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Diebold Nixdorf Inc (NYSE:DBD)
Q3 2021 Earnings Call
Oct 28, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, good afternoon. Hello, 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 Earnings Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions]

Miss Marchuska, you may begin your conference.

Christine Marchuska -- Vice President of Investor Relations

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 [Phonetic], 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 Participants should be mindful that subsequent events may render this information to be out of date.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. Reconciliation between GAAP and non-GAAP measures can be found in the supplemental schedules of our earnings presentation site, as well as in the tables of today's earnings release.

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

Gerrard Schmid -- President and Chief Executive Officer

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 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 spirit of our workforce as we navigate on-going supply chain challenges. Most of all, I'm encouraged by how our company is positioned to offer solutions and growth opportunities for our customers who aren't 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 consumer journeys. In banking, consumer practices are shifting away from the traditional teller window toward ATMs with more omni channel functionality. At the same time, banks are looking for more self-service options to meet consumer needs, the fewer tellers and fewer branch locations. There is on-going steps toward 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 broadly, are still happening in the physical store. It's important to understand, however, that while our 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 self-protection, produce scanning, the 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-checkouts.

According to RBR, the self-checkout installed base will reach nearly 1.6 million terminals by 2026, almost tripling the global install 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 signaled a structural change to the way business will be done going forward and gives us a long runway of opportunity. I like to now provide remarks around our third quarter performance. Although demand remain strong in Q3, fulfilment 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 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 segments continue to perform well, with growth and revenue of 10% as compared to the third quarter of 2020. Moving on to our business highlights starting with banking. Momentum for DN Series ATMs continued in Q3 as a great percentage of our total orders 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 countries globally, contributing to our market expansion in the space. I 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 not composed of DN devices. In Greece, we displace the competitor and doubled our presence at Piraeus Bank. Approximately 200 branches and 40 off-premise locations will be equipped with a modern technology including our DN Series cash recyclers.

Introduction of cash free cycling is a significant change for this market, which had not previously had recycling capabilities by branching DN's. We earned this win based on the higher mechanical reliability of our hardware, the higher capacity of our ATMs and on cleaner, more environmentally sustainable profile. This win also includes a five year maintenance coverage contract. Lastly, we built a competitive win with Standard Chartered Bank Malaysia, upgrading all of their legacy vices 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 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 AllConnect Data Engine. We believe that demand for 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 bank 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 be bought next door 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 to replace their competitor's advices 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 two stores before expanding to 300 stores in 13 countries and our eventual full rollout of 2500 stores in 15 countries over the span of two or three years. Additionally, this retailer signed a three year services and maintenance contract. We are well positioned for growth in retail services. In the third quarter, we won a contract renewal with a large global petrol convenience store for the Malaysia sites.

This was a significant renewal totalling over $16 million for our systems and services, including point of sale, helpdesk support, software, and other solutions. Overall, we feel confidence and the strength of our retail business as our large global retail customers reconfirmed their commitments 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 blend 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 and banking retail, resulting in our customer's 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 provided trajectory for sustainable growth for the future of our business. We are particularly proud of the progress we've 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 is now been a multi-year 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 one financial institution, including a large order of DN Series ATMs. We continue to scale our debit and credit platforms, with our Vynamic Payments offering at a top 10 global bank cross more than 17,000 ATMs. As we continue to implement and scale our existing customers for our Payments Platform, our go-to-market team is growing a strong fire fighter [Phonetic] 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 8000 experienced service technicians, and the similarities between ATMs and EV charging stations. There are an estimated 1.5 to 2 million public charging stations even 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 discussions with the top EV charging station private companies that 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 hearing 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. The German government initiative that encourages energy saving opportunities. We installed a green roof, constructed a regional brasses [Phonetic] to improve energy savings at our Paderborn facility.

Additionally, we included a solar panel system and out of 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 or public health for the communities where we operate. We look to operate our other facilities around the globe in sustainable greenways as part of our focus around 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 owners are 100% confirmed with customers committed to our products. We see negligible risk of loss sales, with strong strength and demand for America's banking and retail business segments.

