Diebold Nixdorf Inc (DBD) 2021 Q3 法說會逐字稿

Good morning, good afternoon all. My name is Adam, and I will be your conference operator today. At this time, I would like to welcome everyone to the Diebold Nixdorf Third Quarter 2021 Conference Call. (Operator Instructions)

Ms. Marchuska, you may begin your conference.

Great. Thank you, Adam. Hello, everyone, and welcome to our third quarter 2021 earnings call. I'm Christine Marchuska, Vice President of Investor Relations for Diebold Nixdorf, and on the call with me today are Gerrard Schmid, President and Chief Executive Officer; and Jeff Rutherford, Chief Financial Officer.

To accompany our prepared remarks, we have posted our press release and earnings presentation to the Investor Relations section of our corporate website. Later this morning, we will post a replay of this webcast.

Before we begin, I will remind all participants that during this call, you will hear forward-looking statements, including the guidance we will be providing for full year 2021. These statements reflect the expectations and beliefs of our management team as of the time of this call, but they are subject to risks and uncertainties that could cause actual results to differ materially from these statements.

Additional information on these factors can be found in the company's periodic and annual filings with the SEC. Participants should be mindful that subsequent events may render this information to be out of date.

We will also be discussing certain non-GAAP financial measures on today's call. A reconciliation between GAAP and non-GAAP measures can be found in the supplemental schedules of our earnings presentation slides as well as in the tables of today's earnings release.

And now I'll hand the call over to Gerrard.

Thank you, Christine, and welcome to the team. Good morning, everyone. Thank you for joining our third quarter 2021 earnings call. I am pleased to say that custom demand for our solutions remained robust in Q3, despite supply chain constraints, logistics and inflationary headwinds. I'm encouraged by the support of our customers and the innovative spirit of our workforce as we navigate ongoing supply chain challenges.

First of all, I'm encouraged by how our company is positioned to offer solutions and growth opportunities for our customers who are addressing rapidly changing consumer demands and difficult competitive landscapes. More than ever, consumers are not only embracing, but expecting self-service solutions, whether it's at a bank, grocery store or retailer. And more than ever, we are committed to helping our customers deliver more digital, flexible and effective consumer journeys.

In banking, consumer preferences are shifting away from the traditional teller window towards ATMs with more omnichannel functionality. At the same time, banks are looking for more self-service options to meet consumer needs with fewer tellers and fewer branch locations.

This ongoing shift towards reducing the branch footprints and optimizing the real estate is crucial, and our ATMs are helping our banking customers to continue providing the same level of customer service, including customer outreach through marketing while, at the same time, making better use of their available space.

In retail, the pandemic resulted in more focused shopping experiences and growth in e-commerce while, at the same time, as cited by recent studies, 75% or more of consumer purchases globally are still happening in the physical store. It's important to understand, however, that while consumers prefer physical shopping, they also prefer lower touch options during the purchase process.

Our self-checkout offerings create a safe, convenient, with lower friction shopping experience, providing theft protection, produce scanning and market-leading camera technology to assist in age-restricted purchases. In short, what we're seeing is that consumers and retailers alike are embracing self-checkout.

According to RBR, the self-checkout installed base will reach nearly 1.6 million terminals by 2026, almost tripling the global installed base as of the end of 2020. Indeed, we believe automation provides much-needed cost efficiencies for the retailer and a more efficient shopping experience for the consumer at the last mile of the store.

We believe the accelerating demand for self-service and automation signals a structural change to the way business will be done going forward and gives us a long runway of opportunity.

I'd like to now provide remarks around our third quarter performance. The low demand remained strong in Q3. Fulfillment of product orders shifted from Q3 to Q4 and from Q4 to 2022, as we continue to work through supply constraints and logistics challenges. Our order entry continues to exceed our original models, and our backlog increased approximately 19% versus the same period last year.

Revenue for the quarter was down 4%, as a portion of revenue has shifted out to future quarters due to the temporary supply constraints and logistics challenges we're currently facing.

Our retail segment continued to perform well, with growth in revenue of 10% as compared to third quarter of 2020.

Moving on to our business highlights starting with banking. Momentum for our DN Series ATMs continued in Q3, as a growing percentage of our total orders were for these next-generation devices, and we see this trend continuing based on our orders for Q4 and early 2022.

Additionally, the DN Series is now live and fully certified in over 60 companies globally, contributing to our market expansion in the space.

