# DIEBOLD NIXDORF, Inc: Form 10-Q for the period ended Mar 31, 2018

- Company: [DIEBOLD NIXDORF, Inc](/companies/dbd.md) (CIK 28823)
- Form: 10-Q
- Filed: 2018-05-02
- Accepted by EDGAR: May 2, 2018, 07:20 ET
- Period: 2018-03-31
- Accession: 0000028823-18-000102
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/28823/000002882318000102/dbd331201810q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/28823/000002882318000102/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2018-01-01 to 2018-03-31 | $823.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2018-01-01 to 2018-03-31 | $240.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2018-01-01 to 2018-03-31 | $41.7m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2018-01-01 to 2018-03-31 | $227.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2018-01-01 to 2018-03-31 | −$21.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2018-01-01 to 2018-03-31 | $26.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2018-01-01 to 2018-03-31 | $19.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-01-01 to 2018-03-31 | −$70.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-01-01 to 2018-03-31 | −$0.94 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-01-01 to 2018-03-31 | −$0.94 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-01-01 to 2018-03-31 | 75,800,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2018-01-01 to 2018-03-31 | −$142.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2018-01-01 to 2018-03-31 | $20.2m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2018-01-01 to 2018-03-31 | $7.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2018-01-01 to 2018-03-31 | $2.5m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2018-03-31 | $362.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-03-31 | $2.41bn | us-gaap:AssetsCurrent |
| Total assets | at 2018-03-31 | $5.18bn | us-gaap:Assets |
| Current liabilities | at 2018-03-31 | $1.85bn | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2018-03-31 | $426.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 52,345 characters.

### Significant Highlights

During the first quarter of 2018, Diebold Nixdorf:

- Named Gerrard Schmid as President and Chief Executive Officer
- Secured a global frame agreement, including North America, to provide kiosks and services for one of the world's largest quick-service restaurants
- Received strong banking activity in the U.S. for Windows 10 upgrades, with more than $50 million in orders
- Awarded a $23 million order for systems and new services for a leading financial institution in Mexico
- Won an $18 million contract to provide store lifecycle management for a European multinational retailer
- Booked a $6 million agreement to provide systems and software maintenance, powered by DN AllConnect ServicesSM, for the largest retail chain of health and beauty products in China
- Partnered with U.S. Bank to showcase Essence, Diebold Nixdorf’s streamlined self-service touchpoint solution at ‘Super Bowl Live’ in Minneapolis

### Overview

Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and accompanying notes that appear within this quarterly report on Form 10-Q.

#### Introduction

The Company provides Connected Commerce solutions which enable millions of transactions each day. The Company's approximately 23,000 employees service our customer's integrated solutions and design and deliver convenient, "always on" and highly secure solutions that bridge the physical and the digital worlds of transactions. Customers of the Company include nearly all of the world's top 100 financial institutions and a majority of the top 25 global retailers.

#### Strategy

The Company's Connected Commerce strategy seeks to continually enhance the consumer experience at bank and retail locations while simultaneously streamlining cost structures and business processes through the smart integration of hardware, software and services. The business requires ongoing investment in the development of intelligent IT solutions and in further development of the Company's industry-leading services organization. The Company continuously refines its research and development (R&D) spend in support of a better transaction experience for consumers and additionally accelerate the development and integration of innovative technology including cloud computing technology, touch points, sensors and connectivity to the Internet of Things, as well as open and agile software.

#### Integration and Transformation Program

Commensurate with its strategy, the Company is executing a multi-year integration and transformation program which aligns employee activities with the Company's goal of realizing $240 of cost reduction by the year 2020.

Cost savings include:

- Realizing volume discounts on direct materials
- Harmonizing the solutions set of platforms and components
- Increasing utilization rates of the service technicians
- Rationalizing facilities in the regions
- Streamlining corporate and general and administrative functions
- Harmonizing back office solutions.

In May 2018, the Company announced its plans to build upon the achievements of its integration and transformation program while improving Company profitability and cash flow through relentless focus on our customers, operational excellence and forming a unified culture.

### (unaudited)

### (in millions, except per share amounts)

As a result, the Company will be implementing a streamlined operating model with clearer and more consistent spans of control. The Company anticipates the realignment of its operating model to Banking and Retail, which are directly aligned with customer interests.

To drive towards a singular Diebold Nixdorf culture, the Company will align around a few core characteristics, which reinforce the new priorities. Collectively, these activities aim to create a more efficient organization with a leaner cost structure that will act quickly in the best interests of the Company's customers. The Company is at the early stages of defining its roadmap to optimize and support the complete customer lifecycle - identifying an opportunity, contracting, delivering and collecting.

In order to achieve these efficiencies, the Company has and will continue to invest to restructure the workforce, integrate and optimize systems, streamline legal entities and consolidate real estate holdings. By executing on these activities, the Company expects to deliver greater innovation for customers, career enrichment opportunities for employees and enhanced value for shareholders.

#### Segments

The Company’s current operating structure is based on a number of factors that management uses to evaluate, view and run its business operations, which currently includes, but is not limited to, product, service and solution.

#### Services LOB

Diebold Nixdorf AllConnect Services is powered by 15,000 highly-trained service employees and a global delivery network. These offerings enable customers to meet the growing demand for transaction availability at ATMs, POS, self-checkout systems (SCO) and other distributed assets in a cost-effective manner. The Company’s global customer care center offers around-the-clock availability and is proficient in supporting customers in more than 25 languages. The global service supply chain optimizes the process for obtaining replacement parts, making repairs, and implementing new features and functionalities.

