Good morning. 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 Fourth Quarter and Full Year 2021 Conference Call. [Operator Instructions]. Ms. Marchuska, you may begin your conference.

Hello, everyone, and welcome to our fourth quarter and full year 2021 earnings call. I'm Christine Marchuska, Vice President of Investor Relations for Diebold Nixdorf. To accompany our prepared remarks, we have posted our press release, earnings presentation, and a new shareholder letter to the Investor Relations section of our corporate website. I would encourage investors to review the shareholder letter as it contains additional information regarding the progress of the company. Later this morning, we will host a replay of this webcast. We also made an announcement today regarding our upcoming CEO transition. In a moment, we will share remarks from Gerrard Schmid, President and Chief Executive Officer; as well as Octavio Marquez, who will be succeeding Gerrard, as Diebold Nixdorf's next CEO. In his message, Gerrard will provide commentary on the business environment, our accomplishments in 2021, and then introduce Octavio. Finally, Jeff Rutherford, Chief Financial Officer, will discuss the company's financial performance, including highlights from the quarter and year, along with our guidance for 2022, then take your questions. 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 2022. 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 Participants should be mindful that subsequent events may reminder this information to be out of date. We will also be discussing certain non-GAAP financial measures on today's call. A reconciliation between GAAP and non-GAAP measures can be found in the supplemental schedules of our earnings presentation slides 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 good morning, everyone. It's a pleasure to speak with you today. In 2021, we faced unprecedented challenges brought on by the second year of the pandemic, and I'm pleased to report that in the fourth quarter, we delivered on our objectives. Our work over the last few months of 2021 was painstaking and meticulous, requiring us to look at every area of opportunity from logistics and supply chain to prepayments and payables. What seems impossible to those outside our company was in fact possible. And we've once again shown that we are resilient and strong. While supply chain and logistics challenges were 2 of the biggest themes in 2021, it is still noteworthy to share that in 2021, we shipped more ATMs, more self-checkout devices, and more point-of-sale devices than we did in 2020, a testament to the resilience of our model. While the pandemic has disrupted our world and caused us to rethink what the future might look like, we have time, and again proven our ability to build an agile company that challenges the status quo and goes the extra mile to execute well. The environment we've been in for nearly 2 years has brought to the forefront, the rapidly changing demands of consumers, and the need for self-service solutions wherever possible. We are well positioned to offer these solutions plus growth opportunities for our customers, whether at a bank, a grocery store, or retailer, to help them deliver more digital, flexible and effective consumer journeys. In retail, the evolution of consumer behavior, along with the rapidly changing labor dynamics, have led to increased demand for self-service and automation. And growth is being driven by customer momentum for our self-service solutions. In 2021, we saw growth above market rates in Europe for our self-service…

Thank you, Gerrard. It has been a pleasure being part of our journey under your leadership. I am truly excited to be with Diebold Nixdorf going forward. I have been with Diebold Nixdorf since 2014 and have thoroughly enjoyed contributing to our evolution to a leader of self-service banking and retail technologies. I have had the [indiscernible] pleasure of working closely with our customers across the globe. When I initially joined DN, I worked closely with our Latin America customers and then manage our Americas Banking customer segment. And for the past 18 months, have been working closely with our global banking customers. I have seen firsthand how critical a role we play for our customers, and how we can continue to innovate to serve them with a broader range of solutions. We have a passionate and talented employee base that have been instrumental to the progress of the company. I am also energized by our growth opportunities like our strong self-checkout growth in retail, our managed services efforts in banking and retail along with our newer, but equally interesting opportunities in payments and EV charging services. We have been rigorous in execution on improving our efficiency as a company, and I look forward to further enhancing our execution. Thank you. And I will now turn it over to Jeff.

