Diebold Nixdorf(DBD) - 2019 Q1 - Quarterly Report

Part I – Financial Information Item 1: Financial Statements Diebold Nixdorf reported Q1 2019 net sales of $1,028.1 million, a net loss of $131.9 million, and improved operating cash flow Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash, cash equivalents and restricted cash | $377.9 | $458.4 | | Total current assets | $2,137.3 | $2,203.4 | | Goodwill | $813.6 | $827.1 | | Total assets | $4,327.3 | $4,311.9 | | Liabilities & Equity | | | | Total current liabilities | $1,654.5 | $1,568.4 | | Long-term debt | $2,191.2 | $2,190.0 | | Total liabilities | $4,211.2 | $4,341.1 | | Total equity | ($274.7) | ($159.6) | - The company adopted the new lease accounting standard (ASC 842) as of January 1, 2019, resulting in the recognition of $173.3 million in Right-of-use lease assets and corresponding current ($61.7 million) and long-term ($110.4 million) lease liabilities[8][26] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in millions, except per share data) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Sales | $1,028.1 | $1,064.2 | | Gross Profit | $244.1 | $238.4 | | Operating Loss | ($24.5) | ($23.5) | | Loss Before Taxes | ($71.1) | ($47.5) | | Net Loss | ($131.9) | ($65.6) | | Net Loss Attributable to Diebold Nixdorf | ($132.7) | ($73.2) | | Basic and Diluted Loss Per Share | ($1.74) | ($0.97) | - Interest expense significantly increased to $50.9 million from $26.0 million year-over-year, contributing to the wider net loss[14] - The company declared and paid no dividends per common share in Q1 2019, compared to $0.10 per share in Q1 2018[14] Condensed Consolidated Statements of Comprehensive Income (Loss) Comprehensive Loss Summary (in millions) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Loss | ($131.9) | ($65.6) | | Other comprehensive income (loss), net of tax | $1.6 | ($9.2) | | Comprehensive Loss | ($130.3) | ($74.8) | | Comprehensive Loss Attributable to Diebold Nixdorf | ($133.8) | ($82.4) | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in millions) | Cash Flow Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash used by operating activities | ($57.1) | ($142.3) | | Net cash (used) provided by investing activities | ($11.5) | $33.2 | | Net cash used by financing activities | ($13.9) | ($91.4) | | Decrease in cash, cash equivalents and restricted cash | ($83.0) | ($179.0) | | Cash, cash equivalents and restricted cash at end of period | $377.9 | $364.2 | - The significant improvement in operating cash flow was primarily driven by better management of working capital, including a $50.9 million positive swing in trade receivables and a $27.1 million reduction in cash used for inventories compared to the prior year[21] Notes to Condensed Consolidated Financial Statements - The company adopted the new lease accounting standard (ASU 2016-02) on January 1, 2019, recognizing Right-of-Use (ROU) assets of $175.3 million and lease liabilities of $174.2 million (Note 2)[26][40] - Restructuring charges of $3.8 million were incurred in Q1 2019 related to the DN Now program, which aims for approximately $160 million in savings for 2019 (Note 10)[75][76] - As of March 31, 2019, the company was in compliance with its debt covenants, which include a maximum total net debt to adjusted EBITDA leverage ratio of 7.00 to 1.00 (Note 11)[92][95] - The company's reportable operating segments are Eurasia Banking, Americas Banking, and Retail. For Q1 2019, total segment operating profit was $60.3 million, up from $34.7 million in Q1 2018 (Note 20)[137][140] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales decreased 3.4% to $1,028.1 million, while gross margin improved; the DN Now program targets $400 million in savings Overview and Strategy - The company is a world leader in enabling Connected Commerce, automating and digitizing banking and shopping through integrated solutions[167] - The company's strategy focuses on enhancing consumer experience while streamlining costs through the integration of hardware, software, and services[168] - The DN Now transformation program is a key strategic initiative focused on improving operational excellence and customer centricity. It targets gross annualized savings of approximately $400 million