Good day, and welcome to the Diebold Nixdorf Hosted Third Quarter 2019 Earnings Call.At this time, I would like to turn the conference over to Mr. Steve Virostek. Please go ahead, sir.

Thank you, Britney, and welcome everyone to Diebold Nixdorf's third quarter earnings call for 2019. Joining me today are Gerrard Schmid, President and Chief Executive Officer; and Jeff Rutherford, our Chief Financial Officer.During our prepared remarks, we will be referencing slides which can be accessed on the Investor Relations page of dieboldnixdorf.com. Later this afternoon, an audio replay of today's webcast will also be posted to the IR Web site.Slide two of our presentation today, contains a reminder that a number of our comments pertain to non-GAAP financial information, which we believe is helpful in assessing the company's performance. In the supplemental schedules slides, we have provided schedules which reconcile each non-GAAP metric to its most directly comparable GAAP metric.On slide three, we inform all participants that certain comments may be characterized as forward-looking statements and that there are a number of factors that could cause actual results to differ materially from these statements. You may find additional information on these risk factors in the company's SEC filings. Also, please keep in mind that forward-looking information is current as of today, and subsequent events may render this information out of date.And with that, I will hand the call back to Gerrard.

Thank you, Steve. Good morning, and thanks to everyone for joining our call. When we laid out our DN Now transformation changes at the beginning of 2019, our efforts were focused primarily on sustainable improvements in cash flow and operating profits, while enabling a greater focus on our customer's end solutions. This quarter and on a year-to-date basis, I am very encouraged by the year-over-year improvements we have delivered to both gross margins and cash flow as key measures of our progress. As you can see on slide three, we are driving sustainable improvements to operational efficiency, while evolving our solution set and strengthening our financial position by executing our DN Now plans.As a critical business partner to banks around the world and the largest European retailers, our connected commerce solutions enable millions of daily transactions spanning more than 100 countries. Our industry leadership and geographic breadth has many benefits, and it also exposes the company to changes in the macroeconomic landscape. For example, this year we faced numerous revenue foreign exchange headwinds as the U.S. dollar has strengthened against other foreign currencies. On a year-to-date basis, currency fluctuations have effectively reduced the company's revenue by approximately $130 million, or just over 4% versus the prior year.We are also observing early signs of weakening customer confidence in future economic activity in some markets, most notably in Europe. That being said, we are confident in the competitiveness of our solutions, whether it be through our newly launched DN Series, our AllConnect Data Engine enabled services offering, our retail self-checkout solutions, dynamic software, or our managed services capabilities.On slide four, I'll speak to third quarter highlights. Starting with orders, in our Retail segment we experienced solid growth for self-checkout and kiosk solutions, including a new contract for self-service kiosks integration and monitoring…

Thank you, Gerrard, and good morning, everyone. Our third quarter results demonstrate that Diebold Nixdorf is strengthening its financial position by improving our operating efficiencies, generating positive cash flow and reducing our debt leverage ratio.Slide nine contains the revenue comparison for three segments and business lines, both as reported and on a constant currency basis, excluding the impact of our portfolio shaping actions, total revenue of $1.08 billion was essentially unchanged year-over-year after factoring in the effects of foreign currency and our portfolio shaping activities.The foreign currency headwind was approximately 300 basis points during the quarter or about $26 million versus the prior year, primarily due to the U.S. dollar strengthening against the Euro and to a lesser extent, against the Brazilian Real and the British Pound. Our portfolio shaping actions accounted for another percentage point or about $13 million of year-on-year variance. Using the same lens for the segments, DN delivered revenue growth of approximately 6% from the Americas, while Eurasia Banking declined 2% and retail declined 6%.Looking at revenue trends within our three business lines, software and products revenue increased 3% primarily due to growth in the Americas. The 2% decline in services revenue is largely attributable to lower installation activity in Europe and maintenance in the United States.Moving to slide 10, I'll discuss the financial highlights for all three segments. Starting with Eurasia Banking, revenue decreased 2% after adjusting for currency and our portfolio shaping actions to $400 million during the third quarter. Lower installation activity in Europe impacted services revenue, although product revenue increased primarily due to customers in EMEA. Software revenue was relatively flat year-over-year. Non-GAAP operating profit decreased modestly from $44 million last year to $42 million in the third quarter as benefits of our DN Now initiatives were masked by the items Gerrard…

Thank you. [Operator Instructions] Our first question comes from Ishfaque Faruk with Sidoti & Company.

