Q4 2024 NCR Atleos Corp Earnings Call
Thank you for standing by you are currently on hold for the NCR at Leos fourth quarter and full year earnings call. At this time, we are assembling today's audience and plan to be underway. Shortly we appreciate your patience and ask that you. Please remain on the line.
[music].
Good day and welcome to the NCR at Leos fourth quarter and full year earnings call.
Today's conference is being recorded.
At this time I would like to turn the conference over to Brendan Medrano, Vice President of Investor Relations. Please go ahead.
Good morning, and thank you for joining the at least 2020 for full year and fourth quarter earnings call.
Tim: Joining me on the call today are Tim all of her CEO, Andy Wamser, CFO, Stuart Mckinnon, CLO and Paul Campbell.
Tim: Tim will start this morning, with an overview of the company's performance this year.
Tim: Update on strategic progress and priorities for 2025.
Tim: Andy will follow with a review of financial results and our 2025 financial outlook that we'll move to Q&A.
Tim: 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 well include expect and words of similar meaning.
Tim: These statements reflect our current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially from those expectations.
Tim: These risks and uncertainties are described in today's materials.
Tim: And our periodic filings with the SEC, including our annual report.
Tim: Also in our review of results today, we will refer to certain non-GAAP financial measures, which the company uses to measure. Its performance. These non-GAAP measures are described and reconciled to their GAAP counterparts in our presentation materials and on the Investor Relations website.
Tim: A replay of this call will be available later today on our website investor Dot NCR at layoffs dotcom.
Tim: With that I will turn the call over to Tim. Thank you Brendan and thank you to everyone for joining us on this call. This morning for those following along on the presentation from the Investor Relations website, we will start today on slide five I will start this morning by reminding you of the compelling story.
Speaker Change: Are you on your operational performance and strategic progress in 2024, and then previewing our 2025 outlook I'll, then hand, it off to Andrew Wamser to review the financial results in a 2025 financial outlook Andy joined out there also as CFO in late January and brings the experience that includes CFO roles at public companies and investment banking I'm very pleased to have Andy on the team.
Speaker Change: I'd also like to thank Paul Campbell, who recently stepped down from the CFO role for its 37 years with NCR Navios. He's continued to work with a company to facilitate the closing that's all.
Speaker Change: Everything's Oxley process for 2024.
Speaker Change: And importantly to ensure a smooth transition for the finance organization I.
Speaker Change: I am grateful to Paul for both his significant contributions to our company over the almost four decades and more personally.
Speaker Change: His support of me both of my overall and in my new role without Leo CEO, reflecting on our first full year as an independent company and our best quarter, yet it is impossible to overstate without layoffs team has accomplished one.
Speaker Change: One year in our employees are engaged and energized our customers recognize our return to best in class service levels and appreciate our reinvigorated innovation efforts our strategic.
Speaker Change: Progress is pushing our revenue per ATM higher and our financial performance has been solid and steady and nearly every regard 2024 was an outstanding year for Atmos I am proud to report the company's impressive fourth quarter and full year results today.
Speaker Change: Like being a stand alone publicly traded ATM centric company for about five quarters.
Speaker Change: Equity investors share of mind and daily trading volumes and the outflows are still too low presuming that many investors are new to the story I think it is valuable on these calls to provide a quick description of the company and the compelling opportunity we see for all of our constituencies, but with particular focus on investors, while our employees customers partners and communities at all.
Speaker Change: Recognize the compelling outlook for at least the company remain significantly undervalued relative to our peer companies and our strong performance has not translated into competitor against an enterprise value since separating from legacy NCR through spin transaction Atmos is now a pure play independent company with a leadership position in self service banking a clear strategy.
Speaker Change: And we've begun building a track record of strong financial performance and predictable free cash flow generation.
Speaker Change: And installed in service fleet of approximately 600000 Atms around the world.
Speaker Change: <unk> approximately 80000 that we own and operate in our own networks and a global environment that continues to demonstrate steady cash based consumer transactions and a stable installed base of ATM hardware.
