Good day, everyone, and welcome to the Diebold, Incorporated Fourth Quarter 2013 Financial Results Conference Call. At this time, for opening remarks and introductions, I'd like to turn the call over to the Vice President and Chief Communications Officer, Mr. John Kristoff. Sir, you may begin.

Thank you, Cathy. Good morning, and thank you for joining us today for Diebold's fourth quarter conference call. Joining me today are Andy Mattes, President and CEO; and Chris Chapman, Vice President, Global Finance, and Interim Principal Financial Officer. 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 through this presentation as part of their comments today, and we encourage you to follow along. As with past calls, it is important to note that we are excluding certain restructuring charges, nonroutine income expenses and impairment charges from our non-GAAP financial results. 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 periods, exclude 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. And now with opening remarks, I'll turn it over to Andy.

Thanks, John. Good morning, everyone, and thank you for joining the call today, as we discuss our fourth quarter and full year results. Our ongoing business improvement and cost reduction efforts continued to build momentum in the quarter. We remain focused on our 4 core pillars: cost, cash, talent and growth. And driving a culture grounded in accountability and delivering on our commitments. The progress we've made so far is encouraging. However, we still have a lot of heavy lifting in front of us, as we work through the crawl phase of our crawl, walk, run approach to our turnaround efforts. Our people recognize we're playing a game of interests, and we're mining for those interests in every corner of our operation. There are several items I will be covering today: first, the key takeaways from our results; second, a regional update; third, an update on our Diebold 2.0 turnaround strategy; and finally, our outlook for 2014. Before we get started, I'm pleased to say our Board of Directors has elected to maintain our quarterly dividend at its current level. We are confident in our ability to generate the cash necessary to maintain a strong dividend, while being in the midst of a major transformation effort. Chris will share more information behind our working capital performance later on the call. Now let's discuss the key takeaways from our results. As we've been communicating, we are a cost and cash play in the crawl stage of our turnaround in 2013 and 2014. And during the second half of 2013, we continued to execute on these important areas. First, operating profit came in near the higher end of our expectations. Second, we finished well within the full year revenue and EPS guidance we provided in early August, even with a higher-than-expected full…

Thanks, Andy, and good morning, everyone. First, I will walk you through our fourth quarter financial performance and provide a brief explanation behind changes to our segment reporting structure. I will then update you on the legal and compliance front, discuss our 2014 revenue, earnings and free cash flow outlook and talk about the strategy behind our dividend. Now to review our financial results. Turning to Slide 16, total revenue for the quarter was down 3% or 2% on a constant currency basis, as a result of lower volume in North America and Latin America. The lower volume in North America is a result of the regional business having leveled off earlier this year. In Latin America, the decline was due to the timing of large installation projects across the region, but we are encouraged by the strong year-end backlog. The currency impact was mainly driven by a weakening of the Brazilian real. Taking a look at the full year 2013, total revenue decreased 4.5% or 3% on a constant currency basis due to reduced volumes in North America -- in our North America business segment. This stems from the tough comparison with the strong 2012, driven by ADA/PCI upgrade activity. Asia Pacific and EMEA both showed solid growth over prior year, up 12% and 11%, respectively, which includes an approximate 1.5% currency impact in both regions. Brazil's full year revenue was down 8%, driven by the weakening real and customer postponed implementation schedules for several large orders. On a constant currency basis, Brazil would've been up 2% over prior year. Latin America was down 6%, largely due to the timing of several ongoing projects throughout the region. As we move to Slide 17, financial self-service revenue was essentially flat for the quarter, or up 2% on a constant currency…

Thanks, Chris. Cathy, we'd like to take our first question at this time.

[Operator Instructions] And we'll go first to Gil Luria from Wedbush.

On a regional basis, it looks like you've been making a lot of progress in EMEA. In that region, you had double-digit growth. Your competitors were flat to down in that region and you doubled your profitability. Do you think there's more improvement that you can have in that region?

