Diebold Nixdorf Inc (DBD) 2013 Q3 法說會逐字稿

Good day, everyone, and welcome to the Diebold Incorporated third-quarter 2013 financial results conference call. At this time for opening remarks and introductions, I would like to turn the call over to Vice President and Chief Communications Officer, Mr. John Kristoff. Please go ahead, sir.

Thank you, Jake. Good morning and thank you for joining us today for Diebold third-quarter conference call. Joining me today are Andy Mattes, President, Chief Executive Officer; and Chris Chapman, Vice President, Global Finance, who will assume the role of Interim Principal Financial Officer on November 6. Also in the room with us today is George Mayes, Executive Vice President and Chief Operating Officer. He will be available for questions at the end of the opening comments.

Just a few notes before we get started. In addition to the earnings release, we've provided a supplementary presentation on the Investor Page of our website. Andy and Chris will be walking you through this presentation as part of their comments today, and we encourage you to follow along. Before we discuss our results, as with past calls, it is important note that we are excluding certain restructuring charges, non-routine income and expenses, and impairment charges from our non-GAAP financials. We believe that excluding these items gives an indication of the Company's baseline operational performance. As a result, many of the remarks this morning will focus on non-GAAP financial information. For a reconciliation of our GAAP to non-GAAP numbers, please refer to the supplemental material at the end of the presentation. In addition, all results of operations reported today, including prior periods, exclude discontinued operations. Finally, a replay of this conference call will be available later today from our website. As a reminder, some of the comments today may be considered forward-looking statements. Internal and/or external factors could significantly impact actual results. As a precaution, please refer to the more detailed risk factors that have previously been filed with the SEC.

Now with opening remarks, I'll turn the call over to Andy.

Thank you, John. Good morning, everyone, and thank you for joining the call today as we discuss our third-quarter results. Our ongoing business improvement and cost-reduction efforts started to show during the quarter. We continued to execute on our strategy to globalize and transform our operations to better leverage our scale, which has resulted in an improvement in our service gross margin. However, as we have said in the past, we will reinvest approximately half of our savings back into the Company, and we have yet to fully ramp up investments in our transformation initiatives. [There's often] news that our CFO, Brad Richardson provided notice that he will resign from the Company. We have already engaged Korn Ferry to begin the search process for a new CFO. We are confident in Chris Chapman's ability to perform the duties and responsibilities in the interim as the Company's Principal Financial Officer. I've asked Chris to join the call today.

Let's focus on the key take-aways from the quarter. First, we are encouraged by our global order activity, which grew in the mid-teens during the quarter. Also, our revenue performance outside of North America is positive. While these are promising steps toward achieving sustainable top-line growth, we still have a long way to go. Total revenue is down year over year and sequentially. This is largely due to challenges in the North American market, particularly in the financial self-service business, which adversely impacted our revenue and orders during the quarter. Second, our non-GAAP earnings in the quarter benefited from a lower tax rate, as well as foreign exchange gain. Third, we are beginning to see bottom-line results from our cost-saving initiatives instituted earlier in the year. Moving forward, however, we expect our net cost savings to vary as we ramp up investments in our transformation initiatives. The nature of the investments will not follow a linear trend. Fourth and finally, I am pleased that we were able to finalize our FCPA settlement.

On the one hand, I'm encouraged by the progress in our underlying operational performance during the quarter. On the other hand, we still have an enormous amount of work in front of us to get the Company back on the right trajectory. We will be covering the details of our transformation strategy and outlook for 2014 at our Investor Day in less than two weeks. As such, we will focus our commentary today around the third quarter and our expectations for the remainder of the year.

