NCR Atleos Corporation

Good morning, and thank you for joining the NCR Atlios Third Quarter Earnings Call. Joining me on the call today are Tim Oliver, our CEO, and Paul Campbell, CFO. Tim will start this morning with an overview of third quarter performance and an update on strategic progress

Paul will follow with a review of financial results and our financial 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.ncratleos.com. With that, I will turn the call over to Tim.

Thank you, Brendan, and thank you to everyone for joining this call this morning. First, a belated happy Veterans, happy Armistice, and happy Remembrance Day to all those who have served their countries. We appreciate you. Now, for those following along in the presentation from the Investor Relations website, I'll start on slide five. I'm pleased to update you on another very successful quarter for NCR Atleos that saw us make consistent progress against our 2024 objectives and further validate our growth strategies. strong execution across our businesses and functions in the third quarter, translated into third quarter financial results that exceed plan. We delivered $1.1 billion of revenue, over $200 million of adjusted EBITDA, 89 cents of adjusted EPS, and for the first nine months have generated over $120 million of free cash flow. Our year-to-date performance, coupled with the momentum evident in our businesses, gives me confidence we will close out a very successful 2024. Reflecting on what was the best quarter to date, and having just celebrated our first birthday as an independent ATM-centric company, I cannot overstate what the Atleos team has accomplished over the past year. One year in, our employees are energized and engaged. Our customers recognize a return to best-in-class service levels and appreciate our reinvigorated innovation efforts. Our strategic progress is pushing our revenue per ATM higher, and our financial performance has been solid and steady. Before discussing our third quarter results, I think it's beneficial for those less familiar with our story to provide a quick description of the company and the compelling opportunity we see for all of our constituencies, but with particular focus on our investors. While our employees, customers, partners, and communities have all recognized the compelling outlook for Atlios, the company remains significantly undervalued relative to our peer companies, and our strong performance has not yet translated to gains in enterprise value. After separating from legacy NCR through a spin transaction, Atleos is now a pure-play independent company with a leadership position in self-service banking, a clear growth strategy, and an emerging pattern of consistent performance and free cash flow generation. 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 at Leos for every machine that we support, whether that's from providing high quality, more efficient and more comprehensive services to our financial institution clients, or by driving more transaction volumes across our network machines located in blue chip retail locations. Both of these strategies are fueled by our customer's desire to improve financial access for their customers while outsourcing more of their cash ecosystem. And importantly, We service both growth vectors from a common infrastructure that is unmatched in scale, is leverageable, and is world-class. As global banks continue to 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, a better consumer experience, broader reach, and in some instances, higher foot traffic. For Atlios, it will drive higher revenue growth, higher profitability from both scale and richer revenue mix, and predictable free cash flow. Through the first three quarters of 2024, we grew service revenue by 6%. We grew ATM as a service revenue by nearly 30% and increased the ARPU on our network machines by 7%. So turning to that third quarter, overall financial results were strong again. Revenue was toward the upper end of expectations and profit was above expectations, led by strong growth in both our transaction-based and our services businesses. We again drove solid sequential margin expansion with a beneficial revenue mix coupled with cost productivity from both direct and indirect costs as we eliminate the incremental or duplicate costs left by the separation transaction. And importantly, we are on track to deliver significant positive free cash flow in every quarter of 2024. In addition, in October, we successfully refinanced and reworked our credit facilities at lower rates and better availability based on the company's improved credit profile. Paul will run through the details in a few minutes, but we will see meaningful reductions in interest expense beginning in the fourth quarter. As we close out 2024 and starting to think about 2025, our strategy is being validated. Demand for both more capable ATMs, like cash recycling or tap capability, is accelerating in what appears to be the early innings of a hardware replacement cycle. The willingness and desire of banks to outsource non-core ATM servicing to efficient and capable operators is also increasing. And the demand for shared financial utilities that provides immediate and low-cost coverage away from traditional bank branches is growing globally. Moving to slide six, self-service banking. Third quarter financial results exceeded the high end of our segment guided ranges. We grew revenue with strong growth in recurring revenue streams led by incremental software and services revenues from our installed base of devices. We increased adjusted EBITDA and EBITDA margin rates sequentially with effective direct and indirect cost savings initiatives coupled with top line growth and a beneficial business mix. Over the past year we committed considerable resources to product and service quality and to go to market execution