NCR Atleos Corporation Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Progress: The company had a solid quarter with strong hardware revenue, service growth, and strategic initiatives like the Service First initiative, which elevated service levels to new highs. They reclaimed leadership in installed base and made progress on simplification efforts.
• Business Environment: Consideration of the current business environment in their outlook, focusing on growth through providing services to financial institution clients and driving transaction volume across network machines.
• Capital Allocation: The Board authorized a $200 million share repurchase program with a 2-year duration, plan to reduce net leverage, and pursue accretive bolt-on acquisitions to support growth and return value to shareholders.

Segment Performance

• Self-Service Banking Segment: In the second quarter, revenue grew 9% year-over-year to $733 million, driven by 21% growth in hardware deliveries. Services and software combined grew 5%. Adjusted EBITDA was $189 million, up 20%, with segment adjusted EBITDA margin expanding 240 basis points year-over-year to almost 26%. Recurring revenue made up 57% of total revenue.
• Network Segment: Segment revenue was $320 million, down 2% year-over-year. Cash withdrawal transactions were lower due to factors like reduced travel and government policies, but deposit volumes were up 170% year-over-year. Adjusted EBITDA was $86 million, lower than expected due to vault cash costs.

Guidance

• Reaffirmed full-year 2025 guidance. For Q3, consolidated core revenue expected mid-single-digit growth. Self-Service Banking revenue mid-to-high single digits. Network revenue flat. Adjusted EBITDA projected between $210 million and $225 million. Adjusted EPS expected in the range of $0.95 to $1.10. Free cash flow to meaningfully step up in Q3.

Risks

• Tariff uncertainties that could impact hardware costs. Macro-related transactional headwinds. Impact of interest rates on vault cash costs for the Network segment. Fluctuations in cardless transactions and travel-related dynamics affecting the Network segment's revenue.

Question and Answer

Q: Talk about the as-a-service business, including ARPU in the backlog and backlog quantification.

A: ARPU in the backlog is north of $9,100. Backlog is over 8,000 units and up 105% year-over-year.

Q: Elaborate on services metrics and the share repurchase program.

A: Service performance improved with NPS and pulse surveys showing positive trends. Share repurchase will be under a 10b5-1 plan, aiming to buy back shares efficiently.

Q: Discuss the 2-3 year vision and leverage target.

A: Confident in the strategy, with leverage target to get below 3x, focusing on growth, service, and simplicity to create value for all constituencies.

Q: Talk about the sustainability of ATM-as-a-Service growth.

A: Sustainable with strong backlog, robust pipeline, and expected acceleration in growth rates.

Q: Discuss Network business growth and margin sensitivity to interest rates.

A: Sequential improvement expected in Network business. Margin sensitivity to interest rates, with potential benefits from rate cuts reducing vault cash costs.