In the past several months, I visited every major geography around the world, met with most of our top customers, and about 80% of our workforce. One theme that emerged consistently, our customers recognize the value of our solutions and services and want to do more business with us as our industry evolves. Now I would like to briefly walk you through our business performance by region during the quarter. In North America, revenue decreased 10%, largely driven by the financial service business. Orders declined in the low double digits of a tough comparison from the prior year. Although the North America bank market has remained tepid following the ADA-PCI upgrade cycle, we see opportunity building in our sales pipeline related to branch transformation, outsourcing, and software. We see increased interest in advanced video and transaction technology within the branch. For example, we now have 20 different customers lined up to pilot our in-lobby terminal in North America. Additionally, we recently began the industry's first ATM conversion to Windows 7 and EMV for US Bank, one of the largest ATM deployers in North America. This upgrade will place US Bank at the forefront of meeting new PCI security requirements and prepare it for the pending adoption of EMV technology.

Our revenue and order book outside of North America is encouraging. In Latin America, revenue increased 4%, or 12% on a constant-currency basis, driven by growth in both financial self-service and security. Orders nearly doubled during the quarter due to a large ATM tender in Brazil. Excluding this tender, orders grew about 20%. We continue to see solid growth in our core financial self-service business in the region. In addition, growth continues in our logical security subsidiary, Gas Tecnologia, as well as outsourcing and electronic security.

In EMEA, revenue improved 16%, while orders increased about 30%. Our global offerings and branch transformation are acting as a catalyst to increase share within global accounts. This approach is beginning to take hold in several key markets, including the UK and Spain. For example, we recently captured a strategic competitive win with Bankis in Spain. We will provide turnkey services across the bank's entire multi-vendor network of ATMs as part of its branch transformation strategy. Also, we recently won a contract to provide BBVA with advanced branch transformation terminals. While we have done business with the BBVA in Latin America, this represents our first sale to this customer in Europe. In AsiaPac, revenue increased 17%; orders grew nearly 20%, as strong demand continues throughout the region, most notably in India. The growth in India continues to be driven by increased ATM deployments as a result of the government mandate to drive financial inclusion throughout the country. Demand in China also remains healthy as we rollout self-service to several tier-one and tier-three banks.

In our electronic security business, we experienced good growth in orders during the quarter, including North America, where orders grew in the mid-single digits. We are now seeing tougher comparisons as we begin to anniversary periods of high growth that started in the second half of 2012. In addition to capturing significant wins in our existing financial, commercial, and retail customer base, we added 10 new logos for a variety of services that will help generate growth in recurring monthly revenue. While this is encouraging, it is important to remember this business contains a longer sales cycle and deals are awarded on a total contract value basis, with revenue recognized over multiple years.

From an operational perspective, we are making steady progress on our transformation initiative. The voluntarily retirement program we announced in August is attracting a number of participants. The deadline to make a decision is tomorrow. We anticipate the take rate will be in excess of 25%. The purpose of the work is not solely to save cost, but also provides an opportunity to attract new challenge to Diebold. We will have more clarity on this initiative shortly, and we will provide more information regarding our transformation plan during our Investor Day on November 12. We feel comfortable about our next steps and are eager to share our thoughts.

Moving on to our guidance for the remainder of 2013, we expect full-year revenue to be down 5% to 6% and maintain our non-GAAP earnings-per-share guidance of $1.30 to $1.40, excluding the Brazil valuation allowance of $0.61 per share. We remain focused on executing our transformation initiatives and making the necessary investments in the business, particularly in the area of innovation, IT, and back-end office support. In conclusion, we've made progress on several of our initiatives during the quarter. We are beginning to instill the operational rigor required to drive the transformation. There is still a great deal of work to be done before we can finalize our full potential as a Company. After five months on the job, I am confident in the steps we have identified to build on our core strength and capitalize on key opportunities in the marketplace. As mentioned earlier, we will share the details behind the Company's transformation strategy and our outlook for 2014 at our upcoming Investor Day.

With that, I will turn the call over to Chris.

