Q2 2025 Diebold Nixdorf Inc Earnings Call

Hello good day and welcome to diebold. Nick store second quarter 2025 earnings call. My name is djan and I'll be coordinating. Today's call following our speakers marks. There will be a question and answer session in order to ask a question. Please press star, followed by the number 1 on your telephone keypad. So with your questions simply press star 1 again, I would not like to turn the call over to our host mayor. Um, vice president of investor relations mayard, please go ahead.

Hello everyone, and Welcome to our second quarter 2025 earnings call to accompany our prepared remarks. WE Post our slide presentation to the investor relations section of our website,

Before we start, I'll remind all participants that you will hear forward-looking statements during this call.

These statements reflect the expectations and beliefs of our management team at the time of the call. But they are subject to risks that could cause actual results to differ materially from these statements, you can find additional information on these factors in the company's periodic and annual things with the SEC.

Participants should be mindful that subsequent events May render this information to be out of date.

We will also discuss certain non-gaap Financial measures up to today's call as noted on slide 3, a Reconciliation between gaap and non-gaap measures can be found in the supplemental schedules of the presentation.

With that, I'll turn the call over to Octavia.

Thank you mayor and good morning everyone. Thank you for joining us.

Before I get to my prepared remarks, I'd like to extend my sincere gratitude to Chris Sakura.

for his invaluable contributions during his time as head of investor relations,

Great has played a critical role throughout the years, wearing multiple hats at the end and his dedication and expertise Have Been instrumental to the company.

New son who had our business finance operations for retail.

Where his skills and experience will continue to be invaluable with the large retail opportunities. And growth, we see ahead of us

I'd also like to welcome Maynard as the new head of investor relations.

Maynard brings over 25 years of Wall, Street, and investor relations experience across multiple Industries. His deep knowledge and expertise will help build on the strong Foundation already in place.

We're excited to have him on board and look forward to strengthening the relationship with the investment community and communicating the company's value proposition.

Starting on slide 4.

Q2 was another standout quarter where we delivered strong performance in our key objectives. The midst of volatile global environment. Generated the third consecutive quarter of positive free cash flow and finished the first half with great momentum.

Giving us confidence in our ability to deliver strong operational performance in the back half of the year.

Product orders grew 10% year-over-year, reaching the highest level in 3 years.

Our backlog now stands at approximately 980 million.

This momentum combined with our robust, first task gives us conviction to reaffirm our full year outlook with the business trending towards the higher, end of our range for Revenue adjusted, Evita and free cash flow.

Our Solutions continue to see strong demand in the market and we remain focused on exceeding, the expectations of our Global customer base.

Gross margins expanded, 50 basis points year over year and 120 basis points. Sequential

driven by favorable product mix and our commitment to continuous Improvement, lean principle and pricing discipline.

Demand for advanced ATMs, with Cash, recycling and video color capabilities is accelerating across multiple markets.

Being 2. We achieve a historic Milestone positive free cash flow for the third consecutive quarter and first half of the year.

To maximize shareholder value during the quarter. We repurchased 30 million dollars of DN shares reflecting our priority of returning Capital to shareholders and our strong beliefs, in the long term value of our company.

Let's move on to slide 5.

We had a great second quarter.

That we're very proud of as my team and I share during our investor day, we have multiple ways to win across our markets and deliver for our shareholders.

Our 3 year growth plan, shared our February 2025, investor day is on track.

Here is our executive.

We're capitalizing on Market opportunities.

People mix our business leader in a 32 billion Banking and Retail automation Market that we serve our Innovative self-service Solutions continue to gain traction, and are well, positioned to capture growth in this, highly attractive markets.

We're driving disciplined growth and profitability in banking, we're accelerating Branch automation by introducing teller cash recycler technology and additional managed services.

We're capitalizing on the ATM reference cycle with tailored Solutions gaining momentum in fast growing markets.

And in retail, our AI driven checkout Solutions, solve real customer challenges.

Provide a high return on investment for customers and are a strong competitive diversity.

Our focus on lean operations is enhancing profitability.

Our first half free cash flow success sets, the stage for 800 million in cumulative. Free cash flow by 2027.

With 60% plus conversion and approximately 50% adjusted even the margins all while maintaining a fortress balance sheet.

