DIEBOLD NIXDORF, Inc quarterly report, Q3 FY2023

Diebold Nixdorf, Inc. — Form 10-Q Summary

Reporting period: Quarterly period ended September 30, 2023. The Company emerged from Chapter 11 and Dutch scheme proceedings on August 11, 2023 and adopted fresh start accounting. Accordingly, “Successor” results from August 12 through September 30, 2023 are generally not comparable with “Predecessor” results.

Business context

Diebold Nixdorf provides banking and retail automation, software, hardware, managed services and related technology solutions in more than 100 countries, with approximately 21,000 employees. Reportable segments are Banking and Retail.

Key financial metrics

Metric	Successor period	Predecessor period	Prior comparable period
Net sales	$591.8 million Aug. 12–Sept. 30, 2023	$351.6 million July 1–Aug. 11, 2023	$810.4 million Q3 2022
Gross profit	$129.6 million	$85.5 million	$193.8 million
Gross margin	21.9%	24.3%	23.9%
Operating profit	$36.9 million	$0.5 million	$5.5 million
Net income attributable to Diebold Nixdorf	$(26.5) million	$2,146.5 million	$(49.8) million
Diluted EPS	$(0.70)	$26.37	$(0.63)

For management’s combined presentation of Successor and Predecessor periods, third-quarter 2023 net sales were $943.4 million, up 16.4% from Q3 2022, or 12.5% in constant currency. Combined gross profit was $239.9 million, up 23.8%, with a 25.4% gross margin versus 23.9% in Q3 2022. Combined operating profit was $58.8 million versus $5.5 million in Q3 2022.

For the first nine months, combined net sales were $2,723.7 million, up 9.3% from $2,491.9 million in the prior-year period, or 9.1% in constant currency. Combined gross profit was $674.4 million, up 24.9%, while combined operating profit was $52.8 million versus an operating loss of $169.4 million in the prior-year period. Combined results include management adjustments and are not equivalent to GAAP successor-period results.

Segment performance

Banking: Combined third-quarter revenue of $662.2 million increased 14.1%; segment operating profit increased 34.4% to $111.7 million, with a 16.9% margin. Growth was driven primarily by higher ATM volumes, pricing, favorable mix and lower operating expenses.
Retail: Combined third-quarter revenue of $278.3 million increased 23.7%; segment operating profit increased 54.7% to $48.1 million, with a 17.3% margin. Results benefited from higher self-checkout volumes and improved logistics and input costs.

Liquidity, cash flow and debt

September 30 cash and cash equivalents were $376.1 million; restricted cash was $64.2 million; and short-term investments were $16.6 million. Management reported cash and short-term investment availability of $392.7 million, excluding restricted cash.
Cash, cash equivalents and restricted cash totaled $440.3 million at September 30, 2023.
Reported operating cash flow was $(0.2) million for the Successor period and $(419.4) million for the January 1–August 11, 2023 Predecessor period. The Predecessor outflow primarily reflected working-capital movements and restructuring-related activity.
Reported investing cash flow was $(10.3) million for the Successor period and $(16.0) million for the Predecessor period. Reported financing cash flow was $2.8 million and $563.5 million, respectively, largely reflecting restructuring financing transactions.
Total debt at September 30 was approximately $1.26 billion, consisting primarily of the $1.25 billion Exit Facility and $5.1 million of current notes payable. The Exit Facility matures August 11, 2028, bears interest at SOFR plus 7.50% or the adjusted base rate plus 6.50%, and is secured by substantially all assets of the Company and guarantors.
The Company had $22.4 million of remaining availability under international short-term credit lines with aggregate borrowing limits of $25.4 million.

Material changes versus the prior comparable period

Revenue growth was led by increased ATM and self-checkout unit volumes. ePOS revenue declined and partially offset retail growth.
Product profitability improved materially due to volume, pricing, lower logistics costs, normalization of semiconductor and other raw-material costs, and favorable geographic mix. Service margins declined because of higher costs and delivery challenges in certain markets.
Selling and administrative expense and research and development expense declined in the combined comparison, reflecting cost controls, project prioritization and movement of certain development activities to lower-cost jurisdictions.
The Company’s capital structure changed substantially following emergence from bankruptcy. Predecessor common shares were cancelled, 37,566,668 Successor shares were issued, and liabilities subject to compromise were settled. Shareholders’ equity improved from a $1.38 billion deficit at December 31, 2022 to $976.7 million of Successor shareholders’ equity at September 30, 2023.
Fresh start accounting increased the reported values of customer relationships and other intangible assets and reset accumulated deficit and other predecessor equity accounts. Historical financial statements are therefore not directly comparable.

Outlook, commentary and risks

Management stated that it no longer believes substantial doubt exists regarding the Company’s ability to continue as a going concern for at least one year from issuance of the filing, based on the restructuring and new financing arrangements.
Management expects selling and administrative spending related to restructuring, liquidity and capital-structure initiatives to decline over the next twelve months as major initiatives conclude and synergies are realized.
The Company continues to target annualized cost savings of more than $150 million from its streamlining and digitization initiative by the end of 2023; the filing does not provide a new quantified earnings or revenue guidance range.
Key risks include substantial secured indebtedness and high variable interest costs, restrictive debt covenants, the ability to generate sufficient cash for debt service, supply-chain disruptions, customer and supplier reactions to the bankruptcy, execution of the cost-reduction plan, cybersecurity and operational failures, foreign exchange volatility, and competitive and macroeconomic pressures.
Material contingencies include potential indirect tax losses estimated at up to $51.1 million, appraisal proceedings in Germany involving former Diebold Nixdorf AG minority shareholders, and performance guarantees and letters of credit with maximum future contractual obligations of $118.8 million. No associated liability was recorded for the guarantees.
Reorganization items produced a $1.61 billion gain for the January 1–August 11 Predecessor period, primarily from settlement of liabilities subject to compromise and fresh start valuation adjustments. This gain is nonrecurring and materially distorts the nine-month GAAP comparison.

Investor verification checklist

Verify the Successor/Predecessor presentation and avoid comparing post-emergence GAAP results directly with historical periods without considering fresh start accounting.
Monitor operating cash generation, working-capital requirements and the Company’s ability to service the $1.25 billion Exit Facility at its variable interest rate.
Review compliance with Exit Facility covenants, mandatory prepayment provisions and restrictions on additional debt, asset sales, dividends and investments.
Assess whether ATM and self-checkout volume growth, service-margin recovery and cost savings offset supply-chain, pricing and foreign-exchange pressures.
Evaluate the assumptions supporting the $2.15 billion enterprise value and fresh start valuations, including projected cash flows, 19% discount rates and recorded goodwill and intangible assets.
Track the German appraisal proceedings, indirect tax exposures, guarantee obligations and any additional restructuring or impairment charges.
Confirm the future impact of the new management incentive plan, which reserves 6% of fully diluted Successor common stock for management, and the potential resale of shares under the registration rights agreement.