Good morning, good afternoon. Hello, my name is Adam and I will be your conference operator today. At this time I would like to welcome everyone to the Diebold Nixdorf Third Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. Miss Marchuska, you may begin your conference.

Great. Thank you, Adam. Hello everyone, and welcome to our third quarter 2021 earnings call. I’m Christine Marchuska, Vice-President of Investor Relations for Diebold Nixdorf. And on the call with me today are Gerrard Schmid , President and Chief Executive Officer and Jeff Rutherford, Chief Financial Officer. To accompany our prepared remarks, we have posted our press release and earnings presentation to the Investor Relations section of our corporate website. Later this morning, we will post a replay of this webcast. Before we begin, I will remind all participants that during this call, you will hear forward-looking statements including the guidance we will be providing for full year 2021. These statements reflect the expectations and beliefs of our management team as of the time of this call, but they are subject to risks and uncertainties that could cause actual results to differ materially from these statements. Additional information on these factors can be found in the company's periodic and annual filings with the SEC. Participants should be mindful that subsequent events may render this information to be out of date. We will also be discussing certain non-GAAP financial measures on today's call. Reconciliation between GAAP and non-GAAP measures can be found in the supplemental schedules of our earnings presentation site, as well as in the tables of today's earnings release. And now I'll hand the call over to Gerrard.

Thank you, Christine. And welcome to the team. Good morning, everyone. Thank you for joining our third quarter 2021 earnings call. I am pleased to say that customer demand for our solutions remained robust in Q3 despite supply chain constraints, logistics and inflationary headwinds. I'm encouraged by the support of our customers and the innovative spirit of our workforce as we navigate on-going supply chain challenges. Most of all, I'm encouraged by how our company is positioned to offer solutions and growth opportunities for our customers who aren't who are addressing rapidly changing consumer demands, and difficult competitive landscapes. More than ever, consumers are not only embracing, but expecting self service solutions. Whether it's at a bank, grocery store, or retailer, and more than ever, we are committed to helping our customers deliver more digital, flexible, and effective customer consumer journeys. In banking, consumer practices are shifting away from the traditional teller window towards ATMs with more omni channel functionality. At the same time, banks are looking for more self-service options to meet consumer needs, the fewer tellers and fewer branch locations. There is on-going steps towards reducing the branch footprints, and optimizing the real estate is crucial. And our ATMs are helping our banking customers to continue providing the same level of customer service, including customer outreach through marketing, while at the same time, making better use of their available space. In retail, the pandemic resulted in more focused shopping experiences and growth in e-commerce, while at the same time, as cited by recent studies, 75% or more of consumer purchases broadly, are still happening in the physical store. It's important to understand, however, that while our consumers prefer physical shopping, they also prefer lower touch options during the purchase process. Our self-checkout offerings create a safe, convenient and…

Thank you, Gerrard. And good morning everyone. My further remarks will include references to certain non-GAAP metrics such as gross profit, gross margin, and adjusted EBITDA. Total revenue for the third quarter2021 was $958 million, a decrease over third quarter 2020 of approximately 4% as reported, a decrease of 5% excluding foreign currency benefit of $16 million and an $8 million impact from domestic businesses. Adjusted for foreign currency and divestitures, product revenue decreased 3%, services revenue decreased 6% and software revenue increased 3% compared to Q3 2020. During the quarter, approximately $90 million of revenue was delayed due to extended transport times and inbound technology component delays. This primarily impacted the U.S., Latin America and certain APAC countries and reduced total revenue by approximately 900 basis points. On a sequential basis, total revenue increased approximately 2%. Non-GAAP gross profit for the third quarter was $263 million, or a decrease of approximately $22 million versus the prior year period on lower gross margins of 27.4%. The deferral of revenue and non-billable inflation resulted in a reduction to third quarter gross margin of approximately $33 million. Service margins increased 40 basis points versus the prior period and more in line with our expectations. Product gross margins were down approximately 180 basis points versus the prior year period, primarily due to $10 million as a result of inflationary pressures and supply chain logistics, partially offset by a favorable DN Series versus legacy ATM and geographic customer mix. Software gross margins declined 500 basis points versus the prior year period excluding the impact of a prior year prayer cost benefit of approximately $5 million that did not recur in 2021. Software gross margins were down approximately 40 basis points due to unfavorable mix. Operating expense of $182 million for the quarter decreased approximately…

Our first question today is from Matt Summerville of D.A. Davidson. Matt, please go ahead.

Thanks. Couple of questions. First Jeff, with respect to the cash flow outlook for the full year. I'm just using round numbers. But your guidance is basically assuming you generate $400 million in the fourth quarter. In my long history of covering the company, I don't think people has ever turned in a number anywhere near that. So help me walk through, help me get comfortable with how you're going to accomplish that this year?

