Q3 2021 Diebold Nixdorf Inc Earnings Call
Good morning. Good afternoon, My name is Adam and that will be your conference operator today at this time.
I would like to welcome everyone to the Diebold Nixdorf third quarter 2021 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone keypad to withdraw. Please press star. Two response you Scott you May begin your conference.
Great. Thank you Adam Hello, everyone and welcome to our third quarter 2021 earnings call I'm, Christine <unk>, Vice President of Investor Relations for Diebold Nixdorf.
On the call with me today.
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 a reminder, this call, but they are subject to risks and uncertainties that could cause actual results to differ materially from these statements.
Information on these factors can be found in the company's periodic and annual filings with the SEC.
Sir Paul.
It should be mindful that subsequent events may render this information to be out of date.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 a reconciliation between GAAP and non-GAAP measures can be found in the supplemental schedules of our earnings presentation as well as in the tables of today's earnings release, and now I'll hand, the call over to Gerard.
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 or inflationary headwinds.
We are encouraged by the support of our customers.
Innovative spirit of our workforce as we navigate ongoing supply chain challenges.
First of all I'm encouraged by our company is positioned to offer solutions a growth opportunities for our customers who are address a rapidly changing consumer demands and to.
Competitive landscapes.
More than ever consumers are not only embracing but expecting self service solutions.
Whether its at a bank grocery store retailer.
More than ever we are committed to helping our customers deliver more digital flexible and effective cost consumer journeys.
And banking consumer preferences.
Shifting away from the traditional Telemundo towards ATM with more omnichannel functionality.
At the same time, thanks, and looking for more self service options to meet consumer needs with fewer tellers and fewer branch locations.
This ongoing shift toward reducing the branch footprint.
Optimizing the real estate is crucial.
And our ATM or bumping our banking customers to continue providing the same level of customer service.
Adding customer outreach through marketing, while at the same time, making better use of the available space.
The 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 globally.
Still happening in the physical store.
It's important to understand however that while consumers prefer physical shopping they also prefer lower touch options during the purchase process.
Our self checkout offerings to create a safe convenient and.
A lower friction shopping experience, providing theft protection.
<unk> scanning the market, leading camera technology to assist in Asia scripted purchases.
What we're seeing is that consumers and retailers alike are embracing self checkout.
According to RBR, the self checkouts installed base will reach nearly $1 6 million terminals by 2026.
Almost tripling the global installed base.
All of the end of 2020.
Indeed, we believe automation provides much needed cost efficiencies for the retailer.
In a more efficient shopping experience for the consumer at the last mile in the store.
We believe the accelerating demand for self service and automation signals, a structural change to the way business will be done going forward.
It gives us a long runway of opportunity.
I'd like to now provide remarks around our third quarter performance.
Although demand remained strong in Q3.
Fulfillment in product orders shifted from Q3 to Q4 and from Q4 to 2022.
As we continue to work through supply constraints and logistics challenges.
Our order entry continues to exceed our original models.
And our backlog increased approximately 19% versus the same period last year.
Revenue for the quarter was down 4% as a portion of revenue has shifted out to future quarters due to the temporary supply constraints and logistics challenges. We're currently facing.
Okay.
Our retail segment continues to perform well with growth in revenue of 10% as compared to third quarter of 2020.
Moving on to our business highlights starting with banking.
Momentum for our DN series Atms continued in Q3.
Great percentage of our total orders for these next generation devices.
And we see this trend continuing based on our orders for Q4 and early 2022.
Additionally, the DN series is now live and fully certified in over 60 countries globally contributing to our market expansion in this space.
I'd like to highlight some notable DN series wins for the third quarter.
We secured a contract for over $12 million with Banco Azteca in Mexico <unk>.
<unk>, our DN series cash recyclers.
New service contract and software licenses expanding across 500 branches.
With this win.
Over 75% of Banco Azteca US fleet is now composed of DN devices.
We displaced a competitor and doubled our presence at <unk> Bank.
Ultimately 200 branches and 40 off premise locations will be equipped with a modern technology, including our DN series cash recyclers.
The introduction of cash recycling is a significant change for this market.
Each had not previously had recycling capabilities by branch ATM.
We earned that winning based on the higher mechanical reliability of our hardware the higher.