Now, let's turn to Slide 6, where we will discuss the progress on our growth acceleration strategy.

in Q2 we made Solid progress advancing, our key priorities

In banking, we are seeing the benefits of Branch automation, Cash recycling, and our fit for purpose strategy.

We also, recently announced the rollout of state-of-the-art interactive teller machines with Kawaii International Bank.

Which are video capable, can instantly print, and activate debit cards, and facilitate high value, deposits, and withdrawals.

These Advanced recycling ATMs essentially serve as a branch in a box and customer acceptance has been great.

We also spoke about our new line of ATMs, rolling out in India. These are purpose-built to be Compact and very energy efficient to meet the needs of the market. We expect to see continued growth in this large market and are encouraged by our Pipeline and products with as this fuels growth in our install base and long-term higher margin service agreements.

in retail, AI continues to change the way our customers, think about their operations,

In q1, we announced wins with a larger European customers. And I am now pleased to share that we have our first Live customer in the US.

A mid-size grosser has rolled out the first 18 stores. Operating our Smart Vision product.

The feedback we've received has been tremendous.

Supporting our optimism that the increasing number of pilots and proof of Concepts were running will lead to long-term growth opportunities.

In fact, Dynamic Smart Vision shrink reduction age, verification and produce recognition technology was recognized by a leading. French retail industry publication LSA and 1 its tech for AI, business award.

It's 9 to see the solution winning, external accolades. It is further proof of the value and Innovation we're keenly focused on delivery.

On the product side, we launched retail manufacturing in Ohio to serve our North, American customers building upon our local to local manufacturing strategy.

I am extremely proud that through implementing lean principles. We were able to optimize our overall footprint and strengthen our us manufacturing capabilities.

In Services. My commitment to our customers is to make the end, the prime example of service quality and the most trusted service provider in the industry.

To strengthen our ability to deliver the outstanding service that we are committed to providing. We are consolidating our repair centers.

Further rolling out ignition software and adding field technicians to support our growing portfolio.

A clear example of this is the rollout of our upgraded field technician software in Canada, which produced improvements in response time call rates incident rates. So we're accelerating the initial deployment in the US.

World-class service is the top priority for the volt, next portion.

Additionally, in Q2 our centralized operations center. In Ohio, went live this Center, efficiently controls dispatching, training, and parts logistics, for our technician Network, in North America, where we will continue to invest to drive efficiency and growth.

We have seen positive early results with real-time monitoring of customer kpis driving improvements in client satisfaction.

We are delivering Innovation with our products and solutions that address real problems.

Driving efficiencies and creating lasting value in our markets for customers and shareholders.

Now, on to slide 7.

Continues Improvement is critical to Our Success.

Not only to drive margin Improvement, but also to ensure our teams are safer, more productive and the most efficient in the industry.

I recently visited our manufacturing facility in Paderborn, Germany, and I'll tell you that the team is incredibly motivated.

From just 1 year ago. We've been able to meaningfully reduce floor space and improve first time through and Manufacturing.

An important metric that reduces rework and enhances product quality.

I am very proud of the team for what they've been able to accomplish.

In Services. We're laser focused on not just consistently meeting, but exceeding, our service agreements.

Our lean principles are key to supporting the enhancements to our service. Leading to Greater productivity faster, repairs and fewer. Repeat calls.

Resulting in Greater efficiency, higher customer satisfaction and more business for us.

1 of the enablers to launching retail manufacturing in Ohio, where our lean principles

I am proud of how our us manufacturing team has embraced continuous Improvement and lean as a way of life.

Lastly I wanted to highlight our work in Poland where we're consolidating our European repair and service operations.

A new simplified delivery model developed with direct involvement of our install and Reaper technicians will help us improve efficiency.

As you can see from the photos, our teams are committed to continuous Improvement and enhancing our operations through lead principles.

Overall, the momentum we've generated in the first half gives us confidence 2025 will be another great year of progress for our company.

With that, I'll turn it over to Tom to walk through our financial results.

Thank you Octavio. Starting on slide 8.

Overall, we're very pleased with our second quarter and first half results.

Our execution gives us strong confidence in our full year outlook, which we currently see trending toward the higher end of our guidance ranges.

Product backlog. At the end of the second quarter, increase to approximately 980 million.

Up from approximately 900 million. At the end of the first quarter, um, strong new order entry.

Which was up 10% year-over-year led by banking.

