Diebold Nixdorf Inc (DBD) 2014 Q1 法說會逐字稿

Good day everyone. Welcome to Diebold Incorporated's first-quarter 2014 financial results conference call.

At this time for opening remarks and introductions I would like to turn the call over to its Vice President and Chief Communications Officer, Mr. John Kristoff. Please go ahead.

Thank you, Camille. Good morning and thank you for joining us today for Diebold's first-quarter conference call. Joining me today are Andy Mattes, President and CEO, and Chris Chapman, Vice President Global Finance and Interim Principal Financial Officer.

Just a few notes before we get started. In addition to the earnings release we have provided a supplementary presentation on the investor page of our website. Andy and Chris will be walking through this presentation as part of their comments today and we would encourage you to follow along.

Before we discuss our results as with past calls it is important to note that we are excluding certain restructuring charges and non-routine income and expenses from are non-GAAP financials. We believe that excluding these items gives an indication of the Company's base line operational performance.

As a result many of the remarks this morning will focus on non-GAAP financial information. For a reconciliation of our GAAP to non-GAAP numbers please refer to the supplemental material at the end of the presentation.

In addition, all results of operations reported today including prior periods exclude discontinued operations. Finally, a replay of this conference call will be available later today from our website.

And as a reminder, some of the comments today may be considered forward-looking statements. Internal and/or external factors could significantly impact actual results.

As a precaution, please refer to the more detailed risk factors that have previously been filed with the SEC. And now with opening remarks I'll turn it over to Andy.

Thanks, John. Good morning, everyone, and thank you for joining the call today as we discuss our results for the first quarter.

There are several items that we will be covering today. First, I will provide key takeaways from the quarter; second, a regional update; third, an update on our Diebold 2.0 turnaround strategy; and finally, our outlook for 2014.

Now let's discuss the key takeaways from the quarter. As we have been communicating we are focused on cost and cash and the crawl stage of our Diebold 2.0 turnaround with a lot of heavy lifting in front of us.

During the first quarter we made progress in the following areas. We generated financial results in accordance with our own expectations which provides us a solid foundation as we execute on our Diebold 2.0 turnaround strategy.

We delivered a sizable portion of our backlog in Brazil which contributed to the strong revenue growth result in the quarter. Our focus remains on our four core pillars -- cost, cash, talent, and growth and executing on our commitments including our $150 million cost reduction program.

We continue to see savings flow to the bottom line as a result. Supporting our transformation strategy we are focused on executed our initiatives and increasing investment levels in the areas of development, sales and marketing, information technology, and backend office support. We've consistently communicated we wanted to ensure that our cost savings are coming through before making the appropriate reinvestment in the business.

Starting in the second quarter we are stepping up our reinvestment in the business which will continue over the next six to eight quarters. This includes a major business process outsourcing initiative with Accenture that we announced this morning.

The project will ramp up as the year progresses. I will be discussing the Accenture project in more detail later in the call.

Finally, you will note that the devaluation of the Venezuelan bolivar had an adverse impact on our earnings during the quarter. As we noted during the last call, the impact of currency exchange rates poses a risk for us.

The impact of Venezuela devaluation will clearly make things more challenging for us this quarter and currently remains a risk. As a result, we are maintaining full-year guidance of non-GAAP earnings per share of $1.65 to $1.85. In short we are sticking to our motto to say what we will do and do what we say.

Let's talk about order activity in our regions. Total orders for both product and services in the first quarter grew approximately 8%, or 10% on a constant currency basis.

We continue to see stronger demand internationally. Outside of North America in aggregate orders grew 29%, up 35% on a constant currency basis.

In North America total orders during the quarter decreased 9%. In financial self-service in North America total orders for product and services declined 14%.

As we previously indicated total order activity in the regional business in North America continues to steadily improve. In the national accounts space orders were down compared with the first-quarter 2013 when we won a very large deal. Nevertheless, we expect total North America orders for the full year to grow in the mid single digits aided by a ramp of Windows 7 upgrade activity.

In security in North America total orders increased 2% with growth in electronic security mostly offset by a decline in physical security. Looking at our global electronic security business we continue to gain momentum. Revenue and total orders both grew in the 20% range during the quarter.

