Diebold Nixdorf, Inc. — FY2021 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2021; it is an annual report rather than a standalone fourth-quarter filing. Diebold Nixdorf provides connected-commerce hardware, software and services for banking and retail customers, including ATMs, point-of-sale and self-checkout systems, software, managed services and professional services. The Company operated in more than 100 countries with approximately 22,000 employees. Its reportable segments were Eurasia Banking, Americas Banking and Retail.
The multi-year DN Now transformation program concluded in the fourth quarter of 2021. Key initiatives included operating-model simplification, services modernization, product and manufacturing rationalization, working-capital improvements, administrative-cost reductions and portfolio optimization.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $3,905.2 million | $3,902.3 million | 0.1% |
| Gross profit | $1,043.4 million | $1,035.0 million | 0.8% |
| Total gross margin | 26.7% | 26.5% | +20 basis points |
| Operating profit | $137.1 million | $24.0 million | +$113.1 million |
| Operating margin | 3.5% | 0.6% | +290 basis points |
| Net loss attributable to Diebold Nixdorf | $78.8 million | $269.1 million | Improved by $190.3 million |
| Loss per share | $1.01 | $3.47 | Improved |
| Cash flow from operations | $123.3 million | $18.0 million | +$105.3 million |
Services revenue was $2,303.6 million and product revenue was $1,601.6 million. Services gross margin rose to 31.5% from 29.5%, while product gross margin fell to 19.8% from 21.9%, primarily because of freight, logistics and raw-material inflation. Services represented more than half of total revenue.
Segment revenue and operating profit were: Eurasia Banking revenue of $1,353.8 million and operating profit of $110.4 million; Americas Banking revenue of $1,357.3 million and operating profit of $146.4 million; and Retail revenue of $1,194.1 million and operating profit of $114.3 million. Retail was the strongest segment, with revenue up 13.5% and operating profit up 70.6%, driven by European POS and self-checkout rollouts and related software and professional services.
Cash, cash equivalents and restricted cash were $388.9 million at year-end, with total cash availability of $734.7 million including short-term investments, uncommitted lines and revolving credit availability. Capital expenditures were $20.2 million and capitalized software development costs were $31.1 million. Management expected approximately $55.0 million of combined 2022 capital expenditures and capitalized software development costs.
Long-term debt was $2,245.6 million, and total contractual debt principal maturities were approximately $2,329.5 million, including $782.7 million in 2023, $401.1 million in 2024 and $1,097.4 million in 2025. Net debt to trailing twelve-month adjusted EBITDA was 4.6 times at year-end. The Company was in compliance with its debt covenants, but disclosed a need to pursue significant refinancing. No dividend has been paid since 2018.
Material changes versus the prior comparable period
- Reported revenue was essentially flat because favorable currency translation offset lower constant-currency revenue and divestitures. Constant-currency revenue declined 1.8%.
- Eurasia Banking revenue declined 5.4% and Americas Banking revenue declined 4.4%, mainly because of delayed installations, supply-chain constraints and the non-recurrence of prior-year refresh projects.
- Retail revenue increased 13.5%, supported by POS and self-checkout deployments and higher-margin related services.
- Operating profit improved substantially as DN Now restructuring and transformation expenses declined to $98.9 million from $181.8 million. Total restructuring charges were $28.2 million versus $81.6 million.
- Interest expense declined to $195.3 million from $292.7 million, primarily because 2020 refinancing-related costs did not recur and debt balances and interest rates were lower.
- Operating cash flow improved to $123.3 million, aided by the reduced net loss, improved collections and working-capital benefits, particularly higher accounts payable.
- Product backlog increased to $1,087 million from $981 million. Backlog excludes the Company’s significant service business and is not necessarily indicative of future revenue.
- Goodwill declined to $743.6 million from $800.4 million, primarily due to currency translation and divestitures. The 2021 qualitative impairment assessment identified no required quantitative test or impairment charge.
Guidance, outlook, risks and unusual items
Management expected supply-chain, freight and raw-material cost pressures to continue through at least the end of the third quarter of 2022. The Company planned to use price increases, supply-chain optimization and other mitigation measures. Management also cited continued demand for self-service automation, connected devices, software and services, while acknowledging that installation delays could shift revenue into 2022.
- COVID-19 and related variants could disrupt suppliers, manufacturing, field service, installations, customer demand and cash flow.
- Semiconductor shortages, longer freight lead times, inflation in steel, resin, energy and labor, and supplier concentration could reduce margins or delay deliveries.
- High leverage and upcoming 2023–2025 maturities create refinancing and covenant-compliance risk. The Company entered into an eleventh credit-agreement amendment on March 11, 2022 that revised leverage covenant levels.
- LIBOR and EURIBOR reform could affect borrowing costs, refinancing and the valuation of variable-rate debt.
- Cybersecurity incidents, data-privacy requirements, system migrations and service interruptions could result in operational losses, regulatory exposure and reputational damage.
- The Company faces declining cash usage and ATM-demand risk as consumers adopt cards, mobile payments, digital currencies and other non-cash methods.
- Two German appraisal proceedings remain pending concerning compensation paid to former minority shareholders of Diebold Nixdorf AG. The filing does not provide a clear maximum potential loss.
- Material indirect-tax matters carried an estimated aggregate risk of up to $55.8 million, although management stated routine tax and legal matters were not material to the financial statements.
- Russia and Ukraine-related sanctions and business disruptions created subsequent-event risk. The Russian subsidiary generated approximately $45 million of 2021 revenue and $5 million of operating profit; Russian and Ukrainian distribution partners generated approximately $35 million of revenue and $5 million of gross profit. Net investment and receivables exposure was estimated at approximately $20 million as of February 28, 2022.
- The Company had $743.6 million of goodwill and significant deferred tax assets subject to valuation allowances, creating potential future impairment or tax-expense volatility.
Management stated that available capital resources were expected to fund working capital, research and development, facilities, equipment and pension contributions for at least the next 12 months and thereafter. This expectation depends on operating cash flow, credit availability and successful refinancing.
Important facts for investors to verify
- Whether Retail growth and services-margin improvements can offset weaker Banking revenue and product-margin pressure.
- The timing, terms and cost of refinancing debt maturities beginning in 2023, including the impact of the March 2022 covenant amendment.
- Whether supply-chain, freight, labor and raw-material pressures improve after the third quarter of 2022 and how effectively price increases recover those costs.
- The sustainability of DN Now savings after transformation expenses have largely ended.
- The financial impact of Russia and Ukraine disruptions, sanctions and any required impairment or exit decisions.
- The outcome and potential exposure from the German appraisal proceedings and indirect-tax contingencies.
- Future goodwill impairment testing, valuation allowances and realization of tax attributes.
- Execution and profitability of new offerings, including DN Series, retail self-checkout solutions and EV-charging station services.
- The Company’s ability to convert the $1,087 million product backlog and approximately $1,800 million of remaining performance obligations into revenue and cash flow.