Diebold Nixdorf Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 6, 2025

Key Takeaways

  • Positive Sentiment: Product orders grew 10% year-over-year to the highest level in three years, with backlog of approximately CHF 980 million, and management reaffirmed full-year guidance at the higher end of ranges.
  • Positive Sentiment: Gross margins expanded by 50 basis points year-over-year and 120 basis points sequentially, driven by favorable product mix, lean initiatives, and disciplined pricing.
  • Positive Sentiment: Generated positive free cash flow for the third consecutive quarter and first half, and repurchased $30 million of shares, reflecting strong cash generation and commitment to returning capital.
  • Positive Sentiment: Banking segment saw momentum in branch automation with new Teller Cash Recycler wins, video-capable teller machines in the Middle East, and local ATM manufacturing in India to support growth.
  • Positive Sentiment: Retail AI-driven SmartVision self-checkout launched first 18 U.S. stores with strong feedback, won an external AI award, and is building a growing pipeline of pilots and proofs of concept.
AI Generated. May Contain Errors.
Earnings Conference Call
Diebold Nixdorf Q2 2025
00:00 / 00:00

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Operator

Hello, good day, and welcome to Diebold Nixdorf Second Quarter twenty twenty five Earnings Call. My name is John, and I'll be coordinating today's call. Following our speakers' remarks, there will be a question and answer session. I would now like to turn the call over to our host, Maynard Vice President of Investor Relations. Maynard, please go ahead.

Maynard Um
Maynard Um
VP - IR at Diebold Nixdorf

Hello, everyone, and welcome to our second quarter twenty twenty five earnings call. Accompany our prepared remarks, we posted our slide presentation to the Investor Relations section of our website. Before we start, I'll remind all participants that you will hear forward looking statements during this call. These statements reflect the expectations and beliefs of our management team at the time of the call, but they are subject to risks that could cause actual results to differ materially from these statements. You can find additional information on these factors in the company's periodic and annual filings with the SEC.

Maynard Um
Maynard Um
VP - IR at Diebold Nixdorf

Participants should be mindful subsequent events may render this information to be out of date. We will also discuss certain non GAAP financial measures of today's call. As noted on Slide three, a reconciliation between GAAP and non GAAP measures can be found in the supplemental schedules of the presentation. With that, I'll turn the call over to Octavia.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Thank you, Maynard, and good morning, everyone. Thank you for joining us. Before I get to my prepared remarks, I'd like to extend my sincere gratitude to Chris Sicora for his invaluable contributions during his time as Head of Investor Relations. Chris has played a critical role throughout the years wearing multiple hats at the end, and his dedication and expertise have been instrumental to the company. Chris moves on to head our business finance operations for Retail, where his skills and experience will continue to be invaluable with the large retail opportunities and growth we see ahead of us.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

I'd also like to welcome Maynard as the new Head of Investor Relations. Maynard brings over twenty five years of Wall Street and Investor Relations experience across multiple industries. His deep knowledge and expertise will help build on the strong foundation already in place. We're excited to have him on board and look forward to strengthening the relationship with the investment community and communicating the company's value proposition. Starting on Slide four.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Q2 was another standout quarter, where we delivered strong performance in our key objectives amidst a volatile global environment, generated the third consecutive quarter of positive free cash flow and finished the first half with great momentum, giving us confidence in our ability to deliver strong operational performance in the back half of the year. Product orders grew 10% year over year, reaching the highest level in three years. Our backlog now stands at approximately CHF $980,000,000. This momentum, combined with our robust first half, gives us conviction to reaffirm our full year outlook, with the business trending towards the higher end of our range for revenue, adjusted EBITDA and free cash flow. Our solutions continue to see strong demand in the market, and we remain focused on exceeding the expectations of our global customer base.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Gross margins expanded 50 basis points year over year and 120 basis points sequentially, driven by favorable product mix and our commitment to continuous improvement, lean principle and pricing discipline. Demand for advanced ATMs with cash recycling and video teller capabilities is accelerating across multiple markets. In Q2, we achieved a historic milestone, positive free cash flow for the third consecutive quarter and first half of the year. To maximize shareholder value during the quarter, we repurchased $30,000,000 of DN shares, reflecting our priority of returning capital to shareholders and our strong belief in the long term value of our company. Let's move on to Slide five.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

