Diebold Nixdorf, Incorporated
Q4 2016 Earnings Call Transcript

Published: 14 Feb 2017

[Operator:]

Good day, everyone. Welcome to the Diebold Nixdorf Q4 Full Year 2016 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Steve Virostek. Please go ahead, sir.

[Stephen A. Virostek:]

Thank you, Matt, and welcome, all, to Diebold Nixdorf's fourth quarter and year-end earnings call for 2016. Joining me today on the call are Andy Mattes, CEO; and Chris Chapman, Chief Financial Officer. Our listeners should be aware that today's webcast is being recorded, and we'll make a replay available later today via our website. For your benefit, we have posted presentation slides to accompany our discussion on the Investor Relations page of dieboldnixdorf.com. On slide 2 of the presentation, we note that today's call – during the call, we'll be referencing certain non-GAAP financial measures because we believe these measures are a helpful indicator of the company's baseline performance. We have reconciled these metrics to the respective and most directly comparable GAAP metrics and our supplemental schedules on the earnings release and in the back of the slide deck. Slide 3 reminds our participants that certain comments today may be characterized as forward-looking statements and that there are a number of factors that could cause actual results to differ materially from these statements. You may find additional information on these factors in the company's SEC filings. As usual, forward-looking statements discussed are current as of today, and subsequent events may render this information out of date. And before I hand the call to Andy, I'd like to invite all our listeners to join us on February 28 for our Investor Day. It'll be a half-day discussion of the company's strategy, integration roadmap and financial targets. We'll be webcasting that event. And if you'd like to attend in person, please reach out to me. And now, I'll hand the call over to Andy.

[Andreas Walter Mattes:]

Thank, Steve, and good morning, everyone. I'm very excited to speak with you today as we report the first full quarter for Diebold Nixdorf. I'm particularly proud of the team as we completely reshaped the company in 2016 and laid the foundation for our future. We acquired Wincor Nixdorf to improve our business portfolio, broaden our scale, expand our leadership in services and software, and increase our capacity to innovate and collaborate with our customers. We also divested our North America Electronic Security business and launched two new joint ventures in China. These strategic achievements have had a profound impact on the company. Looking at slide 4, you can see we have doubled the size of our company and has significantly enhanced our mix of revenue. First, services represent a $2.5 billion business for us, up from about $1.3 billion. Basically, our Services business now is larger than either legacy company on a standalone basis, and we have the largest organization focused exclusively on the banking and retail industries with over 14,000 service professionals. Next, our software revenue increased more than threefold from about $110 million to $450 million. Taken on its own, this would place our Software business well within the top 100 software companies globally. Looking at the ATM software market, according to RBR, Diebold Nixdorf is the leader with nearly 30% share. This provides us with access to higher value and stickier revenue streams as customers benefit from our stronger competitive position in software. Together, software and services is approximately a $3 billion business. The remaining $2 billion comes from our systems line of businesses

[Christopher A. Chapman:]

