Diebold Nixdorf, Incorporated (DBD) Earnings Call Transcript & Summary

Good morning. On behalf of Diebold Nixdorf's directors, management and worldwide associates, I'd like to welcome everyone, and thank you for joining us today. My name is Gary Greenfield, and I'm honored to serve as the Chairman of the Diebold Nixdorf Board of Directors. We're excited to be hosting this virtual meeting, which allows us to be more inclusive with our shareholder communications. Any shareholders who haven't yet voted or wish to change their vote, may do so by clicking on the voting button at any time during this meeting up until the time that the polls closed as indicated on the agenda. As is our custom, we will conduct the business portion of our meeting first and answer presubmitted questions at the end of the meeting. Although we may not be able to answer every question, we will do our best to provide a response to as many as possible. Please note that this meeting is being recorded and will be available for replay. However, no one attending via the webcast or telephone is permitted to use any audio recording device. In keeping with the digital approach of this year's meeting, it is now 10 a.m. Eastern Standard Time on April 30, 2021, and the 2021 Annual Meeting of Shareholders is now called to order. Diebold Nixdorf's code of regulation provides that the Chairman of the Board or another duly appointed officers to preside at all meetings of the shareholders, and that the secretary shall keep the minutes. It is my privilege to preside over this shareholder meeting. Now it is my pleasure to introduce the other members of our Board of Directors: Arthur F. Anton, Bruce H. Besanko, Reynolds C. Bish, Ellen M. Costello, Phillip R. Cox, Alexander Dibelius, Matthew Goldfarb, Gerrard B. Schmid, Kent M. Stahl and Lauren C. States. Let me introduce the officers participating with me in this morning's meeting: Gerrard Schmid, President and Chief Executive Officer; Jeffrey Rutherford, Senior Vice President and Chief Financial Officer; and Jonathan Leiken, Senior Vice President, Chief Legal Officer and Secretary. Mr. Leiken will act as Secretary of this meeting. Ms. Anne Zavarella, a partner from KPMG, is also present for today's virtual meeting and has been given an opportunity to make a statement at this meeting if she wishes to do so. I will now turn to Mr. Leiken for presentation of proofs of the due calling of the meeting.

Thank you, Mr. Greenfield. In accordance with provisions of the Ohio Revised Code, the Board of Directors appointed Broadridge Financial Services, represented here today by: Jane Ludlow; and Elizabeth Radigan, Vice President, Chief Ethics and Compliance Officer and Assistant Corporate Secretary of Diebold Nixdorf, to serve as inspectors of election. The proxy committee appointed by the Board of Directors is comprised of Gerrard Schmid and Jeffrey Rutherford. The Board of Directors fixed March 2, 2021, as the record date for determining shareholders entitled to vote at this meeting. An affidavit has been delivered attesting to the fact that either a notice regarding the Internet availability of the Notice of the Meeting, the proxy statement and the 2020 annual report or the documents themselves, were mailed on or about March 19, 2021, to all shareholders as of the record date and will be incorporated into the minutes of this meeting. The shareholder list shows that as of the record date, there were 78,178,390 shares of common stock outstanding and entitled to vote at this meeting. The preliminary report of inspectors indicates that the number of shares necessary for a quorum in person or by proxy is 39,089,196. The total proxies received are 68,187,548 shares, which represent approximately 87.2% of all shares outstanding. A quorum of shares is present in person or by proxy for all purposes. As secretary, I will now read the minutes for the Annual Meeting of Shareholders held on May 1, 2020, unless there is a motion to dispense with such reading.

I move to dispense with the reading of the minutes.

Is there a second?

I second the motion.

The motion is carried, and the minutes are approved. I will now ask the secretary to move the nomination of the directors.

Mr. Greenfield, I place the following persons in nomination: Arthur F. Anton, Bruce H. Besanko, Reynolds C. Bish, Ellen M. Costello, Phillip R. Cox, Alexander Dibelius, Matthew Goldfarb, Gary G. Greenfield, Gerrard B. Schmid, Kent M. Stahl and Lauren C. States.

I will now ask the secretary to continue with the introduction of the remaining proposals.

Proposal 2, ratification of appointment of KPMG LLP as independent registered public accounting firm for the year 2021. The Audit Committee, subject to ratification by the shareholders, appointed KPMG LLP as independent registered public accounting firm for the year 2021. Proposal 3, advisory vote on named executive officer compensation. We are providing our shareholders an opportunity to approve, on an advisory basis, the compensation paid to our named executive officers. Although this vote is nonbinding on the company, our Compensation Committee will review the results of the vote when making future decisions regarding executive compensation. Proposal 4, approval of an amendment to the Diebold Nixdorf, Incorporated 2017 equity and performance incentive plan. The Compensation Committee has recommended and, subject to the approval of the shareholders, the Board has approved an amendment to the Diebold Nixdorf, Incorporated 2017 equity and performance incentive plan that would increase the number of shares available for issuance under the plan.