As we shared previously, we expected Revenue to be weighted towards the second half giving customer project activity. And this is playing out just as we expected.

A Q2 FX was a Tailwind to revenue of 19 million. However, for the first half FX was a net headwind of a proximately 4 million.

First half Revenue came in at 46% of total years Revenue.

In line with our previous guidance of approximately 45%.

Gross margin continued to improve, up 50 basis points year-over-year and 120 basis points sequentially.

Product gross margins saw a significant Improvement. Both year-over-year of 250 basis points and sequentially of 230 basis points primarily driven by better Geographic. Mix pricing discipline and the ongoing impact from our lean initiatives.

Product growth margins remain on track for up to 50 basis points of improvement year-over-year.

On the services side, first margin improved 40 basis points sequentially and was down 80s points on a year-over-year basis.

We remain focused on driving sequential Improvement throughout the year as we continue to enhance the best service organization in the industry.

We also remain on track to execute for a run rate in service. Margins up, a 100 basis points versus prior years.

In the second quarter, operating expense was up sequentially. Primarily due to FX and stock compensation.

Excluding these impacts operating expense would have been comparable.

Earlier this year, we discussed plans to reduce our operating expenses by 50 million on an annual basis.

Going forward operating expense represents another opportunity for us to work to improve our cost profile and a 3 year. Strategic plan objectives.

We've been working on those plans and we will be taking the initial steps in the coming months and look forward to providing updates.

Continuing on slide 9, we look at our 5-year quarter Financial trends.

As we've said, in the past, we remain committed to strengthening our profitability and significantly improving our free cash flow Generation by nearly doubling year-over-year.

We delivered adjusted ibida.

Of 111 million in the second quarter.

Sequentially or adjusted even on margin grew 180 basis points.

Typically, our adjusted ebida builds throughout the year and we expect a continued ramp through the end of 2025.

To add some additional color. We expect the generate approximately 45% in Q3 and the remainder in Q4.

We also generated 13 million of free cash flow in Q2.

This is the third consecutive quarter of positive free cash flow and the first time in DNS history. A positive free cash flow in the first half of the Year historically, the first half has been a significant use of cash. So our ability to reverse the trend

And sustain positive cash flow is a testament to the discipline and hard work by the entire company.

To improve free cash flow conversion.

40% plus in 2025 which again nearly doubles our 2024 free cash flow generation.

Moving to slide 10.

Banking continued to deliver solid quarterly results behind favorable Geographic mix and discipline pricing.

Revenue was up 50 million sequentially. In order entry, was strong supporting our Revenue outlook for the year.

Gross margin was up, 140 basis points. Year-over-year and 180 basis points, sequentially led by product margin expansion. Driven by favorable product and geographical mix pricing discipline and our ongoing lean initiatives.

Going forward, we expect to continue driving solid ATM refresh activity and momentum in all geographies, and we are encouraged by the first orders of our Keller cash recyclers in our Branch Automation.

Strategy.

We're very pleased with how our strategies is playing out with strong Hardware growth, that will positively impact our service operations.

Turning to slide 11 in retail. We drove sequential growth in order entry revenue and backlog in Q2.

We are more optimistic than ever. That the second half will bring on a firm recovery in our retail business, and fuel sequential and year-over-year Improvement throughout the remainder of 2025.

Gross margin was down, sequentially, 70 basis points and year-over-year 1990 basis points with strong product, margins being offset by service margins.

In Q2 and we delivered higher volumes of point of sale terminals with lower margin related services.

As we look into the second half of the Year work, expecting a stronger contribution from self-checkout and more normalized gross margins. In the mid 20% range as retail total gross margin improves through the remainder of the year.

In the US, our AI enabled Smart Vision Solutions are gaining traction with increasing proof of Concepts and Pilots underway.

And the first live installations are now operating.

The long-term Outlook and Retail remains positive.

We are especially excited about our Dynamic Smart Vision capabilities and early positive signs in North America with a growing pipeline.

Moving ahead. Let's review our guidance on slide 12.

We see the business trending toward the higher end of our guidance across Revenue, adjusted evida and free cash flow.

Our strong start in the first half of the Year combined, with the current demand levels and our backlog, reinforces this Outlook.

We expect total company Revenue to continue building throughout the year with an approximate split of second half revenues at 45% in Q3 and the remainder in Q4.

On a constant currency basis, we expect to grow at least approximately 1%.