We had a great second quarter that we're very proud of. As my team and I shared during our Investor Day, we have multiple ways to win across our markets and deliver for our shareholders. Our three year growth plan shared at our February 2025 Investor Day is on track. Here is how we're executing. We're capitalizing on market opportunities.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Diebold Nixdorf is a leader in a CHF 32,000,000,000 banking and retail automation market that we serve. Our innovative self-service solutions continue to gain traction and are well positioned to capture growth in this highly attractive market. We're driving disciplined growth and profitability. In banking, we're accelerating branch automation by introducing Teller Cash Recycler technology and additional managed services. We're capitalizing on the ATM refresh cycle with tailored solutions, gaining momentum in fast growing markets.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

And in retail, our AI driven checkout solutions solve real customer challenges, provide a high return on investment for customers and are a strong competitive differentiator. Our focus on lean operations is enhancing profitability. Our first half free cash flow success sets the stage for CHF 800,000,000 in cumulative free cash flow by 2027, with 60% plus conversion and approximately 15% adjusted EBITDA margins, all while maintaining a fortress balance sheet. Now let's turn to Slide six, where we will discuss the progress on our growth acceleration strategy. In Q2, we made solid progress at financing our key priorities.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

In Banking, we are seeing the benefits of branch automation, cash recycling and our fit for purpose strategy. In The Middle East, we introduced dual power ATMs that opened the door to new customers and opportunities. QMB was the first bank in The Middle East to deploy DN's extra high capacity DN Series 500 with bulk cash deposit capability and the highest deposit recycling and dispensing capacity in the market. We also recently announced the rollout of state of the art interactive teller machines with Kuwait International Bank, which are video capable, can instantly print and activate debit cards and facilitate high value deposits and withdrawals. These advanced recycling ATMs essentially serve as a branch in a box, and customer acceptance has been great.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

We also spoke about our new line of ATMs rolling out in India. These are purpose built to be compact and very energy efficient to meet the needs of the market. We expect to see continued growth in this large market and are encouraged by our pipeline and product wins as this fuels growth in our installed base and long term higher margin service agreements. In retail, AI continues to change the way our customers think about their operations. In Q1, we announced wins with the large European customers.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

And I am now pleased to share that we have our first live customer in The U. S. A mid sized grocer has rolled out the first 18 stores operating our SmartVision product. The feedback we've received has been tremendous, supporting our optimism that the increasing number of pilots and proof of concepts we're running will lead to long term growth opportunities. In fact, BINAMIC Smart Vision shrink reduction, age verification and produce recognition technology was recognized by a leading French retail industry publication, LSA, and won its Tech for AI Business Award.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

It's nice to see the solution winning external accolades. It is further proof of the value and innovation we're keenly focused on delivering. On the product side, we launched retail manufacturing in Ohio to serve our North American customers, building upon our local to local manufacturing strategy. I am extremely proud that through implementing lean principles, we were able to optimize our overall footprint and strengthen our U. S.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Manufacturing capabilities. In services, my commitment to our customers is to make DN the prime example of service quality and the most trusted service provider in the industry. To strengthen our ability to deliver outstanding service that we are committed to providing, we are consolidating our repair centers, further rolling out technician software and adding field technicians to support our growing portfolio. A clear example of this is the rollout of our upgraded field technician software in Canada, which produced improvements in response time, call rates, incident rates, so we're accelerating the initial deployment in The U. S.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

World class service is the top priority for Diebold Nixdorf. Additionally, in Q2, our centralized operations center in Ohio went live. This center efficiently controls dispatching, training and parts logistics for our technician network in North America, where we will continue to invest to drive efficiency and growth. We have seen positive early results with real time monitoring of customer KPIs driving improvements in client satisfaction. We are delivering innovation with our products and solutions that address real problems, driving efficiencies and creating lasting value in our markets for customers and shareholders.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Now on to Slide seven. Continuous improvement is critical to our success, not only to drive margin improvement, but also to ensure our teams are safer, more productive and the most efficient in the industry. I recently visited our manufacturing facility in Paderborn, Germany, and I'll tell you that the team is incredibly motivated. From just one year ago, we've been able to meaningfully reduce floor space and improve first time through in manufacturing, an important metric that reduces rework and enhances product quality. I am very proud of the team for what they've been able to accomplish.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