Thanks, Andy, and good morning, everyone. Fourth quarter results include a full quarter from the legacy Diebold and legacy Nixdorf operations. For this quarter and the next several quarters, year-on-year comparisons will be made against the results for legacy Diebold. We will provide additional comments about organic growth to help investors better understand the underlying trends in the business. We're one combined company now with one set of numbers and are working hard to integrate the company as quickly as possible, and we expect to file the 2016 Form 10-K in the coming weeks. We would suggest that you use the 10-K form as the basis for all forward-looking analysis. That said, for a period of time, we are still required to file financial statements for Diebold Nixdorf, AG under IFRS reporting standards. Understand that the differences in the reporting standards as well as the impacts of the integration activities and purchase price accounting will be fully reflected in the U.S. GAAP results. Lastly, comments today will focus on our non-GAAP results from continuing operations unless otherwise noted. Starting on slide 7, non-GAAP revenue increased by approximately 106%. This growth was attributable to the acquisition and the legacy Diebold Americas region. Organically, non-GAAP revenue decreased about 3% in constant currency due to declines in Asia-Pacific, primarily related to China. Removing the effects of currency, financial self-service revenue increased 68%, however decreased about 6% organically as a result of declines in Asia-Pacific and the disruption in EMEA that Andy previously highlighted. The retail business added $269 million of revenue during the fourth quarter while security revenue was up 1%, and Brazil other revenue increased approximately $13 million year-over-year. Looking at our regional segments, revenue grew within the Americas both overall and organically with the legacy North America business down slightly. The legacy Latin America business was up 18% in constant currency as we've been executing on a strong backlog within the region. The acquisition growth drove growth in both Asia-Pacific and EMEA, which offset the previously-mentioned year-on-year declines in the legacy Diebold business. Looking at the full-year 2016, non-GAAP revenue increased approximately 41% adjusted for currency, driven by the incremental business related to the acquisition. On an organic basis, revenue for the year decreased about 4% in constant currency. Primarily contributing to the decline was the previously communicated structural change in the China market as well as the change in EMEA related to the business combination. Moving to slide 8, total gross margin for the quarter was 24.3%. Service margins decreased 8.5% to 25.5%, reflecting the new mix of business of the combined company with Nixdorf margins substantially lower than legacy Diebold. Product gross margins increased 2.9% to 22.8% reflecting the benefit from higher margin business, which was partially offset by reduced volumes. Looking at the full-year 2016, total gross margin was 25.4%, reflecting a 170-basis-point decline for the year. Service margins decreased 400 basis points to 29.3%, largely reflecting the new combined companies' mix of business. Product gross margin increased 140 basis points to 20.0%. Turning to slide 9, total operating expense in the fourth quarter increased $116 million over the prior-year period due entirely to the inclusion of the Nixdorf results but with legacy Diebold reflecting a slight decrease over the prior year. As a percentage of revenue, operating expense improved by 100 basis points when compared to prior year. Looking at the full year 2016, total operating expense increased $165 million and improved 100 basis points as a percentage of revenue. On slide 10, our operating margin was 5.5% for the quarter, reflecting a decrease of 280 basis points year-over-year. Operating profit in the fourth quarter increased approximately $18 million from the prior year as the benefit of the acquisition was partially offset by lower contributions from the mix of business in the legacy Diebold operations. In the fourth quarter, non-GAAP adjusted EBITDA was $105.3 million compared with $67.9 million in the prior year. Looking at the full year 2016, total operating margin was 4.8%, reflecting a decrease of 80 basis points from the prior year. Operating profit increased from $135.1 million to $158.7 million year-over-year. Non-GAAP adjusted EBITDA was $266.1 million compared with $211.5 million in the prior year. The acquisition had a positive impact on year-over-year comparisons for both operating profit and adjusted EBITDA. Looking at operating profit in the fourth quarter as reported by segment on slide 11, North America operating profit decreased $15 million driven primarily by a higher mix of large bank volume and higher cost in service. The increase in service cost resulted from the expansion of our customer-facing workforce and higher overtime costs and our continuous drive to improve customer satisfaction levels. Asia-Pacific operating profit increased $5 million, reflecting the benefit of the acquisition and increased scale in the region, partially offset by lower activity in China and India. In EMEA, profit grew $35 million and includes the benefits of the acquisition. In Latin America, operating profit was up $3 million mainly driven by increased volume in the region. The Global and Corporate line increased $10 million mainly due to the Nixdorf acquisition. As a reminder, we intend to change our operating segments from the four regions to three lines of business

[Operator:]

And we will take our first question from Matt Summerville with Alembic Global Advisors.

[Matt Summerville:]

Good morning. I want to talk about EMEA for a moment. How quickly do you think, Andy, you can stem what I always (25

[Andreas Walter Mattes:]

Happy to do that, Matt. EMEA is the country where we basically did a reverse integration of the legacy Diebold organization into the legacy Nixdorf organization. And as much as you prepare for these things and as much as you don't want them, the human element kicks in, and people are a little bit more worried about who they work for than spending time out there with the customers. And admittedly, we lost a few deals in EMEA in the second half that we wish we hadn't. Having said all of that, all of that is in the rearview mirror. Everybody is aligned. We've got the account managers mapped to the accounts. We've gone through the account plans on all the large customers. We've talked with all the top customers. I've personally talked to about three-quarters of our top 100 banking customers around the world in the last 100 days. And I can tell you, the pipeline going forward is looking strong. I would expect us to have a positive contribution from EMEA in the first half of the year, and there are some very exciting deals in the pipeline that hopefully we can talk about in the very near future.