Under current conditions. We also expect FX to be a Tailwind of approximately 1% for the year.

Our multiple operational levers, whether it's gross, margin or Opex improvements have given us the ability to achieve the higher end of our adjusted. Ebit of guidance of 470 to 490 million

Despite the impact of tariffs.

For the second half of 2025, we expect to generate approximately 45% in Q3 and the remainder in Q4.

Q2 taking into account discrete, 1-time tax benefits. We were able to achieve an effective non-gaap tax rate of 33%.

As a result, we expect our non-gaap effective tax rate for the year to be in the 40% to 45% range.

We expect free cash flow to once again be positive in Q3 similar to Q2.

For the full year, we are trending toward the higher end of our expected, range of 190 to 210 million representing 40%, plus free cash flow conversion.

We are extremely confident in our ability to nearly double free cash flow based on lower interest expense adjusted ebit growth and significantly better working Capital Management.

Frustrating our commitment to doing what we say.

Turning to slide 13.

We remain committed to maintaining our Fortress balance sheet allowing us to support our Capital allocation strategy.

At the end of the quarter, we had approximately 620 million of liquidity.

balance between 310 million in cash and short-term Investments, and 310 million of capacity on our revolving credit facility, which remains untapped

Our net leverage ratio is 1.5 times.

What we believe is the strongest balance sheet in the industry.

We repurchased approximately 30 million or 637,000 shares in the second quarter?

This brings our total share repurchases to 38 million or 822,000 shares at an average price of 46.8.

Remember we started our buyback in March? So this buyback represents only 4 months of activity. We intend to continue executing on our remaining 62 million authorization.

Maintaining a strong balance sheet and our local to local manufacturing footprint. Our foundational elements for the new DN,

the way we have positioned our company allows us to best serve. Our Global Blue Chip customer base and quickly respond operationally to the dynamic global environment without undermining our ability to achieve our longer term Financial targets.

Lastly we've talked a lot about doing what we say or our say do ratio. I think it's fair to say that we've delivered again in the second quarter.

We're proud of our progress. While at the same time, focusing on operational execution and driving even better results over the long term with that. I'll turn it back to Octavio for some closing remarks.

Thank you, Tom.

To wrap things up on slide 14. We delivered yet another strong quarter with a Relentless focus, on our customers and improving operations.

Demonstrating the progress, we're making against our multi-year growth plan. We built the strong backlog that gives us visibility to the back half of the year.

in banking, we're gaining momentum with the growing customer pipeline for telecast recyclers, and tailored Solutions in fast, growing markets, while the refresh cycle continues to progress,

In retail, we expect to see continued sequential Improvement for the remainder of the Year, our pipeline continues to grow particularly in the North America Market.

We continue to make great strides in building more efficient operations, through a disciplined lean culture, and there's still much more to come.

And of course, we will continue to focus on maintaining a fortress balance sheet.

With a target of nearly doubling year-over-year, free cash flow generation and returning, Capital to shareholders.

In closing, I'd like to thank our loyal, customers Partners, employees, and shareholders, for their trust and support.

We've laid a strong foundation for long-term success, and I am optimistic about the opportunities ahead.

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

Thank you. We will now begin the question and answer session as a reminder, in order to ask a question, please press star, followed by the number 1 on your telephone keypad. If you would like to enjoy your questions, simply press star 1 again.

Our first question comes from the line of Matt Somerville with the Davidson. Please go ahead.

Thanks um morning. I was hoping maybe to start with retail expand a little bit on the fact that you have all this confidence regarding, you know, that business inflecting in the second half of the year. Can you speak to where that is being driven from a pause versus go standpoint? Is it? North America? Is it Europe?

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

It's led by banking, but we're seeing really positive signs of recovery, uh, in retail. And, you know, we remember in that, in that backlog since our Deutsche Post when, uh, which we would, we would expect to start converting into into product sales, um, you know, towards the end of this year or early next year, as well. So we remain confident, that over the next quarters, we'll be able to sequentially, uh, improve. Uh, both both Revenue operating profit and and margin as well.

