Thanks, everyone. Good morning. I'm Matt Summerville from D.A. Davidson. This morning with us today, we're going to be hosting a fireside chat with management from Diebold Nixdorf. With us today, we have Octavio Marquez, the company's President and CEO, and then Tom Timko, the company's CFO. Before I start the formal Q&A, I thought I'd hand it over to Octavio for just a brief introduction.
Thank you, Matt, and thanks everyone for joining us this morning. It's always a pleasure being at your conference, Matt, so really appreciate the invitation. For some of you new to Diebold Nixdorf, I'll just give you a brief introduction on our company. We're a $3.8 billion company. We operate in over 100 different markets, and we're focused on two primary industries: financial services and retail. In the financial industry, we're very focused on driving efficiency at the branch level at banks. We do that through our ATMs, teller cash recyclers, but more importantly, our software and our services. In retail, we're very focused on the self-checkout experience for consumers and improving efficiency for retailers. We have a broad solution set of self-checkout solutions, point-of-sale solutions. Very importantly, all of them complemented with something that's very popular today: AI.
We built very strong AI capabilities to prevent shrink at the self-checkout, to identify produce, to age verify. We are very proud of our company. You know, we have been—it's a 150-plus-year-old company based out of Ohio. Since Tom joined me a little bit over a year ago, I have been CEO for roughly three years now. We have been very focused on improving the financials of the company. We have improved margins significantly. We are very focused on generating free cash flow and really returning value to our shareholders. With that, Matt, I think that gives you a little bit of a broad idea of what we do, but why don't we just dive into the questions?
Sure. To that point, I want to talk about leadership and the company's board. I've followed Diebold Nixdorf since 2001. I'm sure the longest tenured analyst, but over the last two years in particular, the company's brought in a number of new senior leaders, including Tom, while simultaneously upgrading and reconstituting the board of directors. Talk about some of the more meaningful additions you've had to your leadership team and the board and how you kind of compare and contrast the relative accountability you see now at the board level with respect to execution.
Sure. Let me start with how I reconstituted the leadership of the company. I would say that from when I took over to today, you know, we basically changed almost every single role that reports to the CEO. The most important one is here, my friend Tom Timko. Tom, why don't you just give us a brief introduction on what you do, and then I'll just jump in and talk about other leaders in the company.
Yeah. So much like Octavio, every single role that reports into me, most of those folks have less than a year. If you think about what the finance department was prior to my joining, it was a very small, very tactical group, and we're much more focused on being strategic business partners and really driving the operating discipline that's required to get Diebold back to what it's capable of doing. There's been a lot of focus on our tax, our treasury function, and just sort of getting back to normal post the corporate restructuring, made a lot of really good headway. You know, I joined this company a year ago after having spent the better part of six years at GE going through the transformation, and prior to that at GM, probably about seven years when they emerged from bankruptcy and going through that transformation.
I see at Diebold what I saw on those two companies, and I really do believe, you know, if you've seen our IR pitch or not, the ability for this company to generate free cash flow, you know, cumulatively over the next three years approaches $800 million. That's not sequenced on anything but what we control from an execution perspective. Really excited about it, you know, proud to be part of this team here and think we've got a really good runway.
Yeah. So talking a little bit more about my leadership team, one of the principles under which we're running the company today is our continuous improvement mindset and implementing lean across the enterprise. That's, you know, Tom is a big proponent of that lean. You know, he did that at GE, helping the spin out into the three entities that eventually happened there. I've also brought my new COO or VP of Operational Excellence. He was the COO of GE Vernova as well. Again, a person with a very strong focus on supply chain services and this continuous improvement mindset. I'd say that in that respect, we have built a very strong leadership team. We have new HR. I'm very focused on making sure we serve not only our customers very well, but also our employees.