Gil, we're very proud of the EMEA team. We're very encouraged by the opportunity, and branch transformation relevels the playing field and gives Diebold a great opportunity to go through doors that previously weren't open to us, so we continue to be excited about EMEA, and we'll continue to invest in that geography.

And then in terms of Brazil, what are your expectations for some of the big orders you've talked about in the past rolling out this year? And how big is the lottery business going to be this year?

Gil, from a lottery perspective, right now, we're looking at approximately $40 million to $50 million in 2014. With regards to the rollout of the large tenders, what we've talked about in the past, we had some delays there. We are expecting, in the first half of the year and throughout 2014, that we're going to start to pull through the large tender. We're still finalizing some certifications on the second one, and so expect those to start rolling out more in the third and fourth quarter of this year, maybe some of it even pushing into 2015.

And next, we'll move to Matt Summerville with KeyBanc.

Chris, you mentioned backlog. Can you give us a backlog number year-end '13 versus year-end '12 and then the mix of backlog that you would term in locales with a bit riskier FX situations?

At a high level, I don't have the exact number in front of me here, Matt. High level, we're looking at approximately $100 million increase over prior year. Our year-end backlog in 2013 of approximately $720 million. In terms of the overall mix, as I noted, that maturity of the gross is -- that we've seen there is really coming from some of our international markets. And I would characterize the mix is about, probably about 50-50, maybe a little bit heavier weighted to the international on the overall backlog.

And then I just wanted to dig a little bit deeper into granularity on your orders in North America. To make it more comparable, can you guys provide a product-only sort of order number and then talk about a little bit more specificity behind what you're seeing in national banks versus regionals, and I guess, what your sort of outlook is that you've embedded into your '14 guidance there?

Matt, the product-only growth in North America was 28% in the last quarter, and we are cautiously optimistic about the U.S. business going forward. Deposit automation, branch transformation, Windows 7 upgrades, the order books are starting to fill up. The sales pipeline is ramping up very nicely. And it's going to pan out pretty much like what we told you in New York. We believe that this is going to be a second half '14 order play that will probably be a '15 revenue play. And just think about Windows 7. There's not a hard must-do-it-by April 8 date. It's really a soft leading into the upgrade. You've got EMV upgrade coming at the tail of it. All the financial institutions are starting to get their arms around it, and we're seeing more activity in the market.

So I guess to put a finer point on that, do you expect your small bank revenue in North America to grow in 2014? And what sort of rate would be reasonable -- a reasonable expectation behind that?

That's the point I was trying to make. I expect our smaller bank orders to grow in '14. Whether and how fast it will revenue, that's still to be seen. The revenue is probably going to be more flattish, and we probably will enter '15 with a higher smaller regional bank backlog than we have before.

Our next question will come from Paul Coster of JPMorgan. Paul Coster - JP Morgan Chase & Co, Research Division: My first sort of relate to Europe. So -- and Diebold was big in Europe, then it withdrew in large parts, and now it sort of feels like you are rebuilding. Can you sort of talk to us about where you stand strategically in Europe? And then the related question is how does branch transformation in Europe differ, if at all, from that in North America?

Happy to do so Paul. Let me start with the last part of your question. The biggest difference, and probably the biggest geographic driver in Europe, for branch transformation is the U.K. at this point in time. And if you think about it, the U.K. market did not have the unnatural spike that we had in the U.S. with the ADA compliance, and the installed base is actually pretty old in the U.K., and all the financial institutions are now looking at a normal upgrade cycle, looking at new technology. And needless to say, if that's what you're doing right now, you definitely want to pressure-test branch transformation and take advantage of the latest technology, as you optimize your banking model, which is exactly what's going on in the U.K. And given that this is new technology, the doors have reopened and we are in with 4 of the 5 major banks in the U.K. that we did not have any footprint in before. If you take that and then say, "What's Diebold's strategy to EMEA?" Our strategy for the last years has been and will continue to go forward, be more account-centric than country-centric. When we ran a country-centric model, the OpEx and the ramp-up costs got out of kilter. When we do it account by account, you can be smarter about it, you can throttle forward when you see the orders coming in. You can throttle back if you run into some headwinds. So we're continuing to invest in our corporate account strategy in Europe. You've seen our recent wins in Spain with large companies like BBVA that underpin this strategy, and we'll also continue to build momentum in the MEA part of EMEA, especially in the Middle East, and we'll continue to invest into that geography. Paul Coster - JP Morgan Chase & Co, Research Division: That makes sense. And then the other question I've got is the service margins have improved as you've turned that into sort of -- it's a business, I guess. But can they be improved from here? It's structurally a lot easier when you start mixing in a lot of software, right? But service in isolation, what needs to happen for the margins to continue to move north in that area?

