Diebold Nixdorf, Incorporated (DBD) Earnings Call Transcript & Summary

[Audio Gap] directors, management and worldwide associates. I'd like to welcome everyone, and thank you for joining us today. My name is Gary Greenfield, and I'm honored to serve as the Chairman of the Diebold Nixdorf Board of Directors. We're excited to be hosting this virtual meeting, which allows us to be more inclusive and reach a greater number of shareholders. As is our custom, we will conduct the business portion of our meeting first and answer presubmitted questions at the end of the meeting. While we may not be able to answer every question, we will do our best to provide a response to as many as possible. Please note that this meeting is being recorded and will be available for replay. However, no one attending via the webcast or telephone is permitted to use any audio recording device. In keeping with the digital approach of this year's meeting, it is now 8:30 Eastern Standard Time on May 1, 2020, and the 2020 Annual Meeting of Shareholders is now called to order. Diebold Nixdorf's code of regulations provide that the Chairman of the Board or another duly appointed officer shall preside at all meetings of its shareholders, and that the secretary shall keep the minutes. It Is my privilege to preside over this shareholder meeting. Now it is my pleasure to introduce the other members of our Board of Directors: Patrick Allender, Arthur Anton, Bruce Besanko, Reynolds Bish, Ellen Costello, Phillip Cox, Alexander Dibelius, Dieter Düsedau, Matthew Goldfarb, Gerrard Schmid and Kent Stahl. I would also like to introduce our newest nominee to the Board of Directors, Lauren States. Let me also introduce the officers participating with me in this morning's meeting: Gerrard Schmid, President and Chief Executive Officer; Jeffrey Rutherford, Senior Vice President and Chief Financial Officer; and Jonathan Leiken, Senior Vice President, Chief Legal Officer and Secretary. Mr. Leiken will act as secretary of the meeting. Ms. Anne Zavarella, a partner from KPMG, is also present for today's virtual meeting and has been given an opportunity to make a statement at the meeting if she wishes to do so. I will now turn to Mr. Leiken for presentation of proofs of the due calling of the meeting.

Thank you, Mr. Greenfield. In accordance with provisions of the Ohio Revised Code, the Board of Directors appointed Broadridge Financial Services, represented here today by Jane Ludlow; and Elizabeth Radigan, Vice President, Chief Ethics and Compliance Officer and Assistant Corporate Secretary of Diebold Nixdorf, to serve as inspectors of election. The proxy committee appointed by the Board of Directors is comprised of Gerrard Schmid and Jeffrey Rutherford. The Board of Directors fixed March 2, 2020, as the record date for determining shareholders entitled to vote at this meeting. An affidavit has been delivered attesting to the fact that either a notice regarding the Internet availability of the Notice of the Meeting, the proxy statement and the 2019 annual report or the documents themselves, were mailed on or about March 11, 2020, to all shareholders as of the record date and will be incorporated into the minutes of this meeting. The shareholder list shows that as of the record date, there were 77,491,647 shares of common stock outstanding and entitled to vote at this meeting. The preliminary report of inspectors indicates that the number of shares necessary for a quorum in person or by proxy is 38,745,824. The total proxies received are 68,584,119 shares, which represent approximately 88.5% of all shares outstanding. A quorum of shares is present in person or by proxy for all purposes. As secretary, I will now read the minutes for the Annual Meeting of Shareholders held on April 25, 2019, unless there is a motion to dispense with such reading.

I move to dispense with the reading of the minutes.

Is there a second? Is there a second of the motion to dispense with the reading of the minutes?

I second the motion.

The motion is carried, and the minutes are approved. Before I ask our secretary to move the nomination of directors, I would like to note that Patrick Allender and Dieter Düsedau are retiring from the Board and not be standing for reelection. Pat and Dieter have been great assets to our Board, providing us with tremendous strength and talent. And on behalf of the Board, management and the company, we thank them for their many years of dedicated service. Now will the secretary please move the nomination of directors?

Mr. Greenfield, I place the following persons in nomination: Arthur F. Anton; Bruce H. Besanko; Reynolds C. Bish; Ellen M. Costello; Phillip R. Cox; Alexander Dibelius; Matthew Goldfarb; Gary G. Greenfield; Gerrard B. Schmid; Kent M. Stahl; and Lauren C. States.

At this time, I would like to ask the operator to unmute the participant line to allow Mr. Lysobey to make his proposal. Mr. Lysobey?

