Q1 2024 NCR Atleos Corp Earnings Call
Please standby.
Good day and welcome to the NCR Alagoas Q1, FY 'twenty four earnings call today's conference is being recorded.
At this time I would like to turn the conference over to Brendan Mitrano. Please go ahead.
Brendan Mitrano: Good morning, and thank you for joining the MCR at Leos first quarter earnings call joining.
Joining me on the call today are Tim Oliver CEO, Paul Campbell, CFO, and Stuart Mckinnon, Chief operating officer.
Tim Oliver: Tim will start this morning, with an overview of first quarter performance and an update on our objectives for 2024 next Paul will review, our financial results and outlook.
Tim Oliver: And then we will move to Q&A.
Tim Oliver: Before we get started let me remind you that our presentation and discussions will include forward looking statements. 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.
Tim Oliver: Risks and uncertainties are described in today's materials.
Tim Oliver: And our periodic filings with the SEC, including our annual report.
Speaker Change: Also in our review of results today, we will refer to certain non-GAAP financial measures, which the company uses to measure its performance.
Speaker Change: non-GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials and on the Investor Relations website.
Speaker Change: Note that on the website. We have also provided historical financial results on a carve out accounting basis for 2022, and 2023 to eight in analysis and modeling.
Speaker Change: A replay of this call will be available later today on our website investor got NCR at Leos Dot com.
Tim: With that I will turn the call over to Tim.
Tim: Thank you Brendan and thank you to everyone for joining us on this call. This morning.
Tim: Before I launch into discussion of a very successful quarter and because I'm hopeful that many of you are newer to the story I think it makes sense to reiterate the significant opportunity and focused strategy of Atmos now as an independent pure play ATM company.
Tim: He also has a service fleet of approximately 600000, Atms, 15% of which we own and operate for our own network business.
Tim: And the current global environment of steady cash based consumer transactions and a stable installed base of ATM hardware, our growth will come from generating more revenue for every machine that we support.
Speaker Change: Whether that's from providing higher quality more efficient and more comprehensive services to our financial institution clients Whereabout driving more transaction volume across our network machines, located a blue chip retail locations both.
Speaker Change: Fueled by our customers' desire to improve financial access for their customers, while outsourcing more of their cash ecosystem.
unknown: And as we service both from a common infrastructure that is unmatched scale as Leverages Bull and is world class.
Speaker Change: Our customers are increasingly reinvesting back into their retail banking footprint and embracing shared financial utilities.
unknown: Them. This strategy will result in lower cost higher quality better consumer experience broader reach and in some instances higher foot traffic.
NCR Alagoas: For NCR at the OS It will drive higher revenue growth higher profitability from a scale and Richard revenue mix.
NCR Alagoas: And a predictable free cash flow.
NCR Alagoas: Turning to slide five I'm pleased to report that we're off to a very good start for the year first.
NCR Alagoas: First quarter financial results were at or above the high end of expectations led by strong growth in both our transaction based and our services businesses and.
NCR Alagoas: And profit margins are beginning to climb as we overcome the incremental costs, resulting from our spin transaction.
NCR Alagoas: Cost productivity and interest rates stopping increasing.
NCR Alagoas: The operational and tactical progress of our first quarter allows us to be increasingly confident about our full year 2024.
NCR Alagoas: Improving service quality levels cost productivity traction key contractual renewals and sufficient selling pipelines all support our full year guidance.
Paul: Paul will provide a much more granular view of our performance and our outlook in a few minutes.
Paul: Moving to slide six it has operating results for our two key segments.
Paul: And our self service banking segment, we grew our software and services revenue by 7% versus the prior year catalyzed by our ATM as a service initiative, which posted almost 40% year over year revenue growth and exit this quarter at a run rate of nearly $200 billion in annual revenue.
Paul: Our ATM as a service active unit count grew modestly in the quarter to approximately 21000 with increases across geographies.
