Diebold Nixdorf Inc (DBD) 2012 Q1 法說會逐字稿

Good day everyone. Welcome to the Diebold, Incorporated first quarter financial results conference call. At this time for opening remarks and introductions I would like to turn the call over to the Vice President and Chief Communications Officer. Mr. John Kristoff. Please go ahead sir.

Thank you Brandy. Good morning and thank you for joining us for Diebold's first quarter conference call. Joining me today areTom Swidarski, President and CFO, and Brad Richardson, Executive Vice President and CFO. Just a few notes before we get started. In addition to the earnings release, we have provided a supplementary presentation of the investor page of our website.

Tom and Brad will be walking through this presentation as part of their comments today, and we encourage you to follow along. Before we discuss our results, as with past calls, it is important to note that we have restructuring in our 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 nonGAAP 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. And finally, a replay of this conference call will be available later today from our website. As a reminder some of the comments today may it be considered Forward-looking statement. Internal and/or external factors could significantly impact actual results. As a precaution, please refer to the more detailed risk factors that have been previously been filed with the SEC. Now with opening remarks, I will turn it over to Tom.

Thank you John, and good morning everyone. Thanks for joining our call today. We delivered record setting first quarter earnings per share performance as the strength we saw in the fourth quarter continued into 2012. We grew total revenue 14% during the quarter with a 21% increase in financial self service.

Once again we are seeing exceptionally strong results in North America as demand for deposit automation and integrated services continues to grow. Our leading position in the market place as well as the market we created for integrated services, positions us well to capitalize on the increased investment activity happening in the self service space. Clearly we have enhanced our leadership position in the growing North American market, and that is a primary component of the outstanding results we announce today. Additionally, our EMEA operations contributed to the growth in earnings with a significant year over year reduction in first quarter losses as we continue to benefit from our restructuring efforts.

And we reduce our operating expenses as a percent of revenue from the prior year period. Finally, our results were also positively effected by accelerated ATM installations related to the March deadline for ADA requirements. We anticipate that some ADA related activity will continue through the middle portion of the year and will begin to trail off by year end. So given the strong start to the year and a continued underlying strength in our markets, we have increased confidence in our ability to generate sustainable growth.

Therefore, we are raising our full year outlook for both the revenue and earnings. As we look at the balance of 2012, I am encouraged by our strong growth and financial self service as our integrated services offering continue to build momentum in the market. The total value of integrated services contracts we signed in the first quarter in North America alone approached $80 million. An increase of about 60% from the prior year period.

One example of the growing momentum in the IS space is Dena, Alaska Federal Credit Union, taking responsive service from a single point contact, Dena selected Diebold to replace its feet of about 50 ATMs. Most of which will now have the deposit automation and provide a variety of integrated services. Denali is highly representative of the nearly 300 customers who outsource key elements of their operations to Diebold during the quarter. This speaks to our unique innovative solutions that are highly valued in the regional branch segment as well as the trust these customers have placed in our capabilities.

As we have communicated for many years, services are the key ingredient to our competitive differentiation and long-term value creation. The IS agreement with TD we discussed during out previous call exemplified the critical need of banks of all sizes to focus on the cooperations. And our work with TD is evidenced that we have built an infrastructure and competency to handle the largest and most sophisticated global banks. From our knowledge of our customer's business processes to the breath of our service organization and our growing electronic and logical security capabilities.

We remain very optimistic about the scope of potential of integrated service business. We continue to innovate and build off the initial success we have had in the space in Brazil and are bringing this expertise to key regions around the globe. All while capitalizing on the improved market environment in North America.

Now let us take a closer look at our performance on a regional basis. In North America demand for products and services remains very strong. First quarter revenue in the region increased more than 30% with very strong financial self-service growth primarily offset by an anticipated decline in securities. As I mentioned earlier in my comments, we saw continuous strong demand for deposit automation, integrated services, and replacement activity associated with ADA compliance. All these factors drove financial self service product ordered growth even higher than the impressive rate we experienced in first quarter of 2011 and is indicative of the continuing strength in the market.

Customers continue to adopt the positive automation technology at healthy rate. Total deposit automation shipments in North Americaincreased nearly 300% during the quarter. With similar growth in both national and regional accounts.

Finally as I mentioned earlier, we saw significant growth in our integrated services contracts during the quarter; We expect the underlying growth factors of the market beyond ADA compliance to continue to be strong through the remainder of the year. Our strong competitive standing especially in the bank segment positions us well to capitalize on a growing investment in financial self-service technologies in North America. In summary, we remain very optimistic regarding the state of the North America financial self-service market and our ability to grow our leadership in the region.