Thank you, Octavio, and I look forward to our continued work together. I also want to thank Gerrard for his leadership during the past 4 years, which were crucial in helping transform Diebold Nixdorf's operating model to what it is today. The team and I appreciate your contributions and wish you well on your future endeavors. In the year ahead, we look forward to moving past the global macro challenges we have experienced by leveraging our mitigation strategies and delivering for our customers and shareholders. Diebold Nixdorf is well positioned to capitalize on the strong demand for our products and solutions as customers continue to desire our market-leading devices, services and software. And as the market moves towards a self-service automation focus driven by consumers. My prepared remarks will include references to certain non-GAAP metrics such as adjusted EBITDA. As a reminder, please see our shareholder letter for the full financial details from the quarter and full year. Here, I will highlight a few of our key performance metrics. In the fourth quarter, total revenue was $1.06 billion, a decrease over fourth quarter of 2020 of approximately 4% as reported, and a decrease of approximately 1%, excluding the foreign currency impact of $22 million, and a $13 million impact from divested businesses. Adjusted for foreign currency and divestitures, product revenue increased approximately 4%, services revenue decreased approximately 6%, and software revenue increased approximately 3% over fourth quarter 2020. During the quarter, we experienced delayed revenue due to extended outbound transport times and inbound component delays. This primarily impacted the U.S., Latin America, and certain APAC countries, and increased our revenue deferral to 2022 by $30 million to a total of $150 million. On a sequential basis, total revenue increased approximately 11%. Full year 2020 revenue was $3.905 billion and was…

[Operator Instructions]. Our first question today comes from Matt Summerville of D.A. Davidson.

Yes. Jeff. So a couple of questions. First, maybe we can start with free cash flow. If we look at the $100 million you did in '21 and simply add back, say, $50 million of cash restructuring related costs that you would have encountered in '21, we're at $150 million. So help me understand what the pluses and minuses are that might be weighing on the cash flow outlook and where upside levers may be there in.

Yes, Matt. That's a good question. Let's look at what happened in '21 because it's -- the answer is related to the normalization of working capital. We are carrying excess inventory into 2022 out of 2021. And it's directly related to that $150 million of deferred revenue. Much of that inventory associated with that $150 million is on our balance sheet at year-end. So we need to normalize our inventory investment and with that comes a normalization of accounts payable relative to terms. So those are 2 pieces of it. The third piece is working with our customers, and Octavio's group did a really good job doing this, is we had certain customers that would prepay for the inventory we were carrying for their purchase orders. So they had ATMs in the pipeline, but we couldn't get it to revenue recognition because of supply chain and logistics delays, there were certain customers that prepaid, and you're going to see that on our balance sheet in the deferred revenue number. So that will unwind to some extent. The net effect of that we are currently modeling, that's the variable in the free cash flow. So that's why we're giving the guidance we're providing. It's how does that wash out through free cash flow.

Got it. And then in the fourth quarter, OpEx seemed to be quite low. So maybe help me understand the pluses and minuses there? And then I want to maybe get a little more detail, Jeff, as to how we should be thinking about kind of the first half, second half cadence relative to your prepared remarks. In the past, Diebold has seemly been willing to give your percentages on revenue and EBITDA by half and I was hoping maybe you would do that again today.

Yes. Thanks, Matt. So yes, OpEx was low in the fourth quarter. If you go back to where we were modeling '21, our expectation for OpEx was somewhere in the $770 million to $780 million range, with about $640 million of it to $50 million of it being SG&A. The reduction, you'll see that there's approximately a $35 million reduction on actual compared to that model. That difference is variable incentive compensation relative to the results of the organization. So as we look at 2022, those programs will reset bringing our base back up to that $770 million to $780 million. And then we'll experience wage inflation and SG&A in '22. And then we have certain investments we're making in the growth projects that Gerrard and Octavio touched on, and also incremental infrastructure in divestments, mainly related to our distribution subsidiary network where we need to optimize the efficiency of the model, we need to upgrade and standardize processes is in our 60 owned distribution subs. And so we've modeled that into 2022. It's a -- it's not a permanent cost, but it is project costs that we're going to begin realizing in 2022. We no longer -- as I mentioned earlier, we no longer are going to adjust for those types of non-GAAP adjustments. So it will be in our results and in our operating results for 2022. So the other question was cadence relative to revenue. We have not provided that. I would say that because of supply chain, when we look at our revenue cadence, it's going to be back end loaded to some extent. I would say that the front half of the year -- let me just -- let me do the quick math just to verify the number. It's going to be just slightly…

The next question is from Kartik Mehta from Northcoast Research.

