# DIEBOLD NIXDORF, Inc: Form 10-Q for the period ended Mar 31, 2020

- Company: [DIEBOLD NIXDORF, Inc](/companies/dbd.md) (CIK 28823)
- Form: 10-Q
- Filed: 2020-05-05
- Accepted by EDGAR: May 5, 2020, 17:14 ET
- Period: 2020-03-31
- Accession: 0000028823-20-000083
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/28823/000002882320000083/dbd331202010q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/28823/000002882320000083/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-01-01 to 2020-03-31 | $910.7m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2020-01-01 to 2020-03-31 | $683.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2020-01-01 to 2020-03-31 | $226.8m | us-gaap:GrossProfit |
| Research and development | 3 months, 2020-01-01 to 2020-03-31 | $32.5m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2020-01-01 to 2020-03-31 | $222.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-01-01 to 2020-03-31 | −$26.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-01-01 to 2020-03-31 | $48.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-01-01 to 2020-03-31 | $20.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-01-01 to 2020-03-31 | −$92.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-01-01 to 2020-03-31 | −$1.20 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 3 months, 2020-01-01 to 2020-03-31 | −$79.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-01-01 to 2020-03-31 | $5.4m | us-gaap:PaymentsToAcquireProductiveAssets |
| Share repurchases | 3 months, 2020-01-01 to 2020-03-31 | $5.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2020-03-31 | $512.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-03-31 | $2.05bn | us-gaap:AssetsCurrent |
| Total assets | at 2020-03-31 | $3.84bn | us-gaap:Assets |
| Current liabilities | at 2020-03-31 | $1.65bn | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2020-03-31 | −$727.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 53,841 characters.

### Significant Highlights

During the first quarter of 2020, Diebold Nixdorf:

- Proactively managed the risks and impacts of the COVID-19 global pandemic, including:
- The Company has delivered outstanding service to customers, even in hard-hit areas around the world, and has received positive feedback from its large and small customers alike in how effectively it has responded to the pandemic
- The Company was one of the first in its industry to activate a pandemic crisis management plan, with its team of service engineers adhering to strict hygiene protocols, using gloves and masks when and where appropriate and sanitizing equipment during servicing
- The Company’s global manufacturing and production facilities have remained operational throughout the pandemic and continue to ship products to customers in a timely manner
- The Company was recognized as providing essential critical infrastructure service by the U.S. Department of Homeland Security and other government agencies around the world
- The Company is leveraging its DN Now transformation program to further reduce costs and realize net working capital efficiencies
- Signed a multi-year ATM as-a-service contract with large financial institutions in Germany and Austria (Bank99 of the Austrian Post)
- Won sizable cash recycler deals with a top financial institution in Brazil (Tecban) and Ecuador (Banco Pichincha)
- Won new orders for more than 3,000 DN SeriesTM ATMs and expanded its certification program to more than 450 financial institutions
- Signed a new contract encompassing technical safety equipment, software and maintenance services for approximately 1,500 quick-service restaurants in Germany. These solutions are being required by a number of European regulatory authorities as they seek to increase income tax compliance
- Secured a new customer with a large French fashion company to modernize its point-of-sale experience with all-in-one Beetle POS devices and maintenance services at more than 500 stores in France and Benelux countries
- Signed a comprehensive product, Vymanic software and multi-year AllConnect Services contract with Italian retailer Iper Montebello, part of Finiper Group, to enhance the checkout experience at more than 200 supermarkets in Italy
- Won a new, five-year Managed Services contract with Delhaize, the second largest food retailer in Belgium, for monitoring, help-desk and incident follow-up

### 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 is a world leader in enabling Connected Commerce. The Company automates, digitizes and transforms the way people bank and shop. The Company’s integrated solutions connect digital and physical channels conveniently, securely and efficiently for millions of consumers every day. As an innovation partner for nearly all of the world's top 100 financial institutions and a majority of the top 25 global retailers, the Company delivers unparalleled services and technology that power the daily operations and consumer experience of banks and retailers around the world. The Company has a presence in more than 100 countries with approximately 22,000 employees worldwide.

#### Strategy

The Company 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 Company partners with other leading technology companies and regularly refines its research and development (R&D) spend to support a better transaction experience for consumers.