through 2021, with $160 million anticipated in 2019[169][171] Results of Operations Net Sales by Segment (in millions) | Segment | Q1 2019 | Q1 2018 | % Change | % Change (Constant Currency) | | :--- | :--- | :--- | :--- | :--- | | Eurasia Banking | $382.6 | $435.1 | (12.1)% | (4.2)% | | Americas Banking | $362.7 | $333.7 | 8.7% | 10.6% | | Retail | $282.8 | $295.4 | (4.3)% | 4.2% | | Total Net Sales | $1,028.1 | $1,064.2 | (3.4)% | 3.0% | - Total gross margin improved to 23.7% from 22.4% year-over-year, with product gross margin increasing significantly to 22.3% from 19.0% due to favorable solution mix and volume in North America[194][195] - Operating loss was relatively flat at ($24.5 million) compared to ($23.5 million) in the prior year. Excluding currency and non-routine charges, operating profit increased by $13.0 million[203] - Interest expense nearly doubled to $50.9 million from $26.0 million, primarily due to the additional $650.0 million Term Loan A-1 Facility acquired[204][206] - The effective tax rate was (85.0%), resulting in tax expense on a pre-tax loss, primarily due to the impacts of the U.S. Tax Act (GILTI and BEAT) and the collapse of the company's Barbados structure[207] Liquidity and Capital Resources Total Cash and Cash Availability (in millions) | Component | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $284.4 | $353.1 | | Uncommitted lines of credit | $32.4 | $28.0 | | Revolving Facility | $337.5 | $347.5 | | Short-term investments | $31.5 | $33.5 | | Total | $685.8 | $762.1 | - Net cash used by operating activities improved significantly to ($57.1 million) from ($142.3 million) in Q1 2018, driven by better working capital management[222][223] - The ratio of net debt to trailing 12 months adjusted EBITDA was 5.7 times as of March 31, 2019[231] - In May 2018, the company reallocated future dividend funds towards debt reduction, resulting in no dividend payment in Q1 2019, compared to a $7.7 million payment in Q1 2018[232] Item 3: Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposures have occurred since the 2018 Annual Report on Form 10-K - There have been no material changes in market risk exposures since December 31, 2018[246] Item 4: Controls and Procedures Disclosure controls and procedures were ineffective due to three material weaknesses in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2019[251] - The ineffectiveness is due to three material weaknesses in internal control over financial reporting that were not remediated during the quarter[252] - The material weaknesses relate to: 1) Ineffective risk assessment process and related IT general controls (ITGCs), 2) Ineffective controls over inventory valuation, and 3) Ineffective controls over non-routine transactions[253][254][255] - A remediation plan is underway to improve risk assessment, communication, IT access controls, inventory valuation controls, and controls over non-routine transaction calculations[257] Part II - Other Information Item 1: Legal Proceedings No material developments in legal proceedings have occurred since the 2018 Annual Report on Form 10-K - There have been no material developments in legal proceedings since the 2018 Form 10-K[261] Item 1A: Risk Factors No material changes to the company's risk factors have occurred since December 31, 2018 - There has been no material change to the company's risk factors since December 31, 2018[262] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 193,501 shares at an average price of $5.91 in Q1 2019 for share-based compensation plans Share Repurchases in Q1 2019 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January | 771 | $3.61 | | February | 188,775 | $5.92 | | March | 3,955 | $6.06 | | Total | 193,501 | $5.91 | - All shares repurchased were surrendered in connection with the company's share-based compensation plans[263] Item 5: Other Information No other information was reported for this item - None[267] Item 6: Exhibits This section lists exhibits filed, including corporate governance documents, agreements, and CEO/CFO certifications - Key exhibits filed include a Nomination and Standstill Agreement, the amended 2017 Equity and Performance Incentive Plan, and CEO/CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[268]