Yes, that's good question. And as you can imagine, it all primarily comes from working cap. And everything else is fairly fixed in our direct cash flow model. So here's what we need to happen. In order to achieve that, we need accounts payable DPOs in the mid-70s. And we need DSOs revenue DSOs in in the middle of 50. So, that's definitely going to drive fourth quarter free cash flow, especially based on where we're at today. Based on a DPO number of around 75, what happens after in 75 days in a DSO of approximately let’s say 55 days? What happens -- revenue recognition after November 15 impacts next year's free cash flow. Inventory first seen as probably today impacts next year's free cash flow. So we need to make that number, we need DSOs to drop to the mid-50s. They're in the low 60s now. And we need DPOs to increase to the numbers I referenced in that's about a five day increase from where we are right now. So there's a path to get there. Now it's requires execution.

With respect to the pressures you've seen in the P&L this year and the roughly $75 million EBITDA take down through from where you were to where you are now at the beginning of the year to where you are right now. Should we be thinking about any of this stuff becoming more of a permanent part of people's cost structure? And really the genesis of my question is, does anything you're experiencing now impact the 2023 targets you've put out there several times now? Thank you.

That's going to impact 2023 targets. And we're not confirming those until we provide guidance for 2022 and 2023. Here, and we're still working through all of the modeling impacts. But here's what I would say. If you look at what we've experienced, year-to-date, which if you go back and add up the numbers from the prior quarter and this quarter, you can see that it's around $29 impact and, and operating margin from inflation. That today, that is all logistics costs. What's changed for us, as we move into the fourth quarter, is we're going to experience not only the logistics increase but raw material and source component parts increases. The $25 million, $26 million we experienced in the fourth quarter is, is still have it still approximately $14 million is the logistics; the rest is component parts inflation. And portions of that inflation are going to get caught up in inventory, both logistics and raw materials and going to carry in the twine too. So we anticipate that we're not going to see any lessening of logistics, supply chain constraints. And when we talk about it, until probably the second half of next year, that's going to drag some costs into the third quarter as inventory turns. So this has gone to effect 2022. And we need to look at that from a pricing perspective, and what we can do from a pricing perspective. And then we need to measure and we are measuring what the reductions are especially and, and outbound and inbound logistics, and when it's going to impact the model post, the normalization supply chain. So -- some if I may as well to give you some additional color. When we made some comments in our prepared remarks and we saw Q3 as a peak…

Got it? Thank you guys. I'll get back in queue.

Our next question is from Kartik Mehta from Northcoast. Kartik, please go ahead.

Thank you. Just to continue your conversation about kind of free cash flow and look, as you look out to 2022. How do you think this impact your ability to refinance some of the debt that you had talked spoken about before?

Yes, yes. And the variable is reaction and what the market’s doing. Alright, and we continually monitor that. We still have opportunity we're going to be measuring as we move forward, what the cash of pricing could be. Now remember, we have no cost provision in our secured notes. This really makes it more attractive to refinance as you approach mid-22. So I would say there's no, there is no maturity going through our head relative to refinancing. The immediacy is relative to the cost of the debt, and particularly in the secured notes. So this is, our performance and the impact of some of what's going on in the global supply chain, are another piece of algorithm relative to why we should refinance. So we will continue to monitor even as soon as this afternoon, what the impact is on our debt trading. And then with our advisors, we’re between now and then and midpoint to relative to refinancing. Again, there and so this, and I'll continue to say this, there is a point in time where it's going to make sense for us to refinance between now and I would say, the third quarter of 2022. Again, that no call provision expires in July of 2022. So that'll continue, this will just become part of the auditor, and I don't think we're going to still generate cash flow, when we get the guidance, we'll be generating free cash flow in 2022. I'm not giving you the number today, but they'll be free cash flow generation in 2022. There'll be growth and revenue. And, and so I don't believe it prevents us from refinancing, the question is going to be what's the impact on costs?

And then Gerrard, just on the supply chain issues, is there any risk of losing orders where maybe your customers say, it's taking too long, we'll just, we'll just wait it out until things get better.

Kartik, we're not seeing any evidence of that if there’s any material note whatsoever. Clearly, we're not alone. This is a global issue facing every company. We're in active dialogue with our customers, quite frankly. And this is why I made reference to our net promoter score customer satisfaction levels, they are at all-time highs. And our customers were frustrated or wanted to go somewhere else. We've seen evidence of that in our NPS scores. So we're not seeing evidence of it there, nor are we seeing it in any material change to our order entry. And as I said, in my prepared remarks, Kartik, our order entry is tracking higher than our regional -- to 2021. So we are feeling very, very good that our products are our right propositions holding up well, that our customers and we continue to work very, very closely with them to give them what they need. Here in some cases, that we're using expedited shipping, it's obviously exceptionally expensive, but in some cases we're relying on when we need to. But we don't see that as a material risk whatsoever.