Diebold Nixdorf AllConnect Services provides end-to-end solutions with a customer-first, outcome-driven approach. It is a new breed of as-a-service offering, designed to power the business operations of financial institutions, credit unions and retailers. Product-related services resolve incidents through remote service capabilities or an on-site visit. The portfolio includes first and second line maintenance, preventive maintenance and on-demand services all the way to total implementation services. The Company leverages a standardized incident management process to increase uptime of distributed assets.

Managed services and outsourcing consists of managing the end-to-end business processes, technology integration and day-to-day operation of the self-service channel, bank branch and retail store networks. Managed services is the integrator of our solutions by bringing together services, software and systems into a long-term, outcome-based solution. Our integrated business solutions include store lifecycle management, self-service fleet management, branch lifecycle management, ATM as-a-service and managed mobility services. The Company also provides a full array of cash management services, which optimizes the availability and cost of physical currency across the enterprise through efficient forecasting, inventory and replenishment processes. These services mitigate customer risks by relying on proven monitoring and reporting processes, secure tools and partnerships with larger cash-in-transit companies.

### (unaudited)

### (in millions, except per share amounts)

#### Software LOB

The Company provides front-end applications for consumer connection points and back-end platforms that manage channel transactions, operations and integration. These hardware-agnostic software applications facilitate millions of transactions via ATMs, POS terminals, kiosks, and other self-service devices. The Company's platform software is installed within bank and retail data centers to facilitate omnichannel transactions, endpoint monitoring, remote asset management, customer marketing, merchandise management and analytics. These offerings include highly configurable, API enabled software that automates banking and retail transactions across channels. This multi-vendor software portfolio is designed to meet the evolving demands of a customer's self-service network including:

- Connection points
- Transaction management
- Operations and security
- Customer engagement
- Analytics and digital

In October 2017, the Company introduced Vynamic, the first end-to-end Connected Commerce software portfolio in the banking and retail marketplace. This offering establishes the evolutionary path for the Company's current software offerings including Vista, Commander, Xpression, PCE, Procash and TP.net. The Vynamic suite's open API architecture is built to eliminate the traditional focus on internal silos and enable tomorrow's inter-connected partnerships between financial institutions, retailers and payment providers. The Vynamic portfolio leverages data analytics to enable businesses to make intuitive, predictive and adaptive data–driven decisions and can be delivered as-a-service using cloud computing. Built to enable seamless consumer experiences across mobile devices, ATMs, POS terminals, branches, stores, kiosks and online channels, our Vynamic software extends beyond omnichannel to enable banks and retailers to create seamless, secure, highly personal connections across numerous digital and physical channels.

In the retail business, the Company provides a comprehensive, modular solution suite which is capable of enabling the most advanced omnichannel retail use cases. Also sold under the Vynamic portfolio, retail software improves end-to-end store processes and facilitates continuous connected consumer engagements in support of a digital ecosystem. This includes click & collect, reserve & collect, in-store ordering and return to store processes across the retailers' physical and digital sales channels. Data from a number of sources, such as enterprise resource planning (ERP), POS, store systems and customer relationship management systems (CRM), may be integrated across all customer connection points to create differentiated consumer experiences.

An important enabler of the Company’s software business is the more than 1,900 professional service employees who provide systems integration, customization, consulting and project management. The Company's advisory services team collaborates with its customers to help define optimal user experience, improve business processes, refine existing staffing models and deploy technology to automate both branches and stores.

#### Systems LOB

Through collaboration with customers, engineering excellence and an efficient supply chain, the Company delivers industry-leading customer touchpoints to financial institutions, retailers and other customers. These systems enable highly secure physical and digital transactions around the world. The Company integrates component technologies according to customer specifications in order to optimize the total cost of ownership and maximize transaction availability while creating a positive impression on customers.

The systems portfolio for financial institutions consists of cash recyclers and dispensers, intelligent deposit terminals, teller automation and kiosk technologies, as well as physical security solutions. Diebold Nixdorf stands ready to assist financial institutions as they upgrade their ATMs due to their desire for greater functionality, increased availability and compliance with technology changes. An important technology change facing financial institutions is the migration to Microsoft Windows 10 operating system. Benefits of upgrading to Windows 10 include:

- The ability to reduce operating costs while improving operating efficiencies
- Advanced defense against logical threats also ensuring access to future security patches from Microsoft
- The ability to offer end-user enhancements which leverage application-based platforms, faster processors and greater memory
- Helping to maintain consistency with other platforms migrating to Windows 10
- Maintaining compliance with the Personal Card Industry (PCI) regulations

### (unaudited)

### (in millions, except per share amounts)

For retail customers, the checkout portfolio includes modular, integrated and mobile POS systems that meet evolving automation and omnichannel requirements of consumers. Supplementing the POS system is a broad range of peripherals, including printers, scales and mobile scanners, as well as the cash management portfolio which offers a wide range of banknote and coin processing systems. The Company also provides self-checkout terminals and ordering kiosks which facilitate an efficient and user-friendly purchasing experience. The BEETLE iSCAN EASY eXpress, hybrid products, can alternate from attended operation to self-checkout with the press of a button as traffic conditions warrant. The K-Two Kiosk automates routine tasks and in-store transactions, offers order-taking abilities at quick service restaurants (QSRs) and fast casual restaurants, provides customer service, supplies product information, sells tickets and presents functionality that furthers store digitalization.

The Systems LOB introduces new product innovations which are aligned with changing consumer demands and deliver greater operating efficiencies. With respect to innovation, the Company will continue to invest in:

- Advanced security solutions including anti-skimming card readers, biometric authentication and a modular, scalable architecture suited for various threat environments and risk appetites;
- Facilitating real-time monitoring activities through the use of advanced sensors;
- Remote and assisted self-service solutions including in-store/branch tablet notifications and two-way video capabilities;
- Mobile connectivity to support contactless transactions; and
- Miniaturization technologies needed for branch/store transformation.