Additionally, in Q4 for our banking segments, we are starting this quarter with a backlog of approximately $205 million higher than the beginning of Q4 2020. Specifically for America's banking, we're 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 far as focus, we're taking steps to increase our stock of key components as well as pre-booked vessels further advance to accelerate revenue conversion from our backlog.

Furthermore, on a year-over-year basis, our outlook remains robust, as I confirmed orders for the first half of 2022, or above the levels for the first half of 2021 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 customer's needs, we like many global companies for 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 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 two providers through the first half of 2022. Additionally, they've deployed other strategic tactics internally, such as shifting our production capacity which leaves 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.

Jeff Rutherford -- Senior Vice President and Chief Financial Officer

Thank you, Gerrard. And good morning everyone. My further remarks will include references to certain non-GAAP metrics such as gross profit, gross margin, and adjusted EBITDA. Total revenue for the third quarter2021 was $958 million, a decrease over third quarter 2020 of approximately 4% as reported, a decrease of 5% excluding foreign currency benefit of $16 million and an $8 million impact from domestic 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 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 non-billable inflation resulted in a reduction to third quarter gross margin of approximately $33 million. Service margins increased 40 basis points versus the prior period and more 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 customer mix.

Software gross margins declined 500 basis points versus the prior year period excluding the impact of a prior year prayer 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 period, period and decreased $17 million sequentially. Compared with prior year key variances include reductions in variable compensation, partially offset by unfavorable effects and investment and growth projects.

When compared with our second quarter operating expense decreased due to reductions in variable compensation. The net result was an 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. Now I will discuss our segment highlights. Eurasia group banking revenue of $323 million decreased approximately 11% versus the prior period and 12% after adjusting for foreign currency benefit of $7 million and a $3 million impact of divestitures. Lower revenue was primarily due to supply chain delays affecting timing of deliveries and installations of product with collateral impact of services and software and revenue plus the termination of expired service contracts.

As expected, following a strong order entry in Q2 and several non-recurring liabilities in the prior year, segment product order growth decreased 35%. We are forecasting a strong order entry end of Q4. Gross profit for the segment decreased to $98 million year-over-year included favorable foreign currency balances of $4 million and an unfavorable divestiture impact of $1 million. Gross margin at 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 American.

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 -- by market share gains via our DN Series ATMs.

Segment gross profit of $86 million was down $17 million due to lower revenues. Gross margin percentage declined due to the impact of supply chain inflation and unfavorable geographic mix as previously noted. Our retail segment had another quarter of strong performance. Retail revenue of $288 million increased 10% year-over-year as we reported an 8% after adjusting for $6 million currency benefit and investor headwind of $2 million. Demand for our point-of-sale checkout -- self-checkout continued to increase versus the prior year period with proprietary growth of approximately 23%. Retail gross profit increased 15% at $79 million driven by revenue growth, gross margin expanded by 110 basis points directly attributable to growth in self-checkout revenue.

As we continue, continue to work to optimize our portfolio and focus our core business segments, we made the decision to enter the share purchase agreement to sell our reverse expanding business with an approximate deal close date targeted for year end. This business is less than 2% of our total annual retail revenues in order was a strategic fit for the second going forward. Turning to our capital structure metrics. Unlevered free cash flow used in the quarter increase $121 million 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.

Company ended the quarter with $325 million of total liquidity, including $230 of cash and short term investments. The company's cash balance as of September 30th 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 six times. In our 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 million to $3.95 billion, which reflects approximately $140 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 for supply chain related inflation over previous estimates. The total estimated impact on 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 deferred.

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

Questions and Answers:

Operator

[Operator Instructions] Our first question today is from Matt Summerville of D.A. Davidson. Matt, please go ahead.

Matt Summerville -- D.A. Davidson -- Analyst

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 million in the fourth quarter. In my long history of covering the company, I don't think people 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?