Looking at our security business. Revenue decreased 6% during the quarter in line with our expectations. Although product orders grew, and I am encouraged by theincreased sales activity, particularly in the profitable regional bank security's market. And we remain confident in our adoption of an industry leading integrated services offering in security. For instance, during the quarter, we booked more than $4 million in security IS contracts.

In April alone, we booked new IF contracts in excess of that number. So the pipeline for additional integrated services opportunities continues to grow. You may recall that when our financial self-service IS business began about five years ago, we saw similar modest contract value early on, and last year we signed more than half a billion dollars in new contracts. We believe we have a compelling case for an outsourcing model similar to what we have built in our ATM business. Initiative and growth and potential integrated services are present,

We also see opportunities for small bolt on acquisitions as means to position this business for long going forward. We have made significant progress in transforming our security business, leveraging our capabilities in integration, broadening our solution set, and reengineering our sales strategy and remain confident in our ability to generate growth in the second half of the year. As such, we are maintaining our security revenue guidance for the full year. Moving to EMEA, first quarter revenue dropped 9% as we continue to execute on our strategy to restructure our business to be smaller, more profitable, and entity. Macroeconomic issues are still negatively impacting portions of the reason particularly Spain and Italy which we believe will remain challenged through 2012.

However we are seeing strength in other areas within the region including certain markets in Africa and parts of Western Europe. In addition, EMEA restructuring program contributed to our overall improvement in earnings during the quarter. We were able to cut our loss position by about two-thirds compared with the prior year period on lower revenue. Also in EMEA are beginning to adopt our Opted Flux performance series of ATMs as we have booked several orders for FLUX during the quarter. This enhances our competitive position in certain key markets where deposit automations is taking hold. The FLUX series enables financial institutions to transform the way they manage cash at the ATM, improve efficiency and decrease cost, and minimize the administrative burden for the personnel.

Given our proven results EMEA, I have growing confidence that we will achieve modest profit in the region for the full year. In Latin America including Brazil revenue decreased about 10% during the quarter due mainly to timing of business. However orders in the region doubled from the prior year period. While we saw strength in orders from Latin America the majority of the overall increase came from Brazil as we booked a previously announced order for 3800 ATMs to [ ] the second largest bank in Basil.

We continue to feel confident with our market leading position in Brazil and our ability to win a number of other opportunities as we progress throughout the year. Looking to the rest of the Latin America, their market remains very active. During the quarter Peru, Columbia, and Central America were particularly strong in terms of winning new business. In Peru, we won a major seven-year IS contract which includes 200 ATMs, first and second line maintenance, and ATM availability management with optiview results. in Columbia we had a significant security win with a large oil company.

In summary, we continue to maintain solid leadership throughout Latin America and Brazil, and are well positioned to capture significant amount of growth expected to occur there in 2012. Moving on to Asia Pacific revenue increased 15% in the first quarter. A large portion of the growth was driven by China where timing of customer business and a relatively easy comparable to the prior year period led to a higher than normal growth in the region. We also saw substantial growth in other areas of the region. In Thailand we expanded our market leadership with several key wins, and in India we continue to do our integrated service business at an impressive rate. which lead to a significant overall revenue growth in that country.

We are continuing our strategy to invest in building a it sustainable services model throughout Asia Pacific to help ensure long-term competitive position. So while the hardware in the market remains competitive in Asia, we are excited about our progress in expanding our services portfolio throughout the region. Looking at our expectations for the full year, we continue to be optimistic considering the positive activity in our key markets and our ability to deliver in those markets, especially North America, Latin America, and Brazil. In

addition to the significantly positive mix shift in North America, the operational improvements we have put into practice over those past serial years enables us to pull through higher incremental operating margin on our revenue growth. Therefore, we expect improvements in both revenue and earnings from our previous guidance. Now we project total revenue growth of 7% to 10% on the expectation that financial self-service will grown 10% to 13%, and we expect to deliver earnings per share of $2.50 to $2.70 per share. So to summarize, I continue to feel extremely confident in the direction we are heading. Our strong first quarter positions as well for the remainder of the year and is reflective of the market-leading role we enjoy throughout the Americas.

Our restructuring efforts in EMEA are having meaningful impact on our overall profitability. And we have limited exposure to the macroeconomic challenges specific to areas within that region. We anticipate that we will continue to see improved results in EMEA for the balance of the year. And we continue to make inroads in the security integrated services space.

Finally, our strategy to leverage our capabilities in services software and innovation is beginning to pay dividends and is meeting the needs of our rapidly evolving markets. The success we are seeing with our overall integrated services portfolio is proof that our vision to evolve to a software led services business is working. I have no doubt in our ability to deliver in 2012 and beyond.