I'd like to highlight some notable DN Series wins for the third quarter. We secured a contract for over $12 million with Banco Azteca in Mexico, including our DN Series cash recyclers, a new service contract and software licenses, expanding across 500 branches. With this win, over 75% of Banco Azteca's fleet is now composed of DN devices.

In Greece, we displaced a competitor and doubled our presence at Piraeus Bank. Approximately 200 branches and 40 off-premise locations will be equipped with our modern technology, including our DN Series cash recyclers. Introduction of cash recycling is a significant change for this market, which had not previously had recycling capabilities by branch ATMs.

We earned this win based on the higher mechanical reliability of our hardware, the higher capacity of our ATMs and on greener, more environmentally sustainable profile. This win also includes a 5-year maintenance coverage contract.

And lastly, we built a competitive win with Standard Chartered Bank Malaysia, upgrading all of their legacy devices to our DN Series, increasing our fleet to consist of 100% DN Series ATMs.

We continue to see growth in demand for our AllConnect data engine, with a number of connected ATMs increasing approximately 23% sequentially in Q3 2021. This is a significant milestone for us, as more than 100,000 banking self-service devices are connected to this solution, which leverages real-time Internet of Things connections from our deployed devices and has consistently reduced customer downtime by as much as 50%, resulting in greater than 99% uptime.

This drives multiple business benefits, such as higher end user satisfaction, lower total cost of ownership and increased operational efficiencies.

I'm proud to share that we also were awarded Technology & Service Industry Association's 2021 Star Award for best practices in the delivery of field services for our AllConnect data engine.

We believe that demand for our differentiated market-leading solutions that meet the needs of today's consumer will remain solid, which is especially evident in our robust pipeline, our healthy backlog, the many successes of our sales team in Q3 and the growth in our AllConnect data engine.

Moving on to our retail business. We continue to see strong demand for our self-checkout products as retailers look to Diebold Nixdorf for comprehensive solutions that provide favorable consumer experiences and cost efficiency, as they face staffing challenges and tough performance comparisons.

We secured a competitive takeaway with an Italian retailer who replaced the competitive devices with our DN Series self-checkout solutions, along with our full self-checkout suite and other offerings from our retailer solution portfolio.

We also expanded an important customer relationship with a large multi-country retailer in Europe, which included a competitive takeaway with store devices. This win secures a strategic rollout of self-checkout devices beginning with 2 stores before expanding to 300 stores in 13 countries and an eventual full rollout of 2,500 stores in 15 countries over the span of 2 to 3 years. Additionally, this retailer signed a 3-year services and maintenance contract.

We're well positioned for growth in retail services. In the third quarter, we won a contract renewal with a large global petrol convenience store for their Malaysia sites. This was a significant renewal, totaling over $16 million for our systems and services, including point-of-sale, help desk support, software and other solutions.

Overall, we feel confident in the strength of our retail business as our large global retail customers have reconfirmed their commitment to their store formats. While some retailers are considering fewer locations, they all remain focused on increasing the level of automation and technology investment per store.

Additionally, in 2021, we've seen growth in the absolute number of our self-checkout devices on a year-on-year basis, and we anticipate that our retail business will end the year above our pre-pandemic levels witnessed in 2019.

Our core portfolio continues to benefit from industry trends I discussed earlier around consumers' desire for more self-service options in banking and retail, resulting in our customers' needs for more automation and greater cost efficiencies. It also lends itself to layering on additional offerings with large addressable markets, such as managed services, software, our dynamic payments platform and other adjacencies that provide a trajectory of sustainable growth for the future of our visits.

We are particularly proud of the progress we have made with our retail and banking customers. We recently received the results from our annual customer satisfaction survey, where I am delighted that our customers are awarding us some of the highest levels of Net Promoter Scores we've seen, reinforcing what has now been a multiyear trend of improving results.

Turning now to our growth initiatives. In managed services, we continue to move forward on securing more new business and remain in productive discussions with multiple financial institutions. We also see a promising pipeline for managed services in 2022.

In Q3, in North America, we were awarded a large managed services agreement with a Tier 1 financial institution, including a large order of DN Series ATMs.

We continue to scale our debit and credit platforms with our Vynamic Payments offering for a top 10 global bank across more than 17,000 ATMs. And as we continue to implement and scale our existing customers on our payments platform, our go-to-market team is growing a strong qualified sales pipeline for 2022.

