Release Date: May 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NCR Atleos Corp reported strong Q1 financial results, with revenue and profit margins at or above the high end of expectations.
- The company's ATM-as-a-Service initiative saw nearly 40% year-over-year revenue growth, indicating successful expansion and customer adoption.
- Record high transaction volumes were reported in March, particularly in the Network segment, demonstrating robust transaction growth and increased profitability.
- NCR Atleos Corp is making significant progress on strategic objectives, including differentiation and growth, optimizing resource allocation, and completing the separation from Voyix.
- The company's strategy to generate more revenue per ATM unit is proving effective, with increased monetization of their installed base through additional transaction and service revenue streams.
Negative Points
- Despite overall strong performance, the Self-Service Banking segment saw a decline in adjusted EBITDA margin by 160 basis points year-over-year, primarily due to dis-synergies from the separation and shifts in business functions.
- The company faces challenges with the ATM-as-a-Service deployment cadence, which appears to be inconsistent and may affect future performance predictability.
- NCR Atleos Corp is still working through transition service agreements (TSAs) and separation costs with its former sibling company, Voyix, which could impact financials in the short term.
- There are ongoing concerns about the scalability of the ATM-as-a-Service units, which currently represent a small portion of the company's total segment revenue.
- Interest expenses remain high due to significant debt levels, impacting the company's net income and free cash flow.
Q & A Highlights
Q: Could you discuss the ATM-as-a-Service deployment cadence to hit your annual targets? It looks like it was flattish sequentially.
A: Paul J. Campbell, Executive VP & CFO of NCR Atleos Corporation, explained that the ATM-as-a-Service business does not flow on a linear basis. Despite a lighter Q1, the company sees robust funnel activity and a strong backlog, expecting more deployments in the second half of the year, with about 30-35% of the target in the first half and 65-70% in the second half.
Q: Can you elaborate on the sustainability of transaction trends and ARPU trends for Voyix, and the ongoing net footprint rationalization?
A: Stuart MacKinnon, Executive VP & COO, expressed confidence in the continued growth of transactions, driven by the strategy of migrating transactions from branches to their retail utility network. This strategy is particularly effective with neobanks that rely on NCR Atleos for infrastructure. The high-margin transactions are expected to drive ARPU growth.
Q: Regarding the ATM-as-a-Service unit, how much visibility do you have in terms of the number of units in any given quarter?
A: Paul J. Campbell mentioned that the company has a backlog of 4,000 units and is working through scaling these rollouts, which vary in complexity and timing. CEO Timothy C. Oliver added that the market is bifurcated, with the company focusing on less capital-intensive deals with better ROI, particularly in North America and Crown countries.
Q: Are you still targeting 30,000 ATM-as-a-Service units by the end of the fiscal year? What is driving the margin expansion?
A: Paul J. Campbell confirmed the target of 30,000 units. He explained that margin expansion is driven by higher transaction volumes in the Network space and cost reduction initiatives from the company's separation. These factors contribute to higher margins as the year progresses.
Q: Could you provide more details on the type of EBITDA growth expected from revenue growth in Self-Service and the impact of ATM-as-a-Service units coming online?
A: Paul J. Campbell clarified that the margin flow-through depends on the type of revenue. Incremental hardware sales would see about a 20% margin rate, while more strategic revenue streams like ATM-as-a-Service could see about 40% due to leveraging existing infrastructure. He emphasized that while ATM-as-a-Service is growing, it still represents a small portion of the segment, requiring more scale to significantly impact total segment margins.
Q: What are your thoughts on the dividend in the near term versus deleveraging?
A: CEO Timothy C. Oliver indicated a preference for reducing company debt and mentioned considering stock repurchase programs given the current valuation. He stated that the company is on track with its cash flow generation and will provide more details on returning capital to shareholders in the next quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