Hi, good morning, Jeff and Gerrard. My first question is could you give us a sense for how the pilots for the DN Series ATMs has been so far, and it looks like it's going pretty well, you guys are undergoing certification in 150 banks?

Good morning, Ishfaque. Yes, we've been, as I said in my remarks, we've been very, very pleased with customer receptivity to our DN Series. We have them installed in production in a number of banks. And in the 150 banks that we made reference to in our prepared remarks, they're going through the normal certification process that's required before one can actually move them into production. So I'd say at this stage we've been extremely pleased with the demand for these machines. I will obviously remind everyone that the certification process for reach given bank can take a period of nine to 12 months, so there's still a period ahead of us before you'll start to see large numbers in production, but the early indicators are extremely positive.

Okay, and may be one more for Jeff. Jeff, you said that you expect slightly lower modest decline in revenue next year. Is that something to do with the length of the certification process or like some of the FX headwinds you guys mentioned earlier?

It's not due to certification. It's more to the expected FX headwinds, and the activities in the markets that Gerrard spoke to earlier on the call.

All right, that's it for me.

And so, specifically it's both FX as well as some softening of demand in retail that we're seeing in Europe given some economic contraction in that market.

Thank you.

Our next question comes from Kartik Mehta with Northcoast Research.

Jeff and Gerrard -- Gerrard, you talked a little bit and so did you, Jeff, about some weakening in Europe. And I'm wondering is that already having an impact on your orders on the ATM side or is it still strictly retail related? And are you just anticipating that to continue now into 2020 if it hasn't impacted ATM demand yet?

Kartik, to date it's been primarily on the retail front, and we -- depending on what happens economic you would probably expect that to continue through 2020. On the banking side, the only thing we noticed was a handful of deals extend from this quarter into future quarters. It's not yet clear that those are necessarily tied to changes in economic conditions, but we obviously are mindful that that may unfold. But to date we haven't seen any impact there.

And then I think in the slide presentation you talked about Latin America slowing a little bit. And I'm wondering is that -- any specific countries, is that Brazil since that's the largest market for you or other countries in Latin America that are maybe being impacted?

Yes, Kartik, I don't believe we actually said that Latin America was slowing, where there had been some tough comps in certain countries, but we continue to see very active activity across Latin America.

And then just finally, Jeff, you gave some indications on 2020. Obviously you're anticipating a revenue decline year-over-year. Maybe what percentage of the decline do you think if FX related and maybe what is -- what you're anticipating from business conditions? And then, I think Jeff you said of the DN Now savings a portion of it would be offset because of higher SG&A costs than others, so just a little bit more color on those two would be great. Thank you.

Yes, I think we've covered down on, and just, Kartik, just to be clear, your question is about 2020, right. So we're not giving guidance yet on 2020, but what we're talking about is we expect FX headwinds in 2020, and we expect that retail will be weakening in Europe in 2020. As far as the DN Now initiative, we said we expect them to be $100 million, but we're going to still experience some level of inflation when we get to 2020 that'll offset that. And we're also looking at what investments we're going to need to make that may have P&L effect but have long-term growth, and we're not ready at this point in time to release that.

Thank you, Jeff, I appreciate it.

But certainly our expectation is that from expansion in gross margin and reduction in expenses. And we're at the forefront of some major changes in SG&A expenses that are coming through. We expect EBITDA to be up year-over-year, but we haven't given guidance on it yet.

Okay, thanks, Jeff. I just -- you had given some commentary so I was just trying to understand it a little better.

Yes.

Our next question comes from Matt Summerville with D.A. Davidson.

-- and want to be clear on the anticipated debt pay down. So, at the midpoint of your free cash range, $85 million, you're saying half of that will be used to reduce debt in addition to what sounded like $19 million in net proceeds from Kony that also went to reducing debt. Are my numbers correct there, please?

Yes, that's correct.

