Diebold Nixdorf Incorporated Common stock

Good morning, my name is Charlie and I'll be your conference operator today. At this time, I'd like to welcome everybody to the Diebold Nixdorf third quarter 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. Thank you. Ms. Malczewska, your conference now may begin.

Hello everyone and welcome to our third quarter 2022 earnings call. I'm Christine Marcheska, Vice President of Investor Relations for Diebold Nixdorf. To accompany our prepared remarks, we have posted our press release and 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, a replay of this webcast will be available on the investor relations section of our website. Before we begin, I will remind all participants that during this call, you will hear forward-looking statements, including related to an update on our outlook. These statements reflect the expectations and beliefs of our management team at 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 FCC. Participants should be mindful that subsequent events may render this information to be out of date. We will also be discussing certain non-GAAP financial measures on today's call. A reconciliation between GAAP and non-GAAP measures can be found in the tables of today's earnings release. And now, I'll hand the call over to Octavio.

Thank you, Christine, and thanks to all of you for joining us today. Today, I'd like to cover some main points, including our recent transaction support agreement. But before that, I want to spend some time talking about the consistent market demand for our banking and retail solutions during the quarter and how our backlog is positioning us for success. Next, we'll discuss our operating model. Progress on our savings plan and our 3 year financial model and then before I hand it over to Jeff. To discuss financials and details, we'll share a brief update on the transaction contemplated by the. As we set throughout the year. Our banking and retail solutions continue to generate consistent demand in the market as evidenced by the backlog trends. Backlog remains near historic highs at approximately $1.4 billion in the third quarter and will subsequently work its way down in Q4, given our product delivery expectations. We also see continued strong demand for DN series as the shift from legacy devices continues and as DN series cash recyclers continue to comprise the vast majority of our new banking orders in North America. Momentum in our retail solution also remains strong, and our self-checkout business is continuing to grow as we start to see results from our market expansion efforts in the U.S. and outside of Europe. We are also seeing tangible benefits from our new streamlined operating model. During the past two quarters, our company has taken deliberate and strategic steps to become more lean, agile, customer-focused, and better equipped to deliver our solutions to the market. We are continuing to focus on our operational rigor. We have significantly improved our cost management by eliminating redundancies. We are creating more efficient processes globally and are considerably decreasing our indirect spend. To date, we have executed on approximately $170 million of savings through these efforts and are modeling an additional $25 million of savings, which we are implementing as quickly and efficiently as possible. In addition, we are taking deliberate steps to further improve key aspects of our operations, such as regionalizing our manufacturing footprint and normalizing and wrapping up our supply chain to drive unit growth and revenue conversion. From a financial modeling perspective, moving forward, we will reference unit economics to discuss our performance as it reflects how we measure the business. We believe unit economics provides a strong correlation to our product revenue and allows us to better highlight the relationship between volume and mix. We have solid fundamentals as we have consistently seen stable demand for our product solution set. As provided in our current report from Form 8K, filed and updated on October 20th, given our elevated backlog, we have 100% coverage for product revenue in 2022. and we expect to ship 52,000 ATMs, 25,000 self-checkout units, and 127 point-of-sale terminals this year. This is the basis for the model we disclosed in October. As Jeff will discuss, we still have work to do in the coming months to achieve this target. A few weeks ago, As part of our TSA disclosures, we provided our full 2023 forecast for units. From our backlog and the demand we are seeing to what I'm hearing from customers, I am confident in our product revenues as we enter the next year. By year end 2022, we expect our backlog to be approximately 1.3 billion, which secures approximately 80% of our 2023 product revenue. As we disclosed, we are forecasting unit sales of 60,000 ATMs with the majority being our industry leading DN series recyclers. We're also forecasting 35,000 self checkouts and 134,000 point of sale devices for 2023. These numbers include product revenue deferral of approximately 2,500 ATMs, 2,000 self-checkouts, and 7,000 EPOS units, which will be recognized in 2023 versus 2022 to supply chain velocity issues. Looking further out to pool year 2024, we provided a forecast to deliver 63,000 ATMs, 40,000 self-checkouts, and 134 point-of-sales units. As you know, services is also core to our business. And as shown in our operating forecast, in 2023, we expect to generate approximately $2.1 billion in revenue from this business by the end of this year. And we have already secured approximately $1.4 billion, roughly 70% of our service revenue, through existing contract coverage. Additionally, we expect another 10% or $200 million from product-related installations, And we have professional service work executed through the year that generates another 10% with the remainder of our service revenue coming from build work. Given this insight into our expectation over the next three years, we are confident in our multi-year strategic operating model and financial forecast, especially considering the demand for our solutions. And finally, as I mentioned earlier, we announced a few weeks ago that we entered into a Transaction Support Agreement, or TSA, to help us extend our near-term debt maturities and obtain additional liquidity. We conducted a rigorous due diligence process with our lenders and note holders to reach this milestone and firmly believe that the productive conversations we have with our lenders and note holders, especially around the execution of our savings plans and our operational initiatives for the business, demonstrate the financial community's confidence in our long-term strategic operating model and reflect the progress we have made despite the challenging macroeconomic environment. As noted in our current report on Form 8K filed yesterday, I am pleased to say that following the initial execution of the TSA, additional eligible creditors have executed joiners to the agreement, which increases the percentage of the company's term loan holders and the company's 2024 senior note holders that are party to the TSA to approximately 97% and 87% respectively. Please see our current report on Form 8K filed with the SEC yesterday for more details. We are working towards completing the transaction contemplated by the TSA in December. And from there, we will work to normalize our business and continue to execute on our model. As always, we will remain focused on our goals and maintaining our position as a leader in banking and retail technology, automation, and related services. To do so, we intend to accelerate market share growth in ATM products and terminal software, build momentum in self-checkout and next-generation cloud software for retailers, and lead the industry evolution with our service solutions while also pursuing opportunities to leverage our global services operations. I also want to reiterate What we said during our last earnings call to address questions we often receive from investors about mergers and acquisitions, including potential divestitures and other value creating opportunities. We remain committed to delivering on our strategy, supporting our employees, customers and business partners and making strategic investments in the business. We also will. continue to evaluate strategic alternatives that will benefit our shareholders as part of our constant efforts to maximize shareholder value. We look forward to capturing all opportunities that lie ahead with our enhanced financial flexibility. Before Jess provides more detail on our Q3 financials, I'd like to recognize our incredible employees for their hard work and dedication over the past quarter. and I want to thank our customers for their commitment and patience as we have worked through this process. As I have said before, we remain confident in our long-term strategic operating model, and we will continue to execute on our goals to remain a global leader in banking and retail technology. With that, I will now turn it over to Jeff.

