Q2 2024 NCR Atleos Corp Earnings Call
Please standby were about to begin.
Speaker Change: Good day and welcome to the NCR at Leos second quarter earnings call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Brendan The Toronto. Please go ahead.
Operator: George Tong, Matt Summerville, please stand by; we're about to begin. Good day and welcome to the NCR Atleos second quarter earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Brendan Metrano. Please go ahead.
Speaker Change: Good morning, and thank you for joining the MTR out second quarter earnings call.
Brendan Metrano: Good morning, and thank you for joining the NPR Atleos second quarter earnings call. Joining me on the call today are Tim Oliver, CEO; Paul Campbell, CFO; and Stuart McKinnon, Chief Operating Officer. And we'll start this morning with an overview of second quarter performance and an update on 2024 objectives. Next, Paul will review our financial results and the outlook, 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 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 expected.
Joining me on the call today are Jim Oliver CEO, Paul Campbell, CFO, and Stuart Mckinnon, Chief operating officer.
Speaker Change: It will start this morning, with an overview of second quarter performance and update on 2024 objectives next fall will review, our financial results and the outlook.
Speaker Change: Q&A.
Speaker Change: 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 well include expect and 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.
Speaker Change: Expectations.
Brendan Metrano: These risks and uncertainties are described in today's materials and our periodic filings with the SEC, including our annual, Also, in our review of results today, we will refer to certain non-GAAP financial measures the company uses to measure its performance. These non-GAAP measures are described and reconciled to their GAAP counterparts in presentation materials and on the Investor Relations website.
Speaker Change: These risks and uncertainties are described in today's materials and our periodic filings with the SEC, including our annual report.
Speaker Change: And 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: A replay of this call will be available later today on our website industrial Dod NCR at Leos Dot com.
Timothy Oliver: 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 Brendan. Thank you, Brendan, and thank you to everyone for joining us on the call today. For those following along in the presentation from the Investor Relations website, we will start today on slide five. Before I launch into a discussion of a very successful second quarter, and because I'm hopeful many of you are newer to the Atleos story,
Speaker Change: With that I will turn the call over to Tim.
Tim: Thank you Brendan and thank you to everyone for joining us on the call today.
Tim: For those following along on the presentation from the Investor Relations website, we will start today on slide five.
Tim: Before I launch into a discussion of a very successful second quarter and because I'm hopeful. Many of you are newer to the story.
Tim: I think it makes sense to reiterate the significant opportunity in accompanying strategy.
Timothy Oliver: I think it makes sense to reiterate the significant opportunity and accompanying strategy of Atleos now as an independent pure play ATM company. Atleos has an installed and serviced fleet of approximately 600,000 ATMs, including over 80,000 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 installed base of ATM hardware, our growth will come from generating more revenue for every Atleos machine that we build.
Tim: That leaves us now as an independent pure play ATM company.
Tim: Ali always has an installed and serviced fleet of approximately 600000, Atms, including over 80000 that we own and operate in our own network.
Tim: The global environment that continues to demonstrate steady cash based consumer transactions and a stable installed base of ATM hardware our growth will come from generating more revenue for every athlete machine that we support.
Timothy Oliver: Whether that's from providing higher quality, more efficient, and more comprehensive services to our financial institution clients or for driving more transaction volume across a network machine located in a blue chip retail location. 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 as we service both growth vectors from a common infrastructure that has unmatched scale, is leverageable, and is world class, As global banks seek to improve their customers' experience in the most cost-effective way, the importance of self-service devices is increasing.
Tim: Whether that's from providing higher quality more efficient and more comprehensive services to our financial institution clients.
Tim: But driving more transaction volume across their network machines located.
Located in Blue chip retail locations.
Tim: Both of these strategies are fueled by our customers' desire to improve financial access for their customers well.
Tim: Outsourcing more of their cash ecosystem.
Tim: As we service both growths back there is from a common infrastructure that has unmatched scale as Leverages Bull and is world class.
Tim: As global banks seek to improve their customers experience in the most cost effective way and the importance of self service devices is increasing.
As a result, our customers are reinvesting back into their retail banking footprint and embracing shared financial utilities.
Timothy Oliver: As a result, our customers are reinvesting back into their retail banking footprint and embracing shared financial utility. For them, this strategy will result in lower costs, higher quality, a better consumer experience, broader reach, and higher foot traffic. And for NCR Atleos, it will drive higher revenue growth, higher profitability, growth from scale and a richer revenue mix, and Predictable Free Cash. In this vein, in the second quarter, we grew services revenue by 6% and grew ATMs as a service revenue by more than 30%.
Tim: For them. This strategy will result in lower cost higher quality, better consumer experience broader reach and higher foot traffic.
Speaker Change: For NCR at the OS It will drive higher revenue growth higher profitability broke from scale and a richer revenue mix.
Speaker Change: Predictable free cash flow.
Speaker Change: In this vein in the second quarter, we grew services revenue by 6% and grew ATM as a service revenue by more than 30%.
Timothy Oliver: We added key new clients to our networks, added new network geographies, and rolled out new transactions. Overall financial results were strong again in the second quarter, with revenue toward the upper end of our expectations, and Matt Homer. Good morning, everyone, associates.
Speaker Change: We added key new clients to our networks at a new network geographies and rolled out new transaction types.
Speaker Change: Overall financial results were strong again in the second quarter with revenue towards the upper end of our expectations and profit above those expectations led by strong growth in both our transaction based and service businesses.
Speaker Change: And profit margins are climbing as anticipated as we eliminate the incremental costs that resulted from our spin transaction.
Timothy Oliver: The profit margins are climbing as anticipated as we eliminate the incremental costs that result from our spin transfer. We drove solid sequential margin expansion with a beneficial revenue mix coupled with cost productivity from both direct and indirect costs. The strong first-half financial results combined with robust sales pipelines, key renewals, and improved performance metrics allow us to reaffirm our full-year guidance for 2024. Paul will provide more detailed discussion on guidance.
Speaker Change: We drove solid sequential margin expansion with beneficial revenue mix, coupled with cost productivity from both direct and indirect costs.
Speaker Change: The strong first half financial results combined with robust sales pipelines key renewals and improved performance metrics allow us to reaffirm our full year guidance for 2024.
Speaker Change: Paul will provide more detailed discussion on guidance in a few minutes.
Paul: Let's move to slide six operating highlights for two key segments.
Timothy Oliver: Let's move to slide six, the operating highlights for two key segments. On the left, self-service banking top-line performance was solid for the second quarter, with services and software revenue growing 8%. Our renewed emphasis on product and service quality this year has been recognized by our customers and has resulted in strong order volume in the second quarter, which bodes well for hardware revenue in the second half. We've had several key wins and renewals for our traditional go-to-market model for services, software, and hardware across geographies, including with PNC in North America, with TechBond in Latin America, with Bank of Abyssinia and AMIA, and with SBI in Asia Pacific.
Paul: I left self service banking topline performance was solid for the second quarter with services and software revenue growing 8%.
Paul: Our renewed emphasis on product and service quality. This year has been recognized by our customers and has resulted in strong order volume in the second quarter, which bodes well for hardware revenue in the second half.
Paul: You've had several key wins and renewals for our traditional go to market model for services software and hardware across geographies.
Paul: Including with PNC in North America with Tech Bond in Latin America with bank of Abyssinia in EMEA and with Spi in Asia Pacific.
Paul: ATM as a service revenue grew 31% in active units increased modestly.
Timothy Oliver: ATM as a service revenue grew 31%, and active units increased modestly. The opportunity for ATM as a service remains very large, and our customers' desire to outsource their ATM efforts is increasing. As this strategy has begun to play out, two things have become clear. Our definition of the ATM as a service, as a singular product, represents the full opportunity for wallet share increase for Atleos, but many of our customers see the opportunity as a continuum of services that they can migrate over time. In EMEA, we've seen greater preference for a la carte solutions rather than full outsourcing. However, in North America, smaller institutions generally prefer a fully outsourced model that incorporates new hardware.
Paul: The opportunity for ATM as a service remains very large and our customers desire to outsource their ATM efforts is accelerating.
Paul: As this strategy has begun to play out two things have become clear.
Paul: First.
Paul: Our definition of the ATM at this service as a singular product represents the full opportunity of wallet you increase we're at leos, but many of our customers see the opportunity as a continuum of services that they can migrate overtime in.
Paul: In EMEA, we've seen greater preference for Ala Carte solutions, rather than full outsourcing.
Paul: North America smaller institutions generally prefer a fully outsourced model that incorporates new hardware.
Timothy Oliver: Whereas larger institutions more often take a tactical approach, outsourcing off-premise fleets, adding select services, purchasing hardware up front, and even adding network access. Increasingly, we are seeing asset light winds where ATMs are either already in place or are outright purchased by the customer, allowing us to significantly improve our returns. However, some large unit opportunities in lower cost countries like India that require the bidder to own the assets are not demonstrating the returns consistent with our as a service strategy. As such, we have chosen not to provide an as-a-service offering on several thousand units that didn't meet this threshold.
Paul: Whereas larger institutions more often take a tactical approach outsourcing off premise fleets, adding select services purchasing hardware upfront and even adding network access.
Paul: Second our strategy does not need to be capital intensive increasingly we are seeing asset light winds, where atms are either already in place or outright purchase by the customer, allowing us to significantly improve our returns.
Paul: Some large unit opportunities in lower cost countries like India that required a bit or to own the assets are not demonstrating the returns consistent with our as a service strategy.
Paul: As such we have chosen not to provide an as a service offering on several thousand units that didn't meet this threshold.
Paul: On the right hand side, the network segment experienced another robust quarter.
Timothy Oliver: On the right-hand side, the network segment experienced another robust... The effective execution of our utility banking strategy drove higher ARPU and higher profitability from our fleet of ATMs. Transaction volumes were strong, with cash withdrawals growing double digits year over year, and the UK was our largest contributor to international growth, benefiting from the addition of the grocer Asda in late 2023. In North America, all point hit on all cylinders and generated another all-time high for transactions.
Paul: The effective execution of our utility banking strategy drove higher ARPA and higher profitability from our fleet of Atms.
Speaker Change: <unk> volumes were strong with cash withdrawal is growing double digits year over year.
Speaker Change: And the U K was our largest contributor to international growth benefiting from the addition of the growths are aster in late 2023.
Speaker Change: In North America, all point hit on all cylinders and generated another all time high for transactions.
Speaker Change: Continued enhancements of our network, coupled with higher consumer usage contributed 15% growth in surcharge free withdrawals.
Timothy Oliver: Continued enhancements of our network, coupled with higher consumer use, contributed 15% growth and surcharge-free withdrawal. We also made good progress on transaction expansion initiatives, adding deposit acceptance for Capital One and expanding with Navy Federal. Deposit transactions grew 170% year-over-year, and our partnership with Payfair on cardless cash payout for DoorDash drivers ramped across the quarter. We expect to add lift in the second half of the year, providing more gig workers with quick and easy access to their daily jobs.
