Diebold Nixdorf, Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
Diebold Nixdorf provides connected commerce hardware, software and services for banking and retail customers in more than 100 countries. The filing covers the three and six months ended June 30, 2021; financial statements are unaudited and presented under U.S. GAAP.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $943.5 million | $890.5 million | $1,887.4 million | $1,801.2 million |
| Gross profit | $251.9 million | $247.6 million | $525.1 million | $474.4 million |
| Gross margin | 26.7% | 27.8% | 27.8% | 26.3% |
| Operating profit (loss) | $12.9 million | $20.5 million | $49.1 million | $(5.5) million |
| Operating margin | 1.4% | 2.3% | 2.6% | (0.3)% |
| Net loss attributable to Diebold Nixdorf | $(30.3) million | $(23.7) million | $(38.4) million | $(116.5) million |
| Loss per share | $(0.39) | $(0.31) | $(0.49) | $(1.51) |
| Operating cash flow | Not separately provided | Not separately provided | $(143.7) million | $(167.9) million |
Q2 revenue increased 6.0% year over year, but favorable foreign currency translation contributed $46.2 million; constant-currency revenue increased 0.7%. Six-month revenue increased 4.8%, while constant-currency revenue increased 0.3%.
- Retail revenue increased 37.8% in Q2 and 27.8% for the first six months, driven primarily by European point-of-sale and self-checkout rollouts and professional services.
- Eurasia Banking revenue decreased 3.5% in Q2 and increased 0.9% for the first six months, while Americas Banking revenue decreased 5.7% and 7.7%, respectively.
- Product orders grew 40% in Q2, according to management, led by banking and retail customers.
- Cash and cash equivalents were $224.3 million at June 30, 2021, compared with $324.5 million at December 31, 2020. Total stated cash availability was $515.9 million, including $262.1 million under the revolving facility, $21.4 million under uncommitted lines and $8.1 million of short-term investments.
- Total debt was approximately $2.35 billion, including $32.9 million of current debt and $2.32 billion of long-term debt. The company reported a net debt-to-adjusted-EBITDA ratio of 4.9x and compliance with debt covenants.
- Shareholders’ equity was negative $851.3 million, and total equity was negative $842.6 million at June 30, 2021.
Material changes versus the prior comparable period
- Six-month operating profit improved by $54.6 million, primarily due to higher product sales, improved gross margin and lower DN Now restructuring charges.
- Q2 operating profit declined by $7.6 million because prior-year pandemic-related labor cost benefits did not recur and logistics costs increased.
- Q2 gross margin fell 110 basis points, principally because of lower product margin, unfavorable mix and higher logistics costs. Six-month gross margin improved 150 basis points.
- Operating cash use improved by $24.2 million, but inventory increased to $587.5 million from $498.2 million at year-end as the company purchased materials to meet demand and address longer lead times.
- Accounts payable increased to $561.5 million from $499.9 million, while deferred revenue declined to $299.3 million from $346.8 million.
- The company recognized $23.1 million of DN Now restructuring charges during the first six months, compared with $21.5 million in the prior-year period. Cumulative DN Now charges were $213.8 million through June 30, 2021.
- A European subsidiary received $12.7 million of capital contributions from noncontrolling shareholders. The related put option was terminated, reducing redeemable noncontrolling interests to zero.
Outlook, commentary, risks and unusual items
Management expects DN Now restructuring activity to conclude in 2021 and anticipates up to $50 million of remaining cash payments. The company continues to target approximately $500 million of gross savings through 2021. The filing does not provide a clear quantitative full-year revenue or earnings guidance figure.
- COVID-19 conditions improved, but the company continued to experience longer electronic-component lead times and transportation delays. A resurgence of the pandemic or related government actions could materially affect operations, supply chains, revenue, cash flow and financial position.
- Supply-chain constraints, logistics costs and installation timing affected Banking revenue and profitability. The company also identified cybersecurity, operational failure, foreign exchange, inflation, customer credit, competitive pressure and execution of cost-reduction initiatives as material risks.
- Interest expense was $49.7 million in Q2 and $98.4 million for the first six months. Debt includes 8.5% senior notes due 2024 and senior secured notes due 2025 with stated rates of 9.0% and 9.375%.
- Goodwill was $779.1 million at June 30, 2021. No goodwill impairment indicators were identified during the first six months, although changes in valuation assumptions could materially affect fair value.
- Material unusual items included purchase-accounting amortization of $19.9 million in Q2 and $39.8 million for the first six months, restructuring charges, foreign-exchange effects and prior-year gains related to surrendered company-owned life insurance.
- Aggregate estimated exposure for material indirect tax matters was up to $76.3 million, although management stated that routine tax and legal matters were not expected to materially affect the financial statements.
- Guarantees, standby letters of credit and surety bonds had maximum future contractual obligations of $166.0 million at June 30, 2021, with no associated liability recorded.
- Two German appraisal proceedings remain pending concerning compensation paid in connection with the former Diebold Nixdorf AG domination agreement and merger squeeze-out. The company cannot rule out increased compensation.
Important facts for investors to verify
- Whether cash generation improves sufficiently to support approximately $2.35 billion of debt and scheduled covenant tightening after 2021.
- Progress in converting the reported 40% product-order growth and remaining performance obligations of approximately $1.2 billion into revenue and cash flow.
- The duration and financial impact of component shortages, shipping delays, inventory accumulation and logistics-cost inflation.
- Actual remaining DN Now cash payments and whether the targeted savings are realized without additional restructuring charges.
- Retail growth sustainability and recovery of Banking installation volumes and margins.
- Potential outcomes and financial exposure from German appraisal proceedings, indirect tax matters and other contingencies.
- Foreign-exchange sensitivity, interest-rate exposure and the effect of refinancing or LIBOR transition on interest expense.