Jeff, I wanted to go back to what you said about the price increases and those going in the second half. I'm wondering, I know on the service side, both you and others are trying to put through price increases. And I'm wondering how the banks are reacting, and how successful you have been to get the price increases off the inflation pressures you're seeing?

Yes. And for us -- and this is every year for us. We've always had wage inflation. And services, obviously, are wage-intensive. So we and our competitors that provide services are always experiencing wage inflation. The pricing increase for services, and this is an annual event, those service contracts renew every year or if they're long term, they have a provision relative to inflation adjustment for every year. So every year in the fourth quarter, we go through and adjust service pricing for inflation. And it's generally -- every contract is a little different, but they're generally tied to wage inflation. So that has happened. The non-billable inflation effect that we experienced in '21 and that we will experience in the first quarter of '22 isn't from services wage inflation, it's from raw material inflation and increased logistics costs. And so it goes directly back to product pricing. So product pricing for us, we did put through price increases. It happened in the third quarter and continues to happen. And there's some level of pricing pressure within the marketplace depending on market and competition, and we all know who the aggressive pricing competitors are. So it varies by region. And again, we did not go back. So if you had an approved PO at the beginning of second quarter, into the -- I'm sorry, at the end of the second quarter into the third quarter, at an agreed upon pricing, we did not go back in demand and pricing adjustment to our customer base. So that backlog, and you know our backlog is pretty large, so we're going to move into '22 with a backlog of just under -- I won't disclose at the 10-K, but it's going to be somewhere just under $1.1 billion for product backlog. And that…

That was helpful, Jeff. And the second question, I just wanted to understand, I know everybody out there is having a hard time finding labor. And I'm wondering on the service side, if you've been able to find labor you need and meet SLAs for the banks and retailers.

Yes. We and everybody else obviously have challenges. Our recruiting people have done a really good job. Talent retention is a primary key for us in the model going into '22. So far, we've been able to do it. I would say that over time, it is up. And you can only do that so long to your workforce, but they've done a really good job. The service organization has done a really good job of managing through that, but it is a challenge and it is a risk factor as we look into '22, but so far, we've been able to manage through it.

The next question is from Matt Bryson of Wedbush.

Jeff, I really want to drill down on the revenue outlook. So if I step back to early 2021, I know it was a long time ago, but you guys were looking for $3.9 billion to $4.1 billion in revenues. And it sounded like prior to the supply chain disruptions that if anything you were tracking to the higher end of that target. Now for 2022, you're guiding for $4 billion to $4.2 billion and part of that is a benefit from $150 million in product that's been pushed in the current year. And what I'm really trying to get at is -- I know there are some divestitures that are impacting revenue, but it sounds like you're going to see higher pricing, which I think would be a bigger tailwind than any revenue headwinds from the divestitures. So how do I think about that guide in the context of your previous outlook for 2% to 4% revenue growth where the implied guide, unless I'm assuming steadier or higher backlog exiting the year, you wouldn't get any growth. If anything, the midpoint would suggest that there's a slight decline in revenues.

Yes. Yes, that's a good question. And obviously, one that we've talked about internally. Are we being too circumspect relative to guidance, I think that's what the question is. So when we look at -- let me give you some numbers. So it is $150 million deferred. So we have a big backlog of product, right, pretty steady in services. We do see some, especially in Eurasia and especially in Asia, some contracts, some very low profit contracts, that are going to come off that is highly likely that we will not renew those because just -- it doesn't meet profitability standards, if it's profitable at all. And we think that, that number -- we modeled that number at somewhere from $40 million to $50 million. The small divestitures that we have planned and will happen are similar number, right, $40 million to $50 million. So that's the headwind. So if you -- and I understand what you're doing, so you take that at a $50 million, you add it to 3.9, and it looks rather light on our revenue guidance. I will say that just like what we experienced in '21, if we had an experience that deferred independent the high end of the range. So when we built the range for '22, I guess what I would say is that we hedged relative to supply chain. If we experience the same kind of issues that were experienced in the back half of '21, we'll be at the low end of the range. I will say this internally and what we are being measured on is at the higher end of the range. So there is some level of a hedge in the range for supply chain disruptions.