Leveraging the broad portfolio of solutions, the Company offers customers the flexibility to select the combination of services, software and systems that drives the most value to their business. For example, the Company offers end-to-end branch and store automation solutions that consist of the complete value chain of consult, design, build and operate. Branch and store automation helps financial institutions grow revenue, reduce costs, and increase convenience and security for their customers by migrating routine transactions, typically done inside the branch or store, to lower-cost automated channels. The Company’s advisory services team collaborates with its clients to define the ideal customer experience, modify processes, refine existing staffing models and deploy technologies that meet business objectives.

#### Business Drivers

The business drivers of the Company's future performance include, but are not limited to:

- Demand for services on distributed IT assets such as ATMs, POS and SCO, including managed services and professional services;
- Timing of system upgrades and/or replacement cycles for ATMs, POS and SCO;
- Demand for software products and professional services;
- Demand for security products and services for the financial, retail and commercial sectors;
- Demand for innovative technology in connection with our Connected Commerce strategy;
- Integration of salesforce, business processes, procurement and internal IT systems; and
- Realization of cost reductions and synergies, which leverage the Company's global scale, reduce overlap and improve operating efficiencies.

### Results of Operations

The following discussion of the Company’s financial condition and results of operations provides information that will assist in understanding the financial statements and the changes in certain key items in those financial statements. The following discussion should be read in conjunction with the condensed consolidated financial statements and the accompanying notes that appear elsewhere in this quarterly report on Form 10-Q.

### (unaudited)

### (in millions, except per share amounts)

|  | Three Months Ended March 31, 2018 Amount | % of Net sales | 2017 Amount | % of Net sales |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $1,064.2 | 100.0 | $1,102.8 | 100.0 |
| Gross profit | $240.9 | 22.6 | $242.5 | 22.0 |
| Operating expenses | $261.9 | 24.6 | $291.1 | 26.4 |
| Operating profit (loss) | $(21.0) | (2.0) | $(48.6) | (4.4) |
| Net income (loss) | $(63.3) | (5.9) | $(52.2) | (4.7) |
| Net income attributable to noncontrolling interests | $7.6 | 0.7 | $6.6 | 0.6 |
| **Net income (loss) attributable to Diebold Nixdorf, Incorporated** | $(70.9) | (6.7) | $(58.8) | (5.3) |

#### Net Sales

The following table represents information regarding the Company's net sales:

| Segments | Three Months Ended March 31, 2018 | 2017 | % Change | % Change in CC (1) | Percent of Total Net Sales for the Three Months Ended March 31, 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Services | $592.2 | $573.2 | 3.3 | (3.4) | 55.6 | 52.0 |
| Software | 119.5 | 110.4 | 8.2 | (0.9) | 11.2 | 10.0 |
| Systems | 352.5 | 419.2 | (15.9) | (23.0) | 33.2 | 38.0 |
| Net sales | $1,064.2 | $1,102.8 | (3.5) | (10.7) | 100.0 | 100.0 |
| Geographic regions |  |  |  |  |  |  |
| Americas | $345.7 | $396.2 | (12.7) | (12.7) | 32.5 | 35.9 |
| EMEA | 591.0 | 562.0 | 5.2 | (8.4) | 55.5 | 51.0 |
| AP | 127.5 | 144.6 | (11.8) | (15.3) | 12.0 | 13.1 |
| Net sales | $1,064.2 | $1,102.8 | (3.5) | (10.7) | 100.0 | 100.0 |
| Solutions |  |  |  |  |  |  |
| Banking | $768.7 | $819.6 | (6.2) | (11.8) | 72.2 | 74.3 |
| Retail | 295.5 | 283.2 | 4.3 | (7.7) | 27.8 | 25.7 |
| Net sales | $1,064.2 | $1,102.8 | (3.5) | (10.7) | 100.0 | 100.0 |

(1) The Company calculates constant currency by translating the prior-year period results at the current year exchange rate.

#### Three months ended March 31, 2018 compared with three months ended March 31, 2017

Net sales decreased $38.6 or 3.5 percent including a net favorable currency impact of $88.6 primarily related to the euro. In addition, prior year net sales were adversely impacted $10.4 related to prior year deferred revenue purchase accounting adjustments (Deferred Revenue Adjustments). The following results include the impact of foreign currency and purchase accounting adjustments:

### Segments

- Services net sales increased $19.0 including a net favorable currency impact of $39.9 and Deferred Revenue Adjustments of $5.2. Excluding currency and Deferred Revenue Adjustments, net sales decreased $26.1 attributable to lower installation revenue tied to decreased banking systems volumes in the Americas and EMEA.

### (unaudited)

### (in millions, except per share amounts)

- Software net sales increased $9.1 including a net favorable currency impact of $10.2. Excluding the impact of currency, net sales decreased $1.1 primarily related to lower systems volumes in EMEA and AP. This was partially offset by higher banking project volume in the Americas.
- Systems net sales decreased $66.7, including a net favorable currency impact of $38.5 and Deferred Revenue Adjustments of $5.2. Excluding currency and Deferred Revenue Adjustments, net sales decreased $110.4 from lower combined systems solutions across the Company. EMEA and Americas were adversely impacted by lower volume throughout the regions and Americas was adversely impacted by supply chain delays as well. The supply chain delays are anticipated to be resolved within the year. Additionally, AP was adversely impacted by lower volume as noted below.