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#### DN Now Transformation Activities

Commensurate with its strategy, the Company is executing its multi-year transformation program called DN Now to relentlessly focus on its customers while improving operational excellence. Key activities include:

- Transitioning to a streamlined and customer-centric operating model
- Implementing a services modernization plan which focuses on upgrading certain customer touchpoints, automating incident reporting and response, and standardizing service offerings and internal processes
- Streamlining the product range of ATMs and manufacturing footprint
- Improving working capital management through greater focus and efficiency of payables, receivables and inventory
- Reducing administrative expenses, including finance, IT and real estate
- Increasing sales productivity through improved coverage and compensation arrangements
- Standardizing back-office processes to automate reporting and better manage risks
- Optimizing the portfolio of businesses to improve overall profitability

These work streams are designed to improve the Company’s profitability and net leverage ratio while establishing a foundation for future growth. The gross annualized savings target for DN Now is approximately $440 through 2021. In order to achieve these savings, the Company has and will continue to restructure the workforce globally, integrate and optimize systems and processes, transition workloads to lower cost locations, renegotiate and consolidate supplier agreements and streamline real estate holdings. By executing on these and other operational improvement activities, the Company expects to increase customer intimacy and satisfaction, while providing career enrichment opportunities for employees and enhancing value for shareholders. In 2019, the Company achieved approximately $175 in annualized gross run rate savings. The cost to achieve these savings was approximately $115 and was largely due to restructuring and the implementation of DN Now transformational programs.

#### COVID-19 Response

As a result of the global COVID-19 pandemic, the Company’s priorities have been the health and safety of its employees, continuing to serve the Company's customers as an essential service, and taking steps to protect its operational foundation. The Company has taken multiple measures to protect its employees, and it continues to evolve those measures based on input from various health authorities. The Company is equipping its service technicians with the appropriate protective gear and training them on evolving hygiene practices and social distancing rules. For employees in manufacturing facilities, the Company has segmented its workers and has implemented daily temperature checks. The Company is providing the proper tools, resources and guidance for its support functions to safely and productively work from home during the crisis, including establishing an employee crisis reserve fund which is available for employees who need support. The Company has also focused on the stability of its suppliers and supply chain, as borders have shut and logistics have become more challenging.

The Company has been designated as providing “critical infrastructure” services by the majority of government entities including the United States Department of Homeland Security in order to promote public health and safety, as well as economic and national security during the COVID-19 outbreak. These designations recognize the vital role Diebold Nixdorf plays in allowing consumers to reliably and safely access financial services and essential retailers across more than 60 countries.

In taking measures to strengthen its operations during this period of uncertainty, the Company continues to execute its DN Now transformation program, and is accelerating certain elements of the program. It has also added additional cost measures that are in the midst of execution — such as reducing the annual bonus plan, deferring merit pay increases and instating a hiring freeze. Certain internal projects have been suspended, including some investments in IT systems. With so many employees working remotely, the Company is accelerating plans to consolidate its real estate footprint. In selected areas, the Company will participate in government relief programs which facilitate labor and payroll tax savings. Taken together, Diebold Nixdorf is targeting an incremental $80 - $100 of annualized savings. Furthermore, the Company continues to carefully manage net working capital with the same discipline and governance put in place during 2019. During the first quarter of 2020, the Company also took actions to enhance liquidity and ensure it has adequate financial flexibility during what is expected to be a more challenging near-term environment. During the first quarter of 2020, the Company fully borrowed its revolving credit facility, consistent with the practices of many large companies. This action was done out of an abundance of caution. The Company believes it has sufficient liquidity to fund its operations.

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#### Segments

The Company’s operating structure is focused on its two customer segments — Banking and Retail. Leveraging a broad portfolio of solutions, the Company offers customers the flexibility to purchase the combination of services, software and systems that drive the most value to their business.

#### Banking

The Company provides integrated solutions for financial institutions of all sizes designed to help drive operational efficiencies, differentiate the consumer experience, grow revenue and manage risk. Banking operations are managed within two geographic regions. The Eurasia region includes the economies of Western Europe, Eastern Europe, Asia, the Middle East and Africa. The Americas region encompasses the United States (U.S.), Canada, Mexico and Latin America.

For banking clients, services represents the largest operational component of the Company. Diebold Nixdorf AllConnect Services® was launched in 2018 to power the business operations of financial institutions of all sizes. This as-a-service offering provides financial institutions with the capabilities and technology needed to make physical distribution channels as agile, integrated, efficient and differentiated as their digital counterparts by leveraging a data-driven Internet of Things (IoT) infrastructure.

The Company’s product-related services resolve incidents through remote service capabilities or an on-site visit. The portfolio includes first and second line maintenance, preventive maintenance, “on-demand” and total implementation services.

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 and the bank branch. Our integrated business solutions include self-service fleet management, branch life-cycle management and ATM as-a-service capabilities.

From a product perspective, the banking portfolio consists of cash recyclers and dispensers, intelligent deposit terminals, teller automation and kiosk technologies, as well as physical security solutions. The Company assists financial institutions to increase the functionality, availability and security within their ATM fleet.

In 2019, the Company introduced DN Series, a family of self-service solutions designed to meet the needs of a progressively transforming industry. These holistic, digitally-connected solutions are built upon an integrated software and services model and provide a modern and personalized experience for consumers, while delivering maximum efficiency and reliability for financial institutions.

