Diebold, Incorporated (DBD)

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Call Start: 10:00

Call End: 10:50

Diebold, Inc (DBD)

Q4 2012 Earnings Call

February 12, 2013 10:00 am ET

Executives

John Kristoff – VP, Chief Communications Officer

Henry Wallace – Executive Chairman

George Mayes – EVP, Chief Operating Officer

Brad Richardson – EVP, Chief Financial Officer

Mychal Kempt – VP, North American Operations

Analysts

Ryan Augustitus – Northcoast Research

Gil Luria – Wedbush Securities

Michael Kim – Imperial Capital

Matt Summerville – KeyBanc

Paul Coster – JP Morgan

Julio Quinteros – Goldman Sachs

Presentation

Operator

Good day, everyone. Welcome to Diebold Incorporated’s Fourth Quarter Financial Results Conference Call. At this time for opening remarks and introductions, I would like to turn the call over to the Vice President and Chief Communications Officer, Mr. John Kristoff. Please go ahead, sir

John Kristoff

Thank you, Jennifer. Good morning and thank you for joining us for Diebold’s Fourth Quarter Conference Call. Joining me today are Henry Wallace, Executive Chairman; George Mayes, Executive Vice President and Chief Operating Officer; and Brad Richardson, Executive Vice President and Chief Financial Officer. Also with us in the room today and available to answer questions is Mychal Kempt, Vice President, North America Operations.

Just a few notes before we get started. In addition to the earnings release, we’ve provided a supplementary presentation on the Investor page of our website. Henry, George and Brad will be walking through this presentation as part of their opening comments today, and we encourage you to follow along.

Before we discuss our results, as with past calls, it’s important to note that we have restructuring, non-routine expenses and impairment charges in our financials. We believe that excluding these items gives an indication of the company’s baseline operational performance. As a result, many of the remarks this morning will focus on non-GAAP financial information.

For a reconciliation of our GAAP to non-GAAP numbers, please refer to the supplemental material at the end of the presentation. In addition, all results of operations reported today, including prior periods, exclude discontinued operations.

Finally, a replay of this conference call will be available later today from our website.

And as a reminder, some of the comments today may be considered forward-looking statements. Internal and/or external factors could significantly impact financial results. As a precaution, please refer to the more detailed risk factors that have previously been filed with the SEC.

And now with opening remarks, I’ll turn it over to Henry.

Henry Wallace

Thank you, John, and good morning, everyone. And thanks for joining our call today. I want to express my appreciation to our investors, our customers, and our associates for your patient engagement, and ongoing commitment to Diebold during this time of transition.

To be frank, the 2012 results and the present outlook for 2013 are disappointing, and we need to improve. I’m sure, you’re anxious to understand how we’re going to get this great company back on a more positive trajectory to drive shareholder value. While we are dissatisfied with our recent performance, we have significant opportunities in the marketplace and we have good strategies for growth. Diebold is far from being a broken company, but it is an underperforming company.

Despite the difficult challenges we have faced, we have seen progress on several fronts. We continued to enhance our Financial Self-service offering, with more capable terminals and software that improve efficiency and availability. We’ve expanded our integrated service capabilities and infrastructure, evidenced by our expanded systems implementation by our largest IS customer, Toronto-Dominion, and we intend to leverage that infrastructure to continue to grow the business. And we’ve strengthened the organization and competencies required to grow our Electronic Security business through both organic and acquisitive means.

Whilst these were all positive developments, the operational performance has not met the company’s expectations, nor those of our Board of Directors and our shareholders. While we’ve experienced reasonable revenue growth, our margins have continued to erode. To strengthen our performance, we must drive immediate major organizational change, and structural cost reductions, and accelerate our investment in growth.

Our first task was to realign the organization to more rapidly seize marketplace opportunities and to reduce our cost structure. By establishing a Chief Operating Officer position, we have also created a global model for product development, service, and supply chain management that will enable us to better leverage synergies across regional divisions while attacking our cost structure.

Previously many of these functions operated independently in various degrees on a regional basis. And to that end we’ve named George Mayes to this important new role. George has a track record of delivering. This makes him ideally suited to drive the rapid improvement required to reach our growth and profitability objectives. He has the passion, the skills and the experience to help Diebold achieve these goals. And you’ll hear more from George on this front a little bit later.

As I mentioned earlier, we have good strategies for growth, but we need to improve our execution in order to free up more resources to accelerate our investment in growth and innovation. Regarding our market opportunities, in the Financial Self-service, we have global scale, unparalleled service capabilities and great product offerings. And we are deeply trusted by our customers. As banks around the world face unprecedented cost pressures, they have more need today for our solutions than ever before. We can and we will win in this space.

In our Security business, we have identified electronic security as a very attractive market with fast growth, good margins and strong recurring revenue potential. Over the past year or two, we began changing our business model to focus less on product sales and installation and more on recurring services and monitoring.

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