Thank you, Octavio. My prepared remarks will include references to certain non-GAAP metrics, such as adjusted EBITDA, For discussion of our third quarter performance relative to prior periods, please see the financial summary included in our third quarter shareholder letter. Today I will spend my time discussing the third quarter results relative to the full year 2022 operating forecast included in our current report on form 8K filed on October 20th relating to the TSA. Total revenue of $805 million and adjusted EBITDA of $76 million were largely in line with our third quarter operating forecast. As previously discussed by Octavio, our units in our unit economic model are revenue recognized units, which were in line with our forecast and were as follows. 11,823 ATMs, 2,632 self-checkout units, and 32,060 point of sale use. In terms of services gross margin, we continue to see increased sequential improvement of 100 basis points to 31.3% in the third quarter. You will note that we did see a decline in third quarter product gross margin percentage as compared to the second quarter due to an unfavorable product mix in both banking and retail. In banking for the quarter, cash dispensers represented approximately 47% of ATM units versus approximately 42% in the second quarter. In retail, delays in delivering self-checkout units resulted in an overall lower product gross margin profile. Third quarter operating expenses dropped to approximately 139 million dollars as we continue to harvest costs from our restructuring plan and from lower provisions for incentive compensation programs. We continue to believe that normalized quarterly operating expenses will be in the 155 to 160 million dollar range going forward. The forecasted revenue units for the fourth quarter As per our full year 2022 operating forecasts are 22,000 ATMs, 9,750 self-checkout units and 34,500 point of sale units. Overall supply chain material availability and logistics are improving. However, our models assumed a quicker normalization of supplier relationships than we are currently experiencing. However, it is also worth noting that this is more of a short-term challenge as we seek to normalize our working capital management, including with respect to our supplier relationships. In the fourth quarter, the conversion of backlog to revenue recognition will continue to be challenging, and we could see as much as a 15% risk of unit to revenue conversion and its corresponding attached services and software. Note a 15% variance in units would equate to approximately $100 million in revenue and approximately $30 million in adjusted EBITDA, depending on geography, customer, and product mix. We expect that units that are not revenue recognized in the fourth quarter will shift to 2023. Please see our shareholder letter for our operating forecast and strategic operating model. We included our three-year free cash flow and forecasted available liquidity in our previously mentioned October 20th current report on Form 8K related to the TSA. And we'd like to take a moment to discuss the full year 2022 unlevered free cash flow use of $243 million provided in our operating forecast. This incremental use of cash is directly related to two main areas. First, the normalization of working capital. Under our previous debt capital structure, we needed to stringently manage working capital to assure certain covenant compliance, which resulted in less than favorable actions, such as stretching supplier payments. Under the revised debt capital structure contemplated under the TSA, including the implementation of the ABL, we will normalize our supplier relationships which in turn sets us up for the best opportunity for supply chain success in 2023. The second area is that cash usage will be for the payment of approximately $62 million of fees associated with the transactions contemplated by the TSA.

