Q1 2024 Diebold Nixdorf Inc Earnings Call
Ladies and gentlemen, thank you for stopping by welcome to the first quarter 2020 full default Nixdorf earnings call. All lines have been placed on mute during the presentation portion of the call with an opportunity for a question and answer.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the first quarter of 2024 Diebold Nixdorf earnings call. All lines are placed on mute during the presentation portion of the call, with an opportunity for question and answer at the end. If you'd like to ask a question, please press start, followed by 1 on your telephone keypad. I would now like to hand this conference call over to our host, Christopher Sikora. Please go ahead.
If you'd like to ask a question. Please press star followed by Bob on your telephone keypad I would now like to hand. This conference call I bought two alright, Christopher Socorro. Please go ahead.
Christopher Sikora: Hello, everyone and welcome to our first quarter 2024 earnings call to accompany our prepared remarks.
Christopher Sikora: Hello, everyone, and welcome to our first quarter 2024 earnings call. To accompany our prepared remarks, we have posted our slide presentation in the investor relations section of our website. Before we start, I will 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 this call, but they are subject to risks that could cause actual results to differ materially from these statements.
Christopher Sikora: Posted our slide presentation to the Investor Relations section of our website.
Christopher Sikora: You can find additional information on these factors in the company's periodic and annual filings with the SEC. However, participants should be mindful that subsequent events may render this information out of date. We will also be discussing certain non-GAAP financial measures on 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 Octavio.
Speaker Change: Before we start I want to remind all participants that you will hear forward looking statements during this call.
Christopher Sikora: These statements reflect the expectations and beliefs of our management team at the time of this call, but they are subject to risks that could cause actual results to differ materially from these statements.
Christopher Sikora: You can find additional information on these factors in the company's periodic and annual filings with the SEC. The participants shouldn't be mindful that subsequent events may render this information to be out of Jacobs.
Christopher Sikora: We will also be discussing certain non-GAAP financial measures on 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.
Christopher Sikora: With that I'll turn the call over to Octavio.
Octavio Marquez: Thank you, Chris. And thank you all for joining us today. Before we start the call, I just wanted to say thank you to Jim for his leadership at DFO as we undertook major actions to fortify our balance sheet and improve our financial condition. Jim has played a vital role in strengthening our company, and we're extremely grateful for all his efforts. I look forward to working with Jim in his new role.
Octavio: Thank you, Chris and thank you all for joining us today.
Octavio: Before we start the call I just wanted to say thank you to Jim for his leadership as CFO.
Octavio: Undertook major actions to fortify our balance sheet and improve our financial condition.
Octavio: Jim has played a vital role in strengthening our company and we're extremely grateful for all of his efforts.
Octavio: Look forward to working with Jim and his new role.
Speaker Change: We're also looking forward to welcoming Tom Timko, our new CFO.
Octavio Marquez: We're also looking forward to welcoming Tom Timko as our new CFO, who officially starts on May 17. Tom's years of experience at GE and GM, along with his deep background across key financial disciplines, will help us build off the foundation we have in place and further strengthen our financial and operational. Now to begin, on Slide 4. We are off to a solid start in 2024, with good progress across our operational and financial priorities for the year, and the strength of our first quarter position as well as achieving our full year expectations as we build upon this quarter.
Octavio: Officially starts on May 17.
Octavio: Past years of experience at GE, and GM, along with his deep background across key financial discipline.
Octavio: Will help us build off the foundation, we have in place and burgers strengthened our financial and operational.
Octavio: Now to begin on.
Octavio: On slide four.
Octavio: We are off to a solid start in 2024.
Octavio: With good progress across our operational and financial priorities for the year.
Octavio: The strength of our first quarter position us well to achieve our full year expectations as we build upon this quarter.
Octavio: First we continue winning in the market.
Octavio Marquez: First, we continue winning in the market with our leading self-service and automation technology. Product backlog remained at 1.1 billion at the end of the first quarter, which is consistent with our backlog levels at the end of 2020. We are encouraged by the demand environment, which remains stable and is supporting our product backlog. Well, we have also accelerated product revenue growth over the last several quarters. Additionally, we are gaining traction in the market with our managed services options. During the quarter, we closed a five-year managed service agreement with the top five banks in Western Europe.
Octavio: With our leading self service and automation technology.
Octavio: Product backlog remained at $1 1 billion at the end of the first quarter, which is consistent with our backlog levels at the end of 2023.
Octavio: We are encouraged by the demand environment, which remains stable and the supporting our product backlog.
Octavio: While we have also accelerated rated.
Octavio: Revenue growth over the last several quarters.
Octavio: Additionally, we are gaining traction in the market with our managed services offering.
Octavio: During the quarter, we closed a five year managed services agreement with a top five bank in Western Europe.
Octavio Marquez: We continue to believe that banks and retailers adopting an outsourced service model represents the next wave of service growth. Our value proposition of improving operational efficiency and reducing the total cost of operating ATMs and checkout devices is resonating well with customers. Next, we remain focused on driving innovation and reducing complexity for customers. For example, our recently introduced retail smart mission solution automates self-checkout of age-restricted items for Edeka Yeager at the Seaguard Airport. Leveraging artificial intelligence and computer vision technology speeds up transactions considerably and gives employees more time to service customers.
Octavio: We continue to believe that banks and retailers adopting an outsourced service model represents the next wave of service growth.
Octavio: Our value proposition up improving operational efficiency and reducing the total cost of operating Atms and checkout devices is resonating well with customers.
Octavio: Next we remain focused on driving innovation and reducing complexity for customers.
Octavio: Our recently introduced retail smart vision solution automate self checkout, each restricted items for ethical yeager at the airport.
Octavio: Leveraging artificial intelligence and computer vision technology.
Octavio: Sections considerably and give them more time to serve customers.
Octavio Marquez: Also, we are running multiple live pilots with global retailers leveraging our technology to address shrink-related issues during the checkout. We anticipate that, over time, our approach to addressing shrink at checkout can be applied to the entire retail store.
Octavio: Also we are running multiple life pilots with global E Tailers, leveraging our technology to address shrink related issues through the checkout.
Octavio: We anticipate that over time, our approach to addressing shrink at checkout can be applied to the entire retail store ecosystem.
Octavio: On the banking side, we continue innovating and winning with DN series Recyclers.
Octavio Marquez: On the banking side, we continue innovating and winning with DN Series Recycle. We have recently launched a standalone Weatherized DN Series recycler unit in North America that allows banks to continue redefining the branch footprint. High capacity no recycle, specifically developed for the multiple heavy cash usage markets across the globe is helping us win new customers. In addition, we simplified our software portfolio, making it easier to deploy and update across multiple hardware environments, which is expanding our multi-vendor opportunities.
Octavio: We have recently launched a standalone Weatherized DN series Recyclers unit in North America that allows banks to continue redefining the branch footprint.
Octavio: Our high capacity note recycler.
Octavio: Specifically developed for the multiple heavy cash usage markets across the globe. It is helping us win new customers.
Octavio: In addition, we simplified our software portfolio.
Octavio: If you are to deploy an update across multiple hardware environment, which is expanding our multi vendor opportunity.
Octavio: In terms of financial performance, we had another quarter of strong results as our team continued to improve our operational execution.
