DIEBOLD NIXDORF, Inc: Form 10-Q for the period ended Sep 30, 2024

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 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 a partner to the majority of the world's top 100 financial institutions and top 25 global retailers, the Company's integrated solutions connect digital and physical channels conveniently, securely and efficiently for millions of consumers each day. The Company has a presence in more than 100 countries with approximately 21,000 employees worldwide.

Continuous Improvement

The Company seeks to continually enhance the consumer experience at bank and retail locations while streamlining cost structures and business processes for its customers 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. In addition, the Company is focused on consistently innovating its solutions while effectively improving its business processes and cost management efforts.

Business Drivers

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

• demand for self-service and automation from Banking and Retail customers driven by the evolution of consumer behavior;
• demand for cost efficiencies and better usage of real estate for bank branches and retail stores as they transform their businesses to meet the needs of their customers while facing macro-economic challenges;
• demand for services on distributed IT assets such as ATMs, POS and SCO, including managed services and professional services;
• timing of product 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; and
• demand for innovative technology in connection with the Company's strategy.

Management's Discussion and Analysis of

Financial Condition and Results of Operations as of September 30, 2024 (unaudited)

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES (dollars in millions, except per share amounts)

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. This discussion focuses on the drivers of Successor results for the three and nine month periods ended September 30, 2024 as well as the drivers of each of the 2023 Predecessor and Successor results for the period from August 12, 2023 through September 30, 2023. 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 Company calculates constant currency by translating the prior-year period results at the current year exchange rate.

Banking net sales in both the three and nine month periods of 2024 Successor reflect higher ATM unit sales volume and relatively flat service revenue compared to the 2023 Successor and Predecessor periods. Retail net sales in the 2024 Successor periods were challenged by market headwinds due to retailer's spend environment.

Gross Profit

32

Management's Discussion and Analysis of

Financial Condition and Results of Operations as of September 30, 2024 (unaudited)

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES (dollars in millions, except per share amounts)

Three and nine months ended September 30, 2024 (Successor) compared with each of the 2023 Successor and Predecessor Periods

2024 Successor period product gross margin for both the three and nine months ended September 30, 2024 was favorable over the 2023 Successor and Predecessor periods, primarily due to product sales unit volume at favorable pricing as well as favorable logistics costs and normalization of certain raw material costs, most notably semiconductor chips. Further enhancing product gross margin the 2024 Successor period for the nine months ended September 30, 2024 was a PIS/COFIN tax recovery in Brazil.

Service gross margin for the 2024 Successor period continues to experience compression due to investments in resource and service infrastructure, in addition to absorption of charges related to the application of ASC 852, specifically depreciation and amortization of assets that were stepped up to fair value as a result of the Company's emergence from the Restructuring Proceedings.

Operating Expenses

Selling and administrative expenses in all periods presented were driven by spending related to restructuring and transformational initiatives. Research and development costs are reflective of investment in costs savings initiatives as well as project prioritization and rationalization.

Operating Profit (Loss)

33

Management's Discussion and Analysis of

Financial Condition and Results of Operations as of September 30, 2024 (unaudited)

DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES (dollars in millions, except per share amounts)

Other Income (Expense)

Three and nine months ended September 30, 2024 (Successor) compared with each of the 2023 Successor and Predecessor Periods

Interest income remained materially consistent across all periods presented, while interest expense in the 2024 Successor period was driven by the lower debt balances partially offset by increased variable interest rates. Refer to Note 10 to our condensed consolidated financial statements for further detail. Foreign exchange gain (loss), net includes realized gains and losses, with the most material fluctuations observed in the Brazilian Real, Colombian Peso, Euro, Mexican Peso and Thai Baht exposures. Miscellaneous gain, net was primarily driven by recognition of non-service pension credits, the most significant of which are in Germany.

Reorganization items, net in the 2023 periods were directly related to the Company's filing and subsequent emergence from the Restructuring Proceedings. For further details please refer to Notes 2 and 3 to our condensed consolidated financial statements. Additional details can also be found in the consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Net Income (Loss)

Changes in net (loss) income were a result of the fluctuations outlined in the previous sections and impacted by income tax expense. Refer to Note 5 to our condensed consolidated financial statements for additional information regarding tax expense.

Liquidity and Capital Resources

On June 5, 2023, the Company entered into the DIP Credit Agreement, which provided the $1,250.0 DIP Facility. The proceeds of the DIP Facility were used, among others, to: (i) repay in full the term loan obligations, including a make-whole premium, under the Superpriority Facility and (ii) repay in full the ABL Facility and cash collateralize letters of credit thereunder. The payment for the Superpriority Facility totaled $492.3 and was comprised of $401.3 of principal and interest, $20.0 of premium, and a make whole amount of $71.0. The payment for the ABL Facility, including the FILO Tranche, and the cash

Discussion and Analysis of Financial Condition and Results of Operations as of September 30, 2024 (unaudited)

(dollars in millions, except per share amounts)

collateralization of letters of credit thereunder totaled $241.0 and was comprised of $211.2 of principal and interest and $29.8 of cash collateralized letters of credit.