We're very focused on HR as well in our team, making sure we have great employees that can deliver great service to our customers that hopefully will turn into more growth for the company. When I think of our board, we fully reconstituted our board. Our board is led by Pat Byrne. Pat is a, you know, longtime Danaher executive, then longtime GE executive. You know, now he's retired, but great experience as a CEO running GE Digital, great experience as CEO running Tektronix . Pat is helping me implement this lean culture across the enterprise. We've also added significant expertise around banking, one of the industries that we serve, Maura Markus . You know, she used to be COO of Bank of the West, you know, now board member for us.
Mark Gross, a very experienced CEO in the retail industry running, you know, multiple grocers across the Northeast. We built a very strong industry-specific board, very strong focus on continuous improvement and lean. We complement that with very strong financial, you know, acumen and many other of our board members. I believe that today we have probably the best board in our industry and one that is very focused on helping the company get to the next level, making sure that our continuous improvement journey materializes and one that is truly providing a lot of support for the company to be much better.
Very helpful. Maybe just address sort of the view that seems to be somewhat popular out there that you're in an industry that's somewhat of a melting ice cube, one that maybe faces secular headwind. Really what I'm talking about here is the banking side of the business, which you ran for a number of years becoming CEO. How do you respond to views that this business faces secular headwind and kind of the death of cash rhetoric?
Yeah. So I think I've worked in financial services for, you know, the better part of 30 years. And we've always talked about the death of cash and the death of the branches. Today, there's more branches being opened in the U.S. than branches being closed. There's more cash in circulation today than at any point in history. But what I would tell you is when I look at what we do, that we really help banks become more efficient in their touchpoints and improve their consumer journeys. We're very focused on how do we make the branch network more efficient, whether we do that through ATM technology, teller cash recycler technology, or a complete set of software tools to really make the branch more efficient. When you think of a bank's operating expense, a retail bank, 70% of that expense is tied to operating their branch network.
Our focus on making that branch infrastructure more efficient really drives value for the banks. Again, you know, I would tell you that if I were to just focus on the mature markets, you know, cash remains very stable. Remember, we're a global company operating in 100 markets. You know, I just came back from India a couple of days ago, still recovering from the 20-hour trip. When you go to those places or Latin America or Brazil, you see how widespread cash is, how financial institutions are using ATM, and particularly ATMs, to distribute government programs to the population.
I think that, you know, we're combating that notion that cash is going away by really showcasing that we're not just focused on the cash part of the ecosystem, but really making sure that ATMs, branches are to our software a key part of the branch channel strategy.
That's helpful. Thank you. I want to maybe just touch a little bit on each of the two businesses, banking and retail. On the banking side of the business, talk about what you're seeing from ATM, recycler demand, overall industry outlook over the next couple of years. Where are we with respect to recycling adoption globally, and how big of a catalyst has that been for the current hardware cycle?
Yeah. Let me take a step back, Matt, and probably define what recycling is. Before joining Diebold Nixdorf, I thought that the money you put into an ATM was the same money that came out. You know, then I came to realize that the money that comes out comes out from one bin, and the money that goes in comes from another bin. Recycling technology solves that problem. The cash that goes in is the same cash that goes out, providing significant operational efficiency. The biggest cost that a bank has in running ATMs is providing cash to the ATM. The CIT companies, think of companies like Loomis, Brink's, touching that ATM, refilling it, emptying it from deposits. Recyclers really help you avoid that cycle. The money that comes in is the same money that comes out.
This technology, you know, we made a big bet that that was going to be where we focus on our R&D dollars in banking. We are now in our 4th-gen recycler. It has been technology that has been widely adopted in many parts of the world, but it had not been adopted in the U.S. We started with some of the largest banks in the U.S. now deploying recycling technology. We have been very successful at that because it has a very quick ROI. You spend, you know, $20,000-$30,000 on a device, but quickly in a year or less, just based on the savings on cash in transit, you can probably pay for that device. We see these large banks deploying recycling at a very fast pace. We will see that trickle down to the mid-size and smaller credit unions and community banks as we move forward.
