NCR Atleos Corporation Q3 FY2025 earnings call

• Spin-off Completion: Over 2 years since spinning off from legacy NCR, the separation process was completed, including bifurcating systems, separating locations, and establishing legal entities.
• Q3 Performance: Efficient growth with 6% core top line growth, robust hardware revenue, and service fleet growth. Profitability was strong due to hardware mix, outsourced services growth, and fixed cost leverage.
• Business Environment: Resilient to tariffs, interest rates, and supply chain issues due to the business model and contingency planning.
• Service First Initiative: Improved service levels, a 30% Net Promoter Score improvement, and AI tools rolled out for dispatch and optimization.
• Investment Thesis: Unique portfolio, unmatched scale, accelerating outsourcing of the cash ecosystem, and a track record of consistent financial performance.

Self-Service Banking Segment

• Revenue grew 11% in Q3 to $744 million, driven by 25% growth in hardware deliveries and 5% combined growth in services and software. Adjusted EBITDA was $196 million, up 21%, with margin expanding to above 26%. Recurring revenue mix was 57%, and ARR (annual recurring revenue) was up year-over-year.
• ATM-as-a-Service outsourcing: Revenue grew 37% to $67 million in Q3. Gross profit was up 65%, gross margin rose 700 basis points to 40%. ARR was up 37% to $268 million, backlog was up ~100%, and ARPU (average revenue per unit) was $8,300.

Network Segment

• Segment revenue was $328 million, down 1% year-over-year. Device count increased, new retail customers were added, and deposit volumes were up 90%. Adjusted EBITDA was $93 million, with a margin of 28%. ARPU was up 2% year-over-year, and the ATM portfolio stood at ~81,000 units.

• Reaffirmed full-year 2025 guidance ranges.
• Expect full-year free cash flow conversion over 30% target.
• Anticipate free cash flow conversion to ~35% over the next 12 months driven by margin expansion, network monetization, lower debt costs, and working capital efficiencies.
• Board authorized a $200 million share repurchase program, with repurchases to begin in Q4.

• Tariffs: Impact on margins, with a potential range of $15M to $50M depending on negotiations.
• Macro-related Headwinds: Including interest rates, supply chain, and regulatory changes.
• Vault Cash Costs: Significant expense, but efforts are underway to optimize through machine location, utilization, and recycler integration.

Q: Network business prepaid card volumes and trends A: Volumes stabilized, stopped getting worse, expected to return to growth in Q4.

Q: Tariffs impact in Q4 and beyond A: Presume 25% tariff rate for 2026, with potential for reduction to 15%-18%, impact on margins.

Q: Network business transaction mix and profitability A: Withdrawals still majority, but deposits and other transactions increasing, deposits are highest margin.

Q: Self-service banking as-a-service backlog and growth A: ARR to exit 2025 >$300M, Q4 growth ~40%, 40% growth expected in 2026.

Q: Recycler business growth and revenue A: 60% more recyclers sold, strong demand from banks, improving competitive position.

Q: Vault cash and optimization A: $26B in vault cash, optimized through machine location, utilization, and recycler integration to reduce costs.