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spk00: Good morning. My name is Glenn, and I'll be your conference operator today. At this time, I would like to welcome everyone to the DEBO NextOff first quarter of 2023 conference call. All nine have been placed on mute to prevent any background noise. The call will conclude after the speaker's prepared remarks today. Chris, you may begin your conference.
spk01: Hello, everyone, and welcome to our first quarter 2023 earnings call. I'm Chris LaCour in Investor Relations. To accompany our prepared remarks, we have posted our press release and slide presentation to the Investor Relations section of our corporate website. Later this morning, a replay of this webcast will also be available there. Before we begin, I will remind all participants that during this call, you will hear forward-looking statements. 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 SEC. Participants should be mindful that subsequent events may render this information to be out of date.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. As noted on slide three, a reconciliation between GAAP and non-GAAP measures can be found in the tables of today's earnings release and supplemental slides in the presentation. With that, we'll turn the call over to Octavio.
spk03: Thank you, Chris, and thank you all for joining us today. Our first quarter results reflect consistent market demand for our solutions, as well as positive outcomes from operational improvements we've implemented over the past several months. We continue to see a robust demand environment for our banking and retail products driven by long term growth drivers around self service and automation. Consumer preferences for efficiency and ease of use together with the lower cost of operations for our banking and retail customers are generating ongoing demand for our market leading solutions. Our execution and operating momentum are improving, as evidenced by our strong year-over-year improvements in revenue and profitability, as well as higher production levels in our factories. In our operations, we continue to take steps to improve our business by becoming more agile and efficient to better navigate the macroeconomic impacts. We are starting to see proof of our progress in the first quarter, and it will be important for us to sustain this momentum for the balance of the year to achieve our objectives. We continue to move forward with constructive conversations with our banking and lending partners to develop a long-term solution to our capital structure. Earlier today, I sent to our employees a memo reinforcing our focus while we continue these conversations. We are dedicated to making our company healthier and stronger for the long term, including continued investment in our people and products and seamless operations to meet our commitments to our customers, our vendors, and our partners. Turning to slide 5, we entered 2023 clearly focused on cash generation and implementing key priorities that will put us in a stronger position to deleverage. Since our last earnings call, we have further refined our priorities and aligned the company around achieving these objectives. Our first priority is fortifying the balance sheet and accelerate the leveraging. We are fully focused on optimizing working capital while we deliver on our strong backlog and order pipeline. We are carrying elevated level of banking finished goods as we produce units in advance to support our customer implementation schedules. The focus is now getting those units installed and out of our inventory. On top of that, we see additional room for improving in our raw materials inventory as the supply chain and logistic environment begins to stabilize. As I mentioned, from a financing perspective, we are working through short and long-term considerations around the capital structure to get a more permanent solution in place. As discussed previously, we continue to explore the sale of non-core assets and we have retained advisors to help us make sure we are exploring all our options across the company. The second priority is adopting a continuous improvement mindset across the company to drive further efficiencies that will improve gross profits and reduce operating expense. We plan to deliver our products to customers and maintain operational excellence. We are committed to delivering and revenue 60,000 ATMs, 35 self-checkout devices, and 134 EPOS devices in 2023. Efficiently delivering these products is crucial as it translates directly into revenue and profit. As a reminder, we completed an organization-wide realignment last year that made us a more streamlined company. Now in 2023, we continue to build off that program to drive incremental savings to the P&L. On the product side of the business, we are closely monitoring inflation trends as well as evaluating manufacturing operations and pricing discipline to drive additional product growth, margin, and expansion. On the service side of the business, we continue to take advantage of local to global resource opportunities to drive further efficiencies. Our third priority is to execute on our path forward aligned to our customer needs. At the core of everything we do is our market-leading self-service solutions for the banking and retail markets. We have the best products in our industry, and you can clearly see the traction we have with customers when you look at our strong backlog of product orders, new wins, and current quarter revenue growth. On top of that, we have a strong attach of additional services and higher level software contracts. We have a strong business that customers value. The past year has presented several hurdles for us to work through, but we are committed to serving our customers and working to our near-term .
spk02: If we turn to slide six, looking at total company performance.
