Good day, everyone, and welcome to the Diebold Inc. Third Quarter 2013 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President and Chief Communications Officer, Mr. John Kristoff. Please go ahead, sir.

Thank you, Jake. Good morning and thank you for joining us today for Diebold's third quarter conference call. Joining me today are Andy Mattes, President, Chief Executive Officer; and Chris Chapman, Vice President Global Finance, who will assume the role of interim Principal Financial Officer on November 6. Also in the room with us today is George Mayes, Executive Vice President and Chief Operating Officer, and he'll be available for questions and the end of the opening comments. Just a few notes before we get started. In addition to the earnings release, we've provided a supplementary presentation on the Investor page of our website. Andy and Chris will be walking you through this presentation as part of their comments today and we encourage you to follow along. Before we discuss our result, as with past calls, it's important to note that we are excluding certain restructuring charges, nonroutine income and expenses and impairment charges from our non-GAAP financials. We believe that excluding these items gives an indication of the company's baseline operational performance. As a result, many of the remarks this morning will focus on non-GAAP financial information. For a reconciliation of our GAAP to non-GAAP numbers, please refer to the supplemental material at the end of the presentation. In addition, all results of operations reported today, including prior period, excludes discontinued operations. Finally, a replay of this conference call will be available later today from our website. And as a reminder, some of the comments today may be considered forward-looking statements. Internal and/or external factors could significantly impact actual results. As a precaution, please refer to the more detailed risk factors that have previously been filed with the SEC. Now with opening remarks, I'll turn the call over to Andy.

Thanks, John. Good morning, everyone, and thank you for joining the call today as we discuss our third quarter results. Our ongoing business improvement and cost reduction efforts started to show during the quarter. We continue to execute on our strategy to globalize and transform our operations to better leverage our scale, which has resulted in an improvement in our service gross margin. However, as we said in the past, we will reinvest approximately half of our savings back into the company and we have yet to fully ramp-up investments in our transformation initiatives. You saw the news that our CFO, Brad Richardson, provided notice that he will resign from the company. We have already engaged Korn/Ferry to begin the search process for our new CFO. We are confident in Chris Chapman's ability to perform the duties and responsibilities in the interim as the company's Principal Financial Officer. I've asked Chris to join the call today. Now let's focus on the key takeaways from the quarter. First, we are encouraged by our global order activity, which grew in the mid-teens during the quarter. Also, our revenue performance outside of North America is positive. While these are promising steps toward achieving sustainable top line growth, we still have a long way to go. Total revenue is down year-over-year and sequentially. This is largely due to challenges in the North American market, particularly in the financial self-service business, which adversely impacted our revenue and orders during the quarter. Second, our non-GAAP earnings in the quarter benefited from a lower tax rate, as well as foreign exchange gain. Third, we're beginning to see bottom line results from our cost-saving initiatives instituted earlier in the year. Moving forward, however, we expect our net cost savings to vary as we ramp-up investments in our transformation…

Thank you, Andy. I'm honored that I've been entrusted with the interim financial leadership. I've been with the company over 17 years and have served in a multitude of financial leadership roles throughout the organization. Now I would like to walk you through our third quarter financial results, including the goodwill impairment for Brazil on Slides 13 through 23 in the supporting presentation. Then, I would like to provide an update on our legal and compliance matters. Finally, I will provide an update on our guidance for the remainder of 2013 and our free cash flow outlook. Turning to Slide 13, total revenue was down 1% during the quarter as a result of lower volumes in the Brazil elections and lottery business, but was up 1% on a constant currency basis. The currency impact was mainly driven by a weakening of the Brazilian real. As we move to Slide 14, financial self-service revenue was up approximately $5 million or 1% as a result of strong performance in our international regions, partially offset by declines in North America. Security revenue was flat compared with the prior year period, with a 7% growth in Electronic Security, offset by continued declines in physical security. Electronic Security is starting to show tougher comparisons with prior periods as our strategies next phase are beginning to gain traction. On Slide 16, gross margin for the quarter was up 0.9 percentage points at 24.9%. This was driven by a solid improvement and service gross margin, which increased 3.8 percentage points to 29%. This increase includes the benefit of our transformation efforts across the global service operation. Product gross margin however, was down 3.1 percentage points to 19.3%, influenced by customer mix differences in the U.S. business. Moving on to Slide 17, total operating expense decreased $11.1 million…

Thanks, Chris. Jim, we're prepared to take our first question at this time.