DN Series is the culmination of several years of investment in consumer research, design and engineering resources. Key benefits and features of DN Series include:

- Improved ATM availability and performance through intelligent design, the use of sensor technology and machine learning via the AllConnect Data Engine
- Higher note capacity and processing power with next-generation cash recycling technology
- Improved security in a smaller footprint
- Full integration with the DN Vynamic software suite
- Technological capability that facilitates a streamlined, simplified product portfolio
- Modular and upgradeable design, enabling a simplified and streamlined internal supply chain

The Company’s software encompasses front-end applications for consumer connection points as well as back-end platforms which manage channel transactions, operations and channel integration. These hardware-agnostic software applications facilitate millions of transactions via ATMs, kiosks, and other self-service devices, as well as via online and mobile digital channels.

The Company's DN Vynamic software is the first end-to-end Connected Commerce software portfolio in the banking marketplace designed to simplify and enhance the consumer experience. In addition, DN Vynamic suite's open application program interface (API) architecture is built to simplify operations by eliminating the traditional focus on internal silos and enabling tomorrow's inter-connected partnerships between financial institutions and payment providers. In addition,

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with a shared analytic and transaction engine, the DN Vynamic platform can generate new insights to enhance operations across any channel - putting customer preferences, not the technology, at the heart of the experience.

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

#### Retail

The Company’s comprehensive portfolio of retail solutions, software and services improves the checkout process for retailers while enhancing shopping experiences for consumers.

The DN Vynamic software suite for retailers provides a comprehensive, modular and open solution ranging from the in-store check-out solution to solutions across multiple channels that improve end-to-end store processes and facilitate continuous 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. Operational data from a number of sources, such as enterprise resource planning (ERP), point of sale (POS), store systems and customer relationship management systems (CRM), may be integrated across all customer connection points to create seamless and differentiated consumer experiences.

Diebold Nixdorf AllConnect Services for retailers include maintenance and availability services to continuously optimize the performance and total cost of ownership of retail touchpoints, such as checkout, self-service and mobile devices, as well as critical store infrastructure. The solutions portfolio includes: implementation services to expand, modernize or upgrade store concepts; maintenance services for on-site incident resolution and restoration of multivendor solutions; support services for on-demand service desk support; operations services for remote monitoring of stationary and mobile endpoint hardware; as well as application services for remote monitoring of multivendor software and planned software deployments and data moves. As a single point of contact, service personnel plan and supervise store openings, renewals and transformation projects, with attention to local details and customers’ global IT infrastructure.

The retail systems portfolio includes modular and integrated, “all-in-one” POS and self-service terminals that meet evolving consumer shopping journeys, as well as retailers’ and store staff’s automation requirements. The Company’s self-checkout (SCO) systems and ordering kiosks facilitate a seamless and efficient transaction experience. The BEETLE®/iSCAN EASY eXpress™, hybrid products, can alternate from attended operation to SCO with the press of a button. The K-two Kiosk automates routine tasks and in-store transactions, offers order-taking abilities, particularly at quick service restaurants (QSRs) and fast casual restaurants and presents functionality that furthers store automation and digitalization. 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.

#### 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 the Company's Connected Commerce strategy
- Integration of sales force, business processes, procurement, and internal IT systems
- Execution and risk management associated with DN Now transformational activities
- Realization of cost reductions, which leverage the Company's global scale, reduce overlap and improve operating efficiencies

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### 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 recent COVID-19 pandemic did not have a material adverse effect on the Company's reported results for the first quarter of 2020. The Company is actively monitoring the impact of the COVID-19 pandemic, which will likely impact our business and results of operations for the rest of 2020, and the extent of the impact cannot be reasonably estimated at this time. The extent of the COVID-19 impact to our operations will depend largely on future developments, along with any new information that may emerge regarding the severity of the pandemic and the actions taken by government authorities to mitigate the spread of the virus, among other factors, all of which are highly uncertain and cannot be accurately predicted.

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.

#### Net Sales

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

| Segments Eurasia Banking | Three Months Ended March 31, 2020 | 2019 | % Change | % Change in CC (1) | Percent of Total Net Sales for the Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Services | $206.0 | $247.0 | (16.6) | (14.6) | 22.6 | 24.0 |
| Products | 104.5 | 135.6 | (22.9) | (20.7) | 11.5 | 13.2 |
| Total Eurasia Banking | 310.5 | 382.6 | (18.8) | (16.8) | 34.1 | 37.2 |
| Americas Banking |  |  |  |  |  |  |
| Services | 239.5 | 240.8 | (0.5) | 0.8 | 26.3 | 23.4 |
| Products | 105.2 | 121.9 | (13.7) | (11.4) | 11.6 | 11.9 |
| Total Americas Banking | 344.7 | 362.7 | (5.0) | (3.3) | 37.9 | 35.3 |
| Retail |  |  |  |  |  |  |
| Services | 142.3 | 140.9 | 1.0 | 3.9 | 15.6 | 13.7 |
| Products | 113.2 | 141.9 | (20.2) | (18.2) | 12.4 | 13.8 |
| Total Retail | 255.5 | 282.8 | (9.7) | (7.2) | 28.0 | 27.5 |
| Total net sales | $910.7 | $1,028.1 | (11.4) | (9.3) | 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, 2020 compared with three months ended March 31, 2019

Net sales decreased $117.4, or 11.4 percent, including a net unfavorable currency impact of $23.5 primarily related to the euro and Brazil real, resulting in a constant currency decrease of $93.9. The following results include the impact of foreign currency:

### Segments

- Eurasia Banking net sales decreased $72.1, including a net unfavorable currency impact of $9.6, related primarily to the euro, and divestitures of $13.4. Excluding currency and the impact of divestitures, net sales decreased $49.1 driven by customer and supply chain challenges from COVID-19, non-recurring prior year refresh projects and reducing low margin services business.