Speaker Change: We closed 12, new ATM as a service deals in Q1, including our first one in Hong Kong.
Paul: Finished with backlog up at year from year end to over 4000 units.
Speaker Change: We now support ATM as a service customers in 12 countries illustrating the broad appeal of our offering and the significant opportunity for global expansion.
Speaker Change: More generally strong ATM orders globally strengthened our backlog and included key competitive wins and cash intensive growth markets like Mexico, Egypt, and Turkey for the deployment of our new recycling technology and the accompanying services.
Speaker Change: We will deploy our recycling technology for Egypt National post.
Speaker Change: And with agreements with Yuppie credit Bank and Garanti Bank, we will now implement over 5000 recyclers in Turkey.
Speaker Change: Our network segment performed well in the first quarter with robust transaction growth, including record high transaction volumes in the month of March.
Speaker Change: Top line trends were positive in most markets led by all point surcharge free withdrawals in the U S. And the addition of <unk> adds to our premier grocery chain in the U K.
Speaker Change: Overall cash withdrawals grew 11% year over year, including 14% growth and surcharge free withdrawals.
Speaker Change: Global transaction growth against our fixed cost infrastructure and a more profitable transaction mix allow double digit profit growth in the network business.
Speaker Change: Execution of our transaction expansion strategy continues with deposit transactions at retail locations, becoming our fastest growing transaction type.
Speaker Change: The first quarter saw the addition of a second large U S bank to the deposit network evidence thing this value that all banks can realize some are utility banking network.
unknown: As part of our strategy to export the success of the all point utility to other regions. We launched the first U K based deposit accepting locations in partnership with <unk> cash access U K.
Speaker Change: Our retail footprint in the U K provide ideal locations for banks to send their customers for everyday banking, where branch axis may not be as convenient.
Cvs: We continued to strengthen our retail footprint with the extension of our relationships with Cvs and 711, Canada, ensuring safe convenient access to cash while also driving foot traffic for the retailers.
Cvs: Fintech transaction volumes accelerated to new highs as neo banks, who don't have traditional bank infrastructure provide convenient cash access to their growing customer base.
Cvs: Turning to slide seven for an update on our strategic objectives.
Cvs: Last quarter, we outlined our objectives for 2024 and describe them in three buckets, one differentiate and grow to optimize resource allocation and three complete the separation from <unk>.
Speaker Change: I'll highlight a few accomplishments in each of these three for this quarter.
Speaker Change: Starting with differentiate and grow.
Speaker Change: Well I've already described the success of our growth strategies in Q1, we also see the future period growth.
I: We continued to drive innovation in the ATM market.
Speaker Change: We built out our tap transactions in multi issuer environment across the U S network, enabling faster more secure transactions aligning with a fast growing <unk> segment.
Speaker Change: Our partnership with a leading gig economy payment solution launched across our retail network, providing drivers direct access to their daily pay further expanding our transaction set.
Speaker Change: And we activated the first retail deposit locations in the U K in a partnership with cash access U K and a major U K bank, which expanded additional transaction sets internationally.
Speaker Change: Both our engineering and our selling teams are energized by our renewed commitment to deliver innovative solutions and capabilities.
Speaker Change: Optimizing resource allocation means maximizing output for every unit of input of a scarce resource whether that be people cost or capital.
unknown: In Q1, we reorganized the customer service and business operations functions.
Speaker Change: We introduced an AI driven tool to our service teams that is already improve both quality and speed.
Speaker Change: We kicked off multiple productivity initiatives targeting both direct and indirect costs that will help offset separation dis synergies by the time, we exit this year.
Speaker Change: And we redefined a vendor agreement to allow joint engineering production efforts that will reduce our costs.
Speaker Change: Accordingly, alleviates supply constraints.
NCR Wix: And finally, the separation from our former sibling company NCR Wix is on track.
NCR Wix: During the quarter, we transferred four countries back to Atlas that had been strained with Voya ex post split.