Speaker Change: Our growth will come from generating more revenue for Atmos for every machine that we service and support whether that's in providing higher quality more efficient and more comprehensive services to our financial institution clients or but driving more transaction volume across our own network machines located at Blue chip retail locations. Both of these strategies are fueled by our customers desire.
Speaker Change: To improve financial access for their customers, while outsourcing more of their cash ecosystem. We service both growth vectors from a common infrastructure that is unmatched in scale is leverages bull.
Speaker Change: As World class as global banks continue to seek to improve their customers experience in the most cost effective way the importance of self service devices is increasing.
Speaker Change: As a result, our customers are reinvesting back into their retail banking footprint and embracing shared financing utilities for them. This strategy will result in lower cost higher quality better consumer experience broader reach and higher foot traffic.
Speaker Change: For <unk> It will drive higher revenue growth increased profitability from both scale and a richer revenue mix, a predictable and growing free cash flow.
Speaker Change: Turning to slide six for a review of 'twenty 'twenty four 'twenty 'twenty four it was a year of unmitigated success Rallyist. After completing a complex corporate separation to October of 2023 that required us to be myopically focused on the completion of that transaction, we quickly redirected our focus to establishing a new independent company with a clear growth strategy.
Speaker Change: And engage global employee base of nearly 20000 people at satisfied customers that allow us to be trusted strategic partners for the full year 'twenty 'twenty four we generated over $4 $3 billion in revenue three.
Speaker Change: $3.22 of adjusted EPS over $242 million of adjusted free cash flow all in line or above the financial targets, we set out for the year margin expanded year over year in.
Speaker Change: An increase sequentially in each quarter.
Speaker Change: Thing from an accretive revenue shift mix towards services, coupled with cost productivity initiatives and accelerated across the year as we begin 2025, our strategy is being validated.
Speaker Change: The man, who more capable atms with enhancements like cash recycling or tap capability. Our biometric authentication is accelerating banks and retailers are increasingly acknowledging the commercial logic of outsourcing noncore ATM services capable operators like obvious and the demand for shared furniture utilities that provide immediate and low cost coverage away from traditional.
Speaker Change: Bank branches is growing globally.
Speaker Change: Moving to slide seven and the self service banking business. This is primarily a service business comprised of global installed base of over 500000, Atms that we sell to our financial institutions with a software subscription and then service and support over time.
Speaker Change: Traditionally those services were centered on repairs and maintenance, but increasingly banks are opting to outsource all of the other service necessary to run the ATM to others full year 'twenty 'twenty four financial results were in line or slightly above expectations revenue grew at a healthy mid single digit pace the services and software the primary growth drivers and resulted in 9% grow.
Speaker Change: And recurring revenue a T M. At the service contributed one full point of top line growth of the year from a profitability perspective, direct and indirect cost savings initiatives generate over $100 million in gross savings, which eliminated split related to synergies and more than offset inflation and unanticipated expenses like the red Sea shipping disruption.
Speaker Change: This productivity coupled with a more advantageous revenue mix resulted in approximately 400 basis points of margin expansion from the first quarter through the fourth over the past year, we committed considerable resources to product and service quality and go to market execution to support our strategy service levels began to improve quickly and by the end of 'twenty 'twenty four.
Speaker Change: We are at multiyear highs we were pleased to see our commitment to service acknowledged externally in February 20th twenty-five Atmos was awarded the a T. M. I a outstanding Service award recognizing our company for excellence in Technology service and leadership and best practices. We also relaunched the product innovation effort and previewed concept machines that we.
Speaker Change: <unk> to reflect our customers' reactions to them and then ultimately commercialized the top strategic priority for this business remains capturing more comprehensive service revenue for every machine that we serve and the support around the world. The 'twenty 'twenty four we generated 27% revenue growth in the ATM as a service full outsourcing product grew software and services overall at 8% a T M.