[Matt Summerville:]

Thank you. And then just as a follow-up, can you talk in a little bit more granularity in North America what you're experiencing in the small bank side of things, the large bank side of things? Last quarter, you talked about $30 million or so of revenue getting pushed to the right. If that indeed happened, are you recapturing that? Just talk in more granularity about demand trends here, and whether you think the turn you've seen is sustainable?

[Andreas Walter Mattes:]

Let me give you quotes from one of the top banks that I visited in the first week of this year, and they actually gave us a huge thumbs-up and big kudos for how we've done the integration. And from their vantage point, the only thing that has changed is that when they ask us for new offerings, our portfolio has gotten broader and bigger, but the teams had their heads down and they felt super well taken care of. If I take a look at the customer segments, we see opportunities with the large banks. We see opportunities on the regional banking side. If you look at Q4, the regional bank has been a positive contributor to our book-to-bill ratio in North America, which was north of one. So, that's a step in the right direction. If you're listening into the market, especially in the regional banks, the sentiment is getting more positive. Needless to say that, if there's truly some relaxation on the compliance and regulatory overhead that the regional banks are carrying, that would be a good thing. And a lot of people have already reached out to us by saying, should that materialize, that they would be very interested in talking to us about projects that they had to shelf, given the fact that they didn't have the financial resources to do so. So, overall, I'm constructive about the American business, and I believe there's good things to follow. Also, take a look at the deal that we won, and even though it's just a first deal in the foray of the ISO market, I do believe it's a big step for Diebold Nixdorf forward. And if you look at it, this was basically legacy Diebold hardware combined with legacy Nixdorf software that provided a winning combination that scored big time, and it's a good example of how we're looking for new routes into the market, and new avenues to take our revenue north.

[Matt Summerville:]

Thank you.

[Operator:]

And we will now hear from Paul Coster with JPMorgan.

[Paul Coster:]

Yes. Thanks for taking my question. Can we just – I really sort of missed in passing perhaps the most headline catching part of the conference call, which was the first quarter outlook. Chris, can you just talk us through the EPS outlook again? What you view as the shape of the year in terms of EPS recovery and the sort of whys and wherefores of all of the above?

[Christopher A. Chapman:]

Yeah. I think it's best to start with the adjusted EBITDA first. When you look at the ramp of the year, and again we've said about one-third, two-third. When you compare the prior year now, we're dealing the full interest load and that's running a little bit north of $30 million per quarter. So, when you look at that across the expected earnings flow, you get a bit – more of a dilution impact in the first quarter when that's typically our season or seasonal lows. So, that's why we said one-third adjusted EBITDA in the first half and only 25% of the EPS. So, that's, I would say, the biggest overhang why you see a little more of a compression on the EPS. The other piece just from a modeling standpoint, I know, when I've seen certain information out there, we also have the non-controlling interest impact for the minority shareholders, which – that's going to run a little more than $6 million per quarter that needs to be factored into the overall flow across the year and that's a direct deduction on the EPS side that you don't see burdening the adjusted EBITDA based on how the calculations are handled.

[Paul Coster:]

Okay. And then looking backwards at the 2016 numbers, did you, in the fourth quarter, take out the China JV-related revenues, or when does that start to impact the top-line?

[Christopher A. Chapman:]

Yeah. If you look at how that's affected from a legacy Nixdorf standpoint, that was effect of essentially when we were completing the acquisition in the August timeframe. On the legacy Diebold side, we still have to burn off that legacy backlog that was part of our business, and so the full impact of that will carry into 2017. If you think about it, on a pro-forma year-over-year basis, combined company, the China headwind effect is roughly probably about 1.5% or so from a top line standpoint when you just compare apples-to-apples pro forma.

[Paul Coster:]

Okay. And then just two (32

[Andreas Walter Mattes:]

Happy to do so, Paul. In the UK where we're working with the CMA, very collaborative conversations. But we have not come to a final conclusion yet. And I cannot comment on the talks as they're ongoing. We do feel very confident that we will resolve them in the not-too-distant future. On the Hyosung case, you know that the court has ruled in the favor of Diebold Nixdorf. And there is a secondary review of that. And we should be able to debrief all of you by the end of Q1 at the pace that these things are going on the final outcomes. But we feel very encouraged with our position, and we also are trying very hard to protect our IP, and we feel that we've got a really good hand in court.