NCR Wix: Only three relatively immaterial countries remain with wix and they are expected to transfer by the third quarter.
Speaker Change: We also accelerated our efforts to close transition service agreements or T S. As between the two companies.
Speaker Change: Post separation will enable further cost savings for both sides and provide more strategic flexibility.
Speaker Change: Want to extend my appreciation to the entire NCR at Leos team for delivering a strong quarter through their dedication hard work and positive disposition.
Speaker Change: The Esprit de corps of Pride of place emanating from our new company is energizing and contagious.
Paul: You have a lot to do but the opportunity is compelling and the future is bright with that over to you Paul.
Paul: Thanks, Tim and thanks to all for joining us today I Echo Tim's comments that we had an excellent start to the year in our first full quarter as an independent company.
Paul: Particularly pleased with the financial results momentum of our businesses and the progress on our objectives importantly, further validated the power of our strategy to generate higher revenue and profit per unit across our global installed base of around 600000, Atms through adding incremental transaction and established revenue streams.
Paul: Any discussion of non-GAAP financial results certain instances where year over year comparisons are inconsistent.
Speaker Change: Normalizing. These factors would have provided a more favorable comparison, but I prefer not to complicate the good set of results.
Speaker Change: We had meaningful I will gladly referenced those to provide a clearer view on how the businesses performed.
Speaker Change: With that I'll turn to slide nine for a review of our consolidated first quarter results.
Speaker Change: Total company revenue of one point or 5 billion was at the high end of expectations led by 8% growth in established revenue that reflected our continued success in generating more revenue per unit.
Speaker Change: Strong services revenue contributed to 7% growth in the cutting revenue to 763 million, which comprised 73% of total revenue a new high for the company.
Speaker Change: First quarter, adjusted EBITDA increased 11% year over year to $162 million on strong top line growth and 60 basis points of margin expansion to 15, 4%.
Speaker Change: Moving down the P&L, we had interest expense of $79 million on an average total debt balance of $3 1 billion, including approximately 1.7 billion variable rate debt.
Speaker Change: The weighted average interest rate on debt was approximately nine 4%.
Speaker Change: First quarter effective tax rate was approximately 27%.
Speaker Change: Fully diluted average share count was $73 1 million.
Speaker Change: Putting it together first quarter diluted adjusted earnings per share was 41 cents.
Speaker Change: Just above the high end of the first quarter guidance.
Speaker Change: We generated approximately 69 million of adjusted free cash flow in the quarter, putting us comfortably on track for our 2024 target of $170 million to $250 million.
Speaker Change: Moving to slide 10 self service banking is our largest business and it's comprised of a stable global installed base of approximately 520000 or 600000 ATM units. These 520000 units primarily generate recurring revenue from software and services attached to hardware units.
Speaker Change: We are transforming the business by leveraging our network segment infrastructure capabilities to deliver a broader range of services to a customer and a more comprehensive outsourced service model ATM as a service.
Speaker Change: Self service banking had a very solid first quarter with respect to financial results and progress with our strategy.
Speaker Change: Starting in the upper left revenue grew 4% year over year to $628 million with recurring revenue up 7% to a new high of 62% of segment revenues.
Speaker Change: The recurring revenue growth reflects the success of our strategy to drive more revenue per unit with service revenue up 5% and software revenue up 9% year over year.
Speaker Change: Top line strength was geographically broad based with growth in all regions other than Asia Pacific, which was slightly down due to timing of one time hardware revenue.
Speaker Change: Adjusted EBITDA was 134 million compared to $139 million in the prior year.
Speaker Change: Adjusted EBITDA margin of 21% was down 160 basis points year over year, primarily due to dis synergies from the separation different cost allocation methodology in the prior year and a shift of certain business functions from corporate to be managed in the segment.
Speaker Change: Moving to Kpis at the bottom of this slide for the fourth quarter all of our key metrics are heading in the right direction year over year Unsequestered Wally.