### Geographic Regions

- Americas net sales decreased $50.5 or 12.7 percent primarily as a result of lower systems volume and the associated installation revenue in North America and Brazil combined with the adverse impact of supply chain delays in North America. Additionally, volume in Chile decreased as the electronic security business was divested in the third quarter of 2017.
- EMEA net sales increased $29.0 or 5.2 percent due to a favorable currency impact of $83.0. Excluding the impact of currency, net sales decreased $54.0 primarily attributable to the absence of large banking and retail systems rollouts in Germany as well as lower banking volume in Turkey. Additionally, lower sales in the U.K. contributed to the decrease as a result of the divestiture of the Company’s legacy business on June 30, 2017. This was partially offset by higher retail systems volume in Spain and the Nordics.
- AP net sales decreased $17.1 or 11.8 percent including a favorable currency impact $5.9. Excluding the impact of currency, net sales decreased $23.0 as a result of lower managed services and installation revenue in India and higher prior year banking systems deployments in Indonesia, Thailand and Malaysia.

### Solutions

- Banking net sales decreased $50.9 or 6.2 percent including a favorable currency impact of $51.7 and Deferred Revenue Adjustments of $6.2. Excluding the impact of currency and Deferred Revenue Adjustments, net sales decreased $108.8 primarily due to lower systems volumes and the associated installation activity across the Company.
- Retail net sales increased $12.3 or 4.3 percent percent due to a favorable currency impact of $36.9 and Deferred Revenue Adjustments of $4.2. Excluding the impact of currency and Deferred Revenue Adjustments, net sales decreased $28.8 due to lower retail systems volume in Germany and the U.K. as well as lower demand for lottery equipment in Brazil.

#### Gross Profit

The following table represents information regarding the Company's gross profit:

|  | Three Months Ended March 31, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: |
| Gross profit - services and software | $172.5 | $178.1 | (3.1) |
| Gross profit - systems | 68.4 | 64.4 | 6.2 |
| Total gross profit | $240.9 | $242.5 | (0.7) |
| Gross margin - services and software | 24.2% | 26.1% |  |
| Gross margin - systems | 19.4% | 15.4% |  |
| Total gross margin | 22.6% | 22.0% |  |

Services and software gross margin was lower due to software margin declines across AP and EMEA from a higher volume of lower margin business and increased professional services costs. Services margin was adversely impacted by lower margin in the Americas and AP from lower margin services business in China.

### (unaudited)

### (in millions, except per share amounts)

Systems gross margin in the three months ended March 31, 2018 increased primarily as a result of higher purchase accounting adjustments in the prior year of $14.5 and the current year benefit from Brazil indirect tax accrual reversal of $3.7. Deferred Revenue Adjustments included a $5.2 prior year reduction of revenue and $9.3 higher asset amortization.

#### Operating Expenses

The following table represents information regarding the Company's operating expenses:

|  | Three Months Ended March 31, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: |
| Selling and administrative expense | $227.9 | $247.0 | (7.7) |
| Research, development and engineering expense | 41.7 | 41.4 | 0.7 |
| Impairment of assets | — | 3.1 | N/M |
| (Gain) loss on sale of assets, net | (7.7) | (0.4) | N/M |
| Total operating expenses | $261.9 | $291.1 | (10.0) |

N/M = Not Meaningful

Selling and administrative expense in the three months ended March 31, 2018, decreased $19.1 primarily from cost reduction initiatives as well as lower non-routine charges of $10.6 and restructuring of $7.1. These decreases were partially offset by an unfavorable currency impact of $21.2.

Non-routine costs in selling and administrative expense of $38.5 and $49.1 were included in the three months ended March 31, 2018 and 2017, respectively. The primary components of the non-routine expenses in the first quarter 2018 pertained to purchase accounting adjustments of $23.8 related to intangible asset amortization and integration costs totaling $14.2. Selling and administrative expense included restructuring charges of $1.3 and $8.4 in the three months ended March 31, 2018 and 2017, respectively.

Research, development and engineering expense in the three months ended March 31, 2018 was flat including an unfavorable currency impact of $4.0. Excluding the impact of currency, research, development and engineering expense decreased primarily from lower restructuring and non-routine integration cost as well as lower software research, development and engineering expense.

In the three months ended March 31, 2018, the gain on sale of assets was primarily related to the sale of a building in North America of $4.5 and the liquidation of the Barbados operating entity of $3.3.

Operating expense as a percent of net sales in the three months ended March 31, 2018 was 24.6 percent compared with 26.4 percent in the three months ended March 31, 2017. The decrease is related primarily to lower restructuring and non-routine expense inclusive of the previously mentioned gain on sale of a building in North America.

#### Operating Profit

The following table represents information regarding the Company's operating profit:

|  | Three Months Ended March 31, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: |
| Operating profit (loss) | $(21.0) | $(48.6) | 56.8 |
| Operating profit margin | (2.0)% | (4.4)% |  |

The operating loss decreased in the three months ended March 31, 2018 compared to the same period in 2017 due primarily from decreased operating expenses as a result of lower non-routine and restructuring charges.

### (unaudited)

### (in millions, except per share amounts)

#### Other Income (Expense)

The following table represents information regarding the Company's other income (expense), net:

|  | Three Months Ended March 31, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: |
| Interest income | $3.5 | $6.4 | (45.3) |
| Interest expense | (26.0) | (30.8) | 15.6 |
| Foreign exchange gain (loss), net | (1.4) | (3.1) | 54.8 |
| Miscellaneous, net | 1.0 | 1.3 | (23.1) |
| Other income (expense), net | $(22.9) | $(26.2) | 12.6 |

The decrease in interest income in the three months ended March 31, 2018, compared with the same period in 2017, was the result of lower average balances and reduced current period rates of short-term investments in Brazil. Interest expense was lower in the three months ended March 31, 2018 compared to the same prior-year period due to the favorable impact of refinancing the debt related to the Acquisition. Foreign exchange loss in the three-month period was primarily due to the strengthening of the euro compared to the prior year period.

