Diebold Nixdorf, Incorporated — Q3 2021 Form 10-Q Summary
Business Context and Reporting Period
Diebold Nixdorf provides connected commerce solutions, including banking and retail hardware, software and services, in more than 100 countries. The filing covers the three and nine months ended September 30, 2021. Results are unaudited and should be read with the company’s 2020 Form 10-K.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net sales | $958.2 million | $995.2 million | $2,845.6 million | $2,796.4 million |
| Gross profit | $260.1 million | $284.1 million | $785.2 million | $758.5 million |
| Gross margin | 27.1% | 28.5% | 27.6% | 27.1% |
| Operating profit | $38.7 million | $23.8 million | $87.8 million | $18.3 million |
| Operating margin | 4.0% | 2.4% | 3.1% | 0.7% |
| Net loss attributable to Diebold Nixdorf | $2.1 million loss | $101.4 million loss | $40.5 million loss | $217.9 million loss |
| Loss per share | $0.03 | $1.31 | $0.52 | $2.81 |
| Cash used in operating activities | Not separately provided | Not separately provided | $291.6 million | $196.7 million |
Q3 revenue decreased 3.7% year over year, while nine-month revenue increased 1.8% on a reported basis but declined 1.6% in constant currency. Services represented $561.7 million of Q3 revenue and products represented $396.5 million. Nine-month revenue growth was driven by Retail, partially offset by declines in Eurasia Banking and Americas Banking.
- Q3 segment revenue: Eurasia Banking $323.5 million, Americas Banking $346.6 million and Retail $288.1 million.
- Nine-month segment revenue: Eurasia Banking $977.3 million, Americas Banking $970.8 million and Retail $897.5 million.
- Q3 segment operating profit was $89.8 million, compared with $108.7 million in the prior-year quarter. Retail improved materially, while both banking segments declined.
- Interest expense was $51.3 million in Q3 and $149.7 million for nine months, down from $144.3 million and $240.6 million, respectively, primarily because 2020 refinancing-related make-whole premiums and deferred financing write-offs did not recur.
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $215.9 million at September 30, 2021, down from $324.5 million at December 31, 2020. Short-term investments were $13.7 million.
- Total debt was approximately $2.50 billion, consisting of $49.1 million of notes payable and $2.447 billion of long-term debt, compared with approximately $2.35 billion at year-end 2020.
- Total cash and reported availability was $342.2 million, including cash, short-term investments, $95.1 million available under the revolving facility and $16.9 million under uncommitted lines.
- The company reported a net debt to trailing twelve-month adjusted EBITDA ratio of 5.4 times and stated that it was in compliance with all debt covenants. The maximum permitted total net debt to adjusted EBITDA ratio was 6.0 times at September 30, 2021.
- Shareholders’ equity was negative $872.3 million and total equity was negative $863.5 million at September 30, 2021.
Material Changes Versus the Prior Comparable Period
- Operating profit improved by $14.9 million in Q3 and $69.5 million for the first nine months, primarily due to lower restructuring, transformation and other non-routine costs and the absence of 2020 loss-making contract provisions.
- Net loss attributable to the company improved by $99.3 million in Q3 and $177.4 million for the first nine months.
- Retail revenue increased 9.8% in Q3 and 21.4% for nine months, supported by European point-of-sale and self-checkout rollouts and professional services. Retail segment operating margin rose to 10.8% in Q3 and 9.6% for nine months.
- Eurasia Banking revenue declined 11.2% in Q3 and 3.5% for nine months; Americas Banking revenue declined 5.9% and 7.1%, respectively. Both segments were affected by installation timing, supply-chain delays and, in Americas Banking, the absence of prior-year Windows 10 upgrade activity.
- Product gross margin declined to 20.4% in Q3 from 23.2%, reflecting higher logistics and raw-material costs, lower volume and unfavorable mix. Services gross margin was 31.9% versus 32.2%.
- Inventory increased to $624.8 million from $498.2 million at year-end, primarily to support demand and address longer component lead times.
Cash Flow, Outlook, Risks and Unusual Items
- Operating cash use increased to $291.6 million from $196.7 million in the prior-year period. The principal pressures were higher inventory purchases, income and non-income tax payments, severance payments and other working-capital uses.
- Investing cash use was $4.6 million. Capital expenditures were $11.1 million and capitalized software development was $21.6 million.
- Financing activities provided $189.8 million, primarily from net revolving-facility borrowings of $187.9 million and $12.7 million of contributions from noncontrolling interest holders.
- The DN Now transformation program is nearing completion. The company reported $23.1 million of restructuring charges for the first nine months and stated that material incremental DN Now restructuring charges are not expected.
- Management stated that customer demand remained robust despite supply-chain constraints, logistics delays and inflationary pressures. The filing does not provide a specific quantitative revenue or earnings guidance figure.
- COVID-19 resurgence, supply-chain disruption, component shortages, inflation, cybersecurity incidents, foreign exchange, competitive pressure, customer capital spending, debt service and covenant compliance remain key risks.
- Indirect tax matters had estimated aggregate risk of up to $76.3 million, although management considered routine claims and legal proceedings not material to the financial statements. Guarantees and similar arrangements had maximum future contractual obligations of $180.0 million, with no associated liability recorded.
- On October 8, 2021, the company agreed to divest its German reverse vending business, representing approximately $10.0 million of net assets. Regulatory approval and other closing conditions remained outstanding; closing was expected in Q4 2021 or Q1 2022, with no material gain or loss expected.
Important Facts for Investors to Verify
- Whether operating cash flow improves after the substantial inventory build and other working-capital uses.
- Progress in reducing leverage before debt maturities in 2022 through 2025, particularly as covenant thresholds tighten.
- Whether supply-chain constraints, logistics costs and raw-material inflation continue to pressure product margins.
- The sustainability of Retail growth and whether Banking installation timing normalizes.
- Completion and financial impact of the German reverse vending divestiture and other portfolio actions.
- Potential outcomes of the German appraisal proceedings and the company’s disclosed indirect-tax contingency exposure.
- The company’s ability to complete DN Now while realizing expected savings without additional material restructuring charges.