The investments we are making go well beyond innovations and hardware development. Areas we are pioneering in our industries such as virtualization, 4G, and mobile are much more dependent on our going software and services capabilities and infrastructure. These investments will help usbuild a more sustainable business model in terms of our competitive advantage, profitability, and topline growth, and the immediate need for financial institutions to optimize the retail banking channels and wisely invest their capital dovetails perfectly into this strategy. With that, I will turn the call over to Brad.

Thanks Tom, and good morning everyone. Before I get into our quarterly financial results and 2012 outlook, I would like to touch on a few key outcomes from the quarter. As Tom said, we delivered an outstanding first quarter performance.

The results were driven mainly by our strong performance in North America where we hold a leading position. The strong first quarter results are evidence we are delivering on the key growth strategies we shared during our Analyst Day in February. These include transforming to a software led services company, leading deposit automation adoption, growing our electronic security business, and pursuing opportunities in emerging markets globally.

Moving forward, our strong balance sheet and free cash flow will continue to support our growth in these areas. Also contributing to improved performance is the success of our restructuring efforts in EMEA. Last year we eliminated $15 million from our cost structure in this region. As an example of the progress we have made the gross margin a percent of revenue doubled in EMEA the first quarter. AsTom said earlier, we are encouraged and have confidence that we will be able to achieve modest profit in EMEA for the full year 2012 despite the economic headwinds in this region.

Now to review our financial results. Turning to slide 15, total revenue was about $700 million up 14% from the first quarter of 2011 with a 2% negative currency impact mainly driven by the Brazilian This represents the highest first quarter revenue in the Company's history. For the quarter service revenue increased 9% and product revenue increased 21% with strong growth in the financial self-service especially in North America and Asia Pacific.

Looking at our financial self-service business on slide 16, first quarter revenue was $561 million an increase of 21%. AsTom mentioned, we saw strong demand in North America for deposit automation and accelerated ATM installations related to the March deadline for ADA requirements for ATMs. In the security business, on slide 17, first quarter revenue was $135 million. A decrease of 6%.

As we have shared with you, the strategy for the security business is to focus on growing our electronic security sales in the financial industry. The opportunities in this space continue to grow especially in the regional bank space. In our integrated service business within this space is gaining traction with two meaningful wins in the quarter. We remain confident the security business will generate growth in the second half of 2012.

Turning now to slide 18, the total gross margin for the first quarter increased 2.3% points from 2011 Service growth margin for the quarter was up 1.9% points. This increase is the result of a mixed shift towards higher value-added services, leverage due do installation growth in North America, and continued productivity improvements. Product gross margin for the quarter was up 2.7% points. This improvement is result of a strong regional bank mix in North America and improved profitability in EMEA.

Moving on to non-GAAP operating expense as highlighted on slide 19 in the first quarter operating expense was down 1.6% points due to operating leverage on higher revenue. We continue to focus on controlling cost through our Smart Business 300 program, and we are executing on plans to improve our IT and global services cost structure. In 2012 we expect the full year operating expense to be in the 18.5% to 19% range. Now to side 20, non-GAAP operating margin for the first quarter increased to 8.2% from 4.3% in 2011.

This increase is largely due to the strong performance in North America, predominantly in the regional bank space as well as improved profitability in EMEA. We anticipate the full year operating margin to be in the mid 7% range. Turning to the EPS reconciliation table on slide 21, non-GAAP EPS moved from $0.23 per share in the first quarter of 2011 to $0.74 per share in the current quarter. Or non-GAAP tax rate moved considerable from 39.6% in 2011 to 23.1% in 2012.

The higher tax rate in the first quarter of last year was due to losses in certain European jurisdictions with no associated tax benefit and discrete items. Our full year EPS guidance still assumes if nonGAAP tax rate of around 28%. Turning to slide 22, free-cash use for the first quarter 2012 was $38.3 million compared with the free-cash use of $101 million in 2011. Free-cash flow improved $63 million from the first quarter with this solid improvement we also believe our free-cash flow seasonality will be more balanced than the prior year, though we still anticipate a strong fourth quarter. We are raising our free-cash flow estimate by $20 million to around $170 million for the year.

Slide 23 highlights the progress we have been making on our cash conversion cycle. This is an area where we put continuous focus and effort. In the first quarter, we saw considerable improvement in our cash conversion cycle from 89 days to 77 days. This was achieved through significant process work to improve our overall collection activities and payment terms with our suppliers. And we expect an improvement in the full year as well. Inventory remains a meaningful opportunity for improvement.

Looking at slides 24 and 25, day sales outstanding improved by four days from the prior year to 48. This was our lowest first quarter ever DSO. Inventories were essentially unchanged during the quarter versus the prior year quarter. Moving next to liquidity and net debt on slide 26, we finished the quarter on a net debt position of $46.6 million a reduction of $39 million from the net debt position of March 31, 2011. I would like to highlight another key area regarding our liquidity and financial stability.

