Hello everyone and welcome to the Q3 2023 Diebold Nixdorf Earnings Call. My name is Nadia and I will be coordinating the call today. [Operator Instructions] I will now hand over to your host, Chris Sikora, Investor Relations to begin. Chris, please.

Hello, everyone, and welcome to our third quarter 2023 earnings call. To accompany our prepared remarks, we have posted our slide presentation to the Investor Relations section of our corporate website. Before we begin, I will remind all participants that during this call you will hear forward-looking statements. 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. Additional information on these factors can be found 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 Participants should be mindful that subsequent events may render this information to be out of date.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 be discussing certain non-GAAP financial measures on today's call. As noted on Slide 3, a reconciliation between GAAP and non-GAAP measures can be found in the supplemental schedules of the presentation. With that, we'll turn the call over to Octavio.

Thank you, Chris, and thank you all for joining us. Before we get started with our normal quarterly updates, I wanted to give our new Chair, Patrick Byrne, an opportunity to introduce himself on this call. After emerging from our debt restructuring process, we reconstituted the Board of Directors and are very excited about the governance, experience and insight the Board will bring to the company. So today, I thought it would be appropriate for Pat to kick us off to some comments. Afterwards, Jim and me will walk you through our quarterly results. Pat, over to you.

Thanks, Octavio. Speaking for all the directors, I can say we're all really excited to join the Diebold Nixdorf team. And personally it's a real honor to be leading the Board as we support and guide the management team going forward. The Board of Directors that we've assembled has the right skills in both, operational and financial expertise to help guide the company to strong results. In our view, the company has a significant set of opportunities to create meaningful shareholder value going forward. Our goal is to work with Octavio and his team to focus on those opportunities and execute. We intend to finish 2023 strong building on the Q3 sequential improvements and define the operational and financial priorities for a strong 2024. I've been really impressed by the first engagements I've had with the Diebold Nixdorf team; there's a deep commitment to serving the customers and delivering for the company. The company has many long standing relationships across a large global customer base. The Diebold Nixdorf team has brought technologies that have demonstrated real improvements to efficiency in both, banking and retail segments, while also helping our clients to better serve their customers. Our global team has demonstrated resiliency and remains committed to both, serving the customer and delivering on results for the company. As we finish this year, we will set the 2024 operational and financial priorities, and we intend to share those priorities and the long-term targets for the company after that, likely in early 2024. The Board looks forward to working with Octavia and his team in this exciting new chapter for the company. Now, I'll pass it back to Octavio and to Jim.

Thank you, Pat. I speak on behalf of our team when I say welcome to the company, and we are ready for the journey ahead. Q3 was another quarter of strong performance as our team remained focused on customers, won in the market, and continued to improve our operational execution. As you can see on Slide 4, we have made meaningful progress against all three of the key operating priorities that we outlined at the beginning of the year, clearly evidenced by our quarterly results. In August, we completed the debt restructuring and emerged a stronger company with recapitalized balance sheets, enhanced liquidity, and a solid foundation moving forward. Our third quarter financial results demonstrate our commitment to continuous improvement with meaningful year-over-year and sequential growth in all key metrics. Through the third quarter, we are cracking towards the top half of our full year financial outlook ranges for revenue and adjusted EBITDA, and we remain focused on delivering a strong fourth quarter to close the year. We continue winning in the market with our world class solutions, and we have recently brought new innovative solutions to our customers that further solidify our position as a leader in self-service and automation, and help us increase our addressable markets. Turning to Slide 5, before we go into the financials, I wanted to highlight some of the new product introductions we made in the quarter. In banking, we are helping banks optimize all cash touchpoints with consumers by expanding our recycling capabilities. Through branch transformation requires end-to-end automation across the entire cash ecosystem; so we provide solutions not only at the ATM but also at the teller line. This opens new revenue opportunities to us as we broaden our range of solutions, providing operational improvements to our banking customer. This quarter, we…

