Diebold, Incorporated (DBD)

DBD 
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Diebold, Inc. (DBD)

Q3 2010 Earnings Call

October 28, 2010 10:00 a.m. ET

Executives

John Kristoff – VP and Chief Communications Officer

Tom Swidarski – President and CEO

Brad Richardson – EVP and CFO

Analysts

Kartik Mehta – Northcoast Research

Reik Read – Robert W. Baird & Company, Inc.

Matt Summerville – KeyBanc Capital Markets

Paul Coster – JP Morgan

Gil Luria – Wedbush Morgan Securities, Inc.

Presentation

Operator

Please standby. We’re about to begin. Good day, everyone and welcome to the Diebold Incorporated Third Quarter Financial Results Conference Call. Today’s call is being recorded.

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, Sarah. Good morning and thank you for joining us for Diebold’s third quarter conference call. Joining me today are Tom Swidarski, President and CEO; and Brad Richardson, Executive Vice President and CFO.

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. Tom and Brad will be walking through this presentation as part of their comments today, and we encourage you to follow along.

Before we discuss our third quarter results, as on past calls, it’s important to note that we have restructuring, impairment and non-routine income and expense 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 and 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 actual results. As a precaution, we refer you to the more detailed risk factors that have previously been filed with the SEC.

And now, with opening remarks, I’ll turn the call over to Tom.

Tom Swidarski

Thanks, John, good morning, everyone. I’m very pleased with the solid third quarter operating results we announced this morning, and proud of the continue efforts of our associates around the world. We remain very focused on, and it’s been a clear leadership in service and integrated services, to drive increase recurring revenue across our global markets.

Certainly the Brazil election business had a large positive impact on our results and we’re very proud of the work we’ve accomplished in that area. However, it’s important to note that our core business in Brazil, as well as some of our other key geographies performed extremely well as we delivered meaningful topline growth, and significant improvement in earnings.

In addition, a more positive global product mix, particularly in the United States, resulted in notably higher product gross margins during the quarter. Our service margin continues to improve as we leverage our footprint, improve productivity, and add higher value demand and services to our mix of offerings. Our net deposition improved by more than 35 million from September 30, 2009. I’d expect we’ll continue to gain ground on the working capital improvements throughout the remainder of the year.

I’m also encouraged by the double-digit increase in global orders. Each geographic region delivered order growth during the period, which affirms our prior assessment that industry is slowly beginning to recover. In addition, there is strong order growth for financial self-service in the U.S. regional bank space.

We remain confident in our outlook for the remainder of the year, and as a result, have tightened our earnings guidance near the top end of our prior range. We are seeing increased momentum in many of the key areas we serve. For example, we recently received a large cash recycling order from one of the largest banks in Italy. This contract includes three years of maintenance services. It also reflects our ability to face highly competitive pressure in a cash recycling market place.

In Turkey, we received a large order for VocaBank, one of the leading banks in Turkey. We’re providing 575 customized [inaudible] ATM, enabled with cash deposit, coin transaction, and bill payments through customized software. Turkey is one of the world’s fastest growing markets for ATM deployments, and we are confident in our competitive position there, due to our recent investment in a direct operation within a country.

Also during the quarter we announced Navy Army Federal credit union chose Diebold implement mobile banking. By deploying our mobile bank solution, Nav, Army becomes the first credit union in its Texas region with a robust mobile program, improving its ability to compete with larger banks offering mobile services. Diebold’s providing this capability through a multiyear managed services contract, allowing the credit unions to reduce operating cost, generate revenue, and help integrate their delivery channels.

Additionally during the quarter, we passed important third-party audits to verify our continuous compliance with [inaudible] and PCI standards for ATMs security which is a major concern in our industry. While many other ATM providers perform these audits internally, we feel that having third-party audits provide absolute conformation of our compliance with these critical industry standards.

Finally, we recently complete a security infrastructure upgrade at the North America headquarters of Christie’s Auction House in New York City. This upgrade enables the auction house to centralize its security operations, reduce risk, and improve event response times across multiple sites.

Read the rest of this transcript for free on seekingalpha.com