Diebold in Q2: ‘Nearing the goal line’

Impossible as it might seem, the NFL preseason recently kicked off on with the Hall of Fame Game in Canton, Ohio, wrapping up a weekend’s-worth of HOF enshrinement activities.

Also nearing kickoff — the business combination between Canton-based Diebold Inc. and Paderborn, Germany-based Wincor Nixdorf AG.

The opportunity for analogy was not lost on Diebold President and CEO Andy Mattes, who said during the Q2 earnings call (July 28):

In the spirit of the Pro Football Hall of Fame activities, which are kicking off here in Canton, I am pleased to report that we are nearing the goal line with our pending acquisition of Wincor Nixdorf.

On the regulatory front, we have received antitrust clearances from all but one country, Poland, that is required to close the transaction. Over the past few months, teams from both companies have been diligently developing integration plans and we are confident that we will hit the ground running. The excitement is definitely building as we prepare to double the size of our company.

As Mattes described it, Diebold looks ready to come out of the gate strong after the Wincor acquisition, having scored a number of important wins in Q2 that he said will translate into a strong second half in 2016.

screen-shot-2016-07-31-at-132434In the second quarter, Diebold scored several wins, he said. These included:

  • preparations for the pending launch of a joint venture with China-based Inspur, an $8 billion IT services company. The partnership will allow Diebold to resume selling hardware in the booming Chinese market in the wake of government regulations mandating in-country manufacturing;
  • strong services growth in the EMEA region due to installation activity in Europe. Diebold Revenue marked its sixth consecutive quarter of growth in the region, with a year-over-year increase of 4 percent in in constant currency, Mattes said;
  • an increase in the company’s operating profit margin from 13.3 percent to 15.2 percent year-on-year;
  • an agreement with Italy’s Banca di Asti to provide advanced feature, in-lobby ATMs along with a three-year service contract;
  • an increase of more than 2 percent in constant currency in the Americas, including a 5-year contract with the Canadian Credit Union Association to provide software and maintenance services for 1,200 ATMs, and an order for 3,000 next generation machines from a top-three U.S. bank,” Mattes said;
  • a 50 percent increase in financial self-service orders in Latin America, driven by wins at three large accounts in Brazil for more than 4,500 ATMs; and
  • a 2-year service contract with Brazil’s largest financial institution.

“We continue to make progress towards our goal of shifting the mix of revenue to more services and software as we continue to execute on transforming Diebold to a more services-led software-enabled company,” Mattes said.

He added that he was pleased to see developing opportunities in new markets such as India, where Diebold recently launched its first software project through Phoenix Interactive, a company it acquired last year.

Finally, Mattes said that he was encouraged to see continued movement from a business model focused on hardware sales to one driven by higher-margin software and services contracts.

“In aggregate, the mix of services and software revenue has increased from 57 percent in 2013 to 66 percent during the quarter. Just as encouraging as our progress in becoming a more services led company is the growing market acceptance of our software offering,” he said.

screen-shot-2016-07-31-at-185854“Ten new multivendor software contracts during the quarter are evidence that we are gaining traction in the market. We are seeing continued success with regional banks in the U.S. we are looking towards the advanced capabilities from branch transformation as well as the ability to upsell new financial services to their customers.”

The outlook is hopeful, but there’s still the present to get through. Diebold saw  year-over-year earnings decline 10 percent in Q2, including a 3 percent hit from continuing unfavorable currency exchange rates.

Also, it will be a while before Diebold and Wincor can able to finalize their post-combination playbook and get a better picture of how the ground game will play out in Europe and the U.S.

“Look, our industry is not going to change just because we will combined with Wincor,” Mattes told one analyst on the call. “Nevertheless there is a benefit in a larger number. … I would expect it to be a little less volatile on the numbers, but the market is what the market is.”

And the market gives no guarantees. As they say in the big leagues …

“That’s why you play the game.”

 

photo istock

story graphics courtesy diebold inc.

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