Good day, and welcome to the NCR Atleos First Quarter FY '25 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 Atleos First Quarter 2025 Earnings Call. Joining me on the call today are Tim Oliver, CEO; Andy Wamser, CFO; and Stuart MacKinnon, 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 Atleos 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. Since separating from legacy NCR through a spin transaction in late 2023, Atleos is now a pure-play independent company with a leadership position in self-service banking and a clear growth strategy. Atleos 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 Atleos 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 6. Revenue was in line with our plan with growth from the more strategic parts of our business offsetting lower noncore separation-related revenue from our former parent company, Voyix, some regulatory changes and 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…

Thank you, Tim. Building on Tim's comments, we are off to a solid start for 2025 with the first quarter essentially playing out as we expected. Starting on Slide 10. The key takeaway from this slide is that the top line trends remain solid in our key strategic businesses that will drive profitable growth and value for shareholders. I will focus my comments on core results because the wind down of Voyix-related business had a meaningful impact on year-over-year growth in the first quarter. The impact of Voyix steps down in the second quarter and lessens progressively throughout the balance of the year. First quarter core revenue was $966 million, just slightly less than the prior year period on a constant currency basis and in line with our outlook. Our core services and software businesses grew a healthy 4% year-over-year on a constant currency basis, led by strong growth in ATM as-a-Service and software. ATM network transaction services were flat on a constant currency basis. Hardware was down year-over-year as planned, reflecting a skew in first half deliveries to the second quarter. Note that we expect combined first and second quarter 2025 hardware revenue will grow mid-single digits compared to the first half of 2024. The growth in services and software revenue in conjunction with lower hardware drove recurring revenue mix to 75% for the first quarter for our core businesses. The T&T segment, which comprises less than 5% of the total business, was down year-over-year and in line with plan. And as a reminder, we manage this segment for profit, and it does enhance the scale of our service operations. Moving to Slide 11. Top line growth in our higher-margin recurring businesses, coupled with good early progress on productivity initiatives drove 9% growth in adjusted EBITDA or 11% on…

[Operator Instructions]. And our first question is going to come from Matt Summerville from D.A. Davidson.

A couple of questions. First, just on the Self-Service Banking business, looking at kind of the legacy hardware-driven piece of the company, can you give a little bit more color on overall backlog this year relative to last? And how much of this year is sort of spoken for from a hardware standpoint? And then on the as-a-service side of the business, in order to get to 40% growth for the year, that obviously implies a pretty big ramp through the remainder of the year. Can you help sort of paint a picture on how that ramp builds from here? And then I have a follow-up.

Matt, it's Tim. I'll give it a shot and then I'll let either Stuart or Andy jump in. First on hardware, I think it's going to be the best hardware year we've had since 2019. It's going to be a very good year from a hardware perspective for a couple of reasons. The replacement cycle is clearly giving us some lift lapping those 2019 units. And our product is supremely competitive. And while we may have been a little bit challenged a year or so ago, we're back and our recycler demand is very strong. So I think we get to the end of the year, we're going to post probably 8% revenue growth on hardware, and that's after absorbing some of those machines into ATM-as-a-Service and into our own network. So from a unit perspective, it will be an exceptional year. As I said, I think it will be the best since 2019. So really good backlog, really good demand, very good customer reaction to our product offering. On as-a-service, this is just like last year. There's a race at the end of the year to implement machines and onboard customers. We had a huge fourth quarter, as you'll remember, in terms of machines coming on board. And then you haven't inducted any or started the process and some of the others are focused on completion. And so you just start a little bit slow in the first quarter. Much like last year, implementations will ramp across the year, very similar, in fact, in pattern to how we did last year. So as much as I hate riding that cyclicality, we see it in hardware as well. The spend it or lose it mentality of customers, the annual planning cycle of customers and frankly, our behaviors as we ramp up across the year just caused those 2 revenue streams to be somewhat back-end loaded.

As a follow-up, spend a minute on the balance sheet. Leverage is sort of flat at 3.2 next quarter -- or excuse me, in Q3, you expect to be a little bit lower than 3x. How is that informing your view on potential buyback timing? Has that evolved further, Tim, since 3 months or a couple of months ago the last time we spoke?