#### Net Income (Loss)

The following table represents information regarding the Company's net income (loss):

|  | Three Months Ended March 31, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: |
| Net income (loss) | $(63.3) | $(52.2) | 21.3 |
| Percent of net sales | (5.9)% | (4.7)% |  |
| Effective tax rate | (44.2)% | 30.2% |  |

Net loss was $63.3 and $52.2 for the three months ended March 31, 2018 and 2017, respectively. The decrease is primarily due to the reasons described above and the change in income tax (benefit) expense.

The effective tax rate on the net loss was (44.2) percent for the three months ended March 31, 2018. The tax expense on the loss is due primarily from impacts of the Tax Act, more specifically, impacts related to GILTI on the estimated annual tax rate. The effective tax rate could vary in future periods based on the Company's earnings before taxes and clarifications around the Tax Act.

The effective tax rate on the net loss was 30.2 percent for the three months ended 2017. Companies are required to apply their estimated annual tax rate on a year-to-date basis in each interim period. Companies should not apply the estimated annual tax rate to interim financial results if the estimated annual tax rate is not reliably predictable. In this situation, the interim tax rate should be based on the actual year-to-date results. As of March, 31, 2017, the Company was not able to reasonably estimate the annual effective tax rate for the year ending December 31, 2017, because small fluctuations in the Company's earnings before taxes could have resulted in a material change in the estimated annual tax rate. For this reason, the Company did not believe the estimated annual tax rate would provide a reliable estimate and as a result, the Company computed the interim tax rate based on the actual year-to-date results. The effective tax rate for the three months ended March 31, 2017 was primarily a result of the jurisdictional income (loss) mix and varying statutory rates in the Company's global footprint.

### (unaudited)

### (in millions, except per share amounts)

### Segment Net Sales and Operating Profit Summary

The following tables represent information regarding the segment operating profit metrics exclude the impact of Deferred Revenue Adjustments, restructuring and non-routine charges, by reporting segment, refer to note 20 to the condensed consolidated financial statements for further details of net sales and segment operating profit:

| Services: | Three Months Ended March 31, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: |
| Net sales | $592.2 | $573.2 | 3.3 |
| Segment operating profit (loss) | $73.8 | $81.2 | (9.1) |
| Segment operating profit margin | 12.5% | 14.2% |  |

In the three months ended March 31, 2018, services net sales increased $19.0 or 3.3 percent and included a net favorable currency impact of $39.9 and Deferred Revenue Adjustments of $5.2. Excluding currency and Deferred Revenue Adjustments, net sales decreased $26.1 attributable to lower installation revenue tied to decreased banking systems volumes in the Americas and EMEA.

Segment operating profit decreased $7.4 due to lower gross profit corresponding with systems volume declines in the Americas as a result of lower volume and supply chain delays. Additionally, services operating profit was favorably impacted by higher gross profit on maintenance revenue from increased retail systems volume across all regions while total operating expense was flat between years.

| Software: | Three Months Ended March 31, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: |
| Net sales | $119.5 | $110.4 | 8.2 |
| Segment operating profit (loss) | $7.4 | $5.3 | 39.6 |
| Segment operating profit margin | 6.2% | 4.8% |  |

In the three months ended March 31, 2018, software net sales increased $9.1 or 8.2 percent including a net favorable currency impact of $10.2. Excluding the impact of currency, net sales decreased $1.1 primarily related to lower systems volumes in EMEA and AP. This was partially offset by higher banking project volume in the Americas.

Segment operating profit increased $2.1 in the three months ended March 31, 2018 due primarily to lower research, development and engineering expenses. Lower research, development and engineering expense was attributable to higher capitalization of software development and cost reduction initiatives.

| Systems: | Three Months Ended March 31, 2018 | 2017 | % Change |
| --- | ---: | ---: | ---: |
| Net sales | $352.5 | $419.2 | (15.9) |
| Segment operating profit (loss) | $(25.5) | $(3.9) | N/M |
| Segment operating profit margin | (7.2)% | (0.9)% |  |

In the three months ended March 31, 2018, systems net sales decreased $66.7 or 15.9 percent, including a net favorable currency impact of $38.5 and Deferred Revenue Adjustments of $5.2. Excluding currency and Deferred Revenue Adjustments, net sales decreased $110.4 from lower combined systems solutions across the Company. EMEA was adversely impacted by lower volume throughout the region and in the Americas, lower volume was a function of supply chain delays. Additionally, AP was adversely impacted by lower volume as previously mentioned in the geographic regions section.

Segment operating loss decreased $21.6 in the three months ended March 31, 2018 primarily due to lower gross profit as a function of lower banking systems volume, specifically in the Americas from supply chain delays as well as AP. Operating expenses increased

### (unaudited)

### (in millions, except per share amounts)

from higher research, development and engineering expenses associated with new product development and higher associate related cost.

### Liquidity and Capital Resources

The Company's total cash and cash availability as of March 31, 2018 and December 31, 2017 was as follows:

|  | March 31, 2018 | December 31, 2017 |
| --- | ---: | ---: |
| Cash and cash equivalents | $362.1 | $535.2 |
| Additional cash availability from |  |  |
| Uncommitted lines of credit | 193.9 | 216.9 |
| Revolving Facility | 520.0 | 445.0 |
| Short-term investments | 24.2 | 81.4 |
| Total cash and cash availability | $1,100.2 | $1,278.5 |

Capital resources are obtained from income retained in the business, borrowings under the Company’s committed and uncommitted credit facilities and operating and capital leasing arrangements. Management expects that the Company’s capital resources will be sufficient to finance planned working capital needs, research and development activities, investments in facilities or equipment, pension contributions, the payment of dividends and any repurchases of the Company’s common shares for at least the next 12 months. As of March 31, 2018, $372.4 or 96.4 percent of the Company's cash and cash equivalents and short-term investments reside in international tax jurisdictions. Repatriation of certain international funds could be negatively impacted by potential payments for foreign taxes. The Company has approximately $1,500 of earnings that are available for repatriation with no additional tax expense. Part of the Company’s growth strategy is to pursue acquisitions complementary to the Company's future structure. The Company has made acquisitions in the past and intends to make acquisitions in the future. The Company intends to finance any future acquisitions with either cash and short-term investments, cash provided from operations, borrowings under available credit facilities, proceeds from debt or equity offerings and/or the issuance of common shares.