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- Americas Banking net sales decreased $18.0, including a net unfavorable currency impact of $6.4, related primarily to the Brazil real. Excluding the impact of currency, net sales decreased $11.6 mostly from large non-recurring product refresh projects in Canada and U.S. National accounts as well as reducing lower margin services business. This decrease was partially offset by increased U.S. regional Windows 10 upgrades and software growth.
- Retail net sales decreased $27.3, including a net unfavorable currency impact of $7.5 mostly related to the euro. Excluding the impact of currency, net sales decreased $19.8 primarily from prior year non-recurring POS roll-outs in Europe, partially offset by higher professional services volume in northern Europe. Additionally, overall revenue was unfavorably impacted by delays related to COVID-19.

#### Gross Profit

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

|  | Three Months Ended March 31, 2020 | 2019 | % Change |
| --- | ---: | ---: | ---: |
| Gross profit - services | $150.3 | $157.2 | (4.4) |
| Gross profit - products | 76.5 | 88.9 | (13.9) |
| Total gross profit | $226.8 | $246.1 | (7.8) |
| Gross margin - services | 25.6% | 25.0% |  |
| Gross margin - products | 23.7% | 22.3% |  |
| Total gross margin | 24.9% | 23.9% |  |

Services gross margin increased 0.6 percent in three months ended March 31, 2020 including $19.4 higher non-routine charges consisting primarily of a $12.0 onerous contracts provision, $3.3 spare parts inventory provision, and $1.8 of incremental payments to essential service technicians for their contributions during the COVID-19 pandemic. Restructuring decreased $0.7. Excluding the impact of non-routine and restructuring expense, services gross margin increased 3.8 percent due primarily to the Company's service modernization plan as well as reducing low margin maintenance contracts, and lower professional services cost in the Americas Banking and Retail segments. Additionally, lower cost from the associate incentive plan (AIP), favorably impacted the first quarter of 2020.

Product gross margin increased 1.4 percent in the three months ended March 31, 2020 including $7.1 higher non-routine charges primarily consisting of a $4.8 indemnification costs of a previously divested business in Germany and $3.4 inventory provision reversal in the prior year. Excluding non-routine charges, products gross profit increased 3.6 percent due primarily to a favorable solution and geography mix in the Americas and Eurasia Banking segments as well as lower Americas Banking and Retail software amortization tied to capitalized software that was impaired in December 2019.

#### Operating Expenses

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

|  | Three Months Ended March 31, 2020 | 2019 | % Change |
| --- | ---: | ---: | ---: |
| Selling and administrative expense | $222.1 | $230.3 | (3.6) |
| Research, development and engineering expense | 32.5 | 36.9 | (11.9) |
| (Gain) loss on sale of assets, net | (1.8) | 3.4 | N/M |
| Total operating expenses | $252.8 | $270.6 | (6.6) |
| Percent of net sales | 27.8% | 26.3% |  |

44

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N/M = Not Meaningful

Selling and administrative expense in the three months ended March 31, 2020 decreased $8.2, or $19.9 excluding a $3.5 favorable currency impact and $15.2 incremental non-routine and restructuring adjustments. Lower selling and administrative expense was due primarily to the Company's DN Now actions as well as lower expense related to the legacy Wincor Nixdorf stock option program and decreased stock and cash bonus compensation.

Non-routine cost in selling and administrative expense was $54.4 in the three months ended March 31, 2020, an increase of $9.8 related primarily to $20.3 higher DN Now consulting and related items, partially offset by $7.0 lower legal and deal expense, $3.0 lower purchase accounting adjustments, and $0.5 of other items. Restructuring expense was $7.6, an increase of $5.4 compared to the prior year related to workforce alignment under the DN Now plan.

Research, development and engineering expense in the three months ended March 31, 2020 decreased $4.4 including a net favorable currency impact of $0.9, primarily related to the euro and Brazil real. Excluding currency and higher restructuring expense of $1.4, research, development and engineering expense decreased $4.9 primarily from lower AIP expense, lower product development cost and software cost management actions.

In the three months ended March 31, 2020, the Company recorded a gain on sale of assets of $1.8 related primarily to the sale of Portavis GmbH. The prior year quarter's loss on sale of assets was primarily related to the divestitures of the Venezuela business of $4.1 and Projective NV of $2.8, partially offset by a gain of $3.5 related to the Company's exit activities of certain entities in the Netherlands included in the Retail operating segment.