[Operator Instructions] And we will hear first from Kartik Mehta.

Andy, just as you've reviewed over the last few months kind of where you need to invest, any thoughts on any changes from your initial observation as to where you need to invest or how much you need to invest?

Kartik, good to hear from you. Good question. Still pretty much the same picture. I would like to probably add one element to it. We're going to invest, especially on the deal side, to regaining more customer mind share as we talk about the change of our industry, about innovation and future products and solutions, but that would be the only add to the picture that I've given you 3 months ago.

So does that mean more salespeople or are you talking maybe more sales tools or something completely different?

It's a combination of both, paired up with our continuous effort to bring more innovation from behind the curtain into the shopfront window and the value proposition that you need to articulate for the customers that goes with that.

And then, Andy, you had very good results on the service margin side. Was the improvement related to U.S. business or international business?

Well it's a whole slew of things. So of course, the headcount reduction that we have taken earlier in the year will show up in our cost of sales on the labor side in the U.S. It's also a mix in the type of businesses, it's a mix in customers, it's the mix in country. We had a few countries come through where the service revenue was more prevalent in the overall -- or that we've gotten from the customers a few months back. So it's a whole laundry list of things [indiscernible].

And then just one last question. I know that you talked a little bit about the U.S. market. I'm wondering are you seeing any signs of a bounce back? Could this -- could the market go back to, in your eyes, some growth in 2014?

I'm pretty optimistic that we will see a recovery in the market in 2014. My gut tells me it's going to be more second half of '14 than first half. But the type of conversations that we're having, the inquiries around POCs, the workshops about -- around branch transformation, from the conversations about outsourcing, so activity is picking up. Let's keep in mind, these are all long sales cycles and there is no pending event that would force a customer to make an immediate decision at any given point in time, but we're carefully optimistic about the U.S.

And now we'll take a question from Matt Summerville with KeyBanc.

Andy, in your prepared remarks you mentioned that the flow-through of cost savings to the bottom line versus reinvestment is not going to be linear. If we think about over a long period of time, that being split 50-50, I guess I'm trying to understand is it going to vary to 55-45, to 60-40, to 90-10? What sort of variability should we expect from one quarter to the next?

That's a good question, Matt. And we're actually working on a simplified version to break this out for you and your peers at our Investor Day. But the approach we took is, first, we wanted to make sure that we saw the cost savings of our actions, make sure they showed up in our P&L before we started to spend money. But if you think, and I mentioned it at the last call, IT is an area where we have to make massive investments. These are things where you have purchase moments in time, there are rollout costs associated with it. So we stay committed to the $150 million. We stay fully committed to the $75 million that's going to flow-through the bottom line. But you want to think of 2014 as the year of heavy lifting, so the investment will be more centered around the 2014 time frame so we can reap the benefits in the full year of 2015. And we'll, as I said, we'll break that out with a little bit more clarity for you in 2 weeks.

So sort of on the heels of that then, Andy, I mean, when you look at where expectations are set today, would your initial assessment lead you to conclude that, that's adequately being captured in where people have '14 modeled for you guys?

That's a good question. But let's do 2014 in 2 weeks, because one question is going to lead in the other. And we want to make sure that we have the appropriate supporting documents for you to have a meaningful conversation, if you would allow.

Fair enough. And then just one more, can you talk in more detail about the changes in competitive dynamics you're seeing in Brazil? The changes in the auction process? Just more detail behind that.

Well, before I let Chris do the financials, just think about what the Brazilian market has gone through. The market has consolidated from some 25, 26 banks down to 6 major banks. The banks have gone to a completely -- to an auction process in the way that they procure systems. The macroeconomic environment in Brazil has been challenging for the country. Some of the banks are government owned and they are not completely independent of what's going on in the bigger picture of the country. You have competitors like OKI, who just entered the market. So there's a lot of dynamics behind that, that led to the assessment. But I'll let Chris finish the financial side if you're interested in that.

Sure. Chris?

Sorry. Matt, could you clarify specifically from the financial side what aspects you want to have additional detail on?