<unk> of our Atms and a cleaner more environmentally sustainable profile.
This win also includes a five year based on its coverage contract.
And lastly, we built a competitive win with standard chartered Bank Malaysia.
Upgrading all of their legacy devices to our DN series.
Creasing athlete to consist of 100% DN series Atms.
We continue to see growth in demand for our all connect data engine with a number of connected Atms, increasing approximately 23% sequentially in Q3 2021.
This is a significant milestone for us.
More than 100000 banking self service devices.
Connected to this solution.
Which leverages real time internet of things connections from our deploy devices.
It has consistently reduced customer downtime by as much as 50%, resulting in greater than 99% uptime.
This drives multiple benefits such as higher end user satisfaction.
Lower total cost of ownership and increased operational efficiencies.
I'm proud to share that we also were awarded technology and service industry Associations 2021 Star Award for best practices and the delivery of field services for our oil collects data engine.
We believe that demand for our differentiated market, leading solutions that meet the needs of today's consumer will remain solid.
This is especially evident in our robust pipeline.
<unk> backlog.
The bank successes of our sales team in Q3 and the growth in our connected data.
Moving on to our retail business.
We continue to see strong demand for our self checkout products as retailers look to Diebold nixdorf.
Comprehensive solutions that provide favorable consumer experiences and cost efficiency.
Staffing challenges and tough performance comparisons.
We secured a competitive takeaway with an Italian retailer to replace a competitive devices.
Our DN series self checkout solutions.
With our full self checkout suite and other offerings from our retail our solution portfolio.
We also expanded our important customer relationships.
With a large multi country retailer in Europe.
Which included a competitive takeaway spill devices.
This win secures a strategic rollout of self checkout devices beginning.
Beginning with two stores before expanding to 300 stores in 13 countries.
Our eventual full rail rollout of 2500 stores in 15 countries over the span of two to three years.
Additionally.
This retailer signed a three year services and maintenance contract.
We are well positioned for growth in retail services.
In the third quarter, we won a contract renewal with a large global petrol convenience store for the Malaysia site.
This was a significant renewal.
Opening over $16 million for our systems and services.
Including point of sale helped us support software and other solutions.
Overall, we feel confident in the strength of our retail business as our large global retail customers.
Confirmed their commitment to their store formats.
While some retailers are considering fewer locations. They all remain focused on increasing the level of automation and technology investment per store.
Additionally, in 2021, we're seeing growth in the absolute number of our self checkout devices on a year on year basis.
And we anticipate that our retail business.
And the year.
Above our pre pandemic levels witnessed in 2019.
Our core portfolio continues to benefit from the industry trends I discussed earlier around consumers' desire for more self service options in banking and retail.
<unk> and our customers needs for more automation and greater cost efficiencies.
It also lends itself to layering on additional or offerings with large addressable markets.
Such as managed services software are dynamic payments platform.
And then other adjacencies that provide a trajectory of sustainable growth for the future of our business.
We are particularly proud of the progress we have made with our retail and banking customers.
We recently received the results from our annual customer satisfaction survey.
I am delighted that our customers are awarding us some of the highest levels of net promoter scores we have seen.
Reinforcing what has now been a multiyear trend of improving results.
Turning now to our growth initiatives.
The managed services, we continue to move forward on securing more new business and remain in productive discussions with multiple financial institutions.
We also see a promising pipeline for managed services in 2022.
In Q3 in North America, we were awarded a large managed services agreement with a tier one financial institution.
Including a large order of DN series Atms.
We continue to scale, our debit and credit platforms with our dynamic payments offering and a top 10 global bank.
Cross more than 17000 Atms.
And as we continue to implement and scale of our existing customers for our payments platform.
Go to market team is growing a strong qualified sales pipeline for 2023.
<unk>.
I am pleased to announce our entry into new horizontal <unk>.
Electric vehicle charging stations.
This is a natural fit for our services business with our global network of 8000 experienced service technicians and the similarities between the Atms and EV charging stations.
There are an estimated one $5 million to $2 million public charging stations.
And in the United States and Europe by 2025.
And this is an approximately an increase of over 200% from roughly 500000 charging stations today.
Between about 300000 in Europe, and 200000 in the U S.
We are currently in discussions with the tough EV charging station hardware companies.