Additionally, I'm pleased to announce our entry into a new horizontal electric vehicle charging stations. This is a natural fit for our services business, with our global network of 8,000 experienced service technicians and the similarities between ATMs and EV charging stations.

There are an estimated 1.5 million to 2 million public charging stations needed in the United States and Europe by 2025, and this is approximately an increase of over 200% from roughly 500,000 charging stations today, split between about 300,000 in Europe and 200,000 in the U.S.

We are currently in discussions with the top EV charging station hardware companies and have already secured contracts for our solution with some of the key players in this space. This is a promising and rapidly growing market, and we look forward to sharing more on this new offering in future quarters.

Now turning to another important area of our business, sustainability. Not only do we focus on attaining sustainable growth for our shareholders, we also focus on environmental sustainability on our facilities, practices and processes. I'm proud to say that we were recently awarded Germany's Best Energy Scouts 2021, the German government initiative that encourages energy-saving opportunities.

We installed a green roof, constructed glazing on glasses to improve energy savings at our Paderborn facility. Additionally, we included a solar panel system and added 36 charging ports for cars and e-bikes in parking areas.

We consistently are working on initiatives that drive sustainable programs with the goal to have no adverse effects on public health for the communities where we operate. We look to upgrade our other facilities around the globe in sustainable green ways as part of our focus on our environmental, social and governance commitments.

Looking ahead to Q4, we remain confident in our market leadership and ability to close out the year strong on a year-over-year basis. As of today, our orders are 100% confirmed, with customers committed to our products. We see negligible risk of lost sales, with strong strength in demand for Americas Banking and Retail business segments.

Additionally, in Q4, for our banking segment, we are starting the quarter with a backlog of approximately $205 million higher than at the beginning of Q4 2020. Specifically, for Americas Banking, we are seeing over a 50% increase in our backlog, as we enter the fourth quarter 2021, as compared to the same time last year.

We're working with all of our customers on a continuous basis to fulfill the high level of orders we're receiving on a timely basis. As part of this focus, we have taken steps to increase our stock of key components as well as prebook vessels further in advance to accelerate revenue conversion from our backlog.

Furthermore, on a year-over-year basis, our outlook remains robust as our confirmed orders for the first half of 2022 are above the levels for the first half of 2021 as of the same time last year. This forward-looking indicator affirms the demand we continue to receive from our growing customer base.

While we continue to see significant opportunity in the markets and in our ability to meet our customers' needs, we, like many global companies, are navigating inflationary pressures in supply chain logistics that continue to impact our business. As I discussed earlier, delays in delivering or in delivery of our products will cause some revenue to shift to future quarters. Thus, we are revising our guidance for year-end 2021.

However, I believe it is important to note that we see Q3 broadly as a peak inflection point in supply chain disruptions. Our visibility into semiconductor chip markets has increased meaningfully, providing us with a line of sight to many of the chip providers through the first half of 2022.

Additionally, we have deployed other strategic tactics internally, such as shifting our production capacity, which will ease some of the dependencies we've previously had on logistics and shipping. I'm extremely proud of the work of our DN team to mitigate these issues.

Before I turn the call over to Jeff to discuss the financial results around our performance and outlook, let me close by reinforcing my optimism around the robust demand we're experiencing for our solutions for the remainder of 2021 and the upcoming year, while supply chain improvements take hold.

We are squarely positioned to meet the needs of our customers and expand our base of banks and retailers as consumers continue to demand more access, more convenience and more innovation through automation and self-service.

Although supply chain challenges have led to a temporary pullback in performance, it's important to understand that we are doing everything possible to mitigate these challenges, and delivering for our customers remains a top priority.

Thank you. And at this time, I'd like to turn it over to Jeff.

Thank you, Gerrard, and good morning, everyone. My prepared remarks will include references to certain non-GAAP metrics, such as gross profit, gross margin and adjusted EBITDA.

Total revenue for the third quarter of 2021 was $958 million, a decrease over third quarter 2020 of approximately 4% as reported and a decrease of 5%, excluding foreign currency benefit of $16 million and an $8 million impact from divested businesses.

Adjusted for foreign currency and divestitures, product revenue decreased 3%, services revenue decreased 6% and software revenue increased 3% compared to Q3 2020.

During the quarter, approximately $90 million of revenue was delayed due to extended transport times and inbound technology component delays. This primarily impacted the U.S., Latin America and certain APAC countries, and reduced total revenue by approximately 90 -- 900 basis points.