Thank you, both of you.

Our next question comes from Paul Chung of JPMorgan. Paul, please go ahead.

Hi, thanks for taking my questions. So, just a follow up on free cash flow in 4Q, given such a material amount is there potential for some to spill into 2022? And how does such a large cash harvest in Q4 kind of impact 2022 seasonality of cash flows? Are you in a good place on inventories, kind of given the elevated investments or maybe less of a drag in the first half of 2022?

Yes. So if you do something in 2021, obviously, cash flow is fundable, it's going to affect future cash flows. And so we are, what we are doing as is we're doing our jobs relative to collections. And we have very good customer base and, and they respond well to our request for payment. So that's what we're counting on. On accounts payable side, it's a matter of we control the disbursement of cash and, and we do that we do that throughout the year. And we got our foot off the gas at the end of last year. So we won't do that this year. So, so it's within our ability to generate that level of cash. But, but there's only based on the revenues, and your purchasing, there's only so much cash that can be generated. That's basically what EBITDA has meant to represent. And so if you, if you bring it forward, right it’s not available for next year. I will say that we are pushing $120 million of revenue out of 2021 into 2022. The revenue from basically two weeks from today, we'll move into collections in 2022. So we will see an increase of collections in the 2022 model from the deferred revenue that we talked about today. We also anticipate that we will not have the high level of inventory that we have today because we are unfavorable relative to our own modeling relative inventory, because we're carrying higher inventory. Basically, we're building those 100, the inventory on $120 million of deferred revenue, but we're not recognizing the revenue. So we're holding the inventory. So all of that, in effect, is we're working on the cash flow effect on 2022. The one thing I will remind everybody is $50 million of restructuring payments will…

Got you. And then, as we think about service contracts next year, can we expect to see some uniforms signings over the course of the year instead of in 4Q, at least in terms of cash, somewhat de risking, choose now the 4Q cash flow kind of what your near peer is doing?

You're saying relative to contract based billing. Our, our model and their model isn't that different. It's all based on install base. Right? Now they have moved certain revenue to other, other services mainly on the software, which, which is it's good for them from a free cash flow basis. Now, I think they've done a nice job of free cash flow. I would say as we, what we need to happen, right, is to grow services and software like they have, and then level out the lumpiness of free cash flow. Our free cash flow can be one day around installations or departments .

And…

Paul, let me build on that. I introduced to the investor community the work that we're doing around EV charging stations. And I’m going to tell you we are very, very energized by that because it has very similar attributes to servicing ATMs, both from a technological skill perspective and the effort it would take for us to cross train our ATM technicians, plus the density and absolute number of units that are out there that we anticipate that while this market still early, that we'll start to see a services business filled with a ideally comparable market profile to what we've seen in the ATM business. So we think that'll go some ways as well towards that what is being talked in there, obviously it takes time to build but that's what we're looking at doing. Hello, operator is…

Oh, I think I think he got cut off. Hello?

Alright, I can hear you Paul.

Yes, you're talking about the EV charging. I guess. I guess the question, follow up question on; I got a bit of that commentary. But how competitive is that service market? Are the service contracts kind of recurring and longer term? And can you give us a sense of kind of the revenue potential per contract or even per charging unit would be helpful and margin profile? Thank you.

So the first thing I’d say is, this is a new market, right compared to what we've seen in more mature businesses. What I will tell you currently, it's a highly fragmented landscape. Currently, we will be one of the larger scale base players. We like those attributes. The revenue per unit is a little bit lower but not materially compared to what we would see in servicing an ATM. And we believe the margin profile will be comparable to what we've seen in our ATM business.

Great, thank you.

Our next question is from Justin Bergner from Gabelli Funds. Justin, please go ahead.

Good morning, Gerrard. Good morning, Jeff.

Hey Justin.

Just first question, I just wanted to confirm sort of the guidance changes from the second quarter. So you've taken up your cost non-billable sort of cost number from $25 million to $45 million and then the entire revenue deferral that $120 million and then the drop through which I guess seems to be on the order of $15 million. That revenue deferral was not expected in your earlier second quarter guidance. Are those set?

Yes, you can remember our previous guide was four to four one. So the movement of $120 million dropped this down to the three nine to 395. So you can probably engineer and the lower the number was previously.

Okay. And then on the cash flow, I mean the decline in free cash flow guide, the $40 million lower I guess matches the $40 million lower EBITDA but it would seem like you would have some extra inventory needs associated with critical component stock and the like. So I guess I'm somewhat surprised that the free cash flow guide is not coming down more than the adjusted EBITDA guide. Can you help me understand that? Are there positive offsets to keep those two adjustments sort of in line?

