Good morning. Good afternoon all. My name is Azim, and I will be your conference operator today. At this time, I would like to welcome everyone to the D. Broad Nextel's Third Quarter 2021 Conference Call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Conference. Ms. Bautchiska, you may begin your conference.
Great. Thank you, Adam. Hello, everyone, and welcome to our Q3 2021 earnings call. I'm Christine Morchisga, Vice President of Investor Relations for Diebold Nixdorf. And now on the call with me today are President and Chief Executive Officer and Jeff Rutherford, Chief Financial Call.
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Participants should be mindful that subsequent events may render this information to be out of date.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 Gerard.
Thank you, Christine, and welcome to the team. Good morning, everyone. Thank you for joining our Q3 2021 earnings call. I am pleased to say that customer 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 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 Customer journeys. In banking, consumer preferences are shifting away from the traditional tele window towards with more omni channel 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 footprint 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 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, And while consumers prefer physical shopping, they also prefer lower touch options during the purchase process. Our self checkout offerings create a safe, convenient and 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 Install base will reach nearly 1,600,000 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 Q3 performance. Although 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 performed well with growth in revenue of 10% as compared to Q3 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 work for these next generation devices and we see this trend continuing based on our orders for Q4 early 2022.
Additionally, the DN Series is now live and fully certified In over 60 countries globally, contributing to our market expansion in this space. I'd like to highlight some notable DM Series wins for the Q3. We secured a contract for over $12,000,000 with Banco Azteca in including our DM Series cash recyclers, a new service contract and software licenses Expanding across 500 branches. With this win, over 75% of Banco Azteca's fleet It's now composed of DN devices. In Greece, we displaced a competitor and doubled our presence at Coreas Bank.
Approximately 200 branches and 40 off premise locations will be equipped with our modern technology, including our DN Series cash recyclers. The introduction of CASK 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 a greener, more environmentally sustainable profile. This win also includes a 5 year maintenance coverage contract. Lastly, we booked 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 whole Connect data engine with the 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 that increased operational efficiencies. I'm proud to share that we also were awarded Technology and Service Industry Association's 2021 Star Award for Best Practices in the Delivery of Field Services for our All Connect data engine. We believe that demand for our differentiated market leading solutions that meet the needs of today's consumer will remain solid.
This is especially evident in our robust pipeline, our healthy backlog, the main successes of our sales team in Q3 And the growth in our All Connect 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 provides 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 a 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 SCO 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 Q3, we won a contract renewal with a large global capital convenience store for their Malaysia sites. This was a significant renewal, totaling over $16,000,000 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 We confirmed 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're seeing growth in the absolute number of our self checkout devices on a year on year basis, and we anticipate that our retail business We'll end the year above our pre pandemic levels witnessed in 2019. Our core portfolio continues to benefit from the 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 business.
We are particularly proud For the progress we have made with our retail and banking customers, we recently received the results from our annual customer satisfaction survey, And I'm 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 There remained 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 dynamic payments offering at 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 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 1,500,000 to 2,000,000 public charging stations aided in the United States and Europe by 2025.
And this is an 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 We are 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 of our facilities, practices and processes. I'm proud to say that we were recently awarded Germany's Best Energy Scouts 2021, a German government initiative that encourages Energy saving opportunities. We installed a green roof constructed of regional grasses to improve energy savings at our Panagon 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 or the communities where we operate.
We look to upgrade our other facilities around the globe in sustainable greenways as part of our focus 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 our Americas Banking and Retail Business segments. Additionally, in Q4, for our Banking segment, We are starting the quarter with a backlog of approximately $205,000,000 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 Q4 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've taken steps to increase our stock of key components as well as pre booked 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 twenty twenty two or above the levels for the first half of twenty twenty one as of this 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, We're navigating inflationary pressures and 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 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 trip providers through the first half of twenty twenty two.
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, Gerard, 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 Q3 of 2021 was $958,000,000 a decrease over Q3 2020 approximately 4% as reported and a decrease of 5% excluding foreign currency benefit of 16,000,000 and an $8,000,000 impact from divested businesses. Adjusted for foreign currency and divestitures, Product revenue decreased 3%, services revenue decreased 6% and software revenue decreased 3% compared to Q3 2020. During the quarter, approximately $90,000,000 of revenue was delayed Due to extended transport times and inbound technology component delays.
