NCR Atleos Corporation

Please stand by. We're about to begin. Good day and welcome to the NCR Atleo's second quarter earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Brendan Matrano. Please go ahead.

Good morning and thank you for joining the NCR Atleo's second quarter earnings call. Joining me on the call today are Tim Oliver, CEO, Paul Campbell, CFO, and Stuart McKinnon, Chief Operating Officer. We'll start this morning with an overview of second quarter performance and update on 2024 objectives. Next fall, we'll review our financial results and the outlook, then we'll move to Q&A. Before we get started, let me remind you that our presentation and discussions will include forward-looking statements, which are often expressed by words such as may, will, include, expect, and words of similar meaning. 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. 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 on the call today. For those following along in the presentation from the Investor Relations website, we will start today on slide five. Before I launch into a discussion of a very successful second quarter, And because I'm hopeful many of you are newer to the Atleos story, I think it makes sense to reiterate the significant opportunity and accompanying strategy of Atleos, now as an independent pure play ATM company. Atleos has an installed and serviced fleet of approximately 600,000 ATMs, including over 80,000 that we own and operate in our own network. In a global environment that continues to demonstrate steady cash-based consumer transactions, and a stable installed base of ATM hardware, our growth will come from generating more revenue for every Atlios 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 of these strategies 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 growth vectors from a common infrastructure that has unmatched scale, is leverageable, and is world-class. As global banks seek to improve their customers' experience in the most cost-effective way, the importance of self-service devices is increasing. As a result, our customers are 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 higher foot traffic. For NCR Atlios, it will drive higher revenue growth, higher profitability, grow from scale and a richer revenue mix, and predictable free cash flows. In this vein, in the second quarter, we grew services revenue by 6% and grew ATMs service revenue by more than 30%. We added key new clients to our networks, added new network geographies, rolled out new transaction types overall financial results were strong again in the second quarter with revenue toward the upper end of our expectations and profit above those expectations led by strong growth in both our transaction based and service businesses and profit margins are climbing as anticipated as we eliminate the incremental costs that resulted from our spin transaction we drove solid sequential margin expansion and beneficial revenue mix coupled with cost productivity from both direct and indirect costs. The strong first half financial results combined with robust sales pipelines, key renewals, and improved performance metrics allow us to reaffirm our full year guidance for 2024. Paul will provide more detailed discussion on guidance in a few minutes. Let's move to slide six, operating highlights for two key segments. On the left, Self-service banking top-line performance was solid for the second quarter, with services and software revenue growing 8%. Our renewed emphasis on product and service quality this year has been recognized by our customers and has resulted in strong order volume in the second quarter, which bodes well for hardware revenue in the second half. We've had several key wins and renewals for our traditional go-to-market model for services, software, and hardware across geographies, including with PNC in North America, with TechBond in Latin America, with Bank of Abyssinia in EMEA, and with SBI in Asia Pacific. ATM as a service revenue grew 31% and active units increased modestly. The opportunity for ATM as a service remains very large, and our customers' desire to outsource their ATM efforts is accelerating. As this strategy has begun to play out, two things have become clear. First, our definition of the ATM as a service as a singular product represents the full opportunity of wallet share increase for Atlios, but many of our customers see the opportunity as a continuum of services that they can migrate over time. In EMEA, we've seen greater preference for a la carte solutions rather than full outsourcing. In North America, smaller institutions generally prefer a fully outsourced model that incorporates new hardware, whereas larger institutions more often take a tactical approach, outsourcing off-premise fleets, adding select services, purchasing hardware up front, and even adding network access. Second, the strategy does not need to be capital intensive. Increasingly, we are seeing asset light wins where ATMs are either already in place or outright purchased by the customer, allowing us to significantly improve our returns. Some large unit opportunities in lower cost countries like India that require the bidder to own the assets are not demonstrating the returns consistent with our as a service strategy. As such, we have chosen not to provide an as-a-service offering on several