Conferencia de resultados del T3 de 2026 de Diebold Nixdorf (DBD): Recorte de previsiones por el mix y los costes de memoria

Conclusiones clave

• Diebold Nixdorf (NYSE: DBD) presentó unos ingresos no GAAP para el tercer trimestre de 2026 de 991 millones de dólares, un 5% más en tasa interanual, mientras que el EBITDA ajustado aumentó un 5% hasta los 128 millones de dólares.
• Los ingresos de la división de comercio minorista aumentaron un 16%, registrando su cuarto trimestre consecutivo de crecimiento de dos dígitos. Los ingresos de la división bancaria aumentaron ligeramente, impulsados por América Latina, Europa y América del Norte.
• La combinación de productos presionó la rentabilidad. El margen bruto no GAAP cayó 90 puntos básicos hasta el 25,3%, debido a que aumentó el volumen de puntos de venta minoristas de menor margen y los volúmenes de productos bancarios se situaron por debajo de lo previsto.
• La dirección revisó sus previsiones para todo el año a unos ingresos de entre 3.860 millones y 3.900 millones de dólares, un EBITDA ajustado de entre 490 millones y 510 millones de dólares y un flujo de caja libre de entre 190 millones y 210 millones de dólares.
• La inflación en los componentes de memoria representó un impacto negativo neto de aproximadamente 25 millones de dólares en 2026. La empresa prevé que las cláusulas de revisión de precios y las provisiones contractuales relacionadas cubran del 95% al 98% de los contratos para finales del cuarto trimestre.
• Diebold Nixdorf autorizó un nuevo programa de recompra de acciones por 250 millones de dólares. La liquidez al final del trimestre fue de 495 millones de dólares, con un apalancamiento de deuda neta de 1,5x.

Datos financieros clave

Rendimiento operativo y del negocio

Banca

Los ingresos de banca aumentaron ligeramente en tasa interanual, con crecimiento en América Latina, Europa y América del Norte. Asia-Pacífico, Oriente Medio y África se enfrentaron a una base de comparación difícil y a un entorno operativo más complejo, especialmente en Oriente Medio.

El margen bruto total de banca subió 40 puntos básicos hasta el 27,2%. El margen bruto de productos cayó 380 puntos básicos hasta el 26,3% debido a la combinación regional y de clientes, mientras que el margen bruto de servicios aumentó 350 puntos básicos hasta el 27,9%, incluyendo el beneficio fiscal extraordinario.

Entre las adjudicaciones de contratos se incluyeron 520 recicladores de efectivo DN Series para un importante banco norteamericano, más de 1.450 cajeros automáticos en un mercado asiático y 360 recicladores de efectivo en sucursal en América Latina con un acuerdo de servicio a largo plazo. La empresa también firmó un contrato de servicio que cubre aproximadamente 6.000 cajeros automáticos para una importante entidad financiera española.

Diebold Nixdorf se encuentra en las etapas iniciales del desarrollo de una colaboración estratégica con Euronet. Las empresas buscan combinar la tecnología de reciclaje de efectivo, el software y la capacidad de servicio de Diebold Nixdorf con la experiencia en operaciones de cajeros automáticos y procesamiento de transacciones de Euronet.

Comercio minorista

Los ingresos de comercio minorista crecieron un 16% interanual, impulsados por Europa y América del Norte. Sin embargo, el margen bruto de comercio minorista cayó 400 puntos básicos hasta el 20,7%, reflejando una mayor proporción de productos de punto de venta y unos elevados costes de memoria. El beneficio bruto de comercio minorista fue de 61 millones de dólares, un 3% menos aproximadamente.

Los nuevos negocios incluyeron aproximadamente 1.200 cajas de punto de venta en 200 tiendas para una cadena regional de supermercados de América del Norte. En Europa, Diebold Nixdorf logró la renovación de 6.000 cajas de autocobro y un contrato de servicio por valor de más de 25 millones de dólares con una empresa minorista con sede en el Reino Unido.

Los proyectos piloto y los despliegues iniciales de Smart Vision AI estaban alcanzando o superando los objetivos de reducción de pérdidas de los clientes, según la dirección. La empresa sigue en camino de superar los 1.000 despliegues para finales de año. Los ingresos actuales siguen siendo relativamente reducidos, pero el producto se ofrece a través de un modelo de software como servicio.