Octavio Marquez: In terms of financial performance, we had another quarter of strong results as our team continued to improve operational execution, higher revenue, and our focus on gross margin expansion, which combined with the benefit of strong operating expense management is following through to the bottom. The result is year-over-year profitability growth and better free cash flow performance. Cash and Capital Discipline are the focus there. The first quarter represents a positive step in better linearizing our historical seasonal cash generation.
Octavio: Higher revenue and our focus on gross margin expansion.
Octavio: Bind with the benefit of strong operating expense management is following through to the bottom line.
Octavio: The result is year over year profitability growth and better free cash flow performance.
Octavio: Cash and capital discipline as a focus there.
Octavio: So first quarter represents a positive step and better linearity of our historical seasonal cash generation.
Octavio Marquez: Across our operations, we are focused on working capital and asset efficiency to drive higher free cash. We included additional information on this topic in our earnings presentation. Disclosure that trade net working capital of $379 million is 10% of trailing 12-month revenue, representing the second straight quarter of Leverage, and I am proud of our team as we keep building operating momentum and stay focused on delivering for our customers. Moving to slide five.
Octavio: Across our operations, we are focused on working capital and asset efficiency to drive higher free cash flow.
Octavio: We included additional information on the topic in our earnings presentation.
Octavio: Disclosing that trade net working capital of $379 million at 10% of trailing 12 month revenue.
Octavio: Representing the second straight quarter of leverage improve.
Speaker Change: I am proud of our team as we keep building operating momentum and stay focused on delivering for our customers.
Octavio: Moving to slide five.
Octavio Marquez: We introduce the DN Continuous Improvement Flywheel Last Word to help us better articulate our longer-term objectives. We are pleased to see progress in the quarter as we embark on our continued improvement journey. It starts with the people who make Diebold Nixdorf a great company.
Octavio: We introduced the <unk> continuous improvement flywheel last quarter, who help us better articulate our longer term objectives.
Octavio: We are pleased to see progress in the quarter as we embarked on our continuous improvement journey.
Octavio: It starts with the people.
Octavio: <unk> Nixdorf, a great company.
Octavio Marquez: We are investing in our people so we can continue to create leading-edge products and deliver world-class service. We successfully onboarded Frank Bauer, Executive Vice President of Operational Excellence, earlier in the quarter. We are currently filling roles with experienced lead practitioners in supply chain and service that will accelerate the flywheel of continuous improvement in operations. We are strengthening our leadership bench with a clear focus on employee development. We expect our team to deliver profitable revenue growth and gross margin expansion.
Octavio: We are investing in our people. So we can continue to create leading edge product and deliver world class service.
Octavio: We successfully on boarded Frank Bauer Executive Vice President of operational excellence earlier in the quarter.
Octavio: We are currently filling roles with experienced lean practitioners in supply chain and service that will accelerate the flywheel of continuous improvement and operational execution.
Octavio: We are strengthening our leadership bench with a clear focus on employee development.
Octavio: We expect our team to deliver profitable revenue growth and gross margin expansion.
Octavio Marquez: In the first quarter, innovation and commercial execution led to revenue growth. Improved year-over-year operating profit was driven by gross margin expansion and operating expenses. We are in the early stages of implementing the tools of continuous improvement and lean operations. I am encouraged by the developments we have seen so far, most notably in manufacturing. Our team in Northampton has already identified ways to decrease ATM production time by approximately 15%.
Octavio: In the first quarter innovation and commercial execution led to revenue growth.
Octavio: Improved year over year operating profit was driven by gross margin expansion and operating expense discipline.
Octavio: We are in the early stages of implementing the tools of continuous improvement and lean operations.
Octavio: I am encouraged by the developments, we have seen so far.
Octavio: Notably in manufacturing.
Octavio: Our team in North Canton has already identified ways to decrease ATM production time by approximately 15%.
Octavio Marquez: This example is just the beginning of what I think is possible across our global footprint, as our teams embrace this mindset and identify future projects. Finally, we are executing on levers to improve free cash flow conversion; we see the opportunity to meaningfully improve over the next 12 to 24 months by driving higher profitability and margin expansion. Stronger Working Capital and Asset Efficiency. Lower restructuring with a strong focus on return and lowering our debt cost. These are just a few indicators that we're on the right track and making progress on our continuous improvement journey. Turning to slide six.
Octavio: This example is just the beginning of what I think it's possible across our global footprint.
Octavio: Teams embraced this mindset and identify future project.
Octavio: Finally, we are executing on levers to improve free cash flow conversion.
Octavio: We see the opportunity to meaningfully improve over the next 12 to 24 months by driving higher profitability the margin expansion.
Octavio: Stronger working capital and asset efficiency.
Octavio: Lower restructuring.
Octavio: With a strong focus on return and <unk>.
Octavio: Lowering our debt cost.
Octavio: These are just a few indicators that we are on the right track and making progress on our continuous improvement journey.
Octavio: Turning to slide six.
Octavio Marquez: I would like to highlight recent performance trends in our region, in North America. We continue to see strong adoption of cash recycling technology. Additionally, we are seeing improved service performance, which is benefiting from our investments in internal resources and processing. As our internal resources are getting more productive, we're moving away from the higher-cost third parties used to supplement our work.
Octavio: I would like to highlight recent performance strengthened our region.
Octavio: In North America, we continued to see strong adoption of cash recycling technology.
Octavio: Additionally, we are seeing improved service performance, which is benefiting from our investments in internal resources and process improvement.
Octavio: That's our internal resources are getting more productive we're moving away from the higher.
Octavio: Third parties used to supplement our workforce.
Octavio Marquez: This is resulting in higher quality service for our customers, as well as better service profitability. In Latin America, we are driving strong revenue growth across both product and service. Cash usage remains strong in the region, supporting demand for DM series cash dispensers and recyclers. Service growth is driven by a large installed base with strong recurring contract revenue. In Europe, the banking market remains stable with steady activity across product and service.
Octavio: This is resulting in higher quality service for our customers as well as better service profitability.
Octavio: In Latin America, we are driving strong revenue growth across both product and service.
Octavio: Cash usage remains strong in the region supporting demand for our DN series cash dispensers and recyclers.
Octavio: Service growth is driven by our large installed base with strong recurring contract revenue stream.
Octavio: In Europe.
Octavio: Banking market remained stable with steady activity across product and service.
Octavio Marquez: On the retail side, we continue to grow our installed base of self-checkout units under service contracts. Over the past two years, we have basically doubled our self-checkout unit shipments annually as European retailers moved quickly to adopt the solution, and the vast majority of our shipments represented new placements in the market. As we move into 2024, we expect to continue increasing our self-checkout install base with more potential growth coming from North America, Asia Pacific, the Middle East, and Africa.
Octavio: On the retail side, we continue to grow our installed base of self checkout units under service contract.
Octavio: For the past two years.
Octavio: <unk> basically doubled our self checkout units shipments annually.
Octavio: Retailers moved quickly to adopt the solution.
Octavio: The vast majority of our shipments represented new placements in the market.
Octavio: As we move into 2024.
Octavio: We expect to continue increasing our self checkout installed base with more potential growth coming from North America.