Thank you Octavio. Starting on Slide 8, banking revenue of $665 million was up approximately 15% versus the prior period driven by ATM revenue growth of 31.5%. We continue to benefit from our supply chain and logistics improvement efforts which is facilitating us capitalizing on demand for our DN Series offering. Service revenue was up approximately 6% versus the prior year driven by higher revenue in both, product related service as well as end-to-end managed services. Banking gross profit in the third quarter increased by $20 million year-over-year to $164 million, with improved profitability and products from the impact of price adjustments and the benefits of discipline cost management. This resulted in banking gross margin of 24.7% in the quarter, which is flat compared to the prior year and sequential quarter as we continue to invest in customer satisfaction efforts related to service in the North American market. Moving to Slide 9, retail revenue of $278 million was up 24% versus the prior year driven by higher self-checkout volume in the quarter, as this continues to be a driver of growth for the company. Service revenue year-over-year benefited from growth in product related services as self-checkout unit shipments are primarily new placements in the market and carry a high service attached rate. Retail gross profit in the third quarter increased meaningfully year-over-year to $75 million; both, product and service contributed to the increase. This resulted in retail gross margin of 26.9% in the quarter, which is up 210 basis points compared to the prior year, and up 190 basis points over the sequential quarter. On Slide 10, we wanted to reinforce that the third quarter represents another solid period of performance for us in 2023. On a year-to-date basis through the third quarter, we are driving meaningful improvements in revenue…

Thanks, Jim. Moving to Slide 13. As we conclude our prepared remarks, I wish to thank our customers for their ongoing support. We are committed to providing best-in-class solutions to help them achieve their business outcomes. I am incredibly proud of our Diebold Nixdorf employees. Our team has never lost focus on what is most important, our customers; all while driving and improving our operational execution. We have completed another quarter of meaningful improvement for the company. And we are well positioned to close the year strong. And with that, operator, please open the call for Jim and me to take some questions.

[Operator Instructions] And our first question is from Matt Summerville of D.A. Davidson & Co. Matt, please go ahead. Your line is open.

Thanks. Good morning, couple of questions. Octavio, can you maybe spend a couple of minutes talking more broadly about the demand environment as you see it today by region for both, ATMs or both, banking and retail I should say? And then, I have a follow-up.

Sorry about that, Matt. Siri was then trying to answer for me. So, probably you signed up like we tried to highlight the results by region, and you can see that we have strong double digit growth in every region. So again, we still see a robust and strong demand environment for both recyclers, and for our self-checkout solutions. What's more, we -- some of the efforts that we did increasing production lines that are self-checkout are paying dividends. And as you saw, record number of self-checkout shipments; the highest we've ever had in the company's history. So we're still confident around the demand and acceptance of our products in the market. So, I know you'd like to go through the different regions but you can see North America had a very strong quarter. Once again, this is driven by the adoption of recycling technologies across some of the key banks in the U.S. and Canada. We expect that trend to continue. And as you saw in our remarks as well, we're expanding our product offerings with now a teller cash recycler, that is another member of the DN Series [ph] family that will clearly help banks as they transform their branch environment by allowing the same components, the same cassettes technology to be deployed across all cash points in the branch; so we think it's a very unique thing for our North America market. Latin America, as you know, continues to grow and we continue to see significant expansion as banks use the ATM as a way to touch more consumers, financial inclusion in the market; so we expect demand in Latin America to remain strong. We always talk of Europe as a stable market. But as you can see, it was a market that also grew significantly. Part of that growth is driven by our strong retail footprint in Europe, and the continued acceptance of self-checkout across most retailers globally. So we feel good about the demand on that. And as you saw, we're also making continue to make inroads into the North American market with retail, with wins not only now from our European retailers that are establishing themselves in the America, but now winning some local customers. And to wrap things up, Asia Pacific; as I always say, Asia Pacific is an area of great opportunity, there's clearly always more business there than what we could probably have an appetite for basis on the profile. But if you recall, we also now have started production in India that will help us grow in that market -- a market that shows great promise for us, and one that where we hadn't been focused previously. So again, I feel that the demand environment is very conducive to continuing growing our business, and our customers throughout all these processes have benefited us with continue to ordering our products across the globe. So I'm excited about the future, Matt.