And with that, I will now turn the call over to the operator for Q&A.

Thank you. At this time, I would like to remind everyone in order to ask a question, please press the number star, sorry, star followed by one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Matt Somerville of DA Davidson. Matt, your line is open. Please go ahead.

Thanks. Jeff, if I heard you right, in the fourth quarter, you're looking to ship 22,000 ATMs, which seems to be a pretty big number. Again, we don't have a lot of unit history with you guys. It's newer disclosure, which, of course, we appreciate. Just help frame that up. What has to happen for you guys to ship 22,000 ATMs? And has there been a period in recent history where Diebold has shipped that many units in a given quarter?

There has been, Matt. And we haven't filed the 10-Q yet. But when we see the 10-Q, you're going to see that we're carrying a high number relative to finished goods inventory. Those are units, and there's approximately 14,000 units that are waiting for delivery to customers at the end of the third quarter. So we're high in inventory and finished goods inventory. So you begin with the fact that there's 14,000 units ready to be converted out of inventory into revenue recognition. So to answer your question, how do you hit 22,000? You convert a significant portion of that inventory that's already built, it's waiting for delivery, and you deliver it to the customers. and then you get back to a more normalized number of an incremental 8,000 that have to be produced and delivered. Now, one of the things about any shipments that are coming out of Germany, the window closes fairly soon. That's why we're talking about the potential for risk. When we're shipping units out of Germany to North America, we have to have them in transit, Yeah, by very soon in order to hit those numbers. So the risk is associated with not being able to produce, but being able to revenue recognize those units. If we miss in the fourth quarter those revenue units, that means that those units are sitting waiting for delivery and just didn't get to the point of revenue recognition. Many of our customers, the revenue recognition for our customers,

is is installation so that's always an area that that is a variable can we get them installed before the end of the year okay thank you that's that's helpful and then maybe just a little bit more um detail octavio maybe on what you're seeing from an incoming order rate standpoint and it's If you can dissect that a little bit by region and across both ATMs and retail, maybe just do a little bit of a deeper dive, that would be great. Thank you.