We continue to see solid order growth in North America in both the financial and commercial markets as well as in Brazil related to our logical security business. To help grow this business organically we continue to increase sales coverage by bringing experienced sales talent and leadership into the Company and are developing our strategy to grow electronic security globally. We remain on track to reach our goal of hiring 50 net new sales executives by end of 2014.

Moving to Asia-Pacific, total orders decreased 7% for the quarter, up 3% on a constant currency basis. Lower volumes in China were mostly offset by higher volume in India where the government-driven mandate for ATM deployments continue coupled with growing interest in our green ATM, the D429.

This product is generating opportunities outside of India. For example, we recently announced a win to deploy D429s to BankIslami in Pakistan.

Asia continues to be a multifaceted emerging market and we are confident in our ability to effectively compete in the region. In EMEA, our team has executed its restructuring plan and is now focused on growth and becoming a stronger competitor in the marketplace. Total product and service orders for the quarter grew 75%, or similarly on a constant currency basis.

We're seeing strong demand in both emerging and mature markets for deposit automation and cash recycling solutions particularly in South Africa and the Middle East. We also are gaining traction in the Western European market and are picking up some new customers through our focus on global accounts.

We are excited to have recently secured Barclays as a new customer and won an order for about 300 advanced ATMs to replace older units in their UK network. In Latin America total orders for the quarter increased 5% driven by growth in both security and financial service. As we noted on the last call, we ended 2013 with improved backlog in the region which positions us well for revenue growth in 2014.

In Brazil orders for the quarter increased proximally 75% and more than doubled on a constant currency basis. This was primarily due to two large orders for IT-related equipment much of which revenued during the first quarter. Chris will walk you through some changes we have made in our product revenue categories as a result of these orders.

Excluding these special projects orders were up low double digits on constant currency with improvements in both financial self-service and security. We expect our non-core business in Brazil to be a strong contributor to our growth for the full year. However, Brazil will be a headwind in 2015 as the non-core business that we expect to revenue this year will not repeat in 2015.

Looking at our total business for the quarter we continue our focus on becoming a services-led software-enabled company. Services and software revenue continue to make up the majority of our total revenue in the first quarter at 56%.

Now let's discuss our Diebold 2.0 turnaround strategy in a few key initiatives as it relates to the eight point program we previously outlined. First, in terms of establishing a competitive cost structure and increasing speed and agility, as you saw this morning we announced a major business process outsourcing agreement with Accenture to transform our back-office operation.

This will create many benefits including a more variable cost structure, simplified and standardized processes as well as streamlining a number of transactions functions across our global infrastructure. These types of transformation initiatives are always challenging. In my previous experience with projects of this nature the first 18 to 24 months require a lot of heavy lifting and investments before one can begin to realize the benefits.

We initially intended to implement this in-house but saw several benefits by teaming up with an experienced transformation partner. In working with Accenture we are strengthening our business controls and processes to help execute our multiyear, Diebold 2.0 transformation.

While our agreement with Accenture requires substantial upfront investments in 2014 and 2015, it increases our degree of confidence in meeting our business objectives and provides us flexibility to add scale as Diebold grows. This approach will help drive success within our four key turnaround pillars of cost, cash, talent and growth and better position us to extend our cost savings beyond 2015.

In addition, we have synchronized our rollout plans from our previously-announced IT transformation with Oracle and Infosys to align with our back-office transformation initiative. Second, in regards to instilling a winning culture grounded in execution, we continue to be keenly focused on fostering a performance-based philosophy and bringing new talent into the Company to help drive change.

Yesterday we announced that Bassem Bouzid will join our Company to lead the EMEA operation. Bassem has tremendous international business leadership experience and has driven results especially with large organizations in the technology and services industry in Europe, the Middle East and Africa markets. His leadership will be instrumental in driving continued momentum in the region.

Regarding our search for a new CFO, we have identified several strong candidates and are making steady progress. We are focused on finding the right person for this role and will take the time necessary to do so.