Jeff Rutherford -- Senior Vice President and Chief Financial Officer

Yes, that's 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 in the middle of 50. So, that's definitely 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 in a DSO of approximately let's say 55 days? What happens -- revenue recognition after November 15 impacts next year's free cash flow. Inventory first seen as 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 in that's about a five day increase from where we are right now. So there's a path to get there. Now it's requires execution.

Matt Summerville -- D.A. Davidson -- Analyst

With respect to the pressures you've seen in the P&L this year and the roughly $75 million EBITDA take down through 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 people'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.

Gerrard Schmid -- President and Chief Executive Officer

That'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 of 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 prior quarter and this quarter, you can see that it's around $29 impact and, and operating margin from inflation. That today, that is all logistics costs. What's changed for us, as we move into the fourth quarter, is we're going to experience not only the logistics increase but raw material and source component parts increases. The $25 million, $26 million we experienced in the fourth quarter is, is still have it still approximately $14 million is the logistics; the rest is component parts inflation. And portions of that inflation are going to get caught up in inventory, both logistics and raw materials and going to carry in the twine too.

So we anticipate that we're not going to see any lessening of logistics, supply chain constraints. And when we talk about it, until probably the second half of next year, that's going to drag some costs 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, and what we can do from a pricing perspective. And then we need to measure and we are measuring what the reductions are especially and, and outbound and inbound logistics, and when it's going to impact the model post, the normalization supply chain.

So -- some limit any that if I may as well to give you some additional color. When we made some comments in our prepared remarks and we saw Q3 as a peak inflection point. And 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 went 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 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 notably in Q4. But as we take a look at forward stock prices for various raw materials, whether it's steel, resins and semiconductor chips, there's a ready evidence of it starting to peak and starting to subside somewhat. So we don't see those raw material costs as being structurally prominent in our model. As Jeff said, I think there'll be some lumpiness as we move through 2022 that we do see those abating. And as right Jeff rightly said, you know, the other key driver of inflation right now for us, for the logistics pieces, we think that they're still going to effect in the first half of 2022. We want to take another actions to mitigate 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 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 with those pricing initiatives take hold. So while we're not going to give guidance right now, yeah I think there's a number of mitigating factors that are in play that will impact 2022.

Matt Summerville -- D.A. Davidson -- Analyst

Got it? Thank you guys. I'll get back in queue.

Operator

Our next question is from Kartik Mehta from Northcoast. Kartik, please go ahead.

Kartik Mehta -- Northcoast -- Analyst

Thank you. Just to continue your conversation about kind of free cash flow and look, as you look out to 2022. How do you think this impact your ability to refinance some of the debt that you had talked spoken about before?

Gerrard Schmid -- President and Chief Executive Officer

Yes, yes. And the variable is reaction to our performance in and what the market's doing. Alright, and we continually monitor that. We still have opportunity we're going to be measuring as we move forward, what the cash of pricing could be. Now remember, we have no cost provision in our secured notes. This really makes it more attractive to refinance as you approach mid-22. So I would say there's no, there is no maturity going through our head relative to refinancing. The immediacy is relative to the cost of the debt, and particularly in the secured notes. So this is, our performance and the impact of some of what's going on in the global supply chain, are another piece of algorithm relative to why we should refinance. So we will continue to monitor even as soon as this afternoon, what the impact is on our debt trading. And then with our advisors, we're between now and then and midpoint to relative to refinancing.

Again, there and so 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, the third quarter of 2022. Again, that no call provision expires in July of 2022. So that'll continue, this will just become part of the auditor, and I don't think 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 they'll be free cash flow generation in 2022. There'll be growth and revenue. And, and so I don't believe it prevents us from refinancing, the question is going to be what's the impact on costs?

Kartik Mehta -- Northcoast -- Analyst

And then Gerrard, just on the supply chain issues, is there any risk of losing orders where maybe your customers say, it's taking too long, we'll just, we'll just wait it out until things get better.