Yes. I mean, I guess, I'm trying to understand the significance of some of the factors that went into -- at the end of the day, how you come up with this number versus a lower number versus a higher number versus writing it all down?

Yes. So Matt, we went through and looked at all aspects of the business over the last several quarters. And based on the overall activity and the changes in the market, we were looking at our near-term performance combined with our outlook over the next several quarters. And while we do see some bright spots, obviously, in our GAS business and our expectations of that moving forward, the underlying operational performance in our core FS business has structurally changed. And so we looked at all aspects of the business, segmenting across each of those, we'll say product lines and we ultimately determine the fair value of our operation based on that assessment. And that resulted in a partial goodwill impairment of $70 million, leaving approximately $35 million to loan books.

And now we'll take a question from Gil Luria from Wedbush Securities.

I want to ask a little bit about global market share. Within the last couple of years, you lost some share in Brazil and you lost some share in Europe as you were retrenching. But it seems like those are turning the corner. With double-digit growth in Europe, is that something that you think is sustainable continued growth there? Is it profitable growth? Is the impressive growth in Asia sustainable? Is that profitable? Do you think you'll continue to be able to regain some of that share?

Let me do it a step at a time here. First of all, we're only after profitable growth. So we look at every opportunity and the margin tools that are associated with that. We see that branch transformation opens up conversations and opens up new doors that weren't open for us especially in Europe as of late. We've also started to work very heavily on our sales approach, and we are making sure that we're more active in reaching out to customers and create generating more opportunities, despite -- by showing up more often quite basically. So those are the positives. There is still a lot of puts and takes in some of the emerging market, high volatility from quarter-to-quarter on where the markets go. But in general, we see a lot of interest in Diebold, we see a lot of interest in our products, and we're getting a lot of traction in our services offering.

Then in EMEA, does that success mean you're less likely to retrench from further countries as you have over the last couple of years?

So our overall objective is to grow the company, but to do that in a very profitable manner. And the focus that we're taking in Europe is not necessarily a country-based focus. It's an account-based focus, and there's many global accounts that are headquartered in Europe. I've given you the BBVA example. We're going to go down that path and we're going to grow profitably account by account.

Then on the investment front, I think you're talking about the fact that you expect some of your investment of the gains that you've made to begin shortly. Should we expect that to be on the R&D line and then the SG&A line, where you'd be expanding your presence in some places or more in the capital expenditures where you'd be extending your infrastructure?

All of the above.

And now we'll take a question from Paul Coster, JPMorgan. There is no response from Mr. Coster's line, we'll move on to the next question that will come from Meghna Ladha with Susquehanna Financial Group.

The first question is on the North America. You talked about opportunities and branch transformation. You did highlight that you had 20 different customers. Your -- can you tell us what the mix of customers were with regional versus national banks?

Technology usually flows from big to small. So no surprisingly, you would see the national to go down that route first. They have a natural bias towards using technology as their key differentiating factor. But you see the conversation going down and we actually have it all the way down through some credit unions that are getting their arms around the technology, trying to figure out what their value prop is going to be going forward. So it's a very encouraging mix that will not only pressure test the technology, but it will actually help all of us to get a better sense for the use cases of tomorrow.

Okay. And the last quarter when you guided for 2013, your guidance has excluded major tenders in Brazil and an uptick in demand from U.S. regional banks. I just want to understand the guidance that you're reiterating today. What are the assumptions today versus what you had guided last quarter? I mean, you did say you did win one major tender in Brazil. I think you had 2 outstanding tenders last quarter. So can you just clarify your guidance assumption?

Well, first of all, the assumptions have not changed. It's the same as last quarter and we have still the same picture as last quarter. So yes, we won one of those tenders in Brazil, but there's not enough time to revenue that order in 2013, so it'll show up in our backlog ending the year.

All right. And just one quick question on the cash flow. How big are the onetime cash charges were in your year-to-date cash flow number?