Speaker Change: <unk>, our strategy and execution is achieving the desired result of increasing monetization of our installed base.
Speaker Change: In the bottom left the current revenue was up to 62% on the culmination of growth and legacy software and services revenue plus incremental ATM as a service revenue as Tim noted earlier, we finished the first quarter with almost 21000 active Atms as Savvis units, adding approximately 400 units, which is consistent with the assumption behind that.
Speaker Change: 2024 financial targets.
Tim: ATM as a service revenue for the quarter was approximately 46 million up 37% year on year and our current Atms established unit backlog increased to more than 4000 units.
Speaker Change: Our backlog and sales funnel mix has a higher mix of deals that would be asset light, which would not require capex funding.
Tim: Annual recurring revenue in the bottom left increased 8% year over year and illustrates the compounding revenue benefit of our strategy to drive more recurring services to our customer base.
Tim: Moving to slide 11, the network segment performed well in the first quarter starting on the top left revenue increased 3% year over year led by 11% growth and withdraw volumes more than offsetting the lower than expected volumes in our low margin Liberty X transactions.
Tim: Withdrawal transactions growth was broad based with North America up 7% and international at 14%.
Asthma: Fitting from the agreement with asthma signed in the fourth quarter, which had a full quarter impacts on Q1.
Speaker Change: Moving to the charts on the right adjusted EBITDA increased 15% year over year to $86 million on pulp bank loan growth and margin expansion.
Speaker Change: Adjusted EBITDA margin expanded 270 basis points year over year to 28% from a combination of higher growth and more profitable transactions and difference in cost allocations under Carver accounting in the prior year.
Speaker Change: Our network strategy focuses on growing transaction volume on a relatively fixed base of approximately 80000 to over 600000 ATM units.
Speaker Change: The key metrics at the bottom of the slide highlights how well this business has been doing that on the left you can see that we have continued to optimize the ATM portfolio by reducing low performing locations, finishing the quarter with 81000 units.
Speaker Change: Chocolate the right shows the last 12 months average revenue per unit or <unk> up 8% year over year. Another proof point in execution of our strategy increasingly monetize existing network of Atms.
Speaker Change: Slide 12 presents a summary of our segment revenue and adjusted EBITDA results for the total company.
Speaker Change: Technology, and Telecom segment revenue and adjusted EBITDA margin was slightly up year over year due to new customers expanding services in the first quarter.
Speaker Change: As a reminder, we created another segment and put all of the activity with NCI bikes into this segment. This segment is largely uncontrollable by us and as activities between the companies reduce all of the impact more full here and will not impact the core business segments.
Speaker Change: Unallocated corporate costs decreased 18% to $72 million with primary contributors being the movement of some departments into the business segments and difference between historical cost allocation methodology under carve out accounting.
Speaker Change: On slide 13, we present, a walk of adjusted EBITDA to free cash flow for the quarter and a snapshot of our financial position at the end of the first quarter coughing.
Speaker Change: Starting at the top of the slide we generated significant free cash flow of $69 million from adjusted EBITDA of $162 million.
Speaker Change: You can see at the bottom of the slide the Companys financial position strengthened further during the quarter, finishing with a little less than 2.6 billion of net debt and available liquidity of over $700 million.
Assistant: Assistant with our stated capital allocation priorities more than all of the generated free cash flow was used to pay down approximately $18 million of debt, including $18 million of tableau, defensible and $62 million of revolving credit facility.
Speaker Change: We were delighted to reduce our net leverage ratio to below three five times, putting us well on our way to our goal of being below three two times by the end of 2024 and below three times during the first half of 2025.
Speaker Change: Turning to slide 14, our total company financial outlook for Q2, and full year I'll start with full year targets, which we have reaffirmed.