[Paul Coster:]

Okay. Thank you.

[Operator:]

And our next participant is Kartik Mehta with Northcoast Research.

[Kartik Mehta:]

Hey, good morning, Andy and Chris. Andy, I wanted to ask. I know you talked about EMEA and maybe that just didn't perform up to your expectations in the fourth quarter. But I was hoping if you look worldwide, you would – how you would think about market share plays as far as Diebold is concerned and what happened in the second half of the year?

[Andreas Walter Mattes:]

If I go around the horn, start with Asia, Asia was down year-over-year and especially China, and that market share clearly went to the Chinese or to the Korean players. We talked about EMEA and in the Americas. In Latin America, we've gained market share year-over-year. If I take a look at Brazil only, I mean, our FSS business in Brazil year-over-year was up north of 20%. And, of course, that goes hand in hand with the country that's coming out of quite a very tough time in this starting to also look hopefully at a brighter future. So, I'd say, if you take all of the Americas, it's up, LatAm and Canada probably being the main drivers, and EMEA, we went a little sideways, and we're pretty confident that we're going to rectify that as we go forward. Where we did get hurt is the hold-separate in the UK did slow our business in the UK down for both legacy Diebold and legacy Nixdorf. So, back to the question I was asked earlier, it's in our very best interest to get the CMA issue resolved in a positive manner sooner rather than later.

[Kartik Mehta:]

And then Andy, if we look at 2017 as a year of integration, but now you have a company that's 60% software and services and 40% hardware. How would you think about the growth rates of those three components after we move out of 2017 and the company is more integrated?

[Andreas Walter Mattes:]

If you go through segment-by-segment, services revenue is the one that's kind of like the steady Eddie, but it doesn't grow leaps and bounds in any quarter because you rev rec as you perform. So, I'd say, and this is always including currency headwinds. Chris can do the translation into constant currency, but I'd say services in the roundabout 2% type of range, hardware probably around flat to 1% and that's just due to the price competition that we see especially in Asia that keeps dragging you down a bit. And on the software side, we're looking at a 5%, 6% growth rate.

[Kartik Mehta:]

And then just one last question just for you. I know you said the FX that was about 2% to the top-line, how did that translate to EBITDA impact for you?

[Andreas Walter Mattes:]

I'll let Chris do the translation. As you think through our business – and you mentioned the high order of magnitude that services have. The good news about our services business is it basically hedges itself. So, while we will have a translation effect in our P&L, our margins are basically immune to FX changes because the majority of the services that are being performed is being performed with resources in-country or resources from low-cost global delivery centers. So, that takes a lot of the ambiguity out of the FX headwind. And, Chris?

[Christopher A. Chapman:]

Yeah. If you think about it from a new combined company standpoint, we do get a little bit of a benefit now when you have some of the currency headwind given we have a much larger portion of our expense base now sitting overseas. And so, that does offset a little bit of the translation impact. But typically, you should think of that at roughly a 15% drop rate on the 2% from a currency standpoint when you look at the fallout rate from a margin standpoint blended with op expense and gross margin is how you should think of the fallout to the bottom line.

[Kartik Mehta:]

So, for 2017, (39

[Christopher A. Chapman:]

Yeah. That maps right in the ballpark.

[Kartik Mehta:]

Okay. Thanks, Chris. I really appreciate it. Thanks, Andy.

[Operator:]

And we will now hear from Justin Bergner with Gabelli & Company.

[Justin Laurence Bergner:]

Good morning, Andy. Good morning, Chris.

[Andreas Walter Mattes:]

Good morning.

[Justin Laurence Bergner:]

Looking at your revenue guidance for 2017, it seems like there's a 200-basis-point hit from currency. I think you said about 150-basis-point hit from China. So, if I adjust for those two factors, I guess, the business ex-China is expected to grow 3% to 5% constant currency, and I'm just wondering sort of what building block should give me confidence in that level of growth constant currency ex-China?

