ディーボルド・ニクスドルフ（DBD）2026年第3四半期決算説明会：製品ミックスとメモリコスト増で業績予想を引き下げ

主要なポイント

• Diebold Nixdorf（NYSE：DBD）が発表した2026年第3四半期の非GAAP売上高は前年同期比5%増の9億9100万ドルとなり、調整後EBITDAは5%増の1億2800万ドルとなりました。
• リテール部門の売上高は16%増加し、4四半期連続で2桁成長を記録しました。バンキング部門の売上高は、中南米、欧州、北米に支えられてわずかに増加しました。
• 製品ミックスが収益性を圧迫しました。粗利益率の低いリテール向けPOS端末の出荷量が増加した一方で、バンキング向け製品の出荷量が計画を下回ったため、非GAAP粗利益率は90ベーシスポイント低下して25.3%となりました。
• 経営陣は通期業績予想を改定し、売上高を38億6000万〜39億ドル、調整後EBITDAを4億9000万〜5億1000万ドル、フリーキャッシュフローを1億9000万〜2億1000万ドルとしました。
• メモリ関連部品のインフレは、2026年に純額で約2500万ドルの逆風となりました。同社は第4四半期末までに、価格スライド条項および関連する契約規定が契約の95%〜98%をカバーすると見込んでいます。
• Diebold Nixdorfは2億5000万ドルの新たな自社株買いプログラムを承認しました。四半期末の手元流動性は4億9500万ドルで、純有利子負債倍率は1.5倍でした。

主要財務データ

事業および営業業績

バンキング部門

バンキング部門の売上高は前年同期比でわずかに増加し、中南米、欧州、北米で成長が見られました。アジア太平洋、中東、アフリカでは前年同期の比較対照が高かったことや、特に中東における複雑な事業環境の影響を受けました。

バンキング部門の全体粗利益率は40ベーシスポイント上昇して27.2%となりました。地域および顧客ミックスの影響で製品粗利益率は380ベーシスポイント低下の26.3%となりましたが、サービス粗利益率は一時的な税制上の恩恵を含め350ベーシスポイント上昇して27.9%となりました。

主な受注として、大手北米銀行向けのDNシリーズ現金自動出入金機520台、アジア市場向けの1,450台以上のATM、長期サービス契約を伴う中南米向け店舗内現金自動出入金機360台などが挙げられます。同社はまた、スペインの大手金融機関との間で約6,000台のATMを対象とするサービス契約を締結しました。

Diebold NixdorfはEuronetとの戦略的提携に向けた初期段階にあります。両社は、Diebold Nixdorfの現金自動出入技術、ソフトウェア、サービス機能と、EuronetのATM運用および取引処理の専門知識を組み合わせることを目指しています。

リテール部門

リテール部門の売上高は欧州と北米に支えられ、前年同期比16%増加しました。しかし、POS製品の構成比上昇とメモリコストの高騰を反映し、リテール部門の粗利益率は400ベーシスポイント低下して20.7%となりました。リテール部門の粗利益は前年同期比約3%減の6100万ドルでした。

新規ビジネスとしては、北米の地域食料品スーパー200店舗における約1,200レーンのPOSレジ導入が含まれます。欧州では、英国の小売業者から6,000レーンのセルフレジ刷新案件および2500万ドルを超えるサービス契約を獲得しました。

経営陣によると、「Smart Vision AI」の実証実験および初期導入は、顧客のロス削減目標を達成または上回っています。同社は年内に1,000件以上の導入を達成する見込みです。現在の売上規模はまだ比較的小さいものの、本製品はSaaS（Software-as-a-Service）モデルで提供されています。

サービスおよび効率化

約800万ドルの一時的な恩恵を除いても、サービス粗利益率は前四半期比および前年同期比で改善しました。経営陣はこの改善について、オペレーション管理の徹底と過去の投資の成果によるものだと説明しています。

ブラジルのマナウス製造拠点において、Diebold Nixdorfはリードタイムを数週間短縮し、納期遵守率を約95%に向上させ、ATM組み立て拠点の面積を約45%削減しました。また、年間100万ドル以上の貨物輸送費削減の機会を特定しました。

経営陣の見通し（ガイダンス）

第4四半期について、経営陣はサービス粗利益率を約26.7%、製品粗利益率を24%近辺と見込んでいます。通期のサービス粗利益率を50ベーシスポイント引き上げるという従来のコミットメントの達成は見込んでいませんが、依然としてわずかな改善を期待しています。

経営陣は通期の営業費用が前年比で少なくとも2%減少すると見込んでいます。2027年の見通しは開示しておらず、年間計画策定プロセス完了後の2月に最新情報を提供する予定であると述べました。

リスクと注目項目

• 製品ミックスが引き続き利益率の主な制約要因となっています。年初来のバンキング製品の粗利益率は約30%であったのに対し、リテール製品は約15%でした。
• メモリ関連部品のインフレは、2026年に純額で約2500万ドルの逆風となり、そのうち上半期に約1500万ドル、下半期に1000万ドルの影響を及ぼしました。
• 顧客からの前受金が過去の水準を下回ったことなどにより、運転資金の影響で通期のフリーキャッシュフローが計画より約3000万ドル減少しました。
• 大型バンキング案件の入札やプロジェクトの時期には依然として不確実性があり、一部の機会が年内に先送りされています。
• 一部の中東地域におけるバンキング活動は、複雑な事業環境により低迷しました。
• 欧州のリテール事業は2027年に前年同期の比較対照が高くなる見込みであり、また経営陣はドイツで約3000万ドルのキャッシュタックス（現金支払税）増加を見込んでいます。

アナリスト質疑応答の要点

• 2027年の見通し：経営陣は安定したバンキング市場、欧州リテール市場でのハードルの高まり、北米リテール市場での持続的な機会を見込んでいます。詳細な2027年の業績予想は2月に発表される見込みです。
• サービスの収益性：サービス水準の向上により、契約改定（値上げ）交渉が後押しされています。経営陣は初期の価格引き上げのモメンタムを好意的に捉えているものの、契約は通常年次で更新されるため、大半のプラス効果は第1四半期から現れる見込みだと述べました。
• メモリコストの影響緩和：Diebold Nixdorfは、第4四半期末までに該当する契約の95%〜98%にメモリ価格スライド条項および価格調整規定が盛り込まれると見込んでいます。経営陣は、第1四半期から圧迫要因の大部分が解消に向かうと予想しています。
• 北米リテール事業：経営陣は同市場を大きな未開拓の機会と位置づけており、セルフレジ、POS、Smart Vision AIの分野で顧客を獲得するにつれてパイプラインが拡大し続けていると述べました。
• インドおよび中東：インド向けの市場特化型製品の出荷は第4四半期に大幅に増加する見込みです。経営陣はまた、インド向けに特化した現金自動出入金機の投入を計画しています。一方で、エジプトやサウジアラビアなどの市場は2026年を通じて従来の活動水準を下回ったままであると指摘しました。

決算説明会全文文字起こし

決算説明会の完全なトランスクリプト

経営陣による説明

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.

質疑応答

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.