And have already secured contracts for our solution with some of the key players in this space.
This is a promising but rapidly growing markets.
And we look forward to sharing more on this new offering in future quarters.
Now turning to another important area of our business sustainability.
Not only to be focused on attaining sustainable growth for our shareholders.
We also focus on environmental sustainability of our facilities practices and processes.
I am proud to say that we were recently awarded Germany's best Energy Scouts 2021.
The German government initiatives that encourages energy saving opportunities.
We installed a green lines constructed the regional grasses to improve energy savings at our <unk> facility.
Additionally, we included a solar panel system and added 36 charging ports for cars, then you box and parking rates.
We consistently are working on initiatives that drive sustainable programs.
With the goal to have no adverse effects on public health.
The communities, where we operate.
We look to upgrade our other facilities around the globe and sustainable Green ways as part of our focus for our environmental social and governance commitments.
Yeah.
Looking ahead to Q4.
We remain confident in our market leadership and ability to close out the year strong on a year over year basis.
As of today.
Our orders are 100% confirmed with customers committed to our products.
We see negligible risk of loss sales.
With strong strength in demand for Americas banking and retail business segments.
Additionally, in Q4 for our banking segment.
We are starting the quarter with a backlog of approximately $205 million higher.
Beginning of Q4 2020.
Specifically for Americas banking.
We are seeing over a 50% increase in our backlog as we entered the fourth quarter of 2021.
As compared to the same time last year.
We are working with all of our customers on a continuous basis to fulfill the high level of orders, we're receiving on a timely basis.
Part of this focus we.
We have taken steps to increase our stock of key components as well as pre book vessels further investments to accelerate revenue conversion from our backlog.
Furthermore, on a year over year basis.
Backlog remains robust.
As a confirmed orders for the first half of 2022.
Our above the levels for the first half of 2021.
This same time last year.
These forward looking indicator affirms the demand we continue to receive from our growing customer base.
While we continue to see significant opportunity in the market and in our ability to meet our customers' needs.
Like many global companies are navigating and completion of impressions and supply chain logistics has continued to impact our business.
As I discussed earlier.
Ladies and delivering or is delivery of our products will cause some revenue to shift to future quarters.
Thus, we are revising our guidance for year end 2021.
So we see Q3 broadly.
Peak inflection points and supply chain disruptions.
Our visibility into semiconductor chip markets has increased meaningfully.
Providing us with a line of sight to many of the chip providers through the first half of 2022.
Additionally, we have deployed to other strategic tactics internally such as shifting our production capacity.
Which will ease some of the dependencies, we previously had on logistics and shipping.
I am extremely proud of the work of our DN team to mitigate these issues.
Before I turn the call over to Jeff to discuss the financial results around our performance and outlook.
We close by reinforcing my optimism around the robust demand we're experiencing for our solutions for the remainder of 2021 and the upcoming year, while supply chain improvements take hold.
We are squarely positioned to meet the needs of our customers and expand our base of banks and retailers as consumers continue to demand more assets, while convenience and more innovation to automation and self service.
Although supply chain challenges have led to a temporary pullback in performance.
It's important to understand that we are doing everything possible to mitigate these challenges and delivering for our customers remains a top priority.
Thank you and at this time I'd like to turn it over to Jeff.
Yeah.
Thank you Gerard.
And good morning, everyone.
But compared remarks will include references to certain non-GAAP metrics, such as gross profit gross margin and <unk>.
Adjusted EBITDA.
Total.
For the third quarter 2021 was.
It was $958 million a decrease over third quarter 2020, or approximately 4% as reported.
And a decrease of 5% excluding foreign currency benefit of $16 million.
And an 8 million impact from divested businesses.
Adjusted for foreign currency and divestitures product revenue decreased 3% services revenue decreased 6%.
Software revenue increased 3%.
Compared to Q3 2020.
During the quarter approximately $90 million of revenue was delayed due to the extended transport time and inbound technology component delays.
This is primarily impacted the U S Latin America, and certain APAC countries and reduce total revenue by approximately 9900 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, but lower gross margins of 27, 4%.
The deferral of revenue.
Non billable inflation resulted in a reduction to the third quarter gross margin of approximately $33 million.
Service margins increased 40 basis points versus the prior year period and were 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 matters.