[Christopher A. Chapman:]

A few things, Justin. On the system side, the primary driver of our revenue is going to be the developed markets. We're all about going after the branch transformation, innovative technology, more margin accretive business. Same holds true on the software side that is predominantly a developed market play. And needless to say, that's where you will experience higher margin and stickier revenues. And the same actually also holds true on the service side especially as you go into the upper end of the services that will be performing, the value-added services, the managed services, and if you're looking for some of those building blocks, some of our largest service deals that we hold globally are up for renewal in 2017. So, as we tick these milestones in the first half, that should give you a very solid foundation. And if you run the math, services and software is basically $2 billion recurring revenue. We've got north of $1 billion in the systems side. So, we've got line of sight to about two-thirds of our revenue as of January of 2017. And the rest, of course, is all the good stuff that we're going to sell and perform during the course of the year.

[Justin Laurence Bergner:]

Okay. Great. Thank you. And then will the revenue growth sort of relative to that 3% to 5% be back half-weighted? Or should we see on a constant currency ex-China basis that 3% to 5% sort of be pretty consistent throughout the year?

[Christopher A. Chapman:]

It's going to ramp a little bit more towards the back half of the year. I would expect Q1 to be probably the – one of the tougher comps, maybe look (42

[Justin Laurence Bergner:]

Great. Thank you. Just quickly on the EBITDA guide pro forma, it's set to improve $40 million to $70 million. It looks like the lion's share of that is going to be synergies realized, maybe some slight pull through on the organic growth. Is that sort of how I should think about the EBITDA bridge as essentially being synergies post some slight pull through on the organic growth? Or are there other sort of major puts and takes?

[Christopher A. Chapman:]

I think you're thinking about it right. I mean, if you look at the overall guidance model on the more flattish revenue bottom of the range, we will look to execute and deliver on at least $40 million of the cost synergies. And then as you look at that, the opportunity on the growth side and the pull-through of that – driving that. And obviously, if we're able to over deliver then on the overall cost out as well, that could also push us towards the upper end of the band.

[Andreas Walter Mattes:]

And especially on the revenue side, as you said, it's going to have some contribution to the EBITDA uptick, and our focus will be clearly around margin accretive deals in 2017.

[Justin Laurence Bergner:]

Okay. And then just quickly to follow up on that, when you say the cost out, Chris, are you referring to a specific target there, or just general cost out?

[Christopher A. Chapman:]

The target, the $40 million that we have, the general cost out.

[Justin Laurence Bergner:]

Okay. Thank you.

[Operator:]

Our next question comes from Jeff Kessler with Imperial Capital.

[Jeffrey Ted Kessler:]

Thank you. Hi guys. The question will revolve around cross-selling and the integration of the two companies in both regions. But just as an example, at NRF a few weeks ago, you showcased a new self-checkout kiosk, which appears to be being installed at a large food retailer. Can you talk about like the market and margin opportunity? And also, who gets the sale? Who gets credited for the sale if you got Nixdorf coming over selling the self-checkout kiosk in the region for a legacy Diebold person, how do you – how are you going to work that integration? And also, again, the opportunity for this cross-selling too?

[Andreas Walter Mattes:]

Jeff, first of all, thank you for highlighting one of our biggest growth opportunities that we have, which is retail in the Americas. As you know, legacy Diebold basically was not in this type of business. Legacy Nixdorf, very strong in Europe, but was always somewhat hamstrung in the Americas, not because of the ability of the technology, but just due to the simple fact that they didn't have the ability to service it. So, I've been in quite a few conversations, and you were mentioning NRF. It was actually a very exciting show for us, a lot of traffic. And a lot of people who basically said, would not have looked at you previously, but now that you're a combined company, by all means, please come talk to us. The other side, and that's what I was trying to mention earlier, when we said for the first time in 2017, we've got everybody on the same goal sheet, we now have the full domination agreement between the two companies, and all the quotas are aligned. So we've done account plans, and if you take retailers, it's pretty obvious that the most encouraging short-term venue will be riding the wave of global retailers headquartered in Europe that are expanding into the Americas, and all of these things have been completely designed, complex (46

[Jeffrey Ted Kessler:]

Okay. In the fourth quarter, it appeared that retail was a bit below what we expected. Was there any segment of that area that you felt that you really fell down – behind on, and was there a reason for that? Or is that due to you building up? I mean, you mentioned that the integration situation could have cost you some business in the quarter. But was that the reason, or were there other developmental reasons in which you're putting the companies together, to cause some of the falloff against expectations in retail?