Thanks for that color, Octavio. Maybe if you guys can comment a little bit on services gross margin and how long we should expect or what timeframe we should expect, for getting the fourth quarter seasonal bump you're going to get? When do service margins get back into kind of the targeted range that the company had laid out in the not too distant past? And is there something that is structurally changed in that business whereby maybe that margin target doesn't make sense anymore? Thank you.

No, Matt. And thank you for your question. So when we think about services, as I mentioned in prior quarter, our main focus in our service operation globally is improved quality and customer satisfaction. Service is the best predictor of future success; happy customers buy more. And as you've seen customers continue buying from us, so I want to make sure that we continue this trend of improved service quality which will lead to improved customer satisfaction and more orders for us in the future. So, my focus and that of our entire service team is let's make sure that we're improving quality across the globe and all our service operations. With that said, you know that -- that means that we're shifting our model. As we grow our service business, we have become reliant on using third-parties in certain markets. We're scaling back the use of third-parties as we believe that service quality is better when we are providing the services. So, we're in that transition Matt where we're shifting the mix of resources from external to internal resources that I mentioned in the prior quarter. So I will tell you that this is a process that we hire our people, we maintain the third-parties as we train them and make them proficient. So, I would say that you will start seeing the benefits in Q4 and the targets that we have outlined us our long-term goal remain achievable, and I'm -- and I think that you will start seeing us trending towards those targets in the coming periods. So there is nothing structurally different about our service market. I think that if anything, you know, this $2 billion business or $2.1 billion business that we have with 70% recurring revenue is a very resilient business where I want to keep investing and growing that business.

Got it. Thank you.

Thank you. [Operator Instructions] And our next question is from Matt [ph] of Wedbush. Matt, please go ahead. Your line is open.

Thanks for taking my question. I guess my first question is around the banking product gross margins. The improvement -- I think you talked through supply chain and pricing discipline, I guess correcting some past issues. Can you give us some color around exactly how much -- well I'm assuming shifts are structural but how much further improvement you can get there or think you can get there on the product side?

So Matt, we're well on-track to what we have put out for the year and where we expect gross margins to end; so we're well on-track to achieve those product gross margins that we highlighted. If anything, we're running a little bit ahead of where we thought we would be. As far as how much we can improve them, hopefully next time we speak we will lay out for you guys our multi-year roadmap. But clearly, as we become more disciplined in our pricing, as we've now fortified, important parts of our supply chain diversified supplier base, there is still opportunity for us to keep improving our product gross margins as we go forward.

Thanks, Octavio. And then the last few quarters, you've been giving us a backlog number. Is there any chance you can give us an update?

Yes, Matt. It's come out a little bit from prior quarters as we've accelerated backlog to revenue efforts. So it's right around that $1.3 billion. So $1.25 billion to $1.3 billion range, as we exit the third quarter.

Yes, Matt. Probably an important thing to remember is we still have elevated backlog levels, our long-term goal is to have a backlog of roughly two -- a little bit over two quarters of product revenue and backlog at any given time that would provide greater efficiency in our operations. It seems that we're north of $1.2 billion to $1.3 billion -- almost $1.2 billion, $1.25 billion; we need to still keep accelerating deliveries and get that backlog to a more normalized level. So there is still opportunity to accelerate our backlog conversion.

Excellent. And then just one clarification, if you will. I think the non-GAAP EPS number; there was a large tax included, could you just give a bit more color around that?