This primarily impacted the U. S, Latin America In certain APAC countries, they reduced total revenue by approximately 900 basis points. On a sequential basis, total revenue increased approximately 2%. Non GAAP gross profit for the 3rd quarter It was $263,000,000 or a decrease of approximately $22,000,000 versus the prior year period Our lower gross margins of 27.4%. The deferral of revenue And non billable inflation resulted in a reduction to 3rd quarter gross margin of approximately $33,000,000 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 $10,000,000 As a result of inflationary pressures in supply chain logistics, partially offset by a favorable DN Series versus legacy ATM And geographic customer mix. Software gross margins declined 500 basis points versus the prior year period. Excluding the impact of a prior year cost benefit of approximately $5,000,000 that did not recur in 2021, Software gross margins were down approximately 40 basis points due to unfavorable mix. Operating expense of $182,000,000 for the quarter decreased approximately $14,000,000 versus the prior year period and decreased $17,000,000 Sequentially, when compared with prior year, key variances included reductions in variable compensation, partially offset by unfavorable FX and investment in growth projects. When compared with our 2nd quarter, operating expense Decreased due to reductions in variable compensation.
The net result was operating profit of $81,000,000 margin of 8.5 percent in the quarter. The same trends drove adjusted EBITDA of $103,000,000 and adjusted EBITDA margin 10.7% in the quarter. I will discuss our segment highlights. Eurasia Banking revenue of $323,000,000 Decreased approximately 11% versus the prior year period of 12% after adjusting for foreign currency benefit of $7,000,000 and a $3,000,000 impact from divestitures. Lower revenue was primarily due to supply chain delays and
that the timing of deliveries
And installations of products 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 non recurring 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 $98,000,000 year over year and included favorable foreign currency benefits of 4,000,000 And an unfavorable divestiture impact of $1,000,000 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 $22,000,000 or approximately 66 percent to $347,000,000 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 in 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, market share gains via our DN Series ATMs. Segment gross profit of $86,000,000 was down $17,000,000 Due to lower revenues, gross margin percentage declined due to the impact of supply chain inflation and unfavorable geographic mix Our Retail segment had another quarter of strong performance.
Retail revenue of $288,000,000 increased 10% year over year as reported and 8% after adjusting For $6,000,000 currency benefit and investor headwind of $2,000,000 Demand for our point of sale and safe checkout self checkout Continued to increase versus the prior year period with product order growth of approximately 23%. Retail gross profit increased 15 percent to $79,000,000 driven by revenue growth. Gross margin expanded by 110 basis points directly attributable to growth in self checkout revenue. As we continue to look to optimize our portfolio and focus our core business segments. We made the decision to enter a share purchase agreement to sell our reverse spending business with an approximate deal close date targeted for year end.
This business is less than 2% of our total annual retail revenues It no longer was a strategic fit for the segment moving forward. Turning to our capital structure metrics. Unlevered free cash flow used in the quarter increased $121,000,000 versus the prior year primarily due To increases in inventory, which are necessary to support both Q4 production and delivery targets as well as increases in critical components for 2022 orders. The company ended the quarter with $325,000,000 Total liquidity, including $230,000,000 of cash and short term investments. The company's cash balance as of Number 30 reflects increased inventory levels and interest payments made during the quarter.
At the end of the quarter, the company's leverage ratio was 5.4 times, which continues to be below our covenant Maximum of 6 times. 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 3.9000000000 To $3,950,000,000 which reflects approximately $120,000,000 in revenue deferral From 2021 to 2022 due to the current supply chain challenges. Accordingly, We are revising our adjusted EBITDA outlook by approximately $40,000,000 to a range of $415,000,000 to $435,000,000 taking into account the gross margin associated with the aforementioned revenue deferral And an incremental $20,000,000 of supply chain related inflation over previous estimates.
The total estimated impact Our supply chain related inflation is now approximately $45,000,000 Our free cash flow outlook is now $80,000,000 to $100,000,000 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 and A session. Operator?
Thank you. Our first question today is from Matt Summerville of D. A. Davidson. Matt, please go ahead.
Thanks. 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 $400,000,000 in the 4th 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, Matt. And as you can imagine, it all And it all primarily comes from working capital. 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 4th quarter free cash flow, especially based on where we're at today. Based on a DPL number of around 75, what happens after In 75 days and a DSL of approximately, let's say, 55 days, What happens revenue recognition after November 15 impacts 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 The mid-50s, they're in the low 60s now and we need DPLs Increase to the numbers I referenced and that's about a 5 gig increase from what we have right now. So there's a path to get there. Now it requires execution.