[Andreas Walter Mattes:]

Actually, Jeff, the answer is even a lot simpler than that. If you look back at the October through December timeframe in 2015, that was the absolute retail rock-star quarter that Nixdorf had. I think it was the best retail quarter in the history of Nixdorf. And so it's just a question of tough comps. As simple as that. If you now double-click and you look at the stories within the story, for instance, one of the exciting pieces to see that in EMEA, which of course is the lion's share of our retail business today, our e-POS business grew north of 10%. So, I'm feeling very encouraged at the question of tough comps. We've build out the infrastructure in the Americas. We've hired a seasoned veteran, Devora Henderson, who came from IBM, Toshiba and is now leading our Americas retail activity. So, I'm pretty upbeat about the opportunity going into 2017.

[Jeffrey Ted Kessler:]

So, this is the 2017 issue that we can talk about, retail and European internationals improving or expanding into the Americas view. It is not 2018.

[Andreas Walter Mattes:]

No, that's – we're talking 2017.

[Jeffrey Ted Kessler:]

Okay, great. Thank you very much.

[Operator:]

And we will now hear from Joan Tong with Sidoti & Company.

[Joan K. Tong:]

Good morning. Can you just talk a little bit about the profitability in the North America region and – there was a decline there? And you mentioned a couple of things. Can you just give us a little bit more color, and in terms of how you expect that will improve going forward? Thank you.

[Christopher A. Chapman:]

Yeah. On the North America profitability, specific to the fourth quarter, the first item I mentioned was related to the overall just mix of the hardware business. If you just look at the flow of the activity that we had, it was a bit lower margin, large bank activity, versus a better mix that we had in the previous year of more regional, lower large bank. And so that's just pure math, based on the customer and the unit type that we had. On the secondary side, we talked about the Service business and the margins there. And we had really ramped up the overall hiring activities and increasing the overall workforce. One of the phenomenon that we're seeing in the overall industry is the overall status of technicians. North America is essentially 100% employment and there's significant, significant demand with the technician force out there. And so, we ran into some, I would say, some overtime issues and we've really been trying to ramp that up. And so, that's bared out in the cost side. We've taken actions to write that and we're looking for that to normalize over the next couple of quarters.

[Joan K. Tong:]

Okay. Got it. And then, regarding the $40 million synergy, I think, Chris, you mentioned in the past, $160 million multi-year and most of the – and this for the first year that's when – where you saw most of the expenses overlap. So, now, you talk about $40 million first year post-close. So, I just wanted to see if you actually have pulled forward some of those synergies into 2017? And maybe you are making better progress in terms of integration granted it's only like one and quarter, like (51

[Christopher A. Chapman:]

I was starting to talk (51

[Joan K. Tong:]

Okay. Finally, housekeeping. On that $115 million in D&A that you mentioned for 2017, how much is amortization of intangible?

[Christopher A. Chapman:]

That $115 million is excluding that overall amount. And so...

[Joan K. Tong:]

Okay.

[Christopher A. Chapman:]

...the numbers we gave, it's trying to leave that completely separate. And so, if you look at the breakout, I can provide a little more detail on it. But I believe that dollar amount will be $120 million, give or take a little bit, will be the impact of purchase-price accounting for the intangible amortization.

[Joan K. Tong:]

Okay, got it. All right. Thank you.

[Operator:]

And our next question comes from Matt Swope with Robert W. Baird & Company.

[Matthew Warren Swope:]

Good morning, guys. Could you talk, Chris, a little bit about the cash you have on the balance sheet right now, both how much you need to run the business and what your eventual plan is with that large cash number as compared to the amount of debt you have?

