Diebold Nixdorf Incorporated Common stock

Ladies and gentlemen, thank you for standing by and welcome to the Deep Load Next Door 2020 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Steve Vrostic. Thank you. Please go ahead, sir.

Steve Vrostic Thank you, Ashley, and welcome everyone to Diebold Nixdorf's fourth quarter and year-end 2020 earnings call. Joining me on today's call are Gerard Schmidt, President and Chief Executive Officer and Jeff Rutherford, our Chief Financial Officer. To accompany our prepared remarks today, we have posted slides to the investor relations page of dboldnicksdorf.com. Our remarks are being recorded, and we will post a replay of the webcast on the IR website later today. Slide two of today's presentation contains a reminder that our comments will include non-GAAP financial information. which we believe is helpful in assessing the company's performance. We have posted reconciliation schedules for each non-GAAP metric. We're reconciling to the most directly comparable GAAP metric in the supplemental schedules of our slides and in the tables of today's earnings release. On slide three, we remind all participants that certain comments may be characterized as forward-looking statements. and that there are a number of risk factors which could cause actual results to differ materially from these statements. Additional information on these factors can be found in the company's SEC filings. Participants should be mindful that our forward-looking information is current as of today, and subsequent events may render this information to be outdated. And now I will hand the call to Gerard.