spk03: Let me remind you that I am referring to non-GAAP metrics, and you can find additional details on the GAAP to non-GAAP reconciliations in the earnings statements. During the quarter, we delivered solid improvement compared with the prior year across our key financial measures. Revenue of $853 million increased 3.4 or 8.7 percent in constant currency, and excluding the impact of divestitures with particular strength in our banking product business. Gross profit for the first quarter was $209 million, which was an increase of approximately $23 million versus prior year period. Gross margin expanded 190 basis points compared to the prior year quarter, benefiting from earlier cost savings program as well as the impact of lower supply chain and logistics costs. Operating expenses was down approximately $28 million year-over-year, with lower spend primarily in our SG&A functions. The net result was operating profit up $49 million compared with the prior year quarter. Adjusted EBITDA is also up $49 million to $64 million for the first quarter of 2023, compared with the prior year quarter of $15 million. While there's still much work to be done for the year to achieve our objectives, this is a good start that we can build upon that reinforces we are taking the right steps to improve our operating momentum. In our business segment performance, customers continue to show strong support and confidence in our company by investing in our solutions. Several great wins during the quarter exemplify the value of our products and services. In banking, our DM series ATMs and integrated cash recycling technology continue to lead the market. Our team secured a major agreement valued at approximately $86 million with a global European-based bank for over 4,000 DM series ATMs and related services to support a technology refresh at locations across seven countries. We also won an $18 million agreement with Secredi, a credit union in Brazil with more than 6 million members and 2,400 branches. for cash recycling and other branch transformation technology. Additionally, we landed a new competitive win for a $7 million deal with a leading payments processor in Southeast Europe for Bynamic Payments to replace its existing payment processing platform covering multiple banks in the region. These wins exemplify the trust our customers have in our technology stack and service expertise and supports the growth which is up strong double digits compared to the prior year quarter. Looking at our banking results from a geographic perspective, approximately 60% of first quarter revenue was derived from the Americas, where we saw particular strength in product sales compared to the prior year quarter. The revenue growth in the Americas is underpinned by our DN series ATMs, which continue to gain traction with our customers. In the Americas, we're seeing a mixed shift in our ATM contract base towards cash recyclers as we install more of these units into the market. In particular, we see regional banks focusing on improving operational efficiency and customer service. This has led to some of them accelerating refresh to better position themselves against the competition. Shifting to retail. In the retail business, self-checkout solutions continue to drive growth with consistent demand, delivering cost efficiency and increased consumer engagement. Among our great wins during the quarter was a deal for $22 million in continued business with a major British multinational retail for hardware, installation, and related services, and a $19 million contract with a large Eastern European discount retailer to support new store openings and technology migration. We also closed the frame agreement valued at approximately $5 million with a major pharmacy chain based in Mexico. In addition, we are live in Belgium with our first AI-driven inventory shrinkage solution at one of the country's biggest retailers. This done in cooperation with our partner, SeaChange. We are very excited about our retail technology value proposition, and we are happy to see a great deal of customer activity. Looking at retail from a regional perspective, approximately 80% of the first quarter revenue was derived from Europe, which is our core market for retail. In Europe, we are focused on securing and growing with our long-standing customers and helping them drive more automation and efficiency in their store checkout technology. It's a growth market for the company, as we have been supporting the rollout of SCO units for a global retailer with a major presence in the United States. This meaningful customer relationship has helped us build a presence in the Americas, and we believe more opportunities will now follow. If we turn to slide seven, you can see the sequential quarter improvements in unit shipments for ATMs and self-checkouts. We are all aware of the challenges our company had, as well as many other companies faced in this area in 2022. With the third quarter of 2022 being the low point of our recent production, however, we have been able to begin stabilizing production during the past two quarters and are now seeing a more positive trend. Managing the supply chain has not been easy and will still require a lot of attention. Due to timing and historical seasonality of the business, we can expect to see quarter-over-quarter variances that are slightly above or below our unit shipment expectations. However, our efforts give me confidence to say we expect to see meaningful sequential quarter increases in ATM and self-checkout shipment units in the second quarter and a more stable and consistent production in the back half of the year. Part of the confidence comes from the current factory fill rates, which gives us visibility not only to next quarter, but to the remainder of the year. Factory fill rate measures firm orders in the plant with confirmed shipment dates. For banking, we currently have an 88% fill rate on our current unit shipment targets for the year. For retail, we have 68% self-checkout fill rate for the year. Even more encouraging is that we have the orders from our customers in backlots that will drive full year factory fill rates higher as we move through the second quarter. So, to tie this all together before handing it over to Jim, When we combine our strong customer demand with our improved operating momentum on the production side, with the fact that we are still carrying elevated levels of finished goods units in the second quarter, the result is a strong level of visibility into securing our product revenue units for the year. Now, for more details on our financial results, I'll hand the call over to Jim.