To help instill cultural change within the Company we are rolling out an employee stock purchase program which will allow employees around the world to purchase Diebold shares at a discount. The purpose here is to drive greater equity ownership and awareness of the Company's performance while allowing employees to benefit from the efforts put forth in our turnaround.

Finally, in regards to collaborating with customers and partners to drive innovative solutions, last month we announced the world's greenest ATM with our D429, a terminal that consumes up to 40% less energy than other models. In India, we were the only ATM provider with a workable solution that met the country's uninterruptible power supply requirements demonstrating our ability to respond to the unique challenges of our customers. The power management element of the D429 will serve as a platform for future ATM designs.

Moving on to our outlook for 2014, we are slightly increasing our outlook for full-year 2014 revenue to grow in the mid single digits and reaffirming EPS in the range of $1.65 to $1.85 on a non-GAAP basis. We are focused on executing our transformation initiatives and increasing investment levels in the areas of development, sales and marketing, information technology and back-office support.

We will also selectively rehire for mission-critical roles affected by the voluntary early retirement program late last year. As noted previously, 2014 remains a year of heavy lifting. We are no different from any other turnaround story.

The low-hanging fruit is typically sought after and realized first resulting in increased savings upfront. This is usually followed by more transformational investments that slow down the rate of cost improvements in the near term but culminate in measured sustainable savings over the long term.

Needless to say, throughout the remainder of 2014 these investments will offset some of the profitability improvement we are making in our business. To conclude, we have a number of transformational initiatives underway. Successfully executing on these initiatives over the next six to eight quarters will provide the necessary foundation to deliver on our turnaround strategy.

We are in the early stages of our multiyear journey and have a long road in front of us. But we remain confident in our ability to generate long-term shareholder value. With that I will turn the call over to Chris.

Thanks, Andy, and good morning, everyone. First I will walk through our first-quarter financial performance. Then I will provide an update on a legal and compliance front before discussing our 2014 revenue, earnings and free cash flow outlook.

Now to review our financial results. Turning to slide 16, total revenue for the quarter increased approximately 9%, or 12% on a constant currency basis as a result of increased volume in Brazil and EMEA partially offset with a decrease of 14% in North America. The currency impact was driven by a weakening of the Brazilian reale and Indian rupee.

As we move to slide 17, financial self-service revenue decreased approximately 1% on a constant currency basis with increases in EMEA and Latin America offset by declines in North America and Brazil. EMEA continues to gain momentum with growth in both product and service revenue.

Latin America exceeded the prior year in both product and service revenue as they begin to execute on strong 2013 yearend backlog. In North America, the regional business was stable versus prior year; however, several large non-repeating projects in the national accounts business led to the decline.

The lower volume in Brazil was timing related and performance will improve throughout the year as we execute on our backlog. Home security revenue on slide 18 was up 4% compared with the prior period. Our electronic security business grew 19% driven by strong growth in North America; partially offsetting this increase was a 14% decline in our physical security business.

Moving on to slide 19, we have made a change in our revenue reporting for products and services. Previously, the sale of IT equipment in Brazil was reported under financial self-service as it was relatively immaterial. Due to the large one-off quarter in Brazil tied to deliveries of IT related equipment to the education ministry, we have reclassified this revenue for both current and prior year to a new category labeled Brazil other, which includes election systems, lottery and IT technology.

On slide 20 gross margin for the quarter improved 3 percentage points to 24%. This was driven by a solid improvement in service gross margin which increased 5.3 percentage points to 28.4%. This improvement reflects the continued benefit of our service transformation efforts across the globe including the ongoing benefit from our pension freeze and voluntary early retirement program in North America.

Product gross margin increased 0.6 percentage points to 18.4%. This was driven by better manufacturing utilization and favorable mix in Brazil. As I stated last quarter, we remain focused on our cost actions and driving additional efficiencies to show sustainable improvements in total gross margin.

Moving on to slide 21, total operating expense increased $6.1 million compared with the first quarter of 2013. During the first quarter, we started making the initial investments in our transformation. Over the mid to long term these investments will continue to improve both our internal controls and processes as well as reduce costs.