Yep, probably just starting to to Tom's comment. Matt. Uh,

Remember we started the the year with big expectations for North America. We created a very focused strategy we understand where the opportunities lie in the market. We have a targeted pipeline we identified the 40 best accounts for us to targeted initially this year uh we've engaged with most of them. We have pilots in many of them again, these are some of the largest, you know, Growers general merchandise in companies in the US. Again, that's a comp, you know long complicated sales process where we're trying to 1 see you know, formidable incumbents but I am convinced that as we keep showcasing the capabilities of our products that our solutions that particularly I am very impressed with all the pilots that were dry or all the proof of Concepts and Pilots are were driving with our AI solution that gives me a lot of confidence as far as the sight of the pipeline. Probably, I'm not, I can't comment on how

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

Thank you. Um, maybe as a follow-up, it was mentioned several times in the prepared remarks. But can you talk a little bit about, uh, the the TCR the penetration rates as they sit today across, major geographies. And I guess, you know, where where you see Banks prioritizing Branch automation? Is it more at the ATM? Is it more at the teller counter? And I guess are you, are you seeing?

Verified sort of cross-sell opportunities between those 2 products, and maybe just again, I, I've asked this in the past using a baseball analogy, what any are we in with TCR adoption? What any are we in with, you know, recycling? Um,

The recycling lead replacement cycle. Thank you.

Thank you madam. Thank you for asking that because talking about ccrs is probably my favorite thing to do nowadays when I'm with customers in banking. So remember the TCR the hardware that we're deploying to take recycling into the terrain is part of our broader Branch automation strategy.

Uh, we will be launching officially this strategy or deploy, you know, kind of communicating more broadly in our intersect customer event, later this later this month. But what it, what it basically boils down to. When you think of the cash, ecosystem at a branch, it encompasses the ATM, the teller line, and the bulk. So through our services, through our hard work and through our software, we're now able to manage that Complete Cash ecosystem. So when I think of Branch Automation Services, it encompasses the ATM where we can do, you know, just sell you the hardware or manage it completely for you. Now, we will be able to help you manage the cash at the teller line. By, selling you the hardware with our recyclers, keeping tabs on where that cash is, whether it's a teller at the ATM, our products are interoperable. So we can change cash from 1 device to the other and provide, you a complete view on how you're operating the cash ecosystem, at the branch level, this resonates with banks tremendously as you know, cash app.

Operations is 1 of the biggest cost drivers in any in any retail, Branch retail Network. And this is really providing a strong Roi for customers. I would say that we're in the you know, for us, you know, we had our first significant order with a you know for teller cash recyclers.

first, more of these functions, I think that having the ATM, the branch and the bolt and being able to provide a holistic view, really changes the value proposition that we bring

So, so again, we're very early in that. I'm proud of the progress that we've made, and I'm also proud that these seller cash recyclers are being manufactured here in Northeast Ohio for the North American market.

Which is the 1 with the highest adoption rates right now for us. And again, we will see this, you know, continuing to expand as some of our large Banks deployed. We'll see a trickling down to others and then eventually expanding globally

As far as the recycler, where are we in the in the cycle? I would tell you once again, you know, it's always the analogy and I keep forgetting what ending we were last ordering. But you know, we're probably now in the port, you know, third or fourth inning with still a lot of Runway to go. And, and again, remember as we keep adding functionality to our product set, you know, we aren't creating new use cases. You, you heard me talk about some of the Middle East Winds where now, in 1 of our large recyclers, were able to print debit cards. We're able to, you know, incorporate video teller technology. So I think we're taking all these components and really creating a very strong value proposition for our banking customers.

Appreciate the color. Thank you.

Your next question comes from the line of Antoine. The go with red brush security is please. Go ahead.

Thanks for taking my question. Um, just okay. I'll you mentioned about the Indian market and it's clearly a very large addressable market and you mentioned that you know the ATMs you sell there are more Compact and energy. Efficient overall are you able to achieve a similar margin profile on these machines and and just can you speak more broadly to the the opportunity ahead in India?

Yeah, so so so Antron. You know, India is probably 1, you know, the largest ATM deployer market today or 1 1 of the largest ones. Uh, we built our strategy around local Manufacturing in India with a more compact. More energy, efficient product smaller footprint, because that's what the market needed. So that this new read assigned product, that meets all of our DN series quality standards, you know, does, you know, does allow us to compete and command, you know, similar margins to those that we have in the rest of of Asia Pacific? Remember the importance of this Mark Market is that it's as it is a very fast growing Hardware market and more and 1 where where we work particularly you know, strong since we had exited manufacturing there a couple of years ago you know by re-entering this allows us to once again, start growing our install base there. And the important part is, as we grow this install base, we have a very

Strong service annuity for the future. And I would say that the service annuity, you know, in the APAC markets is, you know, probably 1 of the strongest margins profiles that we have as many as these customers like to give the service of their ATMs to their OEM providers.