Yes, that Matt -- and you know, this quarter, I think a little bit -- there is a lot going on, obviously, from an accounting standpoint with fresh start and the evaluation efforts that had to go into that, as well as the impacts associated with the plan with respect to the reorg items. And so, that's essentially the impact from a tax perspective; once taking off the valuation allowance in the U.S. relative to the growing concern moving away and reassessing those and running that year-to-date tax impact through the third quarter. So as I said, there's a lot going on there, so happy to spend some more time there as necessary. But that's the catch-up from a non-GAAP perspective, considering all of the other things happening related to fresh start accounting and the accounting group plan [ph].

Awesome. Thanks for the color, Jim. That’s all I’ve got.

Thank you. And we have a follow-up question from Matt Summerville of D.A. Davidson & Co. Matt, please go ahead. Your line is open.

Couple of questions. OpEx was down $14 million quarter-on-quarter, I think year-to-date down $20-ish million. Talk to me about the sustainability there. What resets from a comp standpoint in 2024? How we should be thinking about moving into next year, given some of the moving pieces there?

So Matt, I think that the way we need to think about OpEx is there, you know, we've reset incentive compensation in our plans to the appropriate level. Next year, clearly, we will still have to deal with labor inflation but we're working on how we offset that with efficiencies in our operations. So what I would tell you is that, we believe that the level that we're at is a sustainable level where any increases due to wage inflation and others we will be able to offset with efficiency in our operation, and that is our focus. We really want to maintain our SG&A, our total OpEx at this level and any increase needs to be offset with efficiency. And we feel comfortable that we will be able to achieve that in the coming in the coming years.

And then, maybe just talk you know, bigger picture, obviously follow Diebold long time and every new CEO or newer CEO that's taken over Diebold has unleashed sort of a multi-$100 million incremental sort of cost-out [ph] program, and I know you've done some of that. But I guess I'm curious Octavio, is there more structural cost-out [ph] still to be had at Diebold? And if so, could you elaborate on that a little bit? Thank you.

So Matt, you know, I always threat the way I want to run the company. And again, I'm one of the many CEOs that you've covered, and as I always joke with you, hope that you cover me for many, many years to come. But the way I want to run the company is with the mindset of continuous improvement. So, we don't have one program or I don't want to run a program that’s focused in the short-term, I want to run a program where the company keeps improving quarter-over-quarter, year-over-year, because we will always find additional efficiencies in our business model; we will respond to changes in the market, we will respond to customer preferences, but we need to be a nimble [ph] enough organization that's always thinking how do we can continuously improve. So perhaps, you know -- so to your point, will we take some -- will we make a big new program? My answer to you is, we will always be looking for efficiency in our operations but it needs to be a consistent improvement. It's not a onetime thing, it's quarter-over-quarter we need to improve, year-over-year we need to improve. And as Pat said in his remarks, there's ample opportunities for us to keep improving our operations. And we're focused on making sure that we're operating in the most efficient way possible.

Got it. And then, maybe just one more. Over to the retail business, self-checkout obviously doing very well for you guys. E-pause [ph] shipments down, what does that sort of infer from a macro standpoint? And how should we be thinking about E-pause [ph] into 2024?

Obviously, Matt, I always want to have a healthy E-pause [ph] business, where -- you know, it's an important part of the business. But we are clearly seeing and this is part of our strategy, a shift to self-service. So, E-pause [ph] is an easier decision to delay by customers to replace self-checkout, it's a necessity. So while all of our efforts are focused on how do we accelerate self-checkout, but again, you know, you will see that we also will have a keen eye on accelerating growth on E-pause [ph] as we go forward. So I will tell you that if you're thinking macro-economically, self-checkout continues to be one of those drivers that helps retailers on the cost side of the equation, but also very importantly, in creating a better customer experience at the checkout. So, I would say that we will continue pushing very hard to grow our self-checkout while maintaining or slightly growing our E-pause [ph] business.

Thanks, Octavio. That’s it.

Thank you. We have no further questions. And I'll hand back to Chris for any closing comments.

Yes, thank you. Thanks, again, for the time today and please feel free to reach out to me in investor relations if you have any questions. Thanks.

Thank you. This now concludes today's call. Thanks all for joining. You may now disconnect your lines.