Speaker Change: We continue to expect total company revenues to be in the range of $4 two to $4 4 billion adjusted EBITDA of 770 to 800 million diluted adjusted EPS of $2 90 to $3 20, and free cash flow of 170 to 239.
Speaker Change: We expect our EBIT results will sequentially improve throughout the year in line with our normal normal historical performance in 2020 three conversation was inconsistent with this influenced by the separation.
Speaker Change: For the second quarter, we expect total company revenues to be in the range of one point or six to 1.19 billion.
Speaker Change: Adjusted EBITDA of $180 million to $119 million and diluted adjusted EPS of <unk> 63 to <unk> 73.
Speaker Change: We expect free cash flow will be zero to 25 million down from Q1 due to an increase in expected cash interest payments of $110 million in the second quarter compared to $19 million in the first quarter.
Speaker Change: Note that free cash flow will not be linear by quarter due to timing of interest payments.
Speaker Change: Our Q2 2024 interest expense will be $75 million to $80 million effective tax rate is expected to be approximately 20% and fully diluted average share count is expected to be approximately $73 5 million.
Speaker Change: Moving to slide 15 at the segment level, we expect second quarter self service banking revenue to be $645 million to $660 million with adjusted EBIT margin of 22.5 to 23, 5%.
Speaker Change: Network revenue of 325 million to 335 million with adjusted EBIT margin of 28% to 29%.
Speaker Change: TNT revenue of 47 million to $50 million adjusted EBIT margin of approximately 20%.
Speaker Change: Other revenue of 43 to 45 million with adjusted EBIT margin in the high single digits.
Speaker Change: Unallocated corporate costs should be 6.5% to 7% of total company revenue.
Speaker Change: There's no change in the segment level full year guidance that we shared in our March 26 update.
Speaker Change: Concluding my comments on slide 16, we delivered strong first quarter results across the board good revenue expanded margins and generated significant free cash flow, which we used to reduce leverage to below three five times, we issued Q2 guidance improving sequentially and we reiterate our full year guidance.
Speaker Change: That will turn it back to the operator for Q&A.
Speaker Change: If you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker Change: If youre using a speakerphone. Please make sure your mute function is turned off till I guess signatory Cherry Clinton.
Speaker Change: Again, Please press star one to ask a question, we'll pause for just a moment.
Speaker Change: Well go first to Matt Summerville with D. A davidson.
Speaker Change: Thanks. Good morning, you have Kenyan Hayes I'm sure Matt Summerville this morning.
Matt Summerville: Hey, good morning, just talked to you guys.
Matt Summerville: Good morning, maybe we could just talk about the ATM as a service deployment cadence to hit your annual targets. It looks like it was a flattish sequentially and I was just curious about that.
Matt Summerville: For the rest of the year and how do we talked about backlog a little bit, but I'd be curious about the federal unit metrics therein.
Paul: Yes, Tanya it's Paul here. Thanks for the question, Yes, we did.
Paul: That's a business that's not bundled it doesn't Florida linear basis as we can.
Tanya: Those can be coupled with the backlog.
Paul: Similar to what we experienced last year, we did over 1500, a month last year and some months what last so we still feel we are still seeing very robust funnel.
Paul: The backlog is strong.
Paul: Some quarters will be less and less.
Speaker Change: Can I ask why you mentioned another quarter. So we're supposed to aligned to what our expectations are at Ya Lan I, just Q1 was a bit lighter.
Speaker Change: As we look through the year, we do see that coming more in the back half than the first half. So we're thinking it's kind of like 35% of our target in the first half and then 65% to 70% in the second half.
Speaker Change: Great. Thank you.
unknown: Switching over to network.
Speaker Change: Could we talk about the sustainability of transaction trends I mean being in the low double digits to mid teens.
Network: Similarly, I'd be curious to see where <unk> trends from here.
Network Analyst: And where our ongoing net footprint rationalizations can end up throughout the year.
Speaker Change: Yes, I think we are confident and that should continue to transaction growth.
