DIEBOLD NIXDORF, Inc annual report, FY2022

Diebold Nixdorf, Inc. — FY2022 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2022. The filing is an annual Form 10-K, not a standalone fourth-quarter report. Diebold Nixdorf provides banking and retail automation, software, and services in more than 100 countries with approximately 21,000 employees. Reportable segments were reorganized into global Banking and global Retail during 2022.

Financial performance and key metrics

Metric	2022	2021	Change
Net sales	$3,460.7 million	$3,905.2 million	Down 11.4%
Gross profit	$757.3 million	$1,043.4 million	Down 27.4%
Gross margin	21.9%	26.7%	Down 480 basis points
Operating profit (loss)	$(211.7) million	$137.1 million	Decline of $348.8 million
Operating margin	(6.1%)	3.5%	Down 960 basis points
Net loss	$(585.6) million	$(78.1) million	Loss increased $507.5 million
Loss per share	$(7.36)	$(1.01)	More unfavorable
Cash flow from operations	$(387.9) million	$123.3 million	Decrease of $511.2 million

Banking revenue was $2,422.4 million, down 10.6%. Banking services revenue declined 7.9% and banking products declined 15.1%.
Retail revenue was $1,018.2 million, down 14.7% on the segment presentation used by management. Excluding currency and divestitures, Retail revenue increased $27.1 million.
Services revenue was $2,098.9 million and products revenue was $1,361.8 million. More than 50% of revenue is generated by the service business.
Services gross margin declined to 29.4% from 31.5%, primarily due to inflationary labor and logistics costs and lower fixed-cost absorption. Product gross margin declined to 10.2% from 19.8%, primarily due to raw-material and freight inflation.
Operating expenses were $969.0 million, including $111.8 million of impairment charges and $124.2 million of restructuring and transformation costs.
Net loss included $32.1 million of refinancing-related costs, $121.5 million of additional tax expense associated with valuation allowances, and substantial impairment charges.

Liquidity, debt and capital structure

Cash, cash equivalents and restricted cash were $319.1 million at December 31, 2022, compared with $388.9 million a year earlier. Including short-term investments, total cash and availability was $343.7 million versus $707.2 million.
The company had zero additional availability under its $250 million ABL Facility at year-end after consideration of outstanding letters of credit. The ABL was drawn to fund refinancing transactions and supplier payments.
Long-term debt was $2,585.8 million, compared with $2,245.6 million in 2021. Contractual debt maturities were $25.8 million in 2023, $84.8 million in 2024, $2,124.4 million in 2025 and $594.3 million in 2026, excluding the effect of PIK interest on the 2L Notes.
On December 29, 2022, the company completed a major refinancing that included a $250 million ABL Facility, $400 million of superpriority term loans, exchanges of term loans and 2025 notes, and the issuance of $333.6 million of 2L Notes.
The private exchange accepted $327.9 million of 2024 Senior Notes and issued 15,813,847 warrants, initially representing the right to acquire up to 19.99% of common shares. Approximately $72.1 million of 2024 Senior Notes remained outstanding at year-end.
The company paid $231.6 million of cash interest in 2022, compared with $175.1 million in 2021. Variable-rate debt was approximately $1,240.5 million at year-end; a one-percentage-point rate increase was estimated to increase annual interest expense by approximately $12.4 million.
Shareholders’ equity was negative $1,371.1 million at December 31, 2022. The company has not paid dividends since 2018.

Material changes versus the prior comparable period

Revenue decreased $444.5 million, including a $241.6 million unfavorable currency impact and $125.3 million attributable to divested businesses. Constant-currency revenue declined 5.5%.
Banking was adversely affected by delayed installations, supply-chain disruptions, nonrecurring 2021 refresh projects and the reduction of low-margin service contracts. Retail benefited from a growing contract base and favorable solution mix when excluding currency and divestitures.
Gross margins deteriorated materially as inflation and supply-chain costs outpaced pricing actions, which were delayed by long order-to-revenue lead times.
The company launched an organizational simplification program targeting more than $150 million of annualized efficiencies by the end of 2023 and incurred $124.2 million of related restructuring and transformation costs in 2022.
Impairments included $38.4 million related to a suspended North American cloud ERP implementation, $16.8 million related to assets and receivables in Ukraine, Russia and Belarus, and $46.9 million related to a held-for-sale European retail business.
The company’s product backlog increased to approximately $1,400 million from $1,100 million, although backlog is not necessarily indicative of future revenue and excludes the service business.

Going concern, outlook and risks

The independent auditor included a going-concern uncertainty paragraph. Management projects that, without modifications to the ABL Facility and access to additional capital, the company will not generate sufficient cash or liquidity to sustain operations and meet obligations over the twelve months following the filing. Substantial doubt therefore exists regarding the company’s ability to continue as a going concern, although the financial statements were prepared on a going-concern basis without liquidation adjustments.

The company was required to raise equity capital to repay, redeem, prepay or pay in full any 2024 Senior Notes outstanding in excess of $20 million. Failure to do so could trigger defaults and acceleration under other debt instruments.
Management was negotiating additional lender support, including a proposed $55 million first-in-last-out facility and modifications to the ABL borrowing base. The filing states that there was no assurance these measures would be completed or provide adequate liquidity.
Management’s operating priorities for 2023 were delivery and operational excellence, stabilization and growth of recurring revenue, and cultural improvement. The company expects approximately $50 million of 2023 capital expenditures and capitalized software investment.
Key risks include refinancing and covenant compliance, substantial debt maturities in 2025, limited borrowing availability, supply-chain disruption, inflation, foreign exchange, customer delays, cybersecurity, data privacy, competition, sanctions and the Russia-Ukraine conflict.
The company is liquidating its Russian distribution subsidiary and recorded $16.8 million of related impairments. The filing also identifies approximately $51.4 million of reasonably possible exposure from material indirect tax matters and ongoing German appraisal proceedings.
The company reported effective internal control over financial reporting, and KPMG issued unqualified opinions on both the financial statements and internal controls, but identified net sales evidence and goodwill impairment assessment as critical audit matters.

Important facts for investors to verify

Whether the Public 2024 Exchange Offer reduced the remaining 2024 Senior Notes to $20 million or less and whether the required equity financing was completed.
Actual ABL borrowing-base availability, lender amendments, and the status and terms of any additional liquidity facility.
Cash flow from operations, inventory conversion, supplier payment requirements and the company’s ability to fund approximately $50 million of planned 2023 investment.
Progress toward the more than $150 million cost-savings target and whether savings offset inflation, lower volumes and restructuring costs.
Revenue conversion from the approximately $1,400 million backlog, including installation timing and cancellation risk.
Debt maturities, interest expense, variable-rate exposure and compliance with minimum fixed-charge coverage and other debt covenants.
Potential dilution from the 15.8 million warrants and any equity issuance required to address the 2024 Senior Notes.
Final outcomes of the German appraisal proceedings, indirect tax matters, divestitures and impairment testing for goodwill and other long-lived assets.