Operating expense as a percent of revenue was 19.7% compared to 20.4% in the prior-year period, reflecting continued leverage of approximately 1% on increased volume. Turning to slide 22, non-GAAP operating margin in the first quarter increased 3.8 percentage points to 4.3% versus the same period in 2013. We are encouraged with the initial improvements we've made to our cost structure and remain focused on executing our $150 million gross cost savings initiatives.

Looking at slide 23 all regions improved in terms of profitability except Latin America which was overshadowed by the impact of the devaluation of the Venezuelan bolivar. North America and Brazil reflect the largest improvements.

The increase in North America is directly related to the changes we have made in our cost structure. In Brazil the favorable performance was driven by higher volumes and positive mix as previously mentioned.

EPS on a GAAP basis was $0.15 during the quarter. This includes restructuring charges of $0.05 primarily related to severance costs tied to the BPO agreement with Accenture announced today and non-routine expense of $0.01 related to legal fees from the previously-settled SEC DOJ investigations.

In addition, we had a $0.03 impact from additional tax expense associated with the approximate $275 million foreign cash repatriation in the prior year. The combination of these factors brings us to $0.24 earnings per share on a non-GAAP basis for the first quarter.

Included in our results is a $0.09 impact from the devaluation of the Venezuelan bolivar. Our Venezuelan operation consists of a 50%-owned subsidiary which is consolidated.

Venezuela is measured using the US dollar as its functional currency because it's economy is considered highly inflationary. On March 24, 2014, the Venezuelan government announced a currency exchange mechanism, SICAD 2, which yielded an exchange rate significantly higher than the rates established through the other regulated exchange mechanisms.

As a result we remeasured our Venezuela balance sheet using the SICAD 2 rate of 50.9 versus the previous rate of 6.3. This resulted in net losses of $12 million that were recorded within foreign-exchange loss which included a decrease of $6 million to our cash balance.

In addition, this gave rise to a writedown of our Venezuelan service parts inventory of $4 million. We will continue to monitor the business environment in Venezuela and we'll make appropriate changes as needed to strengthen our ability to execute on our financial plans within the region.

Our first-quarter non-GAAP effective tax rate was approximately 33%. We still expect our non-GAAP effective tax rate for the full year to be approximately 30%.

Moving on to cash flow on slide 25, our free cash flow results reflect a $39 million free cash use which improved approximately $2 million from the same period last year. Turning to slide 26, the organization's focused efforts resulted in a DSO improvement of six days in the quarter versus the same period last year. Looking at slide 27 inventory turns reflected a small improvement at 5.4 turns compared to the first-quarter 2013 of 5.2 turns.

Net debt, on slide 28, for the period was $110 million, a $29 million increase from the prior-year period. The net-debt-to-capital ratio increased approximately 4 percentage points to 10%.

Turning to slide 29, as previously disclosed the Company has reached agreement with the DOJ and the SEC on the terms of the settlement regarding FCPA. Additionally, as previously disclosed, we will have an independent corporate monitor for a minimum period of 18 months. The government agencies have appointed a corporate monitor who will commence activities in the second quarter.

We have made considerable improvements to our compliance program and will continue to implement enhancements as the need is identified. We are actively working to remediate our material weaknesses in Brazil and India. We have made solid progress and expect to have both remediated during the year.

Looking at our outlook on slide 30, we are encouraged with our strong start to the year in both orders and revenue. However, currency remains a risk and the Venezuelan devaluation puts pressure on our non-GAAP EPS for the full year.

We estimate that for 2014 Venezuela results for second quarter through fourth quarter will generate essentially a $0 net income as a result of the devaluation. Additionally, as we previously discussed, we will be ramping up our reinvestment in the business this year specifically in the areas of development, IT and back-office support as it relates to our engagement with Accenture.

Therefore, we are raising our revenue guidance to be up mid single digits but are maintaining non-GAAP EPS guidance of $1.65 to $1.85. This includes the adverse impact of the devaluation of the Venezuelan bolivar of approximately $0.12 and non-GAAP EPS on the full year.

