Business Context and Reporting Period
Diebold Nixdorf, Incorporated provides banking and retail automation, software, products and services in more than 100 countries. Its reportable segments are Banking and Retail. This unaudited Form 10-Q covers the three and six months ended June 30, 2023. The company operated as a debtor-in-possession following Chapter 11 and related Dutch restructuring filings on June 1, 2023.
Key Financial Metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $922.2 million | $851.7 million | $1,780.3 million | $1,681.5 million |
| Gross profit | $225.2 million | $160.8 million | $434.5 million | $346.1 million |
| Gross margin | 24.4% | 18.9% | 24.4% | 20.6% |
| Operating loss | $(3.9) million | $(91.5) million | $(6.0) million | $(174.9) million |
| Net loss attributable to Diebold Nixdorf | $(677.1) million | $(199.2) million | $(788.2) million | $(382.3) million |
| Basic and diluted loss per share | $(8.46) | $(2.52) | $(9.89) | $(4.85) |
| Net cash used in operating activities | Not presented | Not presented | $(337.6) million | $(306.6) million |
Banking revenue increased 12.7% in Q2 and 9.1% year to date, driven primarily by higher ATM unit sales. Retail revenue declined 1.6% in Q2 and 1.2% year to date. Banking segment operating margin was 15.4% in Q2 and 14.5% year to date; Retail segment operating margin was 12.7% and 13.9%, respectively.
Product gross margin improved to 19.6% in Q2 from 3.2% in the prior-year quarter and to 18.1% for the six-month period from 7.0%. Management attributed the improvement primarily to lower logistics and raw-material costs, including semiconductor costs, favorable pricing and sales mix.
At June 30, 2023, cash, cash equivalents and restricted cash were $541.8 million, and total cash availability including short-term investments was $552.8 million. Total assets were $3.4055 billion. Total liabilities were approximately $5.536 billion, including $2.2402 billion of liabilities subject to compromise. Total equity was a deficit of $2.1306 billion.
Material Changes Versus the Prior Comparable Period
- Revenue increased 8.3% in Q2 and 5.9% for the first six months. On a constant-currency basis, revenue increased 7.9% and 7.4%, respectively.
- Gross profit increased 40.0% in Q2 and 25.5% year to date, primarily because of substantially higher product profitability.
- Operating losses narrowed materially, helped by improved product gross profit, lower selling and administrative expense, lower research and development expense and the absence of the large 2022 impairments.
- Net loss increased substantially because Q2 and year-to-date 2023 included $636.2 million of reorganization items, consisting primarily of non-cash debt issuance cost write-offs and a DIP premium, as well as higher interest expense.
- Operating cash use increased to $337.6 million from $306.6 million, while financing cash flow increased to $563.4 million from $180.3 million, primarily due to $1.25 billion of DIP financing.
- Cash increased by $220.1 million during the first six months, compared with a $138.7 million decrease in the prior-year period.
Restructuring, Outlook, Risks and Unusual Items
The company entered Chapter 11 proceedings in the United States and Dutch scheme proceedings on June 1, 2023. The U.S. Bankruptcy Court confirmed the U.S. Plan on July 13, 2023, and the Dutch Court sanctioned the WHOA Plan on August 2, 2023. The filing states that the plans were expected to become effective on or before August 11, 2023, subject to conditions precedent.
Under the plans, existing common shares were to be cancelled without distribution. First-lien creditors were to receive 98% of reorganized equity and second-lien noteholders 2%, subject to dilution. A new management incentive plan was to reserve 6% of reorganized equity on a fully diluted basis. The company also expected to reincorporate from Ohio to Delaware.
The $1.25 billion DIP facility was intended to convert into an approximately $1.25 billion senior secured exit term loan maturing in 2028, bearing interest at Term SOFR plus 7.50%, subject to a 4.00% floor. The filing contains inconsistent references to the DIP termination date, citing both September 30 and October 2, 2023; the controlling financing documents should be verified.
Management disclosed substantial doubt about the company’s ability to continue as a going concern as of June 30, 2023. Continuation depended on successful implementation of the restructuring transactions. Key risks included delayed or unsuccessful emergence, inadequate liquidity, high restructuring costs, supplier and customer attrition, employee losses, supply-chain disruption, cybersecurity, foreign exchange, litigation and tax contingencies, and the possibility that post-emergence financial results would differ materially from historical results.
The company continued a cost-reduction and transformation program targeting more than $150 million of annualized savings by the end of 2023. Restructuring and transformation costs were $18.6 million in Q2 and $33.6 million for the first six months, versus $78.3 million in the prior-year periods.
Other disclosed contingencies included estimated aggregate risk of up to $51.1 million for material indirect tax matters and maximum future obligations of $119.1 million under guarantees, standby letters of credit and surety bonds. Management did not consider routine legal proceedings material.
Important Facts for Investors to Verify
- Whether the U.S. Plan and WHOA Plan became effective and the exact terms of the company’s emergence, including debt cancellation, new equity issuance and share cancellation.
- The final amount, pricing, maturity and covenants of the exit financing and the treatment of the DIP facility.
- The company’s post-emergence liquidity, cash generation, debt service requirements and ability to fund working capital.
- The final allowed amounts and settlement treatment of the $2.2402 billion of liabilities subject to compromise.
- The effect of the restructuring on existing shareholders, whose shares were scheduled to be cancelled without recovery.
- Whether the targeted cost savings were achieved and whether improved product margins and Banking performance were sustainable.
- The outcome of indirect tax matters, German appraisal proceedings, guarantees and other contingencies.
- The filing’s inconsistent DIP termination-date references and any subsequent amendments or bankruptcy-court orders.