Octavio: In Asia Pacific Middle East and Africa.
Octavio: Stronger cash recycling transport developing across the region.
Octavio Marquez: Stronger cash recycling trends are developing across the region. We had higher unit shipments in APAC for both cash dispensers and cash recyclers in the first quarter. Also, we shipped an additional 1,500 cash units, leveraging our India contract manufacturing facility. We are seeing solid activity levels across all our regions, and we benefit from our diversified global vision. With that, I will hand the call over to Jim to go into more details on our quarterly repo.
Octavio: We had higher unit shipments in APAC were both cash dispensers and cash recyclers in the first quarter.
Octavio: Also we shipped an additional 1500 cash unit, leveraging our India contract manufacturing facility.
Octavio: We are seeing solid activity levels across all our regions and we benefit from our diversified global business.
Octavio: With that I will hand, the call over to Jim to go into more details on our quarterly results.
Jim: Thank you Octavio starting on slide seven with an overview of our non-GAAP results.
James A. Barna: Thank you, Octavio. I will start on slide seven with an overview of our non-GAAP results. The first quarter represents a solid start to the year as we work on linearizing our quarter, revenue of 897 million increased 5.1%, and gross margin expanded 290 basis points year over year, primarily due to strong product results. Also included in our product results is a $10 million benefit from a Brazil tax recovery. Normalizing for this item, gross margin expanded 210 basis points year over year. The First Profit Improvement was primarily driven by benefits from our supply chain logistics initiatives combined with price distribution. We are also seeing incremental benefits from the recent investments in our service infrastructure.
Jim: First quarter represents a solid start to the year as we work on linear rising our quarters.
Jim: Revenue of $897 million increased five 1% and gross margin expanded 290 basis points year over year, primarily due to strong product performance.
Jim: Included in our product results is a $10 million benefit from a Brazil tax recovery.
Jim: Normalizing for this item, our gross margin expanded 210 basis points year over year.
Jim: Gross profit improvement was primarily driven by benefits from our supply chain logistics initiatives combined with price discipline.
Jim: We're also seeing incremental benefits from the recent investments in our service infrastructure.
James A. Barna: Operating expense was down 1.9% compared to the prior year period as we improve our operational efficiency. Adjusted EBITDA of 103 million is up 62% compared to the prior year, and adjusted EBITDA margin expanded 400 basis points to 11.5%. Looking at free cash flow, the first quarter was a use of $36 million, which was favorable by $65 million year over year, driven by higher EBITDA and better working capital efficiency. On an unlevered basis, free cash flow was slightly positive in the first quarter, which is a meaningful achievement given our historical seasonality. Turning to slide 8.
Jim: Operating expense was down one 9% compared to the prior year period, as we improve our operational efficiency.
Jim: Adjusted EBITDA of 103 million is up 62% compared to the prior year and adjusted EBITDA margin expanded 400 basis points to 11, 5%.
Jim: Looking at free cash flow first quarter was a use of $36 million, which was favorable by $65 million year over year.
Jim: And by higher EBITDA and better working capital efficiency.
Jim: On an unlevered basis free cash flow was slightly positive in the first quarter, which is a meaningful achievement given our historical seasonality.
Jim: Turning to slide eight.
James A. Barna: Banking revenue of $649 million was up approximately 9% versus the prior year period, driven by product revenue growth of almost 24%. Favorable product and geographic mix primarily drove the year over year improvement in product revenue; service revenue was up approximately 1% versus the prior year. Banking gross profit increased by $40 million year over year to $181 million. Gross margin was 27.8% in the quarter, which is up 410 basis points year over year.
Jim: Banking revenue of $649 million was up approximately 9% versus the prior year period, driven by product revenue growth of almost 24%.
Jim: Favorable product and geographic mix, primarily drove the year over year improvement in product revenue.
Jim: Service revenue was up approximately 1% versus the prior.
Jim: Banking gross profit increased by $40 million year over year to $181 billion.
Jim: Gross margin was 27, 8% in the quarter, which is up 410 basis points year over year.
James A. Barna: Significant product gross margin expansion was due to greater input cost control and the continuation of price increase realization. It also includes the benefit of the $10 million Brazil tax recovery item I mentioned earlier; normalizing for this item, banking gross margin expanded 300 basis points a year over. One last item to note for banks. Service gross margin was up 190 basis points compared to 4Q23. This has been a focus area for the company, and we expect to see continued improvement going forward. Moving to slide nine.
Jim: Significant product gross margin expansion was the greater input cost control and the continuation of the price increase realization.
Jim: It also includes the benefit of the $10 million, Brazil tax recovery item I mentioned earlier.
Jim: Normalizing for this item our banking gross margin expanded 300 basis points year over year.
Jim: One last item to note from bank.
Jim: Service gross margin was up 190 basis points compared to <unk> 23.
Jim: This has been a focus area for the company and we expect to see continued improvement going forward.
Jim: Moving to slide nine.
James A. Barna: Retail revenue of $248 million was down approximately four and a half percent versus the prior year, as strong service activity was more than offset by our decision to selectively exit lower margin third-party hardware sales. Both self-checkout and electronic point-of-sale revenue was down low single digits compared to the prior year period. Gross margin of 26.2% in the quarter is relatively flat compared to the prior year. However, gross margin is up approximately 30 basis points year over year excluding a one-time non-recurring benefit in the first quarter of 2020.
Jim: Retail revenue of $248 million was down approximately four 5% versus the prior year as strong service activity was more than offset by our decision to selectively exit lower margin third party hardware sales.
Jim: Both self checkout and electronic point of sale revenue was down low single digits compared to the prior year period.
Jim: Gross margin of 26, 2% in the quarter is relatively flat compared to the prior year.
Jim: However, gross margin is up approximately 30 basis points year over year, excluding a onetime nonrecurring benefit in the first quarter of 2023.
James A. Barna: sequentially, first quarter gross margin is up 60 basis points driven mainly by product mix and lower product input costs. As you can see from the five-quarter trend, there was some lumpiness in the retail business, but overall, we are encouraged by the good growth in the service business and the improving product profitability. On slide 10, last quarter, we introduced this information to present a more complete view of the changes in our cash position and highlight our efforts to better linearize the quarter.
Jim: Sequentially first quarter gross margin is up 60 basis points, driven mainly by product mix and lower product input costs.
Jim: As you can see from the five quarter trend there was some lumpiness to the retail business, but overall, we are encouraged with the good growth in the service business and the improving product profitability.
Jim: On slide 10 last quarter, we introduced this information and present, a more complete view of the changes in our cash position and highlight our efforts to better linearized some quarters in.
James A. Barna: In the past, we had substantial quarterly volatility in our free cash flow that resulted in significant cash use through the first three quarters of the year before generating free cash flow in the fourth quarter. Now, the company is in a better position to manage free cash flow more efficiently for improved commercial and operating rigor. You can see evidence of our progress in the first quarter, with free cash flow improving $65 million compared to the prior year period.
In the past, we had substantial quarterly volatility in our free cash flow that resulted in significant cash usage through the first three quarters of the year before generating free cash flow in the fourth quarter.
James A. Barna: Now the company is in a better position to manage free cash flow more efficiently where improved commercial and operating rigor.