Thank you, Andy. I am honored that I've been entrusted with the interim financial leadership. I've been with the Company over 17 years, and I've served in a multitude of financial leadership roles throughout the Organization. Now I would like to walk you through our third-quarter financial results, including the goodwill impairment for Brazil on slides 13 through 23 in the supporting presentation. Then I would like to provide an update on our legal and compliance matters. Finally, I will provide an update on our guidance for the remainder of 2013 and our free cash flow outlook.

Turning to slide 13, total revenue was down 1% during the quarter as a result of lower volumes in the Brazil elections and lottery business, but was up 1% on a constant-currency basis. The currency impact was mainly driven by a weakening of the Brazilian real. As we move to slide 14, financial self-service revenue was up approximately $5 million, or 1%, as a result of strong performance in our international regions, partially offset by declines in North America. Security revenue was flat compared with the prior-year period, with 7% growth in electronics security, offset by continued declines in physical security. Electronic security is starting to show tougher comparisons with prior periods, as our strategies in that space are beginning to gain traction.

On slide 16, gross margin for the quarter was up 0.9 percentage points at 24.9%. This was driven by a solid improvement in service gross margin, which increased 3.8 percentage points to 29%. This increase includes the benefit of our transformation efforts across the global service operation. Product gross margin, however, was down 3.1 percentage points to 19.3%, influenced by customer mix differences in the US business. Moving on to slide 17, total operating expense decreased $11.1 million, as our cost-savings efforts continued to materialize. SG&A as a percent of revenue was down 1.5 percentage points at 15% compared with the prior-year period. Our R&D spend increased slightly to $21.8 million, or approximately 3% of revenue, as we continue to invest in future innovation in products and services.

Turning to slide 18, operating margin increased 2.3 percentage points at 6.8%. EPS on a GAAP basis was a $0.34 loss during the quarter, including restructuring charges of $0.05, non-routine and amortization expense of $0.05, and an improvement of our deferred tax expense on foreign cash repatriation of $0.03. In addition, there was a $54 million after-tax goodwill impairment charge taken in the quarter. The goodwill impairment charge taken during the quarter is a result of our reassessment of the macroeconomic outlook in Brazil, structural changes to an auction-based purchasing environment, and new competitors entering the market over the past several quarters. The combination of these factors brings us to $0.56 on a non-GAAP basis, benefiting the quarter by approximately $0.05 plus $3 million in foreign translation gains, and a lower effective tax rate of 25%.

Moving on to cash flow on slide 20, free cash use during the quarter improved $6.9 million year over year and essentially was breakeven. However, our day sales outstanding increased six days as a result of a change in geographic mix, with a heavier concentration of Asia-Pacific in Brazil that typically carry longer contractual payment terms. Inventory turns in slide 22 improved to 4.7 turns. We continue to bring additional discipline and focus across our global operations to improve our cash-generation activities. George Mayes, our CEO, is leading weekly meetings with the operations to drive our working capital improvement activities. Net debt on slide 23 for the period was $183.2 million, a $32 million increase from the prior-year period. The net-debt-to-capital ratio increased 5 percentage points to 15%. As we discussed during the second-quarter earnings call, we have executed on our strategy to repatriate surplus cash from our international operations, which was used to pay down debt.

Turning to slide 24, as previously disclosed, the Company has reached agreement with the DOJ and the SEC on the terms of the settlement of their inquiries regarding FCPA, including combined payments in the fourth quarter for the US government of approximately $48 million. Additionally, we will have an independent compliance monitor for a minimum period of 18 months. This independent compliance monitor is intended to provide recommendations to the Company as to additional, potential enhancements to our policies, controls, and training programs, and to provide assurance to the government over time that the Company has an effective FCPA compliance program in place. We feel we have made considerable, continuous improvements to our compliance program, and will implement enhancements as identified.