We expect restructuring charges and non-routine expenses to be in the $0.30 to $0.35 range and our full-year non-GAAP effective tax rate to be approximately 30%. In regards to our free cash flow outlook for 2014, on slide 30, we are maintaining our free cash flow outlook for the year of $80 million to $100 million. This includes an approximate $35 million increase in our capital expenditures as we make strategic reinvestments in our business.

In closing, we are committed to continuous improvements to maintain and strengthen our control environment while operationally reducing our costs and improving our working capital efficiencies. We are beginning to demonstrate tangible results from our turnaround efforts.

However, we are early in the process and beginning the necessary reinvestments to position the Company for long-term growth. With that I'll turn the call back to John.

Thank you, Chris. Camille, we will now take questions, please.

Thank you. (Operator Instructions). Gil Luria, Wedbush Securities.

Thanks for taking my question. First of all, North America, you said mid single-digit order growth for the year but you had down revenue for the quarter.

What's the outlook for North America financial self-service revenue for the year? And what is going to be driving that in terms of the balance between regional and national and contribution from branch transformation?

Gil, starting with the last part of your question first, on the branch transformation front I think we have seen that being a little bit of a longer sales cycle. And so we don't see that being a significant contributor at this point in the 2014 growth.

On the regional side our expectation is to continue to see a ramp as we go throughout the year getting the benefit of some of the Windows 7 activity that we have seen. And so we are expecting our regional business to show some slight improvement over prior year. Again, showing more of that momentum in the second half of the year as we start to revenue some of the orders.

On the national front, again we have mentioned some of the large, or lumpiness of some of the larger orders. And so right now we expect that business to be roughly flat in the full year. And again we will provide additional color as we see some of that activity as it plays out over the next several quarters.

Got it. And then you seem to be making great progress on the $150 million plan.

When cost cutting, when do you plan to revisit either the scope or extending the horizon of the cost cutting and introducing new opportunities for further cost reductions? When do you intend to revisit that with the investment community?

Let me give you a baseball analogy. If you take a look at our Diebold 2.0 turnarounds we are probably in the second inning. We are still early.

Before we squawk about extending the horizon let's make sure we deliver a few more quarters. To give you a reasonable expectation we will be talking about longer-term aspirations of the Company at our Investor Day, which as usually, we'll be in the early part of November this year.

That makes sense. Thank you.

Matt Summerville, KeyBanc.

Morning, thanks. Just to put this in perspective, how big is Venezuela revenue and non-GAAP net income to Diebold in 2013, Chris?

Full impact for the full-year 2013 was probably around, I don't have the exact number, Matt, about $35 million to $40 million approximately in terms of total revenue. Again from a net income standpoint it was roughly $5 million to $6 million. But remember again this is a joint venture so half of that goes away with the non-controlling interest when you look at the full impact from an EPS standpoint.

Got it. And then with what you decided to do with Accenture, Andy, if you look at the Accenture path you are moving down versus the previous path you were considering, I guess, can you sort of walk through a little more granularity in terms of the cost-benefit analysis that you would've done to come to this conclusion? And why now makes sense to make what's a pretty substantial switch here?

Happy to do so, Matt. Let's start out with part of our turnaround strategy from the very beginning was going to global processes, global standards and pooling of resources in cost-optimized locations.

The initial plan when we outlined it to you and to your peers in November was to do all of that in a Diebold-owned environment. After pressure testing the tasks and the to-dos, we figured we were better off by partnering up with somebody who actually does transformation as a living and brings a lot of expertise to it.

Because the most important thing is to make sure that these transformations happen in a secure way, that our customers are not impacted and that we see the savings coming through as we progress. So biggest driver was confidence in our ability to deliver and to improve our financial controls in this process.

From a cost-benefit point of view we have decided to invest more in 2014, 2015 in these transformational activities. And we will see the benefits come through in 2016 and thereafter on a very steady run rate going forward.

And then just as a follow-up, I think in the past you guys have talked about the first half versus second half weighting of your EPS. Can you sort of go through that again? Given the timing of some of the things you are talking about today it probably makes sense to revisit that.