We're very early in the cycle. I like to say we have an installed base of 800,000 ATMs globally. We've upgraded to our new family, the DN Series, 200,000 over the past two and a half years. We still have 600,000 ATMs to refresh over the next couple of years. If you think that we replace about a tenth of them every year, that's the life cycle of an ATM, seven to ten years. We still have, you know, if we were to keep at the same pace, we probably have six, seven years of revenue flowing just based on the current technology that we have. Clearly, we're investing in new things to accelerate that.
One of the things you talked about to your analysts today was doing some things to further automate branch cash-related operations. Can you speak to that a little bit?
Yeah. So a lot of people, when we talk about it, you know, or in the industry, we are very focused in the ATM. As I started, we're very focused on automating the branch. You know, there's cash at an ATM, there's cash at the teller, there's cash at the vault in a branch. What we've been able to do is deploy the same technology that we have in the ATM inside the branch and inside the vault. So the same mechanism, the same recyclers that operate at the ATM operate at the branch teller. You can interchange the cassettes that hold the money between devices through software. We can control it and really create an end-to-end cash ecosystem where you're optimizing cash at the branch level, not cash at the ATM.
This is where we see tremendous potential of savings for the banks as you optimize the complete cash ecosystem.
Just touching on India and kind of your Asia strategy overall, it sounds very timely, given you just spent some time there. Just to level set, the Indian ATM market is the third largest in the world. Talk about your strategy in terms of reentering that market and your ability to sort of sustain profitability in a market that's been, you know, challenged in that respect for some time.
Yeah. I just came back from India, so very timely, as you say, Matt. Just to put things in perspective, I met with two of our largest customers there. One is the State Bank of India. The other one is the Bank of Punjab, the National Bank of Punjab, both government entities. When I was talking to their chairmans, one of them told me, because we started manufacturing in India, you really need to produce products locally to be competitive in that market. We started our manufacturing strategy there a couple of, probably a year and a half ago.
Talking to the Chairman of one of these banks, he told me, "Octavio, I'm sorry that you made this big investment in India because this year we will buy very few ATMs." I went, "Oh, really, sir?" You know, I was looking at my team like, this is not good. Why did they bring me to this meeting?" The gentleman goes, "No, we're going to buy 7,000." I go, "7,000, that's not bad, sir." You know, and I go, "Are these just replacements?" He goes, "No, no, no, these are new locations. The replacement budget is something else. We're going to replace about 10% of the 70,000 that we already have." They were adding 7,000 ATMs to an already large installed base of 70,000.
To put it in perspective, if I add JPMorgan , Bank of America, and Wells Fargo, they do not get to 70,000 ATMs. That was just one customer. Again, we see great potential. We have a strategy to maintain profitability that we call building fit-for-purpose, you know, devices for each market. The India market has certain characteristics, so we built a machine very specifically designed for the Indian market, you know, one that is, you know, smaller footprint, higher transaction volumes, different security levels. We are pretty convinced that that machine will help us really grow and start increasing our installed base. Remember, if an ATM is sold, there is a seven-year to ten-year service annuity. In India, once you sell an ATM, you practically guarantee a ten-year service annuity at very high margins.
That's why we're so focused on growing in India and making sure that, you know, we build that service annuity for the future.
Thank you. Let's pivot over to retail for a moment, starting out with self-checkout. Can you talk a little bit about self-checkout adoption, Diebold 's market share today versus maybe three to four years ago, and what's driven the share capture and kind of what ending do you think we're in globally with self-checkout proliferation?
Yeah. Let me pivot then to our other industry, the retail market. Two years ago, we made a decision that we were going to become the number one self-checkout provider in Europe. We had minimal market share at that time, but we saw the market shifting in that direction. Today, we're number one in Europe with roughly 40% market share in Europe. We've done that through, you know, building a more modular product, a more secure product, one that really enhances both the staff journey at the retailer and the customer experience. We do that through, as I mentioned, AI technology. Our, you know, self-checkout is capable, you know, through our computer vision AI that we deploy with the self-checkouts to recognize produce, one of the points of most friction in the consumer journey.