I would like to nominate myself, Patrick J. Lysobey, as a Director of Diebold Nixdorf. I have been a shareholder of Diebold, Incorporated since 1985 and own or control approximately 6,000 shares of the company. I am 64 years old and have been a licensed certified public accountant practicing in the state of Ohio since 1980. I am presently employed as a tax director at Hobe & Lucas, CPAs, Inc., a public accounting firm located in Independence, Ohio. I believe that my 30 years of experience both as a private investor and as a practicing tax and accounting professional would well qualify me for the position of Director at Diebold Nixdorf. In addition, as a tax professional, I have been responsible for the U.S. federal, multi-state and international tax planning and compliance for businesses, both public and privately held, and thereby would bring a whole new area of financial expertise to the Diebold Board. I graduated with honors from Cleveland State University in 1977 with a BBA degree in accounting. My financial accounting experience and CPA license also qualify me as an audit committee financial expert under SEC guidelines issued as a result of the Sarbanes-Oxley Act of 2002. My past business experience also includes having served as an elected director of Briarwood Golf Course Inc., a publicly held Ohio corporation that owned and operated a golf course in Broadview Heights, Ohio. I would appreciate your vote for director. Thank you.

Thank you for your nomination. I'd like to ask the operator to mute participant line, and we will pause to allow time to vote on this proposal. Please direct your attention to the instructions included on the presented slide for information on how to vote on this nomination. We will resume in a few seconds. [Voting]

We will now ask the secretary to continue with the introduction of the remaining proposals.

Proposal 2, ratification of appointment of KPMG LLP as independent registered public accounting firm for the year 2020. The Audit Committee, subject to ratification by the shareholders, appointed KPMG LLP as independent registered public accounting firm for the year 2020. Proposal 3, advisory vote on named executive officer compensation. We are providing our shareholders an opportunity to approve, on an advisory basis, the compensation paid to our named executive officers. Although this vote is nonbinding on the company, our Compensation Committee will review the results of the vote when making future decisions regarding executive compensation. Proposal 4, approval of an amendment to the Diebold Nixdorf, Incorporated 2017 equity and performance incentive plan. The Compensation Committee has recommended and, subject to the approval of the shareholders, the Board has approved an amendment to the Diebold Nixdorf, Incorporated 2017 equity and performance incentive plan that would increase the number of shares available for issuance under the plan.

Shareholders who have not yet voted or wish to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. Shareholders who have sent in proxies or voted via telephone or Internet and who do not want to change their vote do not need to take any further action. If you hold shares under multiple control numbers, you must log in and vote each distinct control number separately. While we give everyone the opportunity to vote, I would like to turn to Gerrard Schmid, President and Chief Executive Officer, for some remarks.

Thank you, Gary. Good morning, everyone, and thank you for joining us. In light of the dramatic change of events this year, my comments will be briefly recapping our 2019 achievements and will focus more on the company's response to the COVID-19 global pandemic. 2019 was a good year for the company, as we delivered financial results which met or exceeded our expectations. Secondly, we substantially improved our competitive differentiation across our banking and retail segments. And thirdly, we improved our risk management to ensure greater business resiliency. Our financial highlights included revenue of just over $4.4 billion, which was in line with our expectations despite absorbing $150 million of foreign currency headwinds. Successful execution of our DN Now efficiency programs enabled the company to improve gross margins by 280 basis points and achieved adjusted EBITDA growth of 25% to $401 million during 2019. We were also very pleased to have improved free cash flow by $256 million due to our company-wide focus on driving both operating and net working capital efficiencies. Along with our financial achievements, we advanced our role as a global leader in banking and retail by enabling digitally driven customer journeys. Within banking, we launched DN Series, our next-generation ATMs, which feature our industry-leading cash recycling technology. Within retail, we continue to see success with our point-of-sale and self-checkout solutions. And we launched our new cloud-based machine learning platform, the AllConnect Data Engine, to further differentiate our services offering. Our company also made significant improvements to its business resiliency. Our risk management efforts in areas like privacy, data encryption and IT system redundancy, reinforce our commitment to protecting our customers. Overall, I'm extremely pleased with the contributions of our employees across the world and our shared purpose in advancing our strategic agenda. This gives me the confidence in our ability to drive future improvements to the business. Switching gears, I'd like to highlight how DN is responding to the COVID-19 pandemic. We have been designated as an essential service provider to both banking and retail sectors because we fulfill a critical role in allowing consumers reliably and safely access to financial services and to conduct commerce in more than 60 countries. From the earlier stages of the crisis, our priority has been health and safety of our employees. We have taken multiple measures to protect our employees, and we continue to evolve those measures based on input from various health authorities. We're equipping our service technicians with the appropriate protective gear and training them on the evolving hygiene and social distancing practices. For employees in our manufacturing facilities, we have segmented our workers and have implemented daily temperature checks. And for our support functions, we have provided the proper tools, resources and guidance for them to safely and productively work from home during the crisis. We've also focused on the stability of our suppliers and our supply chain as borders have shut and logistics have become more challenging. We're also taking measures to strengthen the company during this period of uncertainty. We continue to be laser-focused on our existing DN Now efficiency program and are accelerating certain elements of the program. We've also launched additional cost measures, which I'll discuss in greater detail during our quarterly earnings call on May 5. Furthermore, we continue to carefully manage net working capital with the same discipline we put in place during 2019. We've also taken actions to enhance our liquidity while ensuring that DN has adequate financial flexibility during what we expect will be a more challenging near-term environment. In March, we drew our revolving credit facility, consistent with the practices of many large companies. This action was done out of an abundance of caution as we believe we have adequate liquidity. We were an early mover in activating our pandemic response plan. We were able to seamlessly move thousands of employees to work from a home environment. Our level of communications with our colleagues has never been higher, and employee morale is strong. Our services organization has done a fabulous job of maintaining strong service levels across the world, even in hard-hit areas like Italy, Spain and the United States. Our customers have observed our actions and have praised the company for acting with a sense of urgency and accountability during the crisis. And I continue to be energized with the responsiveness and commitment of our 22,000 employees during these past few weeks. In conclusion, Diebold Nixdorf will persevere through this period of uncertainty by continuing to focus on ensuring our employees remain safe, the company remains resilient and that we continue to deliver value to our customers. The company's operational rigor gives me the confidence that we will weather the COVID-19 crisis and emerge as a stronger company. With that, back to you, Gary.