Our pension funding status. At December 31, 2011, we were 82% funded on the projected benefit obligation. And at the end of the first quarter of 2012, we moved to 86% funding. While we are not required to provide additional funding to the plan, we contributed $12 million in the first quarter.

In summary, our financial position provides us the flexibility to reinvest back into the business or growth. In our full year outlook for 2012 as shown on slide 27, we expect revenue to increase 7% to 10% up from the previous guidance of 3% to 6% with all the growth coming from financial self-service Security and elections in lottery revenue expectations remain unchanged. We expect our full year 2012 non-GAAP EPS to be in the range of $2.50 to $2.70 per share up from the prior guidance of $2.30 to $2.50 pershare. At a constant tax rate of 28%, this represents a 13% to 22% EPS growth off of a 7% to 10% growth in revenue versus the prior year.

Clearly we expect to pull through higher margins from our revenue growth as we leverage our operations. From a seasonality perspective, we expect our revenue for the second half of the year to have a higher mix of business from lower margin international regions and North American national accounts. As a result, we expect earnings per share to be more evenly distributed through the remainder of the year as opposed to the historical seasonality that is typically backend loaded.

In closing, I am very encouraged by our first quarter results. The strong performance has successfully aligned us with the strategies and operating targets set within our financial framework. Our revenue target for 2012 actually puts us above our long term financial framework and we are close to our long term target of 15% return on capital employed with work still needed on our operating margin. Our core strategies are aimed at generating higher recurring revenue that creates sustainable results over time that fit within our financial framework.

In addition to our solid planning and execution process, the strength of our markets throughout the Americas particularly in North America and Brazil are providing the catalyst for our growth expectations. On the operational side, we have realized benefits from our restructuring efforts in EMEA, and finally our strong balance sheet and solid free-cash flow performance provides us with leverage we need to deliver on our commitments throughout the remainder of the year. With that I will turn the call back to John.

Thanks Brad. Brandywe are prepared to take our first question.

(Operator Instructions). We will go first to Kartik Mehta with Northcoast Research.

Tom, a question on EMEA, I am assuming all the benefits out of EMEA were Europe. I am wondering if you can just talk about maybe the losses you incurred last quarter verses this quarter just to get an idea of the level of benefit you achieve from that and how well this restructuring actually is going.

So Kartik the way I view it is the incremental difference between last year and this year is about $7 million to $8 million operating profit. And I would look at that kind of in two buckets, half would be associated with the restructuring efforts that are under way, and half would be what I would call operational improvements. So while we are pleased with kind of the movement quarter over quarter we still clearly have a lot of work to do , but it certainly puts on the path to as we have communicated to get us to moderate profitability this year with the EMEA

I am assuming the revenue decline in EMEA is related to the countries in Europe where you are not emphasizing. I am wondering if that is actually accurate, and two the countries where you do want to have a bigger stake, how well that is going and maybe what the fundamentals are for those countries.

Okay. Yeah, I would say that is accurate. Clearly we have gotten out of countries both from a direct and incorrect standpoint meaning through distributors. So you do lose revenue in that regard. But again our whole goal as we have stated is really profitability returning to profitability and focusing in. Relative to the countries that we have got a lot of focus on where you would say like a South Africa, you would say Saudi Arabia and parts of the Middle East, you would see France, You would see Belgium, UK , feel very good about the progress taking place. Feel good about the kind of infrastructure that is being built to Crete some sustainability there. And which is why we think that profitability is achievable this year, and then we move there but first things

Last question Tom on the US, ATM market ,any way you can talk about the percentage of revenue you are getting right now from regional banks versus what you were getting maybe a year ago, just to get a sense of what the real strengths in that market is.

Yeah, I would say in this quarter if we look at the first quarter it was probably close to a 70/30 mix. You would say 70% regionals, 30% what we would call kind of a national group. Last year the comparable number was probably closer to 50/50, or 55/45. So significant ramp up relative to the regionals which I think you have seen flow through.

Thank you very much.

We will go next to Matt Summerville, with KeyBanc.

Good morning a couple questions, Brad I apologize toward the end of your prepared remarks I missed your comment on seasonality in terms of either of margins or revenue, I just want to make sure we are clear as you guys have been willing to talk about it before. How much of your EPS you feel will be front end loaded versus backend lowed as we think about the ADA and other dynamics you have walked through on your call.