Operating expense as a percent of net sales in the three months ended March 31, 2020 increased 1.5 percent to 27.8 percent compared to the same period in 2019 primarily from a mix of higher non-routine and restructuring cost as well as lower revenue.

#### Operating Profit (Loss)

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

|  | Three Months Ended March 31, 2020 | 2019 | % Change |
| --- | ---: | ---: | ---: |
| Operating profit (loss) | $(26.0) | $(24.5) | (6.1) |
| Operating margin | (2.9)% | (2.4)% |  |

The operating loss increased in the three months ended March 31, 2020 compared to the prior year. The change is primarily due to higher non-routine and restructuring charges offsetting lower operating expense tied to the DN Now plan and improved gross margin.

#### Other Income (Expense)

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

|  | Three Months Ended March 31, 2020 | 2019 | % Change |
| --- | ---: | ---: | ---: |
| Interest income | $1.1 | $2.9 | (62.1) |
| Interest expense | (48.0) | (50.9) | 5.7 |
| Foreign exchange gain, net | 0.4 | 2.8 | (85.7) |
| Miscellaneous, net | (0.9) | (1.4) | 35.7 |
| Other income (expense), net | $(47.4) | $(46.6) | (1.7) |

Interest income in the three months ended March 31, 2020, decreased $1.8 mostly from lower market returns on non-qualified plans, in addition to lower cash balances in Brazil. Interest expense decreased $2.9 from the pay down of debt and reduced interest rates. Foreign exchange gain decreased $2.4 as a result of the prior year quarter's gain primarily tied to the currency devaluation in the Venezuela operating entity.

### (unaudited)

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#### Net Loss

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

|  | Three Months Ended March 31, 2020 | 2019 | % Change |
| --- | ---: | ---: | ---: |
| Net loss | $(93.4) | $(131.9) | 29.2 |
| Percent of net sales | (10.3)% | (12.8)% |  |
| Effective tax rate | (27.2)% | (85.0)% |  |

The loss before taxes and net loss decreased primarily due to the reasons described above. Net loss was also impacted by the change in the income tax expense.

The effective tax rate on the loss from continuing operations was (27.2) percent for the three months ended March 31, 2020. The expense on the loss was primarily due to the tax impacts of the U.S. Tax Cuts and Jobs Act (Tax Act) on the estimated projected tax rate and, more specifically, the impacts related to global intangible low-taxed income (GILTI). In addition, a partial valuation allowance against interest expense carryforwards and the Company’s jurisdictional income (loss) mix at varying statutory rates impacted the estimated projected tax rate.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted providing $2.2 trillion of economic stimulus relief to address the market conditions due to the recent outbreak of COVID-19. Among other things, the CARES Act provides a package of corporate tax provisions including the ability for companies to carry back to five preceding years net operating loss (NOL) carryforwards generated in tax years starting after December 31, 2017 and before January 1, 2021. Also, the 80 percent taxable income limitation was temporarily removed increasing the amount of NOL carryforwards that can be deducted in 2018, 2019 and 2020, and the CARES Act increased the deduction limitation for business interest expense to 50 percent from 30 percent. The Company evaluated the impact of the CARES Act to its income tax provision and cash flow and does not believe the effects are material.

The effective tax rate on the loss before taxes was (85.0) percent for the three months ended March 31, 2019. The expense on the loss is due primarily to the tax impacts of the Tax Act on the estimated projected tax rate. More specifically, the impacts of the GILTI and base erosion and anti-abuse tax (BEAT). In addition, the Company collapsed its Barbados structure to meet the debt covenant requirements from our lenders during the quarter which resulted in additional discrete tax expense which is being offset in part by the valuation allowance release relating to the Company’s nondeductible interest expense resulting in no additional cash taxes. The above items noted as well as the Company’s jurisdictional income (loss) mix and varying respective statutory rates are the primary drivers of the quarterly tax rate.

### Segment Net Sales and Operating Profit Summary

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

| Eurasia Banking: | Three Months Ended March 31, 2020 | 2019 | % Change |
| --- | ---: | ---: | ---: |
| Net sales | $310.5 | $382.6 | (18.8) |
| Segment gross profit | $89.8 | $109.0 | (17.6) |
| Segment selling and administrative expense | 46.1 | 61.9 | (25.5) |
| Segment research, development and engineering expense | 12.0 | 13.4 | (10.4) |
| Segment operating profit | $31.7 | $33.7 | (5.9) |
| Segment operating profit margin | 10.2% | 8.8% |  |

46

### (unaudited)

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

Eurasia Banking net sales decreased $72.1, including a net unfavorable currency impact of $9.6, related primarily to the euro, and divestitures of $13.4. Excluding currency and the impact of divestitures, net sales decreased $49.1 driven by customer and supply chain challenges from COVID-19, non-recurring prior year refresh projects and reducing low margin services business.