In services, we're laser focused on not just consistently meeting, but exceeding our service agreements. Our lean principles are key to supporting the enhancements to our service, leading to greater productivity, faster repairs and fewer repeat calls, resulting in greater efficiency, higher customer satisfaction and more business for us. One of the enablers to launching retail manufacturing in Ohio were our lean principles. We freed up space and increased future opportunities for growth. I am proud of how our U.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

S. Manufacturing team has embraced continuous improvement and lean as a way of life. Lastly, I wanted to highlight our work in Poland, where we're consolidating our European repair and service operations. A new simplified delivery model developed with direct involvement of our install and repair technicians will help us improve efficiency. As you can see from the photos, our teams are committed to continuous improvement and enhancing our operations through leading principles.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Overall, the momentum we've generated in the first half gives us confidence 2025 will be another great year of progress for our company. With that, I'll turn it over to Tom to walk through our financial results.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

Thank you, Octavio. Starting on Slide eight. Overall, we're very pleased with our second quarter and first half results. Our execution gives us strong confidence in our full year outlook, which we currently see trending toward the higher end of our guidance ranges. Product backlog at the end of the second quarter increased to approximately $980,000,000 up from approximately $900,000,000 at the end of the first quarter on strong new order entry, which was up 10% year over year led by banking.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

As we shared previously, we expected revenue to be weighted towards the second half given customer project activity, and this is playing out just as we expected. In Q2, FX was a tailwind to revenue of $19,000,000 However, for the first half, FX was a net headwind of approximately $4,000,000 First half revenue came in at 46% of total year's revenue, in line with our previous guidance of approximately 45%. Gross margin continued to improve, up 50 basis points year over year and 120 basis points sequentially. Product gross margin saw significant improvement both year over year of two fifty basis points and sequentially of two thirty basis points, primarily driven by better geographic mix, pricing discipline and the ongoing impact from our lean initiatives. Product gross margins remain on track for up to 50 basis points of improvement year over year.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

On the services side, gross margin improved 40 basis points sequentially and was down 80 basis points on a year over year basis. We remain focused on driving sequential improvement throughout the year as we continue to enhance the best service organization in the industry. We also remain on track to exit Q4 with a run rate in service margins up 100 basis points versus prior years. In the second quarter, operating expense was up sequentially, primarily due to FX and stock compensation. Excluding these impacts, operating expense would have been comparable.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

Earlier this year, we discussed plans to reduce our operating expenses by $50,000,000 on an annual basis. Going forward, operating expense represents another opportunity for us to work to improve our cost profile and achieve our three year strategic plan objectives. We've been working on those plans and we'll be taking the initial steps in the coming months and look forward to providing updates. Continuing on Slide nine, we look at our five year quarter financial trends. As we've said in the past, we remain committed to strengthening our profitability and significantly improving our free cash flow generation by nearly doubling year over year.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

We delivered adjusted EBITDA of $111,000,000 in the second quarter. Sequentially, our adjusted EBITDA margin grew 180 basis points. Typically, our adjusted EBITDA builds throughout the year, and we expect a continued ramp through the 2025. To add some additional color, we expect to generate approximately 45% in Q3 and the remainder in Q4. We also generated $13,000,000 of free cash flow in Q2.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

This is the third consecutive quarter of positive free cash flow and the first time in DN's history of positive free cash flow in the first half of the year. Historically, the first half has been a significant use of cash, so our ability to reverse the trend and sustain positive cash flow is a testament to the discipline and hard work by the entire company. We feel confident about our ability to improve free cash flow conversion to 40% plus in 2025, which again nearly doubles our 2024 free cash flow generation. Moving to Slide 10. Banking continued to deliver solid quarterly results behind favorable geographic mix and disciplined pricing.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