Speaker Change: As a service exited the year with an a or our board and $20 million. We grew the number of unique customers by 50% of 'twenty 'twenty four and finished the year with over 28000 active devices, we have a robust backlog and a sales pipeline that position us well for 2025, we continue to see appetite across the broad range of financial institutions to outsource all or a portion of it.
Speaker Change: Atheists subject services to a singular provider as discussed in last quarter's call customers see the ATM as a service opportunity as a continuum of outsourced services that can migrate piecemeal in overtime and while we have passed on some large unit count ATM full outsourcing deals in lower cost regions, our backlog continues to grow.
Speaker Change: The quality of that backlog is very high.
Speaker Change: A significant streamlining of our Onboarding organization has sped up implementation for 2025, we expect the ATM as a service business revenue will grow over 40%.
Speaker Change: And then we will exit 2025 with an E. R. R of over $300 million moving to the network segment on slide eight the network segment is our utility banking business that consists of approximately 80000 owned and operated Atms located in Blue chip retail locations. This business performed well in the fourth quarter and for the full year with financial results generally.
Speaker Change: Love our expectations the traditional ATM network revenues were up in the mid single digits for the full year, excluding the decline in our crypto coin Jackson unit Liberty X adjusted EBITDA margin expanded by more than 150 basis points and ARPA grew in each quarter with fourth quarter setting another new high we generate strong top line performance with high <unk>.
Speaker Change: Single digit transaction growth in both the U S and in international markets.
Speaker Change: Fueled by the addition of new high quality banking and retail partnerships, new transaction types and new geographies are all point branded network grew transactions double digits for both the fourth quarter and the full year as the value proposition continued to resonate with retail banking customers looking for convenient safe and low feed channels to conduct.
Speaker Change: Irregular banking activities recently, a top 20 retail bank headquartered in the Midwest executed a new surcharge free partnership agreement that will see them direct their customers to our retail locations, we expanded key commercial relationships and investing in technologies that enable us to conduct the broadest possible range of transactions at our machines, we expanded our PA.
Speaker Change: Hardship with chime during the fourth quarter and we completed the branding of more than 4000, all point Atms in our pharmacy locations now that display the brand of child, many issuers and program managers, including key partners such as capital one PNC and Navy Federal credit Union have upgraded to a more comprehensive all point plus offering that.
Speaker Change: Enables their customers to make cash deposits at our locations. This resulted in almost 200% growth in deposit transactions in 'twenty 'twenty four deposit transactions are profitable for us and typically generate follow on transactions by the consumer we finished the year with an annualized run rate of nearly $1 billion in deposits and we continued to see growth in our ready code product.
Speaker Change: With transaction driving programs at additional partners, such as Lyft ready code as appropriate to many countless card less cash distribution needs and we are in discussion with several other significant partners turning to slide nine to discuss our plans for 2025, a year ago. We laid out three primary goals that were appropriately brought to allow every <unk>.
Speaker Change: And our company to widen their objectives with our company success part of our success in 'twenty 'twenty four is attributable to that continuity of thought and alignment and 2025, we have again communicated new top level objectives that should allow similar alignment and similar success. The first is to grow efficiently accelerating growth, while we're still somewhat constrained.
Speaker Change: By our balance sheet will require judicious allocation of growth capital and operating expense, we will emphasize those growth vectors that drive more immediate returns and are accretive to margin rate and the cash generation. We will also deemphasize some products or regions or even customer sets that are less profitable to allow us to reemphasize others. This.
Speaker Change: Second is to develop a service first culture, we believe service not product is a key to differentiating factor in the ATM industry and in the Kashi ecosystem service already makes up about half of our revenue base and carries higher margins as our strategic plan plays out service revenue opportunities will outpace the overall market growth dynamic.
Speaker Change: Gaining share of wallet through outsource services requires a deep customer trust that can only be achieved through sustained customer excellence and leading service performance.