Segment operating profit decreased $2.0 in the three months ended March 31, 2020 including a net unfavorable currency impact of $2.4. Excluding the impact of currency, operating profit was relatively flat as lower operating expense tied to DN Now initiatives, restructuring programs and lower incentive program expense, more than offset lower product and services volume.

Segment operating profit margin increased 2.4 percent mostly from lower operating expense as noted above.

| Americas Banking: | Three Months Ended March 31, 2020 | 2019 | % Change |
| --- | ---: | ---: | ---: |
| Net sales | $344.7 | $362.7 | (5.0) |
| Segment gross profit | $104.5 | $82.2 | 27.1 |
| Segment selling and administrative expense | 39.7 | 50.3 | (21.1) |
| Segment research, development and engineering expense | 11.1 | 13.4 | (17.2) |
| Segment operating profit | $53.7 | $18.5 | N/M |
| Segment operating profit margin | 15.6% | 5.1% |  |

N/M = Not Meaningful

Americas Banking net sales decreased $18.0, including a net unfavorable currency impact of $6.4, related primarily to the Brazil real. Excluding the impact of currency, net sales decreased $11.6 mostly from large non-recurring product refresh projects in Canada and U.S. National accounts as well as reducing lower margin services business. This decrease was partially offset by increased U.S. regional Windows 10 upgrades and software growth.

Segment operating profit increased $35.2 in the three months ended March 31, 2020 including a nominal unfavorable net currency impact. Higher operating profit was driven primarily by increased service margin tied to the service modernization program and lower AIP. Additionally, improved product solution mix in the U.S. and lower software cost drove higher products gross profit, partially offset by non-recurring prior year refresh projects. Incremental benefits tied to DN Now initiatives drove favorable operating expense compared to the prior year.

Segment operating profit margin increased 10.5 percent three months ended March 31, 2020, primarily as a result of higher products and services gross margin, in addition to lower cost related to the DN Now initiatives and reduced AIP expense.

| Retail: | Three Months Ended March 31, 2020 | 2019 | % Change |
| --- | ---: | ---: | ---: |
| Net sales | $255.5 | $282.8 | (9.7) |
| Segment gross profit | $59.9 | $55.8 | 7.3 |
| Segment selling and administrative expense | 36.7 | 37.8 | (2.9) |
| Segment research, development and engineering expense | 7.9 | 9.9 | (20.2) |
| Segment operating profit | $15.3 | $8.1 | 88.9 |
| Segment operating profit margin | 6.0% | 2.9% |  |

Retail net sales decreased $27.3, including a net unfavorable currency impact of $7.5 mostly related to the euro. Excluding the impact of currency, net sales decreased $19.8 primarily from prior year non-recurring POS roll-outs in Europe, partially offset by higher professional services volume in northern Europe. Additionally, overall revenue was unfavorably impacted by delays related to COVID-19.

Segment operating profit increased $7.2 for the three months ended March 31, 2020, including a nominal unfavorable currency impact, due primarily to higher gross profit mostly from a favorable services solution and country mix in EMEA as well as lower AIP and decreased software cost.

Segment operating profit margin increased 3.1 percent for the three months ended March 31, 2020 primarily from higher gross margin on favorable mix and lower software amortization and operating expense.

### (unaudited)

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

### Liquidity and Capital Resources

The Company's total cash and cash availability as of March 31, 2020 and December 31, 2019 was as follows:

|  | March 31, 2020 | December 31, 2019 |
| --- | ---: | ---: |
| Cash and cash equivalents (excluding restricted cash) | $508.5 | $277.3 |
| Additional cash availability from |  |  |
| Cash included in assets held for sale | 32.8 | 97.2 |
| Uncommitted lines of credit | 33.1 | 36.7 |
| Revolving Facility | — | 387.3 |
| Short-term investments | 13.5 | 10.0 |
| Total cash and cash availability | $587.9 | $808.5 |

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, R&D activities, investments in facilities or equipment, pension contributions and any repurchases of the Company’s common shares for at least the next 12 months. While the Company believes it has sufficient liquidity, it has increased its cash position out of an abundance of caution in light of the evolving COVID-19 pandemic and related macroeconomic implications. The Company is enhancing its financial flexibility as a critical provider of Connected Commerce solutions to financial institutions, supermarkets, pharmacies and fuel stations through its industry-leading ATMs, AllConnect Services, retail SCO and POS solutions. The additional borrowings under the Revolving Facility may be used for general corporate purposes. The Company cannot predict or reasonably estimate the duration or extent of the COVID-19 pandemic, its impact on our customers and suppliers and the negative impact it will cause on our results of operations and financial position. The Company is actively managing the business to maintain sufficient liquidity. The Company had $3.6 of restricted cash at March 31, 2020 and December 31, 2019. As of March 31, 2020, $196.9 or 38.4 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 $1,550 of earnings that are available for repatriation with no additional tax expense. The Company has made acquisitions in the past and may make acquisitions in the future. Part of the Company’s strategy is to optimize the business portfolio through divestitures and complementary acquisitions. The Company intends to finance any future acquisitions with 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: | 2020 | 2019 |
| --- | ---: | ---: |
| Net cash used by operating activities | $(79.9) | $(57.1) |
| Net cash used by investing activities | (51.7) | (11.5) |
| Net cash provided (used) by financing activities | 314.0 | (13.9) |
| Effect of exchange rate changes on cash and cash equivalents | (15.6) | (0.5) |
| Change in cash, cash equivalents and restricted cash | $166.8 | $(83.0) |