A lot of those charges are going to come through in the fourth quarter actually. They're sitting on a liability right now. We're going to pay out the significant onetime charges in the fourth quarter, approximately the $48 million to the SEC and DOJ, in addition to another potential -- to a securities class action lawsuit settlement of approximately $15 million. And so we have several of those onetimes coming through, in addition to the cash taxes related to our repatriation efforts of approximately another $10 million to $15 million. Those are the significant onetime items that are going to come through. We will have some significant restructuring activity in the fourth quarter as well, specifically related to the VERP that is coming up. But a majority of that would not be a cash charge in the current year, obviously, as we pay that severance out over the first half of 2014 that would impact cash flow.

And now we'll take the next question, Jeff Kessler with Imperial Capital.

With regard to branch transformation, particularly in the United States and talking to clients, you've -- okay, you've gone through a product cycle on the ATM side. However, what I'm interested in is putting yourself in the client's shoes, what is the value proposition that they are looking for to improve their efficacy as of financial institutions? What are the services that they're asking you to provide so we can get an idea of what level of conversation are you having with these banks and what types of services do they need that are going to present you with higher margins?

That's a good question. I'll try to boil it down into a short answer because we, apparently, we've been talking about this for a long time. If you're a bank, you're trying to get your arms around a very challenging set of requirements, from the bank customers, which is the customers don't go to the branch as often as they used to. But by the same token when they need a branch, they want to have a branch within their vicinity, should be very convenient for them. So the question of the bank is, how do we keep presence? How do I optimize footprint? Is there a way for me to run a smaller branch? Is there a way for me to contain my costs while providing additional services to the client? And so when they talk to us, they look at the complete value chain, they look at customer experience, they're looking at costs, they're looking at additional opportunities. That's why they talk to us about video because it gives them a way to provide longer opening hours without having to staff local branch heads. They're looking at moving approximately from 50% of the work that a teller does on machine, north to 70% of the work putting that on the machine. And to your point, the more we go into workflow optimization that's, of course, where the business gets to get attractive also from a margin pool.

Okay. Second question. In the back part, on your Electronic Security business. Can you talk about -- or is that backlog, does that backlog consist of increasing amounts of not just installation but installation plus monitoring and other recurring revenue? Isn't just that the backlog has more than just break fix recurring revenue in it? In other words, are you converting these installation sales into monitoring sales as well?

You're spot on. That's exactly where we're going. Now as you know, these are longer sales cycles. It will take time until these things show up on the revenue side, but we're very heavily focused on generating a bigger backlog on recurring monthly revenue. And we're encouraged with the early results that we're seeing so far.

Okay. Can you elaborate on that at all in terms of what -- are you continuing to see a move toward a more broad-based breakdown, 50% commercial, has that grown at all in the last month at all in terms of the backlog you're putting on relative to financial?

Commercial is the fastest-growing segment. And we're going to break that out for you at our Investor Day. I've actually ask Tony Byerly, who runs our security business, to be with us that day in New York to give you a little bit more color and background exactly around your questions.

Okay. Finally, final question, and I know it's the sensitive one which you're probably not going to be able to answer, but with regard to Brad, could you give us maybe just the general nature for the reason that he's leaving? Was it personal? Was it corporate? Was it difference of financial, difference of strategic direction or something -- anything that you could enlighten us with.

It's a personal decision. Brad wants to pursue other opportunities in his career. It has nothing to do with the course of the company. Nothing to do with the strategic direction or the financials of our operation.

And now we'll hear from call Paul Coster, JPMorgan. Mark W. Strouse - JP Morgan Chase & Co, Research Division: This is Mark Strouse, on for Paul Coster. Can you hear us now?

Yes. Mark W. Strouse - JP Morgan Chase & Co, Research Division: So most of them have actually been answered. But I guess the last one remaining for us would be, can you just give us a reminder for the margins, maybe on a relative to corporate average basis for the Electrical Systems business?

Are you talking about in Brazil?

You're talking about Brazil or... Mark W. Strouse - JP Morgan Chase & Co, Research Division: Yes, yes. I'm sorry. In Brazil.

So we're not in the electrical business.

Those typically run in the low-20s.

Now we'll hear from Justin Bergner with Gabelli & Company. Justin Bergner - Gabelli & Company, Inc.: Two quick questions this morning. First off, could you provide a little bit more detail as to the mix factors that are helping the services gross margin and impeding the product gross margin? I think you alluded to them earlier.

