NCR Atleos Corporation Q3 FY2024 earnings call

• Strong third quarter performance with $1.1 billion revenue, over $200 million adjusted EBITDA, $0.89 adjusted EPS, and over $120 million free cash flow for first nine months.
• Refinanced credit facilities in October at lower rates, leading to meaningful interest expense reductions in Q4.
• Self-service banking segment exceeded high end of guided ranges with growth in recurring revenue and adjusted EBITDA. ATM as a service solution progressing well with 23% y-o-y revenue growth and expanding into new markets.
• Network segment continued strong performance with increased revenue, higher transaction volumes, and progress in deposit strategy and new transaction types.
• Strategy for 2025 validated by accelerating demand for capable ATMs, increased outsourcing of ATM servicing, and growth in shared financial utilities.

Self-Service Banking: Third quarter financial results exceeded the high end of segment-guided ranges. Revenue grew with strong recurring revenue streams, led by incremental software and services revenues from the installed base of devices. Adjusted EBITDA and margin rates increased sequentially. ATM as a service revenue grew 23% year-over-year in the quarter to an annual run rate of about $200 million. Annual recurring revenue for ATM as a service grew 23% year-over-year to almost $200 million, and ARPU reached $8,500 per unit. Network Segment: Revenue increased 2% sequentially to $332 million. Withdrawal volumes up 9% y-o-y, deposit transactions up ~218% y-o-y. Adjusted EBIT of $103 million was on the high end of guidance range, with margin at 31%. Last 12 months average revenue per unit was up 7% y-o-y.

• Full-year 2024 non-GAAP EPS expected ~$3.12, up from prior guided range midpoint of $3.05. Revenue and adjusted EBITDA guidance reaffirmed at midpoint of previous ranges.
• Expect 2025 EBITDA growth of 8%-10%, with higher free cash flow conversion due to asset-light ATM as a service deals and lower interest expense.
• Target to reduce net debt and get leverage under 3 times, with consideration of returning cash to shareholders once leverage is reduced.

• Market uncertainties and competitive dynamics could impact revenue and margins.
• Interest rate changes and potential impact on cash costs for the network segment, though mitigated by derivative swaps.
• Risks associated with completing the separation from NCR Voyix and potential impact on results if not managed properly.

Q: ARPU in ATM as a service backlog vs current, bridging the gap?

A: Paul Campbell explained ARPU difference due to product type (multifunction units vs cash dispensers), services included, and regional mix (higher ARPU in North America and net new deals).

Q: Thinking about network business go-forward cost of cash based on rate curve?

A: Paul Campbell said they use derivative swaps to even out interest rates, with year-on-year cash cost and goods cost a slight headwind in 2025, becoming a tailwind in 2026-2027 as SOFR changes impact variable debt.