[Christopher A. Chapman:]

Well, first of all, I would start off just on the year-end cash flow performance. I was very pleased with how the global operations of the combined company came together and really drove strong performance in the overall working capital. And it was a joint effort, and really, really pleased with the outcome. We ended the year on a pro forma basis at net working capital as a percentage of revenue at 20%, which is in line with where the company should be and it's going to be a mark that we're going to look to use as a baseline as we move forward. So, I think that foundational piece was number one. You do see, though, in our business, a typical seasonal drawdown that you'll see in the first half. So, when we go into 2017, and we think about the overall cash position, we're sitting with roughly $700 million to start the year. We are expecting to have fairly significant outlays for the overall integration and restructuring activities. We've estimated that to be approximately $100 million in the overall year. If you look on a normalized basis as well, we finished the year at $40 million in CapEx as a combined company, but that's a bit artificial. It's an apples and oranges. You have to look at the full load of the combined company, and that's now going to run at roughly $100 million. So, there's a couple of big uses that we have in the upcoming year. All of that said, we're still sitting with a little bit excess cash on the balance sheet. We will look at opportunities on the debt side to possibly restructure the overall debt burden and look to utilize some of that cash to possibly do some additional pay downs. But I think the key right now is going to be funding the overall integration activities of the combined company as we go forward.

[Matthew Warren Swope:]

And can you remind us what your longer term leverage targets are?

[Christopher A. Chapman:]

We're looking to be under two times in the near term. So I would say over the next two to three years from an obligation standpoint. And I think another point that's always important to remind the analyst community as well, we do have an obligation outstanding. Now, this is likely going to take a long time, but we still have roughly $400 million obligation to our minority shareholders that sits out there for the remaining 7 million shares that are held by legacy Nixdorf shareholders that did not tender their shares. So, after we finalize the overall registration of the domination profit-and-loss transfer agreement if any of those shareholders decide to surrender those shares, we have an obligation to pay cash for them. So, that's something that when you look at our cash and the overall structure that we put in place, but I think a lot of people miss in their modeling or overlook that piece.

[Matthew Warren Swope:]

Do you think you need to set in cash roughly equivalent to that $400 million just to cover that at any given time?

[Christopher A. Chapman:]

No. If you look at past practice, these proceedings will typically lengthen out for a period of time. There's – after the registration of the domination agreement, there's typically a very small amount that'll tender their shares. But I look at that and say, that's going to be an obligation over the next half decade or something that we're going to have. So, we won't – we don't have to keep the full load of that, no.

[Matthew Warren Swope:]

Great. That's very helpful. Thank you.

[Operator:]

And once again, we will hear from Matt Summerville with Alembic Global Advisors.

[Matt Summerville:]

Thanks. Just two quick follow-ups. First, what's your confidence in your ability to get the remaining Diebold 2.0 and Wincor 7-point plan savings? Or does that just get lost in the shuffle with all this integration? I mean, we're not talking about an inconsequential amount that should still theoretically be incremental to what's been tallied thus far.

[Andreas Walter Mattes:]

Yeah. First of all, Matt, nothing gets lost. The Diebold 2.0 is basically done. There's – I think there's about $10 million left for the year. And we will also follow-up on the legacy Nixdorf delta plan, and we'll provide a combined model for you guys at Investor Day because otherwise, all of us starts tracking multiple work streams and it gets confusing. So, we'll bridge that for you and we'll include it in a holistic view, but we're chasing all synergies that we've talked about standalone and combined.

[Matt Summerville:]

And then, lastly, just to flesh out kind of the top-line. What would be your expectation under kind of the old reporting methodology because we don't have a system software and services model to work off of around that zero to 2% or if you want to call it organic 2% to 4% ex-currency? How should we think about FSS versus retail versus security versus Brazil other? If you can give a little more detail on that.

[Andreas Walter Mattes:]

Matt, if I serve the bottom and work up on the Brazil other – that business is going to continue to be quite small and lumpy. And so, minimal expectation on that for the 2017 assumptions. Security business, while we saw it actually up slightly in the quarter, we would consider that flattish as we move forward. If you look at then the retail and the FSS, obviously, we have to factor in the fact that we've got some of these headwinds, the currency and the China effect. And so, they're in about 1% to 2% range POS (58

[Matt Summerville:]

Got it. Thank you.

[Operator:]

And with no further questions, I would now like to turn the call back over to Mr. Virostek for any additional or closing remarks.

[Stephen A. Virostek:]

Good. Thank you, everybody, for joining us this morning. If you have follow-up questions, please call me. My contact information is on the press release. Thanks very much.

[Operator:]

And that concludes today's conference. Thank you for your participation. You may now disconnect.