Sure, Matt. So, let me start with retail. So, during Q3, and if you see the unit comparison, clearly Q3 in our delivery for self checkout was below our expectations. However, order intake continues to be to be strong for self checkout. So it's once again, a product of making sure we normalize. supplier relationships that the inflow of raw material is adequate. And to be honest, probably there as we were modeling the information that we disclosed as we were modeling, we were hoping for faster normalization of our supplier relationships than what we've had. But on the demand side, we still see ample opportunity in self-checkout, and I feel fairly confident that, as I've said before, regardless of macroeconomic environments or self-checkout solutions, help retail to improve customer journeys and minimize costs. So there'll always be, I think, a good chance of us continuing to grow those self-checkout units. And as you know, Europe has been very strong for us, but we're now starting to have significant deployments in the U.S., which will also help us demonstrate that our solutions are capable in probably the most Challenging self checkout market in the world, which is us groceries and we're making significant progress there. On the side, I would tell you that demand across the Americas continues to be very strong. So, the, the trend to install recyclers in the US. Is I would say it's now common across all major financial institutions, all large financial institutions with the and as you know, once the large banks start installing a technology is very quickly trickles down to the rest of the market. So we see the US entering this long awaited cycle where recycling technology would become mainstream. latin america as you know continues to be very strong and brazil continues to be very strong so from that perspective the americas remain strong and it's our our key market for multiple reasons one of them being the strong service attached and the strong service profitability and and volume that we have in in the americas i would say that europe we are you know europe is clearly can we continue to see the trend of consolidation across fleets and we're now seeing The 1st instance instances of that in countries like France. So, overall, we continue to see that Europe will remain a flattish market. We don't expect it to grow again. We also don't expect it to shrink. So it should remain a fairly flattish market. And that's, you know, Asia Pacific, where we have less than 10% of our revenues is a market that is. filled with opportunity. So it's got more opportunity than what we can currently address. That's one of the reasons why we're, you know, redoubling some of our efforts in India, a market that we had exited four years ago, and starting some contract manufacturing in India to really address that market and start producing some growth in that area. So that's where, that's, I would say, the general overview. But in general terms, The orders remain stable. It's now our ability to turn all that backlog into revenue that is really what's driving our view of the future.

Octavio, if I can just squeeze in a follow-up there to your point on reentering India. Can you talk in a little bit more detail about the strategy? is the idea there that you're going to make in India for India or make in India for the broader Asia-Pacific market? And if it's more of the latter, what does that mean for your manufacturing base, this joint venture in China? Thank you.

Yeah, so the first step, Matt, and I'll be very brief and we can probably take this, offline later if you want but initially we're just going to build in India for India as you know it's one of the biggest atm markets in the world and and you do require a different cost structure and a different cost product we believe that with some of the core components of dn series we can address some of those cross factions but also manufacturing in India will be beneficial so initially we're planning this to be a a test of the Indian market, and then who knows? And maybe we decide that this is something that we expand elsewhere.

But for the short term, it's just building in India exclusively for the Indian market. Got it. Thank you, guys.

Sure, Matt. Thank you. Our next question comes from Paul Chung of J.P. Morgan. Paul, your line is open. Please go ahead.

Hi, thanks for taking my question. So if you could expand, you know, kind of on the product mix impact you're seeing, you mentioned, you know, some lower margin units here in North America and LATAM in the quarter, you know, how do we think about the kind of product mix to kind of end the year and into next year? Is the backlog kind of made up of higher ASP mix as a result? And if you could also talk about the backlog or our orders firm and non-cancellable and our margins kind of locked in, in the backlog. Yeah.