Servicios y eficiencia

Excluyendo el beneficio extraordinario de aproximadamente 8 millones de dólares, los márgenes de servicios aun así mejoraron de forma secuencial e interanual. La dirección atribuyó esta mejora en parte a la disciplina operativa y a las inversiones previas.

En la planta de fabricación de Manaos (Brasil), Diebold Nixdorf redujo los plazos de entrega en varias semanas, aumentó las entregas a tiempo a aproximadamente el 95% y redujo la superficie de ensamblaje de cajeros automáticos en alrededor del 45%. La empresa también identificó oportunidades de ahorro en fletes de más de 1 millón de dólares al año.

Previsiones de la dirección

Para el 4T, la dirección prevé un margen bruto de servicios de aproximadamente el 26,7% y un margen bruto de productos cercano al 24%. La empresa ya no espera alcanzar su compromiso anterior de un aumento de 50 puntos básicos en el margen de servicios de todo el año, aunque sigue anticipando una ligera mejora.

La dirección prevé que los gastos operativos de todo el año disminuyan al menos un 2% interanual. La empresa no facilitó previsiones para 2027 y señaló que espera ofrecer una actualización en febrero, tras completar su proceso de planificación anual.

Riesgos y aspectos a vigilar

• La combinación de productos sigue siendo una importante limitación para el margen. El margen bruto de los productos bancarios en lo que va de año fue de aproximadamente el 30%, frente a alrededor del 15% para los productos de comercio minorista.
• La inflación de los componentes de memoria generó un impacto negativo neto de aproximadamente 25 millones de dólares en 2026, incluidos unos 15 millones en el primer semestre y 10 millones en el segundo semestre.
• El fondo de maniobra redujo el flujo de caja libre de todo el año en aproximadamente 30 millones de dólares más de lo previsto, en parte debido a que los pagos anticipados de los clientes se situaron por debajo de los niveles históricos.
• El calendario de las grandes licitaciones y proyectos bancarios sigue siendo incierto, y algunas oportunidades se han pospuesto para más adelante en el año.
• La actividad bancaria en partes de Oriente Medio se vio afectada a la baja por un entorno operativo complejo.
• El sector minorista europeo se enfrentará a comparaciones más difíciles en 2027, al tiempo que la dirección también prevé un incremento de impuestos pagados en efectivo de aproximadamente 30 millones de dólares en Alemania.

Puntos destacados del turno de preguntas y respuestas con analistas

• Perspectivas para 2027: La dirección prevé un mercado bancario estable, comparaciones más exigentes en el sector minorista en Europa y continuas oportunidades en el sector minorista de América del Norte. Se esperan previsiones detalladas para 2027 en febrero.
• Rentabilidad de los servicios: Unos mejores niveles de servicio han respaldado las conversaciones sobre la revisión de precios de los contratos. La dirección describió la inercia inicial de precios como positiva, pero indicó que la mayoría de los beneficios deberían comenzar en el 1T, dado que los contratos se renuevan generalmente con carácter anual.
• Mitigación de los costes de memoria: Diebold Nixdorf prevé que entre el 95% y el 98% de los contratos pertinentes incluyan cláusulas de revisión de costes de memoria y provisiones de precios para finales del 4T. La dirección prevé que la gran mayoría de la presión quede atrás a partir del 1T.
• Comercio minorista en América del Norte: La dirección calificó el mercado como una oportunidad en gran medida sin explotar y señaló que la cartera de proyectos continúa expandiéndose a medida que la empresa suma clientes en autocobro, puntos de venta y Smart Vision AI.
• India y Oriente Medio: Se prevé que los envíos de productos adaptados a las necesidades del mercado en India aumenten significativamente en el 4T. La dirección también planea introducir un reciclador de efectivo adaptado para India, al tiempo que señaló que mercados como Egipto y Arabia Saudí se mantuvieron por debajo de sus niveles tradicionales de actividad en 2026.