Speaker Change: We also made good progress on transaction expansion initiatives, adding deposit acceptance for capital, one and expanding with Navy federal.
Speaker Change: Deposit transactions grew 170% year over year.
Speaker Change: And our partnership with pay fair on cartilage cash payout for door dash drivers ramped across the quarter.
Speaker Change: We expect to add lift in the second half of the year, providing more good workers with quick and easy access to the daily pay.
Speaker Change: And finally, our investment in clip money enabled us to efficiently add business deposit solutions to our network.
Timothy Oliver: And finally, our investment in ClipMoney enabled us to efficiently add business deposit solutions to our network. Additionally, I do want to call out the expansion of our relationship with QIIME that we announced last week. Chime has been an all-point customer since 2021, and today they are one of NCR Atleos' key commercial strategic partners. Under the newly extended partnership, we will host the Chime Brand on all point ATMs in more than 4,000 Walgreens stores across the country, in addition to the 2,000 currently branded with QIIME today.
Speaker Change: I do want to call out the expansion of our relationship with China that we announced last week.
Speaker Change: China has been in all point customers since 2021 and today. They are one of NCR at Leos key commercial and strategic partners.
Speaker Change: Under the newly extended partnership we will host chime brands on all point Atms and more than 4000 Walgreens stores across the country. In addition to the 2000 and currently branded with chime today.
Speaker Change: Turning to slide seven that reiterates, our 'twenty 'twenty four key objectives. These.
Timothy Oliver: Turning to slide 7 that reiterates our 2024 key objectives. These objectives describe a path to both operational and strategic success in 2020. I've already described our first half successes, I want to provide some insight into our second half focus, starting with differentiating growth. The strategies of our two reported segments are converging as our customers reconsider the entirety of their self-service banking effort and their consumer banking experience. Our selling effort needs to be more malleable and leverage our fully integrated solution, while full outsourcing to Atleos of all things ATM is the eventual goal.
Speaker Change: These objectives described the path to both operational and strategic success in 2020 four.
Speaker Change: I've already described our first half successes I want to provide some insight into our second half focus areas.
Speaker Change: Starting with differentiate and grow.
Speaker Change: The strategies of our two reporting segments are converging as our customers reconsider the entirety of their self service banking effort and their consumer banking footprint.
Speaker Change: Our selling effort needs to be more malleable and leverage our fully integrated solution.
Speaker Change: While full outsourcing to <unk> all things ATM is the eventual goal we can generate more revenue per device by either capturing more transaction volume or by taking on more services that our customers are currently doing themselves.
Timothy Oliver: We can generate more revenue per device by either capturing more transaction volume or by taking on more services that our bank customers are currently doing. And we are driving exciting new product offerings that add new functionality to the ATM by changing the end-user experience and modernizing the hardware. Diligent prioritization and application of resources, including people, expense, capital, time, and, in some instances, components, optimizes returns and catalyzes future period growth. In the second half, our services organization will increase the tempo of productivity initiatives and extend our successful AI pilot, having addressed in the first half certain lingering product and service issues related to our separation. Our organizational redesign efforts will drive efficiencies, as will the modification of our manufacturing process.
Speaker Change: And we are driving exciting new product offerings that add new functionality to the ATM by changing the end user experience and modernizing the hardware.
Speaker Change: Diligent prioritization and application of resources, including people expense capital time, and in some instances components optimizes returns and catalyzes future period growth.
Speaker Change: In the second half our services organization will increase the tempo of productivity initiatives and extend our successful AI pilot, having addressed in the first half certain lingering product and service issues related to our separation.
Speaker Change: Our organizational redesign efforts will drive efficiencies as well the modification of our manufacturing processes.
Speaker Change: Before moving on to the discussion of the separation.
Timothy Oliver: Before moving on to the discussion of the separation, When Atleos launched as a separate company, I suggested that Atleos would generate predictable free cash flows and should be able to regularly deliver a proportion of that cash back to shareholders in the form of a dividend. However, last quarter, when asked about a dividend... I said that the board would consider returning cash to shareholders once we had a better line of sight to full-year cash generation, and at that time, I would have preferred a share repurchase over a dividend.
Speaker Change: When Atlas was launched as a separate company I suggested that <unk> would generate predictable free cash flows and should be able to regularly deliver a proportion of that cash back to shareholders in the form of a dividend.
Speaker Change: Last quarter when asked about a dividend.
Speaker Change: Said that the board would consider returning cash to shareholders. Once we had a better line of sight to full year cash generation and at that time, I would have preferred to share repurchase over dividend payment.
Speaker Change: As is evident from our free cash flow guidance, we now have a better line of sight.
Timothy Oliver: As evident from our free cash flow guidance, we now have a better line of sight. After careful consideration and feedback from several constituents, we've determined that continuing to reduce our debt is currently in the best interest of both our equity and debt. But we still believe that at some point, Atleos will be able to return meaningful cash to shareholders on a regular basis, and we feel good about our ability to generate free cash flow consistent with our guidance.
Speaker Change: After careful consideration and feedback from several constituencies, we've determined that continuing to reduce our debt is currently in the best interest of both our equity and debt holders.
Speaker Change: While we still believe that at some point at least we'll be able to return meaningful cash to shareholders on a regular basis and we feel good about our ability to generate free cash flow consistent with our guidance.
Timothy Oliver: For now, we will continue to deploy all excess cash to reduce... And we expect to have the opportunity this fall to refinance some of that debt. Lastly, the process to complete the separation from NCR Voyex is on or ahead of schedule and on budget. During the second quarter, we transferred two more countries to Atleos that had been stranded with VOIX post-split due to legal entity status. Now, only two with de minimis revenue remain.
Speaker Change: For now we will continue to deploy all excess cash to reduce debt.
Speaker Change: And we expect to have the opportunity this fall to refinance some of that debt.
Lastly, the process to complete the separation from NCR Blake's is on or ahead of schedule and on budget.
Speaker Change: During the second quarter, we transferred two more countries to outflows that had been stranded with boy ex post split it'll legal entity status.
Speaker Change: Only two with de Minimis revenue remain.
Timothy Oliver: And those should transfer to us in the third quarter. We completed the early closure of several key transition service agreements, or TSAs, between the two companies, and we have only a few critical TSAs remaining. This has allowed us to already begin evaluating productivity opportunities for functions previously covered by the TSA. As is always the case, I want to express my gratitude to the whole NCR Atleos team for achieving another impressive quarter, fueled by enthusiastic commitment to our new company's mission and values. Dilligent effort, consistently positive. I'm extremely proud of what the Global NCR Atleos team has accomplished in nine short months, and more opportunities await. With that, over to you, Paul.
Speaker Change: No should transfer to us in the third quarter.
Speaker Change: We completed the early closure of several key transition service agreements or TSA is between the two companies and have only a few critical TSA is remaining.
Speaker Change: This has allowed us to already begin evaluating productivity opportunities for functions previously covered by the TSA and sized for a larger company.
Speaker Change: As is always the case I want to express my gratitude to the whole NCR at Leos team for achieving another impressive quarter fueled by enthusiastic commitment to our new company's mission and values diligent effort and consistently positive disposition I'm extremely proud of what the global NCR Alamos team has accomplished in nine short months and more opportunity.
Speaker Change: With that over to you Paul.
Paul Campbell: Thank you, Tim, and thank you all for joining us today. We closed out the first half of the year with a strong second quarter that was on the higher end of our expectations. We were particularly pleased with the financial results, the momentum of our business, and the accelerated progress of our key objectives. Importantly, the results further validated the earnings power of our strategy to generate higher revenue and profit per unit across our global installed base of 600,000 ATMs by adding incremental transaction and service revenues. We will start on slide nine with a review of the consolidated second quarter results.
Paul: Thank you Tim and thank you all for joining us today.
Paul: We closed out the first half of the year with a strong second quarter that was on the higher end of our expectations. We were particularly pleased with the financial results momentum of our business and accelerated progress of our key objectives importantly, the results further validated the add earnings power of our strategy to generate higher revenue and profit per unit cost our global installed base.
Paul: A 600000, Atms by adding incremental transactions and status revenue streams.
Paul: We will start on slide nine for a review of the consolidated second quarter results.
Paul: Total company revenue was 1.8 million led by 7% growth in software revenue and 6% growth in services revenue that demonstrated continued success in generating consistent and higher margin sources of revenue from stable installed base of Atms.
Paul Campbell: Total company revenue was $1.08 billion, led by 7% growth in software revenue and 6% growth in services revenue that demonstrated continued success in generating consistent and higher-margin sources of revenue from a stable installed base of ATMs. The strong software and service revenues contributed to 9% growth in the current revenue to 793 million, which comprise 73% of total revenues up from 70% in the prior year. We delivered second quarter adjusted EBITDA of $193 million and a margin of 17.9%, benefiting from upside in revenue growth for self-service banking and upside in margins for the network.
Paul: The strong software and service revenues contributing to 9% growth in recurring revenue to 793 million, which comprised 73% of total revenues up from 70% in the prior year.
Paul: We delivered second quarter, adjusted EBITDA of 193 million and a margin of 17, 9% benefiting from upside in revenue growth for SaaS to have as banking and upside in margins for the network business.
Paul: EBITDA margin rate expanded 250 basis points sequentially.
Paul Campbell: Even the margin rate expanded 250 basis points sequentially. The year-over-year decrease in EBITDA and margin was consistent with our projections that incorporated known dis-energies and higher labor costs. Macro headwinds remain consistent with last quarter, partially offsetting the productivity savings we have become. Moving down to P&L, interest expense was $79 million on an average total debt balance of $3.2 billion, that includes approximately $1.8 billion of variable rate debt. The weighted average interest rate on the debt was approximately 9.4%.
Paul: The year over year decrease in EBITDA and margin was consistent with our projections that incorporated known dis synergies and higher labor costs.
Paul: Macro headwinds remained consistent with last quarter, partially offsetting the productivity savings we have accomplished.
Speaker Change: Moving down the P&L interest expense was $79 million on an average total debt balance was $3 2 billion that included approximately $1 8 billion of variable rate debt.
Speaker Change: The average interest rate on the debt was approximately nine 4%.
Speaker Change: The second quarter effective tax rate of approximately 18% was 200 basis points lower than we projected due to known discrete tax benefits accelerated from the third quarter.
Paul Campbell: The second quarter effective tax rate of approximately 18% was 200 basis points lower than we projected due to non-discrete tax benefits accelerated from the third quarter. The fully diluted average share count was 73.7 million shares. Putting it all together, we drove second quarter diluted adjusted earnings per share of $0.81 and generated approximately $16 million adjusted free cash flow in the quarter. Moving to slide 10.
Speaker Change: Fully diluted average share count was $73 7 million shares.
Speaker Change: Putting it together, we drove second quarter diluted adjusted earnings per share of <unk> 81.
Speaker Change: And generated approximately $16 million adjusted free cash flow in the quarter.