Software gross margins declined 500 basis points versus the prior year period.
Excluding the impact of a prior year 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 $14 million versus the prior year period and decreased $17 million sequentially.
When compared with prior year key variances included reductions in variable compensation, partially offset by unfavorable FX and investment in growth projects.
When compared with our second quarter operating expense.
Kris due to reductions in variable compensation.
The net result was operating profit of $81 million and operating margin of eight 5% in the quarter.
The same trends drove adjusted EBITDA of $103 million of adjusted EBITDA margin of 10, 7% in the quarter.
Viral will discuss our segment highlights.
Banking revenue of $323 million decreased approximately 11% versus the prior period and 12% after adjusting for foreign currency benefit of.
A $7 million in the $3 million impact from divestitures.
Lower revenue was primarily due to the supply chain delays impacting the timing of deliveries and installations upfront with collateral impact of services and software revenue.
Whilst the termination of expiring service contracts.
As expected following a strong order entry in Q2, and several nonrecurring large orders with the prior year.
Segment product order growth decreased 35%.
We are forecasting a strong order entry in Q4.
Gross profit for the segment decreased to $98 million year over year and included a favorable foreign currency benefit of $4 million.
And an unfavorable divestiture impact of $1 million gross margin of 33%.
It was down 50 basis points. The decrease was primarily due to inflationary pressures offset by our focus on cost management.
Americas banking revenue decreased $22 million of approximately 66% to $347 million, primarily due to declines in software and services revenue due to the negative collateral impact of unfavorable geographic mix of installations from North America to Latin America.
Americas banking continues to be disproportionately affected due to the location of our customers and our primary manufacturing facilities for DN series, Atms, which are located in Europe and Asia.
However, we are working on mitigation strategies in our Americas manufacturing operations to assist in manufacturing certain of the higher value cash recycling DN series Atms.
Backlog in Americas banking grew 54% year over year as prior to order growth saw another solid quarter.
Increased approximately 23% versus the prior year led by market share gains of our R&D series Atms.
Segment gross profit of 86 million was down $17 million.
Due to lower revenues gross margin percentage declined due to the impact of supply chain inflation and unfavorable geographic mix.
Previously noted.
Our retail segment had another quarter of strong performance.
Retail revenue of $288 million increased 10% year over year as reported and 8% after adjusting for $6 million currency benefit.
Investor head was headlined by $2 million.
Demand for our point of sale checkout self checkout continued to increase versus the prior year period.
With product order growth of approximately 23%.
Retail gross profit increased 50% to $79 million driven by revenue growth gross margin expanded by 110 basis points directly attributable attributable to growth in self checkout revenue.
As we continue.
Continuing to look to optimize our portfolio and focus on our core business segments. We made the decision to enter a share purchase agreement to sell our reverse vending business.
At the end of the quarter. The companies leverage ratio is five four times, which continues to be below our covenant maximum in the system.
In our presentation, we updated our growth that level 730.
Turning to our updated outlook for 2021.
We are revising our revenue range the three nine to $3 95 billion.
Which reflects approximately $120 million in revenue referral from 2021 to 2022 due.
Due to the current.
Supply chain challenges.
Accordingly, we are revising our adjusted EBITDA bye.
By approximately $40 million to a range of 415.
Two $435 million taking into account the gross margin associated with the aforementioned revenue deferrals and an incremental $20 million for supply chain related inflation over previous estimates.
The total estimated impact on.
Supply chain related inflation is now approximately $45 million.
Our free cash flow outlook is now $80 million to $100 million, reflecting our revised EBITDA outlook.
<unk>, the net incremental working capital timing impact.
Of the revenue control.
Illinois, and a call back to the operator to our Q&A session operates.
Thank you as a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad now will push for just a moment to compile the Q&A roster.
Our first question today is from Mac some of it off da Davidson. Please go ahead.
Thanks, a couple of questions first Jeff with respect to the cash flow outlook for the full year.
I'm just goofing around numbers, but your guidance is basically assuming you generate $400 million in the fourth quarter and my long history of covering the company I don't think people because it's ever turned them Ah number anywhere near that so help me walk through helped me get comfortable with with how you're going to accomplish that this year.
Yeah.
Skip question and.