Speaker Change: That is not more people doing had cash transactions cash transactions remained stable inactive in all of our markets, but our strategy of migrating transactions entered into branch into a retail utility networks.
Speaker Change: Is resonating both with standard brick and mortar financial institutions in particular, the neo banks.
Speaker Change: Don't have any infrastructure.
Speaker Change: Rely on us to support their growing customer base and were very.
Speaker Change: Comfortable with the transaction growth, we think that can continue.
Speaker Change: With.
Speaker Change: The plan that we've outlined.
Speaker Change: Investor Day.
Speaker Change: And those expanded transaction sets.
Speaker Change: To that Tim talked about deposit transactions being our second high.
Tim: Highest growing transaction.
Tim: Significantly higher margin transactions for us so that's been tracking our progress.
Tim: Our next year the installed basis question installed base, we think the installed base and the network segment will be largely flat where it is today just still around 1000 units.
Tim: Great. Thank you for the color.
Tim: Okay.
Tim: Well go next to George Tong with Goldman Sachs.
George Tong: Alright, Thanks, good morning Hugh.
George Tong: You mentioned with your ATM as a service units you expect most of the growth to happen in the second half of this year and Thats some quarters can be lumpy in terms of.
George Tong: Growth in units can you elaborate on the amount of visibility you have in terms of the number of units in any given quarter and how much you expect the pipeline to ultimately convert to backlog.
George Tong: And revenue.
Josh: Yes, Josh we talked about we've got 4000 in the backlog today that will be walking through scheduling boswell lifestyle there.
Bill: Hey, Bill.
Bill: Different times based upon the different aspects of those five.
Bill: ATM to be a place stock when the software stack.
Bill: Different complexities that so therefore.
Bill: And the funnel, we are expecting the funnel to come in on a more linear basis at this time.
Speaker Change: Timing of the scheduling of the electric side.
Tim: George This is Tim.
George Tong: So somewhat of a bifurcated market, we win either very large deals or deals that are relatively small and so with a typical wind for US right. Now is 250 to 300 machines. There are transactions out there deals that we bid on that our 3000 or 4000 machines. Those move the needle very rapidly and causes any particular quarter does that number to go up.
Speaker Change: We will be very careful on those larger transactions that often occur in places, where it's more difficult to make.
Speaker Change: Let's call it a fair return a good ROI and we May pass on some of those subtypes in India and other places and favor the deals that are less capital intensive and have a much better ROI and parts of the world like North America and the crowd countries. So those deals are a little bit smaller but.
Speaker Change: They accumulate a little bit slower but.
Speaker Change: I'd like the choices that we're making.
Tim: Got it that's helpful and sticking with ATM as a service is.
Speaker Change: Is it normal seasonality for the number of HCM as a service units to increase faster in the second half of the year or can it vary in any given year.
Speaker Change: In terms of the number of units you see in any given quarter.
Speaker Change: And all of the two years, we've been at this.
Speaker Change: We haven't seen much of a trend I would say this has a lot more to do with the timing of singular transactions and not much to do with seasonality.
Speaker Change: Got it that's helpful. Thank you.
Speaker Change: Okay.
Speaker Change: Well go next to Michael O'brien with Wolfe Research.
Michael O'Brien: Hey, good morning, Thanks for taking my question and congrats on a great quarter.
Michael O'Brien: Q1, two quick ones here, one just wanted to quickly confirm that you're still targeting 30000 ATM as a service units by the end of the fiscal year and then my second question is regarding the margin expansion. If you could provide a little bit more color.
Speaker Change: Regarding what what's driving that obviously transformation costs are coming down you are targeting reducing stranded costs as well.
Speaker Change: But then on the flip side, we have some of these ATM as a service units getting online which are higher margin as well. So if you can provide a little breakdown of what exactly is driving the margin expansion for the quarter that would be extremely helpful. Thank you.
