Diebold Nixdorf, Inc. — Q2 2022 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2022. The filing is unaudited and should be read with the 2021 Form 10-K. Diebold Nixdorf provides connected-commerce hardware, software and services to banking and retail customers in more than 100 countries.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $851.7 million | $943.5 million | $1,681.5 million | $1,887.4 million |
| Gross profit | $160.8 million | $251.9 million | $346.1 million | $525.1 million |
| Gross margin | 18.9% | 26.7% | 20.6% | 27.8% |
| Operating profit (loss) | $(91.5) million | $12.9 million | $(174.9) million | $49.1 million |
| Operating margin | (10.7)% | 1.4% | (10.4)% | 2.6% |
| Net loss attributable to Diebold Nixdorf | $(199.2) million | $(30.3) million | $(382.3) million | $(38.4) million |
| Loss per share | $(2.52) | $(0.39) | $(4.85) | $(0.49) |
- Revenue: Q2 sales declined 9.7%; six-month sales declined 10.9%. On a constant-currency basis, declines were 3.9% and 6.3%, respectively. Banking represented $590.2 million of Q2 sales and Retail represented $255.8 million, excluding the separately presented held-for-sale European retail business.
- Profitability: Product gross margin fell to 3.2% in Q2 from 21.0%, primarily due to a $34.4 million legacy-inventory write-off, restructuring charges, raw-material inflation and higher logistics costs. Services gross margin declined to 28.6% from 30.1%.
- Cash flow: Operating cash usage was $306.6 million in the first six months, compared with $143.7 million in the prior-year period. The principal pressures were the larger net loss and a $136.0 million increase in inventories. Investing cash usage was $6.9 million; financing provided $180.3 million, including $192.0 million of net revolving-facility borrowings.
- Liquidity: Cash, cash equivalents and restricted cash totaled $249.9 million at June 30, down from $388.9 million at December 31, 2021. Reported total cash and availability was $370.9 million, including $50.2 million of revolver availability, $36.5 million of uncommitted lines and $31.4 million of short-term investments.
- Debt: Long-term debt was $2,411.7 million and total notes payable was $10.8 million. The company paid $86.5 million of cash interest during the first six months. Net debt to trailing-twelve-month adjusted EBITDA was 6.8 times, while the company reported compliance with its debt covenants at June 30.
- Balance sheet: Total assets were $3,182.1 million and total equity was negative $1,247.2 million. Inventories increased to $642.2 million from $544.2 million at year-end, while goodwill declined to $688.9 million, principally reflecting currency translation and segment reassignment.
Material changes versus the prior comparable period
- Revenue declined across both segments, driven by unfavorable currency translation, divestitures, delayed installations, supply-chain disruption and the reduction of low-margin service contracts.
- Banking Q2 sales declined 7.6% and segment operating profit declined 20.9% to $80.5 million. Retail sales declined 16.1% and segment operating profit declined 11.5% to $34.6 million.
- Operating results included $78.3 million of restructuring and transformation charges in Q2 and the first six months, compared with $17.1 million and $23.1 million, respectively, in the prior-year periods.
- The company recorded $60.6 million of asset impairments in the first six months, including $38.4 million related to suspension of the North American cloud ERP implementation, $16.8 million related to Russia, Ukraine and Belarus, and $5.4 million related to facility closures.
- A $127.4 million valuation allowance was recorded against deferred tax assets following management’s going-concern assessment, contributing to income-tax expense of $115.1 million for the first six months.
- Management reorganized reporting into global Banking and global Retail under a simplified operating model. No goodwill impairment resulted from the interim test, although Eurasia Banking had only an approximately 10% fair-value cushion under the legacy structure.
- The company announced a new initiative targeting annualized cost savings of more than $150 million by the end of 2023. The initiative includes severance, facility closures, process digitization and product-portfolio consolidation.
Guidance, outlook, risks and unusual items
- The filing does not provide a clear quantitative revenue or earnings forecast. Management expects to pursue more than $150 million of annualized cost savings by the end of 2023 and believes demand for self-service automation, software and services remains favorable.
- Going concern: The revolving facility matures July 20, 2023, and term-loan maturities also begin in 2023. Management stated that refinancing is a top priority and has engaged advisors, but substantial doubt exists regarding the company’s ability to continue as a going concern until refinancing is completed. The financial statements contain no going-concern adjustments.
- Liquidity and refinancing depend on operating performance, capital-market conditions, lender consent, covenant compliance and investor sentiment. Failure to refinance could lead to accelerated debt obligations or loss of borrowing availability.
- Supply-chain delays, semiconductor and logistics constraints, inflation, reduced installations and inventory accumulation continue to pressure margins and cash flow.
- The Russia-Ukraine conflict resulted in the planned liquidation of a Russian distribution subsidiary, uncertainty regarding regional partners and a $16.8 million impairment. The company also identified elevated cybersecurity risk.
- COVID-19 resurgence, foreign-exchange movements, cybersecurity incidents, customer financial conditions, competitive pricing, execution of restructuring, goodwill valuation assumptions and the transition away from LIBOR remain significant risks.
- Contingencies include material indirect-tax matters with estimated aggregate risk of up to $55.7 million, appraisal proceedings involving former Diebold Nixdorf AG shareholders, and performance guarantees and letters of credit with maximum future obligations of $153.6 million. Management considers routine litigation immaterial.
Important facts for investors to verify
- Progress and final terms of refinancing for the 2023 revolving facility and term loans, including covenant amendments and available liquidity.
- Whether the restructuring program delivers the targeted annualized savings and the amount and timing of associated cash costs.
- Inventory normalization, recovery of installation activity, product gross margins and operating cash flow.
- Execution of the simplified Banking and Retail operating model and any subsequent goodwill or other impairment charges.
- Further effects of the Russia-Ukraine conflict, supply-chain disruption, inflation, currency movements and cybersecurity events.
- Resolution or potential exposure from the German appraisal proceedings and indirect-tax contingencies.