section of our website. Before we start, I'll 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 the call, but they are subject to risks that could cause actual results different 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 Participants should be mindful that subsequent events may render this information to be out of date.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 of 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 Octavia.

Thank you Maynard and good morning everyone. Thank you for joining us. Before I get to my prepared remarks, I'd like to extend my sincere gratitude to Chris Ikora for his invaluable contributions during his time as head of investor relations. Chris has played a critical role throughout the years wearing multiple hats at the end and his dedication and expertise have been instrumental to the company. Chris moves on to head our business finance operations for retail, where his skills and experience will continue to be invaluable with the large retail opportunities and growth we see ahead of us. I'd also like to welcome Maynard Um as the new head of investor relations. Maynard breaks over 25 years of Wall Street and investor relations experience across multiple industries. His deep knowledge and expertise will help build on the strong foundation already in place. We're excited to have him on board and look forward to strengthening the relationship with the investment community and communicating the company's value proposition. Starting on slide four, Q2 was another standout quarter where we delivered strong performance in our key objectives amidst a volatile global environment, generated the third consecutive quarter of positive free cash flow and finished the first half with great momentum, giving us confidence in our ability to deliver strong operational performance in the back half of the year. Product orders grew 10% year over year, reaching the highest level in three years. Our backlog now stands at approximately 980 million. This momentum combined with our robust first half gives us conviction to reaffirm our full year outlook with the business trending toward the higher end of our range for revenue adjusted and free cash flow. Our solutions continue to see strong demand in the market and we remain focused on exceeding the expectations of our global customer base. Gross margins expanded 50 basis points year over year and 120 basis point sequentials, driven by favorable product mix and our commitment to continuous improvement, lean principle and pricing discipline. Demand for advanced ATMs with cash recycling and video teller capabilities is accelerating across multiple markets. In Q2, we achieve a historic milestone, positive free cash flow for the third consecutive quarter and first half of the year. To maximize shareholder value during the quarter, we repurchased $30 million of DN shares, reflecting our priority of returning capital to shareholders and our strong belief in the long term value of our company. Let's move on to slide five. We had a great second quarter that we're very proud of. As my team and I share during our investor day, we have multiple ways to win across our markets and deliver for our shareholders. Our three-year growth plan, shared on our February 2025 investor day, is on track. Here is how we're executing. We're capitalizing on market opportunities. Beables NICS is a leader in a 32 billion banking and retail automation market that we serve. Our innovative self-service solutions continue to gain traction and are well positioned to capture growth in these highly attractive markets. We're driving disciplined growth and profitability. In banking, we're accelerating branch automation by introducing telecast recycler technology and additional managed services. We're capitalizing on the ATM refresh cycle with tailored solutions gaining momentum in fast growing markets. And in retail, our AI-driven checkout solutions solve real customer challenges, provide a high return on investment for customers, and are a strong competitive differentiator. Our focus on lean operations is enhancing profitability. Our first half free cash flow success sets the stage for 800 million in cumulative free cash flow by 2027, with 60% plus conversion and approximately 50% adjusted even to margins, all while maintaining a fortress balance sheet. Now, let's turn to slide six, where we will discuss the progress on our growth acceleration strategy. In Q2, we made solid progress at balancing our key priorities. In banking, we are seeing the benefits of branch automation, cash recycling, and our fit for purpose strategy. In the Middle East, we introduced dual power APMs that opened the door to new customers and opportunities. QMB was the first bank in the Middle East to deploy DN's extra high capacity DN Series 500 with bulk cash deposit capability and the highest deposit recycling and dispensing capacity in the market. We also recently announced the rollout of -the-art interactive teller machines with Kuwait International Bank, which are video capable, can instantly print and activate debit cards and facilitate high value deposits and withdrawals. These advanced recycling APMs essentially serve as a branch in a box and customer acceptance has been great. We also spoke about our new line of APMs rolling out in India. These are purpose built to be compact and very energy efficient to meet the needs of the market. We expect to see continued growth in this large market and are encouraged by our pipeline and product links as this fuels growth in our install base and long-term higher margin service agreements. In retail, AI continues to change the way our customers think about their operations. In Q1, we announced wins with the large European customers and I am now pleased to share that we have our first live customer in the U.S. A mid-size grocer has rolled out the first 18 stores operating our SmartVision product. The feedback we've received has been tremendous. Supporting our optimism that the increasing number of pilots and proof of concepts we're running will lead to long-term growth opportunities. In fact, by dynamic