Speaker Change: Yes, Michael, especially yes, we're still on target to start talking about 2000 units as you asked that question everyone. In the room is nodding with you. So we're still on that path.
Speaker Change: This expansion was your question is from Q1 to Q2.
Speaker Change: Yes.
Speaker Change: Yeah, Okay, sorry, yes. So do you want the Q2 part of it is in the network space.
Michael: Transaction volumes.
Michael: Business speaking more transactions in Q2, Q3, and Q2 in Q2 than Q1 incremental transactions through the network come through very high margin accretive because effectively the fixed costs still there. We also have the cost of initiatives that we kicked off as we separated they.
Speaker Change: As you go through the year, so, though there'll be a good sports news from them in Q2 and then okay.
Michael O'Brien: Again increase into Q3 and into Q4, so they're the two largest buckets that we have Michael.
Michael: Got you. Thank you and I had one follow up on that regarding stranded costs, obviously, you're a new public company.
Speaker Change: Have you guys done a deep dive on training cost analysis, and what can be removed to increase margins going forward.
Michael: Yes, we're working our way through the TSA is currently and when you go through that process you find that each organization ends up with cost structure that is somewhat larger than you otherwise might have.
Outside Help: We've got we've hired some outside help some some folks who do this for living.
Speaker Change: Help us think about what our cost structure should look like once we're finally separate from <unk>. It will be different than it is today some areas have to be a little bit more expensive, we need two audit firms.
Speaker Change: Two legal departments, we need internal odd organizations, but there's a lot of things that can be less expensive and so we'll work with that outside firm I don't know that youll see much return in indirect cost. This year and then we're working really hard at direct cost productivity currently.
Speaker Change: The service organization, but youll start to see in the third and fourth quarter. Some.
Speaker Change: Reduction in what I'll call overhead cost.
Speaker Change: Okay, great. Thanks for the detail.
Speaker Change: Sure.
Speaker Change: As a reminder, that is star one for questions well go next to Aaron Schacht surgery with BNP Paribas.
Aaron Schacht: Yes, hi, Thanks for taking my questions. Just just wanted to understand I mean, I see the numbers are really nice and seeing that there's EBITDA growth here just wanted to understand within the segment within the segment EBITDA.
Aaron Schacht: What what type of I guess, when you grow revenue and self service.
Aaron Schacht: What sort of EBITDA growth would you expect what kind of operating leverage would you expect and I just wanted to understand also.
Speaker Change #101: As your ATM as a service.
Speaker Change #101: Units come more online do you expect to turn adjusted free cash flow.
Speaker Change #101: To grow kind of in the back half of the year as well.
Aaron Schacht: Yeah. Thanks Ryan.
Ryan: So in self service banking the module spoke to it really depends on the revenue type. So if it was incremental upfront hardware sales you would see something under 20% margin rate come through what are you talking about HCM has established the more strategic revenue streams that generally flows through an instrumental around 40 points of margin because we're leveraging existing infrastructure.
Ryan: So incremental volumes from existing wells that we have so it really depends on the revenue streams.
Speaker Change #104: Got it understood. So so I guess the so as you would expect the the units to grow you should you should return that segment.
Speaker Change #113: Segment EBITDA growth as well as you enter the back half of the year it sounds like.
Speaker Change: We will already but just to give context that that segment was $46 million in the quarter. So it's still 5% the company 10% in the segments.
Speaker Change #105: Well well need to go back to a more scalable for it to make a meaningful difference in the total segment margins.
Ryan: Got it understood.
Speaker Change: And then the network revenue as you said close to at a very high margin. It looks like it's 100% margin is was there anything one time in.
Speaker Change: In Q1 that made it look like the margin growth is actually.
Speaker Change: Larger than the revenue growth or we should just assume like a very high margin and maybe there was late.
Speaker Change: Like one or 2 million or one timers.