Revenue was up $50,000,000 sequentially and order entry was strong, supporting our revenue outlook for the year. Gross margin was up 140 basis points year over year and 180 basis points sequentially, led by product margin expansion driven by favorable product and geographical mix, pricing discipline and our ongoing lean initiatives. Going forward, we expect to continue driving solid ATM refresh activity and momentum in all geographies, and we are encouraged by the first orders of our teller cash recyclers in our branch automation strategy. We're very pleased with how our strategy is playing out with strong hardware growth that will positively impact our service operations. Turning to Slide 11.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

In Retail, we drove sequential growth in order entry, revenue and backlog in Q2. We are more optimistic than ever that the second half will bring on a firm recovery in our Retail business and fuel sequential and year over year improvement throughout the remainder of 2025. Gross margin was down sequentially 70 basis points and year over year 190 basis points, with strong product margins being offset by service margins. In Q2, we delivered higher volumes of point of sale terminals with lower margin related services. As we look into the second half of the year, we're expecting a stronger contribution from self checkout and more normalized gross margins in the mid-twenty percent range as retail total gross margin improves through the remainder of the year.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

In The U. S, our AI enabled Smart Vision solutions are gaining traction with increasing proof of concepts and pilots underway, and the first live installations are now operating. The long term outlook in retail remains positive. We are especially excited about our dynamic smart vision capabilities and early positive signs in North America with a growing pipeline. Moving ahead, let's review our guidance on Slide 12.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

We see the business trending toward the higher end of our guidance across revenue, adjusted EBITDA and free cash flow. Our strong start in the first half of the year combined with current demand levels and our backlog reinforces this outlook. We expect total company revenue to continue building throughout the year with an approximate split of second half revenues at 45% in Q3 and the remainder in Q4. On a constant currency basis, we expect to grow at least approximately 1%. Under current conditions, we also expect FX to be a tailwind of approximately 1% for the year.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

Our multiple operational levers, whether it's gross margin or OpEx improvements, have given us the ability to achieve the higher end of our adjusted EBITDA guidance of $470,000,000 to $490,000,000 despite the impact of tariffs. For the 2025, we expect to generate approximately 45% in Q3 and the remainder in Q4. In Q2, taking into account discrete onetime tax benefits, we were able to achieve an effective non GAAP tax rate of 33%. As a result, we expect our non GAAP effective tax rate for the year to be in the 40% to 45% range. We expect free cash flow to once again be positive in Q3 similar to Q2.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

For the full year, we are trending toward the higher end of our expected range of $190,000,000 to $210,000,000 representing 40% plus free cash flow conversion. We are extremely confident in our ability to nearly double free cash flow based on lower interest expense, adjusted EBITDA growth and significantly better working capital management. We remain confident in our ability to deliver another strong year of financial results for the company and our shareholders and once again demonstrating our commitment to doing what we say. Turning to Slide 13. We remain committed to maintaining our fortress balance sheet allowing us to support our capital allocation strategy.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

At the end of the quarter, we had approximately $620,000,000 of liquidity, balanced between $310,000,000 of cash and short term investments and $310,000,000 of capacity on our revolving credit facility, which remains untapped. Our net leverage ratio is 1.5x, what we believe is the strongest balance sheet in the industry. We repurchased approximately 30,000,000 or 637,000 shares in the second quarter. This brings our total share repurchases to $38,000,000 or 822,000 shares at an average price of $46.8 Remember, we started our buyback in March, so this buyback represents only four months of activity. We intend to continue executing on our remaining $62,000,000 authorization.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

Maintaining a strong balance sheet and our local to local manufacturing footprint are foundational elements for the new DN. The way we have positioned our company allows us to best serve our global blue chip customer base and quickly respond operationally to the dynamic global environment without undermining our ability to achieve our longer term financial targets. Lastly, we've talked a lot about doing what we say or our say do ratio. I think it's fair to say that we've delivered again in the second quarter. We're proud of our progress while at the same time focusing on operational execution and driving even better results over the long term.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