Yes, it evolves all the time because I get a lot of feedback from investors. I get a lot of feedback from Board members and then the world changes as well. Look, I still think the right goal for us is to -- there's supreme consistency and opinion around us getting under 3x leverage. And so without a doubt, I would like to apply every dollar of free cash flow we generate to getting us under 3x leverage. And I think we're now within eyesight of that goal. Our cash flow is because of the weighting of hardware, the hardware you I just described as being very good and back-end loaded. I had to use some working capital in the first half of the year that we'll collect in the second half of the year. So my free cash flow is a little more back-end loaded than we expected, let's say, a year or so ago when we talked about getting to 3x by the midpoint of the year. So maybe I'm off by 30 or 60 days, but we're going to get there. And by the time we talk to you 90 days from now about our results in the second quarter into July, I'm going to have to be more descriptive on what we're going to do with free cash flow thereafter. Here's how I think about it. When we get to this time of 90 days from now, we'll be staring at a second half free cash flow number that, let's call it, round numbers is going to be $300 million, $250 million to $300 million. I'll be looking at a free cash flow number in the following year that's closer to $400 million. And so I'll have $700 million worth of free cash flow over the successive 6 quarters that I'll need to describe what I'm going to do with, and I'll be prepared to do it at that time. I'm not interested in paying a dividend. I don't think that's the right thing to do. I'm hopeful that there'll be some growth opportunities that allow us to absorb some of that into accelerating our growth with acquisitions or investments in fleets. But a large percentage of that excess free cash flow should be delivered back to shareholders. And I think the right form of that is a share repurchase as we sit here today. So I don't have any news to break today, but I think you should expect a more definitive answer from us 90 days from now.

And our next question comes from Dominick Gabriele from Compass Point.

If you just think about the hardware impact to the quarter, just mixing to the second quarter and the second half. Is there any way to discuss the amount of hardware impact by the segments? And then I just have a follow-up.

So most of the hardware goodness, all of the hardware goodness that we report as revenue will come through the Self-Service Banking segment. The Network segment, we don't recognize any hardware revenue there because, in essence, it's an investment in PP&E to support that business. So we -- if you look at the analysis of free cash flow that Andy provided you, you can see in there that we invested about $10 million in the quarter. back into PP&E, you can presume that most of that is units that we're replacing and upgrading their existing network fleet. You can also then look and the $16 million number in there that describes how much we invested into machines that are in the ATM-as-a-Service business. So when I was talking about 2019 and demand for hardware being the biggest since then, you'll recall in 2019 and really until 2022, we didn't have either of those numbers. We didn't own Cardtronics. And so that was real revenue to us back then because they were an outside customer. That $10 million would have been revenue. Actually would have been $12 million of revenue because I would have made 20 points from Stuart when he worked there. And then we would have -- that $16 million would have been recognized upfront as well. So units will be very strong. I think the impact of both refreshing the network and the units we invested in ATM-as-a-Service were both pretty consistent with the annual model. If you take those numbers and multiply it by 4, you'll be pretty close to the impact for the full year. But otherwise, you'll see revenue growth in the hardware business associated with higher count of machines manufactured and better price points in some of those. I hope that's responsive.

Yes, absolutely. No, that makes a ton of sense. And to me, it means the Self-Service Banking business really did do quite well this quarter, excluding that.

I'm thrilled. Here's the other thing before you leave that. I love what the hardware business did and is going to do and the position they put us in, our engineers have put us in to be successful with a recycler. I'm very, very excited about that. The more important thing in the Self-Service Banking business is we're crushing it from a service perspective. We're hitting every objective for our customers. We're posting the best customer service levels we've posted in some time, and we're doing it at less expense. And so we're generating huge productivity and incremental revenue opportunities because of what that service organization is doing. Our CEs are killing it out there. We're giving them better tools. But I think the most exciting thing about this quarter, yes, hardware is fun, but our service business is hitting on all cylinders right now.

And I may have missed it in the prepared remarks, but did you guys provide -- and would you mind providing the backlog average unit sale price that you usually give in the thousands per unit.

So that would be on ATM-as-a-Service. Yes, Andy, do you want that one? Our backlog in ATM-as-a-Service units is up. It's about 7,500 units and the ARPU on those devices is significantly above the average that we posted of the 8,200 or. So it's a good backlog as it exists now. 8,200 units won't quite get us -- or 7,200 units won't quite get us to where we want to be for the full year. We've got some other orders we're working on that I think will not only hit the unit number that we've talked about internally, but help us hit the revenue number, which is the one we've guided to.

And let me just add a little bit more color. So if I look at the backlog, it is up 25% year-over-year. And then when we think about the ARPU, it was down on an LTM basis, down $200. But when we think about it, that just had to do with timing in terms of when the units went into service. But if we look at that on a quarterly basis versus an LTM basis, ARPU was actually up 5% in the quarter, quarter-to-quarter. So what that says to us is that we're really optimistic about the ARPUs that we're getting from North America and Europe, and we would expect it to go up higher meaningfully. And the only, I would say, caveat to that is that we have significant deals in India, which could change that. But given the small base, there could be volatility, as I said in my comments.

