Diebold Inc. (DBD) Q2 2010 Earnings Conference Call July 29, 2010 10:00 AM 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. Michael Saloio – Sidoti & Company Presentation Operator
Previous Statements by DBD
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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. As you’ve seen this morning, we once again delivered solid core operating results during the quarter despite a market environment that remains challenging. I’m very proud of the continued efforts of our associates around the world. Diebold is successfully maintaining leading market position to gaining increase traction and others. Our focus on customers is the core competency. It will continue to help us prevail in a challenging and competitive marketplace. I’m particularly encouraged by the sustained improvement in the profitability re-driving in our services business. Diebold’s key value proposition lies in our ability to deliver unmatched service support and software solution that surround our security and financial self-service offering. A perfect example of the value our customers placed on this element can be found on our recent announcement with U.S. bank. In May, we announced our partnership with the bank for our Agilis EmPower ATM Software Solution. A multi-vendor software application that will run across the bank’s expanding ATM network. We developed a custom software solution for the bank built on our cross-vendor Agilis EmPower application. As we rollout this solution to U.S. bank, we will achieve a milestone – more than 500,000 ATMs around the world running Agilis software and cross-vendor framework components.
We’re now for another key accomplishment earlier this week, the International Quality and Productivity Center awarded as a Call Center Excellent Award for deploying innovative call center solutions for rapid response, for customer inquiries and service needs. The Call Center Excellent Award honor the individuals and companies’ whose focus on customer service and efficiency that are setting the standards in their industry.Recognition such as this is not indicative not only of the investment we’re making to raise the bar for our customer service expectation, but also of our ongoing commitment to improve our service capabilities. Our strategy to expand our company’s skill set in software and services is having a real impact on our business. Our customer’s recognition of the value was adding in this area and our ability to continually improve our operational efficiency is enabling us to achieve sustained profitability improvement in our services business. As a result, we once again increased our service gross margin during the second quarter. In addition, a more positive global product mix particularly in the United States resulted in notably higher product gross margin during the quarter. This profitability improvement came despite lower than expected revenue in our financial self-service business, which was driven primarily by weak performance in our May operation and a declining Euro. For the full year, we are reaffirming our outlook. The additional Brazil Elections business, strong July orders in Asia and EMEA and improved outlook in North America give us further confidence in the second half of the year. Finally, our net debt position improved by nearly 50 million from June 30th, 2009, and I expect we will continue to gain ground on working capital improvements throughout the year. Now, let’s look at our performance during the quarter and the market environment in the geographic regions. In North America revenue declined 11% during the quarter and the completion of large deposit automation deployment by major national banks national banks crated a very challenging year-over-year comparison. Despite the drop-off in this deposit automation related activity, orders held steady with the prior year period as we experienced growth in the regional bank space.
I mentioned during the first quarter call that we experienced the highest order entry activity we’ve had in five quarters. We’re encourages that this activity continued in the second quarter. However, it’s important to note that we had relatively easy comparisons based on a very weak prior year and we’re now just entering the beginning stages of recovery. We anticipate demand in this segment. We’ll continue to grow, but at a measured pace.Read the rest of this transcript for free on seekingalpha.com