Jim: You can see evidence of our progress in the first quarter with free cash flow improving $65 million compared to the prior year period.
James A. Barna: And the first quarter cash and short-term investments were $407 million, which included the impact of our $200 million debt paydown in February. Net leverage remained at 1.6 times, which is consistent with year-end 2020. Now, I will turn the call back to Octavio.
Jim: And the first quarter cash and short term investments were $407 million, which includes the impact of our $200 million debt Paydown in February.
Jim: Net leverage remained at one six times, which is consistent with year end 2023.
Jim: Now I will turn the call back to Octavio.
Octavio: Thank you Jim.
Octavio Marquez: On slide 11, we are reiterating our previously communicated 2024 Performance Outlook. Given the strength of our first quarter results and improved operating momentum, we are well positioned to deliver on our full year expectations. We expect to profitably grow revenue, and adjusted EBITDA is expected to be in the range of 410 to 435 million. Looking at the adjusted EBITDA quarterly cadence for the year, we now expect the first half of the year to be approximately 45 to 50 percent of full year adjusted EBITDA. This update reflects a stronger initial improvement from our efforts to linearize the year more.
Octavio: On slide 11, we are reiterating our previously communicated 2024 performance outlook.
Octavio Marquez: Given the strength of our first quarter results and improved operating momentum we have.
Octavio Marquez: We're well positioned to deliver on our full year expectation.
Octavio Marquez: We expect to profitably grow revenue and adjusted EBITDA is expected to be in the range of 410 to 435 million.
Octavio Marquez: Looking at the adjusted EBITDA quarterly cadence for the year. We now expect the first half of the year to be approximately 45% to 50% of full year adjusted EBITDA.
Octavio Marquez: This update reflects the stronger initial improvement from our efforts to linearize the year more.
Octavio Marquez: We are targeting free cash flow conversion of greater than 25% of adjusted EBITDA in 2024.
Octavio Marquez: We are targeting free cash flow conversion of greater than 25% of adjusted EBITDA in 2024. Additionally, looking beyond 2024, we are working to deliver free cash flow conversion of greater than 50% of adjusted EBITDA. We expect to achieve greater conversion by driving higher profitability through revenue growth and margin expansion, continued working capital efficiency, consistent capital expenditure outlay, lower restructuring with a strong focus on return, and lowering our debt cost. To wrap things up, on slide 12, we have lots to be excited about at Diebold Nixdorf.
Octavio Marquez: Additionally, looking beyond 2024, we are working to deliver free cash flow conversion of greater than 60% of adjusted EBITDA.
Octavio Marquez: We expect to achieve greater conversion by driving.
Octavio Marquez: Higher profitability through revenue growth and margin expansion.
Octavio Marquez: <unk> working capital efficiency.
Octavio Marquez: Assistant capital expenditure outlays, lower restructuring with a strong focus on return and lowering our debt cost.
Octavio Marquez: To wrap things up.
Octavio Marquez: On slide 12.
Octavio Marquez: We have lots to be excited about at Diebold nixdorf.
Octavio Marquez: Moving into 2024.
Octavio Marquez: Moving into 2024, there is no doubt we are now a stronger company, a more focused company, and have established our operating momentum throughout the last three quarters. We believe there are highly attractive and potentially underappreciated aspects of Diebold Nixdorf's value creation story that make for a compelling investment thesis at current trading levels, built around four components. Our product backlog of approximately 1.1 billion provides good coverage for product revenue for the remainder of the year. [inaudible] Additionally, approximately 70% of our total higher-margin service revenue is recurring, which provides additional stability and predictability to our top line performance.
Octavio Marquez: No doubt we are now a stronger company a more focused company and have established our operating momentum throughout the last three quarters.
Octavio Marquez: We believe there are highly attractive and potentially under appreciated aspect of diebold nixdorf value creation story that make for a compelling investment thesis at current trading levels.
Octavio Marquez: Second, we are accelerating gross margin expansion with our continuous improvement program and maintaining operating expenses. We know the company and the opportunity. And as we implement these tools and actions, we will improve our overall profitability. Third, as we outlined on the call today, we have a number of levers available to us to meaningfully improve cash flow generation. The path is clear, the teams are aligned, and now we must capture these benefits. And fourth, we are in the early stages of developing a value-creating capital allocation strategy that will benefit all our stakeholders.
Octavio Marquez: Built around four components.
Octavio Marquez: First we have strong visibility into our business with solid banking and retail and.
Octavio Marquez: Our product backlog of approximately $1 1 billion provide good coverage for product revenue for the remainder of the year.
Octavio Marquez: Also.
Octavio Marquez: Approximately 70% of our total higher margin service revenue is recurring.
Octavio Marquez: Which provides additional stability and predictability to our topline performance.
Octavio Marquez: Second we are accelerating gross margin expansion with our continuous improvement program and maintaining operating expenses.
Octavio Marquez: We know the company has the opportunity to reach.
Octavio Marquez: And as we implement these tools and actions we will improve our overall profitability.
Octavio Marquez: Third as we outlined on the call today, we have a number of levers available to us to meaningfully improve cash flow generation.
Octavio Marquez: Pass it is clear the teams are aligned and now we must capture these benefits.
Octavio Marquez: And before we are in the early stages of developing a value creating capital allocation strategies that will benefit all our stakeholders.
Octavio Marquez: As free cash flow conversion continues to improve, we will invest in the business and unlock additional value for our stock. This is the next stage of our value creation story. I look forward to sharing more details with you as we solidify our future capital allocation priorities with the board. And with that, Operator, please open the call to questions.
Octavio Marquez: At free cash flow conversion continues to improve.
Octavio Marquez: We'll invest in the business and unlock additional value for our stockholders.
Octavio Marquez: This is the next stage of our value creation story.
Octavio Marquez: I look forward to sharing more details with you as we solidify our future capital allocation priorities with the board.
Octavio Marquez: And with that operator, please open the call for questions.
Speaker Change: Thank you if you would like to register a question. Please press star followed by one on your telephone keypad, ensuring your line is on mute locally.
Operator: Thank you. If you would like to register a question, please press star followed by one on your telephone keypad, ensuring that your line is unmuted locally. If you'd like to withdraw your question at any time, you can do so by pressing start followed by two. The first question comes from the line of Matt Summerville of DA Davidson. Your line is now open, please go ahead.
Operator: If you'd like to withdraw your question at any time you can do some quick question stop on it too.
Operator: This last question comes from the line of Matt Summerville of D. A Davidson. Your line is now open. Please go ahead.
Operator: Thanks.
Matt J. Summerville: Thanks. A couple of questions. Can you maybe delve a little bit deeper into some of the specific actions you've taken to drive better linearity across the business and also touch on why we should view that as sustainable?
Matt J. Summerville: Couple of questions can you, maybe delve a little bit deeper into some of those specific actions you've taken to drive better linearity across the business and also touch on why we should view that as sustainable.
Matt J. Summerville: Sure Matt Thank you.
Octavio Marquez: Sure, Matt. Thank you. This is Octavio.
Matt J. Summerville: Value so.