That's really helpful. And just one more quick one for me. Taxes were relatively high in the quarter. Can you just talk about that and give us some insight on how we should be thinking about taxes moving forward.

Yes. We concentrate on cash taxes. We get some odd -- because of the restructuring charges that we get some odd provision numbers. From a cash tax perspective, our cash taxes because of what is going on globally, the statutory rates are going to go off for everybody. Here's what we need to do, and relative to controlling our cash taxes. And it's related to our capital structure. And I think, Matt, we've probably talked about this, but I will say it again. Our capital structure is not conducive to being interest deductibility efficient, too much of our debt and interest payments are in the U.S., the restrictions relative to U.S. tax code makes them nondeductible. We have a $400 million -- approximately $400 million interest carryforward, it'd probably build a little bit off of that. When we refinance in 2022, we will -- one of our goals is to rebalance the interest payments between the 2 tax principles of the U.S. and Germany, maximizing deductibility and efficiency of interest from a tax perspective. When we do that, -- we believe that we can hold taxes at a 30% to 35% provision rate. Now our tax payments will go up when we run out of foreign tax credits. And that's going to be in '23, but be assured that we continue to work. We have some very good tax people working on this. And right now, we are very concentrated on cash taxes. We're very close now we got out of the restructuring transformation business and the adjustments. We're very close to being on a GAAP basis profitable, then the provision numbers will mean more. So here's what I would say that as we move into 2022, we're going to see some slight increase in cash taxes because of the statutory rate increases that we're seeing globally. But then we should be able to level that out with the refinancing and -- but we will see an increase in '23 as we run out of foreign tax credits. It's -- we're going to be profitable, we're going to be -- we're modeling to be a much higher profitability level, right, in '23. And so we'll have a more normalized tax provision in '23 than we have historically as we've gone through restructure.

The next question comes from Rob Jost from Invesco.

I wanted to go back to your comments around the back -- I think you said you had about $1.1 billion in backlog. You talked about not putting through price increases right away. So first quarter margins are going to be a bit lower. But when I think about products first quarter, that's only a fraction of that $1.1 billion. How should we think about that burning off in terms of maybe the price increases coming in? And then also, if you could offer some commentary around where you think we are with the supply chain issues and the logistics costs.

Yes. Yes, so the backlog is -- by the way, I will add, we continue to see very strong order entry as we moved into the first quarter of '22. So the -- we are experiencing a lot of support from our customers and a lot of interest in our -- both our -- especially our cash recycling ATMs on our self-checkout units. So the backlog has built over a period of time. So if you look at $1.1 billion, and you look at our order entry, and you look at how we burn off backlog, we burn off backlog. I think our definition of backlog and you see it in the 10-K is an 18-month expected delivery date because we have some fairly long lead times on purchase orders. Based on that purchase order and then a schedule installation, which is the revenue trigger -- primarily the trigger for revenue recognition, it could be over 18 months. So our backlog will burn off in any given year -- somewhere in 50% range. So we're probably -- if you look at just backlog, we're probably covered on revenue for 2022 to about 70%. For scheduled backlog at this point in time, it's probably 50% of that recover. So I would say that from a -- from a margin perspective, we will work through most of that in the first quarter. We should expect a higher product margins in the second quarter, and then normalization in the third and fourth quarter. The first quarter is going to be the difficult because it's going to have a higher percentage of pre-price increase, backlog is going to roll through in the first quarter. Does that makes sense?

It does. And so it sounds like just based on the commentary from ...

Yes. Go ahead.

No, I was just going to say, so it sounds like you don't expect it getting worse.