Well, I think you nailed it. We are starting to manage service as a business, and we're getting out of it being a pure delivery model into a business model, and there are many levers that we can pull when you think about it. One, and the most powerful, is that we're thinking about it as a global business and not a country-centric model. In the old days, Diebold had dispatch managers, inventory, service managers, in every country. Workforce planning was done on a country level. We've pulled all of that up into a regional level and we'll continue to pull it up into a global level. You then add the IT investments that we are doing on the other side, which enables you to run dispatch from offshore lower-cost geographies for other parts in the world. You combine that with the fact that we've upgraded our complete fleet in the U.S. with GPS systems so that dispatchers can be smarter and we actually use technology to get our technicians on-site sooner and faster to take the efforts we're done -- doing on the inventory side, as we're able to reduce the inventory levels in the truck as we upgrade our products that will have more enhanced services capabilities. So we are very bullish about the opportunities we have in services and software. And the more we progress on our transformation, the more global we are, the more tools we can introduce, the more standardized our approach is, we can increase the margins and -- and that's the important part, keep the customer satisfaction and keep our first call -- first time fixed rate at the levels where they are, because the quality of Diebold service is one of the key differentiators, and we want to use that as a springboard not only for margin expansion, but also for revenue expansion.

And next we have Matt Lipton of Autonomous Research.

On the same topic of margin, I'm just curious of the $75 million that -- of the cost take-out that's going to flow over the bottom line. How should we think about mix based on all the things you were just describing, Andy, between savings on the gross margin front versus savings on total OpEx and operating margin?

Matt, this is Chris. How I would think about that again, it's probably split about 50-50. You're going to see about half of that coming through the gross margin side, the other half through op expense. But I would say that the majority of our reinvestments that you're going to see from the development side, from the IT and from additional investments in our people and sales organization, are going to come through more on the op expense side. So you're going to see a little bit of that in a distribution impact that'll be -- that, that won't be linear as we have more of the reinvestments that come back through our op expense.

Great. And then I think I noticed on Slide 30 that the tax rate in the guidance went up from 28% to 30% from where you had guided at analyst day. So are you feeling just more confident in operating margin and kind of the cost take-out for '14? Or should we just kind of think about the midpoint maybe being lower, just a touch on the side that the tax rate is higher.

Well, I would say yes to your first question. We are feeling more confident about that. With regards specifically to the 30% tax rate, we're looking at our current full year mix of income, across the various tax jurisdictions. And also, given our change in assertion from an APB 23 standpoint on our cash repatriation efforts, we are seeing a little bit of headwinds on that where the tax rate is probably up another 1% or 2% there as well. So it's the combination of those factors that we've now taken into account that 30% range that we've provided.

Great. And then, just last one for me, Andy or Chris, whoever wants to answer this. On deposit automation, I've seen lots of different stats out there as far as the number of ATMs, whether it's in North America or globally, that already have the technology. But when you think about the deposit automation and things you're talking about today, specifically those that don't require envelopes or can be multi-currency checks like you were talking about, how much of runway do we have there versus just the kind of old deposit automation that was sticking an envelope into an ATM?