to support our strategy. The resulting improvements have been recognized by our customers and contributed to the strategic wins in all regions and businesses and to the high demand and backlog we see in hardware, particularly recyclers. Our ATM as a service solution is progressing well. We grew ATM as a service revenue 23% year over year in the quarter to an annual run rate of about $200 million. We continue to see increasing appetite across a broad range of financial institutions to outsource all or a portion of their ATM-centric services to a singular provider. New active customers, backlog, and a significant sales pipeline give us line of sight for not only our 2024 objectives, but also present us very well for 2025, and Paul will give you more there. Our backlog continues to grow. The quality of that backlog is very strong, and some org design changes have improved our onboarding speed. As we think about 2025 and beyond for ATM as a service, two things have become clearer. First, our reported metrics defined ATM as a service as a singular product that represents the full opportunity for wallet share increase at Atlios. But many of our customers see the opportunity as a continuum of services that they can migrate piecemeal and over time. And our tight definition is causing inaccurate comparisons with competitors who brand any incremental or managed services at the ATM as ATM as a service. Going forward, The important descriptor of strategic success will not be units, but rather ATM as a service revenue and, more broadly, total company services revenue. Second, the strategy does not need to be capital intensive. Increasingly, we are assigning asset light wins where ATMs are either already in place or are outright purchased by the customer, allowing us to significantly improve our returns. Moving to slide seven, the network segment. The network business continued to deliver solid and consistent performance in the third quarter, with revenue and EBITDA up sequentially and in line with our expectations. We are executing a utility banking strategy that is focused on driving incremental transaction volume from our fixed base of approximately 80,000 company-owned and operated ATMs. And we set another new high in revenue per machine, driven by the continued migration of financial transactions from bank branches to our utility banking network. We generated strong transaction volumes in both international markets and North America, fueled by adding new high-quality banking and retail partnerships, new transaction types, and new functionality to the network. We grew the all-point transactions by 14% year-over-year as more consumers choose to do their regular banking at our convenient and safe ATM locations without paying a surcharge. Deposit volumes grew 200% year-over-year as the uptake continues to ramp with key financial institution partners in the U.S., including Capital One, PNC, and Navy Federal Credit Union. We activated TAP technology on approximately 10,000 all-point machines that have already generated over 1 million transactions in the third quarter. Our other emerging transaction types, like ReadyCode, that enables cardless cash access for gig workers, and business deposits through our partnership with ClipMoney, also extended very strong growth trends. In international markets, we laid the groundwork for future growth and expansion into Greece and the pre-work for the expansion into Italy. Turning to slide eight that reiterates our 2024 key objectives. These objectives describe a path to both operational and strategic success in 2024. I've already discussed many of the highlights for the first three quarters of the year, so I'd like to focus on our objectives for the 2024 homestretch and setting ourselves up for success in 2025, starting with differentiate and grow. Last quarter I discussed how the strategies of our two reported segments are converging in response to our bank customers adapting their retail business models to meet evolving consumer and market demands. Conversations with customers have reinforced our view on this trend. We are evolving our go-to-market strategy toward providing solutions that leverage the entirety of our unique, fully vertically integrated capabilities, rather than selling defined product and service steps. Our focus will be on finding the right services that meet customer needs today and establish Atlios as a trusted partner eventually for the full outsourcing of ATM. Diligent prioritization and application of resources, including people, expense, capital, time, and in some instances even components, optimize their returns and catalyzes future period growth. In preparation for our 2025 savings goals, our service organization will shift from initiatives centered around transaction dis-synergies toward extending our continuous improvement efforts and our AI tool rollout. Lastly, the process of separating from NCR VOYX is nearly complete. Most of our mutual TSAs have been completed. A few new commercial agreements have been added to formalize remaining IT-related separation activities, and the outsourcing of all hardware manufacturing by VOYX will truncate our responsibility in that regard and that agreement at year end. It is very likely that the wind down of the other category in our segmentation will be nearly complete at year end and will have no significant impact on reported results going forward. Concluding my comments, I want to express my gratitude to the 20,000 NCR Atlios team members for achieving another impressive quarter. Fueled by enthusiastic commitment to our new company's missions and values, diligent effort, and a consistently positive disposition even when under pressure, I am extremely proud of what the global NCR Atlios team has accomplished over the past year and more opportunity awaits this group in 2025. With that, Paul, over to you.