Yeah. So, so, so Karthik, thanks. That's, that's, oh, oh, sorry, Paul. I was looking at the question queue. Sorry, Paul, about that. So, Paul, I think that how you should think about our unit mix is over several quarters, the unit mix should stabilize itself in the appropriate ratios. In any given quarter, we might deliver more of one type of unit than the other, particularly in Q3. You know, we have significant shipments of cash dispensers both, you know, to different, you know, just across the globe, cash dispensers versus recyclers that we turned into revenue. And again, this is a product of cash dispensers coming primarily from our Asian manufacturing and hitting the different markets during Q3. And our high-value recyclers coming basically from Germany that have a different cycle time, you know, being a little bit slower and converting into revenue. Again, over time, the mix should return to the, you know, what we think is the trend that we're seeing, where, you know, low 40s is cash dispensers, high, you know, low 50s, you know, mid 50s is cash recyclers. That is, I think, our goal, you know, the normalized mix. In any one quarter, it might go up or down one of those variables, but you should think about it in the long term. You know, it's fairly stable. As far as the orders, you know, remember, we don't manufacture anything without a firm customer PO. The biggest challenge that we've had right now is working with our customers. That's why I wanted to thank all our customers at the end of my prepared remarks, because to be honest, they've been very patient with us, working as we normalize our supply chain get units to them, unaccommodating to us their installation schedules, their delivery schedules. I think that everybody's very happy once they have our DN series ATMs or our self-checkout devices. And again, you know, I'm thankful that our customers have continued to work with us, adjusting their schedules to meet our delivery schedule. So, we haven't seen any order cancellations. We continue working very closely with our customers, adjusting our schedules. And we continue, you know, and we will continue doing that. But to date, we have seen no cancellations in our backlog.

Yeah, Paul, I think it's important just for me to reiterate that, Paul, so I just want to say that just the thing to remember is that there's risk in the supply chain, not in the demand. So if we do not hit our unit projections for the fourth quarter, it's not because of demand. It's because we could not produce and get them to revenue recognition in time to recognize them in 2022. They're still there. They'll end up in inventory and then in revenue in 2023, probably very early in 2023. Gotcha.

Thanks for that. And then to follow up, just talking about... where the firm can find some incremental areas for cost cuts here. I mean, you know, your cost cutting initiatives have been quite aggressive over the past five years and a post wind core acquisition. So where are you kind of seeing lingering redundancies and just any comments there? And then, you know, as we, as we start to think about kind of the longer term operating model you've laid out, you know, what's the right level of kind of absolute OpEx and also kind of normalize gross margins in the longer-term model.

Yeah, let me start and then Octavio can fill in. So, on the OpEx side, I mean, we always want to be looking for opportunities. And where we're heading from an operational perspective, especially in transactional areas, is being digital first. Get a digital solution versus outsourced manual processing. And that's going to significantly help us. And that relates back to what we're doing for indirect spend. We've put incremental rigor in relative to indirect spend, you know, third-party spend, bid processes, and looking at eliminating waste. So we have continued opportunity in indirect spend. And then from a people perspective, it's about being efficient with the use of systems and process. So that all being said, where we think we will be when we reach our goal, our goal is a little more aggressive than our model in OpEx. We are targeting a $600 million OpEx number. annualized $150 million a quarter. We haven't identified that, so it's not in that operating, strategic operating model, but that's our ultimate goal. And then once you get into those digital processes, right, you don't experience wage inflation. So that's important to us as we go forward. So to answer your question directly, we're looking for $600 million of OPEX a year or $150 million a quarter.

No, thanks. That's very helpful. And then lastly, you know, free cash.

Go ahead.

Oh, no, go ahead, Paul. Sorry. Go ahead.

Okay. Just so, yeah, just on free cash flow outlook longer term, I mean, where are you kind of finding efficiencies in working cap? I know you have a large backlog and conversion of that inventory is very key, but you have this big jump in unlevered free cash flow in 23. How do you get there and where are some