On a sequential basis, total revenue increased approximately 2%. Non-GAAP gross profit for the third quarter was $263 million or a decrease of approximately $22 million versus the prior year period on lower gross margins of 27.4%.

The deferral of revenue and nonbillable inflation resulted in a reduction to third quarter gross margin of approximately $33 million. Service margins increased 40 basis points versus the prior year period and were in line with our expectations.

Product gross margins were down approximately 180 basis points versus the prior year period primarily due to $10 million as a result of inflationary pressures and supply chain logistics, partially offset by a favorable DN Series versus legacy ATM and geographic consumer mix.

Software gross margins declined 500 basis points versus the prior year period. Excluding the impact of a prior year cost benefit of approximately $5 million that did not recur in 2021, software gross margins were down approximately 40 basis points due to unfavorable mix.

Operating expense of $182 million for the quarter decreased approximately $14 million versus the prior year period and decreased $17 million sequentially. When compared with prior year key variances, including reductions in variable compensation, partially offset by unfavorable FX and investment in growth projects when compared with our second quarter operating expense decrease due to reductions in variable compensation.

The net result was operating profit of $81 million and operating margin of 8.5% in the quarter. The same trends drove adjusted EBITDA of $103 million and adjusted EBITDA margin of 10.7% in the quarter.

I will discuss our segment highlights. Eurasian banking revenue of $323 million decreased approximately 11% versus the prior year period of 12% after adjusting for foreign currency benefit of $7 million and a $3 million impact from divestitures.

Lower revenue was primarily due to supply chain delays, impacting timing of deliveries and installations of product with collateral impact to services and software revenue, plus the termination of expired service contracts. As expected, following a strong order entry in Q2 and several nonrecurring large orders in the prior year, segment product order growth decreased 35%. We are forecasting a strong order entry in Q4.

Gross profit for the segment decreased to $98 million year-over-year and included favorable foreign currency benefits of $4 million and an unfavorable divestiture impact of $1 million.

Gross margin of 30.3% was down 50 basis points. The decrease was primarily due to inflationary pressures, offset by our focus on cost management.

Americas Banking revenue decreased $22 million or approximately 6% to $347 million primarily due to declines in software and services revenue due to the negative collateral impact of unfavorable geographic mix of installations from North America to Latin America.

Americas Banking continues to be disproportionately affected due to the location of our customers and our primary manufacturing facilities for DN Series ATMs, which are located in Europe and Asia. However, we are working on mitigation strategies in our Americas manufacturing operations to assist in manufacturing, certain of the higher-value cash recycling DN Series ATMs.

Backlog in Americas Banking grew 54% year-over-year as product order growth saw another solid quarter and increased approximately 23% versus the prior year led by market share gains by our DN Series ATMs.

Segment gross profit of $86 million was down $17 million due to lower revenues. Gross margin percentage declined due to impact of supply chain inflation and unfavorable geographic mix, as I previously noted.

Our retail segment had another quarter of strong performance. Retail revenue of $288 million increased 10% year-over-year as reported and 8% after adjusting for $6 million currency benefit and an investor headwind of $2 million. Demand for our point-of-sale and self-checkout continued to increase versus the prior year period, with product order growth of approximately 23%.

Retail gross profit increased 15% to $79 million driven by revenue growth. Gross margin expanded by 110 basis points attributable to growth in self-checkout revenue.

As we continue to look to optimize our portfolio and focus on our core business segments, we made the decision to another share purchase agreement to sell our reverse vending business with an approximate deal close date targeted for year-end. This business is less than 2% of our total annual retail revenues and no longer was a strategic fit for the segment going forward.

Turning to our capital structure metrics. Unlevered free cash flow used in the quarter increased $121 million versus the prior year primarily due to increases in inventory, which are necessary to support both Q4 production and delivery tariffs as well as increases in critical components for 2022 orders.

The company ended the quarter with $325 million of total liquidity, including $230 million of cash and short-term investments. The company's cash balance as of September 30 reflects increased inventory levels and interest payments made during the quarter.

At the end of the quarter, the company's leverage ratio was 5.4x, which continues to be below our covenant maximum of 6x. In our presentation, we updated our gross debt levels as of September 30.

Turning to our updated outlook for 2021. We are revising our revenue range to $3.9 billion to $3.95 billion, which reflects approximately $120 million in revenue deferral from 2021 to 2022 due to the current supply chain challenges.