There's a lot of runway on that one. To give you an example, we've just upgraded one large Canadian company to deposit automation, and it's actually the first in the whole country to introduce that technology. So I'd say you'll see just about all the financial institutions in North America and in other countries where there is still a high usage of checks going down that route, and that will continue to be a volume driver for the next years. Just, let me try to frame it up for you. That's probably 3/4 of the installed base in the United States that still does not have this technology. So you can...

That's helpful.

[Operator Instructions] We'll go next to Kartik Mehta of Northcoast Research.

Andy, a question on the VERP for you. It seems as though one of the biggest assets Diebold has is its service organizations. As the VERP gets implemented, how are you making certain that your service levels don't drop and that, that asset doesn't fall in the eyes of your customers?

Kartik, that is the main to-do that we have, and we monitor this very carefully. You then superimpose 2 other things. We also -- not only did we do the VERP, but more importantly, we've streamlined the management structure in our service operations, especially in the U.S., which means we had to rewire, if you want to use that term, every one of our service technician to different management codes in the system, given the fact that our IT systems aren't fully upgraded yet. So we're monitoring this very, very carefully. But here's the good news. I look at these stats every week. Did we see a blip? Yes. Was it significant? No. Interesting enough, we surveyed our customers after we had taken out the 700 FTEs last year, and customer satisfaction index went up after we had reduced the workforce. So our people on the ground are doing an extraordinarily great job of making sure that customer satisfaction is keeping up and that we go into the new line-up in a smooth and transparent way for our clients.

And then Chris, for cash flow expectations for 2014, you indicated $35 million more in CapEx. Are there any other one-time expenses that you'd anticipate in that guidance you gave?

Yes, Kartik. When you look at 2014, it's still not what I would consider a normal year for us. On a go-forward basis, we'll say as we get more to the latter stages of our turnaround here, I would expect approximately 80% to 90% of our after-tax earnings to flow through this cash flow. If you look at some of the big items that we still have in 2014, I talked about the additional $35 million from an investment standpoint and the CapEx. We also have the VERP action that concluded at the end of 2013. We have approximately $25 million in payout for that that's to be coming. We have an approximate other, as we outlined in the guidance, $0.30 to $0.40 worth of additional restructuring nonroutine actions. We saw some actions out in front of us that we're going to have to pay for in 2014. Call that approximately $25 million as well, and not necessarily nonroutine, given we've had it both years, but we're also looking at it, probably another $10 million or so of cash tax that we're going to have to pay out on our repatriation efforts in 2014. So you look at a couple of those large items and that weighs a little bit on the overall number. But I would say the $80 million to $100 million that we're getting, that's all-in, inclusive of all activities that we see in front of us in 2014.

So Chris, if I add these numbers right, so it's $60 million plus the $35 million in additional CapEx, that if you take all those out, you still get to your guidance, free cash flow guidance you gave. Is that correct?

Absolutely. Our free cash flow guidance of $80 million to $100 million is inclusive of all of those actions that I've-- all of those items that I've just outlined.

And then just -- Andy, just one last question. The CapEx increase, would you anticipate, is this kind of a one-time CapEx increase? Or as the company becomes more innovative and you need to invest, will the CapEx continue to increase?

I think you just answered it. We are -- one of the major elements of our 8-point turnaround program is to drive innovation in a collaborative fashion with our customers and our partners, which means we will continue to invest. Now if you ask me today, "Will this investment be primarily CapEx or more OpEx?" These things might float between the categories, but we will continue to invest in innovation, because that lays the foundation for the revenue growth targets that we've set ourselves internally.

And next we have Jeff Kessler with Imperial Capital.

Question is, you've noted that a large percentage of your backlog is in -- are in countries that, let's just say, have higher risk, both higher risk in terms of politics, but perhaps more importantly, higher risk in terms of currency. How do you deal with the currency risk based either on hedging or planned repatriation? What do you do to try to mitigate that risk as much as possible?