Yeah, Matt, let me just cover my prepared remarks again. What we have said is given the ADA performance in the strong regional market that we had here in the first quarter, and the fact that the revenue growth that we are expecting for the rest of the year is coming from the lower margin International side of the business as well as national accounts, we now expect kind of the earnings profile if you will to be about 50/50. About half of the earnings generated in the first half and about half in the second half.

So I guess to tie that in to incremental margins, on Q1 they came in on operating basis comfortably north of 30% which is very strong. What do you think going forward in your business given kind of a more normalized mix going forward it sounds like as well as layering in there the executional and operational improvements you have made in Europe, what is the right kind of incremental margin for this company going forward, Brad.

Well, I think the overall margin, you are talk being about incremental margins are kind of probably, it really does depend upon the mix. I have to say. What I would point you to is as you look at what we have guided to in terms of the overall operating margin performance for the rest of the year again we did 82 in the first quarter and expecting mid 7s for the full year that will give you an indication that is there is a negative mix effect coming as a result again that the national accounts as well as the International locations.

And then Tom I was hoping you could just spend, this will be my last question, I was hoping you could just spend a minute talking about Latin America specifically Brazil and the RFP activity you are seeing there. You started out the year with a negative revenue comp talking about seeing nice growth in the region for the year mentioning Kyoeisha. Have you seen that RFP come that you or get awarded yet from [ ]And I guess in context of the competitive environment down there, are there any other big RFP opportunities that have arisen.

Matt, let me kind of start at the holistic of Latin America and Brazil and maybe we can go further into Brazil. We feel really good about what we are seeing in the outlying corridors both on the revenue and the order-entry standpoint.. There is a number of I would call healthy activity there. And the good news for us it is not just a couple of large ones. There is just a lot of activity on the fronts from the Latin America standpoint. And we feel well positioned there. And our outlook is I think pretty strong for the full year from an order entry and a revenue standpoint.

So I was not unduly worried relative to the first quarter in terms of revenue as I mentioned in my prepared remarks. Our order entry in the first quarter is about double where it was last year. So again a lot of these have to do with timing on certain things, but we see good visibility there. Relative to Brazil, much as we always said, we are in a very fortunate position in Brazil.

I am not in a position to talk about specific banks, but I can tell you with all of those banks we are well positioned and are looking forward to being able to provide a whole host of services to the players there. In some of their cases, we have been able to first begin arrangements relative to the service side of the business. So we have begun to provide some services to folks we have not been able to do that before. And I think in terms of the order opportunity and being able to recognize that revenue that while that may be later this year or next year, I think in either case we feel very confident in them valuing our skill sets and feeling like we are positioned there for the long term. I feel good about the entire region and as always feel very strong in terms of our position in Brazil.

Thanks guys.

We will go next to Gil Luria with Wedbush Securities.

Thank you. First of all, on managed services you had another strong signing's quarter. In terms of your pipeline going forward are you starting to see more large bank institutions look at the TD win and then their early success in getting into your pipeline and looking at the managed services as an option for them?

Yeah, Gil, I would say that it clearly, there are clearly a number of folks looking at various pieces of that. Certainly the TD announcement and the stats for TD has in the industry carries a lot of weight to it. I think maybe the biggest benefit that maybe I want to share on the phone really has to do on the security side. And that again, one of the things that they have talked a lot about had to do with the security capabilities and so as such, we have found several what I would call national kind of banks, one of the top 25 banks in serious conversations with us on the securities side of their business. So whether that is outsourcing their monitoring capabilities or credential management, but all around a logical security space we are seeing a lot of activity and I attribute a lot of that to kind of the continuous growth in IS in terms of the ATM business, and then the other piece of that would be the fact that we are in with so many regional banks now in the IS standpoint in terms of integrated services and the mentality of what we have been able to do in the ATM side, the movement into the security piece has picked up some momentum there. I see a lot of momentum on both the large and the small, and for us that is a very good thing because again much like in the TD case or the one I referenced on the phone we have had hundreds of those and most tend to be five to seven year kind of contracts. These are very good for us. They get a chance to really understand our capabilities, and we have got a chance to really solve fundamental business issues rather than go through kind of procurement-type activities year after year with a lot of these players..

Is this part of where you get the confidence for turning security into growth in the second half of the year?The comparables do not get that much easier, and you have had the clients there for a few quarters now. Is it these types of deals in the pipeline that you are going to need to win in order to turn security back to gross?

Yes, I would say Gil when we look at it we separate the physical security from the electronic security and the numbers were guiding to include both. So again what is maybe not as apparent when you see the overall number is what is happening underneath the overall number. So physical security in terms of bolts and vast and as we have set said repeatedly that side of the business clearly is not going to return to growth. But I think after the second quarter we feel like it is going to hit a plateau and the electronic security side we have significant opportunities relative to the electronic security side in terms not only the pipeline in terms of orders that maybe were close to but also in terms of the ability to implement those.