At this time, I would like to turn to Gerrard Schmid, President and Chief Executive Officer, for some remarks.

Thank you, Gary. Good morning, everyone, and thank you for joining us. 2020 was a year for the ages, introduced numerous risks and challenges, which we had not faced before. One year later, I continue to be gratified by the resiliency of our company including the many ways in which our employees adapted and responded to a dynamic and highly uncertain business environment. During 2020, we cared for our employees. We delivered for our customers. We generated strong financial results and maintained ample liquidity, and we contributed to the well-being of our communities. From the earlier stages of the crisis and continuing through the current climate, we prioritized the health and well-being of our employees. We implemented a number of changes especially with our customer-facing service technicians, our manufacturing facilities and key suppliers to ensure we continue to deliver for our customers. I am pleased by the responsiveness of our employees as they kept the company operating with no significant disruptions during the pandemic. As a result of our collective actions, we are seeing strong employee engagement and resourcefulness. We deepened our customer relationships throughout the crisis. We are leveraging our breadth and scale to fulfill our mission as an essential service provider to financial institutions and retailers. Consistently delivering strong service levels to banks, grocery stores, pharmacies and fuel convenience customers. In our banking business, the pandemic has reinforced the strategic relevancy of self-service channels, and we are seeing ongoing investments in cash recycling, automated deposits and cardless transactions. Our DN Series ATMs and fourth-generation cash recycler technology picked up momentum during 2020, and we continue to leverage our competitive differentiation in 2021 to the benefit of our customers and shareholders. In our retail business, customers continue to invest in greater self-service capabilities. Diebold Nixdorf grew faster than the market with self-checkout shipment growth of approximately 90% in 2020. And we are further differentiating our offering this year with a more modular open architecture of our family of self-checkout products. For our services business, we are leveraging the machine learning capabilities of our DN AllConnect data engine to increase availability while improving our own efficiency. And looking to the future, we are investing in cloud-based software offerings for our customers, including our recent release of the Vynamic Payments platform, a new cloud-native solution designed to support the proliferation of payment types and rapid increases in payment volumes. For fuel and convenience customers, we launched a cloud-based platform that will facilitate greater personalization, brand loyalty and incremental sales. With respect to our financial performance, we continue to leverage our operational rigor to drive greater efficiency across our business. We delivered significant year-on-year increases to our profitability in 2020 despite COVID-19 revenue headwinds. We expanded non-GAAP gross profit margins by 300 basis points and adjusted EBITDA margins by 250 basis points. Looking across other technology peers, Diebold Nixdorf was one of the few companies to increase profitability versus the prior year. Return on invested capital increased from 9% to 15% during 2020. And for the year, we generated $57 million of free cash flow. And throughout the year, we took steps to maintain adequate liquidity. In July, we extended our debt maturities in order to preserve our financial flexibility and additional information regarding these financial metrics can be found in our proxy statement, which is posted on our Investor Relations website. In addition, we are affirming our responsibility to become a leader in environmental, social and governance matters. Sustainable operations are vital to our customers and suppliers. Our focus is on reducing our carbon footprint, promoting recycling and using environmentally sustainable materials. As a global company, operating with customers in over 100 countries and employees in more than 60 countries, we also take our role as a global citizen very seriously, and are acting on several fronts to ensure we are promoting inclusive values. I invite you to learn more about our overall efforts by reviewing our corporate responsibility report and related content available on our website. Looking to 2021, we intend to build on the solid foundation we have established by successfully concluding our DN Now transformation and evolving the business to deliver a balance of top line growth, continuous operating improvements and significantly stronger free cash flow. While we must continue to manage a number of pandemic-related uncertainties, I am confident in our ability to execute on our key initiatives and generate value for all stakeholders. Thank you for your time and support. Now I turn the meeting back to Gary.

Thank you, Gerrard. Now that everyone has had the opportunity to vote, I now declare the polls for the 2021 Annual Shareholder Meeting closed. May I please have the report of the inspectors?

Mr. Greenfield, preliminary voting indicates that the company's 11 director nominees listed in the proxy statement received a majority of votes in favor of their election.

The following persons are elected as directors of the company to serve until the next annual meeting of the shareholders and until the successors are elected and qualified: Arthur F. Anton, Bruce H. Besanko, Reynolds C. Bish, Ellen M. Costello, Phillip R. Cox, Alexander Dibelius, Matthew Goldfarb, Gary G. Greenfield, Gerrard B. Schmid, Kent M. Stahl and Lauren C. States.

Mr. Greenfield, preliminary voting indicates that more than a majority of the shares represented in person or by proxy at this meeting voted in favor of the ratification of the appointment of KPMG LLP as the company's independent registered public accounting firm for the year ending 2021.

The appointment of KPMG LLP as the company's independent registered public accounting firm for 2021 has been ratified.

Mr. Greenfield, preliminary voting indicates that more than a majority of the shares represented in person or by proxy at this meeting approved on an advisory basis the named executive officer compensation.