Gerrard Schmid -- President and Chief Executive Officer

Kartik, we're not seeing any evidence of that if there's any material note whatsoever. 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 are at all-time highs. And our customers were frustrated or wanted to go somewhere else. We've 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 regional -- to 2021. So we are feeling very, very good that our products are our right propositions holding up well, that our customers and we continue to work very, very closely with them to give them what they need. Here in some cases, that we're using expedited shipping, it's obviously exceptionally expensive, but in some cases we're relying on when we need to. But we don't see that as a material risk whatsoever.

Kartik Mehta -- Northcoast -- Analyst

Thank you, both of you.

Operator

Our next question comes from Paul Chung of JPMorgan. Paul, please go ahead.

Paul Chung -- JPMorgan -- Analyst

Hi, thanks for taking my questions. 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 2022 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 the first half of 2022?

Gerrard Schmid -- President and Chief Executive Officer

Yes. So if you do something in 2021, obviously, cash flow is fundable, it's going to affect future cash flows. And so we are, what we are doing as is we're doing our jobs relative to collections. And we have very good customer base and, and they respond well to our request for payment. So that's what we're counting on. On accounts payable side, it's a matter of we control the disbursement of cash and, and we do that we do that throughout the year. And we got our foot off the gas at the end of last year. So we won't do that this year.

So, so it's within our ability to generate that level of cash. But, 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 has meant to represent. And so if you, if you bring it forward, right it's not available for next year. I will say that we are pushing $120 million of revenue out of 2021 into 2022. The revenue from basically two weeks from today, we'll move into collections in 2022. So we will see an increase of 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 inventory, because we're carrying higher inventory. Basically, we're building those 100, the inventory on $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 2022. The one thing I will remind everybody is $50 million of restructuring payments will go away after 2021. So we will pick that up. The potential benefit in refinancing and we wouldn't be at all in 2022 based on current markets, and that's what I talked to Kartik about is approximately 200 basis points. So something over $2 billion of that.

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 is -- 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, I have tried to do a really good job of describing it. But of our $45 million impact in in 2021 $32 million of that is outbound logistics. There's $4 million of inbound purchasing wasted. There's a significant amount 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 -- where the supply chain issues are mitigated and we think it's going to be post second quarter next year. Expectations are that that we're going to see some relief initial logistics costs. Now there's probably a new normal in there somewhere. But it certainly isn't at the levels that we're experiencing with logistics today. It's not the same. And obviously capacity would expand that they're kept at that level, because investment would make sense. So that's my opinion, Paul.

Paul Chung -- JPMorgan -- Analyst

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

Gerrard Schmid -- President and Chief Executive Officer

You're saying relative to contract based billing. Our, our model and their model isn't that different. It's all based on install base. Right? Now they have moved certain revenue to other, other services mainly on the software, which, which is it's 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 as we, what we need to happen, right, is to grow services and software like they have, and then level out the lumpiness of free cash flow. Our free cash flow can be one day around installations or departments [Phonetic].

Paul Chung -- JPMorgan -- Analyst

And...

Gerrard Schmid -- President and Chief Executive Officer

Paul, let me build on that. I introduced to the investor community the work that we're doing around EV charging stations. And I'm going to tell you we are 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 that we anticipate that while this market still early, that we'll start to see a services business filled with a ideally comparable market profile to what we've seen in the ATM business. So we think that'll go some ways as well toward that what is being talked in there, obviously it takes time to build but that's what we're looking at doing. Hello, operator is --

Operator

Oh, I think I think he got cut off. Hello?

Gerrard Schmid -- President and Chief Executive Officer

Alright, I can hear you Paul.

Paul Chung -- JPMorgan -- Analyst

Yes, you're talking about the EV charging. I guess. I guess the question, 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.

Gerrard Schmid -- President and Chief Executive Officer

So the first thing I'd say is, this is a new market, right compared to what we've seen in more mature businesses. What I will tell you currently, it's a highly fragmented landscape. Currently, we will be one of the larger scale base 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.

Paul Chung -- JPMorgan -- Analyst

Great, thank you.

Operator

Our next question is from Justin Bergner from Gabelli Funds. Justin, please go ahead.

