NCR Atleos Corporation

Good day and welcome to the NCR Atlios First Quarter FY25 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Brendan Metrano, Head of Investor Relations. Please go ahead.

Good morning and thank you for joining the Atlios First Quarter 2025 Earnings Call. Joining me on the call today are Tim Oliver, CEO, Andy Wamser, CFO, and Stuart McKinnon, COO. Tim will start this morning with an overview of the company's business performance and strategic progress in the first quarter. Andy will follow with a review of our financial results and our outlook for the second quarter and full year. 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 other 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 us on this call this morning. I'll start this morning by reinforcing the compelling Atlios investment thesis, describing a successful start to our 2025, and providing some company-specific context for the current uncertain business climate. Andy will then walk you through the more detailed financial results, and then we'll both take your questions. In separating from legacy NCR through a spin transaction in late 2023, Atlios is now a pure-play independent company with a leadership position in self-service banking and a clear growth strategy. Atlios has an installed and service fleet of approximately 600,000 ATMs, including approximately 80,000 machines 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 base of installed 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 owned 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 both growth vectors leverage a common Atleos infrastructure that is unmatched in scale and is world-class. So starting on chart six, revenue was in line with our plan, with growth from the more strategic parts of our business offsetting lower non-core separation-related revenue from our former parent company, Voyex, some regulatory changes in lower volumes at our Bitcoin business, LibertyX, and the timing of hardware revenue, which will grow nicely across the remainder of the year. From a profitability perspective, a more lucrative revenue mix coupled with direct productivity efforts in our service organization pushed margins up almost three points overall. Operationally, nearly all of our customer KPIs are moving in the right direction, and our service levels remain at post-spin highs. We exited Q1 with an order book for hardware that is very strong and an increasing backlog for new service revenues. Our productivity initiatives are on pace to deliver to the targeted savings levels, and our contingency planning efforts are beginning to recover some of the profitability we expect to lose to tariffs. I'd like to take a minute to describe Atlio's exposure to what we know now about tariffs and what could be second order effects of a global trade rebalancing. Because we are a global company with a preponderance of our revenue coming from recurring services, our tariff exposure is generally limited to ATM hardware and replacement or repaired parts produced overseas and then imported into the U.S. Those goods represented less than 7% of our total costs in 2024. Going forward, about 90 percent of the hardware is going to be imported to the U.S. from India, with a remainder split between Hungary and Mexico. We do also have a small tail of parts from China that we're looking to locally source in India. Beyond the direct and easier-to-calculate costs of tariffs, we're also watching closely the potential follow-on effects of tariffs on global consumer behavior, on bank and retailer capital spending, on interest rates or currency and exchange rates, and on the potential for reciprocal tariffs. Andy will walk you through the gross impact of tariffs and discuss the contingency actions we are taking to reduce that net impact. In past challenging economic environments, our business has proved to be very resilient. Over 70% of Atlios revenue is generated from recurring services and software streams that facilitate essential customer transactions for financial institutions and other partners. In addition, In periods of economic uncertainty, cash usage often increases due to tighter credit conditions and consumer budget pressures. And our strategy to grow our share of a continuum of ATM service revenues with comprehensive outsourcing capabilities could have a more compelling value proposition when banks are looking to enhance efficiency. On our year-end 2024 call, I introduced three primary Atleos goals for 2025 that are appropriately broad, to allow to be cascaded with increasing specificity down through our organization. These three goals provide a framework for prioritization and ensure organizational alignment for our 2025 objectives. I'll refer to them again as I describe successes in each of our business segments later. The first is grow efficiently. Accelerating growth while we reduce leverage to targeted levels requires judicious allocation of growth capital and operating expense. We're emphasizing the growth vectors that drive the most immediate returns and are accretive to margin and cash generation. The second is to develop a service-first culture. We believe service, not product, is the primary differentiating factor in the ATM industry and in the cash ecosystem. Service already makes up a preponderance of the revenue base and carries higher margins. As our strategic plan plays out, service revenue opportunities will outpace the underlying market growth dynamic. Every customer interaction should start with a conversation about solution. Gaining share of wallet through outsourced services requires a deep customer trust that can only be achieved through sustained customer