Three quarters, no change in ATM outlook for Diebold Nixdorf

| by Suzanne Cluckey
Three quarters, no change in ATM outlook for Diebold Nixdorf

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"There are many positive developments in our business," Diebold Nixdorf President and CEO Andy Mattes said during the company's Q3 earnings call last week.

However, a year-over-year uptick in ATM sales was not one of them, a circumstance Mattes attributed to three market factors:

For one thing, he said, the pending Windows 10 upgrade has dampened regional and community bank spending on ATMs — probably until the second half of 2018 — while FIs figure out an implementation plan.

For another, advanced self-service functionality and the increasingly complex IT environments prolong implementation schedules and affect timing of revenue.

"Rule of thumb, it's a big-deal market," Mattes told an analyst on the call. "And the bigger the deals, the longer it takes from orders to revenue."

And for a third, emerging markets that used to be long on opportunity and short on order turnaround are no longer a reliable fallback when developed markets drag their feet on decision-making.

According to Mattes, China has become a "nonissue" due to protectionist regulations. India is a "super-complicated market [with] horrific price configurations." Brazil's economy is in flux, "so that's no big engine." And the South African market is now commodity-based with "underwhelming" growth.

Mattes said these issues were all on Diebold's radar when the company acquired Wincor Nixdorf in late 2016.

"[O]ur prediction for the industry all along was that, for the next three to four years, it's a developed market play, it's a services play, it's a software play, it's a software-as-a-services play," he said. "And the company's choice to go down that path means that growth rates will be smaller but the recurring monthly revenue will go up."

And so far, things are panning out as expected.

Services and software accounted for more than 60 percent of revenue in the quarter, and about 45 percent of the company's business is contractually committed and produces predictable recurring revenue.

And, Mattes said, "We're working hard to increase this ratio by upgrading our managed services, ATM-as-a-service and software-as-a-service offering."

In Q3 alone the company signed multiyear contracts valued at more than $300 million, with about 25 percent of this amount representing incremental revenue for the company.

Over the past three quarters, Diebold Nixdorf has renewed several large multiyear service contracts valued at approximately $900 million, and contract renewal rate is close to 100 percent, Mattes said. The company's 2017 accomplishments have included:

  • A three-year, $12 million services contract with Bank Mandiri, a top three bank in Indonesia.
  • A new contract to install software licenses for 6,400 ATMs at US Bank and the four-year renewal of a service contract.
  • A seven-year, $40 million contract in the U.S. with a leading independent ATM deployer to maintain about 4,000 terminals while enabling cardless transactions.
  • An exclusive contract with Bankomat, Sweden's largest ATM deployer, to automate all cash deposit and withdrawal activities across its network of 1,600 machines.
  • A four-year, $54 million maintenance service contract with Banco do Brasil.
  • A five-year managed services contract with a multinational bank to provide remote management and monitoring for more than 5,000 ATMs in the U.K. and U.S.
  • A three-year, $36 million IT outsourcing contract in Germany with HSH Nordbank.
  • A one-year $30 million managed services ATM contract with Geldservices in the Netherlands.

"In Europe, we're seeing good activity around branch automation and recycling," Mattes said, and offered a few more examples:

  • Banco Santander, the largest financial institution in the eurozone, contracted for approximately 150 cash recycling ATMs in Spain, the bank's first foray into recycling.
  • In Sweden, the company won a new contract with Bankomat, the largest ATM operator in the country, to be the exclusive provider for 1,600 ATMs and a nationwide network of cash centers.

"The Bankomat contract is also a good example of a prolonged sales cycle, because the deal took more than 12 months to complete," Mattes said.

In software, Diebold Nixdorf is becoming the "de facto standard" for self-service banking, according to Mattes.

"Our software powers 11 out of the top 15 financial institutions in the Americas, 16 out of the top 20 in EMEA, and 12 out of the top 20 in Asia," he said. "On a sequential basis, license orders increased by double digits and included a win for 6,400 unattached licenses at U.S. Bank while we are upgrading legacy software offerings ... This is one example of how the company is leveraging our large installed base of ATMs. We have more doors to knock on and upsell our solutions than ever before."

At the same time, Diebold Nixdorf is continuing work to combine two major banking technology interests into a single streamlined enterprise.

The company has eliminated nearly 1,000 redundant positions, rationalized its solutions portfolio, consolidated its supplier base and renegotiated more than 90 percent of its direct material spend, said Senior Vice President and Chief Operating Officer Jürgen Wunram.

"We have integrated more than one-third of our redundant country legal entities … and consolidated 240 out of approximately 1,000 of our service parts depots around the globe," he said. "The Hungary manufacturing plant and the Netherlands logistics center have also been closed."

Additionally, he said, the integration team has migrated approximately 80 percent of countries served to a standard integration approach for legacy field sales and developed a standardized transition plan for more than 10,000 field technicians.

For tangible signs of progress, shareholders should look to an improved cost structure, strong service renewal rate, and services and software contract wins, Mattes said.

"While significant transformational work remains, these data points reinforce that we're on the right strategic path to enable the company to create greater value for customers and shareholders," he said. "We see terrific opportunities to leverage our scale and advance our industry leadership."

This article includes transcript material fromSeeking Alpha.

Topics: Manufacturers, Public Companies

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 and

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