SmartVision shrink reduction, age verification and produce recognition technology was recognized by a leading French retail industry publication, LSA, and won its Tech for AI business award. It's nice to see the solution winning external accolades. It is further proof of the value and innovation we're keenly focused on delivering. On the product side, we launched retail manufacturing in Ohio to serve our North American customers, building upon our -to-local manufacturing strategy. I am extremely proud that through implementing lean principles, we were able to optimize our overall footprint and strengthen our U.S. manufacturing capabilities. In services, my commitment to our customers is to make DN the prime example of service quality and the most trusted service provider in the industry. To strengthen our ability to deliver the outstanding service that we are committed to providing, we are consolidating our repair centers, further rolling out technician software and adding field technicians to support our growing portfolio. A clear example of this is the rollout of our upgraded field technician software in Canada, which produced improvements in response time, call rates, incident rates, so we're accelerating the initial deployment in the U.S. World-class service is the top priority for Devolt Nextdoor. Additionally, in Q2, our centralized operations center in Ohio went live. This center efficiently controls dispatching, training, and parts logistics for our technician network in North America, where we will continue to invest to drive efficiency and growth. We have seen positive early results, with real-time monitoring of customer KPIs driving improvements in client satisfaction. We are delivering innovation with our products and solutions that address real problems, driving efficiencies and creating lasting value in our markets for customers and shareholders. Now, on to slide 7. Continuous improvement is critical to our success, not only to drive margin improvement, but also to ensure our teams are safer, more productive, and the most efficient in the industry. I recently visited our manufacturing facility in Potter World, Germany, and I'll tell you that the team is incredibly motivated. From just one year ago, we've been able to meaningfully reduce floor space and improve first-time through-in manufacturing, an important metric that reduces rework and enhances product quality. I am very proud of the team for what they've been able to accomplish. In services, we're later focused on not just consistently meeting, but exceeding our service agreements. Our lean principles are key to supporting the enhancements to our service, leading to greater productivity, faster repairs, and fewer repeat calls, resulting in greater efficiency, higher customer satisfaction, and more business for us. One of the enablers to launching retail manufacturing in Ohio were our lean principles. We freed up space and increased future opportunities for growth. I am proud of how our U.S. manufacturing team has embraced continuous improvement and lean as a way of life. Lastly, I wanted to highlight our work in Poland, where we're consolidating our European repair and service operations. A new, simplified delivery model developed with direct involvement of our install and repair technicians will help us improve efficiently. As you can see from the photos, our teams are committed to continuous improvement and enhancing our operations through lean principles. Overall, the momentum we've generated in the first half gives us confidence 2025 will be another great year of progress for our company. With that, I'll turn it over to Tom to walk through our financial results.

Thank you, Octavio. Starting on slide eight, overall, we're very pleased with our second quarter and first half results. Our execution gives us strong confidence in our full year outlook, which we currently see trending toward the higher end of our guidance ranges. Product backlog at the end of the second quarter increased to approximately 980 million, up from approximately 900 million at the end of the first quarter on strong new order entry, which was up 10% year over year, led by banking. As we shared previously, we expected revenue to be weighted towards the second half given customer project activity, and this is playing out just as we expected. In Q2, FX was a tailwind to revenue of 19 million. However, for the first half, FX was a net headwind of approximately 4 million. First half revenue came in at 46% of total year's revenue, in line with our previous guidance of approximately 45%. Gross margin continued to improve, up 50 basis points year over year and 120 basis points sequentially. Product gross margins saw significant improvement, both year over year of 250 basis points and sequentially of 230 basis points, primarily driven by better geographic mix, pricing discipline, and the ongoing impact from our lean initiatives. Product gross margins remain on track for up to 50 basis points of improvement year over year. On the services side, gross margin improved 40 basis points sequentially and was down 80 basis points on a year over year basis. We remain focused on driving sequential improvement throughout the year as we continue to enhance the best service organization in the industry. We also remain on track to exit Q4 with a run rate in service margins up 100 basis points versus prior years. In the second quarter, operating expense was up sequentially primarily due to FX and stock compensation. Excluding these impacts, operating expense would have been comparable. Earlier this year, we discussed plans to reduce our operating expenses by 50 million on an annual basis. Going forward, operating expense represents another opportunity for us to work to improve our cost profile and achieve our three-year strategic plan objectives. We've been working on those plans and will be taking the initial steps in the coming months and look forward to providing updates. Continuing on slide nine, we look at our five-year quarter financial trends. As we've said in the past, we remain committed to strengthening our profitability and