Speaker Change: Moving to slide 10 self service banking is our largest business and is comprised of a stable global installed base of approximately 520000 of our 600000 ATM units.
Paul Campbell: Self-service banking is our largest business and is comprised of a stable global installed base of approximately 520,000 of our 600,000 ATM units. These 520,000 units primarily generate recurring revenue from soft services and software. We are transforming the business by leveraging our network infrastructure capabilities to deliver a broader range of services to our customers and a more comprehensive outsourced services model. Self Service Banking had a solid second quarter with financial results above our guided, Starting in the upper left.
Speaker Change: These 520000 units primarily generate recurring revenue from soft San Francis and software.
Speaker Change: We are transforming the business by leveraging our network infrastructure capabilities to deliver a broader range of services to our customer and a more comprehensive outsourced San Francis model.
Speaker Change: Self service banking had a solid second quarter with financial results above our guided range.
Speaker Change: In the upper left revenue grew 3% year over year to $673 million, including 12% growth in recurring revenue to a new high of 63% of segment revenues.
Paul Campbell: Revenue grew 3% year-over-year to $673 million, including 12% growth in recurring revenue to a new high of 63% of segment revenue. The recurring revenue growth reflects the continued success of our strategy to drive more revenue from a global installed base of ATMs, led by 18% growth in software and 5% growth in. The continued growth of our ATM-as-a-Service solution resulted in a decrease in upfront revenue hardware line due to revenue shifting to the ATM-as-a-Service bucket being recognized rateably over the contract period.
Speaker Change: Recurring revenue growth reflects the continued success of our strategy to drive more revenue from our global installed base of Atms.
Speaker Change: By 18% growth in software and 5% growth in services.
Operator: Please stand by, we're about to begin. Good day and welcome to the NCR Atleos Second Quarter Earnings Call. Today's conference is being recorded.
Speaker Change: The continued growth of our ATM as a service solution resulted in a decrease in upfront revenue hardware line due to revenue shifting to Atms established bucket would be recognized ratably over the contract period.
Brendan Metrano: At this time, I'd like to turn the conference over to Mr. Brendan Metrano. Please go ahead.
Brendan Metrano: Good morning and thank you for joining the NCR Atleos Second Quarter Earnings Call. Joining me on the call today are Tim Oliver, CEO, Paul Campbell, CFO, and Stuart McKinnon, Chief and Update on 2024 Objectives. Next, Paul, you are financial results and the outlook of the Q&A.
Paul Campbell: That said, we had higher than expected hardware orders in the quarter, particularly for our recycling product, giving us a robust backlog that increased our segment revenue expectations for the second half of the year. Second quarter adjusted EBITDA of $158 million benefited from the strong growth in high-margin software revenue and productivity initiatives, which offset the previous mentioned macro cost headwind. On a year-over-year basis, EBITDA was down approximately $15 million, primarily due to anticipated dissynergies, higher labor costs, and the impact of one-time hardware sales shifting to ATMs of service being amortized over future years. The adjusted EBITDA margin was 24% compared to 27% in the prior year.
Speaker Change: We had a higher than expected hardware orders in the quarter, particularly for our recycling product, giving us a robust backlog that increased our segment revenue expectations for the second half.
Speaker Change: Second quarter adjusted EBITDA of 158 million benefited from the strong growth in high margin software revenue and productivity initiatives, which offset the previous mentioned macro cost headwinds.
Brendan Metrano: 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 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 are periodic filings with the SEC, including our annual report.
Speaker Change: On a year over year basis, EBITDA was down approximately $15 million, primarily due to anticipated dis synergies higher labor costs and the impact of one time hardware sales shifting to Atms of Savage and amortized over future years.
Speaker Change: Adjusted EBITDA margin was 24% compared to 27% in the prior year.
Speaker Change: Moving to the bottom of the slide Kpis continued a positive trajectory in the second quarter.
Paul Campbell: Moving to the bottom of the slide, KPIs continued a positive trajectory in the second quarter. The mix of recurring revenue climbed to 63% for the second quarter, up approximately 500 basis points year over year and 100 basis points sequentially on growth in recurring software and services revenue, in addition to the incremental impact of ATM as a service revenue. Annual Recurring Revenue, or ARR, is up 11% year-over-year and up 6% sequentially. Another proof point that our strategy of driving more recurring revenue from our existing installed base is progressing. On slide 11, we have introduced new information disclosures for the ATM as a service business to help assess and model this important growth opportunity in the broader self-service banking sector.
Speaker Change: The mix of recurring revenue climbed to 63% for the second quarter up approximately 500 basis points year over year, and 100 basis points sequentially on growth in recurring software and services revenue. In addition to the incremental impact of ATM was established revenue.
Brendan Metrano: Also in our review of results today, we will refer to certain non-GAP financial measures, which the company uses to measure its performance. These non-GAP measures are described and reconciled to their GAP counterparts in the presentation materials and on the Investor Relations website.
Speaker Change: Annual recurring revenue or E. R. R is up 11% year over year and up 6% sequentially. Another proof point that our strategy of driving more recurring revenue from our existing installed base is progressing.
Operator: If we replay this call, we'll be available later today on our website, Investor.NCRAtleos.com.
Speaker Change: On slide 11, we have introduced new information disclosures for the Atms established business to help SaaS and muddle. This important growth opportunity on the broader self service banking segment on.
Timothy Oliver: With that, I will turn the call over to Tim. Thank you, Brendan, and thank you to everyone for joining us on the call today. For those following along on the presentation from the Investor Relations website, we will start today on slide five.
Speaker Change: On the top left of the slide ATM as a service grew 31% year over year to $47 million for the second quarter. An addition of approximately 4100 incremental active units.
Paul Campbell: On the top left of the slide, ATM as a service grew 31% year-over-year to $47 million for the second quarter, on the addition of approximately 4,100 incremental active units. On the right, gross profit increased 37% year-over-year to $14.4 million, consistent with the ramp in ATM-as-a-Service revenue. Moving to the bottom of the slide, ATM, and service KPIs also continued a positive trajectory in the second quarter. ATMs and service active units increased year-over-year and sequentially to over 22,000 units.
Timothy Oliver: Before I launch into a discussion of a very successful second quarter, and because I'm hopeful many of you are newer to the ATLEOS story, I think it makes sense to reiterate the significant opportunity and accompanying strategy of ATLEOS, now as an independent peer play ATM company. ATLEOS has an installed and serviced fleet of approximately 600,000 ATMs, including over 80,000 that we own and operate in our own network. The global environment that continues to demonstrate steady cash-based consumer transactions and a stable installed base of ATM hardware, our growth will come from generating more revenue for every ATLEOS machine that we support.
Speaker Change: On the right gross profit increased 37% year over year to $14 4 million consistent with the ramp and the ATM has established revenues.
Speaker Change: Moving to the bottom of the slide Atms at Sam's Kpis also continued a positive trajectory in the second quarter Atms established active units increased year over year and sequentially to over 22000 units.
Speaker Change: Customer interest remains strong and the backlog also increased for the second quarter to over 4000 units.
Paul Campbell: Customer interest remained strong, and the backlog also increased for the second quarter to over 4,000 units. However, adding to Tim's earlier comments, we acknowledge that the pace of ATM as a service activations has been slower this year than we originally projected. That is primarily because we maintained ROI discipline on some large deals expected to close earlier this year that did not meet our return on investment hurdle. That said, we still have a line of sight to finishing the year with our targeted 30,000 active users.
Speaker Change: Adding to Tim's earlier comments, we acknowledged that the pace of ATM into service Activations has been slower this year than we originally projected that is primarily because we maintained Ottawa disappoint on some large deals expected to close early this year that did not meet our return on investment hurdle rate that said, we still have line of sight to finishing the year with a pocketed 30000 Act.
Timothy Oliver: 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 network machines, located in a 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 as we service both growth vectors from a common infrastructure that has unmatched scale, is leverageable, and is world-class.
<unk> units on top of the 4000 unit backlog there are a few large service oriented deals with existing customers that we have high degree of confidence, we'll close and activate this year.
Paul Campbell: On top of the 4,000-unit backlog, there are a few large service-orientated deals with existing customers that we have a high degree of confidence will close and activate this year. The last 12 months average revenue per unit, ARPU, continued to build during the second quarter, reaching $8,600 per unit, up from $8,000 in the prior year. The increase in the ARPU is largely the result of adding customers in higher yield regions to a base of units with a large mix of cash dispensers in India where the yield is lower.
Speaker Change: The last 12 months average revenue per unit at <unk> continued to build during the second quarter, reaching $8600 per unit up from 8000 in the prior year.
Timothy Oliver: As global banks seek to improve their customers' experience in the most cost-effective way, the importance of self-service devices is increasing. As a result, our customers are reinvesting back into their retail banking footprint and embracing shared financial utilities. For them, this strategy will result in lower costs, higher quality, better consumer experience, broader reach, and higher foot traffic. For NCR Atleos, it will drive higher revenue growth, higher profitability, growth from scale and a richer revenue mix, and predictable free cash flows.
Speaker Change: The increase in the op, who is largely a result of adding customers and high yield regions to a base of units with a larger mix of cash dispensers in India, where the yield is lower.
Speaker Change: It is important to keep in mind that there is a lot of variability in our pud between geography and product type the set of services included and the institution side.
Paul Campbell: It is important to keep in mind that there is a lot of variability in ARPU between geography, the product type, the set of services included, and the institution size. For example, India favours less advanced units generating much lower revenue and profit than North America where institutions generally prefer a higher specification multifunction unit with a fully outsourced model that has a stronger yield.
Speaker Change: For example, India favours less advanced units generating much lower revenue and profit in North America, where institutions generally prefer our highest specification multifunction unit with a fully outsourced model that has a stronger yield.
Timothy Oliver: In this vein, in the second quarter, we grew services revenue by 6%, and grew A-team as a service revenue by more than 30%. We added key new clients to our networks, at a new network geographies, and rolled out new transaction types. Overall, financial results were strong again in the second quarter, with revenue toward the upper end of our expectations and profit above those expectations, led by strong growth in both our transaction-based and service businesses.
Speaker Change: The previous mentioned backlog of 4000 units are more heavily weighted to North America, and Europe with backlog at about $14000 and the higher margin profile.
Paul Campbell: The previous mentioned backlog of 4,000 units is more heavily weighted to North America and Europe with backlog ARPU above $14,000 and a higher margin profile. Demand for ATMs of service is broad-based across all regions, and particularly healthy in North America, which we expect to become an increasing mix of our ATMs of service units installed there. AR continued a consistent upward trend in the second quarter, increasing 30% year-over-year to almost 200.
Speaker Change: Four Atms established is broad based across all regions and particularly healthy in North America, which we expect to become an increasing mix of our Atms in service unit installed base.
Speaker Change: They are our continued a consistent upward trend in the second quarter growing 30% year over year to almost $200 million.
Timothy Oliver: And profit margins are climbing as anticipated, as we eliminate the incremental costs that resulted from our spin transaction. We drove solid sequential margin expansion, with beneficial revenue mix, coupled with cost productivity from both direct and indirect costs.