thousand units that didn't meet this threshold. On the right-hand side, the network segment experienced another robust quarter. The effective execution of our utility banking strategy drove higher ARPU and higher profitability from our fleet of ATMs. Transaction volumes were strong, with cash withdrawals growing double digits year-over-year. and the UK was our largest contributor to international growth, benefiting from the addition of the grocer, Asda, in late 2023. In North America, Allpoint hit on all cylinders and generated another all-time high for transactions. Continued enhancements of our network, coupled with higher consumer usage, contributed 15% growth in surcharge-free withdrawals. We also made good progress on transaction expansion initiatives, adding deposit acceptance for Capital One, and expanding with Navy Federal. Deposit transactions grew 170% year over year, and our partnership with Payfair on cardless cash payout for DoorDash drivers ramped across the quarter. We expect to add Lyft in the second half of the year, providing more gig workers with quick and easy access to their daily pay. And finally, our investment in ClipMoney enabled us to efficiently add business deposit solutions to our network. I do want to call out the expansion of our relationship with Chime that we announced last week. Chime has been an Allpoint customer since 2021, and today they are one of NCR Atleo's key commercial strategic partners. Under the newly extended partnership, we will host Chime brand on Allpoint ATMs in more than 4,000 Walgreens stores across the country, in addition to the 2,000 currently branded with Chime today. Turning to slide seven that reiterates our 2024 key objectives. These objectives describe a path to both operational and strategic success in 2024. While I've already described our first half successes, I want to provide some insight into our second half focus areas. Starting with differentiate and grow. The strategies of our two reported segments are converging as our customers reconsider the entirety of their self-service banking effort and their consumer banking footprint. Our selling effort needs to be more malleable and leverage our fully integrated solutions. While full outsourcing to Atlios of all things ATM is the eventual goal, we can generate more revenue per device by either capturing more transaction volume or by taking on more services that our bank customers are currently doing themselves. And we are driving exciting new product offerings that add new functionality to the ATM by changing the end user experience and modernizing the hardware. Diligent prioritization and application of resources including people, expense, capital, time, and in some instances, components, optimizes returns and catalyzes future period growth. In the second half, our services organization will increase the tempo of productivity initiatives and extend our successful AI pilot, having addressed in the first half certain lingering product and service issues related to our separation. Our organizational redesign efforts will drive efficiencies, as will the modification of our manufacturing processes. Before moving on to the discussion of the separation, when Atleos launched as a separate company, I suggested that Atleos would generate predictable free cash flows and should be able to regularly deliver a proportion of that cash back to shareholders in the form of a dividend. Last quarter, when asked about a dividend, I said that the board would consider returning cash to shareholders once we had a better line of sight to full-year cash generation. And at that time, I would have preferred a share repurchase over a dividend payment. As is evident from our free cash flow guidance, we now have a better line of sight. After careful consideration and feedback from several constituencies, we've determined that continuing to reduce our debt is currently in the best interest of both our equity and debt holders. But we still believe that at some point, Atleos will be able to return meaningful cash to shareholders on a regular basis, and we feel good about our ability to generate free cash flow consistent with our guidance. For now, we will continue to deploy all excess cash to reduce debt. We expect to have the opportunity this fall to refinance some of that debt. Lastly, the process to complete the separation from NCR VOICs is on or ahead of schedule and on budget. During the second quarter, we transferred two more countries to Atlios that had been stranded with VOICs post-split due to legal entity status. Only two with de minimis revenue remain, and those should transfer to us in the third quarter. We completed the early closure of several key transition service agreements, or TSAs, between the two companies and have only a few critical TSAs remaining. This has allowed us to already begin evaluating productivity opportunities for functions previously covered by the TSA and sized for a larger company. As is always the case, I want to express my gratitude to the whole NCR Atlios team for achieving another impressive quarter, fueled by enthusiastic commitment to our new company's mission and values diligent effort, and consistently positive disposition. I'm extremely proud of what the global NCR Atleos team has accomplished in nine short months and more opportunity awaits. With that, over to you, Paul.