Okay. And then maybe Gerrard, could you please compare and contrast kind of the readiness of U.S. FIs this cycle as it pertains to kind of the Windows 10 side of things versus maybe the prior cycle. Just trying to get a feel for sort of how much is left in the tank. And then I also have a follow-up related to the DN Series. Are you seeing customers delay purchases of current generation terminals in favor of opting for the next gen DN Series?

Good morning, Matt. So as related to the U.S. market, I think I'll break it into two different tranches. We continue to see very good order activity from the regional banks, and we continue to anticipate that that will extend well through 2020. When I take a look at the large U.S. banks, a number of those are starting to taper off their Win 10 upgrade cycles through the backend of 2019, so don't necessarily anticipate that much buying activity from them as we look into 2020, beyond their normal refresh activity. So I'd break it into the tale of two different stories.As relates to the DN Series, no we haven't seen any evidence of any material nature of banks delaying current buying patterns. Now and again there's one-offs here and there, but when you look at the overall portfolio we still have a good mix of banks buying our existing fleet of machines plus those starting to run certification processes with the DN Series.

And then maybe just as a follow-up, Jeff, with respect to kind of the going forward flow-through as it relates to the $400 million in gross savings, is there a number you would maybe triangulate us on as we think about that for 2020 and 2021, kind of the go-forward flow through in that regard?

Yes, so again, we're not providing guidance for 2020 and '21, but it's going to be similar to what we saw in '19. We're going to have $100 million in -- we already said $100 million expected in 2020, but it's going to be offset by inflation and other investments. So the net dollars will probably be less than '19, but it'll be the same type of ratio.

And then, Jeff, you're also basically saying we should see further improvement in free cash in 2020. Would you care to maybe speculate kind of where you would target your net leverage ratio coming out of next year? Are we comfortable saying it should be sub four times, maybe approaching three-and-a-half?

No, we're not going to give guidance on that today. What I would say is though on cash flow, you have to remember, for '20 is -- and I already said that we're expecting an increase in EBITDA. We're not going to have the same level of opportunity in working capital that we had this year. And you're going to see a little bit of that affect in the fourth quarter. We've done such a good job of harvesting working capital starting in the fourth quarter of last year that it's going to become a very difficult comparable for us starting already in the fourth quarter. In fact fourth quarter would be -- fourth quarter of '19 will be hit the hardest because we had such as good collection period last year. And now it's spread over time, our processes are continuing, it's just not a one-time event.And that goes to what I said earlier about congratulating all of the company. This is a company after relative cash flow. But so we are not expecting as high a harvest of working capital. We're still going to have some restructuring payments. We're moving in to the heavy portion of the finance transformation, so I'm not going to get into too much depth on that because it does affect people, but it's going to be -- we're going to spend some money in the fourth quarter and the first two quarters of next year. So, we have an expectation for free cash flow, but we're not going to provide guidance today.

Got it. Thank you, guys.

Our next question comes from Justin Bergner with G. Research.

Good morning, Gerrard. Good morning, Jeff.

Morning, Justin.

A couple of questions here, on the reduced revenue guide for 2019, how much of that $100 million relates to FX and portfolio shaping actions versus core markets. And then looking into 2020, I just wanted to confirm that the portfolio shaping actions are an incremental $100 million headwind versus whatever you're experiencing in 2019?

Yes. And portfolio shaping, it's approximately just a little under $30 million affect on revenue, and it's going to be the same number for FX, so approximately $60 million of the effect will be for the fourth quarter.

Okay, great. And that 2020, it's a further $100 million year-on-year reduction in revenue from portfolio shaping actions versus this year?

Yes. Yes, so it'll be spread throughout the year, but $100 million reduction off of where we're going to end '19.

Okay, that's helpful. Secondly, moving to free cash flow, there was a benefit on cash taxes and other in your guide that I guess was $10 million and $20 million respectively. Are those one-time benefits? Are those benefits going to persist as we look into 2020, because I know you've sort of commented in the past about some sort of lingering free cash flow headwinds from taxes and other?

Yes, yes, and Gerrard is smiling at me because he knows that I'd love to have questions about taxes, right. I can go on forever and bore you guys to death, but here's the deal, there are some one-time deals in '19. We had a refund, and we've had some payments on some other prior periods, but it's going to net out that we're going to be last, we're going to be $10 million favorable than what we thought coming into 2019.Going forward, we're -- the way we're structured is, and this is going to be more than you want to know, we're structured as we're manufacturing in Germany and the United States, they are also our tax principles. They are selling all the products to the distribution subsidiaries, and our problem from a structure perspective is that all of our capital costs are in the principles and we're making too much money into distribution subsidiaries. So, we have to balance that out. When we balance that out, right, our cash taxes will go down. So, we are still anticipating a favorable movement in cash taxes as we move into 2020.