Transcripción completa de la conferencia de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Hello, good day, and welcome to Diebold Nixdorf's Third Quarter 2026 Earnings Call. My name is Melissa, and I'll be coordinating today's call. [Operator Instructions]

I'd now like to turn the call over to our host, Maynard Um, Vice President of Investor Relations. Maynard, please go ahead.

Maynard Um

Hello, and welcome to our third quarter 2026 earnings call. To accompany our prepared remarks, we posted our slide presentation to the Investor Relations section of our website.

Before we start, I will remind all participants that you will hear forward-looking statements during this call. These statements reflect the expectations and beliefs of our management team at the time of the call, but they are subject to risks that could cause actual results to differ materially from these statements.

You can find additional information on these risks in the company's periodic and annual filings with the SEC. Participants should be mindful that subsequent events may render this information to be out of date. We will also discuss certain non-GAAP financial measures on today's call.

As noted on Slide 3, reconciliations between GAAP and non-GAAP financial measures can be found in the supplemental schedules of the presentation.

With that, I'll turn the call over to Octavio, who will begin on Slide 4.

Octavio Marquez

Thank you, Maynard, and good morning, everyone.

Before discussing the quarter, I want to highlight today's announcement of the new $250 million share repurchase authorization, our largest to date. Following our previous $200 million program, this reflects our confidence in the long-term outlook of the business, the strength of our balance sheet and our commitment to delivering value to shareholders.

Turning to the third quarter. We delivered solid performance with continued revenue and earnings growth, good business activity and further progress against our strategic priorities. Revenue increased 5% year-over-year to $991 million, while adjusted EBITDA also grew 5% to $128 million. Year-to-date, our book-to-bill ratio stands at 1x.

In banking, we saw growth across nearly every region, including North America and Europe. We continue to see encouraging opportunities as financial institutions modernize their branches and invest in automation, software and services.

We recently hosted our largest ever banking customer event in Nashville, Tennessee, where a consistent theme emerged. The physical branch continues to play an important role, but how banks use their branches is evolving. Financial institutions are increasingly focused on automating routine transactions and allowing employees to dedicate more time to higher-value customer interactions. These trends align well with the breadth of our portfolio.

In retail, we delivered another quarter of double-digit growth, supported by continued strength in Europe and increasing momentum in North America. We are winning new customers, expanding existing relationships and building a stronger foundation for future growth in a market where we see substantial opportunity.

We also continue to make progress in services and operational efficiency, both of which are critical to improving profitability and cash generation over time. While our third quarter performance was solid, we continue to navigate elevated component costs, particularly around memory, an unfavorable product mix and timing of certain large banking projects. We've taken pricing and operational actions that have partially mitigated these pressures, but their combined effect has led us to revise our expectations for the full year outlook, which Tom will discuss in more detail.

Overall, with a strong balance sheet, continued progress against our strategic priorities and significant opportunities across banking and retail, we remain confident in our long-term outlook and focus on translating our business momentum into sustainable growth, stronger profitability and improved cash generation.

Let's turn to Slide 5. We are excited to announce we are in the early stages of developing a strategic collaboration with Euronet to deliver integrated ATM outsourcing solutions globally. By combining our cash recycling technology, software and global service capabilities with Euronet's ATM operations and transaction processing expertise, we can help banks improve operational efficiency, expand self-service capabilities and create new revenue opportunities. We believe this combination of efficiency, revenue generation and flexibility would create a differentiated value proposition for our customers.

Turning to review banking on Slide 6. We delivered growth in 3 of the 4 regions we serve, including North America and Europe, our 2 largest markets, as well as Latin America. The Asia Pacific, Middle East, Africa region faced a difficult year-over-year comparison following significant shipments of high-capacity ATMs last year, along with a more complex operating environment in the Middle East.

Nevertheless, we continue to see attractive opportunities across our banking portfolio in this region. In our core ATM business, we secured several important wins, including an order for 520 DN Series cash recyclers with one of the largest banks in North America. This is an important validation of our technology and our ability to compete and win with leading global financial institutions.

We also secured a contract for more than 1,450 ATMs in a large market in Asia that will further expand our installed base in that market. We're making progress with our branch automation solutions strategy, where we're expanding beyond the ATM to help financial institutions better connect their physical and digital channels, while automating more transactions within the branch.