Speaker Change #102: Yes, there was no there's no one time as such there is a little bit of noise in our product you've got to kind of thing, but that would be your next carve out based on some of the allocation methodologies.
Speaker Change #102: So it was a very strong quarter for the network segment, we're very pleased with the margins.
Speaker Change: We wouldn't expect it to float to 100% margin a little bit of Fuzziness.
Speaker Change: The compare.
Speaker Change: It's a really good quarter performance by the network segment margins.
Speaker Change #112: Got it Okay, and then finally I just wanted to follow up on the adjusted free cash flow. So a very nice EBITDA growth.
Speaker Change: But adjusted free cash flow was about flat for the year for the quarter.
Speaker Change #100: Is there anything one time, there and I guess do you expect to return to do you expect a closer to grow adjusted free cash flow in the back half of the year.
Speaker Change: Yes, I mean, we don't we find it hard to compare the adjusted free cash flow to the prior year, because we didn't have any debt to the deck was all assigned to the mother company. So when you think of the debt we paid the cash payment for that Q1 was 19 billion. There was probably nothing in the prior year. So for sure Yeah, we have $290 million.
Speaker Change: Incremental.
Speaker Change: Cost of interest on the debt.
Speaker Change: So the cash flow compared to prior year.
Speaker Change: A useful measure.
Speaker Change: Thanks.
Speaker Change: In our guidance, we've got a cash flow conversion was 25%. So first half we'll be well on track to that conversion rate.
Speaker Change: Okay.
Speaker Change #107: As a reminder that is star one if he would like to ask a question.
Speaker Change #110: We will take a follow up from Somerville with D. A davidson.
Speaker Change #111: Hey, Thanks for taking another question.
Speaker Change #103: Just wanted to check in on your thoughts on the dividend in the near term versus deleveraging any sort of commentary around there. Thank you.
Speaker Change #106: Yes, that's a fair question, we went out on the road and talked about this company ultimately paying a dividend and we thought that that might be in the latter half of the year on the road back introducing people to NCR Ibs.
Speaker Change #106: And at the time, we said we wanted to make sure we had a couple of quarters under our belt to see we're actually we're generating sufficient free cash flow in order to allow us to return some capital back to shareholders.
Speaker Change #106: We are intent on reducing our indebtedness quickly.
Paul: Paul said, we're on path for our free cash flow generation and I suspect in.
Paul: The second quarter, we'll have something more to say about this I'm not certain.
Paul: Evaluation is currently.
Paul: Dividend is the right way to return cash to shareholders.
Paul: The stock repurchase program might make more sense, where their valuation where it is today. So we'll but we'll address that we did make a commitment to return some cash to shareholders. Once we were able to confirm we could generate the kind of cash we think we can and I think in the second this call 90 days from now we'll have more to say about that.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change #114: There are no other questions at this time.
Speaker Change: Great I'll wrap up quickly first thanks, everybody for joining.
Speaker Change: Joining today and thanks to our employee base, who really had a terrific quarter.
Speaker Change: As much as we try to make this look not too terribly complicated and we talked to you all I assure you that underneath the covers this is a very busy place with a lot going on.
Speaker Change: You'll feel very good about the first quarter.
Speaker Change: I think what you hear today cash is healthy acm's irrelevant and cash intensive demographics and regions are still cash intensive I think you heard we have the most comprehensive the most capable offering for banks retailers, who want to outsource their cash ecosystem.
Speaker Change: You heard we're innovating our machines are more capable and theyre transacting more often.
Barbara: Barbara generating more revenue per ATM transaction volumes, and importantly, picking up more service revenue from our bank customers.
Speaker Change: And lastly, I'd say, we're still undervalued and we're going to do everything we can to fix that.
Speaker Change: We're going to reduce our leverage we're going to perform predictably and hopefully we're gonna Jackson new investors. So thank you very much for your time and we'll talk again in 90 days.
Speaker Change: Yeah.
Speaker Change #109: This does conclude today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: [music].