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Diebold Nixdorf misses earnings, meets revenue expectations

Diebold Nixdorf's retail business slowed in Q3 while its banking business performed. Overall, the firm's banking customers have been receptive to its new DN Series of ATMs.

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October 30, 2019 by Amy Castor — Editor, Networld Media Group

When Gerrard Schmid, CEO of Diebold Nixdorf, spoke to analysts in an earnings call early Tuesday, he had some good news and some not-so-good news. 

On the not-so-good front, the ATM maker reported a per-share loss of 6 cents for the third quarter on a non-GAAP basis, which was in contrast to the per-share profit of 24 cents that analysts had predicted.  

As a result, Diebold Nixdorf shares dropped nearly 26%, falling from around $10 per share on Monday to $7 later in the day Tuesday. 

But on the good news end of things, the firm's Q3 revenue of $1.08 billion met analyst expectations.

DN Now plan paying off

Schmid said the positive results were a reflection of the company's solid execution of its "DN Now" plan, an aggressive effort to cut cost and revitalize the company, which he unveiled in late 2018, shortly after he took the helm of the company. Ultimately, the company expects to realize $400 million of gross savings through the year 2021.

"Operationally, our strategic focus on profitability is paying off, with solid gross margin gains across the board in services, products and software," he said in a press release.

Gross margin for the period was 25.5%, increasing 350 basis points from the prior-year quarter and representing what Schmid called the company's best performance since the business combination. Additionally, the company's cash and inventory management performance in the quarter exceeded its expectations, resulting in $65 million of positive free cash flow, he said.

As a result Diebold Nixdorf, which has three main businesses — Retail, Eurasia Banking and Americas Banking —  has raised its full-year outlook for net cash provided by operating activities to a range of $120 million to $150 million and free cash flow to a range of $70 million to $100 million. 

Retail slowed, banking performed

During the quarter, revenue was impacted by persistent currency headwinds and some slowing economic activity, notably in Europe, which impacted demands for the company's Retail solutions following several quarters of growth, Schmid said during in an earnings call. 

Still, the company's banking businesses performed as expected, he said, with revenue growth in the Americas offset by declines in Eurasia. As a result of these trends, the company is tempering its full-year revenue outlook by about 2%. 

In June, Deibold Nixdorf introduced the DN Series, its new line of interconnected ATMs with cash recycling. Gerrard said the machines have been well received by the company's 150 banking customers across 30 countries. Already, the firm has installed the DN Series in a a number of banks while other banks are still going through certification — a lengthy process that can take 9-12 months, he said. 

The company is looking forward to building on its third quarter momentum.

"There's still a period ahead of us before you'll start to see large numbers in production, but the early indicators are extremely positive," Schmid said.

Q3 financial results included:

• Net cash provided by operating activities was $75.0 million, an increase of $190.5 million from the prior-year period; free cash flow for the quarter was $65.1 million, an improvement of $190.5 million year over year.
• On a year-to-date basis, net cash provided by operating activities was $7.4 million, a year-over-year improvement of $379.5 million; year-to-date free cash use of $22.8 million improved by $389.8 million.
• GAAP gross profit of $271.5 million improved by $42.6 million versus the prior-year period; non-GAAP gross profit of $275.6 million improved by $29.3 million; non-GAAP gross margin expanded from 22.0% to 25.5% year over year.
• Net loss of $34.8 million improved by $209.8 million from the prior-year period; adjusted EBITDA was $98.2 million, an improvement of $5.2 million; adjusted EBITDA margin improved from 8.3% in the prior year to 9.1%
• Revenue of $1.1 billion decreased 3.6% on an as-reported basis, and was essentially flat after adjusting for currency headwinds of $26 million and the company's portfolio-shaping actions.
• GAAP loss per share of $0.46 during the quarter, or loss of $0.06 per share on a non-GAAP basis

Q3 business highlights included:  

• Successfully amended and extended the vast majority of company's $787 million revolving credit facility and term A loans from December 23, 2020 to April 30, 2022. 
• Renewed a multi-year managed services contract with H&M, providing an integrated solution supporting its global stores with an all-in-one POS system, DN Vynamic Software and DN All Connect Services.
• Secured a sizable new software contract to transform the debit platform of a top 10 U.S. financial institution. 
• Signed a $29 million contract for cash recyclers and related services with a major financial institution in Brazil. 
• Won a services, software and product solutions contract valued at nearly $8 million with a large Asia bank. 
• Reached an agreement with Dave & Buster's, a leading U.S. dining and entertainment chain, to provide a self-service solution at locations nationwide built around Diebold Nixdorf's newest K-two interactive kiosk.
• Won a new account with one of the largest banks in the UAE for cash recyclers and DN Vynamic Software.
   

About Amy Castor

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Amy Castor has more than 20 years of experience in journalism and mass communications. In the last several years, she has gotten particularly interested cryptocurrencies, blockchain technologies and other evolving forms of payment. Her work has appeared in consumer and trade publications throughout the U.S., including CoinDesk, Forbes, and Bitcoin Magazine. She is now the editor of ATMmarketplace.com and WorldofMoney.com

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