In Latin America, we secured a contract for 360 in-branch cash recyclers, together with a long-term service agreement. We also signed a significant service contract with a major Spanish financial institution to manage a network of approximately 6,000 ATMs.

These wins demonstrate how our integrated portfolio of hardware, software and services enables banks to modernize their operations, create more seamless customer experiences across physical and digital channels and expand our recurring revenue opportunities. We're also beginning to extend our Smart Vision AI capabilities into banking. Building on our experience in retail, we're working with financial institutions to explore how AI computer vision can improve branch operations, automate processes and enhance the customer experience.

Finally, our fit-for-purpose portfolio continues to gain traction in India, where we expect growth in sequential unit shipments in the fourth quarter. These opportunities also include long-term service contracts, and we're exploring additional geographies where this portfolio can address market-specific needs as well as the expansion of the portfolio. Together, these developments reinforce our confidence in the long-term opportunity across banking from our core ATM business to broader branch automation, software and recurring services.

Let's turn to Slide 7 to discuss retail. Turning to retail. We delivered another strong quarter with revenue growing 16% year-over-year, reflecting continued customer demand and the significant opportunities to expand our market presence, particularly in North America. Our North America opportunity pipeline continues to grow, and we see substantial growth opportunities ahead.

An important part of our strategy is to establish relationships with new customers and expand those relationships over time by demonstrating the value of our broader portfolio. A good example is a national U.S. retailer where we began with a software integration project. Successful execution helped establish us as a trusted partner, leading to a hardware opportunity with the potential for significant volume and, more recently, opening the door for our Smart Vision AI solution.

We're seeing this approach translate into additional wins. During the quarter, we secured a new customer with a regional North American grocer for approximately 1,200 point-of-sale lanes across 200 stores. Each of these wins expands our customer base and strengthens our presence in North America. Just as importantly, we're gaining market recognition and building confidence in our ability to deliver at scale, creating additional opportunities to compete for larger customer engagements.

In Europe, we continue to build on our market leadership. During the quarter, we secured a 6,000 lane self-checkout refresh with a major grocer and a service agreement valued at more than $25 million with a U.K.-based retailer. This service win is particularly encouraging because it demonstrates how our technology and expertise can create opportunities beyond traditional checkout solutions and help customers improve their broader retail operations.

Finally, Smart Vision AI continues to gain traction with major retailers. Our pilots and initial deployments are meeting or exceeding customer shrink reduction targets, and we remain on track to exceed 1,000 deployments by year-end. While Smart Vision AI's current revenue contribution remains relatively small, it is offered as a Software-as-a-Service solution, creating a growing base of recurring software revenue.

Beyond its direct software revenue contribution, Smart Vision AI differentiates our broader portfolio, helps drive hardware and service opportunities and deepens customer relationships. Our leadership in Europe, growing momentum in North America and increasing adoption of Smart Vision AI reinforce our confidence in the long-term growth opportunity ahead.

Let's turn to Slide 8 to discuss services. We continue to make progress against our priorities of delivering industry-leading service levels, improving operational efficiency and expanding recurring revenue opportunities.

During the quarter, we maintained high levels of service performance globally and delivered on our commitment to grow service gross margins. Service gross margin reached 27.7%, reflecting a onetime benefit of approximately $8 million. And even when excluding that benefit, service margins grew meaningfully sequentially and year-over-year, driven by operational discipline and the investments we've made in the business. We are continuing to strengthen our service delivery capabilities.

In Latin America, we completed the consolidation of our regional support organization, creating a more integrated and efficient service platform. In North America, our service fleet modernization is helping us improve technician safety and first-time fix rates. These improvements matter beyond cost efficiency. Consistently delivering high service levels builds customer confidence, strengthens retention and creates opportunity to expand our relationships.

Ultimately, our service strategy is about more than maintaining equipment. It is about delivering greater value to our customers, strengthening long-term relationships and creating a more predictable, profitable business.

Let's turn to Slide 9 and discuss our progress with lean and continuous improvement. Lean continues to be a critical part of how we operate at Diebold Nixdorf, helping us improve safety, quality, delivery and cost across the company.

