NCR Atleos Corp. Q4 FY2023 earnings call

Management Statement and Operational Highlights

• 2023 Achievements: Completed separation of NCR into two industry leaders, delivered financial results well ahead of 2023 annual budget, and grew ATM-as-a-Service business by 30% to over 20,000 machines.
• 2024 Objectives:
  • Differentiate and grow: Capture more transactions on ATMs and enhance device experience with functionality, interfaces, and reliability.
  • Optimize scarce resource deployment: Prioritize speed to market, improve project management, and simplify business model to reduce indirect costs.
  • Complete separation: Resolve remaining administrative processes for business transfers in certain countries and wind down transitional service agreements.
• Fourth Quarter Highlights: Self-Service Banking activated over 2,000 ATM-as-a-Service units, closed over 20 ATM-as-a-Service deals. Network segment saw strong revenue growth, with Allpoint Network attracting new financial institutions and surcharge-free transactions growing faster.

Segment Performance

• Self-Service Banking: Reported revenue decreased 3% year-over-year in Q4. On a normalized basis, revenue would have increased ~2%. Adjusted EBITDA was $146 million with a margin rate of 22% (vs. $159 million and 23% in prior year). ATM-as-a-Service revenue accounted for ~6.5% of Self-Service Banking segment revenues in Q4 and increased 56% year-over-year. Over 2,000 ATM-as-a-Service units were added during the quarter.
• Network: Revenue increased 8% year-over-year in Q4, led by withdrawal volume growth. Adjusted EBITDA was $100 million, representing a 380 basis points margin expansion. Higher-margin surcharge-free transactions grew faster than surcharge transactions. Revenue per unit (ARPU) was up 7% year-over-year.
• Technology & Telecom: Revenue and adjusted EBITDA were down year-over-year due to exit country delays and reduced activity from some large customers in Q4 2023.
• Other: Includes legacy NCR Voyix exited geographies and commercial agreements. Other revenue increased year-over-year, benefiting from services performed for NCR Voyix post-separation.

Guidance

• 2024 Full Year: Total company revenue expected in range of $4.2 billion to $4.4 billion; adjusted EBITDA $770 million to $800 million; diluted adjusted EPS $2.90 to $3.20; free cash flow $170 million to $230 million. Self-Service Banking revenue ~$2.6 billion with adjusted EBITDA margin 26%-27%; Network revenue ~$1.3 billion with margin 26.5%-27.5%; Technology & Telecom revenue ~$200 million with margin ~20%; Other revenue ~$200 million with margin 6%-7%. Unallocated corporate cost 6.5%-7% of total company revenue.
• 2024 Q1: Total company revenues expected in range of $1 billion to $1.05 billion; adjusted EBITDA $150 million to $160 million; adjusted EPS $0.30 to $0.40 per share. Impact of remaining seven delayed legal entities in Q1 expected to be ~$15 million revenue and ~$5 million EBITDA. Self-Service Banking revenue ~$615 million with margin 22%-23%; Network revenue ~$350 million with margin 24.5%-25.5%; Technology & Telecom revenue ~$40 million with margin ~20%; Other revenue ~$60 million with low single-digit margin. Unallocated corporate costs 6.5%-7% of total company revenue.

Risks

• Separation-related Delays: Some businesses yet to transfer due to lengthy administrative processes in certain countries, potentially causing duplicate costs or dis-synergies.
• Market and Competitive Risks: Changes in interest rates, market competition, and economic conditions could impact financial performance.

Question and Answer

Q: You've got a question about the kind of the headwind to revenues and EBITDA due to the as-a-service changeover in fourth quarter and what's baked into the guide for 2024.

A: For Q4, impact was around $10 million. Impact in 2024 is around $80 million to $100 million. Levers on free cash flow forecast include capital deployed, working capital management (days receivable outstanding and inventory), and CapEx spend on growth.

Q: A question about the regional view of the ATM market and what we think that industry units did in '23 and what the expectation is for '24 in terms of volume.

A: Rely on industry analysts for market view. Volume has been fairly consistent internationally. Expect market to be flat to 1% up in terms of units sold in 2024. Hardware is becoming a less proportion of total revenue as more into ATM-as-a-Service.