Justin Bergner -- Gabelli Funds -- Analyst

Good morning, Gerrard. Good morning, Jeff.

Gerrard Schmid -- President and Chief Executive Officer

Hey Justin.

Justin Bergner -- Gabelli Funds -- Analyst

Just first question, I just wanted to confirm sort of the guidance changes from the second quarter. So you've taken up your cost non-billable 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 guidance. Are those set?

Jeff Rutherford -- Senior Vice President and Chief Financial Officer

Yes, you can remember our previous guide was four to four one. So the movement of $120 million dropped this down to the three nine to 395. So you can probably like backward engineer and the lower the number was previously.

Justin Bergner -- Gabelli Funds -- Analyst

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 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 two adjustments sort of in line?

Gerrard Schmid -- President and Chief Executive Officer

Yes. The key to that cash flow number is that we don't have disruptions in revenue recognition for the next two weeks. Because we've had revenue recognition, which means we're billing customers, for deliveries over the next two weeks, then 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 in the cash collections we'll make from our customers over the next two months.

And once you get past that day, it becomes increasingly difficult to get collections because it's not due. So we model that out. We feel strongly that the inventory build post today does not affect cash flow because there's leverage with accounts payable. We will have inventory that's going to be higher. You're going to see higher inventory level, but you're also going to see higher accounts payable, so a lower owned inventory.

So it's -- this is about managing collections. From now on like as well, managing collections, managing disbursements, we have the processes in place to do that. And yes, it is a big number. And we were taking on that challenge, and we believe we have a good plan to do it. We also have clear visibility to understand both the capital spending R&D, R&D capitalization, and we have a clear model to execute it. And we've now it's up to us to execute to that model.

Justin Bergner -- Gabelli Funds -- Analyst

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?

Gerrard Schmid -- President and Chief Executive Officer

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. 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 well positioned to benefit from it for the next several quarters. Most of Jeff's comments from an inflationary perspective revolved around banking, primarily because of where our customers are based versus where our manufacturing facilities are based.

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 track rail and other non-shipping based forms and logistics. So there is some pressure there, but it's nowhere near as notable as it is in banking.

Justin Bergner -- Gabelli Funds -- Analyst

Great, thank you for taking my questions.

Gerrard Schmid -- President and Chief Executive Officer

Welcome.

Operator

[Operator Instructions] Our next question is from Marla Backer from Sidoti. Marla, please go ahead.

Marla Backer -- Sidoti -- Analyst

Thank you. So I have two questions. One of the 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, 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?

Gerrard Schmid -- President and Chief Executive Officer

Yes, so let me make a couple of comments on that Marla. I will reinforce again that we see negligible risk to lose or gaining contract. We're just not seeing evidence of that. As relates to winning incremental market share, hopefully it's become evident of 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 and 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 a spike a disruption will give us a chance to accelerate market share gains? Quite frankly, I don't know that at this stage. I think we'll have to see what happens in the next several quarters. Now, 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 freight points in the spike in 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, the whole...

Marla Backer -- Sidoti -- Analyst

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

Gerrard Schmid -- President and Chief Executive Officer

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, that includes a number of 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 busy, 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 retail colleagues are working closely with us on this initiative as well.

Marla Backer -- Sidoti -- Analyst

Thank you.

Operator

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.

Gerrard Schmid -- President and Chief Executive Officer

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 with products, software and services that into new areas like payments and EV charging. We look forward to talking with all of you our upcoming conferences, then our next earnings release. And the interim, please do not hesitate to reach us to industrial relations if you have additional questions. And this brings the call to the end. Thank you everyone.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Christine Marchuska -- Vice President of Investor Relations

Gerrard Schmid -- President and Chief Executive Officer

Jeff Rutherford -- Senior Vice President and Chief Financial Officer

Matt Summerville -- D.A. Davidson -- Analyst

Kartik Mehta -- Northcoast -- Analyst

Paul Chung -- JPMorgan -- Analyst

Justin Bergner -- Gabelli Funds -- Analyst

Marla Backer -- Sidoti -- Analyst

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