As previously disclosed, one of our Brazilian [subsidiaries] was notified in the third quarter of 2012 of a tax assessment of $133 million regarding certain Brazilian federal indirect taxes for 2008 and 2009. There has been no change in the status of this assessment, and we continue to remediate our indirect tax material weakness. On slide 25, we are tightening our revenue guidance, expecting it to be down 5% to 6% from our previous guidance of 5% to 7%. And we are maintaining our non-GAAP EPS guidance of $0.69 to $0.79. Excluding the Brazil valuation allowance of $0.61, this equates to a range of $1.30 to $1.40. We expect our full-year non-GAAP tax rate to be approximately 28% to 30%. As Andy mentioned, we expect earnings to remain under pressure in the near-term as we make the necessary reinvestments to position the Company for growth.

In regards to our free cash flow outlook for 2013 on slide 26, we are forecasting a use of approximately $25 million, including the cash outlays for the FCPA settlement, the expected securities class action lawsuit settlement, and cash taxes associated with our cash repatriation efforts. Finally, we are currently targeting operational cash flow of $50 million to $70 million for the full year, excluding the previously outlined items. In closing, we have a lot of work in front of us. We continue to make progress strengthening our control environment, while operationally reducing our costs and improving our working capital position. We are confident that we are on the right track and are focused on executing sustainable reductions for underlying cost structure. This provides us the capacity to reinvest and position the Company for the future.

With that, I will turn the call back over to John.

Thank you, Chris. Jake, we are prepared to take our first question at this time.

(Operator Instructions) Kartik Mehta.

Good morning. Andy, as you have reviewed over the last few months, where you need to invest, any thoughts on any changes from your initial observation as to where you need to invest or how much you need to invest?

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

Does that mean more salespeople, or are you talking maybe more sales tools or something completely different?

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

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

It's a whole slew of things. Of course, the headcount reduction that we have taken earlier in the year will show up in our cost of sales on the labor side in the US. It is also a mix in the type of businesses. It's a mix in customers. It's a mix in countries. We had a few countries come through where the service revenue was more prevalent in the overall order that we have gotten from the customers a few months back. It's a whole laundry list of things (inaudible).

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

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

Thank you very much.

Matt Summerville with KeyBanc.

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

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

On the heels of that then, Andy, when you look at where expectations are set today, would your initial assessment lead you to conclude that that is adequately being captured in where people have 2014 modeled for you guys?

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

Fair enough, and then one more. Can you talk in more detail about the changes in competitive dynamics you are seeing in Brazil, the changes in the auction process? Just more detail behind that? Thank you.

Before I let Chris do the financials, just think about what the Brazilian market has gone through. The market has consolidated from some 25, 26 banks down to 6 major banks. The banks have gone to a completely -- to an auction process in the way that they procure systems. The macro economic environment in Brazil has been challenging for the country. Some of the banks are government-owned, and they are not completely independent of what is going on in the bigger picture of the country. You have competitors like OKI who just entered the market. There is a lot of dynamics behind that, that lead to the assessment, but I will let Chris finish the financial side if you are interested in that.

Sure.

Chris?

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

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

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

Great, thank you guys.

Gil Luria from Wedbush Securities.

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

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

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

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

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

All of the above.

Got it, thank you very much.

Paul Coster, JPMorgan.

(Operator Instructions)

Hearing no response from Mr. Coster's line, we will move on to the next question that will come from [Tagena Lotta] with Susquehanna Financial Group.

Thank you for taking my question. The first question is, Andy, in North America you talked about opportunities in branch transformation. You did highlight that you had 20 different customers. Can you tell us what the mix of customers were with regional versus national banks?

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

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

First of all, the assumptions have not changed. They are the same as last quarter. And we have still the same picture as last quarter, so yes we won one of those tenders in Brazil. But there is not enough time to revenue that order in 2013. So it will show up in our backlog ending the end.

Okay, and one quick question on the cash flow. How many of the one-time cash charges were in your year-to-date cash flow number? Thank you.

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

Thank you.