You know, when you put a lettuce or a tomato, making sure that it's recognized and, you know, you don't have to key in a code. So we've done that. We've also done age verification. So for restricted products, think of alcohol. Whenever you buy alcohol in a self-checkout, the transaction stops and there's an intervention by the store employee. So we've been able to automate that. But I think that the most amazing thing has been, you know, our shrink detection or theft prevention. You know, we've built 23 use cases using AI on how people might mis-scan something or change the label of something and really prevent theft at the self-checkout. You know, one of the customers that we just recently implemented at Les Mousquetaires , which is one of the largest grocers in France, saw a reduction of 70% in theft at the self-checkout.
We're very, you know, very excited that it's not just a hardware play, it's a hardware, software, and services that, again, self-checkout, same as ATM, creates a very long annuity. You deploy a machine and then there's a five- six year annuity for services. That's what we accomplished in Europe. This year, we're very focused on the U.S., where our market share is less than 3% in the self-checkout space. Our first large customers, one of our European customers already, ALDI, who's deploying roughly 2,500 stores across the U.S., and we're deploying the technology there. We're now very focused. The U.S. is the largest self-checkout market in the world, and there's a big opportunity for us to really disrupt the incumbents in that market. Why?
Because some of these large grocers, large retailers that implemented self-checkout probably 15, 20 years ago bought a very tightly coupled solution where the software, the hardware, and the services were all integrated, and you really had very little flexibility. If you were with one provider, that's the provider that you stood by. Today, we're seeing large grocers like Walmart developing their own point-of-sale software. You know, Kroger doing something similar. There is this disaggregation of the decision between the hardware, software, and services. We believe that this opens really a great possibility for us to start growing in the U.S. market. Even though we have very ambitious plans, if you think about it, just growing a couple market share points will produce tremendous results for us.
We're very encouraged, you know, by the early results that we've had so far in the year, and we should, you know, hopefully by the end of the year have some large name brands in the U.S. using our technology.
Can you talk about, I'm going to refer to it as alternative checkout, things like intelligent carts, mobile, other AI-enabled solutions? How is Diebold addressing that portion of the market? Do you see that as additive to a more hardware-based self-checkout, or is that something that cannibalizes?
I would say, Matt, when you think of our business, there's always three very strong pillars. It always starts with great products, whether it's our ATM, self-checkout, point-of-sale, hardware technology. But believe it or not, I still believe there's a lot of innovation to be done there. This is not a commoditized market yet. Then we have the software pillar and the services pillar. When I think of retail, two years ago, one of the things that we did was rewrite our software to make it, you know, endpoint agnostic. Today, our point-of-sale software, whether you're deploying it at a self-checkout device, a traditional point-of-sale, a till with a person, a cart, you know, a mobile device, it's the same software that you, it's the same back-end software that's cloud-native, API-driven. You can actually add any touch points that you want.
If you want to add, you know, self-checkout carts or scanners or different things, we're addressing it through our software that is multi-point. And once you deploy the software, you can just keep adding different points.
Maybe just sticking with retail for a moment, can you talk about what you're seeing with respect to point-of-sale demand and when can we expect sort of the next replacement wave there?
Yeah. So point-of-sale, you know, the traditional point-of-sale is a more tricky business since retailers can postpone the investments there when there's economic uncertainty. However, we see that as retailers keep investing in efficiency in the store, this is something that they can't postpone for long. When you think of self-checkout or point-of-sale, I think that, you know, we had a spike in demand during the COVID years as everybody tried to modernize and optimize their stores. We saw a little bit of a lull, but we're starting to see the industry coming back up. I would say that as we go through the year, we're very confident that, you know, we will start seeing incremental growth in that business as the year progresses.
I want to spend a minute talking about hardware cycles. I generally consider Diebold to be a little bit more beholden to hardware cycles relative to other peers in the ATM market. Do you agree with that? What are you doing strategically to reduce your sensitivity to cyclical replacement-driven hardware demand?