significantly improving our free cash flow generation by nearly doubling year over year. We delivered adjusted EBITDA of $111 million in the second quarter. Sequentially, our adjusted EBITDA margin grew 180 basis points. Typically, our adjusted EBITDA builds throughout the year and we expect a continued ramp through the end of 2025. To add some additional color, we expect to generate approximately 45% in Q3 and the remainder in Q4. We also generated 13 million of free cash flow in Q2. This is the third consecutive quarter of positive free cash flow and the first time in DN's history of positive free cash flow in the first half of the year. Historically, the first half has been a significant use of cash, so our ability to reverse the trend and sustain positive cash flow is a testament to the discipline and hard work by the entire company. We feel confident about our ability to improve free cash flow conversion to 40% plus in 2025, which again nearly doubles our 2024 free cash flow generation. Moving to slide 10, banking continued to deliver solid quarterly results behind favorable geographic mix and discipline pricing. Revenue was up 50 million sequentially and order entry was strong, supporting our revenue outlook for the year. Gross margin was up 140 basis points year over year and 180 basis points sequentially, led by product margin expansion, driven by favorable product and geographical mix, pricing discipline, and our ongoing lean initiatives. Going forward, we expect to continue driving solid ATM refresh activity and momentum in all geographies, and we are encouraged by the first orders of our teller cash recyclers and our branch automation strategy. We're very pleased with how our strategy is playing out with strong hardware growth that will positively impact our service operations. Turning to slide 11, in retail, we drove sequential growth in order entry, revenue, and backlog in Q2. We are more optimistic than ever that the second half will bring on a firm recovery in our retail business and fuel sequential and year over year improvement throughout the remainder of 2025. Gross margin was down sequentially 70 basis points and year over year 190 basis points, with strong product margins being offset by service margins. In Q2, we delivered higher volumes of point of sale terminals with lower margin related services. As we look into the second half of the year, we're expecting a stronger contribution from retail. We are also expecting a more self-checkout and more normalized gross margins in the -20% range as retail total gross margin improves through the remainder of the year. In the U.S., our AI-enabled smart vision solutions are gaining traction with increasing groups of concepts and pilots underway, and the first live installations are now operating. The 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 ahead, let's review our guidance on slide 12. We see the business trending toward the higher end of our guidance across revenue, adjusted EBITDA, and free cash flow. Our strong start in the first half of the year, combined with current demand levels and our backlog, reinforces this outlook. We expect total company revenue to continue building throughout the year with an approximate split of second half revenues at 45% in Q3 and the remainder in Q4. On a constant currency basis, we expect to grow at least approximately 1%. Under current conditions, we also expect FX to be a tailwind of approximately 1% for the year. Our multiple operational levers, whether it's gross margin or FX improvements, have given us the ability to achieve the higher end of our adjusted EBITDA guidance of $470 to $490 million, despite the impact of tariffs. For the second half of 2025, we expect to generate approximately 45% in Q3 and the remainder in Q4. In Q2, taking into account discrete one-time tax benefits, we were able to achieve an effective non-GAAP tax rate of 33%. As a result, we expect our non-GAAP effective tax rate for the year to be in the 40% to 45% range. We expect free cash flow to once again be positive in Q3, similar to Q2. For the full year, we are trending toward the higher end of our expected range of $190 to $210 million, representing 40% plus free cash flow conversion. We are extremely confident in our ability to nearly double free cash flow based on lower interest expense, adjusted EBITDA growth, and significantly better working capital management. We remain confident in our ability to deliver another strong year of financial results for the company and our shareholders, and once again demonstrating our commitment to doing what we say. Turning to slide 13, we remain committed to maintaining our fortress balance sheet, allowing us to support our capital allocation strategy. At the end of the quarter, we had approximately $620 million of liquidity, balance between $310 million of cash and short-term investments, and $310 million of capacity on our revolving credit facility, which remains untapped. Our net leverage ratio is 1.5 times what we believe is the strongest balance sheet in the industry. We repurchased approximately $30 million, or 637,000 shares in the second quarter. This brings our total share repurchases to $38 million, or 822,000 shares, at an average price of $46.08. Remember, we started our buyback in March, so this buyback represents only four months of activity. We intend to continue executing our remaining $62 million authorization. Maintaining a strong balance sheet in our -to-local manufacturing footprint are foundational elements for the new DM. The way we have positioned our company allows us to best serve our global blue chip customer base and quickly respond operationally to the dynamic global environment without undermining our ability to achieve our longer-term financial targets. Lastly, we've talked a lot about doing what we say, or our say-do ratio. I think it's fair to say that we've delivered again in the second quarter. We're proud of our progress, while at the same time focusing on operational execution and driving even better results over the long term. With that, I'll turn it back to Octavio for some closing remarks.