The following table summarizes the results of the Company's condensed consolidated statement of cash flows for the three months ended March 31:

| Summary of cash flows: | 2018 | 2017 |
| --- | ---: | ---: |
| Net cash provided (used) by operating activities | $(142.3) | $(66.3) |
| Net cash provided (used) by investing activities | 39.1 | (29.0) |
| Net cash provided (used) by financing activities | (91.4) | (72.5) |
| Effect of exchange rate changes on cash and cash equivalents | 21.5 | 5.2 |
| Increase (decrease) in cash and cash equivalents | $(173.1) | $(162.6) |

### Operating Activities

Cash flows from operating activities can fluctuate significantly from period to period as working capital needs and the timing of payments for income taxes, restructuring and integration activities, pension funding and other items impact reported cash flows.

Net cash used by operating activities was $142.3 for the three months ended March 31, 2018, an increase in use of $76.0 from $66.3 for the same period in 2017.

- The net aggregate of trade accounts receivable, inventories and accounts payable used $114.0 and $76.1 in operating cash flows during the three months ended March 31, 2018 and 2017, respectively. In general, the amount of cash flow provided or used by the aggregate of trade accounts payable, inventories and trade accounts receivable depends upon how effectively the Company manages the cash conversion cycle, which represents the number of days that elapse from the day it pays for the purchase of raw materials and components to the collection of cash from its customers and can be significantly impacted by the timing of collections and payments in a period. Accounts receivable cash use improved compared to prior-year same period primarily due to lower net sales in the Americas. Inventory cash use increased compared to the same period in the prior year and is primarily due to increased inventory in EMEA and Americas for customer projects, as well as the aforementioned supply chain issues. The supply chain issues are primarily resolved and are anticipated to

### (unaudited)

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convert to cash within the year. Accounts payable cash use improved primarily related to reduced spending in EMEA and the Americas.

- In the aggregate, the other combined certain assets and liabilities used $18.3 and provided $1.8 of operating cash during the three months ended March 31, 2018 and 2017, respectively. The increase in use was primarily due to a reduction in deferred revenue cash provided by the collection of customer prepayments, mainly on service contracts, compared to the same period in the prior year as well as the timing of payments of VAT in EMEA and the Americas.

The most significant changes in adjustments to net income includes increased depreciation and amortization expense and additional share-based compensation. Depreciation and amortization expense increased $8.5 to $67.1 during the three months ended March 31, 2018 compared to $58.6 during the same period in 2017 primarily due to incremental intangible assets amortization expense related to the finalization of purchase accounting. Share-based compensation increased $6.9 to $13.7 for the three months ended March 31, 2018 primarily due to a change in non-substantive vesting terms of certain awards and an increased number of unvested awards granted. Adjustments to net income also includes (gain) loss on sale of assets, net, which consists primarily of the gains from the sale of a building in North America.

### Investing Activities

Net cash provided by investing activities was $39.1 and a use of $29.0 for the three months ended March 31, 2018 and 2017, respectively. The maturities and purchases of investments primarily relate to short-term investment activity in Brazil. The proceeds from the sale of assets primarily include cash from the sale of a building in North America. The $68.1 change was primarily due to the utilization of short-term investments in Brazil for cash needs across the organization.

### Financing Activities

Net cash used by financing activities was $91.4 and $72.5 for the three months ended March 31, 2018 and 2017, respectively, an increase of $18.9. The change was primarily due to an additional $35.8 in debt repayments, net of borrowings primarily related to payment of the Revolving Facility and lower cash distributions of $15.2 to noncontrolling interests primarily related to Diebold Nixdorf AG which was paid in March 2017. Refer to note 11 to the condensed consolidated financial statements for details of the Company's cash flows related to debt borrowings and repayments.

**Debt** As of March 31, 2018, the Company had various international short-term uncommitted lines of credit with borrowing limits of $213.2. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of March 31, 2018 and December 31, 2017 was 9.16 percent and 9.17 percent, respectively. Short-term uncommitted lines mature in less than one year. The amount available under the short-term uncommitted lines at March 31, 2018 was $193.9.

The Credit Agreement includes the Revolving Facility in the amount of up to $520.0 and the Term Loan A Facility in the amount of up to $230.0. On December 23, 2020, the Term Loan A Facility will mature and the Revolving Facility will automatically terminate. The weighted-average interest rate on outstanding Revolving Facility borrowings as of December 31, 2017 was 3.63 percent which is variable based on the LIBOR. The amount available under the Revolving Facility as of March 31, 2018 was $520.0.

The Company has $400.0 aggregate principal amount of 2024 Senior Notes which are and will be guaranteed by certain of the Company’s existing and future domestic subsidiaries and expire in 2024.

On May 9, 2017, the Company entered into the Incremental Agreement which reduced the initial Term Loan B Facility of a $1,000.0 U.S. dollar-denominated tranche to $475.0. The reduction was funded using the $250.0 proceeds drawn from the Delayed Draw Term Loan A Facility, a replacement of $70.0 with Term Loan B Facility - Euro and previous principal payments.

