Diebold, Incorporated (DBD)

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Diebold, Incorporated (DBD)

Q1 2011 Earnings Call

April 27, 2011 10:00 am ET


Tom Swidarski – President and CEO

Brad Richardson – EVP and CFO

John Kristoff – VP and Chief Communications Officer


Kartik Mehta - Northcoast Research

Matt Summerville - KeyBanc Capital Markets

Gil Luria – Wedbush Securities

Paul Coster – JPMorgan

John Williams – Goldman Sachs



Good day, everyone and welcome to Diebold Incorporated’s first quarter financial results conference call. Today’s call is being recorded. At this time for opening remarks and introductions, I would to turn the call over to the Vice President and Chief Communications Officer, Mr. John Kristoff. Please go ahead, sir.

John Kristoff

Thanks, Ardra. Good morning and thank you for joining us for Diebold’s first 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 results, as past calls, it’s important to note that we are restructuring a non-routine income and expenses 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 supplemental material at the end of the presentation.

In addition, our 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, please refer to more detailed risk factors that have previously been filed with the SEC. And now with opening remarks, I’ll turn it over to Tom.

Tom Swidarski

Thank you, John. Good morning, everyone. Thank you for joining our call today. As you’ve seen our earnings report this morning, we got off to a slow start in the first quarter. However, these results didn’t not come as a surprise to us, as we anticipated a slow start in the first half of the year.

While we don’t provide quarterly guidance, we have communicated that 2011 would be heavily back-end loaded from an earnings perspective. We slightly exceeded our expectations for the first quarter despite heavy losses in Europe and a higher tax rate. Increased order activity in the North American continues to drive the business on a macro level and given the strength in our North American backlog, our outlook for the year remains intact.

Let’s review our results in the North America during the quarter. Revenue increased 3%, while order grew about 5% in the region. Most encouraging is that financial self service orders within the regional bank space where we enjoy competitive advantage increased more than 30%. This marks the second consecutive quarter in which financial self-service orders in the regional bank space have increased over 30%. As these orders convert to revenue in the second half of the year, we expect a significant uptick in operating profit.

The increasing demand in the space continues to be driven by three primary factors. One, pent-up demand in the marketplace. Two, industry and regulatory requirements such as, ADA and PCI compliance. Three, increased deployment of deposit automation enabled ATMs as more regional and community banks are implementing this technology to compete with their larger rivals. As depicted on the graphic on slide six, we now have over 20,000 deposit automation terminals deployed across the country and that number is rapidly growing. These factors have also contributed to significant growth in our integrated services business.

During the quarter, we brought in approximately $50 million in additional IS contracts, significantly exceeding the prior periods, as well as our own forecast. By comparison, in all of 2010, we signed about 150 million in IS contracts. One such example of the type of customers we’re signing on is Union Square Federal Credit Union in Texas. As part of our contract, we deliver monitoring, remote services and enhanced security for its network of 20 ATMS over the next five years.

A powerful combination of these services enhances Union Square’s ATM uptime and security, while enabling the credit union to minimize its operational infrastructure and equipment investments. Union Square was one of the many great success stories we had in the IS space during the quarter.

We remain the only company in this market that offers a complete outsourcing solution for integrated services business model, which continues to grow at an impressive rate. This is what truly separates us from the competition, especially the new competitors. They’ve recently tried enter our space in the US. Our capabilities in this area are not easily duplicated as it was time consuming and expensive to develop this expertise and infrastructure over the past several years.

When you combine our strong market position with our unparalleled capabilities and services, clearly stand to benefit most from the ongoing resurgence in the North American market. In summary, we are optimistic regarding the state of the North American financial self-service market, our strong competitive position and our expectations in this space for the second half of 2011.

Let’s now look at our security business. Orders for the quarter declined 6%. Revenue decreased slightly, as growth in services revenue was essentially offset by a drop in product-related revenue. The growth in overall security services was driven by the enterprise security segment, which grew in revenue approximately 20% during the quarter.

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