Yeah, I think that the industry has changed a lot, Matt. And when I talked about our focus not being exclusively on the ATM, but being very focused on what we call branch automation services, just making sure that we're optimizing the branch footprint for our banking customers, making sure they have the right combination of recyclers, the right combination of teller cash recyclers, the right combination of software to integrate other payment methods or other channels into the branch ecosystem really diversifies our business. Clearly, as we grow that, we will continue growing our service annuity. But think of our company today. Of the $3.8 billion that we do in revenue, $2.2 billion are service-related. So 57%-58% of our company is already, you know, a service annuity. Do I want to reduce our dependency from hardware?
You know, I actually want to continue gaining market share in the hardware business because every touch point that we put just keeps feeding into our service annuity. As banks look to optimize, there is also a large suite of services that we provide that really help the banks move work to us, think about patching and security in an ATM network. Many smaller institutions have no desire or ability to do that, so they'll outsource that to us, you know, managing the cash in the branch, forecasting the cash. They'll outsource that to us, monitoring the, you know, the health of their network. All those types of things are things that we're very focused on growing. Today, I think with the large installed base that we have, it's something that we're very, very excited about.
I want to get back to a topic we referenced earlier, that being lean and continuous improvement. What does that mean? I think it's easy for people, easier for people to sort of understand what that means for more of an industrial company, maybe a little less so when you have a little bit more of a technology fold to your business. So Octavio and Tom, what does that mean not only just from a factory floor standpoint, but implementation of lean and continuous improvement across the company? How's that impacting your finance and accounting organization? Again, using the baseball analogy, kind of how deep into this are you? Maybe can you give some tangible examples of successes?
Sure. You want to start or you want me to do it?
Why don't you start, Tom?
Yeah, look, so having been at GE, I embraced lean early on and able to bring that skill set over and partnering with Frank Baur, who's our VP of Operations here, very, very disciplined in terms of if you think about finance or really any function, how we're tackling it is you have an input, you have your factory, which is everybody's desk, what you're doing today, and then you have an output that comes out. Lean touches all of those pieces. What we've gone in, we've identified opportunities that have more of a financial impact, such as DSO. If you were to look at our DSO about a year ago, probably high 60s, right? 65, 68 days.
When you think about our customer base of banks and the top retailers and our net terms of, you know, let's say on the round 40, you know, 60-plus days doesn't make any sense. We worked with our shared services group, we worked with Accenture, identified the problem. Now we're probably floating in the mid to low 50s, and we think that there's more opportunity. When you think about the impact that that one Kaizen event had, got everybody together, we all talked about what the issues were. You know, you literally kind of whiteboard this with everybody in the room, and then you go tackle, what do we need and how are we going to fix it? That manifested itself in the first true output of that process.
Last quarter, we had positive free cash flow, which if you were to go back in DN's history, it's never happened. It was driven by DSO days coming down. We think that that's just the beginning, right? We have more opportunity with DSO, we have more opportunity with DIO, and there's a relentless focus on it. You know, we've done it in terms of something as simple as our queue. If you go pick up our 10-Q for the first quarter, you'll see it's, you know, 20 something pages versus 43. I would tell you it's simpler and more transparent and easier to read, right? That's how lean kind of manifested in the functions. You see that in HR. We see that in legal in terms of how we're just processing items. Factory, you want to hit with Frank?
Yeah, so probably in the factory, you know, because that's the easiest example to understand. We have distributed manufacturing across the globe. We manufacture in North Canton, Ohio, for our U.S. market. We started that before the tariffs. Now we look a little bit smart. Again, we decided to start manufacturing in the U.S. for the U.S. two and a half years ago. We manufacture in Germany for the European markets, in Brazil for the Latin America markets, and in India for the Asia-Pacific markets. When I took over as CEO, our product margins were 13%. The first quarter as CEO, I reported great product margins of 13%. Over the past, the last two years through lean, we've improved those margins and we're now in the neighborhood of 27%.