In connection with the Incremental Agreement, the interest rate with respect to the Term Loan B Facility - USD is based on, at the Company’s option, adjusted LIBOR plus 2.75 percent (with a floor of 0.00 percent) or ABR plus 1.75 percent (with an ABR floor of 1.00 percent) and the interest rate with respect to the Term Loan B Facility - Euro is based on adjusted EURIBOR plus 3.00 percent (with a floor of 0.00 percent).

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The Incremental Amendment also renewed the repricing premium of 1.00 percent in relation to the Term Loan B Facility, removed the requirement to prepay the Repriced Dollar Term Loan and the repriced Euro Term Loan upon any asset sale or casualty event if the Company is below a Total Net Leverage Ratio of 2.5:1.0 on a pro forma basis for such asset sale or casualty event and provides additional restricted payments and investment carveouts in regards to certain assets acquired. All other material provisions under the Credit Agreement were unchanged.

On April 17, 2018, the Company entered into an amendment to its Credit Agreement which modified its calculation of total net debt and its maximum allowable Leverage Ratio. The Credit Agreement financial covenant ratios at March 31, 2018 are as follows:

- a maximum Leverage Ratio of 4.25 to 1.00 as of March 31, 2018 (increasing to 4.75 on June 30, 2018, reducing to 4.50 on December 31, 2018, and then further reduced to 4.25 on December 31, 2019); and
- a minimum Coverage Ratio of not less than 3.00 to 1.00

Below is a summary of financing and replacement facilities information:

| Financing and Replacement Facilities Credit Agreement facilities | Interest Rate Index and Margin | Maturity/Termination Dates | Initial Term (Years) |
| --- | --- | --- | ---: |
| Revolving Facility | LIBOR + 1.75% | December 2020 | 5 |
| Term Loan A Facility | LIBOR + 1.75% | December 2020 | 5 |
| Delayed Draw Term Loan A Facility | LIBOR + 1.75% | December 2020 | 5 |
| Term Loan B Facility - USD | LIBOR(i) + 2.75% | November 2023 | 7.5 |
| Term Loan B Facility - Euro | EURIBOR(ii) + 3.00% | November 2023 | 7.5 |
| 2024 Senior Notes | 8.5% | April 2024 | 8 |

(i) LIBOR with a floor of 0.0%.

(ii) EURIBOR with a floor of 0.0%.

The debt facilities under the Credit Agreement are secured by substantially all assets of the Company and its domestic subsidiaries that are borrowers or guarantors under the Credit Agreement, subject to certain exceptions and permitted liens.

The Company's financing agreements contain various financial covenants, including net debt to capitalization, net debt to EBITDA and net interest coverage ratio. As of March 31, 2018, the Company was in compliance with the financial and other covenants in its debt agreements.

**Dividends** The Company paid dividends of $7.7 and $7.6 in the three months ended March 31, 2018 and 2017, respectively. Quarterly dividends were $0.10 per share for the both three months ended March 31, 2018 and 2017.

In May 2018, the Company announced its decision to reallocate future dividend funds towards debt reduction and other capital resource needs.

**Contractual Obligations** In the first three months ended of 2017, the Company entered into purchase commitments due within one year for materials through contract manufacturing agreements for a total negotiated price. At March 31, 2018, the Company had purchase commitments due within one year totaling $3.5 for materials through contract manufacturing agreements at negotiated prices.

The DPLTA offers the Diebold Nixdorf AG minority shareholders, at their election, (i) the ability to put their Diebold Nixdorf AG ordinary shares to Diebold KGaA in exchange for cash compensation of €55.02 per Diebold Nixdorf AG ordinary share or (ii) to remain Diebold Nixdorf AG minority shareholders and receive a recurring compensation in cash of €3.13 (€2.82 net under the current taxation regime) per Diebold Nixdorf AG ordinary share for each full fiscal year of Diebold Nixdorf AG. The ultimate timing and amount of any future cash payments related to the DPLTA are uncertain.

Except for the items noted above, all contractual cash obligations with initial and remaining terms in excess of one year and contingent liabilities remained generally unchanged at March 31, 2018 compared to December 31, 2017.

### (unaudited)

### (in millions, except per share amounts)

**Off-Balance Sheet Arrangements** The Company enters into various arrangements not recognized in the condensed consolidated balance sheets that have or could have an effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources. The principal off-balance sheet arrangements that the Company enters into are guarantees, operating leases and sales of finance receivables. The Company provides its global operations guarantees and standby letters of credit through various financial institutions to suppliers, regulatory agencies and insurance providers. If the Company is not able to make payment, the suppliers, regulatory agencies and insurance providers may draw on the pertinent bank. Refer to note 9 to the condensed consolidated financial statements for further details of guarantees. The Company has sold finance receivables to financial institutions while continuing to service the receivables. The Company records these sales by removing finance receivables from the condensed consolidated balance sheets and recording gains and losses in the condensed consolidated statements of operations.

### Critical Accounting Policies and Estimates

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s condensed consolidated financial statements. The preparation of these financial statements requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include revenue recognition, the valuation of trade, finance lease receivables, inventories, goodwill, intangible assets, other long-lived assets, legal contingencies, guarantee obligations and assumptions used in the calculation of income taxes, pension and post-retirement benefits and customer incentives, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors. Management monitors the economic conditions and other factors and will adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

Management believes there have been no significant changes during the three months ended March 31, 2018 to the items that the Company disclosed as its critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s annual report on Form 10-K for the year ended December 31, 2017.

### Forward-Looking Statement Disclosure

In this quarterly report on Form 10-Q, statements that are not reported financial results or other historical information are “forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.” Forward-looking statements give current expectations or forecasts of future events and are not guarantees of future performance. These forward-looking statements relate to, among other things, the Company's future operating performance, the Company's share of new and existing markets, the Company's short- and long-term revenue and earnings growth rates, and the Company's implementation of cost-reduction initiatives and measures to improve pricing, including the optimization of the Company's manufacturing capacity.