Speaker Change: Moving to the network segment on page 12.
Paul Campbell: Moving to the network segment on page 12, our network utility banking strategy is focused on offering financial institutions and retail partners access to industry-leading scale of our owned and operated ATM network, which enables increased utilization of the network driving higher ARPU across approximately 80,000 units base of ATMs. The network segment had another strong quarter, starting on the top left revenue increased 6% year-over-year to 326.9% with 10% growth in withdrawal volumes partially offset by lower volumes for Liberty X transactions, which are lower marks. Withdrawal volumes increased 8% for North America and 11% for international transactions.
Speaker Change: Network utility banking strategy is focused on offering financial institutions and retail partners access to industry, leading scale of our owned and operated ATM network, which enables increased utilization of network driving higher op blue across approximately 80000 units base of Etfs.
Timothy Oliver: The strong first half financial result, combined with robust sales pipelines, key renewals and improved performance metrics, allow us to reaffirm our full year guidance for 2024.
Speaker Change: The network segment had another strong quarter, starting on the top left revenue increased 6% year over year to $326 million with 10% growth in would withdraw volumes, partially offset by lower volumes for Liberty X transactions, which are lower margin.
Paul Campbell: Paul will provide more detailed discussion on guidance in a few minutes.
Timothy Oliver: Let's move to slide 6, operating highlights for 2 key segments. On the left, self-service banking top line performance was solid for the second quarter, with services and software revenue growing 8%. Our renewed emphasis on product and service quality this year has been recognized by our customers, and has resulted in strong order volume in the second quarter, which bodes well for hardware revenue in the second half. We've had several key wins and renewals for our traditional go-to-market model for services software and hardware across geographies, including with PNC in North America, with Bank of Avisinia and Amia, and with SBI in Asia Pacific. ATM is a service revenue group 31% in active units increased modestly. The opportunity for ATM is a service remains very large, and our customer desire to outsource their ATM efforts is accelerating.
Speaker Change: Withdraw volumes increased 8% for North America, and 11% for international transactions.
Speaker Change: Also of note, we continue to execute our nationwide deposit strategy by adding a second top tier U S bank to our deposit network.
Paul Campbell: Also of note, we continue to execute our nationwide deposit strategy by adding a second top-tier U.S. bank to our deposit network. Deposit transactions continue to accelerate, growing approximately 170% year-over-year and 50% over Q1, but from a small base. On the right, adjusted the bidder of 101 million was also above the high end of our guidance range and increased 11% year-over-year on revenue growth and margin expansion. Adjusted even a margin expanded 160 basis points here over year, 31%, primarily due to a lower mix of Liberty X-ray music, Hydro-Lore margin offset by growth in higher margin, all points turns out.
Speaker Change: Transactions continued to accelerate growing approximately 117% year over year and 50% over Q1, but from a small base.
Speaker Change: On the right adjusted EBITDA of $101 million was also above the high end of our guidance range and increased 11% year over year on revenue growth and margin expansion.
Speaker Change: Adjusted EBITDA margin expanded 160 basis points year over year to 31%, primarily due to a lower mix of Liberty Xtra music tighter lower margin offset by growth in higher margin all point to transactions.
Speaker Change: The key metrics at the bottom of the slide highlight the validity and execution of our strategy on the left you can see our ATM portfolio has been stable over the past year, finishing the quarter at approximately 81000 units.
Paul Campbell: The key metrics at the bottom of the slide highlight the validity and execution of our strategy. On the left, you can see our ATM portfolio has been stable over the past year, finishing the quarter at approximately 81,000 units. The small reduction in unit count is the result of planned retail footprint optimization to remove units with lower profitability.
Timothy Oliver: As this strategy has begun to play out, two things have become clear. First, our definition of the ATM is a service, as a singular product represents the full opportunity of wallet you increase for ATVIOs, but many of our customers see the opportunity as a continuum of services that they can migrate over time. In Amia, we've seen greater preference for ala cart solutions rather than full outsourcing. In North America, smaller institutions generally prefer a fully outsourced model that incorporates new hardware, whereas larger institutions more often take a tactical approach, outsourcing off-premise fleets, adding select services, purchasing hardware upfront, and even adding network access.
Speaker Change: A small reduction in unit count is the result of planned retail footprint optimization to move units with more profitability.
Speaker Change: The chart on the right shows the last 12 months average revenue per unit was up 10% year over year in the second quarter.
Paul Campbell: The chart on the right shows the last 12 months' average revenue per unit, ARPU, was up 10% year-over-year in the second quarter. As Tim noted, we made significant progress on multiple strategic initiatives in the second quarter that laid the foundation for future growth. Moving to slide 13, starting on the left with a summary of our segment revenue and eBidder results for the total company, technology and telecom segment revenue and adjusted EBITDA were slightly up year-over-year due to new customers and expanding service.
Speaker Change: As Tim noted, we made significant progress on multiple strategic initiatives in the second quarter that laid the foundation for future growth.
Tim: Moving to slide 13, starting on the left with a summary of our segment revenue and EBIT results for the total company.
Timothy Oliver: Second, the strategy does not need to be capital intensive. Increasingly, we are seeing asset light wins, where ATVIOs are either already in place or are outright purchased by the customer, allowing us to significantly improve our returns. Some large unit opportunities in lower cost countries, like India, that require the bidder to own the assets are not demonstrating the returns consistent with our as-a-service strategy.
Tim: Technology, and Telecom segment revenue and adjusted EBITDA was slightly up year over year due to new customers and expanding San Francis.
Tim: As a reminder, the auto segment represents legacy NCI Baltics exited geographies and commercial agreements between NCR athletes and NCI plagues.
Paul Campbell: As a reminder, the other segment represents legacy NCR Voix exited geographies and commercial agreements between NCR Atleos and NCR Voix. The other segment results were below our expectations due to accelerated exits from TSA and lower manufacturing demand from NCR VoIP. We expect this weakness to continue. Unallocated corporate cost decreased 5% to $77 million, with the primary contributors being the movement of some cost departments into the self-service banking business segment, expense optimization, and a difference between historical cost allocation methodologies under Carver accounting.
Tim: The other segment results were below our expectations due to accelerated exits from TSA and lower manufacturing demand from NCR bikes.
Timothy Oliver: As such, we have chosen not to provide an asset service offering on several thousand units that didn't meet the threshold.
Tim: We expect this weakness to continue.
Tim: Unallocated corporate costs decreased 5% to $77 million with the primary contributors being the movement of some cost departments into self service banking business segment expense optimization and a difference between historical cost allocation methodologies under a carve out accounting.
Timothy Oliver: On the right-hand side, the network segment experience another robust Quarter. The effective execution of our utility banking strategy drove higher ARPU and higher profitability from our fleet of ATMs. Transaction volumes were strong, with cash withdrawals growing double digits year-of-year, and the UK was our largest contributor to international growth, benefiting from the addition of the Grocer Asta in late 2023. In North America, all-point hit on all cylinders and generated another all-time high for transactions.
Tim: On slide 14 is another view of new information that we're providing to help investors assess and model the company.
Paul Campbell: Slide 14 is another view of new information that we are providing to help investors assess and model the company. These are not KPIs that we currently use internally, but I've been asked for this information by a number of investors, and we'll build this up to a rolling five-quarter view over time. The key takeaway from this slide is to show the progress of maximizing the monetization of each unit of our 600,000 unit fleet by attaching more transactions, services, and software, regardless of which segment drives the additional revenue.
Speaker Change: These are not kpis that we currently use intently I'll be asked for this information by a number of investors and will build us up to a rolling five quarter view overtime.
Speaker Change: The key takeaway from this slide is to show the progress of maximizing the monetization of each unit of 600000 unit fleet by attaching more transactions services and software, regardless of which segment drives the additional revenue.
Timothy Oliver: Continued enhancements of our network coupled with higher consumer usage contributed 15% growth in search-arge-free withdrawals. We also made good progress on transaction expansion initiatives adding deposit acceptance for capital one and expanding with Navy Federal. Posit transactions grew 170% year-over-year, and our partnership with pay fair on cardless cash payout for door-dash drivers ramped across the quarter. We expect to add lift in the second half of the year, providing more gig workers with quick and easy access to the daily pay. And finally, our investment in Clip Money enabled us to efficiently add business deposit solutions to our network.
Speaker Change: On slide 15, we present, a breakdown of free cash flow for the quarter and a snapshot of our financial position at the end of the second quarter.
Paul Campbell: On slide 15, we present a breakdown of free cash flow for the quarter and a snapshot of our financial position at the end of the second quarter. The key takeaway on this slide for the second quarter is that we generated $16 million of free cash flow, and leverage was essentially unchanged at $3.5 trillion. Year-to-date, we generated approximately 85 million of free cash flow, putting us on pace to meet our full year net leverage target of 3.2.
Speaker Change: The key takeaway on this slide for the second quarter is that we generated $16 million of free cash flow and leverage was essentially unchanged at three five times.
Speaker Change: Year to date, we generated approximately $85 million of free cash flow, putting us on pace to meet our full year net leverage target of three two times.
Speaker Change: On the bottom of this slide year to date, our net debt is down by $45 million, our net leverage ratio dropped from approximately three seven times to three five times.
Paul Campbell: On the bottom of this slide, year-to-date, our net debt is down by $45 million, and our net leverage ratio dropped from approximately 3.7 times to 3.5 times. We have ample liquidity of $672 million at the end of the second quarter.
Timothy Oliver: I do want to call out the expansion of our relationship with CHIME that we announced last week. CHIME has been an all-point customer since 2021, and today they are one of NCR ATLEO's key commercial strategic partners. Under the newly extended partnership, we will host CHIME brand on all-point ATMs in more than 4,000 wall green stores across the country, in addition to 2,000 currently branded with CHIME today.
Speaker Change: We have ample liquidity of 672 million at the end of the second quarter.
Speaker Change: Expanding on 10 pins comments for capital allocation, the Companys strong fundamentals and cash flow generation can comfortably support more than our current debt, which the market has clearly shown with our 2029 notes trading at almost 110% of par value that said, our internal analysis and feedback from investors and the board confirm that are more.
Paul Campbell: Expanding on Tim's comments about capital allocation, the company's strong fundamentals and cash flow generation can comfortably support more than our current debt, which the market has clearly shown with our 2029 notes trading at almost 110% of par value. That said, internal analysis and feedback from investors and the board confirmed that a more optimal leverage level is our priority. Therefore, we have decided that debt reduction is the best use of free cash flow to increase shareholder value.
Timothy Oliver: Turning to slide seven that reiterates our 2024 key objectives. These objectives describe a path to both operational strategic success in 2024. While I've already described our first half successes, I want to provide some insight into our second half focus areas. Starting with differentiating growth, the strategies of our two reported segments are converging as our customers reconsider the entirety of their self-service banking effort and their customer banking footprint. Our selling effort needs to be more malleable and leverage our fully integrated solution.