With that, I'll turn it back to Octavio for some closing remarks.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Thank you, Tom. To wrap things up on Slide 14, we delivered yet another strong quarter with our relentless focus on our customers and improving operations, demonstrating the progress we're making against our multiyear growth plan. We've built a strong backlog that gives us visibility to the back half of the year. In Banking, we're gaining momentum with the growing customer pipeline for teller cash recyclers and tailored solutions in fast growing markets, while the refresh cycle continues to progress. In retail, we expect to see continued sequential improvement for the remainder of the year.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Our pipeline continues to grow, particularly in the North America market. We continue to make great strides in building more efficient operations through a disciplined lean culture, and there's still much more to come. And of course, we will continue to focus on maintaining a fortress balance sheet with a target of nearly doubling year over year free cash flow generation and returning capital to shareholders. In closing, I'd like to thank our loyal customers, partners, employees and shareholders for their trust and support. We've laid a strong foundation for long term success, and I am optimistic about the opportunities ahead.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

And with that, operator, please open the line for questions.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from the line of Matt Summerville with D. A. Davidson. Please go ahead.

Matt Summerville
MD & Senior Research Analyst at D.A. Davidson

Thanks. Good morning. I was hoping maybe to start with retail. Expand a little bit on the fact that you have all this confidence regarding that business inflecting in the second half of the year. Can you speak to where that is being driven from a pause versus go standpoint?

Matt Summerville
MD & Senior Research Analyst at D.A. Davidson

Is it North America? Is it Europe? And then can you maybe discuss a little bit how the funnel in North America may be starting to mature and if you'd be willing maybe put a value on that North American funnel? Thank you.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

Yes. Thanks, Matt, for the question. Look, in the quarter, what we saw was a much higher mix of point of sale revenue versus SCO revenue. That mix unfavorably impacts us in terms of margin performance from the perspective of not only services but hardware as well. Some of that backlog and order entry growth that we're seeing, and Octavio will comment on this in a second, it's led by banking, but we're seeing really positive signs of recovery in retail.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

And remember, in that backlog sits our Deutsche Post win, which we would expect to start converting into product sales towards the end of this year or early next year as well. So we remain confident that over the next quarters, we'll be able to sequentially improve both revenue, operating profit and margin as well.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Yes. Probably just adding to Tom's comment, Matt. Remember, we started the year with big expectations for North America. We created a very focused strategy. We understand where the opportunities lie in the market.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

We have a targeted pipeline. We identified the 40 best accounts for us to target initially this year. We've engaged with most of them. We have pilots in many of them. Again, these are some of the largest grocers, general merchandising companies in The U.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

S. Again, it's a long, complicated sales process where we're trying to unseat formidable incumbents. But I am convinced that as we keep showcasing the capabilities of our products and our solutions And particularly, I am very impressed with all the pilots that we're or all the proof of concepts and pilots that we're driving with our AI solution. That gives me a lot of confidence. As far as the size of the pipeline, probably I'm not I can't comment on an exact number, Matt.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

But what I can tell you is if you think of our business where our European business has always been 80%, 85% of our total revenue, I can tell you that our North America pipeline now supports the idea that we will have a North America business that is growing much faster than the rest of the world for us, again, be it from a small basis. But we're very optimistic about that, and the team is very focused on it.

Matt Summerville
MD & Senior Research Analyst at D.A. Davidson

Thank you. Maybe as a follow-up, it was mentioned several times in the prepared remarks, but can you talk a little bit about the TCR, the penetration rates as they sit today across the major geographies? And I guess, where you see banks prioritizing branch automation? Is it more at the ATM? Is it more at the teller counter? And I guess, are you seeing verified sort of cross sell opportunities between those two products? And maybe just again, I I've asked this in the past using a baseball analogy, inning are we in with TCR adoption? What inning are we in with, recycling recycling lead replacement cycle? Thank

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

you, Matt, and thank you for asking that because talking about TCRs is probably my favorite thing to do nowadays when I'm with customers in banking. So remember, the TCR, the hardware that we're deploying to take recycling into the Terra line, is part of our broader branch automation strategy. We will be launching officially this strategy or kind of communicating more broadly in our Intersect customer event later this month. But what it basically boils down to, when you think of a cash ecosystem at a branch, it encompasses the ATM, the teller line and the vault. So through our services, through our hardware and through our software, we're now able to manage that complete cash ecosystem.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