Speaker Change: A 24 seven always on customer service mindset is essential for long term success and finally, we will embrace simplicity the complexity that we inherited from our former life as part of the legacy NCR is unnecessary and inefficient investment in our people our systems and our processes will make us more nimble make are poised jobs more reward.
Adding and make us much easier to do business with our strategy is simple and our operations need to be as well before I hand over to Andy I want to thank the 20000 at Leos team members for delivering a great first full year through their diligent work the dedication to continuous improvement focus on customer success.
Speaker Change: And a positive collaborative disposition. Thank you for all you did in 'twenty 'twenty four and thank you for accepting the challenge of an even better 2025, the board does get higher but the future is bright with that Andy over to you. Thank you Tim reinforcing some of Tim's comments 2024 was an outstanding year for <unk> as we are well.
Andy: <unk> positioned for another strong year in 2025, we are pleased to have delivered four consecutive quarters of solid operational and financial results in our first year as a public company.
Andy: We set ambitious goals as we started the year and delivered results that either met or exceeded expectations. Each quarter. Moreover, it's encouraging to see the company strategy being validated and delivering financial results that sequentially improved as we moved throughout the year for full year 'twenty 'twenty four total company revenue was.
Andy: 4.3 billion and grew 3% year over year on a reported basis with comparable underlying growth of around 3%.
Andy: Our services and software businesses grew mid single digits and led to 5% growth in recurring revenues the mix of recurring revenue increased to 73% and highlights our ability to drive solid growth in predictable service oriented revenue streams that generate great returns and free cash flow overall.
Andy: The healthy top line trends reflect the effective execution of our strategy driving incremental revenue from our global installed base 2024, adjusted EBITDA was $781 million and grew an impressive 7% year over year, reflecting strong flow through on the top line growth favorable business mix.
Andy: And net productivity savings looking at the reporting segment self service banking and lower corporate costs drove most of the EBITDA growth adjusted EBITDA margin was 18, 1% for 'twenty 'twenty, four and expanded 60 basis points from the prior year what is even more impressive is that we increased margin 400.
Andy: 40 basis points over the course of the year as we overcame dis synergies from the split higher labor costs and other external cost headwinds, we were able to deliver the margin improvement with growth and higher margin business lines, coupled with productivity initiatives that progressed throughout the year moving below the line.
Andy: Interest expense was $309 million and is not comparable to the prior year because our debt was raised in the fourth quarter of 2023 with the legacy NCR split the full year adjusted effective tax rate was 21%, which was better than expected due to one time discrete benefits related to the spin fully dilute.
Andy: <unk> average share count was $74 million, so putting the pieces together fully diluted adjusted earnings per share was $3.22, which meaningfully exceeded our guidance of $3.12. We generated an impressive 242 million of free cash flow in 'twenty 'twenty, four which was also well.
Andy: Were above our guidance of approximately $205 million upside of free cash flow was primarily due to the timing of cash taxes are lower tax rate and effective working capital management turning to slide 12. The key message here is the highlight just how well underlying performance has been for the key fundamentals that we are most focused.
Andy: On overall results just don't fully represent how effective our strategy and execution was in the year across both of our core businesses, we generated solid revenue and the key services business lines extra.
Andy: Extrapolating this progress into the future at Leo should continue to enhance its growth and profit profile.
Andy: Ultimately this will be a key factor and shareholder value creation moving to slide 13 for a review of our fourth quarter results total company revenue was 1.1 billion, which was up 1% year over year or approximately 6% on a core constant currency basis, our core services and software lines of business grew mid single.
Andy: Digits and lead to similar growth and recurring revenues adjusted EBITA was $219 million and grew a notable 23% year over year due to topline growth in core businesses favour.
Andy: Favorable business mix and net productivity savings from a segment perspective self service banking and network accounted for most of the growth EBITDA margin was 19.8% and expanded 360 basis points year over year.
Andy: This reflects the strong operating leverage of our growing service businesses combined with our ability to drive productivity savings or direct and indirect costs moving to slide 14.