And you can imagine it.
Primarily comes from where it again.
And and everything else is fairly fixed.
In our in our.
Doug cash flow model, so here's what we need to happen.
In order to achieve that we need.
Payable GPL is it in the mid seventies.
And we need.
Bsl's revenue Dsos and.
In the mid to low fifties so.
That's that that's going to drive.
Fourth quarter free cash flow, especially based on where we're at today.
Based on.
A number of around 75, what happens after 75 days in a Dia solid.
Perhaps update 55 days.
Look what happens.
Revenue recognition after November 15th.
Max Nextshares free cash flow.
Inventory search seen as properly today impacts next year's through Catched alone. So.
So we.
We need.
To make that number we need dsl's to drive too.
The mid fifties there in the in the low fifties now.
And we <unk>.
Two <unk>.
Increase to two.
To the numbers.
I referenced and that's about the 5 billion increase for modem right. Now. So there is a path to get there now it's required execution.
With respect to the pressures you've seen in the P&L this year and the roughly 75.
$1 million EBITDA take down from from where you were to where you are now.
Getting a year, where you are right now should we be thinking about any of this stuff becoming more of a permanent part of the bolts cost structure and really the Genesis of my question is does anything you're experiencing now impact of 2023 targets you put out there several times now thank you.
Yeah, it's going to impact.
2023 targets and we're not confirming those until we provide guidance.
Sure.
Four 2022 and 2023 here.
We're still working through all the all the modeling impacts, but here's what I would say.
If you look at it.
We've experienced.
European date.
If you go back and add up the numbers for them for a quarter and this quarter you can see that it's around $29 impact.
And then.
Operating margin.
From inflation.
To date is all.
Just fixed costs.
What's changed for us as we move into the fourth quarter is we're going to experience not only just logistics increase that raw material and source component parts increase.
The 25 $26 million, we're experiencing the fourth quarter.
Is still have and it's still approximately $14 million is the logistics the rest is good.
Component parts inflation.
And and portion portion to that inflation they are going to get.
One up an inventory.
Both both logistics.
Raw materials and British period is the 22.
So.
We anticipate that we're not going to see.
Any lessening of logistics supply chain constraints, we've talked about it until probably the second half of next year.
Drags of course in the third quarter as inventory turns.
So so this is going to affect.
2022, and you need to look at that from a pricing perspective.
And what we can do from a pricing perspective.
And then we.
We need to measure and we are measuring floated reductions that are especially again.
Outbound and inbound logistics.
And when it's going to impact the model.
Post the normalization selection.
So some advil and availability of that if I may as well to get through this one color.
We made some comments and are prepared remarks will be sold to three of the peak inflection point and I just wanted to ask more substance around that.
Moving through queue to restart to see extreme tightening installed visibility.
Critical components slang semiconductor chips as we went to Q3 that visibility has improved substantially.
And our safety stock and our access to semiconductor chips is now down well through the first half of 2022. So we're feeling like we've moved over the hump as it relates to the access to semiconductor chips. However.
Spot prices were painful raw materials in Q3 closed due to our queue for P&L as we recognize revenue on those ATM. So the timing effects will.
Will be felt most notably in Q4, but as we take.
Take a look at Ford stock prices will various raw materials, whether it's steel rhythm semiconductor chips. There is already evidence of it's starting to peek in starting to subside someone so we don't see those raw material costs of being structurally permanent model.
As Jeff did I think there'll be some lumpiness as we move through 2022 that we do see those abating as giant Jeff Rice Lee said, the other key driver of inflation right now for us.
Interesting pieces.
And we think that they're still going into effect in the first half of 2022.
As we want to take another action to mitigate impact.
Inflation.
Yes, Jeff reference that we're building up.
Faction capacity in the U S.
That will certainly ease some of the pressure we've seen from the logistics cost perspective, as we need to rely less on shipping from Europe to the Americas.
Second of all we have been moving pretty decisively from a pricing perspective across products services and software and obviously, there's a timing lag and it's we're still building productivity priced in private quarters.
We're seeing some pretty good traction with those price initiatives take hold so they are while we're not going to give guidance right. Now I think there is a number of mitigating factors that are that and pray that will impact 22.
Got it. Thank you guys I'll get back in the queue.