### 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 $79.9 for the three months ended March 31, 2020, an increase in use of $22.8 from $57.1 for the same period in 2019.

- Cash flows from operating activities during the three months ended March 31, 2020 compared to the same period in 2019 were primarily impacted by a $38.5 decrease in net loss as a result of DN Now cost saving initiatives. Refer to the Results of Operations discussed above for further discussion of the Company's net loss.

### (unaudited)

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

- The net aggregate of trade receivables, inventories and accounts payable provided $5.4 and used $42.3 in operating cash flows during the three months ended March 31, 2020 and 2019, respectively. Trade receivables cash used $8.0 for the three months ended March 31, 2020 compared to $33.2 provided for the same period in the prior-year primarily due to improvement in collections in 2019 as a result of the Company's working capital improvement initiatives and normal operational spending during the first quarter of 2020. For the three months ended March 31, 2020, inventory cash use improved $29.2 compared to the same period in the prior year primarily due to improved inventory management and focus as a result of streamlining the product portfolio and improved governance. Accounts payable provided $47.3 for the three months ended March 31, 2020 compared to a usage of $12.4 for the same period in the prior-year primarily related to DN Now initiatives.
- In the aggregate, the other combined certain assets and liabilities used $9.4 for the three months ended March 31, 2020 compared to $54.2 provided during the same period in 2019. The change was primarily due to increased cash bonuses paid, along with cash usage by assets held for sale in the first quarter of 2020 and decreased non-cash deferred income taxes due to the results of operations.

Depreciation and amortization expense decreased $4.9 to $53.5 during the three months ended March 31, 2020 compared to $58.4 during the same period in 2019 primarily due to reduction in amortization related to acquired intangibles and capitalized software, along with a reduction in capital spend. Changes in deferred income taxes during the three months ended March 31, 2020 compared to the same period in 2019 resulted in increased usage of $18.3 primarily related to the tax effects of the 2019 Barbados structure collapse partially offset by a reduction in the deferred liabilities released on certain acquired intangible assets. Share-based compensation decreased $5.3 to $4.0 for the three months ended March 31, 2020 compared to the same period in 2019 primarily due to a reduction in shares awarded. The loss (gain) on sale of assets, net were primarily a result of the Portavis GmbH divestiture during the first quarter of 2020 and the divestiture of non-core businesses during the first quarter of 2019.

### Investing Activities

Cash flows from investing activities during the three months ended March 31, 2020 compared to the same period in 2019 were primarily impacted by a $42.7 decrease in proceeds from divestitures, net of cash divested as a result of the Portavis GmbH divestiture during the first quarter of 2020 and the Projective NV divestiture during the first quarter of 2019. Additionally, the maturities and purchases of investments primarily relate to short-term investment activity in Brazil resulted in an $8.8 increase in cash usage. The Company also reduced its capital expenditures and investments in certain other assets primarily related to software to be sold when compared to prior year.

### Financing Activities

Net cash provided by financing activities was $314.0 for the three months ended March 31, 2020 compared to the $13.9 usage for the same period in 2019, which resulted in an increase of $327.9. The change was primarily a result of the Company drawing down its entire availability under the Revolving Facility in response to the uncertainty of the circumstances surrounding the COVID-19 pandemic. The Company also had $7.7 net borrowings from uncommitted lines of credit in connection with international projects. During the first quarter of 2020, the Company paid $65.4 towards its term loans primarily due to certain mandatory repayment provisions pursuant to the Credit Agreement compared to the $6.4 during the same period in the prior year. During the first quarter of 2019, the Company paid $11.0 for the redemption of shares and cash compensation to Diebold Nixdorf AG minority shareholders.

Refer to note 11 for additional information regarding the Company's debt obligations. The Company paid cash for interest related to its debt of $34.0 and $39.5 for the three months ended March 31, 2020 and 2019, respectively. As defined by the Company's credit agreement, the ratio of net debt to trailing 12 months adjusted EBITDA was 4.2 times as of March 31, 2020. As of March 31, 2020, the Company was in compliance with the financial and other covenants in its debt agreements.

Refer to note 17 for additional information regarding the Company's hedging and derivative instruments.

**Contractual Obligations** During 2020, the Company entered into purchase commitments due within one year for materials through contract manufacturing agreements for a total negotiated price. At March 31, 2020, the Company had minimal purchase commitments due within one year for materials through contract manufacturing agreements at negotiated prices.