The use of the words “will,” “believes,” “anticipates,” “expects,” “intends” and similar expressions is intended to identify forward-looking statements that have been made and may in the future be made by or on behalf of the Company. Although the Company believes that these forward-looking statements are based upon reasonable assumptions regarding, among other things, the economy, its knowledge of its business, and on key performance indicators that impact the Company, these forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed in or implied by the forward-looking statements. The Company is not obligated to update forward-looking statements, whether as a result of new information, future events or otherwise.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements include, but are not limited to:

- the ultimate impact of the DPLTA with Diebold Nixdorf AG and the outcome of the appraisal proceedings initiated in connection with the implementation of the DPLTA;
- the ultimate outcome and results of integrating the operations of the Company and Diebold Nixdorf AG;
- the ultimate outcome of the Company’s pricing, operating and tax strategies applied to Diebold Nixdorf AG and the ultimate ability to realize cost reductions and synergies;
- the Company's ability to successfully operate its strategic alliances in China;

### (unaudited)

### (in millions, except per share amounts)

- changes in political, economic or other factors such as currency exchange rates, inflation rates, recessionary or expansive trends, taxes and regulations and laws affecting the worldwide business in each of the Company's operations, including the impact of the Tax Act;
- the Company’s reliance on suppliers and any potential disruption to the Company’s global supply chain;
- the impact of market and economic conditions economic conditions, including any additional deterioration and disruption in the financial and service markets, including the bankruptcies, restructurings or consolidations of financial institutions, which could reduce our customer base and/or adversely affect our customers' ability to make capital expenditures, as well as adversely impact the availability and cost of credit;
- the acceptance of the Company's product and technology introductions in the marketplace;
- competitive pressures, including pricing pressures and technological developments;
- changes in the Company's relationships with customers, suppliers, distributors and/or partners in its business ventures;
- the effect of legislative and regulatory actions in the U.S. and internationally and the Company’s ability to comply with government regulations;
- the impact of a security breach or operational failure on the Company's business;
- the Company's ability to successfully integrate other acquisitions into its operations;
- the Company's ability to maintain effective internal controls;
- changes in the Company's intention to further repatriate cash and cash equivalents and short-term investments residing in international tax jurisdictions, which could negatively impact foreign and domestic taxes;
- whether the Company will continue to pay cash dividends on its common shares, which will be evaluated in light of the Company's results of operations, cash flow and financial condition and other factors;
- unanticipated litigation, claims or assessments, as well as the outcome/impact of any current/pending litigation, claims or assessments;
- potential security violations to the Company's IT systems;
- the investment performance of our pension plan assets, which could require us to increase our pension contributions, and significant changes in healthcare costs, including those that may result from government action;
- the amount and timing of repurchases of the Company's common shares, if any; and
- the Company's ability to achieve benefits from its cost-reduction initiatives and other strategic initiatives, including its planned restructuring actions, as well as as its business process outsourcing initiative.

## Market risk

As filed, 1,676 characters.

On August 15, 2016, the Company designated its €350.0 euro-denominated Term Loan B Facility as a net investment hedge of its investments in certain subsidiaries that use the euro as their functional currency in order to reduce volatility in stockholders' equity caused by the changes in foreign currency exchange rates of the euro with respect to the U.S. dollar. Effectiveness is assessed at least quarterly by confirming that the respective designated net investments' net equity balances at the beginning of any period collectively continues to equal or exceed the balance outstanding on the Company's euro-denominated term loan. Changes in value that are deemed effective are accumulated in AOCI. When the respective net investments are sold or substantially liquidated, the balance of the cumulative translation adjustment in AOCI will be reclassified into earnings. The net gain (loss) recognized in AOCI on net investment hedge foreign currency borrowings was $(5.8) and $(6.1) for the three months ended March 31, 2018 and 2017, respectively. On March 30, 2017, the Company de-designated €130.6 of its euro-denominated Term Loan B Facility and on May 9, 2017, the Company designated an additional €66.8 of its euro-denominated Term Loan B Facility as a result of its repricing described under note 11. On September 21, 2017, the Company de-designated €100.0 of its euro-denominated Term Loan B Facility.

Refer to the Company’s annual report on Form 10-K for the year ended December 31, 2017 for a discussion of market risk exposures. There have been no material changes in this information since December 31, 2017.

### (in millions, except share and per share amounts)

## Controls and procedures

As filed, 2,051 characters.

This quarterly report on Form 10-Q includes the certifications of the Company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO) required by Rule 13a-14 of the Securities Exchange Act of 1934 (the Exchange Act). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

Based on the performance of procedures by management, designed to ensure the reliability of financial reporting, management believes that the unaudited condensed consolidated financial statements fairly present, in all material respects, the Company's financial position, results of operations and cash flows as of the dates, and for the periods presented.

### Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including the CEO and CFO as appropriate, to allow timely decisions regarding required disclosures.

In connection with the preparation of this quarterly report on Form 10-Q, the Company's management, under the supervision and with the participation of the CEO and CFO, conducted an evaluation of disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that such disclosure controls and procedures were effective as of March 31, 2018.

### Change in Internal Controls

During the quarter ended March 31, 2018, there have been no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

### (in millions, except share and per share amounts)

## Risk factors

As filed, 166 characters.

Refer to the Company’s annual report on Form 10-K for the year ended December 31, 2017. There has been no material change to this information since December 31, 2017.

Filed May 2, 2018.
Source: SEC EDGAR, the filing index for accession 0000028823-18-000102. Last ingested by Listed: Oct 28, 2026, 07:18 ET. No prices; not investment advice.