Yes. And we're hopeful that we do have some deals in India. We've talked in the past, we've walked away from some deals where we could not make money. We've also seen some of those deals that were reverse optioned come back around that those that won the bid weren't capable of executing against the deal that they agreed to. And so I think we'll be more competitive in some of the lower-cost markets we have to be. And you might hear us at the end of the year or in the second half, talk about larger unit deals and lower-cost portions of the world that are not accretive to ARPU, maybe mildly dilutive to overall ARPU, but are very accretive from a revenue perspective and put us -- and give us more scale in those markets.

Yes. And it looks like the adjusted EBIT -- if I could sneak one more in. It looks like the adjusted EBITDA growth was towards the higher end of your annual target, especially if you think about perhaps some of the hardware changes. But you did mention tariffs could put you towards the lower end of the range. Just wondering if you could kind of help just flash that out just a little bit more, if that's okay.

Yes, I'll let Andy take this one. But remember that the tariffs didn't really impact the first quarter. I mean it was a couple of million bucks. We did see lower transaction volumes. I think actually was part of this whole tariff follow-on effect. But those would ramp across the year. And so any conservatism around guidance would not be associated with demand. It would be entirely tariff related, and it will be related to as those tariffs roll on in Q2 through Q4. I don't know, Andy, if you want to give.

Sure. I mean to help maybe Dominick dimensionalize some of this, I said for hardware and parts, revenue could be directionally, call it, $850 million. We assume a 20% margin on that. That would mean our costs -- that could be subjected to tariffs would be $680 million. But the part that is subjected would only be 1/3 of that because that is what's coming into the U.S. So that would be a base of about $225 million. And if we assume -- as Tim and I mentioned, in the current environment today, a lot of it is coming from India, which is at a 10% tariff rate. But if we assume right now because we have other exposures to other countries, a blended rate of about 15% on that $225 million would give you an annualized number of about $34 million for the year. And then if we have 3 quarters left in the year, you're talking about a $25 million sort of cost impact. That being said, we are working on a number of initiatives in terms of productivity initiatives, looking at changing our supply chain, particularly some of that small tail that Tim mentioned in China. And then pricing is a discussion that we always have to have. Great.

And I guess most of what you're saying about comes through cost of revenue, correct?

Yes, it would. It would hit gross margin.

[Operator Instructions] Our next question is going to come from Shlomo Rosenbaum from Stifel.

This is James Holmes on for Shlomo. The ATM-as-a-Service customer count growth was quite strong in the quarter. Can you talk about what kind of customers you are adding and in which geographies was weighted to in the quarter? And then I have a follow-up.

Sure. In the Q1, most of the customers that we added were actually in [indiscernible], which, again, as I mentioned, had really good ARPU. But as we look to the balance of the year, it's going to be -- when we look at the pipeline, it is pretty balanced between [indiscernible], APAC, India and to a degree, Europe as well. So it's pretty balanced.

And can you also talk about what's driving the strength in ATM-as-a-Service gross profit? Is it just more weighting towards smaller customers and that's -- those customers are more profitable or anything around that?

Yes, that's 100% right. We've talked in the past about the North American transactions or contracts being better for us from a profitability perspective, typically because it's for fewer machines. So we have to hit a lot of singles in North America. We have to win 100 and 200 and 300 machines at a time. And when we do that, our cost structure is incredibly scalable and the value we can deliver to those customers is very high. And so it leaves room for a little bit more profit. There are markets in the world where you have to compete harder like India or Brazil, where margins are much tighter. And if you want to participate, you need to be more productive. But yes, I think in general, winning in North America 100 and 200 machines at a time is going to be what distinguishes the margin rate in this business and allows to put upward pressure on overall margin. The margins on ATM-as-a-Service in India or Brazil are not that different from the margins you would get from simply selling the hardware itself. So the model is -- it's accretive to overall revenue dollars. It doesn't change the margin rate nearly as much as it does in North America and Europe.

And the only thing I'd maybe just add is just because when we think about the ATM-as-a-Service, one, you saw the top line growth in terms of the mid-20s. But if you look at the flow-through in terms of just the margin expansion we had in terms of 700 basis points, I mean we're really impressed with that and with the leverage that we're getting into the business. I would say the second thing that I think is important as we mentioned the customer count. And so in terms of that customer count being up about 40%. And with that customer count, why that's important is we have a number of customers who are trying out the service and then potentially will expand. So we're not beholden. We don't have a customer concentration issue as we diversify that base. It lends itself to our bank customers expanding their portfolio offering and moving that further down the continuum. So we think all those factors together really make us optimistic for this business, not just for this year but for the longer term.