Yes, Matt. I would reiterate where we were with the last call in terms of still expecting to see the back half of the year to be more heavily weighted. From a ramp standpoint as well we're going to see a continued increase in our overall investments in the business as we go throughout the quarter and you are going to start to see that start to ramp up in the second quarter. So again there's still a little bit of that back half waiting from a total earnings distribution.

Thanks, guys.

Matt Lipton, Autonomous Research.

Good morning, thanks for taking my question. Just a real quick clarification first, Chris, the Accenture up for an investment, that's going to be excluded from non-GAAP EPS so it's not contemplated in the guidance?

No, there's going to be two pieces you will see there. So number one we will have some severance activity that will be called out from a restructuring standpoint. That we will call out and exclude from our non-GAAP performance.

However, the transition fees associated with that, which we expect to be about $12 million to $15 million over the next 18 months, that's just is going to be part of our ongoing business operations. Again, as Andy mentioned, the plan was to do a lot of this on our own and that would've been internal cost.

We are working with a partner as part of our ongoing business. So we are not looking to exclude that from our future non-GAAP earnings.

Got it. So it's in line with the $75 million of the $150 million that you had always talked about being reinvested in the business? Is that fair?

Yes, I would say it's part of that, maybe a little bit of an increase in that overall $75 million, getting us closer to $80 million to $85 million. And again we are looking at some additional areas to offset that through additional business performance. So again maybe seeing a little bit higher reinvestment there again as we have switched our strategy a little bit with regards to the back office.

Got it. And then the large Brazil order in the quarter, can you just help us think about the profitability of that order relative to the Company-wide margin? Was it magnitudes of the 4% operating margin in operating income profitability?

Let me start with how we think about these Brazil other orders in general. These are clearly adjacencies to our business.

So unless we like the overall margin picture of an order over the lifespan of an order we will not go down that path to take on those businesses. So having said that the revenue that you see coming through in the first quarter comes through at a pretty good margin. And that's also the litmus test for why we went down the path of doing such a project.

Okay, fair enough. And then just one quick one on free cash flow, I see in the release that 97% to 99% of cash is still overseas.

How much of the cash balance now can be repatriated without any further tax consequences? And then as you think about your repatriation plans over the rest of 2014 how should we think about that considering the commitment to the dividend and the free cash flow that's generating being lost in the US over the next six to nine months? Thanks.

I'll go backwards on your questions. So for 2014 we are looking to repatriate approximately $70 million to $80 million from our foreign jurisdictions.

With regards to how much we can access without additional tax consequences, again we did change rate, APB 23 assertion in the second quarter last year. And so there is I'd say approximately half of that that we have access to on a go-forward basis without any additional material tax consequences compared to where we have been.

Thanks so much.

Kartik Mehta, Northcoast Research.

Good morning Andy and Chris. Andy, as I listen to your expectations for the US, is it fair to say that you would expect kind of a low single-digit growth for the ATM part in the US?

Yes.

And then Andy, you talked about Western Europe having, gaining traction in Western Europe and I think you mentioned an order out of the UK, are there other countries where you're gaining traction?

Yes. But before you go down the country path, Kartik, let me remind you we have taken an account path in Europe so we are going after global accounts. We have mentioned Spain as a market where we are picking up speed very nicely on these curls earlier and we continue to go down that path.

Barclays is another proof point of add a very important global account to the list. And as we are adding more to the portfolio we will disclose them to you but it's truly an account-centric approach. But we are very encouraged with the picture that we are seeing in Europe and we are very encouraged with the opportunities and the conversations that we have with potential customers.

And Andy as you look at the ATM market to date, what would you anticipate worldwide growth? I know you are having great success in Western Europe. I think you are having success in India and parts of Asia, but as you look at the entire world what type of growth are you anticipating for 2014?

Depending on currencies and some movement, I'd say low to mid single.

And then just one final question, Chris, what would you anticipate ending up from a net debt perspective by end of year? Is your goal to pay down some of the debt, or do anticipate that debt levels will increase a little bit more?

I'd expect our net debt to be largely similar with how we finished 2013, give or take some small fluctuations, but not a significant change there.

Thank you very much.

Paul Coster, JPMorgan.