A good example is our manufacturing operation in Manaus, Brazil, where we've made significant progress in strengthening our local-for-local capabilities through better planning, redesign manufacturing processes and improved warehouse operations, we've reduced lead time by several weeks and increased on-time delivery to approximately 95%. We've also reduced our ATM assembly footprint by approximately 45% and identified more than $1 million in annual freight saving opportunities. These improvements strengthen our cost competitiveness and position us to serve the Latin America market more efficiently.

Safety is another important part of our lean culture. Globally, we achieved multiyear highs in safety performance, supported by greater focus on prevention, workplace design and root cause analysis.

We're also pleased to announce that we've been recognized as one of America's Best Companies by Time magazine and as a Great Place to Work in India, Brazil, Colombia and Costa Rica.

With that, I'll turn it over to Tom to review our financial performance.

Thomas Timko

Thank you, Octavio.

Starting on Slide 10. Non-GAAP revenue grew to $991 million, up 5% year-over-year. Both banking and retail revenue grew with retail once again posting double-digit growth. Backlog ended the third quarter at $689 million, reflecting strong shipments and shorter lead times. Order entry moderated following the strongest first half of order entry in 4 years, while we expect a couple of large tenders in the pipeline in both banking and retail in the fourth quarter.

Non-GAAP gross profit grew slightly year-over-year, driven by increased revenues. Non-GAAP gross margin was 25.3%, down 90 basis points year-over-year. Non-GAAP product gross margin declined year-over-year to 22.1%, down 530 basis points year-over-year, primarily impacted by mix.

In banking, lower-margin product shipments in Latin America and large U.S. enterprise accounts increased versus prior year. And in retail, continued strength in point-of-sale volumes, which more than doubled year-over-year, impacted margins.

Non-GAAP service gross margin improved to 27.7%, up 230 basis points year-over-year. Results in the quarter included a tax benefit of approximately $8 million, which contributed approximately 100 basis points to service gross margin. Excluding this one-time tax benefit, gross margin still showed sequential improvement due in part to ongoing operational improvements.

Non-GAAP operating expenses decreased 2% year-over-year as we continue to see the results of our operational excellence and cost savings program. This marked the third consecutive quarter of improvement. For the full year, we expect operating expenses to decline by at least 2% year-over-year. Non-GAAP operating profit increased 7% year-over-year to $93 million.

Now let's turn to Slide 11. Adjusted EBITDA grew 5% year-over-year to $128 million in Q3. Adjusted EBITDA margin was 12.9%, flat compared to prior year. Non-GAAP earnings per share were $1.34, down 4% year-over-year, but up 22% sequentially, driven by improved profitability and a lower share count.

Turning to free cash flow. We reported a cash use of $46 million. Free cash flow was primarily impacted by the timing of a VAT refund of approximately $12 million that we typically receive in the quarter but received on October 1 as well as approximately $8 million of noncash EBITDA associated with the tax credit that will convert to cash flow over the course of future periods and higher working capital requirements.

Continuing on to banking on Slide 12. Revenue was up slightly year-over-year, driven by growth in Latin America, Europe and North America, 3 key markets, and that was slightly offset by the Asia Pacific and Middle East region, which faced tough comps in a complex operating environment.

The Banking segment delivered solid margin growth in the quarter, increasing 40 basis points year-over-year to 27.2% Banking product gross margin was 26.3%, down 380 basis points year-over-year due to regional and customer mix.

Banking service gross margins were 27.9%, up 350 basis points year-over-year as we started to see benefits of the investments we've been making and the onetime tax credit previously mentioned.

As branches grow and evolve in markets like the U.S., demand for automation and modernization is expanding, and we believe our portfolio is built to capture that opportunity.

Turning to Slide 13. Retail revenue grew 16% year-over-year, delivering double-digit growth for the fourth consecutive quarter, with both the European and North American markets continuing to perform well.

Retail gross profit was $61 million, and total gross margin was 20.7%. Gross profit decreased approximately 3% year-over-year, and total gross margin declined 400 basis points, reflecting a higher mix of point-of-sale products and the related impact of higher memory costs as we continue to work through pricing across a portion of our customer base.

