Kartik Mehta: Octavio, as the company has refinanced its debt, seems like it’s in a better liquidity position. But has everything that’s happened resulted in any kind of competitive issues where maybe customers might have backed off because of the situation Diebold was in? And if so, has that changed at all?
Octavio Marquez: So Kartik, and I think it’s in our presentation slides and I probably should have touched on that, because it’s a very promising statistic for the future and the proof of the relationships we have with customers. Clearly, delivery delays and little bit of uncertainty around the financial situation was always in customers’ minds. But we conducted our annual banking customer survey during the year and I will tell you that 92% of our customers plan to maintain or expand their relationship with Diebold Nixdorf. That is for a business to business company, is an extremely high amount. So as I started my remarks, when I say I thank our customers for their support, I mean that wholeheartedly, because we continue to receive orders for both our recyclers, for our self checkout devices.
And again, I think that the demand is there, the quality of the solutions is there, and our customers remain very committed to continuing doing business with us. We really didn’t see any significant — or we didn’t see any cancellations based on delivery times, and we don’t expect to see any. So we’re — I think we enter the year with better operational rigor, better financial position and enviable customer base, both in banking and retail that is rooting for us to be successful.
Kartik Mehta: And then I know you talked a little bit about free cash flow. But would you think that — I think you previously gave some thoughts on 2023 free cash flow. Are those still valid or has anything changed maybe to change your thoughts on that?
Jeff Rutherford: Yes, I would say that we’re generally in line. I think when we talked at the third quarter and we put this out in unlevered terms, I would say that we’re materially in line with that as we think about where we expect €˜23 to ultimately land or how we’re modeling it now. There are some things, as I mentioned previously, that we’re working through in terms of working capital and related efficiencies. And obviously you’ve got the EBITDA growth in there as well year over year. But I would say that the value that we put out there in our model that we talked about at the third quarter is still largely intact for how we currently think about €˜23.
Octavio Marquez: The model that we put forward that’s predicated on the unit conversion and unit economics that we put forward, that is our guiding post. That’s why we’re so focused on talking about these units, because these units support the model that we put forward and that’s the model that we’re driving for. So as Jim said, there’s always still a year there will be little movements, but we are committed to our model and are executing to that end.
Operator: The next question today comes from the line of Matt Bryson from Wedbush Securities.
Matt Bryson: With the shortfall in unit shipments on the ATM side versus your prior 2022 guide, and Octavio, I think, you’ve talked a bit about orders being better than expected in Q4, driving revenue backlog higher. Just wondering shouldn’t both of those give you some conviction or somewhat buffer in terms of how you are thinking about your 2023 stream of guide?
Octavio Marquez: So Matt, what I would say is we feel very comfortable with the numbers that we have. We still — I would say that my first priority is deliver what we committed to delivering, that’s the first priority. So we have — we’re in the middle of our first quarter, we’re working hard to deliver our first quarter, then we’ll work hard to deliver our second, third and fourth quarters. And yes, if demand remains strong, if — we clearly would, if the markets change, I think we know there is possibility. But right now, our focus is let’s deliver what we promised and not over rotate on what we can do. So we have a solid plan and that’s what we are aiming for right now.
Matt Bryson: And I guess my follow-up is given the high backlog levels, does that shift how we should think about revenue linearity all throughout the year in a sense that, I know from a manufacturing perspective you are trying to even out your manufacturing, so you produce a bit more in the first half, a bit more in the second half. But it would seem to be the normal year. Your order flow would also tend to be more second half oriented where now you are just coming into the year with a whole lot more in terms of orders in hand. So I guess should linearity be different or is there something on the manufacturing side where you get more of a ramp through the year, so it looks more like normal Q1 through Q4 revenue ramp?
Octavio Marquez: Our plan, Matt — and remember, we don’t discuss guidance based on quarters. But you are looking at things the right way. In the perfect world, we would manufacture, as I said, 15,000 ATMs. I can’t do the math on the SCO, because we are divided by 8,000, so 9,000 — whatever the math that we ends up being, that would be the perfect. We build it and we invoice it within that balance. Clearly, based on where our manufacturing is, based on those shipment times, I would encourage you to think that we will be very stable in manufacturing throughout the year, trying to build as much as we can in the first half of the year. And that revenue will probably be lower than the ship, we will revenue less units than we ship in Q1 and as we move into Q2 and you will start seeing that kind of start to match up.
And then as we move through latter half of the year, where you will see that revenue starts exceeding manufacturing capacity, as we close the year. So we — and you will see us, as I said, you will see us disclosing that and it’ll be very clear you will be able to very clearly track how much we manufacture, how much became revenue that quarter, how much is carrying over to the next quarter, how much is being manufactured, how much is being revenued. And it becomes — that’s why I’m so passionate about our unit economics model, because every unit that we manufacture, and I think Paul asked this question earlier and I didn’t answer, but I’ll. Every unit that we manufacture both in ATM and SCO carries a very, very high service attach rate. I would say in ATMs it’s almost 95% plus, same as with SCO.
And then it also carries significant software attach revenue in the banking side. And so again, you will be able to start modeling those things very clearly as we move forward.
Operator: The next question today comes from the line of Peter Sakon from CreditSights.
Peter Sakon: Could you talk about some of the tailwinds you’re seeing on the impact on the guidance? I’m assuming, currency and then also transportation costs have come down. Could you maybe quantify some impact in 2023?
Octavio Marquez: So as I mentioned earlier, we see component pricing stabilizing. We still don’t see significant reductions in component pricing. What we do see is that we will be able to avoid some of the headwinds like spot buys that were very critical for us. That means, suppliers that couldn’t deliver to us for any reason and us having to go up into the open market at usually higher prices. So we feel that that type of dynamic with increased spot buys that affected our cost will be largely behind us. Transportation costs are clearly trending downward, that is true. We see that in container routes both from Europe or from Asia. So those factors are looking better throughout the year. And again, as I said, currency, also the — we have a basket of currencies that we try to monitor from the euro, the pound, the Brazilian real, the Mexican peso.
So there’s always puts and takes there. Right now, I would tell you the plan we put forward as a company, that’s what we’re aiming for. Can there be tailwind for currency? Probably. If that happens, we will adjust accordingly. Can there be headwinds? The same thing. That’s why we’re so focused on talking about the units, because the units get us to our plans and then currencies might fluctuate a little bit, but we will just deal with that as it happens.