With respect to the pressures you've seen in the This year and the roughly $75,000,000 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. Thank you.
Yes. It's going to impact 2023 And we're not confirming those until we provide guidance for 20222023. 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 add up the numbers from the In this quarter, you're going to see that it's around $29,000,000 impact in operating margin From inflation, that to date, that is all logistics costs.
What's changed for us as we move into the Q4 is we're going to experience not only just logistics increase, but raw material And source component parts increases. The $25,000,000 $26,000,000 we're going to experience in the 4th quarter It still have it is still approximately $14,000,000 is the logistics, the rest is Component parts inflation. And portions of that inflation are going to get caught up in the inventory, Well, logistics and raw materials, I'm going to carry into 'twenty two. So We anticipate that we're not going to see any lessening of logistics, Supply chain constraints, we talked about it until probably the second half of next year. That's going to drag some costs into the 3rd quarter as inventory turns.
So this is going to affect 2022 and we need to look at that From a pricing perspective and 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 what is going to impact the
model post the normalization of supply chain?
So, Matt, maybe build on that, if I may, as well to give you some additional color. When we made some comments in our prepared remarks So 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 well through the first half of twenty twenty two.
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, it flows through to our Q4 P and L as we recognize revenue on those ATMs. So the timing effect Will be felt most noticeably in Q4. But as we take a look at forward spot prices for various raw materials, whether it's steel, resin, semiconductor chips, Yes, there's already 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 are the logistics pieces. And we think that that's still going to affect in the first half of twenty twenty two. We want to take another actions to mitigate the impact of inflation. Yes.
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. And second of all, we've been moving pretty decisively from a pricing perspective across products, Services and software, and obviously there's a timing lag as we're still building products that were priced in prior quarters, but we're seeing some pretty good traction And 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 that in play that will impact 2022.
Got it. Thank you, guys. I'll get back in queue.
Our next question is from Kartik Mehta from Northcoast. Kartik, please go ahead.
Thank you. Jeff, just to continue our 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 had talked spoken about before? Yes. And the variable is reaction to our performance and 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 In our secured notes that really makes it more attractive to refinance as you approach mid-twenty 2. So I would say there is no maturity Going 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 As soon as this afternoon, what the impact is on our debt trading and then with our advisors work between now And mid-twenty 2 relative to refinancing.
Again, there and I said this and I'll continue to say this, There is a point in time where it's going to make sense for us to refinance between now And I would say in the Q3 of 2022. Again, that no call provision It expires in July of 2022. So that will continue. This will just become part of the order. And I don't think it'll And we're going to still generate cash flow.
When we get the guidance, we'll be generating free cash flow in 2022. I'm not giving you the number today, but there will be free cash flow generation in 2022. 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 the cost.
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 or We'll just wait it out until things get better.
Kartik, we're not seeing any evidence of that of any material note So, Edward, clearly, we're not alone. This is a 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're 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 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 It's tracking higher than our original plan when we went to 2021. So we're feeling very, very good that our product and our value proposition is holding up well. And our customers, we continue to work very, very closely with them to get them what they need.
In some cases, Yes, 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. Thank you on both of you.
Thanks, sir.
Our next question comes from Paul Chan 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 2022. And how does such a large cash harvest in Q4 kind of Impact 'twenty two, seasonality of cash flows, are you in a good place on inventories kind of given the Elevated investments or maybe less of a drag in first half of twenty twenty two?
Yes. So if you do something in 2021, obviously, Cash flow is fungible. It's going to affect future cash flow then. So we are what we are doing 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 lost I put off the gas at the end of last year, so we won't do that this year.
So it's within our The ability to generate that level of cash, but there's only based on the 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 $120,000,000 of revenue out of 2021 into 2022. The revenue From basically 2 weeks from today, we'll move into collections In 2022.
So we will see an increase in collections in the 2022 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 100 the inventory on $120,000,000 of deferred revenue, but we're not recognizing the revenue. So we're We're holding the inventory. So all of that in effect is we're working on the cash flow effect On 'twenty two, the one thing I will remind everybody is $50,000,000 of restructuring payments will go away After 2021.