Well, Jeff, I mean we do not try to get into hedge accounting on our P&L. Again, we look to do as much as possible, I would say from a margin standpoint, to focus on localization of our procured parts and really try to drive it from that standpoint. With regards to where our cash is located, there are some hedging procedures that we do, do to try to offset some of that potential risk.

Okay. Secondly, noticing that the physical part of your security business fell this quarter, which actually is somewhat in line with what we're seeing with some of the other large providers of access and locks and things like that in this quarter, against the flat background for electronic, what percentage of the security business, as of the end of the year, has electronic become relative to the whole of security?

If you're looking on a revenue mix, it's slight -- the scale's slightly tipped towards the electronic, I'd say it's probably in the 53% to 56%-ish range. On the order side, there's no question, the order's growth is coming from the Electronic Security business. Having said that, we see an interesting phenomena in the conversations. It's not panning out in the orders numbers yet. But once financial institutions truly think through branch transformation to the very end, and they are going to one of the later stages, which is reassessing and reformatting their branch footprint, you will actually end up with some form of a physical security opportunity, because when you relocate a branch, the new branch will need a lock and safety deposit box and all that good stuff. So we are observing this very carefully, and making sure that when we talk branch transformation, we talk end to end, and we include the physical and security aspects in that business.

Okay. Can you put any numbers or any timeframe around the Panama Canal contract?

I honestly don't have the numbers handy right now. We can give you -- John can give you that in an off-line conversation.

Okay. One final question, that is, you mentioned -- you did mention earlier, and correct me if I'm wrong, that there was -- you have some opportunity with regard to the DMV upgrade. Am I incorrect in hearing that?

No. I said deposit automation, not DMV.

Deposit automation, okay, that's what I needed to know.

And next, we have Justin Bergner of Gabelli & Company.

I have a few questions this morning. First of all, with regards to Electronic Security, I believe you mentioned some delays in Latin America. Could you maybe quantify sort of what the revenue growth in the electronic side might have looked like without those delays in Latin America? Or perhaps what it looked like in North America?

From a full-year standpoint, those delays in Latin America probably cost us about 1.5% or so on the full year.

Great. Were those mainly concentrated in the fourth quarter, or were they spread out over the year?

That was mainly in the fourth quarter.

Okay. And then a second question, just to clarify on capital expenditures, your outlook slides said that capital expenditures are supposed to increase $35 million. I guess that would be off of the $35 million base in 2013, and that would get one to $70 million. That's only a slight increase from the outlook that was provided at your investor day, right? That's not a material change. Is it?

Correct, correct.

Great. And then third, I wanted to compliment the organization on the improvement in working capital, which was pretty impressive ending the year. And I just wanted to get a sense as to what actions drove that. Is there room for further improvement, how I should think about that in terms of its contribution in your term -- in your 2014 free cash flow guidance?

Let me start with the overall statement, and then Chris can go into the detail. The biggest change we have made last year is that we started to compensate people on free cash flow and that we've taken the whole free cash flow conversation, the whole metrics, the whole working capital metrics, out of the finance corner of the organization and made it mainstream in the operational reviews. So there was not a week that we did not review DSOs and DIOs and went down on -- down to the contract level in every one of our geographies. And it just changed the way the organization started to think about it.

Yes. To add to what Andy said, I mean, there was a tremendous amount of very hard work to achieve the overall results. With respect to how we look at that on a go-forward basis for additional improvement, we did achieve some solid results and by no means are we going to rest now and stop where we're at. We did get some benefit and we've outlined that in the DSO performance on some prepay, pay ahead activity, but we continue to focus on that, mainly on the process side and really driving that. So again, we expect to continue to try to drive that, but I would note, there's always that impact of potential regional mix and timing to some things in the year which could impact. On the inventory side, outstanding improvement versus prior year, we've set a new year-end mark that we've seen for a number of years. And so, again, a lot of real hard work there. And again, we're going to continue to try to drive and maintain that inventory performance at those levels as we go forward. But again, I would note, the timing of how -- the timing of how those overall balances will play out as we start to experience a little bit of growth. So again, we can maintain the efficiency from a metric standpoint, but we can still see some slight growth in those balances in the year as we start to grow the company slightly.