We believe that we can still continue improving our margins, you know, by applying those lean principles, you know, continue applying lean principles in manufacturing. We're now very focused on growing our service margins, which we believe is the next big opportunity that we have as a company. We're applying those same principles. How do we reduce work from the system? How do we eliminate waste? The important part is that the company used to be a company that was very focused on one-time fixes to our problems. If we had a problem, we would, you know, restructure that area, you know, try to hire consultants to do it. Now we're changing the way the company operates. It's a mindset of continuous improvement. We know that we can't solve every challenge that we have.
Like Tom said, DSO, you know, we did not say we have 60, we are going to 40. We said we have 60, we are going to 50. Once we are at 50, we know that we can get to 45, that we can get lower. Same thing in inventory. We know that we have a certain level of inventory today. Through continuous improvement, we will keep winding it down to more appropriate levels. That is the change in mindset. When we think of our service business, people ask me, when will we see a huge improvement? I keep reminding them, you will see us improve every month, every quarter, adding, you know, a couple percentage points to our profitability. That is the mindset I want in the company, that people are always looking for ways, that people are always looking to get better a little bit every day.
One thing that Tom taught me is, you know, we have to win the day. We need to make sure people do their work correctly one day. If we win the day, we will be able to win in the week. If we win the week, we win the month. If we win the months, we win the quarter. We need to make sure that people remain focused on the small tasks that we do every day because that's what adds up to us having successful quarters.
Maybe I'll just add to that a little bit, you know, in our services opportunity, given the size and recurringness of the revenue base, we're deploying our OFS software to the field. This software shows up on the technician's phone, tells them what routes to go, tells them what parts need to be in the truck before they go. Highly, highly effective so far in the areas that we've rolled it out. We're going to start rolling that out in North America and then again globally. We think as our journey, you know, get back to a 30% gross margin in our services business, that's going to be a part of it. We're really excited about that. We've got a lot of runway in a space that's, you know, as Octavio alluded to, $2+ billion of our revenue base, right?
Just to give you context, our service margins ended last year at, you know, 26%-ish. We committed to being able to increase those by 100 basis points a year over the next three years.
Thank you for all that color. Maybe let's talk a little bit about backlog and funnel. Talk about how you've been feeling about inbound orders, overall backlog, visibility to the back half of 2025. Any early thoughts you might have on 2026 just from, again, high-level demand standpoint? And again, just maybe speak to the funnel across the two businesses.
Yeah, maybe I'll start with that one. As of the end of the first quarter, our backlog was probably $900 million. Our first quarter was a record in terms of OE. We continue to see our order entry progress at a similar level, you know, in April as well. We're confident that that backlog and that continuation of the order entry, you know, will help us facilitate the back end of the year, the second half of the year, which we said would be not as linear as prior years, 55% of the revenue being generated in the second half. We do feel given between our order book and our backlog and what is a much different manufacturing environment, right? It takes us 90 to maybe 120 days to turn an order around. Manifest that in the first quarter.
The Diebold of the old would have been manufacturing through the first quarter, buying inventory, building it up, absorbing that cash flow. Now we're much more focused on when we need to place those orders from the supply chain. It's really allowed us to sort of funnel that free cash flow, you know, back into the business or back to our shareholders.
Yeah, so Matt, looking at the demand environment, I would tell you that as Tom said, we had record orders in Q1 that allowed us to, you know, grow our backlog by $100 million. You know, we're very confident that with that, plus what we feel, you know, have good visibility during Q2, we could probably, and I don't want to say it this way, but we will have enough backlog to complete the year. The second half of the year becomes how do we accelerate more orders to start building the backlog and the pipeline for 2026. I feel good in that respect that, you know, again, $2 billion of our revenue comes from services, which is recurring in nature. We just need to keep performing and invoicing our customers.