Octavio Marquez: So, if you recall, I've been talking about linearizing our business for multiple quarters now. So, I would say the most important step that we've taken is how do we manufacture and deliver to customers more efficiently, and how do we align better to their installation schedules? This actually helps us both in manufacturing and service as we can more accurately predict the needs of customers and our own capital needs to deliver to them. But I will tell you that this is still a work in progress.
Matt J. Summerville: So if you recall I've been talking about linear I think our business for multiple quarters now.
Octavio Marquez: So.
Octavio Marquez: I would say the most important step that we've taken is how do we manufacture and deliver to customers more efficiently and how do we align better to their installation schedules. This actually helps us both in manufacturing and service as we can.
Octavio Marquez: More accurately predict the meat.
Octavio Marquez: Of customers, our own capital needs to deliver to them. So I will tell you that this.
Octavio Marquez: This is still work in progress we are very pleased with our results. In Q1. We are now working on how do we keep linear I think the middle half of the year.
Octavio Marquez: We are very pleased with the results in Q1. We are now working on how we keep linearizing the middle half of the year. As you know, Q4 will always be the largest quarter as just the trends in the business. But, you know, Q1 was bigger than Q1 of the previous year as a percentage. In the middle quarters, we're expecting to see that continuous improvement in linearizing, and then that will de-risk significantly our Q4 as we deliver, as we will have a smaller Q4 as we deliver more linear quarters.
Octavio Marquez: Q4 will always be the largest quarter as just the trends in the business, but Q1 was bigger than Q1 of prior year as a percentage the middle quarters, we're expecting to see that continues.
Octavio Marquez: Improvement in linear I think and then that de risked significantly our Q4 as we deliver this we will have a smaller Q4 as we deliver more linear quarter. So every quarter you should expect to see improvement.
Octavio Marquez: So, every quarter you should expect to see improvement, but that's kind of our feeling about it. And we do feel that with this continuous improvement and all the actions that we're taking, these actions will be sustainable for the future.
Octavio Marquez: But that's kind of we're feeling about it and we do feel that with this continuous improvement and all the actions that we're taking these actions will be sustainable.
Octavio Marquez: For the future.
Octavio Marquez: And then.
Octavio Marquez: And then, excuse me, there's a follow-up. Can you touch on sort of the sustainability of product gross margins, setting the $10 million benefit from Brazil aside? And similarly, I want to talk about service in the context of, historically speaking, Q1 would sort of serve as the low or kind of jumping-off point for service gross margin, to build throughout the year into a bigger fourth quarter. Is that still the case in terms of how we should be thinking about how service margins ramp throughout the year?
Octavio Marquez: Use me as a follow up.
Octavio Marquez: Can you touch on sort of the sustainability in product gross margins setting the $10 million benefit from Brazil aside.
Octavio Marquez: Similarly, I want to talk about service in the context of historically speaking Q1 would sort of serve as below or kind of jumping off point for service gross margins to build throughout the year into a bigger fourth quarter is that still the case in terms of how we should be thinking about.
Octavio Marquez: Our service margins ramp throughout the year.
Octavio Marquez: So let me start with with product.
Octavio Marquez: So let me start with product, Matt. We are convinced that our margins are sustainable. Clearly, there might be small variations with orders based on volume and mix, but we think that the actions that we've taken around our supply chain and around pricing discipline keep our margins at this level. So I do believe that this is a sustainable level.
Octavio Marquez: So we are convinced that our margins are sustainable clearly there might be small variations.
Octavio Marquez: Orders based on and on.
Octavio Marquez: Volume and mix, but we think that the actions that we've taken around our supply chain and our own pricing discipline.
Octavio Marquez: Well.
Octavio Marquez: Keep our margins at this level. So I do believe that this is the sustainable level.
Octavio Marquez: More importantly.
Octavio Marquez: One of the changes that we're making in the company. If there is no program, where one action that we are embarking on to deliver on a particular quarter. We're focused on this continuous improvement journey that we're in so as we deliver on margins one quarter, but the team is already working on what can we do to do better next quarter. So I would say that this is the mentality.
Octavio Marquez: More importantly, you know; one of the changes that we're making in the company is that there's no program or one action that we're embarking on to deliver in a particular quarter. We're focused on this continuous improvement journey that we're on. So as we deliver on margins one quarter, the team is already working on what we can do to do better next quarter. So I would say that this is the mentality that we're working on.
Octavio Marquez: <unk> that we're working on we know that there will always be headwinds and opportunities, but the teams are focused on continuously improving the results that they're delivering.
Octavio Marquez: We know that there'll always be headwinds and opportunities, but the teams are focused on continuously improving the results that they're delivering on the service side. We've made significant investments in improving the quality of our service, and I'm very pleased with the results that we have. You know, speaking to our North America customers, they all recognize the significant changes that we've made and how that is helping them better manage their ATM fleet. So I'm very pleased with that.
Octavio Marquez: On the service side.
Octavio Marquez: We've made significant investments in improving quality and our service and I am very pleased in the results that we have speaking towards North America customers. They all recognize the significant changes that we've made and how that is helping them better manage their ATM fleet. So I am very pleased with that we made significant progress in.
Octavio Marquez: We made significant progress in Q1 as compared to Q4, and our goal is to continue making progress throughout the year. So you should expect us to continue improving margins every quarter of the year as we move forward in our service operation.
Octavio Marquez: Q1 as compared to Q4.
Octavio Marquez: And our goal is to continue making progress.
Octavio Marquez: The year. So you should expect us to continue improving margins every quarter of the year as we move forward in our service operations.
Octavio Marquez: And then.
James A. Barna: And then just last, I'll sneak in one more. Jim, could you kind of give us the EBITDA to free cash flow sort of walk through as you guys see it for the year in kind of a similar fashion to what you provided on slide 10 for Q1. If you can just kind of fill in the blanks a little bit in terms of how we get to, you know, the 105 midpoint from what is 420 million dollar midpoint on EBITDA.
Speaker Change: Last I'll sneak in one more Jim if you could can you kind of.
James A. Barna: Give us the EBITDA to free cash flow sort of walk through as you guys see it for the year and kind of a similar fashion to what you provided on slide 10 for Q1. If you can just kind of fill in the blanks a little bit in terms of how we get to the 105 midpoint from.
James A. Barna: What is it a $4 million to $120 million midpoint on EBITDA.
Jim: Yes, Thanks, Matt.
James A. Barna: Yeah, thanks, Matt. I would say that that largely is in line with what we talked about when we came out with guidance for the year, save for, and I think you can see what drove the first quarter favorability against the prior year, are just all the benefits that we're starting to see from more efficient working capital management. So I'd say all the other points and bridging items that we gave at that point in time remain intact, particularly around things like taxes and restructuring efforts and those things where we're starting to see maybe a little bit more benefit through the operations and more diligent and efficient working capital management.
Jim: I would say that that largely.
Jim: As in line with we had talked about when we came out with guidance for.
James A. Barna: For the year saved four and I think you can see what drove.
James A. Barna: What drove the first quarter.
James A. Barna: <unk> ability against the prior year or just all of that.
James A. Barna: The benefits that we're starting to see from more efficient working capital management.
James A. Barna: I'd say all of the other points.
James A. Barna: In bridging items that we gave at that point in time remain intact, particularly around things like taxes.