So when I think of branch automation services, it encompasses the ATM where we can do just sell you the hardware or manage it completely for you. Now we will be able to help you manage the cash at the teller line by selling you the hardware with our recyclers, keeping tabs on where that cash is, whether it's in the teller, at the ATM. Our products are interoperable, so we can change cash from one device to the other and provide you a complete view on how you're operating the cash ecosystem at the branch level. This resonates with banks tremendously. As you know, cash operations is one of the biggest cost drivers in any retail branch retail network, And this is really providing a strong ROI for customers.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

I would say that we're in the for us, we had our first significant order with us for teller cash recyclers this quarter. I'm extremely proud of the team because this is a customer that wasn't our customer for ATMs, wasn't our customer for teller cast recyclers. And again, this opens the possibility to start at the branch level but then move to the ATM. And where we are already very strong with the ATM, it allows the opportunity to incorporate a complete ecosystem at the branch level, give us additional service, additional software opportunities. And more importantly, as banks look to outsource more of these functions, I think that having the ATM, the branch and the vault and being able to provide a holistic view really changes the value proposition that we bring.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

So again, we're very early in that. So I'm proud of the progress that we've made. And I'm also proud that these Cellar Cash recyclers are being manufactured here in Northeast Ohio for our North America market, which is the one with the highest adoption rates right now for us. And again, we will see this continuing to expand as some of our large banks deploy it. We'll see it trickling down to others and then eventually expanding globally.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Far as the recycler, where are we in the cycle? I would tell you once again, it's always the analogy and I keep forgetting what inning we were last quarter in, but we're probably now in the fourth third, fourth inning with still a lot of runway to go. And again, remember, as we keep adding functionality to our product set, we are creating new use cases. You heard me talk about some of The Middle East wins where now in one of our large recyclers, we're able to print debit cards, we're able to incorporate video teller technology. So I think we're taking all these components and really creating a very strong value proposition for our banking customers.

Matt Summerville
MD & Senior Research Analyst at D.A. Davidson

Appreciate the color. Thank you.

Operator

Your next question comes from the line of Antoine Degol with Wedbush Securities. Please go ahead.

Antoine Legault
Senior Equity Research Associate at Wedbush Securities

Thanks for taking my question. Octavio, you mentioned about the Indian market, and it's clearly a very large addressable market. And you mentioned that the ATMs you sell, they're more compact and energy efficient. Overall, are you able to achieve a similar margin profile in these machines? And just can you speak more broadly to the opportunity ahead in India?

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Yes. So Antoine, India is probably one of the largest ATM deployer market today or one of the largest ones. We built our strategy around local manufacturing in India with a more compact, more energy efficient product, smaller footprint because that's what the market needed. So this new redesigned product that meets all of our DN Series quality standards does allow us to compete and command similar margins to those that we have in the rest of Asia Pacific. Remember, the importance of this market is that it's as it is a very fast growing hardware market and one where we weren't particularly strong since we had exited manufacturing there a couple of years ago.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

By reentering, this allows us to once again start growing our installed base there. And the important part is as we grow this installed base, we have a very strong service annuity for the future. And I would say that the service annuity in the APAC market is probably one of the strongest margin profiles that we have as many as these customers like to give the service of their ATMs to their OEM providers.

Antoine Legault
Senior Equity Research Associate at Wedbush Securities

Understood. That's helpful. And just one more follow-up. Just want to confirm, you're looking for retail and product gross margin to lift in the second half as the scope picks up. And expand a bit on that.

Antoine Legault
Senior Equity Research Associate at Wedbush Securities

I'd assume growth efforts in retail, either SmartVision or the incremental software features and the push into North America should be margin accretive for your retail business. Is this the right way to think about things?

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Yes. What I would encourage you to think, Antoine, is we will get better in margins in Q3 in retail. We will get better in Q3 in Q4 in retail. And we will also see revenue growth in Q3 and Q4. So as Tom said, we're very optimistic about the growth in retail.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

And this is driven by what we're seeing, a steady European market with slight recovery and some large projects that we need to deliver there and our continuous efforts into growing in North America.