And we didn't see that when we first rolled this strategy out, we presumed to be all or nothing, all services, all machines all the time. And that's not the way it's playing out. The way it's playing out is if people want to incrementalize their way there and build trust with us and let us show them that we can perform as well or better than they do. So they'll give us a portion of the fleet or they'll give a portion of the services of a portion of that fleet and allow us to grow into it over time.

Our next question comes from Matt Summerville from D.A. Davidson.

I just had a couple of quick others. I just want to put a finer point on some of the transactional trends you're seeing in the Network business. Can you comment specifically on withdrawal transactions North America versus withdrawal transactions rest of world? And then I guess, what's the game plan for LibertyX? I mean it was a pretty big material headwind last year. I guess I was under the impression maybe that was starting to stabilize and some things have changed, so it's falling off again. I guess, one, why keep it? And two, -- you mentioned M&A, Tim. Is there anything -- are you actively cultivating a pipeline? And if so, where would you be looking to expand? Or how would you be looking to expand inorganically?

Yes. Thanks, Matt. So LibertyX, look, you're not wrong. That was an acquisition done using equity some years back when everybody thought they needed a Bitcoin solution. Our solution is decent. It's a singular currency. It's only Bitcoin, and we did generate some revenue when we first completed that transaction. Regulatory changes have caused us to have to significantly reduce the maximum size of the transaction to take place at the device and it has caused people to change the way they consume that service. We have deemphasized that business. It has very little profitability. So it doesn't impact profit. It just impacts top line. It is it had its biggest impact of the year this quarter because it had a pretty punky second half of last year. And so it won't be as big a detractor to overall revenue as we go through the year. But your suggestion that why -- look, we're not investing more back into this business. We're trying a couple of different things right now, including the ability to monetize Bitcoin at the device to see whether that business can be more successful. But otherwise, it's a business that we've reduced some of the things we used to do. We don't do cross-border in that business anymore. And we'll keep necking it down. It's a distraction. I wish it wasn't there. On -- what was the other half of the question?

On M&A.

M&A. Look, as we sit here right now, we have a very -- we have a long list of ideas. most of which have relatively low price tags on them because of what we're trying to get done from a debt perspective. There are other ideas that are much more expensive and much more strategic and frankly, more exciting that we can get to once we're -- once we've taken care of our debt. So back to the conversation earlier about the $700 million or so of free cash flow we'll have to deploy once we get over 6 quarters, once we get through this next quarter. I would hope that some of these good ideas that have come forward, particularly around extending our fleet, our network fleet around the globe, it's much easier to step into an existing fleet and make it better than it is to start from scratch. I think there's some technologies we could add to the network business that could allow us to -- if we could spend a little bit more money there and add some technology to the device itself. I think that would be helpful. There are some parts of our nearly perfectly vertically integrated solution to the Self-Service Banking business. There's a couple of holes in there that would be interesting to fill and round out our portfolio. And there's some international opportunities that we would might chase in an environment where we had a little bit more to go. So we have, I'd say, a long list of ideas that are $100 million to $5 million in aggregate price that we could probably execute this year. But then beyond that, there are a lot of ideas that we just need to time a little more carefully.

And maybe just to add on to -- and Tim had exactly right. I would say the one point about LibertyX, just to emphasize is that it is low margin. So it does sort of skew the top line results. But from an EBITDA perspective, it does have minimal impact. And then you asked the question about just volumes, network volumes. I would say if we think about network volumes in [indiscernible], it was relatively flat. But as we look out, we're optimistic that we'd see an acceleration of some ready-code transactions. And as we talked about some of the high profitable sort of deposit transactions in terms of what we're doing there, again, on a small base, but we're diversifying the transaction mix.

So you did ask about the global withdrawal transactions. So network transactions, U.S. network transactions global were up 2% withdrawals. -- whereas in the U.K., I think we said they were down 6% or 7%. So the U.S. still pretty good, U.K. down. And by the way, March is a really tough month for some reason. I think April has been better. So I'm hopeful that, that decline was temporal and had more to do with the timing of Easter and some other things. But April has been better. And I'm hoping we report next quarter, it's not down 6% or 7%.

And our next question comes from Chris Senyek from Wolfe Research.

Great quarter, guys. And thinking about the cash flow and the cadence this year and next year, in your prepared comments, you had mentioned that there could be and should be substantial cash flow. How should we think about the cadence of that over the remainder of the year? I know Q1 is always a use type position. And as we look to 2026 because that would forecast a pretty significant ramp into '26.