Yes. The key to that cash flow number is that we don't have disruptions in revenue recognition for the next two weeks. Because we've had revenue recognition, which means we're billing customers, for deliveries over the next two weeks, then then our we're going to have a push for collection. So if you look at it from a direct perspective, that's key to the in the cash collections we'll make from our customers over the next two months. And once you get past that day, it becomes increasingly difficult to get collections because it's not due. So we model that out. We feel strongly that the inventory build post today does not affect cash flow because there's leverage with accounts payable. We will have inventory that's going to be higher. You're going to see higher inventory level, but you're also going to see higher accounts payable, so a lower owned inventory. So it's -- this is about managing collections. From now on like as well, managing collections, managing disbursements, we have the processes in place to do that. And yes, it is a big number. And we were taking on that challenge, and we believe we have a good plan to do it. We also have clear visibility to understand both the capital spending R&D, R&D capitalization, and we have a clear model to execute it. And we've now it's up to us to execute to that model.

Okay, great. That's helpful. And then lastly, on the retail side, is retail actually tracking better than your view coming into this year? And are there any margin headwinds of note on the retail side from some of these supply chain issues that are preventing sort of the margin performance from being even better than what it was in the third quarter?

Justin, it’s Gerrard. I'll take that one. So on the retail side, we are performing well, and we're performing modestly better than our plan for 2021. We think we have a very, very competitive self-checkout solution. And as the industry demand for self-checkout grows, we think we're very well positioned to benefit from it for the next several quarters. Most of Jeff's comments from an inflationary perspective revolved around banking, primarily because of where our customers are based versus where our manufacturing facilities are based. At retail, we have some exposure there, but it's nowhere near as material because as you recall, most of our retail business is European centric, and that's where we have some of our major manufacturing facilities and therefore we have the benefit of using car track rail and other non-shipping based forms and logistics. So there is some pressure there, but it's nowhere near as notable as it is in banking.

Great, thank you for taking my questions.

Welcome.

Our next question is from Marla Backer from Sidoti. Marla, please go ahead.

Thank you. So I have two questions. One of the follow up something you said a little bit earlier, where you noted that this, the logistics challenges are impacting everyone across the board. That said, and you specifically were addressing the prospect of losing orders as a result of what's going on. But are there any instances in which you see the possibility of potentially accelerating market share gains? Because you're better positioned for delivery near term?

Yes, so let me make a couple of comments on that Marla. I will reinforce again that we see negligible risk to lose or gaining contract. We're just not seeing evidence of that. As relates to winning incremental market share, hopefully it's become evident of the past few quarters that we believe we're exceptionally well positioned with our product differentiation, especially around DN Series ATMs and we're very very confident that we're gaining market share and at the expense of others on that front, which ultimately supports our goal of building our services contract base over time. Do we necessarily think that this will give us a spike a disruption will give us a chance to accelerate market share gains? Quite frankly, I don't know that at this stage. I think we'll have to see what happens in the next several quarters. Now, what I will say is, I think we have a very, very good handle on our visibility to the supply chain access to raw materials over the next several quarters, especially around semiconductor chips, which seem to have been structurally some of the most difficult freight points in the spike in disruption. So while I can't comment on how others are managing that situation, we're feeling very confident that we've got that one, the whole...

Okay, thanks. And one other question, which is on the EV charging station initiative. Do you is the synthesis an emerging area? Do you see any potential opportunities to perhaps cross sell in this market, is -- are there any large retailers? Let's say that, would install charging stations as an add on, which would give you some bundling opportunities?

Yes, that's a great question, Marla. And I can tell you that when I made the comment that we're in discussions with multiple EV providers, that includes a number of multinational retailers that see EV charging as a way to enhance their own consumer journeys and drive more idle time at their sites and hopefully drive up the size of their baskets. So there's no doubt that busy, strong intersection between our retail sector and EV charging. It's not an exclusive overlap. There are other independent plays outside of retail we're looking at, but we do think there's some interesting cross sell opportunities, which is why retail colleagues are working closely with us on this initiative as well.

Thank you.

This concludes today's Q&A session. I will now turn the call back over to Gerrard Schmid, CEO of Diebold Nixdorf for some closing comments.

Thanks, Adam. And thank you to everyone who joined us for today's call. We're pleased with the continued demand we're seeing for our products and solutions as we continue to be a market leader in the bank and retail automation industry. Now we look forward to the upcoming quarters and moving through the supply chain and inflationary challenges as we drive growth across our core businesses with products, software and services that into new areas like payments and EV charging. We look forward to talking with all of you our upcoming conferences, then our next earnings release. And the interim, please do not hesitate to reach us to industrial relations if you have additional questions. And this brings the call to the end. Thank you everyone.

This concludes today's conference call. You may now disconnect your lines.