Accordingly, we are revising our adjusted EBITDA outlook by approximately $40 million to a range of $415 million to $435 million, taking into account the gross margin associated with the aforementioned revenue deferral and an incremental $20 million of supply chain-related inflation over previous estimates. The total estimated impact of supply chain-related inflation is now approximately $45 million.

Our free cash flow outlook is now $80 million to $100 million, reflecting our revised EBITDA outlook and the net incremental working capital timing impact of the revenue deferral.

I will now hand the call back to the operator for our Q&A session. Operator?

(Operator Instructions) Our first question today is from Matt Summerville of D.A. Davidson.

A couple of questions. First, Jeff, with respect to the cash flow outlook for the full year, I'm just using round numbers, but your guidance is basically assuming you generate $400 million in the fourth quarter.

In my long history of covering the company, I don't think Diebold has ever turned in a number anywhere near that, so help me walk through, help me get comfortable with how you're going to accomplish that this year.

Yes. That's a good question. And as you can imagine, it all primarily comes from working cap, and everything else is fairly fixed in our direct cash flow model.

So here's what we need to happen in order to achieve that. We need accounts payable DPOs in the mid-70s, and we need DSOs -- revenue DSOs in the mid- to low 50s.

So that's what's going to drive fourth quarter free cash flow, especially based on where we're at today. Based on a DPO number of around 75, what happens -- after in 75 days and a DSO of approximately, let's say, 55 days, what happens -- revenue recognition after November 15 impact next year's free cash flow. Inventory purchasing as of probably today impacts next year's free cash flow.

So we need to make that number. We need DSOs to drop to the mid-50s. They're in the low 60s now, and we need DPOs to increase to the numbers I referenced, and that's about a 5 day increase from what we're at right now. So there's a path to get there. Now it requires execution.

With respect to the pressures you've seen in the P&L this year and the roughly $75 million EBITDA takedown from where you were to where you are now at the beginning of the year to where you are right now, should we be thinking about any of this stuff becoming more of a permanent part of Diebold's cost structure? And really, the genesis of my question is, does anything you're experiencing now impact the 2023 targets you've put out there several times now?

Yes. It's going to impact 2023 targets, and we're not confirming those until we provide guidance for 2022 and 2023. Here -- and we're still working through all the modeling impacts.

But here's what I would say. If you look at what we've experienced year-to-date, which, if you go back and you add up the numbers from the prior quarter and this quarter, you're going to see that it's around $20 million impact in operating margin from inflation. That -- to date, that is all logistics cost.

What's changed for us, as we move into the fourth quarter, is we're going to experience not only logistics increase, but raw material and source component parts increases.

The $25 million, $26 million we experienced in the fourth quarter is still have -- is still approximately $14 million as logistics. The rest is component parts inflation. And portions of that inflation are going to get caught up in the inventory, both logistics and raw materials and going to carry into '22.

So we anticipate that we're not going to see any lessening of logistics supply chain constraints when we've talked about it until probably the second half of next year. That's going to drag some cost into the third quarter as inventory turns.

So this has gone to effect 2022, and we need to look at that from a pricing perspective than what we can do from a pricing perspective. And then we need to measure, and we are measuring what the reductions are, especially in outbound and inbound logistics and when it's going to impact the model post the normalization of supply chain.

So Matt, maybe to build on that, if I may as well, to give you some additional color. When we made some comments in our prepared remarks that we saw Q3 as a peak inflection point. I just wanted to add some more substance around that.

Moving through Q2, we started to see an extreme tightening of visibility to critical components like semiconductor chips. As we work through Q3, that visibility has improved substantially, and our safety stock and our access to semiconductor chips is now down well through the first half of 2022.

So we're feeling like we've moved over the hump as it relates to access to semiconductor chips. However, the spot price that we were paying for raw materials in Q3 flows through to our Q4 P&L, as we recognize revenue on those ATMs.

So the timing effect will be felt most of those in Q4. But as we take a look at forward spot prices for various raw materials, whether it's steel, resin, semiconductor chips, there's really evidence of it starting to peak and starting to subside somewhat.

So we don't see those raw material costs as being structurally permanent in our model. As Jeff said, I think there'll be some lumpiness as we move through 2022, but we do see those abating.

And as Jeff rightfully said, the other key driver of inflation right now for us on the logistics pieces, and we think that, that's still going to be a factor in the first half of 2022.

Now if we want to take another actions to communicate the impact of inflation, Jeff referenced that we're building up our manufacturing capacity in the U.S. That will certainly ease some of the pressure we've seen from a logistics cost perspective, as we need to rely less on shipping from Europe to the Americas.

