Diebold Nixdorf(US:DBD)2020-10-28 20:45Part I - Financial Information Item 1: Financial Statements This section presents the unaudited condensed consolidated financial statements for Q3 and nine months ended September 30, 2020 and 2019, including balance sheets, operations, and cash flows Condensed Consolidated Balance Sheets As of September 30, 2020, total assets decreased to $3,627.8 million from $3,790.6 million, and total equity declined to $(811.7) million from $(506.3) million Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Total current assets | $1,841.0 | $1,892.0 | | Total assets | $3,627.8 | $3,790.6 | | Total current liabilities | $1,449.6 | $1,599.6 | | Long-term debt | $2,427.9 | $2,108.7 | | Total liabilities | $4,420.5 | $4,276.0 | | Total equity | $(811.7) | $(506.3) | Condensed Consolidated Statements of Operations Q3 2020 net loss was $(100.9) million on $995.2 million net sales, while the nine-month net loss was $(217.4) million, a slight improvement from $(222.0) million in 2019 Statement of Operations Summary (in millions, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $995.2 | $1,078.8 | $2,796.4 | $3,257.1 | | Gross profit | $284.1 | $271.4 | $758.5 | $796.7 | | Operating profit (loss) | $23.8 | $23.2 | $18.3 | $6.0 | | Net loss | $(100.9) | $(34.8) | $(217.4) | $(222.0) | | Basic and diluted loss per share | $(1.31) | $(0.46) | $(2.81) | $(2.86) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2020, net cash used by operating activities was $(209.4) million, while financing activities provided $160.8 million, reversing a prior-year use Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $(209.4) | $7.4 | | Net cash provided (used) by investing activities | $(40.7) | $10.2 | | Net cash provided (used) by financing activities | $160.8 | $(184.9) | | Change in cash, cash equivalents and restricted cash | $(97.0) | $(174.5) | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, the DN Now restructuring program, July 2020 debt refinancing, segment revenue declines, and various legal and tax contingencies - The company is implementing the "DN Now" transformation program to achieve approximately $500 million in gross annualized savings through 2021. Restructuring charges related to this program were $35.3 million for the nine months ended September 30, 202073 - In July 2020, the company issued $700.0 million and €350.0 million of Senior Secured Notes due 2025. The proceeds were used to repay amounts outstanding under its Credit Agreement, extending its debt maturity profile9195 - For the nine months ended September 30, 2020, revenue declined across all segments compared to the prior year: Eurasia Banking fell 16.9%, Americas Banking fell 11.9%, and Retail fell 13.3%157 - The company divested several non-core businesses in 2020, including Portavis GmbH and Cryptera A/S, and deconsolidated a portion of its China operations, resulting in a net loss of $13.0 million for the nine months ended September 30, 2020108110111 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, strategic initiatives, and COVID-19 impact, highlighting the DN Now transformation, liquidity, and July 2020 debt refinancing Overview and Strategy The company, a global leader in 'Connected Commerce', is executing the multi-year 'DN Now' transformation program targeting $500 million in gross annual savings through 2021 - The company is executing a multi-year transformation program called DN Now, which is designed to generate gross annual savings of approximately $500 million through 2021171173 - Diebold Nixdorf has been designated as providing 'critical infrastructure' services by most governments, enabling it to maintain operations and serve essential retailers and financial institutions during the COVID-19 pandemic175 Results of Operations Q3 2020 net sales fell 7.7% to $995.2 million, or 8.2% in constant currency, but total gross margin improved from 25.2% to 28.5% year-over-year due to cost savings Net Sales by Segment - Q3 2020 vs Q3 2019 (in millions) | Segment | Q3 2020 | Q3 2019 | % Change | | :--- | :--- | :--- | :--- | | Eurasia Banking | $364.2 | $405.2 | (10.1)% | | Americas Banking | $368.5 | $403.7 | (8.7)% | | Retail | $262.5 | $269.9 | (2.7)% | | Total net sales | $995.2 | $1,078.8 | (7.7)% | Gross Profit and Margin Analysis | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total gross profit | $284.1M | $271.4M | $758.5M | $796.7M | | Total gross margin | 28.5% | 25.2% | 27.1% | 24.5% | - Services gross margin increased due to the company's service modernization plan, exiting low-margin contracts, and temporary cost benefits from lower economic activity during the COVID-19 pandemic211 Liquidity and Capital Resources As of September 30, 2020, total cash and availability was $459.4 million, with $(209.4) million net cash used by operating activities for nine months, following a $1.1 billion debt refinancing in July 2020 Total Cash and Availability (in millions) | Component | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $273.7 | $277.3 | | Revolving Facility Availability | $150.2 | $387.3 | | Total cash and cash availability | $459.4 | $808.5 | - In July 2020, the company issued approximately $1.1 billion in new 2025 Senior Secured Notes and used the proceeds to repay existing debt under its Credit Agreement, extending its maturity profile with no significant maturities until 2023251 - The ratio of net debt to trailing 12 months adjusted EBITDA was 4.4 times as of September 30, 2020, and the company was in compliance with its debt covenants252 Item 3: Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in market risk exposures since its 2019 Annual Report, aside from the ongoing negative impact and uncertainty of the COVID-19 pandemic - The company reports no material changes in its market risk exposures since December 31, 2019, but acknowledges the ongoing negative impact and uncertainty from the COVID-19 pandemic275 Item 4: Controls and Procedures The company's disclosure controls and procedures were deemed effective as of September 30, 2020, with no material changes to internal control over financial reporting during Q3 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2020279 - No changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal controls were identified during the third quarter of 2020280 Part II - Other Information Item 1: Legal Proceedings The company's routine legal proceedings are not considered material to its financial position, with no material developments since the 2019 Annual Report - The company states that its ongoing legal proceedings are not expected to materially affect its financial statements, and there have been no material developments since year-end 2019282283 Item 1A: Risk Factors The company refers to its 2019 Annual Report on Form 10-K and Q1 2020 Quarterly Report on Form 10-Q for risk factors, reporting no other material changes - No material changes to risk factors were reported since the Q1 2020 10-Q, with reference made back to the 2019 10-K284 Item 2: Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2020, the company repurchased a small number of shares surrendered from share-based compensation plans, with no repurchases under its public buyback plan Share Repurchases in Q3 2020 | Period | Total Number of Purchased Shares | Average Price Paid Per Share | | :--- | :--- | :--- | | July | 288 | $10.78 | | August | 2,168 | $8.13 | | September | — | — | | Total | 2,456 | $8.44 | Other Items (Items 3, 4, 5 & 6) The company reported no defaults on senior securities, no mine safety disclosures, and no other information under Item 5, with Item 6 listing filed exhibits - The company reported 'None' for Item 3 (Defaults Upon Senior Securities) and Item 5 (Other Information), and 'Not applicable' for Item 4 (Mine Safety Disclosures)287288289 - Key exhibits filed include the Ninth Amendment to the Credit Agreement and indentures for the new 9.375% and 9.000% Senior Secured Notes due 2025291