Understood, thank you. That's helpful, just 1 more follow-up, just want to confirm that you. You're looking for retail in product gross margin to lift in the second half as a scope picks up, you know, and expand a bit on that. I'd assumed growth efforts in retail, either Smart Vision or incremental software features or the push into North America should be, you know, margin accretive for your retail business. Like is this the right way to think about about things?

Yeah, what I would encourage you to think onto is, we will get better in margins in Q3 and Retail. We will get better in margins, in Q3, in Q4, in retail, and we will also see Revenue growth in Q3 and Q4. So, as Tom said, we're very optimistic about the growth in in, in retail and this is driven by what we're seeing, you know, a steady European market with us, you know, with slight recovery. And some large projects that we need to deliver there and you know, our continuous efforts in into growing in in North America.

Understood maybe last Quick 1 on the tariffs. Like, I know you mentioned maybe 5 to 10 million or 7 and a half million at the midpoint. Um, which is down significantly from your your initial, uh, assessment, which I think calls for about 20 million dollars of annualized. Um, costs related to tariffs is, is this mostly a result of the now lower tariffs on those jurisdictions, or is it also the impact of your, your mitigated mitigating initiatives is kind of, taking hold? Um, you know, now that we're about 4 months into into this,

1 of the high, you know, 1 of the impacts that we had left you know or that we were forecasting. Last quarter was importing the engine of our recyclers, the rm4 modules from Germany. We we would manufacture them in Germany and then distribute them to our multiple, you know, manufacturing facilities. Whether it was so high or manau, Brazil or India.

Since then, you know, we've localized, manufacturing of the rm4 engine to Northeast Ohio, thus avoiding the impact of the tariffs that, you know, that were imposed in the EU. So again, we are continuing to look at all these different Alternatives, the idea of expanding our manufacturing footprint here in Northeast Ohio, for retail products. You know, we started with the self, you know, self-ordering kiosks for for Quick Serve restaurants, expanding through self-checkout all these things. Help us really mitigate the impacts of the tariffs. So, you know, Tom do you want to talk a little bit about the rates and yeah, look you know what, our our assumptions are China. 55% everyone else, you know, at or around 15% for the remainder of the year, you know, we we we are very transparent in the first quarter came out and said, our, our gross impact could be up to 20, but we had a line of sight to mitigate 10. So think about you know that 10 in the first quarter, now going down to a range of 5 to 10. And we think that we have you know multiple ways to win here and continue to MIT.

Mitigate that even further which is why we're confident despite tariffs. We're still going to be able to execute towards the uh the high-end uh, of of our range.

Thank you. I'll pass the line.

Your next question comes from the line of Justin ages with CJs Securities. Please go ahead.

Morning, all.

Good morning.

Um you know uh positive to see, you know, the pilot program and uh the 1 customer on the uptake and Retail. Um, for the dynamic software, can you just give us a sense of, you know, the conversions of pilot programs or the lead time that that takes

Yes just the and again it it varies. Its to be honest depending on the size of retail, the complexity of what they're trying to deploy. You know we're we're encouraged that, you know, this is a midsize ger that you know

You know.

Couple hundred stores, but they've started with the first 18 that are now live. So, we're, we're happy to see that. That was a process that process that roughly took us, you know, 6 months from the Inception of the first proof of concept to piloting in a, you know, in 1 of the stores to now, starting the roll out in the first 18 stores. So, I would say that for midsize companies with where, you know, anywhere from, you know, 6 months should be a, a good time frame. We see that in some of the larger Growers of the larger retails that process is a little bit.

More extensive, particularly as Greek counters with multiple, you know, with hundreds or thousands of stores. Really. Create a more comprehensive testing process and evaluation process. So I would say that that probably takes 6 to 9 months but that I think that that is the that is the average time frame anywhere from low-end 6 months to high-end 9 months. And remember we've started some of these pilot, you know.

Proof of Concepts and Pilots early q1. So, we're, we're starting to see the the early, the green shoots of the of those efforts.