spk04: Thank you, Octavio. Starting on slide eight, Banking revenue of $593 million was up approximately 5% versus the prior year period and was up 9% after adjusting for a foreign currency impact of $13 million and a $6 million impact from the Russia-Ukraine war. Higher revenue was driven primarily by the product business, which benefited from the improving supply chain and logistics environment, resulting in a more normal first quarter compared to the prior year. ATM revenue units in the quarter of 12,500 were up approximately 2,800 units compared to the prior year, with DN series units accounting for approximately 90% of the unit mix. Service revenue on a constant currency basis was also up in the first quarter, driven by stronger build work and installation activity. Banking gross profit in the first quarter increased by 15 million year-over-year to 141 million, with improved profitability in products driven mostly by lower product-related inflation costs. This resulted in banking gross margin of 23.7 percent in the quarter, which is an expansion of 130 basis points year-over-year, with product improving by 600 basis points and service improving 10 basis points. Turning to slide nine, In the retail business, revenue of $260 million was relatively flat versus the prior year period, but was up 8% after adjusting for a foreign currency impact of $13 million and a $6 million impact from the Russia-Ukraine war. Higher revenue was driven primarily by the product business. Retail gross profit in the first quarter increased by $9 million year-over-year to $69 million with improved profitability across both products and services. Retail gross margin of 26.3% was up 330 basis points compared to the prior year period, with product improving by 490 basis points and service improving 240 basis points. Looking at the next slide, as we have previously disclosed in our SEC filings, there is substantial concern around a company's capital structure and liquidity. Our historical seasonality of operating with a cash usage through the first three quarters of the year and then generating cash in the fourth quarter has created a near-term funding issue that we are working through with our lenders. At the end of 2022, we closed our previous refinancing discussions with our lenders with a new asset-backed lending facility, and we were successful in pushing out significant portions of the term loan B and senior unsecured notes with near-term maturities into 2025 and 2026. However, as we moved through the first quarter under the ABL and continued to analyze our full-year forecast, we felt it necessary to reengage with our banks and lenders. We added liquidity in the form of a $55 million filo loan to fund our operating requirements in the short term. We continue to move forward in constructive conversations with our banking and lending partners to develop a long-term solution to our capital structure, which will better support our operating model and the cycles of our business. As mentioned in the earnings release this morning, it is expected that any resulting deleveraging transaction that is part of the solution will substantially or fully dilute shareholder equity. Looking at the results for the quarter, Free cash flow for the first quarter of 2023 was a $101 million usage compared to a $234 million usage in the first quarter of 2022. The improvement is largely the result of increased year-over-year profitability and timing of disbursements. The cash usage in the first quarter resulted in ending liquidity of $263 million. Turning to our outlook for the remainder of the year on slide 11, Please note our 2023 performance outlook is contingent upon the company's ability to successfully navigate the ongoing bank and lender conversations and assumes a full year of uninterrupted operations. We are committed to deliver in revenue 60,000 ATM units, 35,000 SCO units, and 134,000 EPOS units in 2023 in line with what we disclosed last quarter. We are seeing some potential mix shift in our outlook on the retail side between SCO and EPOS, with SCO units trending higher than anticipated and EPOS units trending lower than anticipated, but this should not have a meaningful impact on revenue as they largely net each other out. Total revenue is expected to be in a range of 3.7 billion to 3.9 billion. which represents approximately 9.5% year-over-year growth in revenue and is largely underpinned by our revenue unit expectations. Adjusted EBITDA is expected to be in a range of $380 million to $420 million, which represents an approximately $135 million improvement year-over-year at the midpoint of the range. We continue to expect the majority of our adjusted EBITDA in the second half of the year, and we will remain focused on improving EBITDA to free cash flow conversion. Now, I'll turn the call back to Octavio.
spk03: Thank you, Jim. In closing, we had a good start to the year from an operational perspective, and I am encouraged by the positive momentum we've created in the company. I am proud of the work of our global team, and we all know we have important work ahead of us. Given the ongoing conversations with our banking and lending partners, we will not be taking Q&A today. As we progress further with those discussions, we will share any additional details when appropriate. At this time, we will close the call and thank you for listening today.
spk02: We look forward to speaking to all of you soon.
spk00: Thank you. This concludes today's conference call. You may now disconnect.
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