So we feel very good in terms of the electronics security side of the business, and we see the visibility there. And probably the last piece is the infrastructure changes we made on the security front are paying dividends as well. And that I mean we put in place a dedicated team of IS security experts much like we did with ATMs five years ago, and the good news for us is people understand what we are doing, they get it because they see it on the ATM side, and our folks their learning curve, they are much further up the learning curve. So we now have the right personnel with the right technical capabilities out talking about it, and we continue to do innovative things for the security side of the business, and as such we feel very good about the guidance there on the revenue side.

Very good thank you.

You are welcome.

And we will go next to Zahid Siddique with Gabelli Company.

Hi, good morning couple of questions. First one on the orders, can you quantify orders, the ATM orders by region? I think you touched on Latin America orders doubling, but in general what kind of orders did you see in Q1 within ATM?

On the ATM side when you look at that on a global basis, we are up probably in the neighbor of 30% plus, so significant order activity kind of across the board. Certainly Latin America kind of is an enormous number when you double it. but double digits consistently across the board. So again we feel good about that in every region. And then if you would say how does that compare or if you looked at just the product piece of that because that includes other pieces it would be up significantly beyond that. So we very good about order entry flow within each region and specifically when you look at the product piece of that it is even a bigger number.

Okay. And I noticed that you are guiding to operating margins of about 7.5% I think Q1 you were 8% plus. Is that because of lower mix that you touched on, the international and and the national banks.

Yes, I think that is a big piece of it. Also the one piece that comes along with a lot of the installations especially with the regional banks in the US you get a lot of additional professional services pull through. So the second half of the year we will not get as much of that. The other piece would be that in the second half of the year you are going to see security in the United States again taking a bigger role on the front end and their product margins are not going to be as good as self-service margins. When you mix that together we see us for the full year guidance in the mid 7s range.

Okay. And last it question on shared buybacks how many shares did you buyback and what's the strategy looking into 2012 and 2013.

Yes, Zahid we did not buy back any shares in the quarter. As you know, we do have a standing authorization that has been provided by the Board. As we said in February, our plans are to be opportunistic in terms of execution against that buyback program. So I cannot give you any further guidance than that.

Thank you.

We will go next to Paul Coster with JPMorgan.

Thank you very much for taking my question. Clearly things are going quite well here in North America, and you have talked about leading market share. I realize it is a very big market and very fragmented. But are you in a position to approximate your share of the market and whether you believe you are gaining or losing at the moment.

Paul, I would say we probably do not spend a lot of time on that. For us market share is about units. We are so much more beyond units. But if you look at the revenue growth you would say our revenue growth compared to everything else I have seen if I look at our order growth, I feel very confident to say we have expanded on our leading position.

When we look at the number of units we have under contract, generally we have for the US bank installed base about 50% or 50-some percent of that. So for us that is about the right number and again for us the whole point of integrated services is a unit. In the past you basically revenued a box for the future for us it is all about the integrated services and the additional revenue you get off of that and monitoring it and the intelligence you apply to that. So we are hoping that we are actually going to be continuing to grow the pie and for us, that is very good news.

Okay. I get your point regarding integrated services. However, just going to the hard ware side for a moment with the question. Are we starting to see shorter upgrade cycles and if so why?

I would say you absolutely will see shorter upgrade cycles and it began as a result of kind of the biggest banks of the United States beginning to move to deposit automation. Before that you aw them moving to software platforms that are Microsoft based, and you see the complexity of the software stack. As such, historically when I first began upgrade cycles were 15 years, and then you saw them kind of inching down to 12 to 10, and I think they are going to get below that going forward. Everywhere in the world including the US but because thetechnology is moving so fast right now the reliability or are so important and the functionality you want, it is no longer just a cash dispenser. Now you are handling so many more additional transactions that can replace what is happening in the teller line. Those replacements cycles are clearly moving up and again I think the big banks will it kind of blaze that trail, but as you've seen with deposit automation that deposit automation has gone down to credit unions in every small bank everywhere, and once they are on that kind of technology platform they need to move quickly to keep it relevant.

Okay. My last question, I may have missed this earlier on in the mid-shft goes back in favor of national accounts in the second half of the year. Is that because of strong pipeline relating to them or is it because the regional and local starts to fall off a little bit.

Yeas, we have significant pipeline on the nationals but when you look at kind of the growth underneath the regionals you can see that as you get to the middle part of the year, the level of activity on the ADA side is going to slow considerably because the mandate was in March. There's a lot of folks that still are not there, so you figure second quarter you are still going to have a lot of that activity, and then as you go forward then it is a matter of the deposit automation and integrated services carrying us forward. You would have some slowing naturally there with the regionals but you also have the growing on the national side. So that the combination of those two yields kind of the overall answer for North America.