Retail service margin decreased 100 basis points year-over-year to 27.1%, driven by higher point-of-sale and installation mix. The strong performance of our solutions and growing adoption among major retailers reinforces our confidence in the growth opportunity ahead, particularly in North America, where we are building momentum across a large greenfield market for us.

Continuing on to Slide 14. As we look at the remainder of 2026, we're updating our outlook to reflect a more measured view of our full year performance. On revenue, we are now guiding to a revenue range of $3.86 billion to $3.9 billion. This excludes contributions from our banking business in Turkey, which is in the final stages of winding down in Q4.

For adjusted EBITDA, our updated expectations reflect a change in product mix with a higher proportion of retail products and lower banking product volumes than originally planned.

To put this into perspective, Banking products generated year-to-date gross margins of approximately 30% compared with year-to-date retail product gross margins of approximately 15%, reflecting higher levels of point-of-sale volumes we've seen this year where higher component costs have continued to weigh on profitability.

In addition, throughout 2026, component cost inflation, primarily related to memory has represented an approximately $25 million net headwind. We've taken actions to mitigate these pressures. And with continued component cost volatility expected, we're strengthening our pricing practices and building greater flexibility into customer contracts as well as redesigning product features to better manage future cost increases.

Taking these factors into account, we're updating our adjusted EBITDA outlook to $490 million to $510 million. For free cash flow, we're updating our outlook to $190 million to $210 million, reflecting lower earnings expectations and higher working capital requirements.

Finally, we now expect adjusted earnings per share of $4.50 to $4.85 for the full year, considering a non-GAAP effective tax rate of approximately 38%.

Let's turn to Slide 15 and review our financial position and capital allocation. The foundation of our company remains strong. We have a fortress balance sheet with liquidity of $495 million as of the end of Q3. The net debt leverage ratio stood at 1.5x. Today, we announced our new $250 million share repurchase program. This demonstrates our commitment to disciplined capital allocation and returning the vast majority of our free cash flow to shareholders. We expect free cash flow conversion for the year to be in the range of 40% to 45%.

With that, I'll turn it back to Octavio for closing remarks.

Octavio Marquez

Thank you, Tom. As we conclude, I want to reinforce a few key messages. We delivered a solid third quarter with continued revenue and adjusted EBITDA growth, strong retail momentum and meaningful progress against our strategic priorities.

At the same time, we've taken a realistic view of our full year outlook. While we're not satisfied with every aspect of our financial performance, we remain focused on actions necessary to strengthen our execution and improve profitability. Importantly, our strategic position remains strong.

Banks continue investing in automation and modernization. We're expanding our presence in North America retail and innovations like Smart Vision AI are creating new opportunities across our business. With a strong balance sheet, clear strategic priorities and a continued commitment to operational discipline, we believe we are positioned to deliver sustainable long-term value.

Thank you for joining us today. Operator, please open the line for questions.

Operator

[Operator Instructions] Your first question comes from the line of Matt Summerville with D.A. Davidson.

Preguntas y respuestas

Matt Summerville

Maybe first, can you talk about in the context of what you're seeing in the business, if there's -- whether it would be banking or retail, how you're thinking about profitability? Ultimately, is there any sort of early read you can give us high level on what you're thinking so far as it pertains to 2027 and whether or not the performance that you're likely to track to this year basically implies an inability to deliver the Analyst Day targets?

Thomas Timko

Yes. Look, Matt, we're still going through our annual planning process as it relates to the 2027 guidance and update to that. We do expect a stable banking market. Retail in Europe will face much tougher comparisons, and we still believe there are many opportunities in North America retail to capture.

We are working on known headwinds like we shared earlier in the year, like the $30 million of higher cash taxes in Germany. We'll see what the market looks like as it relates to our debt refinancing. But right now, we're going to be a little bit more patient and opportunistic depending on what the market conditions are. So I'd say more to come in February when we get through that annual planning process.

Octavio Marquez

And Matt, this is Octavio. Probably within the financial picture, I'm more focused on what are we seeing out there in the market. So as we know, banking is a stable market that is up slightly, down slightly. Probably this year, one of the biggest changes that we saw is that banking will be a little bit slower than what we were hoping.