Okay, I'll follow-up more on these issues offline, because this seems little complicated, but lastly, sort of big picture, if you might be able to comment a little bit more on sort of the week European service revenue performance or your ratio of service revenue performance in the quarter, I mean, it was weaker installation against better product revenue, and I guess on the Eurasia side, any benefit from sort of Win-10 tailwinds sort of coming overseas, as you look into 2020?

Yes, Justin, in the quarter in Eurasia, we saw lower total implementation services activity, which is usually project-based activity wrapped around various service activities. We just lost a bit in the quarter. I wouldn't read too much into that.In terms of Win-10, I know that in prior quarters, we had started to comment on some early signs of we might have been seeing in some markets, that appears to be somewhat more muted this quarter, and our suspicion is that in light of the evolving economic outlook for Europe that we may see that spread out rather than have the same sustained momentum we saw come out Americas. So, I'd say we continue to have a watching view on that topic.

Great, thanks for taking my questions.

Welcome.

[Operator Instructions] Our next question comes from Rob Jost with Invesco.

Hi, thanks, I just have a couple. I wanted to go back to the services, and on slide, I want to take slide seven, your renewal rates take a step down in the third quarter, and this is on a trailing 12-month basis. So, talk please about what's happening with that 200 basis points reduction there, because that looks like there's sort of contract loss or project-based, any commentary would be helpful?

Yes, that really ties Rob to a modest reduction in units in the Americas specifically related to one contract. Once again these are very, very high renewal rates, and we're not seeing any structural change in our ability to retain our business, but in the quarter, there was one Americas contract that accounted for most of that reduction.

Thanks. Okay, and then in SG&A, I know you called out a few kind of unusual one-time type expenses, I'm just wondering about the glide path here, you're targeting kind of 13.5% in 2021, are you thinking about it as a kind of 100 basis points reduction going into 2020, and then another 100 basis points into 2021, or -- I'm just trying to figure out the glide path here.

It's not going to be linear, right, because it's going to be the some stepped movements and some of the things we're doing and…

Okay.

What we're looking at is, you know, understanding what I said before about, I'll give you some insight on some of the things we're looking at. When you look at the business, we are -- with Germany and U.S. being principles, you have a full level service requirements there, and when you get to distribution subsidiaries, it can be SG&A, and particularly G&A can be handled more on a regional basis, and those are the types of things we're looking at. That will not be linear. It's going to be stepped. So, we will provide some additional insight into that when we provide guidance, but we are committed to the $100 million of targeted reductions, but some of that's going to be cost of goods sold also in 2020.

Okay, thanks.

Our next question comes from Justin Bergner with G. Research.

Oh, thanks for taking my follow-ups. In light of the Kony sale, which I guess I wasn't aware that assets are on your books, are there other similar stockholdings or assets in your portfolio that can be monetized of sort of that equity-holding nature?

Justin, it's very few assets similar to our equity investment in Kony. There are other actions underway related to certain historical joint ventures, where we would be looking to move from a majority position to a much lower position, which certainly will have some positive benefits, but straight up equity transactions similar to Kony, those are relatively limited for us.With that being said, as you would have heard from Jeff, when he talked about the impact of $100 million of revenue declines in 2022 due to divestitures obviously, when you do the math, you know, that would suggest that we have a number that we expect to close in the not-too-distant future, and obviously once we do, we will provide an update on those.

Okay, great. Were there any meaningful proceeds from asset sales or portfolio shaping in the current quarter, are you speaking more about perspective, additional disposals or exits that would relate to that kind of [ph] of revenue?

Yes, other than Kony, we haven't had anything material in the last 90 days.

Okay, thank you.

Great, well, I want to thank everyone for joining our call today, and I appreciate your time, and if you have follow-up questions, please give us a call here at Investor Relations. Have a great day.

Thank you everyone. This concludes today's teleconference. You may now disconnect.