That's helpful. Thanks. And then 1 more, I appreciated the color around guidance, on the tax rate can you give us an update on where you are in? You know, getting to a more rational tax rate. I know that was a bit longer term focused. Just 1 wanted to get a sense of the progress being made there. Thanks.

Yeah, you know, thank you Justin. It's a great question. You know this this quarter we were able to capitalize on on some discrete 1-time items uh in the quarter that dropped the rate to to 33, right? So we were able to adjust our range. Lower to a little bit from 45 percentage and strategies are going to take some time to to not only implement, but then also manifest themselves in our results. So we are, we are still, um, committed to doing what we said at at IR day. And by 2027, We Believe,

That we can drive the rate down, uh, to the low to mid-30s. Uh, and we think that, that at that point would be a sustainable, uh, type of range for us. Right? You know, we do, we do have, uh, you know, good. I guess it's a good problem. Maybe a bad problem with, uh, making a lot of our money in high tax jurisdictions, like Brazil, and Germany, and the US. Um, so it's a little bit more of a headwind for us, but we're confident in our ability to lower that rate over time uh, and not only rate but but some of the cash tax payments as well.

Of course.

Your next question comes from the line of Matt Somerville with the Davidson.

a couple of folds, I want to make sure I

Yeah, I I want to make sure, um, I understand kind of the go forward, Cadence in Services, gross margins. And I want to understand you talked about a lot of different Investments you're making on that side of the business, which will obviously bear long-term fruit, but I'm curious. Are those Investments actually Weighing on margins at present? And again, if you can remind us how we should think about, you know, Q3 and Q4 the margin of evolution and then I have a follow-up.

Yeah, so so look our, our view is the 100s of service, gross margin uh continues to be our North Star, right? And and remember it's not just this quarter, it's not just this year, it's that whole 3 year Journey, right? So we we have increased margins q1, and Q2 and as Octavio and I both pointed out, you know, continue to expect that sequential Improvement throughout the year. But let me, let me give you a road map to the remainder of 2025. So you know, look first half Service. Uh, margin came in at about 25.3% uh we're projecting full year service margins uh of at least 26.5 and we're targeting multiple opportunities to incrementally improve that through the remainder of the year.

I think what's important to keep in the back of the Mind here, is we exit the year? We do expect our Q4 service margin, run rate. So as we exit the quarter, for the quarter to show at least 100 basis points of growth over the Q4 2024 exit rate of, uh, 26. So you are, you are correct that, you know, there's uh, uh, an elevated cost Associated to the repair of those, uh, of the, consolidation of the repair centers, the uh, field software, uh, for our technician the software rollout. And then also adding field technicians to support our service portfolio as well. But again, remain confident on the ability to uh, achieve what we've said and overall, uh, maintain the higher end of our guidance.

Yeah, yeah Matt and just to ask so Tom's point because this is 1 of the things that I'm committed to all our customers. We will be the best service organization. We will continue improving using technology you know incorporating our AI into the way we serve our customers so we're very focused on that and that is something that you know.

That that's what I think of our 3 year Journey are the Investments that will clearly Elevate our capabilities around service and really distinguish the volt mixer in the market.

Thank you. Um, is is a follow-up? Can you maybe expand a little bit on that 50 million sort of Opex, Target, you're looking at in terms of annual savings, Tom maybe where you and Octavia were seeing the greatest sort of magnitude of of kind of opportunity going forward. And are you executing towards that type of number for 2025 as well? I want to be clear on that.

Yeah, we'll we'll have more to share with you. Um, we're, we're we're working towards those plans and developing those plans. We think we've got opportunities in shared services. We think we've got opportunities, um, in in our manufacturing and operations kind of across the board, um, as we continue to roll out lean, you know, it's been it's really been embraced by the company and we expect, you know, given the number of Kaizen that you saw, uh, on the slide, continue to roll that uh, and see it as well. And then, you know, in in the functions whether it's our, our back office insured services and and whatnot. We think that we have, uh, we have opportunities to, to begin executing to that. So, I would ask for, you know, a little bit more time to more fully develop those plans and give you an idea, but we would expect a favorable impact to the current year.

Understood, thank you.

Yeah.

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

Okay. Thanks everyone for participating in today's call, and you're interested in debt next door. Um, if you have any follow-up questions, please feel free to reach out to the investor relations team. Um, thanks again, and have a great day.

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