- Total Company Revenue: $1.08 billion.
- Software Revenue Growth: 7%.
- Services Revenue Growth: 6%.
- Recurring Revenue: $793 million, 73% of total revenues.
- Adjusted EBITDA: $193 million, margin of 17.9%.
- Interest Expense: $79 million.
- Effective Tax Rate: Approximately 18%.
- Diluted Adjusted EPS: $0.81.
- Adjusted Free Cash Flow: $16 million.
- Self-Service Banking Revenue: $673 million, 3% year-over-year growth.
- Self-Service Banking Recurring Revenue: 12% growth, 63% of segment revenues.
- Self-Service Banking Adjusted EBITDA: $158 million, margin of 24%.
- ATM as a Service Revenue: $47 million, 31% year-over-year growth.
- ATM as a Service Gross Profit: $14.4 million, 37% year-over-year growth.
- Network Segment Revenue: $326 million, 6% year-over-year growth.
- Network Segment Adjusted EBITDA: $101 million, margin of 31%.
- Free Cash Flow: $16 million for the quarter, $85 million year-to-date.
- Net Debt: Down by $45 million, net leverage ratio at 3.5 times.
- Full-Year Revenue Outlook: $4.26 billion to $4.34 billion.
- Full-Year Adjusted EBITDA Outlook: $770 million to $800 million.
- Full-Year Diluted Adjusted EPS Outlook: $2.90 to $3.20.
- Full-Year Free Cash Flow Outlook: $190 million to $220 million.
- Q3 Revenue Outlook: $1.045 billion to $1.075 billion.
- Q3 Adjusted EBITDA Outlook: $195 million to $205 million.
- Q3 Adjusted EPS Outlook: $0.71 to $0.81.
- Q3 Free Cash Flow Outlook: $40 million to $60 million.
Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NCR Atleos Corp (NATL, Financial) reported strong financial results for the second quarter, with revenue and profit margins exceeding expectations.
- Services revenue grew by 6% and ATM service revenue increased by more than 30%, indicating robust demand for their offerings.
- The company added key new clients and expanded into new geographies, enhancing its market presence.
- Recurring revenue grew by 9% year-over-year, comprising 73% of total revenues, up from 70% in the prior year.
- NCR Atleos Corp (NATL) reaffirmed its full-year guidance for 2024, reflecting confidence in its financial outlook.
Negative Points
- The company faces macroeconomic headwinds and higher labor costs, which have partially offset productivity savings.
- Interest expense remains high at $79 million for the quarter, with a weighted average interest rate of approximately 9.4%.
- The pace of ATM as a service activations has been slower than originally projected, impacting growth expectations.
- The network segment experienced lower volumes for LibertyX transactions, which are lower margin, affecting overall revenue growth.
- The company has decided to prioritize debt reduction over returning cash to shareholders, which may disappoint some investors.
Q & A Highlights
Q: Can you remind us what your cash interest expense is on an annual basis and where you think ultimately your new weighted average cost of debt could be? Also, what leverage level would you need to see to start entertaining buybacks or dividends again?
A: The annual interest cost is between $295 million and $305 million in 2024. We have roughly $3 billion of debt, with $750 million of that being a term loan B, which is callable at the end of Q3. We are working with our bank partners to come up with the best refinancing options. Regarding leverage, we aim to get to 3 times leverage, likely by the first half of 2025, before considering buybacks or dividends.
Q: Does the strong order book for hardware in 2024 give you an early read on 2025, and what inning are we in with respect to recycling proliferation in North America?
A: Demand for hardware this year is better than anticipated, with a strong order book for the second half. We are in the third or fourth inning of the recycling proliferation, and 2025 should be a very good hardware year.
Q: How much growth can you get from incremental withdrawal transaction volume gains versus continuing to add to the transactional set in the network business?
A: In the short run, growth will primarily come from robust growth in withdrawal transactions. New transaction types are growing rapidly but are not yet significantly impacting the overall business. Over the next few years, deposit transactions and cardless, pinless transactions may contribute more significantly.
Q: Can you describe where the large contracts for ATM as a service units are coming from and your confidence around the timing of implementation?
A: These contracts are with existing customers who have already outsourced some services to us. We have good line of sight to converting them to an ATM as a service structure either late third quarter or early fourth quarter.
Q: Can you talk more about your ATM as a service light strategy and if this alters your medium-term target?
A: We are prioritizing asset-light transactions, which has allowed us to increase our free cash flow guidance. This strategy is driven by both our preference and our customers' preference to own the devices themselves. We are not inclined to own the device unless the return is significant.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