As the backlog now, you know, pretty much covers all the, will cover the revenue that we need for the remainder of the year, we feel good about 2025. As we look into 2026, you know, I am encouraged by a couple of things. For example, we talked a little bit about retail, and I mentioned that we're now focused on the U.S. market, very, very strategically focused because it's the largest retail market in the world. We've hired a new team, true industry experts to really help us drive that. We started building that team in the fourth quarter of last year. Today, we have a pipeline of over $300 million. You know, we're still waiting for some of that to happen, but we have pilots in some of the largest grocers in the country.
We, you know, some of our European customers, think of an H&M, IKEA, are also refreshing a lot of their stores. We have that little bit of a tailwind for us as well in the U.S. We feel very comfortable that the demand environment will continue to be very favorable to us. You know, the other point that I should mention is, you know, one of the key advantages that our distributed manufacturing has, as Tom said, the old Diebold probably took, you know, north of 120-200 days to deliver a product. Now when I place an order in the U.S., you know, with our local manufacturing, 60 days later, that order, that ATM or that cash recycler is installed at a customer.
We feel very good that, you know, better backlog, you know, better manufacturing, a much more efficient supply chain, you know, guarantees us a, you know, a very successful year and good visibility to 2026.
Thank you. We have about seven minutes left. There's a couple of things I want to make sure I get to. Earnings quality and financial reporting. Diebold has taken some steps to close the disparity between GAAP reporting and adjusted financials. Talk about what's been done already. What's still left to do to kind of clean up Diebold's P&L reporting?
Yeah, so if you look at our adjusted EBITDA from a year ago, we had a lot of professional fees that were adjusted from our earnings, right? Some of that had to do with the corporate restructuring that we had went through and just building up some of the organizations as well post that. The first quarter of this year, we kind of drew a line in the sand and said, hey, look, unless it's kind of headcount related, which is much more of a sort of natural item to adjust or facility exit related, we just made a shift from backing out those professional fees for what it may be. It resulted in a reduction of 50% or 56% actually of our EBITDA adjustments. Much better quality of earnings between our EBITDA adjusted and our free cash flow.
This is something that we're going to stay very focused on and disciplined about. We're very transparent in our earnings and our other filings, you know, about what are the components of that. Again, it's really just getting to a better cadence and a better quality of earnings and what that focus is for us.
I want to make sure I touch on balance sheet. Obviously underleveraged, you have $100 million share repurchase in place. Where do you see the company's longer-term leverage guardrails? How committed are you to maintaining leverage within that bandwidth, just given some of the historical lack of stewardship with respect to balance sheet?
Yeah, so underleveraged, I'm not sure I agree with that. I would say appropriately leveraged. Right now, our net debt leverage ratio is 1.5. We're committed to keeping that in the range of 1.25-1.75. It'll fluctuate with some of our, you know, EBITDA over the course of the year. That 1.5 number is really, you know, the sweet spot for us. We've got the best balance sheet in the industry. You know, as we think about liquidity after having done our refinancing of our exit term loan in the fourth quarter of last year, we took our interest rate down from, I don't know, 13%-14% to 7.75%. The way our secured notes are trading today, we do have a no-call on it for two years.
We'll probably be back in the market after those two years because the yield today would suggest we're probably closer to 6.5, 6.75, right? We've got some work to do on that journey. Our credit ratings are below where I feel they should be. We continue to meet with Moody's and S&P. You know, kind of as Octavio alluded to, our say-do ratio, we keep executing each quarter. We would expect there to be some more traction there. You know, we feel that we've got the right amount of liquidity with our revolver of about $300 million. We've got $300+ million in cash on the balance sheet as well. We're going to be slightly conservative on that cash hold. We're going to keep it between minimum cash $250 million and $300 million.
I would say as we continue to progress through our journey and, you know, that free cash flow builds, right? Think about this year's 40% of EBITDA, next year 50% of EBITDA, and then in our final year, 60% of EBITDA. As I alluded to in my opening remark, that's $800 million of free cash flow over that three-year period, which if you just look at our market cap today, that's half. We're, and again, all of that is within our control, right? We're not dependent upon others or other events to happen. It's just the continued daily execution of what we do in our core, whether it's services, deploying ATMs or SCO. We feel pretty confident about that.