As you know, we have some of these large tenders that have been pushed out that we're still expecting for the remainder of the year, plus a little bit of a complicated operating environment that I mentioned in some of our Asian countries, particularly in the Middle East, where have been very strong growth markets and unfortunately, this year have been a lot more muted. But we see Q3 was strong with growth in Latin America, which is rebounding nicely from last year. The U.S. remained stable and growing slightly. And Europe, in the third quarter, once again grew year-over-year even after a very strong year that they had last year.

So what I would say for banking, we remain very, very confident that it's a stable market. We haven't seen any significant erosion in installed base globally or anything like that. We're very focused on improving service quality. We're entering the renegotiation of our largest contracts in the U.S., delivering the highest service levels. So we should see some of that pricing hopefully start to flow through as we enter the year.

So I would say that in banking, our thesis hasn't changed much. Our product margins remain strong there. And again, the opportunity is how do we accelerate opportunities, which brings me -- and sorry for being so long this time, Matt, probably I'll jump into some of your other questions that I know you always like asking.

But we're also seeing in some markets, the need for more integrated solutions. That's part of why we're partnering with Euronet in the initial stages to see how we can accelerate some of the transformation some banks are looking for. We are very committed to the idea that banks look at the branch in a holistic level, ATMs, tellers, personnel. And we think that by partnering with Euronet, we won't only be able to deliver some very significant operational efficiency, but also migrate and accelerate new transactions at the ATM and additional revenue-generating services for banks. So we're excited about that.

Let me turn to retail. This year in retail, as you've seen, has been double-digit growth throughout the year. The very large European wins like this 6,000 refresh that we just had with a large grocer in Europe gives me confidence for the future. These are, as you know, long rollouts, but we're excited about that. And in the U.S., we will continue to see very strong growth into the future. So I would say that, our focus right now is how do we better manage some of the cost pressures that we're seeing in that business. Some of it has to do with pricing. Some of it, as Tom mentioned, has been redesigning the product.

And we really made some conscious decisions on how much we pushed in some customers to make sure that we keep momentum going. So I would say that our thesis is strong. We see big opportunities across both segments. And I look forward to updating you as we close the year and how we feel about 2027.

Matt Summerville

Maybe one back to Tom. Can you talk a little bit about what's implied in your guidance as we think about fourth quarter product gross margins, service gross margins? I know on the latter, you had been hoping to see a pretty nice sequential bump up in Q4, some of that volume driven just given the seasonality of the business. But maybe expand on how we should be thinking about the margin dynamics specific to Q4.

Thomas Timko

Yes. Let me hit service gross margins first. So we did commit to being up 50 basis points. We were -- we don't expect to be able to achieve that this year. We do see slight improvement. We would expect service margins in Q4 to be in the range of 26.7%. And as it relates to product margins, we expect product margins for the full year closer to -- or for the fourth quarter, excuse me, closer to 24%. So that's the trajectory that we're on.

Matt Summerville

Help me.

Thomas Timko

I will say Matt just to add some color.

Matt Summerville

Go ahead.

Thomas Timko

No, no, no. Please go ahead, Matt. Sorry.

Matt Summerville

Sorry, I was just going to say maybe just add a little bit -- put a little bit more meat on the bone in terms of what's happening in the services business that you're not able to kind of hit the target you were looking for, especially when you talk about all-time record SLAs. I guess, I would assume that, that would also be a contributor to profitability. And then maybe if you can comment, put a little more meat on the bone with respect to the North American retail pipeline, then I'll get back in queue.

Thomas Timko

Sure, Matt. And you were cutting out a little bit. I hope it was only on -- but I would say that when you think of the quarter, most of the impact is mix. We have a much higher volume of retail products, particularly point of sale and a little bit lower volume of ATMs. And as you can see, the price of -- the margin differential right now is quite significant. Banking is always in the high 20s, low 30s, and retail is in the mid-teens.

We need to make sure that as we go into the future, we equalize those things. There will never be retail margins the same as banking, but there's clearly opportunity there as we better manage kind of the input cost that. So I would say that, that's how you should think about product margins, a significant mix shift from what you had planned originally.

Around services, you are absolutely correct. Better service levels should translate into higher pricing. And we are right now in the middle of our pricing renegotiations with, I would say, the majority of our customers. Our initial read is quite positive. We're seeing positive momentum there, but this translates into Q1 goodness, very little renewing contracts on an annual basis.