Second of all, we've been moving pretty decisively from a pricing perspective across products, services and software. Obviously, there's a timing lag as we're still building product that were priced in prior quarters, but we're seeing some pretty good traction with those pricing initiatives take hold.

So while we're not going to give guidance right now, I think there's a number of mitigating factors that are in play that will impact '22.

Our next question is from Kartik Mehta from Northcoast.

Jeff, just to continue your conversation about kind of free cash flow and as you look out to 2022, how do you think this impacts your ability to refinance some of the debt that you have talked -- spoken about before?

Yes, yes. And the variable is reaction to our performance of what the market is doing, right, and we continually monitor that. We'll still have opportunity. We're going to be measuring, as we move forward, what the potential pricing could be.

Now remember, we have a no call provision in our secured notes. That really makes it more attractive to refinance as you approach mid-'22. So I would say there's no maturity gone to our head relative to refinancing. The immediacy is relative to the cost of the debt, in particular the secured notes.

So this is -- our performance and the impact of what's going on in the global supply chain are another piece of the algorithm relative to when we should refinance. So we will continue to monitor, even as soon as this afternoon, what the impact is on our debt trading and with our advisers work between now and mid-'22 relative to refinancing.

Again, and I've said this and I'll continue to say this, there is a point in telling where it's going to make sense for us to refinance between now and, I would say, the third quarter of '22. And again, that no call provision expires in July '22.

So that will continue. This will just become part of the order, and I don't think it will -- we're going to still generate cash flow. When we get to guidance, we'll be generating free cash flow in '22.

I'm not giving you the number today, but there will be free cash flow generation in '22. There will be growth in revenue. And so I don't believe it prevents us from refinancing. The question is going to be what's the impact on cost.

Right. And then, Gerrard, just all these supply chain issues, is there any risk of losing orders where maybe your customers say, "Hey, it's taking too long. We'll just wait it out until things get better?"

Kartik, we're not seeing any evidence of that, of any material note whatsoever. Clearly, we're not alone. This is a big global issue facing every company. We're in active dialogue with our customers.

Quite frankly -- and this is why I made reference to our Net Promoter Score customer satisfaction levels. They are at all-time highs. And if customers were frustrated or wanted to go somewhere else, we would have seen evidence of that in our NPS scores.

So we're not seeing evidence of it there, nor are we seeing it in any material change to our order entry. And as I said in my prepared remarks, Kartik, our order entry is tracking higher than our original plan when we enter 2021. So we're feeling very, very good that our products and our value proposition is holding up well.

And our customers, we continue to work very, very closely with them to getting what they need, where in some cases, we're using expedited shipping. It's obviously exceptionally expensive. But in some cases, we're relying on that where we need to. But we don't see that as a material risk whatsoever.

Our next question comes from Paul Chung of JPMorgan.

So just a follow-up on free cash flow in 4Q. Given such a material amount, is there potential for some to spill into '22? And how does such a large cash harvest in Q4 kind of impact '22 seasonality of cash flows? Are you in a good place on inventories kind of given the elevated investments, so maybe less of a drag in first half of '22?

Yes. So if you do something in '21, obviously, cash flow is fungible. It's going to affect cash flow then. So we are -- what we are doing is we're doing our jobs relative to collections, and we have a very good customer base, and they respond well to our request for payment. So that's what we're counting on.

On the accounts payable side, it's a matter of we control the disbursement of cash, and we do that throughout the year. And we let our foot off the gas at the end of last year, so we won't do that this year.

So it's within our ability to generate that level of cash, but it was only -- based on your revenues and your purchasing, there's only so much cash that can be generated. That's basically what EBITDA is meant to represent.

And so if you bring it forward, right, it's not available for next year. I will say this. We are pushing $120 million of revenue out of '21 into '22. The revenue from basically 2 weeks from today will move into collections in '22. So we will see an increase of collections in the '22 model from the deferred revenue that we talked about today.

We also anticipate that we will not have the high level of inventory that we have today because we are unfavorable relative to our own modeling relative to inventory because we're carrying higher inventory.

Basically, we're building those -- the inventory on the $120 million of deferred revenue, but we're not recognizing the revenue. So we're holding the inventory. So all of that, in effect, is we're working on the cash flow effect on '22.