### (unaudited)

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

During the first quarter of 2020, the Company drew down its entire availability under the Revolving Facility and as a result, $68.8 included in notes payable mature on December 23, 2020.

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, 2020 compared to December 31, 2019.

**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, customers, regulatory agencies and insurance providers. If the Company is not able to make payment, the suppliers, customers, regulatory agencies and insurance providers may draw on the pertinent bank. Refer to note 9 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.

The recent COVID-19 pandemic did not have a material adverse effect on the Company's reported results for the first quarter of 2020. The Company is actively monitoring the impact of the COVID-19 pandemic, which will likely impact our business and results of operations for the rest of 2020, and the extent of the impact cannot be reasonably estimated at this time. The extent of the COVID-19 impact to our operations will depend largely on future developments, along with any new information that may emerge regarding the severity of the pandemic and the actions taken by government authorities to mitigate the spread of the virus, among other factors, all of which are highly uncertain and cannot be accurately predicted.

Management believes there have been no other significant changes during the three months ended March 31, 2020 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, 2019.

### 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

### (unaudited)

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

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 ongoing COVID-19 pandemic;
- the outcome of the appraisal proceedings initiated in connection with the implementation of the DPLTA with the former Diebold Nixdorf AG and the merger/squeeze-out;
- the Company's ability to achieve benefits from its cost-reduction initiatives and other strategic initiatives, such as DN Now, including its planned restructuring actions, as well as its business process outsourcing initiative;
- the success of the Company’s new products, including its DN Series line;
- the Company's ability to comply with the covenants contained in the agreements governing its debt;
- the Company's ability to successfully refinance its debt when necessary or desirable;
- the ultimate outcome of the Company’s pricing, operating and tax strategies applied to former Diebold Nixdorf AG and the ultimate ability to realize cost reductions and synergies;
- 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;
- the Company’s reliance on suppliers and any potential disruption to the Company’s global supply chain;
- the impact of market and 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;
- interest rate and foreign currency exchange rate fluctuations, including the impact of possible currency devaluations in countries experiencing high inflation rates;
- 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 success in divesting, reorganizing or exiting non-core and/or non-accretive businesses;
- 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;
- unanticipated litigation, claims or assessments, as well as the outcome/impact of any current/pending litigation, claims or assessments;
- the investment performance of the Company's pension plan assets, which could require the Company to increase its pension contributions, and significant changes in healthcare costs, including those that may result from government action; and
- the amount and timing of repurchases of the Company's common shares, if any.

Except to the extent required by applicable law or regulation, the Company undertakes no obligation to update these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.

## Market risk

As filed, 602 characters.

Refer to the Company’s annual report on Form 10-K for the year ended December 31, 2019 for a discussion of market risk exposures. As discussed elsewhere in this report, COVID-19 will negatively impact our business and results of operations. As the Company cannot predict the duration or extent of the pandemic, the future impact on the results of operations, financial position and cash flows, among others, cannot be reasonably estimated, but could be material. There have been no other material changes in this information since December 31, 2019.

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

## Controls and procedures

As filed, 2,094 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 Securities and Exchange Commission's (SEC) 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, 2020.

### Change in Internal Controls

During the first quarter ended March 31, 2020, 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, 2,060 characters.

*The COVID-19 pandemic has disrupted the Company's operations and could have a material adverse effect on our business.*

Our business could be materially and adversely affected by the outbreak of a widespread health epidemic. The present COVID-19 pandemic has disrupted the Company's operations and will affect our business, including as government authorities impose mandatory closures, work-from-home orders and social distancing protocols, and seek voluntary facility closures or impose other restrictions that could materially adversely affect our ability to adequately staff and maintain our operations. Specifically, we have experienced, and expect to experience in the future, temporary facility closures in response to government mandates in certain jurisdictions in which we operate and in response to positive diagnoses for COVID-19 in certain facilities for the safety of our associates. The COVID-19 pandemic could also disrupt our supply chain and materially adversely impact our ability to secure supplies for our facilities and to provide personal protective equipment for our employees, which could materially adversely affect our operations. There may also be long-term effects on our customers and the economies of affected countries. Even if a virus or other illness does not spread significantly, the perceived risk of infection or health risk may materially adversely affect our business. Any of the foregoing within the countries in which the Company, our customers and suppliers operate would severely disrupt our operations and could have a material adverse effect on our business, results of operations, cash flows and financial position. As we cannot predict the duration or scope of the COVID-19 pandemic, the negative financial impact to our results cannot be reasonably estimated, but could be material.

Refer to the Company’s annual report on Form 10-K for the year ended December 31, 2019. There has been no other material change to this information since December 31, 2019.

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

Filed May 5, 2020.
Source: SEC EDGAR, the filing index for accession 0000028823-20-000083. Last ingested by Listed: Oct 28, 2026, 07:18 ET. No prices; not investment advice.