Yes, I'll go first because Andy has not been here that long and can't refer to history. But that's been the history for us from a free cash flow perspective, consume a little bit in the first quarter and maybe a little bit even in the second. and then generate most of the free cash flow in the latter half of the year. I think that will play out again this year. We're a little more linear last year, which was terrific. It was a little bit of an atypical year. And our hardware business actually didn't have a great year last year, and that's what gets back-end loaded. So I think you'll see us get north of breakeven for this. So you have mildly positive in Q2 that offsets the loss we just -- the use we just had in the first quarter and then you see a pretty good second half of the year. We have published or will publish the cash outflows associated with taxes. Our best guess on taxes and interest. And so you can just lay that over our performance, the growth in profitability, the ability to harvest $110 million of working capital that we just utilized to seed future period hardware revenue. And I think it will -- you can map that out. But I don't know anything you want to add?

Yes. The only thing I would add is in the comments, I talked about how EBITDA will ramp as we go throughout the balance of the year. And I think Tim said exactly right. When we look at the front half of the year, it could be relatively flat, slightly positive. But when we look in Q3 and Q4, as EBITDA does ramp, our free cash flow conversion should be closer to like 60% in each of those quarters. So it will considerably ramp as we go through the back half of the year, and that's relatively consistent with how it's been in the past.

And then one follow-on. In terms of the CapEx is -- remind me with the ATM as a Service CapEx, is more of that skewed internationally or placed in service in the U.S.

It's going to be balanced. So if we think about the potential for CapEx for ATM as a Service, it could be between, I'll call it, like $30 million to $40 million and -- but it could be balanced between all geographies, frankly.

And our last question is going to come from George Tong from Goldman Sachs.

In the Hardware business, is there any way to quantify how much of the orders were shifted out of the quarter into 2Q and the second half of the year?

Yes, none shifted. So this was exactly the hardware number we expected to deliver this quarter. It was just how the orders fell that we took last year. So it has nothing to do with orders moving out or moving in. It was planned this way. We tried to, on the last call, let people know that and say we have to use working capital to get there. I'd prefer not to have it be this way, but that's how the customers ordered it. So there's no delays. There was no cancelled orders. It was exactly as we had planned.

And then in the Network business, you're continuing to see optimization of the portfolio and some retail partners closing down some lower performing locations. Do you have visibility into how much of a continuation of this trend will sort of play out? Are there additional closings you're expecting on the horizon?

Yes. I think that pharmacy customer set is challenged. And I think there's overcapacity to a certain extent. And you saw Rite Aid the other day suggested that they may be closing a bunch of stores in bankruptcy. And so we would -- we have a good -- I think we have what, Stuart, 1,200 machines or so 1,100 machines with Rite Aid. So I think those are at risk. But remember, we don't get paid by the device there, right? We get paid by the transaction. And so as long as we grab those transactions in the next nearest machine, we're fine. In fact, we're better off in a lot of ways. You're rolling trucks to fewer locations, you're fixing fewer machines, so getting much better leverage. So I think there's some continued pressure there. That said, we're moving those machines. We can put those machines back into service. We do have -- we announced a really nice deal with 7-Eleven that's going to allow us to put our machines -- our network inside of 7-Eleven, which is a big deal. I don't know how many locations Stuart, do they have?

Roughly 11,000.

Only 11,000 locations. Go ahead.

We'll roll out sequentially. But as we look at the Pharma segment, which has been announcing closures for the last 3 years, we're very familiar with sort of optimizing that portfolio and making sure those transactions move to the rest of our portfolio. Our relationship that we announced with 7-Eleven allows us to infill some of those locations where we may not have another retailer in that same ZIP code. But as Tim said, the majority of the transactions that are attending those units, those are our customers on the Allpoint network actively seeking out an Allpoint network. So they're going to now actively seek out another location -- and you can see that through our ARPU as our units go down. We continue to see the transaction volumes stay strong and migrate to our other locations. So we're very confident in the growth of that Allpoint network. And as we add additional transaction types, our customers are continuing to push their customers off of the teller lines outside the branches into our retail locations, continuing that sort of growth trajectory for Allpoint.

All right. I think that's the last question. Thank you, operator. That's the last question. We're right on time. We appreciate everybody tuning in today. We'll be available as the week plays out to answer questions beyond those that were asked on this call. We feel very, very good about our start to the year. It's working. The strategy is working. Our hardware is competing exceptionally well. Our service organization is performing remarkably well, and it bodes well for the rest of 2025. So thanks for tuning in today, and we'll talk to you again 90 days from now.

And this concludes today's call. Thank you for your participation. You may now disconnect.