James A. Barna: Restructuring efforts in those things, where we're starting to see maybe a little bit more benefit.
James A. Barna: Is through the operations and more intelligent and efficient working capital management, we saw with inventory here in the first quarter.
James A. Barna: We saw with inventory here in the first quarter, and we expect to continue to see that through the balance of the year that efficiency, and you can see from, you know, receivable metrics that, you know, there's a little bit of opportunity there for us to go get. So, yeah, that's really the key variable there are working capital benefits coming through.
James A. Barna: And we expect to continue to see that through the.
James A. Barna: Through the balance of the year that that efficiency and you can see from receivable metrics that there is a little bit of opportunity there for us to go get so.
James A. Barna: Yeah. That's that's really the key variable there is working capital benefits coming through.
Speaker Change: Got it I'll get back in queue. Thanks.
Matt J. Summerville: Got it. I'll get back to you. Thanks.
James A. Barna: Thank you. The next question comes from the line of Matt <unk>.
Matthew Stevens Bryson: Thank you. The next question comes from the line of Matt Bryson of Wedbush Securities. Your line is now open, please go ahead.
Speaker Change: <unk> <unk> of Wedbush Securities. Your line is now open. Please go ahead.
Matthew Stevens Bryson: Hi, Thanks for taking my questions. This morning, congrats on the strong results and the progress in moving towards a.
Matthew Stevens Bryson: Hi, thanks for taking my questions this morning. Congratulations on the strong results and the progress in moving towards that more linear shipment profile that you've been targeting. I know quarters can fluctuate a bit, but I thought it was particularly impressive that you managed to hold backlog steady despite the better sales numbers. Octavio, I think you characterized the environment as stable, but again, this is better than I would have thought given the better sales numbers.
Matthew Stevens Bryson: More linear shipment profile.
Matthew Stevens Bryson: <unk> been targeting.
Matthew Stevens Bryson: I know of course can fluctuate a bit but I thought it was particularly impressive that you've managed to hold backlog steady despite the better sales number.
Matthew Stevens Bryson: I will tell you I think you would characterize the environment.
Matthew Stevens Bryson: Stable, but again this is better than I would've thought given the better sales number.
Matthew Stevens Bryson: Was there anything unusual going on in terms of large contracts that you added, or have you seen any improvement in customer activity that would explain why you're seeing better sales but also, again, not working through the backlog anymore?
Octavio Marquez: Was there anything unusual going on in terms of like large contracts that you added.
Matthew Stevens Bryson: Or have you seen any improvement in customer activity.
Matthew Stevens Bryson: That would explain kind of why you are seeing better sales, but also.
Matthew Stevens Bryson: Again working through backlog anymore.
Octavio Marquez: So, thanks, Matt.
Speaker Change: So thanks, Matt.
Octavio Marquez: Again, I think that when I walked you through the different regions, you can see that there's still, you know, strength in the North American market as recycling continues to take hold. Latin America has always been a strong market for us. And in Europe, I think, you know, even though our retail revenue fell a little bit short, you know, this quarter from the prior year, it was a conscious decision that we made to exit certain unprofitable third-party sales that didn't really contribute much to us.
Octavio Marquez: Again, I think that when I walked you through the different regions. As you can see that there is still strength in the North American market is recycling continues to take hold Latin America has always been a strong market for us.
Octavio Marquez: And then Europe I think I'm.
Octavio Marquez: Even though our retail revenue fell a little bit short this quarter from the prior year.
Octavio Marquez: So the conscious decision that we made on exiting certain unprofitable third party sales that we didn't really contribute much to us.
Octavio Marquez: But.
Octavio Marquez: I would as I said I characterize demand is stable, we continue winning and I think that this is a trend that the teams are very focused on.
Octavio Marquez: But I would, as I said, characterize demand as stable; we continue to win. And I think that this is a trend that the teams are very focused on. We've built a strong base with recyclers. We have good technology that customers want to adopt. And on the retail side, we're now very focused on the past two years. We've grown significantly in Europe. We've made our first inroads into the U.S. market, and this year is the year where we're really focused on how do we accelerate our expansion into the U.S. So I would tell you that those are the kind of key drivers. But, particularly, it's a strong focus of our teams to keep winning in the market and serving our customers.
Octavio Marquez: We built a strong base with recyclers, we have good technology that customers want to adopt and on the retail side. We're now very focused on over the past two years, we've grown significantly in Europe. We've made our first inroads into the U S market and this is the year, where we're really focused on how do we accelerate our expansion into the U S. So I would.
Octavio Marquez: <unk> tell you that those sort of the.
Octavio Marquez: The key drivers, but particularly it's a strong focus of our teams to keep winning in the market and serving our customers.
Octavio Marquez: Awesome.
Matthew Stevens Bryson: The gross margin improvement in the quarter was nice to see, and I know you talked about the ability to continue to improve that metric. At the same time, you're keeping your EBITDA and free cash flow guidance unchanged. Were the improvements that you're seeing or think that you can manage already envisioned when you provided your initial guidance, or can we assume that if you execute in terms of getting gross margin higher, we'll see upside, assuming all else is unchanged?
Octavio Marquez: Gross margin improvement in the quarter was nice to see.
Octavio Marquez: I know you talked about the ability to continue to improve that metric.
Matthew Stevens Bryson: At the same time, you're keeping your EBITDA and free cash flow guidance.
Matthew Stevens Bryson: Unchanged.
Matthew Stevens Bryson: The improvements that youre seeing or think that you can.
Matthew Stevens Bryson: Manage already envisioned when you provided your initial guide or can we assume that if you execute.
Matthew Stevens Bryson: Of getting gross margin higher.
Matthew Stevens Bryson: We will see upside assuming all else is unchanged.
Speaker Change: Yes, Matt so so clearly we had built some of these things into our planning I would say, particularly we're seeing faster return on some of the actions that we took particularly on the product side, we do see component pricing working favorably pricing taking hold.
Octavio Marquez: Yes, Matt. So, clearly, we had built some of these things into our planning. I would say, particularly we're seeing faster return on some of the actions that we took, particularly on the product side. We do see component pricing, working favorably pricing taking hold across our enterprise with all our sales teams. So some of those benefits that we were hoping would be more Q2, Q3, we're realizing before, we need to maintain those improvements throughout the year.
Octavio Marquez: Across our enterprise with all our sales teams. So some of those benefits that we were hoping would be more Q2 Q3, we're realizing before.
Octavio Marquez: And we're confident that we can do that. Before we change anything, we want to make sure that we provide, you know, consistent operational execution over the coming quarters. We still, you know, we still need to linearize more of the quarters. As I said at the beginning, we are off to a good start. Now we're working on a strong Q2, a strong Q3, and taking risk off the table as we keep linearizing things. But that is the spirit. And as we do that, yeah, clearly, we will have opportunities to keep improving throughout the year.
Octavio Marquez: We need to maintain those improvements throughout the year and we're confident that we can do that.
Octavio Marquez: Before we change anything we want to make sure that we provide consistent operational execution over the coming quarters, we still we still need to linearize more of the quarters as I said at the beginning we are off to a good start now we're working on a strong Q2, a strong Q3 and taking risk off the table.