Andy: Fourth quarter diluted adjusted earnings per share was up 73% year over year to $1.11 and exceeded expectations driven by better than expected profit and an effective tax rate lower than the prior year moving to the chart on the right during the fourth quarter, we generated an impressive $119 million.
Andy: Free cash flow the fourth quarter is typically when we generate our highest free cash flow of the year, but this year was even better than we had expected due to the combination of strong profits working capital management and the timing of cash taxes moving to slide 15.
Andy: Self service banking had an outstanding fourth quarter with results exceeding our expectations starting the upper left revenue grew 8% year over year to 718 million.
Andy: Primary growth driver with 10% growth for our services and software business lines, partially offset by hardware revenue deferral associated with the shift to bank outsourcing solutions or ATM as a service the chart on the top right illustrates the progressive increase in adjusted EBITDA over our first four quarters, we re.
Andy: Reached 181 million in Q4, 'twenty 'twenty four led by strong growth in high margin software revenue and productivity initiatives adjusted EBITA margin increased 50 basis points sequentially to over 25% in Q4. This capped off a year in which margins expanded 390 basis.
Andy: From Q1 to Q4 as we continue to focus on higher margin services and software solution, while driving continuous improvements through cost and expense initiatives. Our adjusted EBITDA margin trends continued to grow materially faster than revenue moving to the bottom of the slide Kpis remained on a positive.
Andy: <unk> in the fourth quarter the mix of recurring revenue was 60% up approximately 200 basis points year over year a R. R was up 10% year over year, reflecting the continued build in services and software revenue from our existing installed base moving to slide 16, as a reminder.
Andy: <unk>, our bank outsourcing solutions business resides within our self service banking segment, but it is a strategic priority for the company. We present key operational metrics separately to help investors better understand and track our progress referring to the top left of the slide revenue grew 24% year over year too.
Andy: 52 million in the fourth quarter, we had strong interest and conversion from bank customers and 2024, resulting in a 50% increase in customer count and expansion into 11, new market on the right you can see that in the fourth quarter, we were able to generate strong gross profit, which increased 29% year over year.
Andy: Year to $17 4 million and translated to gross margin of 33% Importantly bank outsourcing margins had been accretive to total company margins moving to the bottom of the slide Kpis also continued to move in the right direction in the fourth quarter on the left a are our continued its.
Andy: Sequential momentum in the fourth quarter and was up 25% year over year to over $212 million on the bottom right. You can see that <unk> of 8600 for the fourth quarter is a new high and was up 5% over fourth quarter of 2023 our pool of 8200.
Speaker Change: The takeaway here is that the economics of bank outsourcing services continued to ramp up as expected driving incremental service revenue looking at the backlog at the end of the year. The average <unk> was over 10000, which should help to support continued ARPA growth in 'twenty 'twenty five as Tim noted as a business model.
Speaker Change: Evolve so will relevant kpis based on the business today, we think revenue growth is the most relevant metric and that is how we will frame our forward looking view moving to the network segment on slide 17, the network business turned in another quarter of solid underlying fundamental performance.
Speaker Change: Filtering out noise from FX headwinds and our Liberty Crypto business core ATM network revenue grew approximately 4% year over year in 2020 for.
Fourth quarter segment revenue was 317 million, which was down 2% year over year on a reported basis.
Speaker Change: Revenue growth was led by 6% growth in withdrawal transaction volume in North America, partially offset by 2% decrease for international the International decrease is primarily due to cycling against challenging prior year comps associated with last year's as the U K launch deposit transactions continued to accelerate.
Speaker Change: In the fourth quarter and grew around 240% year over year and 90% sequentially. Additionally.
Speaker Change: Additionally, we are seeing increased use cases for ready code product with volumes up 50% sequentially, but again from a small base moving to the upper right adjusted EBITDA of a $114 million was at the high end of our target range and grew 14% year over year and 11%.