Antoine Legault
Senior Equity Research Associate at Wedbush Securities

Understood. Maybe last quick one on the tariffs. Like I know you mentioned maybe 5,000,000 to $10,000,000 or $7,500,000 at the midpoint, which is down significantly from your initial assessment, which I think called for about $20,000,000 of annualized costs related to tariffs. Is this mostly a result of the now lower tariffs on those jurisdictions? Or is it also the impact of your mitigating initiatives kind of taking hold now that we're about four months into this?

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Yes. So I'll let Tom talk about a little bit the kind of the paraphrase and all those calculations. Because, to be honest, as they change every day, I have a hard time figuring them out. But let me tell you the part that I'm very focused on. One of the things that we said is that we would mitigate some of those impacts with our own operational efficiency.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

One of the impacts that we had or that we were forecasting last quarter was importing the engine of our recyclers, the RM4 modules from Germany. We would manufacture them in Germany and then distribute them to our multiple manufacturing facilities, whether it was Ohio, Manaus, Brazil or India. Since then, we've localized manufacturing of the RM4 engine to Northeast Ohio, thus avoiding the impact of the tariffs that were imposed in the EU. So again, we are continuing to look at all these different alternatives. The idea expanding our manufacturing footprint here in Northeast Ohio for retail products.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

We started with self ordering kiosks for quick serve restaurants, expanding to self checkout. All these things help us really mitigate the impact of tariffs. So Tom, do you want to talk a little bit about the rates and how Yes.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

Look, our assumptions are China 55%, everyone else at or around 15% for the remainder of the year. We were very transparent in the first quarter, came out and said our gross impact could be up to 20%, but we had line of sight to mitigate 10%. So think about that 10% in the first quarter now going down to a range of 5% to 10%. And we think that we have multiple ways to win here and continue to mitigate that even further, which is why we're confident despite tariffs, we're still going to be able to execute towards the high end of our range.

Antoine Legault
Senior Equity Research Associate at Wedbush Securities

Thank you. I'll pass the line.

Operator

Your next question comes from the line of Justin Agis with CJS Securities. Please go ahead.

Justin Ages
Director - Equity Research at CJS Securities

Good morning, all.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

Good morning.

Justin Ages
Director - Equity Research at CJS Securities

Positive to see the pilot program and the one customer on the uptake in retail for the dynamic software. Can you just give us a sense of the conversion of pilot programs or the lead time that that takes?

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Yes, Justin. And again, it varies, to be honest, depending on the size of retail, the complexity of what they're trying to deploy. We're encouraged that this is a midsized grocer that's a couple of 100 stores, but they've started with the first 18 that are now live. So we're happy to see that. That was a process that roughly took us six months from the inception of the first proof of concept to piloting in one of the stores to now starting to roll out in the first 18 stores.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

So I would say that for midsized companies, where anywhere from six months should be a good time frame, we see that in some of the larger grocers, some of the larger retailers. That process is a little bit more extensive, particularly as retailers with multiple with hundreds or thousands of stores really create a more comprehensive testing process and evaluation process. So I would say that that probably takes six to nine months. But I think that, that is the average time frame, anywhere from low end six months to high end nine months. Remember, we've started some of these proof of concepts and pilots early Q1.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

So we're starting to see the early reisshoots of those efforts.

Justin Ages
Director - Equity Research at CJS Securities

That's helpful. And then one more. I appreciated the color around guidance on the tax rate. Can you give us an update on where you are in getting to a more rational tax rate? I know that was a bit longer term focus.

Justin Ages
Director - Equity Research at CJS Securities

Just wanted to get a sense of the progress being made there.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

Yes. Thank you, Justin. It's a great question. This quarter, we were able to capitalize on some discrete onetime items in the quarter that dropped the rate to 33%, right? So we were able to adjust our range, lowered it a little bit from 45% to 40% to 45%.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

Again, we some of the tax planning initiatives and strategies are going to take some time to not only implement but then also manifest themselves in our results. So we are still committed to doing what we said at IR Day. And by 2027, we believe that we can drive the rate down to the low to mid-30s. And we think that, at that point, would be a sustainable type of range for us, right? We do have good I guess it's a good problem, maybe a bad problem of making a lot of our money in high tax jurisdictions like Brazil and Germany and The U.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

S. So it's a little bit more of a headwind for us, but we're confident in our ability to lower that rate over time. And not only rate, but some of the cash tax payments as well.