Okay. Thank you very much.

(Operator Instructions). We will take a follow-up from Matt Summerville from KeyBanc.

Just a couple more follow-ups. Tom can you spend a few more minutes talking about Asia Pacific in terms of what your expectations is for the region in terms of unit volume growth versus what you are seeing again in general regionally in terms of price degradation, and maybe just spend a minute talking about what countries other than China are particularly good maybe others that are not as strong.

Yes, and Matt let me try and answer that, and if I do not get the whole thing of what you are looking for, kind of remind me. When I look at the entire region clearly the big drivers for us are China, India, Thailand, a few of the Asian countries and then occasionally you would have Australia. Australia has a mix the security to it where as the rest are pretty much on the self-service front. So Thailand, for instance, is a it big country in that we get a lot of services revenue from there on top of just the hardware framework. China, is very hardware centric. We are all working pretty hard from an industry standpoint to get them more services oriented but that is going to be a long haul.

But we see that day beginning to come as we have got a couple banks now beginning to work on the IS front. Certainly the landscape in Asia remains very competitive. Pricing in Asia or China in particular is very aggressive. But we feel like we are in pretty good shape there given kind of our footprint and given our service infrastructure in those regions. In India in particular you would say with kind of the growth and managed services we think we are well positioned. Certainly the governments is going to reek havoc in terms of the natural evolution of what's occurring. There is a lot happening there that will play out this year to give us better insights there. But we expect to year over year to be some slight growth but nothing significant one way or the other.

And just getting back to the comment on security acquisitions, I think in Brad's prepared remarks, can you talk about on average what we can expect in terms of size of these $50 million companies, $25 million, $150 million, and I guess what kind of multiples you are seeing out there in the market place. I would assume you have talked about adding resources in the area of M&A. I would assume at this point you have some visibility in the pipeline. So can you give more color on that?

Yes, Matt I would say, I would say two things. First of all, let me answer the question a little more broadly that we are not discounting doing things in the self-service space either. So if there's a small acquisition that can help us in a country or in a region, we are going to do that on self-service front to bring our service capabilities up to snuff maybe in some of the International markets or technology that we need to help us further do things in a region or differentiate ourselves. When we look specifically at security certainly security would be the same kind of things these would be bolt on small acquisitions $10 million, $15 million, $20 million, $25 million kind acquisitions to give us maybe capabilities that we don't have today or enhance our business model or give us the technology. And that would really be kind of a driver. We are not at looking anything, you mention $100 million, 150 million. We are not anywhere near that kind of level relative to the security space.

Matt, your question on multiples and without getting specific to the exact multiples, what I would say is some of these security where there is a very high percent of the revenues are recurring you are going to see a higher multiple and obviously this is what Diebold is transitioning to over time is more and more recurring revenue, and so again these type of opportunities have a very high recurring revenue. So therefore we will trade at a higher multiple than where we are today.

Thank you.

And we will go next to Julio Quinteros with Goldman Sachs.

Hi it's actually Roman Leal for Julio. Thanks for taking my question. First I want to get a sense of any patterns you saw in orders during the first quarter kind of the of ahead of the ADA deadline. Did you see any noticeable trends between January, February and March, and I know it has only been a little bit less than a month since that deadline, but anything you can share as far as orders in April would be helpful too.

Okay. Well, I would say that we have not seen any meaningful change through the first four months of this year. Certainly our expectation is this as you get past the June time frame, when we look back historically with our customers in terms of meeting compliance issues whether they PCI, EDA you name it. Generally, most of it is leading up to the deadline and you have those that are maybe three months late. There are probably a few out there that will be six months late, but that is going to trail off. In terms of the order activity, really you would say over the last 18 months have been exceedingly strong. We put some charts up previously of how many we had like three quarters of 100% plus order entry kind of growth.

So we are not seeing anything materially different from that. We would just be saying as you get out and you are start comparing to quarters that are up 180% from the year before, if we hold our own against those, we will feel really good about it because you will not have any of the ADA built into those order that start coming in the second half of the year. Right now our guys as we are talking to our folks in the field both on the ATM front and security front relative to banking feel pretty good about it.

Okay. And on the deposit automation order growth that was clearly strong this quarter. Can you remind us how the pricing margin characteristic of that product suite looked relative to others.

Yes I will try and answer that at a general level. It gets obviously complicated quickly. But in essence when we talk deposit automation it can have multiple functions to it. So clearly a cash dispenser is a piece in every one. Then you start having variations there. We have the ability to give someone a single-note acceptor or a bulk-note acceptor. Then we also have the of ability to give them a single-cash acceptor, accepting cash in or a bulk cash in.