excellence and leading service performance. Our 24-7, always-on customer service mindset is essential to our long-term success. And finally, we will embrace simplicity. The complexity we inherited from our former life as part of a larger legacy NCR is unnecessary and inefficient. Investment in modern systems, improvement in processes, and organizational redesign that reduces layers and handoffs will extricate us from our former parent and make us more nimble, make our employees' jobs more rewarding, and make us much easier to do business with. I will illustrate projects on each of these overarching goals as I walk through these segment results. Moving to slide seven in the self-service banking business review. This is primarily a service business comprised of a global installed base of over 500,000 ATMs that we sell to financial institutions with a software subscription and a service and support agreement. Traditionally, those services have been centered on maintenance and repairs, but increasingly banks are opting to outsource more of their other services necessary to run the ATM to us. And for the eighth year running, this business was named the global ship share leader for the ATM industry. First quarter financial results were either in line or slightly ahead of our expectations. Revenue grew modestly in a constant currency basis. Combined services and software revenue grew 6%, which translated to similar growth for our recurring revenue streams. ATM as a service was the primary source of service growth with good sequential and year-over-year gains in revenue, number of customers, and backlog. While hardware revenue was down year-over-year in Q1, hardware will post strong growth across the remainder of the year with a higher refresh replacement cycle orders, and strong incremental demand for our recycler product. Favorable revenue mix combined with cost productivity generated more than 300 basis points of margin expansion year over year. Moving to the bottom of the page, Q1 is an important quarter for our reinvigorated innovation efforts. Our prototype machines and technologies have been installed in two of our locations and have received hundreds of customer visits. We held our first North American multi-day customer event and launched our customer feedback panels that allow us to reflect customer preference in further development and inject their strategic needs into our labs. While our service-first initiative is just getting started, we already are seeing returns. A more robust set of key performance indicators is allowing a more refined approach to incremental improvement. In Q1, we extended our market-leading service levels and set new highs in customer service quality. Our customers are already rewarding us with add-on orders that are added to our installed base or gained more share of wallet. And finally, our AI-driven dispatch and service optimization model is completing a very successful test run in Canada and is now ready for global rollout. Moving to the network on slide eight, the network segment is our utility banking business that consists of approximately 80,000 owned and operated ATMs located in blue-chip retail locations. The network business continues to grow the number of network cardholders, is now in 13 countries, and is expanding the capability of its installed base. First quarter financial results were generally in line with our expectations. From a revenue perspective, we experienced typical seasonality, some lower transaction volumes in the UK, and some decline in cross-border or travel-related transactions. And we anticipated the further erosion in the LibertyX Bitcoin transaction revenue due to regulatory changes. All point cash withdrawals grew modestly and cash deposits continued to ramp quickly. Adjusted EBITDA margin expanded by more than 140 base points, and ARPU continued to increase sequentially and year-over-year, hitting another new high. Moving to the bottom of this page, this business signed 7-11 to the Allpoint Network, adding thousands of convenient and safe locations for our 75 million cardholders to conduct their daily banking. We also signed a partnership in the U.K. to extend our deposit network there and added more deposit-enabled locations in the United States. The benefit of higher service levels also accrued to this business. Higher availability of our owned and operated machines means more foot traffic for our retail partners and more revenue for Atlios. And finally, we made our devices easier to interact with by expanding the access to tap-enabled machines. We're also implementing upgraded and modern ERP modules that will improve our invoicing and collections capabilities. Back in March, we provided guidance that reflected only what we knew at the time, including the then-pending tariffs on imports from Mexico. Since then, a lot has happened. Uncertainty has increased significantly, and many companies have suspended their guidance, waiting for a clearer line of sight. That said, we believe Atleos, through pricing actions, supply chain adjustments, and indirect cost productivity, can absorb the net effect of the tariffs and remain inside the guided ranges we provided back in March. Andy will give you more details on that next. But before I hand off to Andy, I want to recognize the 20,000-strong Atleos team for their performance this quarter and a great start to 2025. You were not distracted by the most recent and a long string of uncertain business environments, but rather embraced the opportunity and began developing solutions. With your collective effort, we will lead our industry from the front and deliver a strong 2025 result. With that, Andy, over to you.