On the Effective Date, the Company’s existing the DIP Facility was terminated and the loans outstanding under the DIP Facility were converted into loans outstanding under the Exit Facility (the Conversion), and the liens and guarantees, including all guarantees and liens granted by certain subsidiaries of the Company that are organized in the United States and in certain foreign jurisdictions, granted under the DIP Facility were automatically terminated and released. In connection with the Conversion, the entire $1,250.0 under the Exit Facility was deemed drawn on the Effective Date. The Exit Facility will mature on August 11, 2028.

On February 13, 2024, the Company, as borrower, entered into a credit agreement (the Revolving Credit Agreement) with certain financial institutions party thereto, as lenders, and PNC Bank, National Association, as administrative agent and collateral agent. The Revolving Credit Agreement provides for a superior-priority senior secured revolving credit facility (the Revolving Credit Facility) in an aggregate principal amount of $200.0, which includes a $50.0 letter of credit sub-limit and a $20.0 swing loan sub-limit. Borrowings under the Revolving Credit Facility may be used by the Company for (i) the repayment of outstanding principal under the senior secured term loans under the Exit Credit Agreement and (ii) general corporate purposes and working capital. Loans under the Revolving Credit Agreement bear interest at an adjusted secured overnight financing rate plus 4.00% per annum or an adjusted base rate plus 3.00% per annum.

Concurrently with the closing of the Revolving Credit Facility, the Company prepaid $200.0 of outstanding principal of its senior secured term loans under the Exit Credit Agreement. As of September 30, 2024, $38.7 was drawn under the Revolving Credit Facility. Liquidity provided thereunder is expected to sustain the Company for at least the next twelve months. The Revolving Credit Facility will mature on February 13, 2027.

The Company's total cash and cash availability was as follows:

The following table summarizes the results of the Company's Condensed Consolidated Statement of Cash Flows:

Operating Activities

Cash flows from operating activities can fluctuate significantly from period to period as working capital needs and the timing of payments impact reported cash flows.

• Cash flows from operating activities during the Successor period ended September 30, 2024 were driven by cash provided by trade receivables and cash uses for inventories, accounts payable and deferred revenue. The key drivers of these cash flows are timing of sales, collections, and vendor payments which can fluctuate significantly period to period.

Discussion and Analysis of Financial Condition and Results of Operations as of September 30, 2024 (unaudited)

(dollars in millions, except per share amounts)

• Cash flows from operating activities during the Successor period ended September 30, 2023 were driven by uses for trade receivables and deferred revenue as well as cash provided by inventories and accounts payable. The key drivers of these cash flows are timing of sales, collections, and vendor payments which can fluctuate significantly period to period.
• Cash flows from operating activities during the Predecessor period ended August 11, 2023 were driven primarily by uses for inventory and accounts payable.

Investing Activities

Cash flows from investing activities during the Successor and Predecessor periods, respectively, approximate normal operations of the Company and reflect expected trend.

Financing Activities

Cash flows from financing activities during the Successor period ended September 30, 2024 draw under the Revolving Credit Facility which was used to pay down the Exit Facility, and a $161.3 repayment of the Revolving Credit Facility (refer to Note 10 of the condensed consolidated financial statements). Cash flows from financing activities during the during the 2023 Predecessor period primarily relate to the Restructuring Proceedings. Refer to Notes 2, 3, and 9 for further details.

Contractual and Other Material Cash Obligations

The Company enters into certain purchase commitments due within one year for materials through contract manufacturing agreements for a total negotiated price. At September 30, 2024, the Company had minimal purchase commitments due within one year for materials through contract manufacturing agreements at negotiated prices.

Except for the repayment of the Exit Facility and the incurrence of debt under the Revolving Credit Facility, contractual and other cash obligations with initial and remaining terms in excess of one year and contingent liabilities remained generally unchanged at September 30, 2024 compared to December 31, 2023.

Off-Balance Sheet Arrangements

The Company enters into various arrangements not recognized in the 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 and sales of finance lease 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 comply with its contractual obligations, the suppliers, regulatory agencies and insurance providers may draw on the pertinent bank. The Company has sold finance lease receivables to financial institutions while continuing to service the receivables. The Company records these sales by removing finance lease receivables from the consolidated balance sheets and recording gains and losses in the consolidated statement 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 condensed consolidated financial statements of the Company are prepared in conformity with generally accepted accounting principles in the United States (U.S. GAAP). The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP 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 receivables, inventories, goodwill, intangible assets, other long-lived assets, legal contingencies, 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.