know there's also some moving pieces on cap structure but any estimates for levered free capital as well thanks yeah so i'll start with unlevered um so when we get to 23 our goal is by mid 2023 to be done with restructuring transformation we still have modeled About $80 million. You can see it in our disclosed information and our free cash flow in the cleansing documents. Approximately $80 million of restructuring transformation are still modeled for 2023. That would be through mid-year 23, the latest third quarter, then we want to be out of the restructuring transformation world and out of the gap to non-gap reconciliation world. Where that leads us is, you know, we'll pick up 80 million there when we get to 24. And then we want to be more normalized relative to working capital. We have, by necessity, stretched Accounts payable days. We're going to get back to normalize what in conjunction with finalizing the TSA and that's what's hitting 22. So as we go into 23, we expect to be more normalized relative to working capital. You can see it in our disclosures. We will have a little bit of an increase in inventory in 23, but we believe that going into 24 will be normalized in working capital. We'll be out of the restructuring transformation business, and that gets us to an unloved free cash flow as a percentage of EBITDA modeled at greater than 70%. From an interest payment perspective, obviously rates are going up, and we'll take on some level of incremental debt, including with the TSA. We're modeling somewhere in 210.

interest payments as we move into 24. Thanks. Very helpful.

Thank you. Our next question comes from Kartik Mehta of North Coast Research. Kartik, your line is open. Please proceed.

Good morning, everybody. This is Jack Boyle with North Coast Research calling on behalf of Kartik. I had some questions answered already for us, but I just had a question regarding back to that backlog. I believe you folks had stated that by the end of the year you'd planned on working through about $100 million of that. Could you give us a little bit more color around maybe kind of the future cadence of that? Is that kind of the rate you expect to work through that backlog going forward, or how quickly do you expect to be working through that, or how should we view that?

Yeah. So, so, so let me try to, it's a, it's an interesting question that you post, but let me, let me walk you through how I want the business to be run and why we need why we're making some of the changes and decisions that we're making in the short term in order to solidify the long term of our company. If you think about what would be the ideal way for us to manufacture and deliver, if we're planning 60,000 units next year, we should be manufacturing and delivering 15,000 units every quarter. That would be an ideal world. It would help with our cash flow. It would help with our planning of installations. It makes life more predictable. The reality is that based on our past capital structure, we were always a little constrained and working our inventories down at the end of the year, ramping up at the beginning of the year. So that made for slower starts to the year. And then I think, you know, somebody asked us, you know, then bigger numbers at the end of the year. My goal is to start to normalize that. You know, will it be 15,000 units every quarter from now on? Probably not. It'll probably still need some work to be done. But if we start getting into that cadence, it's very easy to start working the backlog down and working it down predictably. So, my goal is, if you listen to what we said right now, we have 80% of next year or we will end the year with roughly 80% of our product back to revenue in house. that is a very high number. Once we normalize things, rather than having almost three-quarters of backlog, my goal is that we have a quarter or a little, you know, or over a quarter of backlog, you know, in our books at any given time. That would be the normalized rate. I would say that for the foreseeable future, probably we start going from having three-quarters of revenue in backlog to probably having, five to six months and keep working our way down as we improve velocity in our supply chain. Remember, the demand is there. What we need to accelerate is the velocity to get it into the hands of our customers.

Hope that was helpful.

Yeah, sorry, I was muted there. And I appreciate that additional detail. Maybe you can go into a little more detail, perhaps I missed it, as to why it was flat. Was that just an issue of supply supply chain continuing to be an issue?

Why was backlog flat? Again, remember backlog? Correct. Yeah, so again, It just meant that we didn't convert as much revenue as we were hoping for during during the quarter. And we have more orders than what, you know, it's a combination of orders coming in and revenue being converted. So the, the math around that didn't allow us to ramp down the backlog. So, yeah, it's a combination of. more orders and less ability to accelerate the conversion of backlog into revenue.

Yeah, for every quarter in 2022, order entry has exceeded revenue recognition for units. So that's what's been building the backlog. And that's why we have modeled in that we, and that's why we're carrying 14,000 units in inventory. So what needs to happen in the fourth quarter is to convert those inventory units to revenue and have a, you know, plus an 8,000 units coming through and produced and revenue recognized. That's what the model has. And that would work down a certain amount of that backlog. So that's why we're projecting for the backlog to be down, but the demand remains high and, and has exceeded our ability to, to, to, to produce in revenue-recognized units.