Octavio Marquez: As we keep linear rights and things, but that is the that is the spirit and as we do that yes, clearly we will have opportunities to keep improving throughout the year.
Unknown Speaker: Unknown Speaker 0
Octavio Marquez: Yeah.
Matthew Stevens Bryson: Excellent. Thank you so much for your time. Thank you for answering my question.
Speaker Change: Excellent. Thank you so much for your time.
Unknown Speaker: And answering my questions.
Unknown Speaker:
Matthew Stevens Bryson: Yeah.
Matthew Stevens Bryson: We now have a follow up question from Matt Summerville of D. A Davidson.
Matt J. Summerville: We now have a follow-up question from Matt Somerville of BA Davidson.
Matt J. Summerville: Thanks, just two quick ones, maybe Octavio can you maybe describe.
Matt J. Summerville: Thanks, just two quick ones, maybe. Octavio, can you maybe describe the recycling adoption level you're seeing in North America? Is it still primarily relegated to the largest kind of tier one financial institutions? Are you starting to see that migrate down the market into the small bank, regional bank market? In addition, if you could maybe use a baseball analogy in English to describe where we're at with recycling adoption in North America and how that will likely play out this year and heading into 2025.
Matt J. Summerville: The recycling adoption level Youre seeing in North America is it still primarily relegated to the largest kind of tier one financial institutions are you starting to see that migrate down market into the small bag.
Matt J. Summerville: <unk> Bank market. In addition, if you could maybe use a baseball analogy inning wise to describe where we're at with recycling adoption in North America and how.
Matt J. Summerville: How that how that will likely play out this year and heading into 'twenty five.
Octavio Marquez: Yes, Matt So so again as you know.
Octavio Marquez: Yes, Matt. So, again, as you know, and you know, the large banks have started on that journey. But I would say that we're still in the early innings with those large banks; I know we've had significant wins in Q1, with large banks that are just starting down that journey. Remember, recycling provides better customer service and clearly a lot of operational efficiency. So, as these larger banks start adopting this, and remember, they need to change part of their software and different things that provide other opportunities for us. As these banks mature on that journey, I think it's still multiple years; there are large leaps to refresh, but clearly smaller financial institutions take note of that.
Matt J. Summerville: The large banks have started on that journey.
Octavio Marquez: But I would say that we're still in the early innings with those large bank, saying we've had significant wins in Q1 with large banks that are just starting down that journey remember recycling provides better customer service, but clearly a lot of operational efficiency.
Octavio Marquez: So as these larger banks start adopting this and remember they need to change part of their software and different things that provide other opportunities for us as these banks mature in that journey I think it's still multiple years theyre large fleets to refresh.
Octavio Marquez: Clearly smaller financial institutions take note of that and remember, particularly in the U S market. Many of these smaller financial institutions are connected to large national switches, which are all investing heavily in building beside can take the ability. So I would say that we're very early in the stages of adopting recycling. We're also seeing.
Octavio Marquez: And remember, particularly in the U.S. market, many of these smaller financial institutions are connected to large national switches, which are all investing heavily in building recycling capability. So I would say that, you know, we're very early in the stages of adopting recycling. We're also seeing recycling, not just at the ATM. Think of our recently launched Stellar Cash Recycler, which is starting to gain traction as part of the whole cash ecosystem that you have in a branch, which is a very important part. Recycling provides benefits, not just at the ATM but at the whole branch level.
Octavio Marquez: Recycling not just at the ATM think of our recently launched stellar cash recycler, which is starting to gain traction as part of the whole cash ecosystem that you have in a branch, which is a very important part recycling provides benefits not just at the ATM, but at the whole branch level. So I would say that we still have.
Octavio Marquez: So I would say that we still have a significant runway to go, but it's a process. You know, we need the switches to adjust to recycling. The big banks are doing it on their own. So we see this as the early stages of a process. We're probably still in the early innings of doing it.
Octavio Marquez: Significant runway to go but it's so it's a process we need the switches to adjust to recycling the big banks are doing it on their own. So we see this us up.
Octavio Marquez: Early stages of our process, we're probably still in the early innings of doing this.
Speaker Change: Got it and then as a follow up.
Octavio Marquez: Got it. And then as a follow-up, can you just put a finer point on the headwind we should expect in 2024 overall from some of that deliberate revenue exit that you guys undertook in the retail business? And can you maybe just put a little bit of a finer point on exactly how that relationship would have worked in the past, just a little bit more around exactly what you exited there?
Octavio Marquez: Can you just put a finer point on the headwind we should expect in 2024 overall from some of that deliberate.
Octavio Marquez: Revenue exit that you guys undertook in the retail business and can you maybe just put a little bit of a finer point on exactly how that relationship would have worked in the past just a little bit more around exactly what you exited there.
Speaker Change: Yes, so Matt.
Octavio Marquez: Yeah, so Matt, you know, once I think the important part is we're very focused on our, we still believe SCO is a great avenue of growth. You know, I have no doubt about that.
Octavio Marquez: I think the important part is we're very focused on are we still believe score with a great Avenue of growth I have no doubt of that retailers are facing.
Octavio Marquez: Retailers are, you know, facing some of the same challenges and want to continue investing in those technologies. And we are developing complementary solutions such as our shrink solution and our age verification solutions to make the solution even more robust. In the past, you know, as we look at the retail environment, we were selling third-party products into many of these, you know, large retailers. Think about electronic shelf labels that we would integrate, you know, handheld scanners, different products that were part of providing a service to a customer, but we were just basically being a reseller for somebody else.
Octavio Marquez: Facing some of the same challenges and want to continue investing in those technologies and we are developing the complementary solutions plus our shrink solution our age verification solutions to make the solution even more robust.
Octavio Marquez: In the.
Octavio Marquez: In the past.
Octavio Marquez: As we look at our retail environment, we were selling third party products into many of these large retailers think about electronic shelf labels that we would integrate.
Octavio Marquez: Handheld scanners different products that were part of providing a service to our customer, but we were just basically being a reseller for somebody else.
Octavio Marquez: Yep.
Octavio Marquez: So we, we've made the decision that it's better to utilize our cash in different, in different ways. I would say that This, while it may be a revenue headwind, you can be sure it will be a profitability increase for our retail business. So that's why we're focused on that. I think overall, the growth in SCO and electronic point of sale throughout the year will more than offset that decline in third-party sales. So we do see, you know, a stable retail business, but with a much better product.
Octavio Marquez: So we've made the decision that it's better to utilize our cash in different in different ways.
Octavio Marquez: I would say that.
Octavio Marquez: While it would be a revenue headwind.
Octavio Marquez: We'll be a profitability increase for our retail business. So that's why we're focused on that I think overall the growth in <unk> and electronic point of sale throughout the year, we will more than offset that that decline in those third party sales. So we do see a stable retail business, but with a much better product mix.
Speaker Change: Got it thank you.
Octavio Marquez: We now have a follow up question from Matt <unk> of Wedbush Securities. Your line is open. Please go ahead.
Matthew Stevens Bryson: We now have a follow-up question from Matt Bryson of Wedbush Securities. Your line is open, please go ahead.
Matthew Stevens Bryson: Hey, Thanks for taking the follow up.