Depending on the variety that you are talking about there, you have got a pretty big swing in terms of kind of the price points, and then we have introduced through the FLEX series the ability to have a recycling module in there as well. So now you have introduced very high-end much more expensive type of device, but is able to handle cash in and return that cash out if someone turns that piece on. In most cases you are talking about maybe two times or two-and-a-half times what the cost of an ATM is and then along with that you would have the higher service contracts. Maybe the service contracts an addition thousand dollars or something like that depending upon the combination. For us it is certainly more revenue but the flip side is the reliability and availability becomes more important if it is not running well you are out servicing that unit.

So we are very aware of the impact of any new technology on the service organization, and again we work pretty hard to keep that lean and efficient, and again that is where the piece of Opteva resolved which we have introduced into the market to be able to intelligently understand what is happening to a communication with devices becomes more important, and that is where virtualization of 4G start coming in. That will give us runway long term. That is a long way of saying that the technology continues to advance and back to Paul's question as people move down this path the upgrade cycle moves in, the maintenance contract goes up, the cost of service goes up, and thus the technology of doing that remotely is important. We are looking closely as we have always said, our bell weather indicator is our service margins because that includes both services and services. So we watch that very closely. We are hoping to improve that and drive that up through these remote tools that we have in place, but it is in the mix that people use in every region of the world is slightly different. Every region of the world is engaged in some aspect of that deposit automation story I just talked about.

Got it one last question for me. You see the different trends you have the bank mix, regional order has been pretty strong. You think that shifts a little bit later on this year. You are going to end the year mid 7%, off margins. How do these trends that you are looking at now affect your confidence around that 10% off margin.

Very good question. For us that is something that we talk about at every one of our leadership meetings in terms of our long-term financial pillars that Brad was talking about before. There are a number of things that have to happen to get us to 10% , but the way I guess I would answer it kind of on a call like this is we feel good about our ability this gives us continued confidence of getting there. We have to have do other things. We have to get better leverage. We need more revenue growth. We need EMEA to perform at a several certain level, but as we add up the various pieces of that, we see a path to get there, and that is what we try to hold ourselves accountable to. So we think this year is going to be a big step in the right direction we have got to execute. It is easy to say it is hard to execute against, and there is a lot of moving pieces and parts out there. We feel more confident today than we did two years, and I am hoping at the end of the year we will feel even more confident, but let us put this year on the board and then make sure that is a right step to the long-term

Thank you.

We will go next to Zahid Siddique with Gabelli & Company.

Hi again just a couple of follow-ups. Would you be able to quantify the ADA revenues.

Zahid I wish we could but we cannot. The issue you have is when people place an order there is no kind of designation that it is ADA. So when we get. it deposit automation order sometimes they are upgrading for ADA as well. So as such part of IS integrated services contract that run up there has to do with ADA some of it does not. Some of deposit automation had to do with ADA some of it doesn't. But we certainly think based on kind of our framework that the vast majority of ADA and the pull in we had in the first quarter and the frenzied in the first quarter which led to the record revenue had to do with certainly ADA. We expect a strong second quarter, and then we would expect through rest of the year that ADA impact start to lessen significantly, and then as we go into 2013 I doubt there will be really any ADA related upgrades left.

Okay, and finally I guess looking out next several years, what is going to be the next transformational product? You know banks have gone through the deposit automation, check processing regionals have done it nationals have done it. So what is next? What excites them next over the next few years.

I think a couple things will excite them next. One is the whole branch transformation that is needed to take the cost out of the structure for the banking environment. By that I mean today we sell a terminal and so do other folks that help the teller, it is teller automation. What they are looking for is really the replacement of the teller and these new technologies that we have now introduced can really replace what the bank branch is doing in a significant manner.

So I think the whole branch transformation piece is really going to give us the opportunity to take what we have done with the ATM over all the years and learn and now apply it inside that banking environment and again remotely monitor and manage that thing like an ATM, because they do not do that with any other device in that environment.

So when you think about that and you think about the number of branches around the world or even theUnited States 110,000 you look at the average branch with 3 to 10 tellers, you have got the opportunity to talk about a hundred thousand plus devices doing things that the teller used to do at a much lower cost point which really begins to transform their cost structure and allow them to compete given what they are faced in the market place. That to me would be the number one thing I would say banks would look at transformationally to really transform their environment.

Thank you.

At this time there are no further questions in the queue. I would like to turn the book to our speakers for any additional or closing remarks.

Thank you Brandy, and thank you for joining us for this morning's call. As always if you have additional or follow-up questions please feel free to contact me directly or Chris Bast, thanks.

This concludes today's conference. We thank you for your participation.