Speaker Change: Optimal leverage level is a priority. Therefore, we have decided that debt reduction is the best use of free cash flow to increase shareholder value. We will continue to evaluate this position and adjust for developments appropriately.
Speaker Change: Turning to slide 16, and our total company financial outlook for Q3 and full year 2024.
Paul Campbell: We will continue to evaluate this position and adjust for developments accordingly. Now, on slide 16 of our total company financial outlook for Q3 and full year 2024. Starting with the full year, for revenues, the midpoint of the range is unchanged at $4.3 billion.
Speaker Change: Starting with the full year for revenues the midpoint of the range is unchanged at $4 $3 billion, we tightened the range to $4 two 6% to 434 billion based on solid first half revenues plus a robust order backlog and sales pipeline for the second half.
Paul Campbell: We tightened the range to $4.26 to $4.34 billion, based on solid first-half revenues plus a robust order backlog and sales pipeline for the second quarter. We reaffirmed the outlook for the adjusted EBITDA of $770 million to $800 million. This reflects the first half adjusted EBITDA that was above midpoint for the quarterly guidance ranges, offset by uncertainty with macroeconomic risk due to softening economic trends globally and geopolitical conditions. Moving down the P&L, there are no material changes to the outlet below the line, which leaves diluted adjusted EPS unchanged at $2.90 to $3.20.
Timothy Oliver: While full outsourcing to ATLEO's of all things ATM is the eventual goal, we can generate more revenue per device by either capturing more transaction volume or by taking on more services that our bank customers are currently doing themselves. And we are driving exciting new product offerings that add new functionality to the ATM by changing the end user experience and modernizing the hardware. Illigent prioritization and application of resources including people, expense, capital, time and in some instances components optimizes returns and catalyzes future period growth.
Speaker Change: We reaffirmed the outlook for the adjusted EBITDA of $770 million to $800 million.
Speaker Change: This reflects the first half adjusted EBIT that was above mid point from a quarterly guidance ranges offset by uncertainty with macroeconomic risk due to softening economic trends globally and geopolitical risk.
Speaker Change: Moving down the P&L there are no material changes to the outlook, although the line, which leaves diluted adjusted EPS unchanged at $2 90 to $3 20.
Timothy Oliver: In the second half our services organization will increase the tempo of productivity initiatives and extend our successful AI pilot having addressed in the first half certain lingering product and service issues related to our separation. Our organizational redesign efforts will drive efficiencies as well the modification of our manufacturing processes.
Speaker Change: Based on the strong first half free cash flow second half EBIT, I look and effective Capex and working capital management, we narrowed the free cash flow outlook to 190 to 220 million meeting the midpoint by $5 million.
Paul Campbell: Based on the strong first-half free cash flow, second-half EBITDA outlook, and effective CapEx and working capital management, we narrowed the free cash flow outlook to $190 million to $220 million, raising the midpoint by $5 million. For the third quarter, we expect total company revenue in the range of $1.045 billion to $1.075 billion, adjusted EBITDA of $195 million to $205 million, and adjusted EPS of $0.71 to $0. We expect free cash flow to be between 40 and 60 million.
Speaker Change: For the third quarter, we expect total company revenue in the range of one point or four 5 billion to one point or <unk> 5 billion adjusted.
Timothy Oliver: Before moving on to the discussion of the separation, when ATLEO's launch of the separate company, I suggested that ATLEO's would generate predictable free cash flows and should be able to regularly deliver a proportion of that cash back to shareholders in the form of a dividend. Last quarter, when asked about a dividend, I said that the board would consider returning cash to shareholders once we had a better line of sight to full-year cash generation, and at that time, I would have preferred to share repurchase over a dividend payment.
Speaker Change: Adjusted EBITDA of $195 million to $205 million and adjusted EPS of <unk> 71 to 81.
Speaker Change: We expect free cash flow will be between 40 and $60 million.
Speaker Change: Note that free cash flow conversion should improve sequentially on higher EBITDA and having no semi annual cash interest expense payments.
Paul Campbell: Note that free cashflow conversions should improve sequentially on higher EBITDA and having no semi-annual cash interest expenses. We highlighted other relevant assumptions for the consolidated Q3 and full year outlook in the earnings presentation, including interest expense, effective fact rate, and share.
Speaker Change: We highlighted other relevant assumptions for the consolidated Q3, and full year outlook and the earnings presentation, including interest expense effective tax rate and share count.
Timothy Oliver: As is evident from our free cash flow guidance, we now have a better line of sight. After careful consideration of feedback from several constituencies, we've determined that continuing to reduce our debt is currently in the best interest of both our equity and debt holders. But we still believe that at some point, Atleos will be able to return meaningful cash to shareholders on a regular basis, and we feel good about our ability to generate free cash flow consistent with our guidance. For now, we will continue to deploy all excess cash to reduce debt. And we expect to have the opportunity this fall to refinance some of that debt.
Speaker Change: Moving to slide 17, and the segment level outlook.
Paul Campbell: Moving to slide 17 and the segment level outlook. There are movements between the segments as we recalibrate based on learnings from the first half and current backlog and cost profile, starting with the school year outlook. We modestly increased and narrowed the self-service banking revenue outlook range to $2.655 billion to $2.690 billion, reflecting better growth across product lines, including strong hardware revenue from improved backlog exiting Q2. We lowered the outlook range for adjusted eBidder margin to 23-24% due to higher than previously expected service costs and shipping costs that will dampen the impact of our continuous improvement in the, We modestly decreased and narrowed the Network Revenue Outlook Range to $1.28 billion to $1.31 billion, primarily due to continued softness in the Liberty business.
Speaker Change: On movements between the segments as we recalibrate based on learnings from the first half and current backlog and cost profiles.
Speaker Change: With the full year outlook, we modest modestly increased and narrowed the self service banking revenue outlook range to $2 655 billion to $2 $690 billion to $1 billion, reflecting better growth across product lines, including strong hardware revenue for improved backlog exiting Q2.
Speaker Change: We lowered the outlook range for adjusted EBITDA margin to 23% to 24% due to higher than previously expected San Fran costs and shipping costs that will dampen the impact of our continuous improvement initiatives.
Timothy Oliver: Lastly, the process to complete this separation from NCR Boeigs is on or ahead of schedule and on budget. During the second quarter, we transferred two more countries to Atleos that had been stranded with Boeigs' post-split due to legal entity status. Only two, with the Minimists' revenue, remain. And those should transfer to us in the third quarter. We completed the early closure of several key transition service agreements or TSAs between the two companies and have only a few critical TSAs remaining. This has allowed us to already begin evaluating productivity opportunities for functions previously covered by the TSA and sized for a larger company.
We modestly decreased and now the network revenue outlook range to 128 billion to $1. Three 1 billion, primarily due to continued softness in the Liberty business, we increased outlook range for adjusted EBIT margin to 30% to 31%, reflecting the lower mix of Liberty revenue that Kai is a lower margin than the overall segment.
Paul Campbell: We increased the outlook range for adjusted EBITDA margin to 30-31%, reflecting the lower mix of Liberty revenue that ties has a lower margin than the overall sector. We're in the process of implementing plans to remedy the Liberty Challenge. P&T revenue is now expected to be $188 to $197 million, with adjusted EBIT and margin of approximately $20 billion. Moving to the other segment, Last week, Voix announced an asset divestiture and corporate re
Speaker Change: <unk>.
Speaker Change: We're in the process of implementing plans to remedy the liberty challenges.
Speaker Change: TNT revenues now expected to be $188 million to $197 million with adjusted EBIT margin of approximately 20%.
Timothy Oliver: As always, the case, I want to express my gratitude to the whole NCR Atleos team for achieving another impressive quarter fueled by enthusiastic commitment to our new companies' mission and values, diligent effort, and consistently positive disposition. I'm extremely proud of what the Global NCR Atleos team has accomplished in nine short months and more opportunity awaits.
Moving to the other segment last week bikes and understand asset divestiture and corporate reorganization.
Speaker Change: We expect to retain most of the projected second half EBITDA, the waiting to buy X by the financial implications are not yet clear.
Paul Campbell: We expect to retain most of the projected second half EBITDA relating to Vorex, but the financial implications are not yet clear. Based on volume interlocks with VOIX, we've reduced revenue expectations from this segment by $43 million at the mid- Other revenue for the year is now expected to be $137 million to $143 million with an adjusted even and margin of approximately 10%. Unallocated corporate costs should be approximately 7% of total company revenue.
Speaker Change: Based on volume into locksmith bikes, we've reduced revenue expectations from this segment by $43 million at the midpoint.
Paul Campbell: With that, over to you, Paul. Thank you, Tim. And thank you all for joining us today. We closed out the first half of the year with a strong second quarter that was on the higher end of our expectations. We were particularly pleased with the financial results, momentum of our business, and accelerated progress of our key objectives. Importantly, the results further validated the earnings power of our strategy to generate higher revenue and profit per unit across our global install base of 600,000 ATMs by adding incremental transaction and service revenue streams.
Speaker Change: Other revenue for the year is now expected to be $137 million to $143 million with an adjusted EBITDA margin of approximately 10%.
Speaker Change: Unallocated corporate costs should be approximately 7% of total company revenues.
Speaker Change: For the third quarter, we expect self service banking revenue to be 655, 617 million with adjusted EBIT margin rate of 24% to 25%.
Paul Campbell: We will start on slide 9 for a review of the consolidated second quarter results. Global company revenue was 1.08 billion, led by 7% growth in software revenue and 6% growth in services revenue that demonstrated continued success in generating consistent and higher margin sources of revenue from stable install base of ATMs. The strong software and service revenues contributed to 9% growth in the current revenue to 793 million, which comprise 73% of total revenues, up from 70% in the prior year.
Paul Campbell: For the third quarter, we expect self-service banking revenue to be $655 million to $670 million, with an adjusted EBITDA margin of $24 million to $25 million. We expect network revenue to be $325 million to $335 million, with an adjusted EBITDA margin of 30% to 31%. TNT revenue is expected to be $43 to $45 million, with an adjusted even and margin rate of approximately $20 billion.
Speaker Change: We expect network revenue to be 325 million to $335 million with an adjusted EBITDA margin of 30% to 31%.
Speaker Change: TNT revenue is expected to be $43 million to $45 million with an adjusted EBITDA margin rate of approximately 20%.
Speaker Change: We expect other revenue of 22% to 25 million with adjusted EBIT margin of high single digits.
Paul Campbell: We expect other revenue of $22 to $25 million, which is just over the margin of high single dividends. Concluding my comments on slide 18, we delivered a strong second quarter and first half result at our above guidance across the board. We grew revenue in all Atleos' core businesses with a focus on increasing transactional, software and services revenue.
Speaker Change: Concluding my comments on slide 18, we delivered a strong second quarter and first half results are above guidance across the board.
Speaker Change: Revenue in all core businesses with a focus on increasing transactional software and services revenue.
Speaker Change: Sequentially expanded margins and generated positive free cash flow.