Justin Ages
Director - Equity Research at CJS Securities

I appreciate the color there. Thanks for taking the questions.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

Of course.

Operator

Your next question comes from the line of Matt Summerville with D. A. Davidson.

Matt Summerville
MD & Senior Research Analyst at D.A. Davidson

Hey, Matt. A couple of follow ups. I want to make sure I understand kind of the go forward cadence in services gross margins. And I want to understand, you talked about a lot of different investments you're making on that side of the business, which will obviously bear long term fruit. But I'm curious, are those investments actually weighing on margins at present? And again, if you can remind us how we should think about Q3 and Q4, the margin evolution? And then I have a follow-up.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

Yes. So look, our view is the 100 basis points of service gross margin continues to be our North Star, right? And remember, it's not just this quarter, it's not just this year, it's that whole three year journey, right? So we have increased margins Q1 and Q2. And as Octavio and I both pointed out, continue to expect that sequential improvement throughout the year.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

But let me give you a road map to the remainder of 2025. So look, first half service margin came in at about 25.3%. We're projecting full year service margins of at least 26.5%, and we're targeting multiple opportunities to incrementally improve that through the remainder of the year. I think what's important to keep in the back of the mind here is as we exit the year, we do expect our Q4 service margin run rate. So as we exit the quarter for the quarter to show at least 100 basis points of growth over the Q4 twenty twenty four exit rate of 26.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

So you are correct that there is an elevated cost associated to the repair of those of the consolidation of the repair centers, the field software for our technician, the software rollout and then also adding field technicians to support our service portfolio as well. But again, remain confident on the ability to achieve what we've said and overall maintain the higher end of our guidance.

Octavio Marquez
Octavio Marquez
President & CEO at Diebold Nixdorf

Matt. And just to add to Tom's point because this is one of the things that I've committed to all our customers, we will be the best service organization. We will continue improving using technology, incorporating AI into the way we serve our customers. So we're very focused on that, and that is something that that's what I think of our three year journey are the investments that will clearly elevate our capabilities around service and really distinguish Diebold Nextdoor in the market.

Matt Summerville
MD & Senior Research Analyst at D.A. Davidson

Thank you. As a follow-up, can you maybe expand a little bit on that $50,000,000 sort of OpEx target you're looking at in terms of annual savings? Tom, maybe where you and Octavia were seeing the greatest sort of magnitude of of kind of opportunity going forward? And are you executing towards that type of number for 2025 as well? I wanna be clear on that.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

Yes. We'll have more to share with you. We're working towards those plans and developing those plans. We think we've got opportunities in shared services. We think we've got opportunities in our manufacturing and operations kind of across the board as we continue to roll out lean.

Thomas Timko
Thomas Timko
EVP & CFO at Diebold Nixdorf

It's been it's really been embraced by the company. And we expect, given the number of Kaizens that you saw on the slide, continue to roll that and see it as well. And then in the functions, whether it's our back office, insured services and whatnot, we think that we have opportunities begin executing to that. So I would ask for a little bit more time to more fully develop those plans and give you an idea, but we would expect a favorable impact to the current year.

Matt Summerville
MD & Senior Research Analyst at D.A. Davidson

Understood. Thanks, guys. Yes.

Operator

And it seems that we have no further questions. I will now turn the call back over to Maynard Ohm for closing remarks.

Maynard Um
Maynard Um
VP - IR at Diebold Nixdorf

Okay. Thanks, everyone, for participating in today's call and your interest in Diebold Nixdorf. If you have any follow-up questions, please feel free to reach out to the Investor Relations team. Thanks again, and have a great day.

Operator

This concludes the meeting. You may now disconnect your lines.

Executives
Analysts
    • Matt Summerville
      MD & Senior Research Analyst at D.A. Davidson
    • Antoine Legault
      Senior Equity Research Associate at Wedbush Securities
    • Justin Ages
      Director - Equity Research at CJS Securities
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