The next question is from classic matter from North Coast Catholic. Please go ahead.
Q.
Jeff took to continue her conversation about kind of free cash flow and you can look at you look at the 2022.
How do you think that impact your ability to refinance some other that at your talks.
Spoken about before.
Yeah, Yeah and.
His reaction to our performance and what the market.
Right.
And we continually monitor there.
We'll still have the opportunity.
Wandering the measuring as we move forward.
We are alerted catastrophizing could be now remember.
We have no call for vision and are secured knowledge.
It really makes it more attractive to refinance did you approach mid July too.
So so I would say there's there's no.
There is no maturity.
Gun to our head relative to refinancing.
The immediate fee is relative to the cost of the deaths in particular the secured notes.
So this is <unk>.
ER performance and on the impact.
Of what's going on in the global supply chain or another piece of vulgar them relative to one we should refinance so we will continue to monitor.
Even as soon as this afternoon, what the impact is on on our debt trading and with our advisors or between now and.
And and mid twenty-two relative to refinancing again there.
This.
Continue to say this.
There is a point in time, where it's going to make sense for us to refinance between now and and I would say is the third quarter of 22.
Okay again, they had no call for getting expires in July the 22 so.
Then I'll continue this will just become part of the order to them I don't think it will and we're going to still generate cash flow, where we get the guidance will be generating free cash solid 22, I am not giving you the number today, but it will be free cash flow generation and 22.
There will be growth in revenue.
And so I don't believe it prevents us from refinancing the question is going to be worth seeing baritone Cohen.
Right.
Gerard.
Supply chain issues.
Is there any risk of losing orders were maybe their customers say, hey, it's taking too long for just.
Just wait it out until things get better.
Mccarty, we're not seeing any evidence of that or any material knows whatsoever clearly.
Hello. This is a global issue facing every company.
Where an 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. There. We would have 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 changed our order entry and as I said in.
My prepared remarks, Cardi I wonder entry is tracking higher than our original time in which to 2021. So we're feeling very very good that our products are value propositions holding up well and.
And our customers that we continue to work very very closely with them to their.
And what they need they are in some cases that were using expedited shipping is the policy essentially expensive, but in some cases, we're relying on that grilled and eaten.
But we don't see that has been retail risk whatsoever.
Thank you both of these.
Patrick.
Our next question comes from <unk> J P. Morgan could please go ahead.
Hi, Thanks for taking my question. So just to follow up on free cash flow and for to get in touch.
Material amount is there potential for some to spill into 22, and how does such a large cash harvest in queue for kind of impact 22.
Seasonality of cash flows are Unicode placed on inventories kind of given the elevated investment so maybe less of a drag and first half of 2002.
Yeah.
So.
K P do something in 21, obviously.
Cash flow is funded bullets.
Huge cash flow of them. So we are.
What we're doing is we're doing our jobs relative to collections.
And we are very good customer base in and they respond well to to a request for payment. So medicine, we're counting on.
The accounts payable side, it's just a matter of we controversy disbursed melanoma.
Cash in and we do that we do that through the year.
And we wanted our foot off the gas at the end of last year. So.
We won't do that this year.
So so is towards the end of our ability to generate downloadable cash.
But there is only.
Please don't new revenues.
And and your purchase say, there's only so much cash that can be generated that's basically what EBITDA is meant to represent.
So if you if you bring it floored bright it's not available for next year I will say that we are pushing $120 million of revenue out of 20.
21 and 22.
The revenue from for basically two weeks.
From today will move into collections and 22, so we will see an increase in collections.
And the 22 miles from the deferred revenue that we talked about today. We also anticipate that we will.
Will not have a 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.
100.
Inventory on $120 million deferred revenue.
We're not recognizing the revenue so we're holding the inventory. So so all of that and in fact as we are working on the cash flow effect on on on 22. The one thing I will remind everybody tunes $50 million of restructuring payments will go away.
After joining one.
So we will pick that up.
The potential.
Benefit and refinancing and we wouldn't need it all and 22.
On current market, it's an estimate who I talked to current events.
Is approximately 200 basis points.
Southern over two on $2 billion you can.
So there are.
Positive for free cash flow coming in 2000 Q.
But but again, we're not going to provide guidance today, but I will say that it's.