Paul Campbell: We delivered second quarter adjusted EBITDA of 193 million, and a margin of 17.9%, benefiting from upside-in revenue growth for sales service banking, and upside-in margins for the network business. EBITDA margin rate expanded 250 basis points sequentially. The year-over-year decrease in EBITDA and margin was consistent with our projections that incorporated non-disinergies in higher labour cost. Macro headwinds remained consistent with last quarter, partially offsetting the productivity savings we have become. The second quarter effective tax rate of approximately 18 percent was 200 basis points lower than we projected, due to known discrete tax benefits accelerated from the third quarter.
Speaker Change: We issued Q3 guidance improving sequentially and reiterating our full year guidance mid points with tightened ranges with that operator, please open up the line for questions.
Operator: We sequentially expanded margins and generated positive free cash flow. We issued Q3 guidance, improving sequentially and reiterating our full year guidance midpoints with tightened ranges. With that said, operator, please open up the line for questions. Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker Change: Arginase Speaker phone. Please make sure your mute function is turned off to lighter signatory chocolate net.
Speaker Change: Press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Operator: Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll go first to Matt Summerville with D.A. David...
Speaker Change: We will go first to Matt Summerville with D. A davidson.
Matt Summerville: Thanks, a couple questions first just with respect to the balance sheet. You mentioned you may embark upon some sort of re debt refinancing. This fall can you remind us what your cash interest expenses on an annual basis, and where you think.
Timothy Oliver: Thanks. A couple questions. First, just with respect to the balance sheet, you mentioned you may embark upon some sort of debt refinancing this fall. 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, what that could look like relative to the 9-4? And then similarly, I think with respect to your comments on buyback in dividends, what leverage level would you need to see to start entertaining those ideas again? And then I have a follow-up. Paul, I'll take the first one, and I'll let you take the second one. I'll take the second one.
Speaker Change: Ultimately your new weighted average cost of debt what that could look like relative to the nine four and then similarly.
Paul Campbell: 73.7 million shares. Putting it together, we drove second quarter, diluted adjusted earnings per share of 81 cents and generated approximately 16 million adjusted free cash flow in the quarter. Moving to slide 10, self service banking is our largest business and is comprised of a stable global install base of approximately 520,000 of our 600,000 ATM units. These 520,000 units primarily generate recurring revenue from soft services and software. We are transforming the business by leveraging our network infrastructure capabilities to deliver a moderate range of services to our customer and a more comprehensive out source services model.
Speaker Change: I think with respect to your comments on buyback and dividends what leverage level would you need to see to start entertaining those ideas again, and then I have a follow up.
Speaker Change: Yeah.
Speaker Change: Paul I'll take the first one and I'll, let you take the second one.
Timothy Oliver: You can take the first one on debt cost and the potential relief from refinancing. I think on the second half of that question, three times leverage is probably where we want to get to. We've talked about getting to three times earnings per share by the midpoint of next year. We think we can get there more quickly if we don't pay a dividend or we don't return cash to shareholders, either as a dividend or a share of purchase. A share of purchase authorization would require action by our board. We've had one in the past.
Speaker Change: So I'll take the second one you take the first one on the <unk>.
Paul: That cost and the potential relief from refinancing from.
Speaker Change: I think on the second half of that question three times three times leverage is probably where we want to get too that we've talked about getting to three times. The midpoint of next year. We think we can get there more quickly if we don't.
Paul Campbell: Self service banking had a solid second quarter with financial results above our guided range. Starting in the upper left, revenue grew 3 percent year over year to 673 million, including 12 percent growth in recurring revenue to a new high of 63 percent of segment revenues. The recurring revenue growth reflects the continued success of our strategy to drive more revenue from a global install base of ATMs, led by 18 percent growth in software and 5 percent growth in services.
Speaker Change: Pay a dividend or we don't return cash to shareholders, either as a dividend or a share repurchase or share repurchase.
Speaker Change: Authorization would take action by our board we've had one in the past.
Speaker Change: I think it was a it was a very compelling.
Timothy Oliver: I think it was a very compelling choice last quarter when our stock was in the $22 range. I still believe we're undervalued, but not as undervalued. I think once we get down to three times, which should be sometime in the first half of 2025, we should reinitiate this discussion. Paul, as you take the first one.
Speaker Change: Last quarter when our stock was in the $22 range I still believe we're undervalued, but.
Speaker Change: But not not as undervalued, so I would.
Speaker Change: I think once we get down to three times, which should be sometime in the first half of 2025 that we could initiate this discussion.
Paul Campbell: The continued growth of our ATM as a service solution resulted in a decrease in upfront revenue hardware line due to revenue shifting to ATMs as a service bucket being recognized right away over the contract period. That said, we had a higher than expected hardware orders in the quarter, particularly for a recycling product, giving us a robust backlog that increased our segment revenue expectations for the second half. Second quarter adjusted EBITDA of 158 million benefited from the strong growth in high margin software revenue and productivity initiatives, which offset the previous mentioned macro cost headwinds.
Paul you take the first one.
Paul: Yes. Thank you Tim and thank you match the annual interest cost is between $2 $95 million to $205 million.
Paul Campbell: Yeah, thank you. Thank you, Tim. And thank you, Matt.
Speaker Change: In 2024.
Speaker Change: We have roughly $3 billion of debt around 750 of that term loan B, which is no calls through the end of Q3 and that's callable at the end of Q2. So that is our highest cost debt I still surplus 485.
Speaker Change: That's the that would probably looking to refinance just the 750 up to $3 billion.
Paul Campbell: On a year over year basis, EBITDA was down approximately $50 million, primarily due to anticipated synergies, higher labor costs and the impact of one-time hardware sales shifting to ATMs as a service in amortized over future years. Adjusted EBITDA margin was 24 percent compared to 27 percent in the prior year. Moving to the bottom of this slide, KPIs continued a positive trajectory in the second quarter. The mix of recurring revenue climbed to 63 percent for the second quarter, up approximately 500 basis points year over year and 100 basis points sequentially on growth in the current software and services revenue in addition to the incremental impact of ATMs as a service revenue.
Paul Campbell: The annual interest cost, Matt, is between $295 and $305 million in 2024. We have roughly $3 billion of debt. Around $750 of that is a term loan B, which is non-callable through the end of Q3, and then it's callable at the end of Q3.
Speaker Change: We don't know yet what the bill.
Paul Campbell: So that's our highest cost debt so far, plus $485. So that's the debt we're probably looking to refinance, Matt, just the $750 of the $3 billion. We don't know yet what the interest would be. There are a number of different options we can take when we're refinancing that, be it replacing with more term loan A, there's options around converts, and there's just repricing
Speaker Change: Interest would be there's a number of different options. We can take all the refinancing that would be replacing.
Speaker Change: More turmoil.
Speaker Change: Options around inverse and this just replacing that debt. So we are working with our bank partners to come up with the best Optionality of stress for interest rates that are available at a time, we can refinance.
Speaker Change: Got it and then with respect to the hardware side of self service banking sounds like there's a pretty good chance you actually see some unit growth in 'twenty for over 23 based on some of the order comments you had does this give you an early read on how you're thinking about 25.
Paul Campbell: So we're working with our bank partners to come up with the best option for us for interest rates that are available at a time when we can refinance. Got it. And then with respect to the hardware side of self-service banking, sounds like there's a pretty good chance you actually see some unit growth in 24 over 23 based on some of the order comments you had. Does this give you an early read on how you're thinking about the big picture for that portion of the business? And what inning would you say we're in with respect to this recycling proliferation in the western part of the world, particularly in North America? Yeah, I'll take this one.
Paul Campbell: Annual recurring revenue or ARR is up 11 percent year over year and up 6 percent sequentially. Another proof point that our strategy of driving more recurring revenue from our existing install base is progressing. On slide 11, we have introduced new information disclosures for the ATMs as a service business to help assess and model this important growth opportunity and the broader sales service banking sector. On the top left of this slide, ATM is a service group 31% year-over-year to 47.9% for the second quarter on an additional approximately 4,100 incremental active units.
Speaker Change: Picture for that portion of the business and what inning would you say we're in with respect to this recycling proliferation in the western part of the World, particularly in North America.
Speaker Change: Yeah, I'll I'll take this one.
Speaker Change: I feel good about demand for hardware. This year, our demand is going to be better than we anticipated beginning of the year. The order book is very strong, particularly in the second half of the year.
Timothy Oliver: I feel good about demand for hardware this year. Our demand is going to be better than we anticipated at the beginning of the year. The order book is very strong, particularly in the second half of the year.
Timothy Oliver: Our recycler product will compete exceptionally well going into next year. And I think that from a hardware perspective, both because demand feels pretty good, it feels good not just for recycling but for all things ATM, I think we're at somewhat of a sweet spot in the refresh cycle at this point. I think we're in the third or fourth inning.
Speaker Change: Our recycler product will compete exceptionally well going into next year and I think that from a hardware perspective, both because demand feels pretty good it feels good not just for recycling, but for all things ATM.
Paul Campbell: On the right, gross profit increased 37% year-over-year to 14.4 million, consistent with the ramp in the ATM as a service revenues. Moving to the bottom of this slide, ATM is a service KPIs also continued a positive trajectory in the second quarter. ATM is a service active units increased year-over-year and sequentially to over 22,000 units. Customer interest remains strong and the backlog also increased for the second quarter to over 4,000 units. Adding to Tim's earlier comments, we acknowledge that the pace of ATM and service activations has been slower this year than we originally projected.
Speaker Change: I think we're at that somewhat of a sweet spot at in the refresh cycle at this point.
Speaker Change: I think we are in the third inning fourth inning I think it is going to play out more slowly than the 2019 bubble but.
Timothy Oliver: If you think about, I'll sneak in one more, if you think about the network side of the business and kind of the growth algorithm there, if Liberty X is sort of lower for longer, and back of the envelope, that to me looks like a two, maybe three percentage point drag on network organic growth this year, so first one if you could confirm that, but I want to think about the long-term growth algorithm outside of Liberty.
Speaker Change: I think 2020.
Speaker Change: Five for us should be very very good hardware year.
Speaker Change: Yeah.
If you think about I'll just sneak in one more if you think about the network side of the business and kind of the growth algorithm there.
Paul Campbell: That is primarily because we maintained ROI discipline on some large deals expected to close early this year that did not meet our return on investment hurdle rate. That said, we still have line of sight to finishing the year with our targeted 30,000 active units. On top of the 4,000 unit backlog, there are a few large service-oriented deals with existing customers that we have high degree of confidence will close and activate this year.
Speaker Change: If liberty extra sort of lower for longer and back of the envelope that to me it looks like a two maybe three percentage point drag on our network.
Our organic growth. This year. So first one if you could confirm that but I want us to think about the long term growth algorithm outside of Liberty how much.
Speaker Change: <unk> growth can you get from incremental withdrawal transaction.
