Diebold Misses As Banks Push Out Big IT Projects

In the midst of an effort to become more of a software-focused company, ATM manufacturer and financial software firm Diebold Nixdorf posted results Tuesday (Oct. 31) that missed slightly on the top line as large banking projects are being pushed out to subsequent quarters.

Adjusted earnings for the three-month period that ended Sept. 30 showed a profit of 58 cents a share compared to 34 cents per share a year ago, beating consensus by two cents. Revenues of $1.1 billion were up 13 percent year on year, missing the Street by $50 million. On a proforma basis, the top line was off by 12 percent.

Andy W. Mattes, president and chief executive officer, said in the release that “our top line remained under pressure as the banking business is increasingly driven by large, complex projects that take longer to complete and generate revenue. The company said that services contracts signed in the quarter were valued at more than $300 million, and the year-to-date basis contract renewal rate stands at roughly 100 percent.

During the conference call with analysts, Mattes said that “banking revenue and orders in the third quarter were below our expectations, and we’re lowering our revenue outlook to around $4.6 billion for 2017,” where that range had previously been around $4.7 billion to $4.8 billion.

In reference to the banking business, Mattes said the ATM marketplace is challenging, as regional and community banks have held back on spending in the face of the Windows 10 upgrade cycle, which should gain traction later next year. In the meantime, international growth was tepid in emerging markets as well. Sales cycles are also getting pushed out as banking IT remains marked by “increased complexity,” as the executive said.

The firm cited stats from Retail Banking Research that shows a reduction in global ATM forecasts for shipments, down 60,000 units this year alone, and growth rates moving forward will be cut in half to two percent annually through 2020. Systems revenue overall was down 14 percent year on year. Mobile adoption, new technology and software will help drive ATM sales, especially in North America, later next year, management said on the call.

Software now accounts for more than 60 percent of sales, and was off roughly two percent on lower product-related banking installation activity.

In the question-and-answer segments of the call, speaking about large bank projects, Mattes said that those projects have been marked by a “high level of complexity, not just for us; it’s also a level of complexity for the bank. And if they’re doing some major upgrade, we might be delayed because the bank is upgrading their CRM systems. It’s also on the branch transformation side, it’s very closely linked to whenever banks are redesigning their branches. And those projects, too, have a tendency to move and aren’t quite as fixed from a scheduling point of view. So, rule of thumb, it’s a big deal market. And the bigger the deals, the longer it takes from orders to revenue.”

Full year adjusted earnings are expected to range from $1.05 to $1.15 per share, up from previous guidance of 95 cents to $1.15 a share.