Matthew Stevens Bryson: Hey, thanks for taking the follow up. So free cash flow with the solid operating profit and the Unknown Speaker, there doesn't seem to have been any headwinds from inventories or accounts receivable or working capital at all. So a lot of reasons why cash flow seems negative was that it was another category. Jimmy, mind just walking us through what exactly was that other category that led to free cash flow being negative?
Matthew Stevens Bryson: Free cash flow.
Matthew Stevens Bryson: With the solid operating profit.
Jimmy: And the.
Matthew Stevens Bryson: But.
Matthew Stevens Bryson: The.
Matthew Stevens Bryson: There doesn't seem to have been any headwinds from inventories are accounts receivable and working capital at all.
Jimmy: A lot of the reasons seems cash flow was negative was that was an other category.
Matthew Stevens Bryson: Jimmy mind, just walking us through what exactly was that.
Jimmy: That other category is.
Matthew Stevens Bryson: Free cash flow being negative.
Jimmy: Yeah, I would say, Matt thanks for the question.
James A. Barna: Yeah, I would say, Matt, thanks for the question. And again, I think we talked about this at your end, with respect to how we group cash flow items. And so I think the incremental disclosure that we've given in the deck breaks apart how we look at working capital. And so what portions of current liabilities and current assets are outside of what flows through those receivables, payables, inventory, and deferred revenue lines.
Jimmy: And again I think we talked about this at year end with respect to how we.
James A. Barna: How we group cash flow items, and so I think the incremental disclosure that we've given them a DAC.
James A. Barna: <unk> apart how we look at.
James A. Barna: Working capital.
James A. Barna: So what portions of current liabilities.
James A. Barna: And current assets are outside of what flows through those receivables payables inventory deferred revenue lines and so the biggest the biggest driver.
James A. Barna: And so the biggest driver of the other category here in the first quarter is timing on indirect tax payments. And so if we think about the fourth quarter, we typically have timing items to the positive in terms of sources. And then that flips around in the first quarter.
James A. Barna: The other category here in the first quarter.
James A. Barna: As timing on indirect.
James A. Barna: <unk> payments and so if we think about the fourth quarter.
James A. Barna: We typically have timing items to the to the positive in terms of sources and then that flips around.
James A. Barna: In the first quarter.
Unknown Executive: Unknown Executive, Christopher Sikora, James Barna, Unknown Executive, Christopher Sikora, James Barna, Matthew Bryson, Octavio Marquez, James
James A. Barna: Here, where the where the cash goes.
James A. Barna: So that's really the most significant item.
Unknown Executive: That and then the balance is made up of other movements on accruals.
Unknown Executive: And prepaid timing at the beginning of the year you can see that actually in the new table that we put into the deck.
Unknown Executive: Towards the back it's a supplemental schedule, Matt, but it should.
Unknown Executive: Be helpful. In bridging some of the incremental items outside of our inventory and deferred revenue that give rise to those movements. So the biggest item. There is indirect taxes I'll, let by other timing on accrual payments that get paid out of accounts that are not categorized within accounts payable.
Speaker Change: Got it it sounds like it's predominantly timing.
Matthew Stevens Bryson: Got a bit. It sounds like it's predominantly a timing, timing, timing item, as opposed to anything structural, and so net those are that if you were able to.
Unknown Executive: Items.
Unknown Executive: As opposed to anything structural.
Matthew Stevens Bryson: Hum.
Matthew Stevens Bryson: Net those are that if you were able to.
James A. Barna: That's right, Matt. That's right.
Speaker Change: That's right that's right.
Matthew Stevens Bryson: Okay.
Matthew Stevens Bryson: And then I guess just just one last question for me. I know that the.
Speaker Change: And then I guess just one last question for me.
James A. Barna: I know that the.
Unknown Speaker: Circumstances around the debt forced you guys to give us unit estimates. But it doesn't look like you're disclosing those anymore for ATM, self-checkout, and point-of-sale. Are we not going to see those at all, or will we see those in the filings? Or if we're not going to see them, can you give us, I don't know, some guidance around sequential or rough numbers or any help there at all?
Matthew Stevens Bryson: Circumstances around the debt for you guys to give us.
Unknown Speaker: Unit estimates.
Unknown Speaker: It doesn't look like Youre disclosing those anymore for ATM self checkout point of sale.
Unknown Speaker: Are we not.
Unknown Speaker: Not going to see those at all or will we see those in our filings.
Unknown Speaker: Or if we're not going to see them can you give us I don't know if some.
Unknown Speaker: Guidance around sequential or rough.
Unknown Speaker: Rough numbers or any help there at all.
Octavio Marquez: So, yes, Matt, I would tell you that we're moving away from units as we're more focused on, you know, price realization that we get and kind of volume mix across the different regions. But what I would tell you is we still see for ATM units and SO units, particularly in ATM. We're entering new markets, we're reentering the Indian market.
Speaker Change: Yes, Matt So I would tell you that we're moving away from units that were more focused on.
Octavio Marquez: Price realization that we get in kind of volume mix across the different regions.
Octavio Marquez: What I would tell you is we still see for ATM units.
Octavio Marquez: <unk> units, particularly in APM, we're entering new markets, we're reentering the Indian market. So we do expect to see growth in bulk and volumes across the across our geographies.
Octavio Marquez: So we do expect to see growth in volumes across our geography. But I would say that, you know, we will move away from that and be more focused on clearly the revenue mix and margin expansion of our products. That is, I think, a better metric for us to focus on. And, and again, as we linearize quarters, which is the most important thing to me, we will, you will see that Q2 will be better than Q1, and Q3 will be a little bit better.
Octavio Marquez: I would say that we will move away from that and be more focused on clearly the revenue mix and Martin and margin expansion of our products that is I think a better metric for us to focus on.
Octavio Marquez: And again as we've linearized quarters, which is the most important thing to me.
Octavio Marquez: We will you will see that Q.
Octavio Marquez: Q2 will be better than Q1, Q3 will be a little bit better and then Q4 will be a more manageable and not so dependent for our year will be sold so I say that.
Octavio Marquez: And then Q4 will be more manageable and not so dependent on our yearly results. So I'd say that's the important thing is that we still see growth in units, but we're linearizing that more across the year so that we don't have that big spike.
Octavio Marquez: The important thing is we still see growth in units, but where linear rights thing that more across across the year. So that we don't have that big spike in Q4.
Speaker Change: Thanks for the help.
Octavio Marquez: Thank you. This concludes our Q&A session I would like to hand, the conference call back over to Christopher <unk> for closing remarks.
Christopher Sikora: Thank you. As this concludes our Q&A session, I'd like to hand the conference call back over to Christopher Sikora for closing remarks.
Christopher Sikora: Thank you for participating in todays earnings call. Please feel free to reach out to me, Chris <unk> Investor Relations. If you have any questions or need additional information.
Operator: Thank you for participating in today's earnings call. Please feel free to reach out to me, Chris Sikora, and Investor Relations if you have any questions or need additional information. Thanks again, and have a good rest of the day.
Operator: Again have a good rest of the day.
Speaker Change: Ladies and gentlemen, thank you for joining today's call you may now disconnect your lines.
Ladies and gentlemen, thank you for joining today's call. You may now disconnect your line.
Operator: [music].