Paul Campbell: The last 12 months average revenue per unit, ARPU, continued to build during the second quarter reaching 8,600 dollars per unit up from 8,000 in the prior year. The increase in the ARPU is largely a result of adding customers in higher yield regions to a base of units with a large mix of cash dispensers in India where the yield is lower. It is important to keep in mind that there is a lot of variability in ARPU between geography, the product type, the set of services included and the institution size.
Timothy Oliver: How much growth can you get from incremental withdrawal transaction volume gains versus continuing to add to the transactional side? I guess I'm trying to make sure I understand which is the bigger underlying driver of incremental growth from here. Yeah, it's going to be withdrawal transactions in the shorter run. But the new transaction types we're describing are relatively small compared to the whole. And so, despite the fact they're growing very rapidly, they're not moving the whole business that much.
<unk> gains versus continuing to add to the transactional side I guess I'm trying to make sure I understand which is the bigger underlying driver of incremental growth from here in network.
Speaker Change: Yes, it's going to be the withdrawal transactions in the shorter run the new transaction types. We are describing are relatively small compared to the whole and so despite the fact, they're growing very rapidly there not moving to the whole business that much.
Paul Campbell: For example, India favors less advanced units generating much lower revenue and profit than North America where institutions generally prefer a higher specification multifunction unit with a fully outsourced model that has a stronger yield. The previous mentioned backlog of 4,000 units are more heavily weighted to North America and Europe with backlog ARPU above $14,000 and a higher margin profile. Demand for ATMs of services broad-based to cost all regions and particularly healthy in North America which we expect to become an increasing mix of our ATMs of service unit installed base.
Timothy Oliver: Fast forward a couple of years, and I think deposit transactions and some of our cardless, pinless transactions might be still growing very rapidly and be contributing significantly to the overall growth rate of the business. But I think for the next several quarters, it's going to continue to be really robust growth in our withdrawal transactions. Thanks.
Speaker Change: Forward, a couple of years, and I think deposit transactions and.
Speaker Change: Some of our card list painless transactions might be significantly still growing very rapidly and be contributing to the overall growth rate of the business. So but I think for the for the next several quarters. It is going to continue to be really robust growth in art and our withdrawal transactions.
Speaker Change: Thanks.
Paul Campbell: ARR continued a consistent upward trend in the second quarter growing 30% year over year to almost 200 million. Moving to the network segment on page 12, our network utility banking strategy is focused on offering financial institutions and retail partners access to industry leaving scale of our own that operated ATM network which enables increased utilization of network driving higher ARPU across approximately 80,000 units base of ATMs. The network segment had another strong quarter starting on the top left revenue increased 6% year over year to 326 million with 10% growth in withdrawal volumes partially offset by lower volumes for Liberty X transactions which are lower margin.
Speaker Change: And as a reminder to ask a question that is star one on your telephone keypad.
Operator: Bye. And as a reminder to ask a question, that is star 1 on your telephone keypad. We'll go next to George Tong with Goldman Sachs. All right, thanks. Good morning.
Speaker Change: We will go next to George Tong with Goldman Sachs.
George Tong: Hi, Thanks, good morning.
You're continuing to target 30000, ATM as a service units.
George Tong: You're continuing to target 30,000 ATMs as a service units by 4Q of this year compared to about 22,000 in the second quarter and cited strong visibility into large contracts that will likely close in the second half. Can you describe where these large contracts are coming from and your confidence around the timing of implementation? Paul, why don't you take that?
George Tong: Q of this year compared to about 22000 in the second quarter inside its strong visibility into large contracts that will likely close in the second half can you describe where these large contracts are coming from and your confidence around the timing of implementation.
George Tong: Yes.
Paul Campbell: With withdrawal volumes increased 8% for North America and 11% for international transactions. Also of note we continue to execute our nationwide deposit strategy by adding a second top tier US bank to our deposit network. Deposit transactions continue to accelerate growing approximately 170% year over year and 50% over Q1 but from a small bit. On the right, Adjusted EBITDA of 101 million was also above the high end of our guidance range and increased 11% year-over-year on revenue growth and margin expansion.
George Tong: Paul why don't you take that.
Paul Campbell: Yeah, certainly. Thank you for the question, George. Yeah, we have a line of sight.
Paul: Yes, certainly.
Thank you for the question George Yes, we are we have line of sight. These are customers. We have today, Josh that have moved somewhat along the continuum, Dave outsourcing services to US today, we are looking to convert them to <unk>.
Paul Campbell: These are customers we have today, George, that have moved somewhat along the continuum. They've outsourced some services to us today. We're looking to convert them to an ATM as a service structure either late in the third quarter or early in the fourth quarter. So we have a good line of sight.
Speaker Change: <unk> has established structure.
Speaker Change: Either late third quarter or at least fourth quarter. So we have good line of site specific customers. It's negotiations that are.
Paul Campbell: It's specific customers, it's negotiations that are deep into the closing cycle. But I want to add there... I'd love to add there that we're not going to chase units. We could chase units and be less profitable and have returns that are not what we've been targeting. We're going to continue to participate in transactions in lower-cost markets, but it's unlikely the trend we're seeing right now will allow us to be as competitive there.
Speaker Change: Deep into the closing cycle.
Speaker Change: Hey, I want to add there.
Paul Campbell: Adjusted EBITDA margin expanded 160 basis points year-over-year to 31%, primarily due to a lower mix of Liberty X revenues that kind of lower margin offset by growth in higher margin all points transisons. The key metrics at the bottom of the slide highlight the validity and execution of our strategy. On the left, you can see our ATM portfolio has been stable over the past year finishing the quarter at approximately 81,000 units. The small reduction in unit count is the result of planned retail footprint optimization to remove units with lower profitability.
George Tong: Uh huh.
Speaker Change: I'd love to add there that we're not going to chase units.
Speaker Change: We could chase units and be less profitable than have returns that are not what we've been targeting we're going to continue to.
Speaker Change: Participate in transactions to lower cost markets, but it's unlikely the trend we're seeing right now will allow us to be as competitive there. So we're gonna do youre going to see more smaller deals.
Paul Campbell: So you're going to see more smaller deals in the U.S. and Western Europe. It takes a little longer for those to accumulate, but we're not going to chase that metric of 30,000 simply because we want to hit that metric. We'll do it profitably, or we won't do it. As Paul said, we've got a line of sight to get to 30,000 units.
Speaker Change: In the U S and Western Europe.
Speaker Change: It takes a little longer for those to accumulate but we're not going to chase that metric of 30000.
Paul Campbell: The chart on the right shows the last 12 months average revenue per unit ARPU was up 10% year-over-year in the second quarter. As Tim noted, we made significant progress on multiple strategic initiatives in the second quarter that led the foundation for future growth. Moving to slide 13, starting on the left with a summary of our segment revenue and EBITDA results for the total company. Technology and telecom segment revenue and adjusted EBITDA were slightly up year-over-year due to new customers and expanding services.
Speaker Change: Simply because we want to hit that metric will do it profitably or we won't do it as Paul said, we've got we've got line of sight to get to 30000 units.
Speaker Change: There's I.
Speaker Change: I guess theres two relatively large transactions in there that we think will get closed or their customers. We've spoken about before you would know them, but we're not in a.
Timothy Oliver: I guess there's two relatively large transactions in there that we think will get closed. They're customers we've spoken about before. You would know them, but we're not on a mad tear trying to get that unit number up. Got it. That's a full contact.
Paul: Mad tear trying to get that unit number up.
Speaker Change: Got it that's helpful context.
George Tong: Related to that, you're leaning more and more into your ATM as a service light strategy. Can you talk more about that strategy? How many ATM as a service light implementations were there in the quarter? And if the strategy alters your medium-term target, assuming you continue down this path of referring light implementations. That is certainly one of the reasons why we have reigned in our expectations, because we're not inclined to want to own the device unless the return is significant. And in some deals, particularly in India, they are not significant enough.
Speaker Change: Related to that you're leaning more and more into your ATM as a service light strategy can you talk more about that strategy, how many ATM as a service light implementations there were in the quarter.
Paul Campbell: As a reminder, the other segment represents legacy NCR voics, exit geographies and commercial agreements between NCR Adliors and NCR voics. The other segment results were below our expectations due to accelerated exits from TSA and lower manufacturing demand from NCR voics. We expect this weakness to continue. An allocated corporate cost decreased 5% to 77 million with the primary contributors being the movement of some cost departments into self-service banking business segments, expense optimization and a difference between historical cost allocation methodologies under a private accounting.
Speaker Change: If this strategy alters your medium term targets, assuming you continue down this path of preferring white implementations.
Speaker Change: That is certainly one of the reasons why we have rained in our units expectation just because.
We're not inclined to want to own the device unless the return is significant and in some some deals, particularly in India. They are not.
Speaker Change: Not significant enough to return to a disappointing and so we'd rather not on the device.
Timothy Oliver: The returns are disappointing, and so we'd rather not own the device. It's really been our customers' preference thus far that has caused the strategy to be less capital intensive. We are, admittedly, prioritizing transactions that are asset light, and we've been able to take our free cash flow number for the guidance for the year up a bit, as Paul described, because we're not spending nearly as much as we thought we would to drive these strategies.
Paul Campbell: On the slide 14 is another review of new information that we're providing to help investors assess and model the company. These are not KPIs that we currently use internally, but have been asked for this information by a number of investors and will build this up to a row in five quarters of your time. The key takeaway from this slide is to show the progress of maximizing the monetization of each unit of a 600,000 unit fleet by attaching more transactions, services and software, regardless of which segment drives the additional revenue.
Speaker Change: It's really been a customer's preference thus far that has caused the strategy to be less capital intensive.
Speaker Change: Admittedly.
Speaker Change: Prioritizing transactions that are asset light.
Speaker Change: And we've been able to take our free cash flow number for the guidance for the year up a bit as Paul described because we're not spending nearly as much as we thought we would to drive the strategy. So I E.
Timothy Oliver: So I think part of it is a choice that we're making, and part of it is that our customers understand that their cost of capital is significantly lower than ours, and they would just as soon own the devices themselves and let us do what we do well, which is serve those machines.
Speaker Change: Part of it is a choice that we're making and part of it is our customers understand that their cost of capital is significantly lower than ours and they just as soon oh and the devices themselves and let US do what we do well, which is a surface machines.
Paul Campbell: On slide 15, we present a breakdown of free cash flow for the quarter and a snapshot of our financial position at the end of the second quarter. The key takeaway in this slide for the second quarter is that we generated 16 million of free cash flow and leverage was essentially unchanged 3.5 times. Year-to-date we generated approximately 85 million of free cash flow, putting us on pace to meet our full-year net leverage target of 3.2 times.
Speaker Change: Got it that's helpful. Thank you.
Timothy Oliver: Got it. That's helpful. Thank you. And at this time, there are no further questions. Operator, thank you. I think that concludes our call. I appreciate everyone joining tonight, and I know that Paul and his team will be standing by to take any questions that you have today or tomorrow. Hope all's well. Bye. Thanks, everyone. This does conclude today's conference. We thank you for your participation. [music]
Speaker Change: And at this time there are no further questions.