Jeff Kessler with Imperial Capital.

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

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

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

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

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

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

Final question, and I know it is the sensitive one, which you are probably not going to be able to answer. But with regard to Brad, could you give us the general nature for the reason that he is leaving? Was it personal? Was it corporate? Was it difference of financial -- difference of strategic direction? Or something -- anything that you could enlighten us with.

It is a personal decision. Brad wants to pursue other opportunities in his career. It has nothing to do with the course of the Company, nothing to do with the strategic direction, or the financials about our operation.

Okay, great. Thank you very much.

Paul Coster, JPMorgan.

Yes hello, this is Mark Strouse on for Paul Coster. Can you hear us now? Great, thank you for taking our questions. Most of them have actually been answered, but I guess the last one remaining for us would be, can you give us a reminder for the margins, maybe on a relative to corporate average basis for the elect systems business?

Are you talking about Brazil?

Yes, I am sorry, Brazil.

Those were not in the electro business.

Those typically run in the low 20s.

Okay, all right. That is it for us, thank you very much.

Justin Bergner with Gabelli & Company.

Good morning, Andy.

Hello, Justin.

Two quick questions this morning. First off, could you provide a little bit more detail as to the mix factors that are helping the services gross margin and impeding the product gross margin? I think you alluded to them earlier.

Let me use India as a showcase for you. The Indian market has pretty much gone to a razor-blade type of model. Low margins on the product side, but they do sign up for multi-year service contracts with accretive margins. If you look -- holistically look at the deal, the pendulum swings towards the service-side. And we have seen now more of those large Indian deals come through on the services side, so the model is starting to work out in our P&L.

Okay, anything else you would highlight beyond the Indian dynamic that is driving the mix element of the gross margin?

I think one thing when you look year over year is obviously we are down from a geographic mix standpoint with lower regional activity, which was still benefiting last year from the tail end of the 88 PCI upgrade cycle. Losing some of that volume year over year is hurting the overall mix that we are seeing right now.

Okay, and then on the service side, the uptick which was stronger than the year-to-date uptick, is that heavily impacted by the Indian business, or are there other dynamics?

It is the Indian business but it's also -- it comes back to operational execution. George is very meticulous with our regional service leaders, just to make sure we do well on the stuff that we sign up to do. And the other thing is we stop doing dumb things when it comes to the type of contracts that we brought in the house. Good contracts, executed better will automatically lead to higher margins.

Okay, thank you for that detail. One quick question in addition. On the order book side, how much was the overall global order book helped by the Brazilian tender?

I will gladly give you the answer outside of this call. I actually have to run the math myself.

Okay. Thank you. That is it for me.

Glenn Mattson with Sidoti & Company.

Good morning, most of the things have been answered already. But the one less thing I would like to hit on is the -- have you guys reaffirmed -- firmly reaffirmed the dividend? Or is that something maybe that you plan on talking about at the Investor Day?

We are reaffirming the dividend.

Great, and that's it for me. Thank you.

Doug Greiner with Compass Point.

I think last quarter you disclosed $11 million in cost savings specifically related to the realignment program. What was the figure this quarter?

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

Thank you, that's it.

Matt Summerville, KeyBanc.

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

We see Windows 7 as an important conversation. Not every bank is as aggressive on the time schedule as US Bank. They are leading the pack on this one. And then everything else, we're looking at the pipeline [reviews] as we speak. As you know, Q4 always has its own set of dynamics and idiosyncrasies, so we will see to that.

And then with respect to OKI in Brazil, are you seeing those guys come in with their own product that they are bringing to market? Or are they just putting their stamp on a [tow tex] product? I guess I am trying to understand why those guys coming into markets may be adding a little bit more disruption.

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

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

We don't know yet. We will have to see how that is going to play out.

Got you, Thank you, Andy.

This will conclude our question-and-answer session. I will turn the call back over to your host for closing remarks.

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

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