Speaker Change: Adjusted EBITDA margin was exceptionally strong at 36% illustrating the significant operating leverage a processing more transactions through our owned and operated fleet of Atms. In addition margin benefited from a larger than expected accrual adjustment in the quarter the metrics at the bottom of the floor.
Speaker Change: I'd highlight key elements of our strategy. The chart on the left shows our last 12 month average revenue per unit was up 7% year over year in the fourth quarter on the right you can see our ATM portfolio finished the quarter at approximately 78000 units the slight decrease in unit count is due to pharmacy partners clothing.
Speaker Change: Low performing stores, which is where we also have lower volume transactions.
Speaker Change: This has had a negligible impact on our revenue as customers usually visit nearby locations, where we have units.
Speaker Change: As discussed earlier transaction volumes continue to hit all time highs. Despite the modest reduction in our unit base. We expect the number of ATM network units to increase in 2025 through the addition of both new retail partners and geographies Slide 18 provides a trending products centric view of.
Speaker Change: Resolved to help investors assess and model the company a couple of points to highlight on this slide first how at least is primarily a services oriented company with a recurring revenue model rather than a hardware company with cyclical sales associated with refresh cycles second our strategy is working our.
Speaker Change: Services software and transactional businesses have solid momentum with respect to both revenue and profit as a reminder, the other voyage operations represent legacy NCR boy acts exited geographies and commercial agreements between at Leos and NCR Boy X. We expect business results to continue to decline in.
Speaker Change: These noncore operations on slide 19, we present, a reconciliation of 'twenty 'twenty four free cash flow and a snapshot of our financial position at year end.
Speaker Change: There are a couple of items worth calling attention to.
Speaker Change: First the impressive 'twenty 'twenty four free cash flow of 242 million included a higher burden our cash interest expense due to our recent October refinancing interest expense should be less of a cash flow headwind in 2025.
Speaker Change: Second we made significant progress on our net leverage throughout the year, our net leverage reduced by a half turn and ended the year at 3.2 times from 3.7 times at the end of 'twenty twenty-three given our financial outlook and capital allocation priorities. We believe we will have a similar reduction in net.
Speaker Change: Leverage as we close out 2025, turning to slide 20, and our 2025 financial outlook. Our business has began the year with positive momentum and we expect underlying performance for this year will be strong just like 'twenty 'twenty four reported results do face some headwinds, notably FX rate pressure on reported results.
Speaker Change: And cycling through the wind down of Boy X related business in the other segment, our revenue and EBITDA guidance commentary will be on a constant currency basis, starting with the full year, we expect core revenues, which exclude the other voice related segment will grow 3% to 6% on a constant currency basis. We currently.
Speaker Change: Forecast currency to be a 2% headwind, we expect total company revenue will grow 1% to 3% on a constant currency basis with FX again, a 2% headwind total company adjusted EBITDA is expected to grow 7% to 10% on a constant currency basis with FX, having a buy.
Speaker Change: A 1% headwind note that we've updated our methodology for calculating EBITDA beginning in 2025 to exclude other income and expense. This is consistent with the methodology used by most of our peers and should result in lower non fundamental volatility in EBITDA as a result, the 'twenty 'twenty four adjusted <unk>.
Speaker Change: EBITDA base under our new methodology would be $794 million rather than 781, we expect fully diluted earnings per share will grow 21% to 27% and be in the range of $3 92.
Speaker Change: $4.10, we expect free cash flow to be between $260 million to $300 million.
Speaker Change: Below the line assumptions incorporated into our full year guidance include approximately $275 million of interest expense affair.
Speaker Change: Effective tax rate of approximately 24%.
Speaker Change: And fully diluted share count of approximately $76 million at the segment level. We expect self service banking will grow revenue mid single digits on a constant currency basis currency is expected to be around a 2% headwind to revenue.
Speaker Change: We expect adjusted EBITDA will grow 12% to 13% on a constant currency basis FX is expected to be a 1% headwind to EBITDA growth.
