NCR Atleos Corporation

Good day and welcome to the NCR Atlios Q1 FY24 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brendan Matrano. Please go ahead.

Good morning and thank you for joining the NCR Atlios first quarter earnings call. Joining me on the call today are Tim Oliver, CEO, Paul Campbell, CFO, and Stuart McKinnon, Chief Operating Officer. Tim will start this morning with an overview of first quarter performance and an update on our objectives for 2024. Next, Paul will review our financial results and outlook. Then we will move to Q&A. Before we get started, let me remind you that our presentation and discussions will include forward-looking statements. These statements reflect our current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially from those expectations. These risks and uncertainties are described in today's materials and our periodic filings with the SEC, including our annual report. Also, in our review of results today, we will refer to certain non-GAAP financial measures which the company uses to measure its performance. These non-GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials and on the investor relations website. Note that on the website, we have also provided historical financial results on a carve-out accounting basis for 2022 and 2023 to aid in analysis and modeling. A replay of this call will be available later today on our website, investor.ncratlios.com. With that, I will turn the call over to Tim.

Thank you, Brendan, and thank you to everyone for joining us in this call this morning. Before I launch into a discussion of a very successful quarter, And because I'm hopeful that many of you are newer to the Atleos story, I think it makes sense to reiterate the significant opportunity and focus strategy of Atleos, now as an independent, pure-play ATM company. Atleos is a serviced fleet of approximately 600,000 ATMs, 15% of which we own and operate for our own network business. In the current global environment of steady, cash-based consumer transactions and a stable installed base of ATM hardware, our growth will come from generating more revenue for every machine that we support. Whether that's from providing higher quality, more efficient, and more comprehensive services to our financial institution clients, or by driving more transaction volume across our network machines located in blue chip retail locations, both are fueled by our customers' desire to improve financial access for their customers while outsourcing more of their cash ecosystem. And as we service both from a common infrastructure that is unmatched scale, is leverageable, and is world class. Our customers are increasingly reinvesting back into their retail banking footprint and embracing shared financial utilities. For them, this strategy will result in lower costs, higher quality, better consumer experience, broader reach, and in some instances, higher foot traffic. For NCR Atlios, it will drive higher revenue growth, higher profitability from a scale and richer revenue mix, and a predictable free cash flow. Turning to slide five, I'm pleased to report that we are off to a very good start for the year. First quarter financial results were at or above the high end of expectations, led by strong growth in both our transaction base and our services businesses. And profit margins are beginning to climb as we overcome the incremental costs resulting from our spin transaction through cost productivity and interest rates stopping increasing. The operational and tactical progress of our first quarter allows us to be increasingly confident about our full year of 2024. Improving service quality levels, cost productivity traction, key contractual renewals, and sufficient selling pipelines all support our full-year guidance. Paul will provide a much more granular view of our performance and our outlook in a few minutes. Moving to slide six, this has operating results for our two key segments. In our self-service banking segment, we grew our software and services revenue by 7% versus the prior year, catalyzed by our A-Team as a Service initiative which posted almost 40% year-over-year revenue growth, and exit this quarter at a run rate of nearly $200 million in annual revenue. Our ATM-as-a-Service active unit count grew modestly in the quarter to approximately 21,000, with increases across geographies. We closed 12 new ATM-as-a-Service deals in Q1, including our first one in Hong Kong, to finish with backlog up from year-end to over 4,000 units. We now support ATM-as-a-Service customers in 12 countries, illustrating the broad appeal of our offering and the significant opportunity for global expansion. More generally, strong ATM orders globally strengthened our backlog and included key competitive wins in cash-intensive growth markets like Mexico, Egypt, and Turkey for the deployment of our new recycling technology and the accompanying services. We will deploy our recycling technology for Egypt National Post. And with agreements with Yapi Credit Bank, and Garanti Bank will now implement over 5,000 recyclers in Turkey. Our network segment performed well in the first quarter, with robust transaction growth including record-high transaction volumes in the month of March. Top-line trends were positive in most markets, led by all-point surcharge-free withdrawals in the U.S. and the addition of ASDA, a premier grocer chain in the U.K. Overall cash withdrawals grew 11% year-over-year, including 14% growth in surcharge-free withdrawals. Scalable transaction growth against our fixed-cost infrastructure and a more profitable transaction mix allow double-digit profit growth in the network business. Execution of our transaction expansion strategy continues, with deposit transactions at retail locations becoming our fastest-growing transaction type. The first quarter saw the addition of a second large U.S. bank to the deposit network, evidencing the value that all banks can realize from our utility banking network. As part of our strategy to export the success of the Allpoint utility to other regions, we launched the first UK-based deposit accepting locations in partnership with Cash Access UK. Our retail footprint in the UK provides ideal locations for banks to send their customers for everyday banking where branch access may not be as convenient. We continue to strengthen our retail footprint with the extension of our relationships with CVS and 7-Eleven Canada, ensuring safe, convenient access to cash while also driving foot traffic for the retailers. FinTech transaction volumes accelerated to new highs as neobanks, who don't have traditional bank infrastructure, provide convenient cash access to their growing customer base. Turning to slide seven for an update on our strategic objectives. Last quarter, we outlined our objectives for 2024 and described them in three buckets. One, differentiate and grow. Two, optimize resource allocation. And three, complete the separation from VOYX. I'll highlight a few accomplishments in each of these three for this quarter. starting with differentiating growth. While I've already described the success of our growth strategies in Q1, we also seeded future period growth. We continued to drive innovation in the ATM market. We built out our tap transactions in a multi-issuer environment across the U.S. network, enabling faster, more secure transactions, aligning with a fast-growing neobank segment. Our partnership with a leading gig economy payment solution launched across our retail network, providing drivers direct access to their daily pay, further expanding our transaction set. And we activated the first retail deposit locations in the UK in a partnership with Cash Access UK and a major UK bank, which expanded additional transaction sets internationally. Both our engineering and our selling teams are energized by our renewed commitment to deliver innovative solutions and capabilities. Optimizing resource allocation means maximizing output for every unit of input of a scarce resource, whether that be people, cost, or capital. In Q1, we reorganized the customer service and business operations functions. We introduced an AI-driven tool to our service teams that has already improved both quality and speed. We kicked off multiple productivity initiatives targeting both direct and indirect costs that will help offset separation disenergies by the time we exit this year. And we redefined a vendor agreement to allow joint engineering production efforts that will reduce our costs and importantly alleviate supply constraints. And finally, the separation from our former sibling company, NCR Voyex, is on track. During the quarter, we transferred four countries back to Atlios that have been stranded with Voyex post-split. Only three relatively immaterial countries remain with Voyex, and they're expected to transfer by the third quarter. We also accelerated our efforts to close transition service agreements, or TSAs, between the two companies. Full separation will enable further cost savings for both sides and provide more strategic flexibility. I want to extend my appreciation to the entire NCR Atlios team for delivering a strong quarter through their dedication, hard work, and positive disposition. The esprit de corps and pride of place emanating from our new company is energizing and contagious. We have a lot to do, but the opportunity is compelling and the future is bright.