NCR Atleos Corporation Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Reinforced the Atleos investment thesis, noting it's a pure-play independent company with leadership in self-service banking since separating from legacy NCR.
• Highlighted growth from generating more revenue per machine through better services and driving transaction volume in owned network.
• In Self-Service Banking, services and software revenue grew, hardware will have strong growth, and innovation efforts are underway.
• In Network, business continues to grow cardholders, expand geographically, and improve installed base capabilities.
• Productivity initiatives on pace to deliver savings, and contingency planning to address tariff impacts.

Segment Performance

• Self-Service Banking: Primarily a service business with over 500,000 global installed ATMs. First quarter financial results were in line or slightly ahead of expectations. Revenue grew modestly on constant currency basis. Combined services and software revenue grew 6%, with ATM as a Service driving service growth. Hardware revenue was down Y/Y in Q1 but will post strong growth for the rest of the year. Favorable revenue mix and cost productivity led to over 300 basis points of margin expansion Y/Y. Innovation efforts saw prototype machines installed, customer events held, and AI-driven dispatch model tested in Canada.
• Network: Consists of ~80,000 owned and operated ATMs in blue-chip retail locations. First quarter financial results generally in line with expectations. Experienced seasonality, lower U.K. transaction volumes, and decline in LibertyX Bitcoin transaction revenue. Adjusted EBITDA margin expanded by over 140 basis points, ARPU hit new high. Signed partnerships with 7-Eleven and others, and implemented ERP modules.

Guidance

• Reaffirmed 2025 full-year guidance: total company core revenue to grow 3%-6% on constant currency basis, adjusted EBITDA to grow 7%-10% on constant currency basis, adjusted EPS in range of $3.90-$4.10, free cash flow between $260M-$300M.
• For Q2, expects consolidated core revenue to grow in low to mid-single digits, Self-Service Banking revenues to grow mid-single digits, network revenue flat Y/Y, adjusted EBITDA projected between $190M-$205M, and adjusted EPS in range of $0.75-$0.90.
• If current tariff proposals stand, likely to deliver results in lower half of 2025 guidance range.

Risks

• Tariff exposure on ATM hardware and replacement/repair parts produced overseas and imported into U.S., representing less than 7% of total costs in 2024, but about 90% of hardware imported to U.S. from India going forward.
• Potential follow-on effects of tariffs on global consumer behavior, bank and retailer capital spending, interest rates, currency exchange rates, and reciprocal tariffs.

Q: Matt Summerville asked about Self-Service Banking hardware backlog, ramp of as-a-service, and balance sheet impact on buyback timing.

A: Tim Oliver said hardware will be best since 2019 with strong backlog and demand, as-a-service ramps like last year with back-end loading, and leverage moving to under 3x will inform buyback timing with intent to apply free cash flow to reduce leverage and potentially repurchase shares.

Q: Dominick Gabriele inquired about hardware impact by segments and adjusted EBITDA related to tariffs.

A: Tim Oliver explained most hardware goodness comes through Self-Service Banking, Network doesn't recognize hardware revenue; Andy Wamser discussed tariff impact on hardware and parts costing ~$34M annualized with productivity and pricing initiatives to mitigate.

Q: James Holmes asked about ATM-as-a-Service customer count growth, geographies, and gross profit strength.

A: Andy Wamser said most Q1 customers added in certain areas, customer count up 40%, Tim Oliver noted North American and European transactions more profitable, and margin expansion due to winning smaller machine orders in those regions.

Q: Matt Summerville asked about Network withdrawal transactions and LibertyX game plan.

A: Tim Oliver said U.S. network withdrawals up 2% Y/Y, U.K. down, LibertyX is a low-profitability distraction with deemphasis; on M&A, there are long lists of ideas with low-price tags now and more strategic ones once debt is addressed.

Q: Chris Senyek asked about cash flow cadence and CapEx for ATM as a Service.

A: Tim Oliver and Andy Wamser said free cash flow is back-end loaded, Q2 may be mildly positive, Q3/Q4 to see ramping, and CapEx for ATM as a Service balanced across geographies.

Q: George Tong asked about hardware order shift and Network portfolio optimization.

A: Tim Oliver said hardware orders were as planned with no shifts, George Tong also asked about Network portfolio optimization continuation, to which Tim Oliver and Stuart MacKinnon responded about pharmacy segment challenges, machine migration, and partnerships like with 7-Eleven to optimize the portfolio.