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Diebold Nixdorf delivers solid performance in Q2

Diebold Nixdorf stock jumped 29% Thursday on news that it beat analyst projections for second quarter earnings. Since 2018, the ATM maker has been aggressively cutting back on spending, and last month launched its new line of DN Series machines.

July 26, 2019 by Amy Castor — Editor, Networld Media Group

Diebold Nixdorf stock jumped 29% Thursday — up from Wednesday's closing price of $10.29 to over $13 a share — thanks to the company releasing its second quarter financials early in the day.

The ATM maker and service provider reported revenues of $1.15 billion for the quarter ended June 2019, up 4% compared to $1.11 billion in the same period last year.

Operating profit was $7.3 million versus a loss of $126.6 million a year ago, which included an $83.1 million impairment charge. The company saw a net loss of $55.3 million in the quarter. Based on generally accepted accounting principles, the loss per share was $0.66. But on a non-GAAP (adjusted) bases, earnings were $0.06 per share, beating Zacks Consensus Estimate of a loss of $0.15 per share. 

Diebold Nixdorf, which is based in Green, Ohio, also reported that free cash use improved 87% year-over-year due to improved profitability and inventory management. 

"We have made substantial progress over the last 12 months, with strong improvements in adjusted EBITDA and free cash flow," Jeffrey Rutherford, the company's senior VP and CFO said in a news statement.

Cost-trimming measures
Behind the upbeat financial reports, the company has been steadfastly focused on reining in its spending. In 2018, Diebold Nixdorf unveiled a comprehensive "DN Now" plan to save $400 million — an increase from $250 million projected earlier — through the year 2021. 

As part of that, the company has been working to streamline its business operations and its product line. Last year, it eliminated 1,200 jobs worldwide and began divesting non-core businesses. 

"We are nearly complete with the first initiative, streamlining our operating model, in which we have reduced management layers and clarified roles across the organization," Gerrard Schmid, the company's president and CEO, told stock market analysts during an earnings call. 

As a result of the efforts, he explained that the company anticipates $100 million in gross savings in 2019 and cumulative savings of $130 million in 2020. 

From where will the savings come?
About $50 million will come from simplifying its ATM portfolio and optimizing manufacturing, according to Diebold Nixdorf, which began reducing the number of ATM configurations it was selling in 2018. The company is aiming for a continued reduction in 2019.

About a month ago, it launched its DN series of ATMs. So far, the company has received "strong feedback" from 18 different customers piloting the terminals in 13 countries, Schmid said.

In the second quarter, Diebold Nixdorf sold off a cash-in-transit business for its banking customers in Europe. It also reduced its real-estate footing by shutting down offices in Sydney and Bangkok. 

Additional savings came from tightening the belt in selling, general and administrative expenses. In the last six months, the company reduced third-party spend by $60 million by cutting back on logistics, temporary labor and consulting services.  

"Our progress and our plans give us confidence in further SG&A reductions, and we're maintaining our target of 13% to 14% revenue for 2021," Schmid told analysts.

Steady gains

Diebold Nixdorf has three business segments: Eurasia Banking, Americas Banking and Retail. Total revenue increased by 8% in Q2 versus the same period a year ago, with all three segments seeing growth.

The biggest gain was in Americas Banking. Revenue increased 14% to $420 million, up from $371 million last year. The company attributed the move to strong product growth from Windows 10 upgrades, a demand for cash recyclers and a resolution of supply chain issues. Among its highlights, the company noted a large order from Brazilian banks, a deal to upgrade ATMs at a Mexican bank, and upgrades by U.S. financial institutions.

As for Eurasia Banking, that segment saw a more modest revenue increase of 4% in the second quarter to $430 million — this excludes a -5% unfavorable currency impact. The increase was primarily due to strong product growth in Europe, the Middle East and Africa. The company noted a modest decline in Asia Pacific orders as it began to "exercise greater bidding discipline" and "focus on more profitable market segments," Schmid said.  

In a response to a question later in the call, Schmid said the company was beginning to see a "broad and decent demand" emerging from markets in Western Europe, the Middle East and Africa, specifically around Windows 10 operators. 

Although later in the call, he emphasized that the increased ATM demand was not purely driven by Windows 10. Other factors included a "very noticeable" shift in banks from relying on traditional cash-dispensing machines to more expensive cash recycling machines. 

The reason? "They're looking to shift more complex small business transactions from a teller to the ATM and additionally looking to use that to reduce their cash-in-transit costs," Schmid said. Banks are also looking for more features, such as mobile integration and cardless transactions.

"So I'd be very careful about drawing too many conclusions around Win 10 alone," he said. 

In its retail segment, which includes point-of-sale solutions, Diebold Nixdorf saw revenue growth of 6% in the second quarter up to $300 million, compared to $297 million in the prior year. The company said it is growing retail in both EMEA and Asia. 

"To summarize current market conditions, demand for our banking solutions is solid in nearly all regions," said Schmid. "In retail, we've seen demand for our self-checkout solutions coupled with an easing of demand for point-of-sale solutions."
 
As a result, the company has updated its outlook for 2019, expecting to generate revenue of $4.5 billion, while adjusted earnings are now estimated at between $400 million and $420 million.

As it looks at order activities through the back half of the year and into the early part of 2020, "our pipeline is looking very, very healthy," Schmid said. 

Q2 highlights

• Launched the DN series family of self-service solutions designed to support financial institutions' efforts to transform their branch environment. 
• Completed the merger squeeze-out of Diebold Nixdorf AG, the company's German public subsidiary. 
• Secured a $17 million win at Banco Itau Unibanco in Brazil to transform its branch network and increase automation via cash recyclers, ATMs and maintenance services.
• Benefited from solid growth in self-checkout demand from a number of European customers, including a $7 million contract with U.K.-based retailer Co-Op for more than 400 self-checkout terminals and related services.

Image courtesy Diebold Nixdorf

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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Diebold Nixdorf

As a global technology leader and innovative services provider, Diebold Nixdorf delivers the solutions that enable financial institutions to improve efficiencies, protect assets and better serve consumers.

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