So we will pick that up. The potential benefit In refinancing, and we wouldn't get it all in 2022 based on current markets, and that's what I talked to Kartik about, It's approximately 200 basis points, so something over $200,000,000,000 of debt. So there are positives for free cash flow coming in 2022. But again, we're not going to provide guidance today, but I will say that it there's nothing fundamental 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 try to do a real good job of describing it, but of our $45,000,000 impact In 2021, dollars 32,000,000 of that is outbound logistics.
There's $12,000,000 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 Q2 next year. Expectations are that we're going to see some relief in these logistics costs. Now there's probably a new normal in there somewhere, Well, it certainly isn't at the levels that we're experiencing
with logistics today. It's not sustainable. And obviously, capacity would expand if they
kept at 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 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 on the software, Which is good for them from a free cash flow basis. Now I think they've done a nice job of free cash flow. I would say this, we need what we need to happen, Right.
Is to grow services and software like they have
and that allows the lumpiness of
free cash flow. Our free cash flow can be lumpy around installations.
Paul, let me build on that. I introduced to the investor community today the work We're doing around EV charging stations and I got 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 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 a ideally comparable margin profile to 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 that's
what we're looking at doing.
Operator, you guys there?
I think you got cut off.
Hello?
Hi, I
can hear you, Paul. 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 and 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 and margin profile? Thank you.
Yes. Paul, the first thing I'd say And this is a new market, right, compared to what you 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 larger 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.
Okay, great. Thank you.
Our next question is from Justin Bergner from Gabelli Funds. Justin, please go ahead.
Good morning, Gerard. Good morning, Jeff.
Justin. Hey, Justin.
Just first question, I just wanted to confirm sort of the guidance changes from the Q2. So you've taken up your cost Non billable sort of cost number from $25,000,000 to $45,000,000 And then the entire revenue deferral that $320,000,000 and then the drop through, which I guess seems to be on the order of 15 $1,000,000 That revenue deferral was not expected in your earlier second quarter guide. Are those Is that
Yes. You can remember our previous guide was 4 to 4.1. So the movement of $120,000,000 dropped us down to that 39 to 395, so you can probably back where an engineer and the number was previously.
Okay. And then on the cash flow, I mean, the Decline in free cash flow guide, the $40,000,000 lower, I guess, matches the $40,000,000 lower EBITDA. But it would seem like You would have some extra inventory needs associated with critical 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 tell you 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 two weeks, then 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 not due. So we modeled that out.
We feel strongly that the inventory build post today It does not affect cash flow because it's leverage with accounts payable. We will have inventory that's going to be higher. You're going to see a higher inventory level, but you're You're going to see higher
cost payable,
so a lower owned inventory. So it's this is about Managing collections from now on our 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 plan to do it. We also have clear visibility to other spend relative to capital spending, R and D, R and D capitalization and we have a clear model to execute.
Now it's up to us to execute to that model.
Okay, great. That's Helpful. And then lastly, on the retail side, is retail actually tracking better than your You coming into this year and are there any margin headwinds of note on the retail side from some of these supply issues that are preventing sort of the margin performance from being even better than what it was in the Q3.
Justin, it's Gerard. I'll take that one. So on the retail side, we are performing well and we're performing Yes, modestly better than our plan for 2021. We think we have a very, very competitive self checkout solution and as Yes. Industry demand for self checkout grows.
We think we're very, very well positioned to benefit from that for the next several quarters. Most of Jeff's comments from an inflationary perspective revolve around banking, primarily because of where our customers are based versus where our manufacturing At retail, we have some exposure there, but it's nowhere near as material because as you 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 non shipping based forms of logistics. So there is some pressure there, but it's nowhere near as notable as it is in banking.
Our next question is from Maila Baca from Sidoti. Maila, please go ahead.
Thank you. So I have two questions. One is
a follow-up, something you said a little bit earlier. You noted that The logistics challenges are impacting everyone across the board. That said, And 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 that, Marla. I will reinforce again that we see negligible risk To losing any contracts, we're just not seeing evidence of that. 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 pinch points in the supply chain disruption. 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. Thanks. And then one other question, which is on the EV charging station Do you since this is an emerging area, do you see any potential opportunities And 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 bumbling 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 EV Providers, 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 hope We 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 Yes, cross sell opportunities, which is why our retail colleagues are working closely with us on this initiative as well.
Thank you.
This concludes today's Q and A session. I will now turn the call back over to Gerard Schmidt, 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 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 your lines.