Diebold Nixdorf and the Terrible, Horrible, No Good, Very Bad Day
There's no way to describe Aug. 1 in the annals of Diebold Nixdorf history except (to borrow from Judith Viorst) as a "terrible, horrible, no good, very bad day."
The company reported unpleasantly surprising Q2 earnings first thing in the morning, and it was right downhill from there.
The company's stock dropped by approximately 37 percent by the end of the day (and was down 40 percent by midday Aug. 2).
Behind all of this were performance numbers that fell well short of even the modest expectations for the quarter: a loss of 21 cents per share versus the consensus estimate of a 1 cent gain forecast by investment research firm Zacks.
The company reported revenues of $1.1 billion, a 2.5 percent decline from $1.3 billion in the same quarter last year.
- GAAP loss per share of $(1.82), or $(0.21) on a non-GAAP basis.
- GAAP operating loss of $131.5 million, an 11.9 percent operating margin loss; non-GAAP operating profit was $5.9 million, or a 0.5 percent operating margin.
- Net cash used by operating activities was $114.3 million, a decrease in use of $5.1 million from the prior year period; free cash use was $124.7 million, a decrease in use of $9.0 million from the prior-year period.
"While revenue was in line with our expectations, the company's bottom-line results were clearly disappointing, as we experienced higher service and delivery costs during the quarter," said Diebold President and CEO Gerrard Schmid, who has now been at the company's helm for approximately five months. "Contributing to this performance is a high degree of complexity that permeates our business, and we are focused on several actions to simplify our operations and rationalize our cost structure."
These actions stem from the company's previously announced DN Now program, which is now is moving from launch to execution. Schmid alluded to "large scale initiatives" in the program that will unfold over the next several quarters, and deliver "greater, more sustainable profitability."
Key actions include:
2) Divestiture of noncore businesses amounting to approximately 5–10 percent of total revenues; proceeds used to reduce debt.
3) Streamlining solutions to reduce delivery cycles, improve supply chain performance.
4) A comprehensive plan to improve services delivery and efficiency, targeted investment in next-generation solutions to enhance competitiveness.
Finally, Schmid said, Diebold is taking steps to enhance profit margins while improving customer service levels.
"In the quarter, we completed a robust services diagnostic, let by a global consulting firm and we're starting to implement actions designed to materially increase service margin sequentially over the next three years," he said. "The essential step we are taking is to implement a consistent set of KPIs across our global services operations. You can expect to hear more about our actions on the next earnings report."
Service margins, historically more generous than hardware margins, have been under pressure since the Diebold-Wincor Nixdorf merger, a concerning trend for some analysts on the call.
"The fact that this business that used to be sort of Diebold's bread and butter is now riddled with inefficiency is pretty disturbing to me," said Matt Summerville of D.A. Davidson & Co.
Schmid explained how the company is now addressing the problem:
One of the key tenets under the revised operating model is to consolidate all of our global services personnel under a single operating structure globally where we can therefore drive consistency of common operating KPIs and performance improvements. And therefore, I now have a proverbial single throat that I can have a conversation with around our operating performance. And having completed the very robust services diagnostic globally, we have a clear path on how we can return our services organization to its former strength.
He also has a "single throat" to squeeze if he doesn't see it happening fast enough.
During the call, Diebold Nixdorf Chief Financial Officer Chris Chapman announced a significant adjustment in the company's earnings outlook for the year.
"Due to higher-than-expected service and delivery costs coupled with our revenue outlook, we now expect lower adjusted EBITDA for 2018," he said. "While we are currently in compliance with our debt covenants, we have engaged our principal lenders to amend our credit agreement as a result of our revised financial outlook. … We anticipate a resolution in the coming weeks and we will update you accordingly."
Even the most terrible, horrible, no good, very bad day can have its glimmer of a bright spot though.
For Diebold Nixdorf, that glimmer came in the last paragraph of an analysis offered by Zacks:
In terms of the Zacks Industry Rank, financial transaction services is currently in the top 35 percent of the 250 plus Zacks industries. Our research shows that the top 50 percent of the Zacks-ranked industries outperform the bottom 50 percent by a factor of more than 2 to 1.
Companies: Diebold Nixdorf
Suzanne Cluckey Suzanne’s editorial career has spanned three decades and encompassed all B2B and B2C communications formats. Her award-winning work has appeared in trade and consumer media in the United States and internationally. She is now the editor of ATMmarketplace.com and BlockChainTechNews.com www