All right. Thank you both. Appreciate it.

Sure.

Thank you. Our next question comes from Anna Goschko of Bank of America. Anna, your line is open. Please go ahead.

Hi. Thanks very much. So, you know, just from listening to your comments, And just to set expectations correctly, I think the takeaway that I'm hearing is kind of the new base case for the fourth quarter on EBITDA is really the $263 million. Maybe the $293 is kind of aspirational now. Is that fair?

The $293 is our operating forecast. in the cleansing documents with the TSA was our, it wasn't guidance. It was our operating forecast. So that's what we're operating to. We're operating to the 293. What we provided today was a look at their potential risk in units conversions as the windows close relative to where we're shipping product. So we haven't changed our targets. But we're saying that there's the potential for risk, and it could be as high as 15%. And that really relates to the unit risk in ATMs is what we're providing. There's still time to achieve those targets, but the window's closing. So we're providing the potential risk to those units in today's call.

Okay. Thank you. And then, so there's a lot of kind of – usage of the term supplier relationships with regard to the conversion problems or kind of headwinds you're facing in the fourth quarter. So can you be more concrete about, is it a couple of supplier relationships? Is it a specific component? Or, you know, what is really the issue behind that?

The issue is under... old capital structure, and this is something we've talked about for probably close to a year now, is we wanted to get to an ABL. We wanted to get to a point where we didn't have restrictive covenants that put us in a position, even when we had liquidity, of not being able to access liquidity. So when that happened to us, especially in the situation we're in now, so think of the situation we're in now is that because of increasing inventory, It puts pressure on liquidity, which is why we really need to move those 14,000 units up. But increasing inventory historically would have put significant pressure on our covenant compliance. And the last leverage point we have is really related to accounts payable. So what we ended up doing then is stretching supplier payments historically we pay we would pay um twice a month mid-month end of month and and our dpls would be in the 80s maybe as high as 90 depending on timing but but under the current restraints of the old credit facility we would push those up into the 100s even higher right in the 120s Now, we put a lot of that pressure on indirect spend, but when we're really pushing supplier payments, it starts hitting critical vendors. And that's component suppliers. So when component suppliers were getting hit, right, then they get to a point where they're limiting shipment or requiring payment before shipment. So we need to get out of that, and that's what the TSA allows us to do, is to get back to a normalized payment process where we get back to that 80 to 90 DPO, and we don't have these – critical supplier interruptions and component key component interruptions that whatever and it's not just one I mean it's it's it's all of our electronic component suppliers if we do that that has caused issues within supply chain okay got it so it's less of a sort of industry supply chain

and really much more related to the relationships that you have with your suppliers that you're trying to improve?

Well, so let me put it as, you know, let me expand on that. Yeah, Anna, let me expand on what Jeff said. So, throughout the year, we battle different different challenges. So, if we go back to the beginning of the year, we were, you know, we're still constrained on the on availability of core components. Just, you know, just the same as everybody else in the world as the year has progressed. We've, we've improved that availability of components. However, you know, as we, as we work with our suppliers. We need to normalize payment terms. We need to normalize those relationships. So that is that it's a steady flow of product in a print of raw material in a predictable way. And in order to achieve that, we have to have 2 conditions. 1, that the availability of materials is there, which it is now there. And the other condition is that we have a steady cadence with them around shipments, payments, shipments, payments. Those are the things that we're trying to normalize. And that's why it's so important for us to. to conclude all our refinancing efforts because as we conclude that that allows us to normalize those relationships so the first part of the equation which is overall availability in the market is starting to solve itself now we need to solve our internal you know unique situation of normalizing those relationships with suppliers and again you know we we have multiple suppliers some of them as they've seen our our disclosures our our get you know our our are now in a steady state. Others, we're still working with them to get them to a steady state.