Paul Campbell: On the bottom of this slide, year-to-date our net debt is down by 45 million and net leverage ratio drops from approximately 3.7 times to 3.5 times. We have ample liquidity of 672 million at the end of the second quarter. Expanding on Tim's comments for capital allocation, the company's strong fundamentals and cash flow generation can comfortably support more than our current debt, which the market has clearly shown with our 2029 notes trading at almost 110 percent of power value.
Speaker Change: Operator, Thank you I think that concludes our call I appreciate everyone, joining tonight and I know that.
Speaker Change: Paul and his team will be standing by to take any questions that you have.
Speaker Change: Today, or tomorrow, but bodes well, but.
Speaker Change: Thanks, everyone.
Speaker Change: This does conclude today's conference we thank you for your participation.
Speaker Change: [music].
Paul Campbell: That said, our internal analysis and feedback from investors and the board confirmed that a more optimal leverage level is our priority. Therefore, we have decided that debt reduction is the best use of free cash flow to increase shareholder value. We will continue to evaluate this position and adjust for development's approval, early. 7 July 2016 and our total company Financial Outlook for Q3 and full year 2024. Starting with the full year, for revenues the midpoint of the range is unchanged at 4.3 billion dollars.
Speaker Change: Yeah.
Speaker Change: [music].
Paul Campbell: We tighten the range to 4.26 to 4.34 billion based on solid first half revenues plus a robust order backlog and sales pipeline for the second half. We reaffirmed the outlook for the adjusted EBITF of $770 to $800 million. This reflects the first half adjusted EBITF that was above midpoint for the quarterly guidance ranges offset by uncertainty with macro economic risk due to softening economic trends globally and geopolitical risk. Moving down to P&L, there are no material changes to the outlook below the line, which leaves diluted adjusted EPS unchanged at $2.90 to $3.20.
Paul Campbell: Based on the strong first half free cash flow, second half EBITF outlook and effective capex and working capital management, we narrowed the free cash flow outlook to $190 to $220 million, raising the midpoint by $5 million. For the third quarter, we expect total company revenue in the range of $1.045 billion to $1.075 adjusted EBITF at $195 to $205 million and adjusted EPS of $1.71 to $0.81. We expect free cash flow to be between $40 and $60 million.
Paul Campbell: Note that free cash flow conversion should improve sequencer on higher EBITF and having no semi-annual cash interest expense payments. We highlighted other relevant assumptions for the consolidated Q3 and full year outlook in the earnings presentation, including interest expense, effective fact rate and share count. Moving to slide 17 and the segment level outlook, there are movements between the segments as we re-calibrate based on earnings from the first half and come back along in cost profiles.
Paul Campbell: Starting with the full year outlook, we modestly increased and narrowed the sales service banking revenue outlook range to $2.655 billion to $2.690 billion, reflecting better growth across product lines, including strong hardware revenue for improved backlog exiting Q2. We lowered the outlook range for adjusted EBITF margin to $23 to $24% due to higher than previously expected service costs and shipping costs that will dampen the impact of our continuous improvement initiatives. We modestly decreased and narrowed the network revenue outlook range to $1.28 billion to $1.31 billion, primarily due to continuous softness in the liberty business.
Paul Campbell: We increased outlook range for adjusted EBITF margin to $30 to $31% reflecting the lower mix of liberty revenue that calls a lower margin than the overall segment. We're in the process of implementing plans to remedy the limited challenges. TNT revenue is now expected to be 188 to $197.9 with adjusted EBITF margin of approximately 20%. Moving to the other segment, last week Voix announced an asset divestiture and corporate reorganization. We expect to retain most of the project second half EBITF are awaiting to Voix, but the financial implications are not yet clear.
Paul Campbell: Based on volume interlocks with Voix, we've reduced revenue expectations from this segment by $43 million at the midpoint. Other revenue for the year is now expected to be $137 to $143.9 with an adjusted EBITF margin of approximately 10%. We expect sales service banking revenue to be 655-670-9 with adjusted even a margin rate of 24-25%. We expect net worth revenue to be 325-335-9 with an adjusted even a margin of 30-31%. TNT revenue is expected to be 43-45-9 with an adjusted even a margin rate of approximately 20%. We expect other revenue of 22-25-9 with an adjusted even a margin of high single digits.
Paul Campbell: Including my comments on slide 18, we delivered a strong second quarter and first half result at or above guidance across the board. We grew revenue in all atleos' code businesses with a focus on increasing transactional, software and services revenue. We sequentially expanded margins for generated positive free cash flow. We issued Q3 guidance improving sequentially and reiterating our full-year guidance midpoint with tighten ranges.
Operator: With that, operator, please open up the line for questions. Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using the speaker phone, please make sure your mute function is turned off to a liar signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions.
Matt Somerville: We'll go first to Matt Somerville with DA Davidson. Thanks. A couple questions. First, just with respect to the balance sheet, you mentioned that you may embark upon some sort of read debt refinancing this fall. Can you remind us what your cash interest expenses on a manual basis and where you think ultimately your new weighted average cost of debt, what that could look like relative to the 9-4? And then similarly, I think with respect to your comments on buyback indivitance, what leverage level would you need to see to start entertaining those ideas again?
Matt Somerville: And then I have a call. Paul, I'll take the first one. I'll let you take the second one. I'll take the second one. You take the first one on the debt cost and the potential relief from refinancing. I think on the second half of that question, three times leverage is probably where we want to get to. We've talked about getting to three times the midpoint of next year. We think we can get there more quickly if we don't pay a dividend, or we don't return cash to shareholders, either as a dividend or a share of purchase.
Matt Somerville: A share of purchase authorization would take an action by our board. We've had one in the past. I think it was a very compelling choice last quarter when our stock was in the $22 range. I still believe we're undervalued, but not as undervalued.
Timothy Oliver: So I think once we get down to three times, which should be some time in the first half of 2025 that we'd re-initiate this discussion. Paul, would you take the first one? Thank you, Tim. Thank you, Matt. The annual interest cost, Matt, is between $295 and $305 million in 2024. We have roughly $3 billion of debt. Around $750 of that is a term loan B, which is no call through the end of Q3, and that's callable at the end of Q3.
Timothy Oliver: That's a highest cost debt, a silver plus $485, so that's the debt we're probably looking to refinance, Matt, just the $750 of the $3 billion. We don't know yet what the interest would be. There's a number of different options we can take when we refinancing that. We have replacing with more terminators, options around converts, and there's just reprising the debt. So we're working with our bank partners to come up with the best optionalities for us for interest rates that are available at the time we can refine, and then with respect to the hardware side of self-service banking, sounds like there's a pretty good chance to actually piece some unit growth in 24 over 23 based on some of the order comments you had.
Timothy Oliver: Does this give you an early read on how you're thinking about 25 big picture for that portion of the business and what ending would you say we're in with respect to this recycling proliferation in the western part of the world particularly in North America? Yeah, I'll take this one. I feel good about demand for hardware this year. Our demand is going to be better than we anticipated beginning of the year. The order book is very strong, particularly in the second half of the year.
Timothy Oliver: Our recycler product will compete exceptionally well going into next year and I think that from a hardware perspective both because demand feels pretty good, it feels good not just for recycling but for all things ATM. I think we're at that somewhat of a sweet spot in the refresh cycle at this point. I think we're in the third inning, the fourth inning.
Timothy Oliver: I think it's going to play out more slowly than the 2019 bubble but I think 2025 for us should be a very very good hardware year. If you think about, I'll just sneak in one more. If you think about the network side of the business and kind of the growth algorithm there, if liberty acts just sort of lower for longer and back at the envelope that to me looks like a two maybe three percentage point drag network organic growth this year.
Timothy Oliver: So first one if you could confirm that but I want to think about the long term growth algorithm outside of liberty. How much growth can you get from incremental with draw transaction volume gains versus continuing to add to the transactional set? I guess I'm trying to make sure I understand which is the bigger underlying driver of incremental growth from here in network. It's going to be the withdrawal transactions in the shorter run.
Timothy Oliver: The new transaction types were describing are relatively small compared to the whole and so despite the fact they're growing very rapidly they're not moving the whole business that much. Fast forward a couple of years and I think deposit transactions and some of our cardless pinless transactions might be significantly still growing and very rapidly and be contributing significantly overall growth rate of the business. So but I think for the for the next several quarters it's going to continue to be really robust growth in our in our withdrawal transactions. And as our reminder to ask a question let us start one on your telephone keypad.
George Tong: We'll go next to George Tongue with Goldman Sachs. Hi thanks good morning. You're continuing to target 30,000 ATM as a service units by 4Q of the year compared to about 22,000 in the second quarter and cited strong visibility into large contracts that will likely close in the second half. Can you describe where these large contracts are coming from and your confidence around the timing of implementation? Paul, why'd you take that? Yeah, certainly.
George Tong: Thank you for the question, George. We have a line of sight. These are customers we have today, George, that have moved somewhat along the continuum. They've outsourced some services to us today, and we're looking to convert them to a ATM as a service structure, either late third quarter or early fourth quarter. We have good, like, a specific customer as it's negotiations that are deep into the closing cycle. I'd love to add there that we're not going to chase units.
George Tong: We could chase units and be less profitable and have returns that are not what we've been targeting. We're going to continue to participate in transactions and lower cost markets, but it's unlikely the trend we're seeing right now will allow us to be as competitive there. You're going to see more smaller deals in the US and Western Europe. It takes a little longer for those to accumulate, but we're not going to chase that metric of 30,000, simply because we want to hit that metric.
George Tong: We'll do it there's I guess there's two relatively large transactions in there that we think will get closed. Other customers we've spoken about before you'd know them, but we're not in a mad tear trying to get that unit number up. Got it. That's a full contact.
Paul Campbell: Related to that, you're leaning more and more into your ATM as a service light strategy. Can you talk more about that strategy? How many ATM as a service light implementations there were in the quarter? And if the strategy alters your medium-term target, assuming you continue down this path of referring light implementations? That is certainly one of the reasons why we have rained in our unit's expectation is because we're not inclined to want to own the device unless the return is significant, and in some some deals particularly in India, they are not significant and not the returns are disappointing and so we'd rather not own the device.
Paul Campbell: It's really been our customers preference thus far that has caused the strategy to be less capital intensive. We are admittedly prioritizing transactions that are asset light, and we've been able to take our free cash flow number for the guidance for the year up a bit as Paul described because we're not spending nearly as much we thought we would to drive these strategies. So I think part of it is a choice that we're making and part of it is our customers understand that their cost of capital is significantly lower than ours and they just assume own the devices themselves and let us do what we do well which is a service machines.
Paul Campbell: Got it. That's helpful. Thank you. Another time there are no further questions. Operator, thank you. I think that concludes our call. I appreciate everyone joining tonight, and I know that Paul and his team will be standing by to take any questions that you have today or tomorrow. Hope all's well. Bye. This does conclude today's conference.
Operator: We thank you for your participation.