And there's nothing fundamentally wrong with the cash flow modeling company. This is a transitory bump caused by.
Supply chain inefficiencies and and if you look at what's happening and you take the numbers.
Trying to do a very good job of describing it that.
But.
All of our $45 million impact.
In in 2021.
32 million of that is.
Outbound logistics.
There is 4 million.
One.
13 inflation.
Significant model equity take semiconductor chips of equation, there's a significant amount of debt.
That is inbound logistics from our suppliers they have the same issue so.
When was it supplied sheen issues.
Are mitigated and we think it's going to be.
Second quarter next year.
Expectations are that.
We're going to see some relief initial logistics costs.
There's probably a new normal in our summer, but it certainly is an entry level.
We're experiencing with logistics today that the snap sustainable.
And and.
And.
Obviously, the capacity would expand to pick up at that level, because the investment with Nixon so.
That's my opinion.
Gotcha, and then as we think about service contracts next year.
You expect to see.
Some uniformed signings over the course of the year and Sir.
And <unk> at least in terms of cash.
Somewhat derisking she's now they <unk> cash flow kind of what you're near Paris going.
You are saying relative to contract a spelling.
Yeah.
In our modern model in their model isn't that different.
It's all based on installed base.
Right.
They have moved.
Certain revenue to other.
Other services, mainly on the software, which which is good for them from a free cash flow basis, 19, I think they've done a nice job of free cash flow.
I would say that as we look we need to happen right.
Is.
Two rural services and software like they have and that'll allow allowed the lumpiness of free cash flow are are free cash flow can be long based around.
Installation.
Basketball, let me build on that.
They are introduced to the investigating today the work that we're doing around television charging stations and I'm going to tell you. We are very very energized by the because.
It has very similar attributes to servicing atm's, both from a technological skill perspective in the effort. It would take for us to cross trainer ATM technicians, plus the density an absolute number of units that are out there.
And we anticipate the wildest market still early that will start to see it services business Bill with a comparable margin profiles, what we've seen in the ATM business. So we think it will go some way as well towards what could be talking about obviously takes time to build but.
That's what we're looking at doing it.
Mmm.
All operator either of them Oh.
I think.
Okay got cut off.
Hello.
I can hear you Bowl when you win.
Yeah, you were talking about the EV charging I guess I guess the crush follow up question on.
I got a bit of that commentary, but.
How competitive as that service market.
Or the service contracts kind of recurring in longer term.
And can you give us a sense of kind of revenue potential per contract or even per charging unit would be helpful and margin profile. Thank you.
There are some of the first thing I'd say is in this is a new <unk> new market rate compared to.
We've seen in a more mature businesses.
What I will tell you.
It's a highly fragmented landscape.
Currently we would be one of the larger scale based players we like those attributes.
The revenue per units.
A little bit lower but not materially compared to what we see in servicing at ATM.
And we believe the margin in profile will be comparable to what we've seen in our 18 in business.
Okay, great. Thank you.
Our next question is from just in Tucker from Gabelli funds, just and please go ahead.
Good morning charge morning, Jeff.
Hey, Justin.
First question I, just wanted to confirm showed up the guidance changes from the second quarter. So you've taken up your cost non billable sort of cost number from $25 million $45 million and then.
The entire revenue deferral that 120 million and then dropped through which I guess it seems to be on the order of 15 million.
That.
Revenue deferral was not expected in your earlier second quarter guys are those does that.
Yeah.
You can remember our previous guide was floor to floor one.
So the the.
Movement.
$120 million dropped this down to the.
39395 months pregnant. So you can fairly backward engineer in the lower the number was previously.
Okay.
And then on the cash flow.
The decline in free cash flow guide 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 components stock and the like.
So I guess I am somewhat surprised at the free Cashflow guide is not coming down more than the adjusted EBITDA Guide.
Can you help me understand that are positive offsets.
Keep those two adjustments sort of in line.
Yeah.
Yeah, let me take the key to that cash flow number.
Is that we don't have disruptions in revenue recognition for the next two weeks.
Because.
<unk> had revenue recognition, which means we're billing customers.
For for delivery, though the next two ways. Then then are we going to push for collection. So if you look at it from a direct perspective.
The key to the.
The cash collections will make from our customers over the next two months and once you get past that day.