Yes, thanks for taking my questions. First up, the Brazil other revenue of $79 million, how much of that was actually one-time versus recurring revenue? And is that reflective of the slight upward revisions to revenues half of the year?

So Paul, a vast majority of that I would characterize as one-time. Again, while we will see some repeat activity in this space, not of this same magnitude. And yes that did impact our full year in terms of the increase that we put out.

Got it. Thank you.

Secondly, the foreign-exchange impact that you have experienced, some of it is translation, some of it's actually going to flow through the income statement moving forward. The guidance that you have issued on the bottom line, does it already take into consideration the flow through at the income statement level and how much risk do you think there is there?

The guidance that we have put out obviously takes into account the impact of Venezuela which was a significant item that came through. And also I would say moderate movements that we see in the exchange over the coming quarters. And so that's all factored into our current guidance level.

Okay, finally, so branch transformation seems to be occurring. I guess I would like to get under the covers a little bit of your statement here. Is it that the -- there's projects occurring and you are not participating, or this new projects occurring and just the sales cycle for everyone is extended? Thank you.

No, Paul, the project pipeline is ramping up very nicely. Over the last six months we have more than doubled the number of POCs that we have out with customers in North America.

So we feel very encouraged about that. But the time from POC getting a true understanding for both parties, the customers and ourselves, of how will their clients embrace the technology, how much are they going to be able to route through to self-service versus human interaction in the branch, how quickly do we want to ramp it up, those are not trivial decisions for any branch and for any bank.

So that takes us time. And then we will expect the order numbers to go up but it will be more a 2015 revenue play.

Also keep in mind branch transformation has a second element to the time frames that the banks think about because their objective is to reduce the size of the branch, less people, more machinery. Well, in order to reduce the size of the branch the leases of your branches have to be up for renewals because there is no landlord in the United States at this point in time that will let a bank move out of a physical branch and say, sure, why don't you move on.

Because the space has been designed for a branch and there is not another bank moving into it. So some very practical perimeters drive the industry and drive the rollout for all of us that participate in that industry.

Thank you.

Justin Bergner, Gabelli & Company.

Good morning, Andy, and good morning, team. My first question relates to the guidance for the year.

It seems like you are absorbing over a $0.15 headwind from the Venezuela depreciation and loss of income and perhaps modest other currency effects. The extra income that you are getting from the large Brazil project seems to be something that would be significantly less than that $0.15 plus headwind so I am trying to get my hands around where you are going to get, see strength elsewhere in your business to sort of make up for the net headwind between those two factors and meet your initial earnings guidance.

All right, Justin, so to take the pieces of this. When you look at our original earnings guidance that we put out we did assume some impacts for currency moving forward. Again, there was a lot of talking around what was going on in Venezuela.

Now we didn't fully anticipate going to the SICAD 2 rate when we were initially going through some of the work. And so we did have some of that factored in to some of the outlook that we originally put out. So this is not all incremental in the full year when we look at the impact of Venezuela.

Again, we are disclosing the full amount. We have maintained where we are at, the full guidance. And again then we have, as you noted, talked about the increase for the other revenue in Brazil which is then also helping to offset some of these other movements that we have seen.

Got it. So I should interpret the unchanged guidance as reflecting sort of the incremental Venezuela currency headwind more or less offset by the incremental earnings from the large project in Brazil? Is there anything else that's a missing piece to that earnings guidance that I should think about versus what you gave a quarter ago?

I think you have the pieces, Justin.

Okay, great. And then secondly on bank branch automation I know that everyone is focused around developments in North America, could you maybe talk about what is happening in Europe, or is on the verge of happening in Europe and how it is affecting the outlook for your business and profitability in that region?

Europe is starting to embrace the technology. There's a few countries that are pretty active in Western Europe. We've seen a lot of positive momentum especially in Italy and in France.

And also the increased opportunity that we have in the UK at the end of the day hinges on the new technology because the benefit of what's happening is as banks look at a next generation, the playing field gets releveled and people like ourselves get reinvited to the party. And assuming the customers like our strategy going forward we actually have an opportunity to get a bigger piece of the action. So good momentum on both sides of the Atlantic when it comes to innovative ATM technology and branch transformation.