Thank you, Steve. And good morning, everyone. I'm pleased to join you today to discuss our investment thesis, our solid 2020 results, and our outlook for value creation. I'll begin on slide three with our investment thesis. Since 2018, our focus has been on transforming our business model to generate strong free cash flow. We've been streamlining and simplifying our business through our Dear Now transformation initiatives. We evolved these initiatives and increased our savings target to $500 million through 2021. With two years of solid execution in the books, our path to higher profitability is well underway. As our DNR restructuring spend tapers off in 2021, we expect this to translate into a meaningful increase in free cash flow. The second element of our investment thesis is the ability to leverage digitally enhanced solutions to drive sustainable top line growth and a positive next shift. Slide four highlights how we're transforming our business model. In 2021, we will continue to enhance our productivity and anticipate delivering approximately $160 million of incremental savings. Key initiatives for this year include continued services modernization progress, driving a higher mix of our next-generation self-checkout retail devices and next-generation DN series ATMs, and investing in digital and cloud technologies to enhance efficiencies across IT, finance, and HR enablement functions. And with the DNNOW transformation set to conclude by year-end, Our restructuring payments will also come to an end, with cash restructuring payments expected to be no more than $50 million this year. The net result of our efforts will drive a strong sequential step-up in free cash flow, which is anticipated to be in the range of $140 to $170 million for the year. In addition to enhancing the free cash flow generation from our operating model, we are targeting growth in areas where we have competitive differentiation. Within banking, we're well positioned to support the accelerating digital transformation agenda of our customers across the globe as they enhance their value proposition for their end customers and seek greater operating efficiencies. Our momentum with the in-series ATMs and fourth generation cash recycled technology is promising. we have seen customer enthusiasm for the advanced feature set, increased connectivity through the AllConnect data engine, greater modularity, support for advanced software capabilities, and improved security features in a small footprint. For our services business, we are leveraging the IoT and machine learning capabilities of our AllConnect data engine to enhance availability for customers and improve our own efficiency. Early deployments with legacy ATMs suggest that ACDE can reduce call rates by approximately 20%. In addition, we are supporting our customers' efficiency agendas through offering preconfigured managed services solutions for those customers who want the most comprehensive ATM solutions, performance levels, and capabilities. Beyond self-service channels, We're also investing in software offerings for financial institutions. I will shortly describe our cloud-native dynamic payments offering and the market opportunity on the next slide. Within retail, consumer journeys continue to evolve and shift toward more digital and self-service solutions. We're seeing strong momentum through our differentiated suite of self-checkout solutions, and we further enhanced our position in January when we announced the DN Series Easy, which is a new family of self-checkout products designed to be more modular, more reliable and flexible because of its open architecture. 2020 was a very strong year for Diebold Mixed-Off from a self-checkout shipments perspective, as we delivered growth of approximately 90% in the fourth quarter and just over 200% for the full year. The high service attach rates of approximately 90% is another reason to like this business. We also see opportunity to expand our software reach with retail customers and are investing in our cloud-based dynamic retail offerings. In December, we launched our cloud-based software offering for fuel and convenience customers. As more technologies proliferate within our retail customer environments, They're also turning to default next door to support them with our comprehensive managed services offering to generate greater operating efficiencies and more integrated store operations. On slide six, I'd like to highlight an exciting new software offering which we are bringing to market, the dynamic payments platform. As the payment landscape rapidly evolves, banks are facing a proliferation of new payment types and rapidly growing payment volumes. Their cumbersome legacy payment platforms limit their ability to offer a consistent and optimized consumer experience across multiple channels. Our cloud-native solution offers a path for banks to address these pain points. We are currently deploying our dynamic payments platform at our first client, a top 10 global financial institution. The solution will scale to support billions of debit transactions across multiple channels. We also recently announced a win at one of the largest credit unions in the United States. Our solution leverages an API-enabled microservices approach, which provides distinct competitive advantages for our company, including the ability to transform a bank's payment operations, a flexible and future-proof approach to support multiple payment types and channels, giving banks the flexibility to adapt to changing regulations, schemes, payment types, and channels, and the ability to quickly scale to billions of transactions. These characteristics place DeVault NextOff in a position to offer a distinctive solution versus less flexible and more expensive legacy platform providers. Moving to slide seven, I will recap our financial performance in 2020 and growth outlook for 2021. We are experiencing strong demand for our differentiated and digitally enabled solutions. Despite the continued complexities of the COVID-19 pandemic, product orders increased 17% in the fourth quarter, with banking growth of 34%. In fact, order activity across the full year exceeded our performance in 2019. We were also pleased that our customers are further validating our progress, as customer satisfaction further improved as net promoter scores from our banking customers increased substantially for a third consecutive year. At the same time, we enhanced our execution of the DNR transformation initiatives, and delivered approximately $165 million against our savings targets during the year. These achievements were the main driver behind meaningful year-over-year increases to profits and profit margins, even as we experienced revenue impacts from the pandemic. With respect to free cash flow, our fourth quarter result of $186 million was the strongest we've experienced in eight quarters, fueled by solid profitability and strong collections. For the full year, the company generated $57 million in free cash flow, which exceeded our outlook by $27 million. In addition to our strong financial performance, I am gratified by the multiple ways in which our team adapted to the dynamic and highly uncertain macro environment. We are entering 2021 with a strong order book differentiated and well-positioned solutions, and a detailed operating plan for bringing our DNNOW transformation efforts to a successful conclusion. While we have confidence in our outlook for 2021, we also recognize that we must continue to manage a number of pandemic-related uncertainties, including the pace of easing of lockdown restrictions, wide availability and access to vaccines, and the impact on business activity both in customer buying patterns and in our supply chain. Against this backdrop, our 2021 outlook is for revenue of approximately $4 to $4.1 billion, or 3 to 5 percent growth. Adjusted EBITDA of $480 to $500 million, which translates to 6 to 10 percent growth, and significant free cash flow growth to a range of $140 to $170 million. On slide eight, I'll provide some more details underpinning a strong 2020 financial results. Strength in product orders during the quarter drove our product backlog 23% higher versus the prior year. In our retail business, customers are investing in automation and self-service capabilities to improve the in-store experience while lowering operating costs. During the fourth quarter, we received initial orders from our milestone agreement with a pan-European grocer who is refreshing the second largest fleet of self-checkout devices in the world. In Poland, we procured a $7 million contract for self-checkout products and dynamic iSCAN software licenses with another large grocery store. In our banking business, I am pleased to report that for the first time, DN Series ATMs contributed meaningfully to the order book. Success in the Middle East included two sizable deals. In Saudi Arabia, we booked an order with a top three bank to refresh 1,800 ATMs with DN Series. We also booked a new logo in Egypt for 500 DN Series in support of this bank's expansion initiatives. Notably, both agreements included multi-year contracts for security, monitoring, and marketing software. In the Netherlands, we secured two new contracts valued at approximately $11 million to provide DN series ATMs and indoor lobby cash recyclers. In the Americas, we expanded our existing partnership with Citibank for additional DN series ATMs a full, dynamic software suite, and maintenance services across 15 countries, which will help standardize the customer experience while reducing complexity, cost, and security risk. We also want a new contract to install 1,000 new DN-Series cash recycling modules and our IoT-enabled AllConnect data engine with the largest private bank in Brazil. During the first quarter of 2021, we're seeing continued success with an initial order for cash recycling D and series units and maintenance services at a top 10 financial institution in the United States. We consider this win as a new logo because for many years, this bank has purchased ATM solutions from others. Turning to revenue, our trajectory steadily improved as the year played out. reflecting how both the company and our customers adapted to the challenges of the pandemic. We reported sequential growth in the third and fourth quarters of more than 10%. Our fourth quarter revenue was about 5% better than our recent outlook. Full year revenue of $3.9 billion declined by 11%, as reported, and 8% when one removes the effect of divestitures and currency fluctuations. with most of that decline attributed to COVID delays. In the face of revenue headwinds, we continue to execute our DNR initiatives and deliver greater profitability. Adjusted EBITDA increased 13% to $453 million for the full year. Our adjusted EBITDA margin, 11.6%, increased by 250 basis points versus the prior year. And I previously mentioned a strong fourth quarter free cash flow performance, and our total is $57 million for the year. Let me now hand over to Jeff Rutherford, who will discuss our financial performance.