No. No. I don't expect -- we don't -- we're not modeling for things to get worse, but they haven't gotten significantly better from a cost perspective, it's logistics cost, we are very interested in what happens now that we've gone through the Lunar New Year of what happens relative to the backlog and logistics and the high cost. Now there are -- the good news of when you have extremely high cost like we're having, there are alternatives. For example, Amazon has opened up the ability to utilize their backhaul capabilities, and they're even -- I think they're buying ships and we do have a relationship with them. And so there are some mitigating factors relative to alternative logistics channels. And also, as we've talked about previously, we are building DN Series capabilities into our North Canton plant, which will relieve some of the backlog of finished goods coming out of Paderborn and with destinations to the customers on that long logistics path as we build the DN Series capabilities in North Canton, it's going to relieve some of that last mile of distribution costs. But the expectation, like everybody's expectation is -- everybody is guardedly optimistic that in the back half, we'll see some relief in these high logistics costs. In fact, again, part of our variable in our guidance is whether we get that or not. But we do expect that we burn down from our own -- what we can control from our own gross margin perspective, we will see us be able to burn through the backlog of the lower-priced product and see better margins as we move into the back half of the year. Again, our -- we anticipate that we'll start seeing relief on cost by the fourth quarter.

Got it. Okay. Great. That's helpful. My other question was around that new venture with the charging stations. How much -- I don't know if you could quantify or I don't know that you have, but thinking about the investment in this business, can you give us some sense of what that's going to look like? And is that, and add back to EBITDA? Or is that not in your guidance?

Yes. It's built into our guidance. It's not going to be material in '22. We're early stages in EV charging. We have filled a void in the marketplace where there are plenty of manufacturers. There are plenty of organizations of service capabilities. What has not been determined within EV charging is we have 2 different -- you have 2 different chargers, you have AC and DC to DC are more complicated. We just don't know what the call rates are going to be. Right now, it's time and materials. It's a good extension of our service network, it's a good horizontal. We’d fill the void, we're going to see some level of revenue, modest margin contribution. But so far, the investment has been minimal. What has to be determined since we're not the manufacturer is where the spare parts come from and the contracts we have now, it's generally supplied by the manufacturer and the pass-through to the customer. So we're early stages, it's extremely interesting. It's obviously going to be a growing business. It's yet to be determined ultimately where it lands out. But many of our customers, especially in Europe, many of our retail customers, both in fuel and convenience, and in grocery retailing are interested in it, obviously, for their own purposes. And so we have a leg in with many of them relative to the service we're already providing them in self-checkout and point-of-sale. We have remote monitoring capabilities that we've developed within retail that could apply. So there's a lot of good things and a lot of good possibilities. But for '22, it's going to be a relatively modest contributor.

Our final question today comes from Justin Bergner of G Research.

Just to loop back to the revenue guide, I just want to make sure I understood. So $150 million of deferrals aiding revenue, $40 million to $50 million each of divestitures and exit of low-margin service business, getting you sort of to something flattish. What are the -- is that -- first of all, I guess, just please verify that? And then secondly, what additional divestitures are being contemplated?

Yes. We've -- the divestitures we have built in are the nonstrategic divestitures. We have a recycling business in Germany that is a unit that you put into a facility and you can go in -- you've all seen them, right? You put your glass in and it gives you cash for your recycle. That business has been in assets held for sale, and then we had some other small nonstrategic services business that were going to be sold. And again, it's only going to be -- the impact is going to be in that $40 million to $50 million range. But that's it. As far as these nonstrategic assets, we're coming to an end of what we're looking to sell. So after '22, we shouldn't see any headwind like that. As far as the terminated nonprofitable contracts, we're tied into some contracts that we would have liked to have been out of they don't qualify for discontinuance because of their nature, they're very low margin. So as those contracts -- when we can exit, we do exit. We're always going to be in -- especially in Asia, where there's pricing competition. If the contract is profitable, we'll attempt to retain it. But where it doesn't make any sense, we've walked away, and that's the $40 million to $50 million of terminated service contracts. But all of that is basically coming to an end. We are -- I don't believe we have -- when we look at the long-term model, the 3-year model, we don't have any significant build in for that. In fact, we have growth through managed services built into that model. And I should mention that we mentioned it in our shareholder letter that obviously, we have -- we're not back on our strategic model yet. We…

Thank you. This concludes today's Q&A. So I'll now turn the call back over to Christine Marchuska, VP of Investor Relations for Diebold Nixdorf.

Thank you again to everyone who joined us for today's call. We look forward to talking with you all at upcoming conferences, and our next earnings release. And in the interim, please do not hesitate to reach out to me or Investor Relations if you have any additional questions. Thank you again.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.