The one thing I will remind everybody is $50 million of restructuring payments will go away after '21, so we will pick that up. The potential benefit in refinancing, and we wouldn't be at all in '22 based on current markets, and that's what I talked to Kartik about is approximately 200 basis points on something over 200 -- $2 billion of that.

So there are positives for free cash flow coming in '22. But again, we're not going to provide guidance today. But I will say that there's nothing fundamentally wrong with the cash flow model of the company. This is a transitory bump caused by supply chain inefficiencies.

And if you look at what's happening and you take the numbers, and I probably didn't a real good job of describing it, but of our $45 million impact in 2021, $32 million of that is outbound logistics. There's $12 million of inbound purchasing inflation. There's a significant amount of that when you take semiconductor chips out of the equation. There's a significant amount of that, that is inbound logistics from our suppliers. They have the same issue we have.

So when the supply chain issues are mitigated, and we think it's going to be post second quarter next year, expectations are that we're going to see some relief in these logistics costs.

Now there's probably a new normal in summer, but it certainly isn't at the levels that we're experiencing with logistics today. That is not sustainable. And obviously, capacity would expand if it comes to that level because investment would make sense. So that's my opinion, Paul.

Got you. And then as we think about service contracts next year, can we expect to see some uniform signings over the course of the year, instead of in 4Q, at least in terms of cash, somewhat derisking seasonality of 4Q cash flow, kind of what your near peer is doing?

You're saying relative to contract-based billing, our model and their model isn't that different. It's all based on installed base, right? Now they have moved certain revenue to other services, mainly other software, which is good for them from a free cash flow basis, and I think they've done a nice job on free cash flow.

I would say this, what we need to happen, right, is to grow services and software like they have, and that will level out the lumpiness of free cash flow. Our free cash flow can be lumpy around installations of our product.

So Paul, let me build on that. I introduced to the investor community today the work that we're doing around EV charging stations. And I'm going to tell you we're very, very energized by that because it has very similar attributes to servicing ATMs, both from a technological skill perspective and the effort it would take for us to cross train our ATM technicians, plus the density and the absolute number of units that are out there.

And we anticipate that, while this market is still early, that we'll start to see a services business build with an ideally comparable margin profile than what we've seen in the ATM business.

So we think that will go some ways as well towards what we've been talking about. Obviously, it takes time to build. But yes, that's what we're looking at doing.

Operator, is Paul there?

I think he got cut off. Hello?

I can hear you, Paul. When...

Yes, you're talking about the EV charging. I guess, the follow-up question on -- I got a bit of that commentary, but how competitive is that service market?

Are the service contracts kind of recurring in longer term? And can you give us a sense of kind of the revenue potential per contract or even per charging unit would be helpful in margin profile?

Yes. Paul, the first thing I'd say is this is a new market, right, compared to what you would have seen in our more mature businesses. What I will tell you, currently, it's a highly fragmented landscape. Currently, we would be one of the largest scale-based players. We like those attributes.

The revenue per unit is a little bit lower, but not materially compared to what we would see in servicing an ATM. And we believe the margin profile will be comparable to what we've seen in our ATM business.

Our next question is from Justin Bergner from Gabelli Funds.

Just first question, I just want to confirm sort of the guidance changes from the second quarter. So you've taken up your cost -- nonbillable sort of cost number from $25 million to $45 million. And then the entire revenue deferral, that $120 million, and then the drop through, which I guess seems to be on the order of $15 million, that revenue deferral was not expected in your earlier second quarter guide. Are those -- is that...

Yes, yes. You remember our previous guide was $4 billion to $4.1 billion. So the movement of $120 million drop is down to that to $3.9 billion to $3.95 billion of earnings. So you can probably back where engineer and [where] the number was previously.

Okay. And then on the cash flow, I mean, the decline in free cash flow guide, the $40 million lower, I guess, matches the $40 million lower EBITDA. But it would seem like you would have some extra inventory needs associated with credit component stock and the like.

So I guess, I'm somewhat surprised that the free cash flow guide is not coming down more than the adjusted EBITDA guide. Can you help me understand that? Are there positive offsets to keep those 2 adjustments sort of in line?

Yes. Let me say the key to that cash flow number is that we don't have disruptions in revenue recognition for the next 2 weeks because we have -- revenue recognition, which means we're billing customers for deliveries over the next 2 weeks than our -- we're going to have a push for collection.

So if you look at it from a direct perspective, that's key to the cash collections we'll make from our customers over the next 2 months. And once you get past that date, it becomes increasingly difficult to get collections because it's now due.