With that cumulative 800, at some point, looking out over the next couple of years, do we start to have a discussion regarding M&A or a dividend? How should we be thinking about that?
The answer is absolutely. I think in the near term for us, you know, our entitlement is really buying back the shares. We think that they're extremely undervalued at this point. We continue to use that as a benchmark against any other investments that we make. You know, I would say some of the AOI, there's an interest out there and that's got a pretty high return. You know, I think if we do dip our toe back into, you know, making an acquisition, doing some M&A, it would probably be in our services business, but it would have to be relatively small and almost immediately accretive to meet our parameters. When I say small, you know, you're thinking less than $75 million-$50 million, you know, bolt in. You know, we have, I think we have some really good opportunities to deploy that.
The dividends on the table, I just think it's at what stock price do we, you know, use that as another method to return capital.
Understood. Can you maybe spend a minute just talking about executive compensation and how that syncs up with absolute shareholder return?
Yeah, so one of the things that the board made sure that we did this time around is executive compensation is tightly aligned to our shareholders' best interests. So I start getting paid when our share price hits $65. Today we're at $40, $50, $50. I don't know where they landed open this morning, but I get paid, you know, a first tranche of my shares is at $65, then $75 and $95. When I hired Tom, I did the math for him on how we were going to get there. And we're both big believers on it. So again, you can see that the interest of our shareholders is very tightly aligned to how management will be compensated across the company.
You've seen by the quality of people, the board also, the shares that the board receives are also tied to, you know, similar hurdles as the ones that we have as management. As you can see, we've built a company that's very, very focused on returning value to our shareholders and making sure that management is aligned to what's best for our shareholders.
Maybe one last final topic. We have about a minute and a half here. Because it is timely, can you just talk about your current tariff exposure and what you're doing to mitigate this impact and touch on your global manufacturing footprint and how that diversification is maybe helping?
Sure. As you know, every day is a different story. You know, when we did the initial analysis, we had, you know, and that was when tariffs in China were at 145 and the rest of the world was at 25 and 10. We estimate, you know, we have very clear visibility and we communicate that we had about a $20 million exposure to tariffs. Even with that $20 million exposure, we reiterated our guidance of adjusted EBITDA of $470 million-$490 million. You know, as the quarters have evolved, we've been able to mitigate some of that. You know, we've been able, at that time, we communicated that 50% we knew how to mitigate because we had time to do it. Over the past couple of weeks, we've found ways to mitigate even more of that.
We feel very confident that this distributed manufacturing, you know, producing in the U.S. for the U.S. and Europe for Europe provides, you know, a good buffer for us. Remember, the thing that we're doing when we think of U.S. manufacturing, we're also developing a lot of suppliers around our Ohio manufacturing facility to make sure that we're not dependent on importing things. You know, there are clearly things that are only manufactured in Asia that we will always have to import. We are very focused on building local supply chains to, you know, to sustain our production and kind of create that buffer for us wherever the tariffs might go in the future.
Yeah, so if you think about tariffs, it's really mitigated a third by lean and all these initiatives that we have, a third by sort of supplier or alternative sourcing, and then a third by pricing, right? Some of the pricing initiatives have been very sticky for us, or at least they have been so far. Even if you put all that to the side, when you benchmark us to others, you know, one of the things that stand out is our SG&A spend as a percent compared to others. That's what we're laser-focused on right now. Think about having those three initiatives already ongoing and then the lever of being able to pull the OPEX trigger and reduce that over time and get more in line.
We feel like the tariffs will be mitigated and, you know, that we'll be in a good spot hitting the year next year on a run.
Very good. I think we'll close it out there. Thank you.
Yeah, thank you.
Appreciate it. Thanks, Octavio. Thanks, Tom.
Thank you.