Diebold Nixdorf, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2021, compared with the three months ended March 31, 2020. Diebold Nixdorf provides connected-commerce hardware, software and services for banking and retail customers in more than 100 countries. Reportable segments are Eurasia Banking, Americas Banking and Retail.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $943.9 million | $910.7 million |
| Gross profit | $273.2 million | $226.8 million |
| Gross margin | 28.9% | 24.9% |
| Operating profit (loss) | $36.2 million | $(26.0) million |
| Operating margin | 3.8% | (2.9)% |
| Net loss attributable to Diebold Nixdorf | $(8.1) million | $(92.8) million |
| Loss per share | $(0.10) | $(1.20) |
| Cash flow from operations | $(65.2) million | $(78.2) million |
- Services revenue was $573.6 million, down from $587.8 million; product revenue was $370.3 million, up from $322.9 million.
- Segment revenue increased 5.6% in Eurasia Banking and 19.1% in Retail, but decreased 9.6% in Americas Banking.
- Segment operating profit was $92.3 million, compared with $80.4 million in the prior-year period. Retail operating profit increased to $27.1 million from $11.1 million.
- Cash and cash equivalents were $234.8 million at March 31, 2021, down from $324.5 million at December 31, 2020. Total cash availability, including investments and unused credit facilities, was $602.8 million.
- Long-term debt was $2.271 billion, and total equity was negative $840.0 million. The net debt-to-trailing-12-month adjusted EBITDA ratio was 4.1x.
- Inventory increased to $538.7 million from $498.2 million at year-end, partly reflecting longer lead times and purchases to support customer demand.
Material changes versus the prior comparable period
- Revenue increased $33.2 million, or 3.6%, largely because of favorable currency translation. On a constant-currency basis, revenue decreased 0.1%; excluding divested businesses, revenue increased $22.2 million.
- Gross profit increased 20.5%, with services gross margin improving to 32.1% from 25.6%. Management attributed the improvement to service modernization, cost savings and lower professional-services costs.
- Operating expenses declined 6.3% to $237.0 million, and selling and administrative expense declined 8.4% to $203.4 million.
- Restructuring and DN Now transformation expenses declined to $23.1 million from $41.6 million; total restructuring charges were $6.0 million versus $10.0 million.
- Net cash used in operations improved by $13.0 million, but cash remained negative because of increased inventory purchases, pension and restructuring payments, and other working-capital uses.
- Financing cash flow changed from $314.0 million of proceeds in Q1 2020, when the Company drew on its revolving facility amid COVID-19 uncertainty, to $24.9 million of cash usage in Q1 2021.
Guidance, outlook, commentary, risks and unusual items
- Management expects DN Now to produce approximately $500 million of gross annualized savings through 2021. Large restructuring costs are expected to conclude in 2021, with up to $50 million of remaining cash payments.
- Management stated that available capital resources are expected to fund planned working capital, research and development, facilities, pension contributions and potential share repurchases for at least the next 12 months. The filing does not provide clear full-year revenue or earnings guidance.
- The Company reported progress in DN Series ATM certifications and orders, expanded managed-services contracts, and increased demand for retail self-checkout and point-of-sale solutions.
- COVID-19 continues to create uncertainty, including potential operational and supply-chain disruption. The Company reported increasing lead times for certain electronic components.
- Debt agreements include leverage and interest-coverage covenants. The Company was in compliance at March 31, 2021, but covenant thresholds become more restrictive over time. Interest expense was $48.7 million for the quarter, and cash interest payments were $59.9 million.
- Guarantees, standby letters of credit and surety bonds had maximum future obligations of $163.5 million, with no associated liability recorded. Material indirect-tax matters carried an estimated aggregate risk of up to $74.0 million.
- Pending matters include German appraisal proceedings related to former Diebold Nixdorf AG transactions. Management believes its defenses are strong but cannot predict the outcome. A separate federal securities class action was dismissed in March 2021, with judgment entered for defendants in April 2021; an appeal remained possible.
- Other unusual items included $19.9 million of purchase-accounting amortization, foreign-exchange gains of $5.7 million, and a $12.7 million contribution from noncontrolling shareholders that eliminated a redeemable noncontrolling interest.
Most important facts for investors to verify
- Whether DN Now savings and the remaining restructuring cash payments are realized as planned.
- Whether operating cash flow turns positive while inventory and supply-chain requirements remain elevated.
- Compliance with, and future headroom under, the Company’s leverage and interest-coverage covenants.
- The sustainability of improved services and Retail margins, particularly after excluding restructuring and non-routine items.
- Demand and conversion timing for DN Series ATMs, self-checkout, point-of-sale and managed-services contracts.
- The potential financial exposure from German appraisal proceedings, indirect-tax matters and other contingencies.
- The impact of COVID-19, component shortages, foreign-exchange movements and customer capital-spending conditions on future results.