So we modeled that out. We feel strongly that the inventory build post today does not affect cash flow because it leverages accounts payable. We will have inventory that's going to be higher. You're going to see a higher inventory level, but you're also going to see a higher accounts payable. So it will lower our own inventory.

So it's -- this is about managing collections from now on like cash flow, managing collections, managing disbursements. We have the processes in place to do that. And yes, it is a big number. And we're taking on that challenge, and we believe we have a good play to do it.

We also have clear visibility to other spend relative to capital spending, R&D, capitalization. And we have a clear model to execute. Now it's up to us to execute that one.

Okay. Great. That's helpful. And then lastly, on the retail side, is retail actually tracking better than your view coming into this year? And are there any margin headwinds of note on the retail side from some of these supply chain issues that are preventing sort of the margin performance from being even better than what it was in the third quarter?

Justin, it's Gerrard. I'll take that one. So on the retail side, we are performing well, and we're performing modestly better than our plan for 2021.

Yes. We think we have a very, very competitive self-checkout solution. And as the industry demand for self-checkout grows, we think we're very, very well positioned to benefit from it for the next several quarters.

Most of Jeff's comments from inflationary perspective revolve around banking primarily because of where our customers are based versus where our manufacturing facilities are based.

Retail, we have some exposure there, but it's nowhere near as material because, as you'll recall, most of our retail business is European-centric, and that's where we have some of our major manufacturing facilities. And therefore, we have the benefit of using car, truck, rail and other nonshipping-based forms of logistics. So there is some pressure there, but it's nowhere near as notable as it is in banking.

(Operator Instructions) Our next question is from Marla Backer from Sidoti.

So I have 2 questions. One is to follow up something you said a little bit earlier, where you noted that this -- the logistics challenges are impacting everyone across the board.

That said, I mean, you specifically were addressing the prospect of losing orders as a result of what's going on. But are there any instances in which you see the possibility of potentially accelerating market share gains because you're better positioned for delivery near term?

Yes. So let me make a couple of comments on it, Marla. I will reinforce again that we see negligible risk to losing any contracts. We're just not seeing evidence of that.

And as it relates to winning incremental market share, hopefully, it's become evident over the past few quarters that we believe we're exceptionally well positioned with our product differentiation, especially around DN Series ATMs. And we're very, very confident that we're gaining market share at the expense of others on that front, which ultimately supports our goal of building our services contract base over time.

Do we necessarily think that this will give us -- this supply chain disruption will give us a chance to accelerate market share gains? Quite frankly, I don't know that at this stage. I think we'd have to see what happens over the next several quarters.

What I will say is I think we have a very, very good handle on our visibility to the supply chain access, to raw materials over the next several quarters, especially around semiconductor chips, which seem to have been structurally some of the most difficult pain points in the supply chain disruption. So while I can't comment on how others are managing that situation, we're feeling very confident that we've got that one almost in hand.

Okay. And then one other question, which is on the EV charging station initiative. Do you -- this is an emerging area. Do you see any potential opportunities to perhaps cross-sell in this market if are there any large retailers, let's say, that would install charging stations as an add-on, which would give you some bundling opportunities?

Yes. That's a great question, Marla. And I can tell you that when I made the comment that we're in discussions with multiple EV providers, yes, that includes a number of our multinational retailers that see EV charging as a way to enhance their own consumer journeys and drive more idle time at their sites and hopefully drive up the size of their baskets.

So there's no doubt that there's a strong intersection between our retail sector and EV charging. It's not an exclusive overlap. There are other independent plays outside of retail we're looking at, but we do think there's some interesting cross-sell opportunities, which is why our retail colleagues are working closely with us on this initiative as well.

This concludes today's Q&A session. I will now turn the call back over to Gerrard Schmid, CEO of Diebold Nixdorf, for some closing comments.

Thanks, Adam, and thank you to everyone who joined us for today's call. We're pleased with the continued demand we're seeing for our products and solutions, as we continue to be a market leader in the bank and retail automation industry.

Now we look forward to the upcoming quarters and moving through the supply chain and inflationary challenges as we drive growth across our core businesses of products, software and services and into new areas, like payments and EV charging.

We look forward to talking with all of you at upcoming conferences and at our next earnings release. In the interim, please do not hesitate to reach out to Investor Relations if you have additional questions. This brings the call to the end. Thank you, everyone.

This concludes today's conference call. You may now disconnect.