Thank you, Gerrard. Now that everyone has had the opportunity to vote, I now declare the polls for the 2020 Annual Shareholder Meeting closed. May I please have the report of the inspectors?

Thank you, Mr. Greenfield. Preliminary voting indicates that the company's 11 director nominees listed in the proxy statement received the greatest number of votes among all nominees.

The following persons are elected as directors of the company to serve until the next Annual Meeting of Shareholders and until their successors are elected and qualified: Arthur F. Anton; Bruce H. Besanko; Reynolds C. Bish; Ellen M. Costello; Phillip R. Cox; Alexander Dibelius; Matthew Goldfarb; Gary G. Greenfield; Gerrard B. Schmid; Kent M. Stahl and Lauren C. States.

Mr. Greenfield, preliminary voting indicates that more than a majority of the shares represented in person or by proxy at this meeting voted in favor of the ratification of the appointment of KPMG LLP as the company's independent registered public accounting firm for the year ended 2020.

The appointment of KPMG LLP as the company's independent registered public accounting firm for 2020 has been ratified.

Mr. Greenfield, preliminary voting indicates that more than a majority of the shares represented in person or by proxy at this meeting approved on an advisory basis the named executive officer compensation.

The named executive officer compensation has been approved on an advisory basis.

Mr. Greenfield, preliminary voting indicates that more than a majority of the shares represented in person or by proxy at this meeting approved an amendment to the Diebold Nixdorf, Incorporated 2017 equity and performance incentive plan.

An amendment to the Diebold Nixdorf, Incorporated 2017 equity and performance incentive plan has been approved. The final results containing the exact number of votes will be reflected in an inspector of election certificate, which will be filed with the records of this meeting, and such final results will also be published in the company's filings with the SEC. There being no further business to come before the meeting, the 2020 Annual Meeting of Shareholders of Diebold Nixdorf, Incorporated has now been adjourned. We will now turn to the question-and-answer portion of today's meeting.

We received a shareholder inquiry regarding the gender diversity of our Board and executive team and encouraged an increased focus on diversity. Thank you for your comment and question. We agree that diversity of opinion, thought and expertise as well as gender is a key component for a successful Board and company. We are very pleased that today, our shareholders have elected Lauren States to our Board of Directors, increasing our gender diversity and importantly, bringing her valuable skills and expertise to our boardroom. In addition, in 2019, Ellen Costello assumed the Chair role for the Board's People and Compensation Committee, which oversees the development of executive succession plans, including efforts related to diversity initiatives. As we continue our succession planning efforts, both with respect to the Board and to our executive team, please note that we are focused on bringing diverse talent to these roles in support of the company's strategy for the future. This concludes this year's Annual Shareholders' Meeting. Thank you for joining us.

This now concludes the meeting. Thank you for joining, and have a pleasant day.