Best way -- let me use India as a showcase for you. The Indian market has pretty much gone to a razor, razor blade type of model. Low margins on the product side, but they do sign up for multi-year service contracts with accretive margins. So if you look -- holistically look at the deal, the pendulum swings towards the service side. And we've seen now more of those large Indian deals come through on the services side, so the model is starting to work out in our P&L. Justin Bergner - Gabelli & Company, Inc.: Okay. Anything else sort of you would highlight beyond the Indian dynamic that's driving sort of the mix element of the gross margin?

I think one thing when you look at year-over-year is obviously we're down from a geographic mix standpoint with lower regional activity, which was still benefiting last year from the tail end of the ADA/PCI upgrade cycle. So losing some of that volume year-over-year is hurting the overall mix that we're seeing right now. Justin Bergner - Gabelli & Company, Inc.: Okay. And then on the service side the sort of uptick which was stronger than that year-to-date uptick, is that heavily impacted by the Indian business or are there other [indiscernible]?

It's the Indian business, but it's also -- it comes back to the operational execution. George is very meticulous with our regional service leaders just to make sure that we do well on the stuff that we've signed up to do. And the other thing is we stop doing dumb things when it comes to the type of contract that we brought in, in the house. So good contract executed better will automatically lead to higher margins. Justin Bergner - Gabelli & Company, Inc.: Okay. Just one quick question in addition. On the order book side, how much was the overall global order book helped by the Brazilian tender?

I'd gladly give you the answer outside of this call. I've actually got to run the math myself.

And now Glenn Mattson, with Sidoti & Company, will have the next question. Glenn Mattson - Sidoti & Company, LLC: Most of the things have been answered already. But I guess the one last thing I'd like to hit on is the -- have you guys reaffirmed kind of the -- firmly reaffirmed to the dividends or is it something maybe that you plan on talking about at the Investor Day?

We're reaffirming the dividend.

Doug Greiner with Compass Point. Douglas Greiner - Compass Point Research & Trading, LLC, Research Division: I think last quarter you disclosed $11 million in cost savings specifically related to the realignment program. What was the figure this quarter?

I think the figure directly tied to the cost savings this quarter, obviously, you can see the improvement in the OpEx, and you can also see some of the improvement in the service margin, which as Andy highlighted, was also benefited by mix. But I would reiterate, as we move forward, we are going to have some continued reinvestments that are going to net against that -- some of those savings.

And we'll here once again from Matt Summerville of KeyBanc.

Just a couple of follow-ups. If you look at your North American order books, Andy, what's your expectation for the fourth quarter in terms of incoming order rates for both big banks and small banks? And I guess what have you seen thus far in October as we're starting to get closer to that Windows 7 transition?

We see Windows 7 as an important conversation. Not every bank is as aggressive on the time schedule as U.S. Bank. They're kind of leading the pack on this one. So -- and then everything else, we're looking at the pipeline reviews as we speak. As you know, Q4 always has its own set of dynamics and idiosyncrasy, so we'll see to that.

And then, I guess, with respect to O-K-I or OKI in Brazil, are you seeing those guys come in with their own sort of product that they're bringing to market or are they just putting their stamp on a [indiscernible] product. I guess I'm trying to understand why those guys coming in the markets maybe adding a little bit more disruption?

The reason why the ventured the market, you've got to ask them that question. At this point in time, they are digesting the acquisitions. And as you know, every acquisition has an initial phase of trying to figure out what true north is. They're also -- the bank has to figure out how the bank wants to deal with them, going forward, but they're clearly adding more competitive pressure into a market that already has been extremely competitive in the first place.

So whereas banks may have been hesitant to buy from [indiscernible] they were captive of their -- as they were captive of their bank parent, you're seeing less resistance on the part of other financial institutions to consider them as an alternative now. Am I understanding that correctly?

We don't know yet. We'll have to see how that's going to play out.

And this will conclude our question-and-answer session. I'll turn the call back over to your host for closure remarks.

Thanks, Jake. And thank you all for joining us this morning. Again, we look forward to seeing many of you at our upcoming Analyst Day in New York on November 12. And as always if you have any follow-up questions, please feel free to contact me or Jamie Finefrock directly. Thank you.

Ladies and gentlemen, this will conclude your conference for today. We do thank you for your participation.