So when we look at the overall year, we will improve service margin slightly, not to the 5 basis points that we would see 5 sorry, if you look at the [ Technical Difficulty ] bit of a tax benefit there. So we will see improvement, and that is the area where we remain very focused. I think the good news is a lot of the investments that we make to achieve these great service levels are all behind us. So now we should really start harvesting the benefit of the investments that we made.

And I think your last question was retail North America, a little bit of color there. Hopefully, you've seen every quarter, we've laid out more and more -- yes. So I would say that you've seen that we've announced several new wins every quarter sale a couple of hundred self-checkouts, some initial rollouts with our AI computer vision solution. So the pipeline keeps growing. And I would say we have a great market opportunity. The openness of our product portfolio, a lot of customers looking for more modular software as many large retailers are looking to modernize operations, I think it's paying.

We do see that retail in North America remains a highly untapped opportunity for us. And even though we're winning every single quarter, new clients, the pipeline keeps growing, and every win keeps building on the momentum that we're seeing that we become a player in the market and somebody that large retailers can start trusting with their investments.

Operator

Your next question comes from the line of Justin Ages with CJS Securities.

Justin Ages

I just wanted to talk about the working capital pressures. So obviously, I understand around memory costs and inventory. Is there anything else going on? You guys are having a lot of good efficiencies in accounts receivable. Just want to see if you're continuing to make progress on those fronts.

Thomas Timko

Yes. Look, our working capital, as we look for the remainder of 2026, it's being impacted by a couple of things. We are slightly lower prepayments than we've historically seen, but that number is offset by better collections as well as some DIO improvements as well. So kind of net working capital has impacted our free cash flow for the year by about $30 million higher.

Justin Ages

Okay. Great. And then switching to some of the Middle East pressures. Is there a way to kind of parse the complex environment there outside of the conflict? Like are you still seeing good demand for fit-for-purpose devices in the region?

Thomas Timko

Yes. So Justin, and I was very deliberate in talking about the complex environment in the Middle East, Africa region. And if you think some of the fastest growth markets in that part of the world are -- but as far as India goes, fit-for-purpose will grow significantly during Q4 as through the year, we built the pipeline and won new deals. We're excited about that opportunity still. And as we mentioned, we are planning on expanding even there with cash dispensers, and we're very excited that we will soon be launching a fit-for-purpose recycler specifically for the Indian market.

So we see demand there to remain very adequate, and we believe that we will be able to -- and hopefully, as the situation normalizes in the Middle East, those growth markets like Egypt, Saudi Arabia will continue to -- will return to their normal traditional run rate, which, frankly, this year has been very depressed.

Operator

Your final question comes from the line of Matt Bryson with Wedbush.

Matthew Bryson

With memory costs, I mean, they clearly weighed on gross margins and were probably the largest factor in lighter EBITDA and cash flow. I know it's something affecting all manufacturers, and it's outside of your control and will eventually be offset by price and inventory adjustments. But I think it was a larger impact to Q3 than you expected. When can you be certain that you've fully accounted for the shifts in memory pricing, we just don't have to worry about them anymore.

Thomas Timko

Our second quarter -- sorry about that. I don't know what you heard there. So anyway, I was saying that from a first half of the year, we experienced pricing headwinds of about $15 million related to memory, the majority of which was offset by tariffs. And as we continue to work through the memory pricing environment with our customers and honor some of the commitments we made in backlog, we're now seeing headwinds of about $10 million in the second half.

So all in for the year, it's about $25 million of a net headwind for us on revenue -- sorry, on memory and pricing in retail. The majority of the contracts should be done 95%, 98% by the time we exit Q4 with escalators and pricing provisions in for memory. So we would expect that to be the vast majority behind us beginning in Q1.

Operator

Thank you. At this time, we have no further questions. I'll now turn the call over to Maynard Um for his closing remarks.

Maynard Um

Thanks, everyone, for joining today's call and your interest in Diebold Nixdorf. So if you have any follow-up questions after the call, feel free to reach out to the Investor Relations team. Thanks again, and have a great day.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.