Speaker Change: Margins should expand year over year and be in the mid twenties, where the network business, we expect revenue growth to be in the low to mid single digits on a constant currency basis.
Speaker Change: <unk> is expected to be a 1% headwind to growth.
Speaker Change: We expect adjusted EBITDA margin of approximately 29%.
Speaker Change: The decrease in EBITDA margin is due to higher vault cash cost, resulting from the expiration of hedges that were implemented three to four years ago. During a much lower interest rate environment TNT revenues expected to be down with EBITDA flat to up slightly.
Speaker Change: Boy acts related revenue is expected to be between 40 to 45 million with EBITDA of approximately $5 million.
Speaker Change: Corporate costs should be approximately flat year over year for the first quarter of 'twenty twenty-five we expect core revenues, which exclude boy acts related to be essentially flat on a constant currency basis. Total company reported revenue is expected to be down mid single digits due to the cycling of the prior year comparison or the other.
Speaker Change: Boy acts related segment.
Speaker Change: As context voice related revenue in Q1, 'twenty 'twenty four had approximately $60 million and we would expect it to be around 10 million in Q1, 'twenty twenty-five adjusted EBITDA is projected to be $165 million to $175 million, which would represent approximately 5% growth year over year.
Speaker Change: <unk> at the midpoint adjusted E. P. S. A 50 to 60 cents per share, which would also represent 34% year over year growth at the midpoint, we expect free cash flow will be modestly negative in the first quarter due to working capital for context, we have a robust second quarter order book and hardware.
Speaker Change: And we'll have to invest in inventory during Q1 to fill those orders, we expect to generate positive free cash flow in each of the last three quarters of 2025 below the line assumptions incorporated in our guidance include $65 million of interest expense effective tax rate in the low thirties and.
Speaker Change: Fully diluted share count of approximately $75 million lastly throughout this earnings season companies with international operations had been asked about the potential impact of tariffs based on what has been implemented thus far that impacts our business, which is Mexico. We have limited exposure to tariffs we have a very small.
Speaker Change: Spare parts operation in Mexico, and we are in the process of implementing plans, which includes building inventory to reduce that exposure.
Speaker Change: Beyond that global geopolitical and trade relations are very complex and it's nearly impossible to predict the potential permutations of tariffs at this time, we are continuously monitoring developments and assessing our potential risks and solutions concluding my comments on slide 21 at least had a high.
<unk> successful first full year in 'twenty 'twenty four we delivered impressive financial performance throughout the year consistently meeting or exceeding financial targets generating significant free cash flow and improving our financial profile, we executed well operationally enhancing our capabilities.
Speaker Change: Competitive position and relationships with customers, which is setting the stage for another strong year in 2025 importantly, we made great progress on our growth strategy, putting us on a path to realize the tremendous opportunity we see in bank outsourcing for the cash ecosystem, reflecting on these accomplishments we are.
Speaker Change: Gary optimistic about our opportunity to create value for our shareholders and 2025 and beyond with that I'll turn it over to the operator.
Speaker Change: Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker Change: You are using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment again, you May press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal.
Speaker Change: We will take our first question from Matt Summerville with D. A Davidson.
Matt Summerville: Thank you.
Speaker Change: Welcome Andy.
Speaker Change: Two quick questions first can you talk about the <unk> in the as a service backlog I thought last quarter that number was something north of 13000 on a per unit basis and now I think you referenced a 10000 sort of number. So can you talk about maybe the quarter on quarter shifts there.
Speaker Change: And then off of a base of say 10000.
Speaker Change: Trends out looking over the next few quarters, and then I have a follow up.
Speaker Change: Yes, Thanks, Ed So I think we said 12 or 13000 was the average.
Speaker Change: Average harpoon the backlog, we implemented some of those devices and you can see the step up.
Speaker Change: In the fourth quarter and <unk> four that in aggregate for that business. So we translated some.
Speaker Change: Hi art.