All other material critical accounting policies and estimates are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Discussion and Analysis of Financial Condition and Results of Operations as of September 30, 2024 (unaudited)

(dollars in millions, except per share amounts)

Forward-Looking Statement Disclosure

This Quarterly Report on Form 10-Q and the exhibits hereto may contain statements that are not historical information and 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 include, but are not limited to, projections, statements regarding the Company's expected future performance (including expected results of operations and financial guidance), future financial condition, anticipated operating results, strategy plans, future liquidity and financial position.

Statements can generally be identified as forward looking because they include words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “estimates,” “potential,” “target,” “predict,” “project,” “seek,” and variations thereof or “could,” “should” or words of similar meaning. Statements that describe the Company's future plans, objectives or goals are also forward-looking statements, which reflect the current views of the Company with respect to future events and are subject to assumptions, risks and uncertainties that could cause actual results to differ materially. 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 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.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

The factors that may affect the Company's results include, among others:

• the Company’s recent emergence from the Chapter 11 Cases and the Dutch Scheme Proceedings, which could adversely affect our business and relationships;
• the significant variance of our actual financial results from the projections that were filed with the U.S. Bankruptcy Court and Dutch Court;
• the overall impact of the global supply chain complexities on the Company and its business, including delays in sourcing key components as well as longer transport times, especially for container ships and U.S. trucking, given the Company’s reliance on suppliers, subcontractors and availability of raw materials and other components;
• the Company’s ability to generate sufficient cash or have sufficient access to capital resources to service its debt, which, if unsuccessful or insufficient, could force the Company to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance its indebtedness;
• the Company’s ability to comply with the covenants contained in the agreements governing its debt;
• the Company’s ability to successfully convert its backlog into sales, including our ability to overcome supply chain and liquidity challenges;
• the ultimate impact of infectious disease outbreaks and other public health emergencies, including further adverse effects to the Company’s supply chain, and maintenance of increased order backlog;
• the Company’s ability to successfully meet its cost-reduction goals and continue to achieve benefits from its cost-reduction initiatives and other strategic initiatives;
• the success of the Company’s new products, including its DN Series line and EASY family of retail checkout solutions, and electronic vehicle charging service business;
• the impact of a cybersecurity incident or operational failure on the Company’s business;
• the Company’s ability to attract, retain and motivate key employees;
• the Company’s reliance on suppliers, subcontractors and availability of raw materials and other components;
• 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;
• the Company’s success in divesting, reorganizing or exiting non-core and/or non-accretive businesses and its ability to successfully manage acquisitions, divestitures, and alliances;
• the ultimate outcome of the appeals for the appraisal proceedings initiated in connection with the implementation of the Domination and Profit Loss Transfer Agreement with the former Diebold Nixdorf AG (which was dismissed in the Company’s favor at the lower court level in 2022) and the merger/squeeze-out (which was dismissed in the Company's favor at the lower court level in 2023);
• the impact of market and economic conditions, including the bankruptcies, restructuring or consolidations of financial institutions, which could reduce the Company’s customer base and/or adversely affect its customers' ability to make capital expenditures, as well as adversely impact the availability and cost of credit;
• the impact of competitive pressures, including pricing pressures and technological developments;
• risks related to our international operations, including geopolitical instability and wars;

Discussion and Analysis of Financial Condition and Results of Operations as of September 30, 2024 (unaudited)

(dollars in millions, except per share amounts)

• changes in political, economic or other factors such as currency exchange rates, inflation rates (including the impact of possible currency devaluations in countries experiencing high inflation rates), recessionary or expansive trends, disruption in energy supply, taxes and regulations and laws affecting the worldwide business in each of the Company’s operations;
• the Company’s ability to maintain effective internal controls;
• unanticipated litigation, claims or assessments, as well as the outcome/impact of any current/pending litigation, claims or assessments;
• the effect of changes in law and regulations or the manner of enforcement in the U.S. and internationally and the Company’s ability to comply with applicable laws and regulations; and
• other factors included in the Company’s filings with the Securities and Exchange Commission (the "SEC"), including its Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 8, 2024, and this Quarterly Report on Form 10-Q.

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.

You should consider these factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on such statements.

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of market risk exposures. There have been no other material changes in this information since December 31, 2023.

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 September 30, 2024.

Change in Internal Controls

During the quarter ended September 30, 2024, 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.

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. There has been no material change to this information since December 31, 2023.