Very good. So if you're maintaining your free cash flow guidance in 2014, having enjoyed this benefit in working capital in the end of 2013, it would sort of suggest that there's no give-back at the very least?

Correct, correct. You could look at it, Justin, to say we have $30 million of prepayment activities that we're not modeling back in, but we're looking at additional efficiencies in our working capital to offset that and maintain it over year.

And next we have Meghna Ladha of Susquehanna.

Andy, back at the analyst day in November, it appeared that you were not satisfied with the current level of cost cuts at the company. What other areas within the company do you see additional cost take-out opportunities?

Let's do this one step at a time. We told you that we're going to do $150 million, we'll do the $150 million. We're starting to work internally to identify target areas after this, and we'll gladly disclose those once we've made more progress on our $150 million.

Okay. And then Andy, if you could talk about the competitive landscape on the ATM business, not just the U.S. but globally. Are you seeing any market share shifts?

Everybody -- we're in a very close-knit market, so everybody, of course, has a biased view. We see, definitely, a momentum shift towards Diebold, given where we are on our customer base, so customer mix drive volume, but we also see opportunities in the services business. Let me give you the example that I've given you in New York. Again, with the Bankia deal in Spain, as we're branching out into multi-vendor services, that opens a complete new TAM to Diebold and provides new sales opportunities for us. And so if you take the overall look, which is why we like to talk about orders for product and services, we feel like we're picking up service market share from other parties that are out there in the market. In many cases, these will also be smaller service partners that are out there.

All right. And just last question for Chris. Chris, how much cash is lying abroad that you could potentially repatriate in the future, if need be?

Our expectations for 2014 are approximately, I'd say, about $60 million to $80 million that we're looking at repatriating this year, in an efficient manner.

And we'll now go to Glenn Mattson of Sidoti & Company. Glenn Mattson - Sidoti & Company, LLC: Yes. Most of my questions have been answered, but one thing I was curious about was a competitor in the security space noted that there was significant pricing pressure in the marketplace. Is that -- do you think that's a result of Diebold kind of disrupting the market a little bit? Or is that something you're seeing as well?

You know what, the bigger question we have in our security market is how do we increase our coverage. For instance, in North America, we've just added 25 salespeople because it goes back to the old paradigm, you sell more when you show up. So we're focusing on coverage, on account penetration and on close rates and win rates. Pricing has not been on the forefront of our internal conversations in that business in the last 6 months. Glenn Mattson - Sidoti & Company, LLC: Okay. And then, I guess, lastly in Asia, the, I guess weaker results year-over-year, would you say that's mostly just a result of tough comps in India or is China pretty stable? Or -- what's your take on that?

I'll let Chris do the detail on the number, but China is an interesting market for -- I think for all Western players, predictability in that market is somewhat limited, very tough competition. And the other thing is we see -- we continuously see the trend to a razor-razorblade model, especially in India, and that will shift the way that the numbers will flow through, because the service revenue and, more important, the more accretive service margin that are associated with the unit will show up over a longer period of time. So quarterly compares could be more out of whack in that geography than anywhere else.

And I was just going to add, we do have a small impact year-over-year from a currency standpoint, and Andy really nailed it, Glenn, from a margin standpoint. That's where we've disclosed that we saw some more of our product margin pressure in the Asia side and expect that to be returned over a longer period in the service -- in our service margins.

And with that, ladies and gentlemen, that does conclude today's question-and-answer session. At this time, I'd like to turn the conference back over to Mr. Kristoff for any additional or closing comments.

Thank you, Cathy. I'd just like to take a moment to thank everyone for joining us on the call today. Now as always, if you have any follow-up questions, Jamie Finefrock or myself will be available the remainder of the week. Thanks.