Is it becomes increasingly difficult to get collections, because it's not do.
So we model that out.
We feel strongly that the inventory build those today does.
It does not affect cash flow because it's leverages accounts payable.
We will have inventory that's going to be higher you are going to see higher inventory level, but you're also going to see a higher.
The gas payable also.
Ah lower own inventory. So this is about managing collections for now on cash flow managing collections manages disperses. We have the process is in place to do that and yes. It did in Vietnam.
And we were Canadian on that challenging and we believe we haven't really planned to do it. We also have clear visibility to other spend.
That the capital spending R&D R&D cannibalization.
We have a clear model to execute and now it's up to us to execute.
Okay, Great. That's helpful and then lastly.
On the retail side is.
Is freetail 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 the supply chain issues that are preventing sort of the margin performance from being even better than what it was in the third quarter.
Hi, Justin Toronto.
One.
So on the retail side, we are performing well and we're performing.
Modestly better than our plans for 2021.
We think we have a very very competitive self checkout solution announce that industry demand for self checkout growth, we think we're very well positioned to benefit from that.
Over the next several quarters.
Most of <unk> comments from inflationary perspective revolve around banking, primarily because of where our customers are faced versus where our manufacturing facilities are based.
Retail we have some exposure to it but it's nowhere near as material because the azure.
As you recall most of our detailed business as European centric and that's where we have some of our major.
Benefaction facilities and therefore, we have the benefit of using car truck rail and other non shifting 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.
As a reminder, if you'd like to ask a question is star one on your telephone keypad.
Our next question is from Mala Baca from <unk> model. Please go ahead.
Sure.
Ask you questions.
Can you settle this little bit earlier.
More inherited that.
Logistics challenges are impacting everyone across the board.
That said Avenue.
Claiborne trapping the prospect of losing order as a result of what's going on but are there any instances sandwiches to the possibility of potentially accelerating market share gains because you are better positioned.
<unk> near term.
Yeah. So let me make that a couple of comments on that tomorrow I will reinforce again that we see negligible risk to any contract. We're just not seeing evidence of that.
As it relates to to winning incremental market share hope it's become evident over the past few quarters that we believe were exceptionally well positioned with our product differentiation, especially around DN series Atm's, and we're very very confident that we're gaining market share at the expense of others on that.
Which ultimately.
Sports are.
All the building services contract base over time.
Dewey necessarily think that this will give us.
Supply chain disruption will give us a chance to.
Accelerate market share gains.
Quite frankly, I don't know that at this stage I think we'd have to see what happens over the next several quarters.
We'll see I think we have a.
Very very good handle on our visibility too.
Supply chain access to raw materials over the next several quarters.
Especially around semiconductor chips, which seem to have been struck Keith on the most difficult.
Three points in the supply chain disruption, so while I can't comment on how others are managing that situation was feeling very confident that we've got that one the whole list and Ed.
Mhm, Okay. Thanks, and then one other question which is on the.
Parking space can initiative.
Can you.
Since this is an emerging.
Area.
See any potential opportunities, perhaps cross out in this market and are there any.
Large retailers, let's say that.
Would would install parking station to add some add on which would give you some dumping opportunities.
Yeah.
It's a great question Marla and I can tell you that.
When I made the comment that we're in discussions with multiple.
Providers.
That includes a number of multinational retailers that C.
Dv charging the delay to enhance their own consumer journeys and drive.
More idle time at their sites and hopefully driver the size of their baskets.
So there is no doubt that there's a strong intersection between a retail sector and EV charging.
It's not an exclusive overlap there are other.
Dependent plays outside the retail we're looking upfront.
We do think there are some interesting.
<unk> opportunities, which is Y a 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 coup archive to Gerard Schmidt CEO, a keyboard next door some closing comments.
Thanks, Adam and thank you to everyone, who joined us for todays call now.
We're pleased to the continued demand, we're seeing for our products and solutions that.
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 cross our whole businesses.
With products software and services into new areas like payments and BB charging.
We look forward to talking with all of you that upcoming conferences next earnings release.
In the interim please do not hesitate to reach us to Investor Relations. If you have additional questions.
And this brings a call today and thank you everyone.
This concludes today's conference call you may now disconnect your lines.
And.
Uh-huh.