Excellent. That's good to hear, and will bank branch transformation in Europe, where margins haven't historically run as high as North America, in your might be an opportunity for further margin enhancement in that region over the next two years?

The biggest driver for margin in Europe is actually volume. As volume will increase so will our margin profile. And again we feel very good about our position in Europe and we are looking forward to expand our footprint.

Great. Thank you. Best of luck for the rest of the year.

(Operator Instructions). Jeff Kessler, Imperial Capital.

Thank you. And since I do cover Brinks I just wanted to let you know I feel all your pain in Venezuela, but three times over.

If you could just give some more details on the status of low-energy ATMs in countries like Pakistan and India? And can we see these types of technologies deployed in developed countries particularly in Americas? What will it take to do that?

In order to deploy it it's as easy as getting the product certified. Let me get back to the why is that such an important milestone and why do we squawk about it.

Our technology in India allows an ATM to be up and operational for three to four hours without power. It consumes less power than a 60 watt light bulb. The batteries can get recharged off of a solar panel.

And if you look at what is one of the main inhibitors for a country like India to rollout more technology to its rural population? It is the inadequacy of the power grid and the power provisioning to more remote areas.

And if you then say are there other markets that have similar challenges than a rural India, there's a lot of markets that come to mind so it's no surprise that we won business in Pakistan. There's many other emerging markets that we could think about. And we are not only looking at taking the product that we have developed for India and introduce it to other markets, more importantly is we are taking the IP that we have developed in that product and introduce it to every single one of our products going forward.

Because we believe that efficient power consumption will move up on the evaluation scale of our customers as time progresses in all nations including the United States.

But obviously what you are saying is there are obviously both regulatory and functional hurdles to get through to get it to the United States first?

Yes, but that side -- that's more a technicality than it is rocket science. The more important thing is, once you start looking at it and once you start to develop IT we feel very confident that we can add to it.

And we believe that the whole motion of green technology -- again, think about Europe, think about Western Europe, it's very much front of mind with many decision-makers in Europe. And we are scoring big on having proof points and being leading in the industry when it comes to that.

Okay. One other quick question. Update on SecureStat status.

Last time you mentioned that you had 200 customers with about 10,000 sites. I'm wondering if that has increased at all and if you can give us any idea of how far you think that can go, perhaps this year?

The good news is our electronic security business is growing very nicely in the United States as well as outside of the United States. SecureStat is one of the main drivers because the benefit of SecureStat is you don't have to change out your existing infrastructure in order to switch over to Diebold.

Think about it as pretty much a portal technology where any keypad, any camera that you have out there can be hooked up to Diebold's monitoring centers and Diebold support. So a huge enabler with every growth that we have, SecureStat and is one of the main drivers. I have to go back and find the exact number, I don't have them at top of mind, happy to provide them to you through our IR team if you're interested.

I am interested. So (multiple speakers) I'm sorry. What percent of Venezuela is your revenue?

Full-year basis, again looking at prior year, it's about 1.5%.

All right. Very good. Okay, thank you very much.

Glenn Mattson, Sidoti.

Hi, guys. Just real quick, did anybody say exactly what the one-time stuff in Brazil above what you had prior expected was the magnitude of that revenue?

If you look at the full-year total Company I would expect the one-time to be in the range of, and again this is comparing versus prior year, of about 3% to 4% on the full-year basis, total revenue.

Okay.

And just to clarify that's taking the PC plus some lottery activity that we previously announced the order on in the fourth quarter on our fourth-quarter call. So really just those two big pieces I would say largely will not repeat next year.

Remind me what the lottery was that you had said prior, what the revenue expectation was for that?

Approximately $50 million.

Okay, great. Thank you very much.

It appears there's no further questions at this time. Mr. Kristoff, I will turn it back over to you for any additional or closing remarks.

Thank you, Camille. As always if you have any additional questions please feel free to reach out to me or Jamie Finefrock directly and thank you again for joining us this morning for our first-quarter call.

And this does conclude today's presentation. Thank you for your participation.