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NCR and Diebold Q3 earnings calls: An elephant in the room?

America's largest ATM-makers held earning calls last week and got through them with barely a word about the biggest industry news in years — the Diebold-Wincor deal.

November 5, 2015 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

If you were listening in on last week's earnings calls by Diebold Inc. and NCR Corp. you might've sensed some unknown presence in the room. Something larger than the handful of suits gathered around a speakerphone. Something about the size of an elephant. An elephant named Wincor Nixdorf.

Given the size of the proposed buyout of Wincor by Diebold and its potential impact on the competitive environment, the recent development received surprisingly little attention from executives and financial analysts during the call. 

Yes, allusions to the deal came up in both companies' presentations, but these were fleeting at best. Diebold President and CEO Andy Mattes talked about the company's proposed buyout of the German ATM giant only to say that he couldn't talk about it:

We recently announced that the company had entered into a nonbinding term sheet agreement with Wincor Nixdorf regarding the key parameters of a potential strategic business combination. We are currently working our way through the diligence process ... [and] there can be no assurance that we will reach a binding agreement and we cannot comment further at this time.

Not being involved in the proceedings, NCR President and CEO Bill Nuti could discuss the proposed acquisition at greater length — and he did:

I think on the surface, the strategic rationale of two legacy ATM providers coming together actually makes very good sense. Especially given that there really isn't a lot of geographic overlap for their market presence. ...

I think the challenge for them, if there are challenges; it's obvious to all of us in that a merger of that size is extremely difficult to pull off. And I don't envy the geographic proximity issues, the cultural differences within the two companies, the product overlap issues that inevitably you have to face in choosing which product lives and which product does not. The services infrastructure issues that they will have to face, clearly the issue around where they decide to make cost cuts in terms of employees and R&D and there [are] a lot of fundamental issues that could, if they do not execute well, slow them down in a market that is moving very, very fast.

In short, "Good for them ... but maybe not."

As for Diebold's recent patent infringement suit against Nautilus, neither executive spoke a word about it during their respective calls.

And finally, Nuti played it close to the vest when asked by a financial analyst about the NCR strategic review, the company's plans for the future and the continuing rumors that the company is up for sale, :

Well, I think once the strategic process is completed and we have something of note to say, other than continuing to execute to our plan and execute to our guidance, we will have an investor meeting. But I would tell you that right now, it will either be in Q4 or Q1 is my estimation right now.

On other, performance-related matters, both executives had more to say:

Diebold Q3

Q3 Mattes outlined several third-quarter wins for Diebold, including:

• a five-year multi-vendor service agreement with a top-three U.S.-based bank to service more than 6,000 non-Diebold ATMs in North America. Diebold will provide device-agnostic services and related hardware support.
• a contract with Banco Internacional de Ecuador to modernize its fleet with 400 ATMs, software and related maintenance services. As part of the agreement, Diebold will provide advisory and installation services.
• a product agreement with Riyad Bank in Saudi Arabia to deliver 100 of the company's new 5500 series ATMs.
• a five-year managed services contract with a major multi-national bank in Mexico, covering their entire fleet of approximately 2,200 ATMs in that country.

The company continues to be buffeted by currency exchange headwinds, and by government and economic turmoil in markets such as Brazil, China and Russia. But despite a drop in year-over-year drop in revenues for the third quarter (from $768 million to $681 million), and further downward revisions (from -5 to -6 percent to -7 or -8 percent) for overall performance in 2015, the Diebold 2.0 plan is having a positive impact, Mattes said.

"[W]e continue to make significant progress in the walk phase of the Diebold 2.0 transformation. By reshaping our portfolio of businesses, we are sharpening our focus on our self-service customers. It is our mission to move up the value chain and become the strategic partner for financial institutions and retailers around the world. We're moving closer to our goal of becoming a services-led, software-enabled company."

NCR Q3

NCR also saw a decline in year-over-year Q3 revenues — from $1.65 billion to $1.61 billion — driven by many of the same factors that affected Diebold revenues for the quarter, i.e., unfavorable foreign exchange rates, government regulations in China, economic collapse in Russia, and slow growth in mature markets.

The company also revised downward its full-year revenue expectations and is now expecting a decline of 2 percent to 3 percent, compared with previous expectations of 1 percent to -1 percent.

Nuti said that software revenue rose during the quarter (by 1 percent, or 5 percent in constant currency), supporting the company's goal of becoming a software-driven, hardware-enabled provider.

"We also continued to build a better NCR through sales and services transformation, and our company-wide restructuring efforts are benefiting these initiatives. As a true omnichannel solutions provider in financial services, NCR — unlike its ATM competitors — bridges all banking channels and is actively helping top financial institutions around the globe transform their businesses into asset-light, technology-heavy enterprises that engage with their customers, both physically and digitally."

About Suzanne Cluckey

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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.

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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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