The named executive officer compensation has been approved on an advisory basis.

Mr. Greenfield, preliminary voting indicates that more than a majority of the shares represented in person or by proxy at this meeting approved an amendment to the Diebold Nixdorf, Incorporated 2017 equity and performance incentive plan.

An amendment to the Diebold Nixdorf, Incorporated 2017 equity and performance incentive plan has been approved. The final results containing the exact number of votes will be reflected in the inspector of election certificate, which will be filed with the records of this meeting, and such final results will also be published in the company's filings with the SEC. There being no further business to come before the meeting, the 2021 Annual Meeting of Shareholders of Diebold Nixdorf, Incorporated is now adjourned. We will now turn to the question-and-answer portion of today's meeting.

Thank you, Gary. We've received the following questions from shareholders. I'll read the question, and then between Gary and I, we'll provide a response. Firstly, what are the company's plans to address its significant debt obligations? Diebold Nixdorf has been transforming its business model to generate strong free cash flow and return on invested capital. The company's DN Now initiatives are on track to realize $500 million of gross savings by the end of 2021. While we've made progress in delivering free cash flow, we're expecting significant growth in 2021 and beyond as large restructuring payments conclude. We've set a maximum for restructuring cash payments at $50 million for the year. In February, we set a goal of increasing free cash flow from $57 million in 2020 to a range of $140 million to $170 million in 2021. Our capital allocation priority is to pay down debt, and we will opportunistically look to refinance our debt at lower interest rates. As a result of the July 2020 debt refinancing, we have no major debt maturities until the second half of 2023. This will allow ample time to expand our profits and cash flows while pursuing growth opportunities. We intend to reduce our leverage ratio or net debt to trailing 12 months adjusted EBITDA from 4.4x at the end of 2020 to less than 3x by 2023. Question 2, does the company plan to reinstate a common stock dividend? The company regularly reviews and makes changes to its capital allocation priorities. At this time, our main priority is using excess cash to reduce debt, as discussed in question 1. After the company meets its leverage ratio target, the Board will revisit the company's current allocation strategy and the role of dividends in those plans. Question 3, how has the combination between Diebold and Wincor Nixdorf enable the company to better compete with NCR? According to Retail Banking Research, we currently have the #1 market share of ATMs globally and the #1 share of point-of-sale and self-checkout in retail in Europe. We are confident in the competitiveness of our solutions today, which include, firstly, our DN Series ATMs, with fourth generation cash recycling, intelligent use of IoT and machine learning, a more modular approach, smaller footprint, higher note capacity, and increased physical and cybersecurity. Secondly, through our DN Series self-checkout solutions, which are more modular, open and software available architecture. Thirdly, through our Vynamic software, which is cloud-based and easily upgradable. And fourthly, through managed services, where we are leveraging the company's significant scale and scope to provide a full suite of outsourcing services for ATMs, point-of-sale and self-checkout. During recent earning calls, we have cited a number of examples of winning versus the competition. Question 4, what are the key priorities of the management team? And how is management making decisions? We have a long-term strategy and tailor our annual priorities against that strategy. Key priorities for 2021 are: to generate strong free cash flow and returns on invested capital; and secondly, to leverage competitive differentiation for growth. As of any business, we're always faced with trade-offs. And we make decisions aligned to our strategy and aligned to our DN values. I am proud of the company's execution and transparency with respect to our key initiatives, financial targets and challenges over the past 2 years. Question 5, why did the company decide to move its headquarters to Hudson, Ohio rather than downsize its North Canton facility? North Canton has been and will continue to be an important work location at Diebold Nixdorf as we invest in and expand our operational site there. However, as part of our DN Now initiatives, we have been rightsizing office locations around the world. As work patterns have evolved, we have concluded that our current location is no longer fit for purpose and has substantially excess capacity. We sold the building for cash, and we're renting a new, more energy-efficient and highly collaborative workspace in Hudson. This new location allows Diebold Nixdorf to recruit talent from more populous areas of the state and to provide us with better proximity to Cleveland's airport. Question 6, what is the company's commitment to diversity at the Board, management and employees?

Both the Board and management are deeply committed to diversity inclusion at all levels of the company. On the Board, I'll continue our Board refreshment process, has increased our diversity of background, including diversity of race and gender while adding new and fresh perspectives and experience from leaders across many industries. Specific goals related diversity equity inclusion and environmental, social and governance initiatives are incorporated management both recurring and reward.

Also, diversity is a key priority for the executive team at Diebold Nixdorf. We have short-term and long-term goals and each of our senior leaders has specific diversity goals for 2021. We review monthly our progress against these goals. Furthermore, in 2020, we introduced the DN Care Council, a dedicated group of employees responsible for driving key initiatives across the company that include diversity and inclusion, charitable giving strategies and establishing focused employee resource groups.

This concludes this year's Annual Shareholders Meeting. Thank you for joining us.