Okay, great. And then just finally, so I know that the unlevered free cash flow came in below what the target was for the third quarter. You still have the same target for the full year. Are any of these issues that we're discussing, especially with the payables and the salary relationships, is Is that going to put additional pressure on your ability to meet the full year unlevered free cash flow target?

What's built into the unlevered free cash flow target is normalizing those payable positions through the liquidity provided by the transactions of the TSA. So our goal is by year end being back to normalized supplier positions relative to payment, and that will put us in the best possible position moving into 23 to achieve those goals relative to unit conversions.

Okay, great. Well, thank you very much.

Sure.

Thank you. And our final question of today comes from Peter Sacken of Credit Sites. Peter, your line is open. Please go ahead.

Hi, good morning. I just want to follow up on the order activity. In the most recent, I guess the first and second quarter, you gave product order entry numbers. Could you share that with us for the third quarter of this year and comparable for last year?

For the third quarter, you're asking for order entry for the third quarter?

I'm just trying to understand the question. Because I don't think we provided order entry. We provided the backlog information. So theoretically, you can back end order entry.

Got it. So I guess. In the first and second quarter, I have 56 million on the second quarter. I guess it was down 6% in the second quarter. So with the revenue decline.

Yeah, I would say.

Revenue entry.

So, you know, we did not provide order entry in this third quarter filing.

So. As I said, we provided the backlog information that effectively provides the order entry information. We'll take this offline, and Christine can walk you through that.

Fair enough. And the EV charging, I didn't see any update. Is that no longer a focus for the company?

So, Peter, EV charging continues one of those areas where we are focused on leveraging our service footprint. We will end the year with the 30,000 units that we set up to have under contract. I think that we're on track on that. My goal is EV charging, same as other industries where you require high availability and strict service levels for a distributed technology footprint, remain areas where we want to continue leveraging our services footprint. So, I just don't want to continue making everything about EV charging. That's clearly a very attractive opportunity as that market continues to evolve. But we want to make sure that we're thinking about what we do is, you know, based on How do we leverage our service footprint better across different industries? If you go to our shareholder letter on page five, we did mention some of the wins that we had in EV. So, we're preparing for, you know, services in 63 European countries now with Alpetronic. We are working on a service contract with a pan-European petrol station. And we remain on track to meet the 30,000 chargers under under contract by end of 2022. so that so that that business is going as we have forecasted. We, we clearly still have a lot of work to do in that in that market. And it's an industry that's shaping itself. So. I would really, you know, we want to be a part of these. Easy charging company starts developing their service model for the future. We want to be a part of how they define the service model so that we can actually be a more strategic partner to them. But yeah, you can see that in our shareholder letter in page 5 and if you want more details, we know Christine can gladly walk you through more details on what we're doing there. But keep in mind that, you know. Our service business is a very unique asset that we have. It's a $2.1 billion business. 70% of the revenues are recurring. And we want to leverage that infrastructure in other areas besides just banking and retail or with other technologies besides ATMs and self-checkout. So we're looking for those options. EV charging is one, but we're also looking at other alternatives in the market. So if we're thinking, we'll walk you through some of those ideas if you're interested in.

And my last question, if I may, what other conditions do you need to meet to close the transaction, and do you have a target date for closing the new financing? Thanks.

Yeah, from the financing perspective, I would draw your attention to the 8K filings, and it provides there. We need to be careful what we say relative to the TSA based upon the SEC regulations. So what we would do there is just point you to the AK.

But as we said in our remarks, you know. By the end of December. By the end of, you know.

And you'll see that in the documents.

Thank you.

At this time, we currently have no further questions, so I'll turn the call back over to Octavio Marquez, CEO of Diebold Nixeldorf, to begin.

Thank you, Operator, and thanks to everyone who listened and participated in today's calls. We look forward to seeing you at our upcoming investor conference and during our next earnings call.

Thank you again. Ladies and gentlemen, this concludes today's call.

You may now disconnect your lines.