Speaker Change: <unk> units from backlog into production there was a big quarter as you know getting us from about 6000 machines and singular quarter. So moves the needle pretty nicely in the quarter. The mix of our backlog currently has some of those high margin machine is doing it in a little bit of a mix.
Speaker Change: Mixed shift towards India, and other places where the.
Speaker Change: Both the revenue and the profitability is slightly lower so it's really geography geographic distribution within the backlog.
Speaker Change: It caused that change, but in any regard we think across the year.
Speaker Change: <unk>.
Speaker Change: The average the average <unk> of the units, we induct into that number across the it will be accretive to.
Speaker Change: Two the current $8600 a device.
Speaker Change: Perfect and then as a follow up you'd mentioned in your prepared remarks, seeing some pretty nice inbound demand on the hardware side can you just maybe do a little bit of a geographic walk around the globe. So to speak in terms of what youre seeing from a demand trend not only for hardware, but just.
Speaker Change: As a service offering thank you.
Speaker Change: Yeah, so the as a service offering.
Speaker Change: In countries, where it has already been adopted as the go to.
Speaker Change:
Speaker Change: Way that you generate revenue, where we're seeing really nice pickups, India is a great place right now for that business, we're seeing some traction so more traction in western Europe around ATM as a service in the U S. It's been great for us, particularly in those clients that have 300 machines or less you can.
Speaker Change: See we had a lot of smallish wins. This is a this is a few machines at a time there aren't a lot of big tickets in the U S that are likely to go to the ATM as a service so.
Speaker Change: As far as they can with service goes I think it's the same markets you've been participating in before we've talked a lot about another 36 markets in the world that we think.
We could be successful with ATM as a service and you're likely to see us introduce product into leased four of five new countries. This year as we start to roll that product out elsewhere as far as hardware. It goes its everywhere, though for us.
Speaker Change: Western Europe, and the U S or are the biggest markets for us, particularly it comes to revenues since those are the more expensive devices.
Speaker Change: We've got a much a much improved recycler product.
Speaker Change: Now ready for market is being adopted very quickly by some of our U S. A big U S customers Thats incredibly helpful.
Speaker Change: As you'll know, Matt we were a little bit late there, but we're back in that game and I think that's going to be very helpful to hardware revenue and I think theres just as we've talked about before B b.
Speaker Change: The negative.
Speaker Change: Wave associated with a 2019 kind of pull forward of hardware refresh you've got a modest refresh wave that's taking place currently.
Speaker Change: That's a global undertaking though for us, it's more Europe, and North America and.
Speaker Change: It's not as pronounced obviously as 2019 is going to play out over several years, but does 2019 machines now aging off and so.
Speaker Change: So we'll see so we think that this year next and maybe even <unk>.
Speaker Change: Maybe 2027 will be pretty good hardware yours, where we are.
Speaker Change: We will see a little bit of lift hardware and of course should give us some opportunity to.
Speaker Change: Talk to a customer switching to ATM as a service as they go.
Speaker Change: Great. Thank you Tim.
Speaker Change: Yes.
Speaker Change: Well move to our next question from George Tong with Goldman Sachs.
George Tong: Hi, Thanks, good morning.
George Tong: Can you remind us how many ATM as a service units you had at the end of the quarter.
George Tong: What your latest expectations are for 2025 and beyond.
George Tong: Yes, I think we were at 28000 units at the end of the fourth quarter that was up from about 22000. The end of the third quarter. So a little bit short of the 30000, we set out to try to get to for the full year, but a really good fourth quarter and then of course, we've talked about this being a back end loaded.
George Tong: Year for us in terms of implementation that had a lot to do with.
George Tong: Our readiness and our customers' readiness from an onboarding perspective, as far as guiding going forward on that metric, we're not going to use that as a K P. I N lager units because as.
George Tong: As we just talked about not all units are created equal and in units in North America. For instance are far more accretive to both revenue and profitability than that are incremental units in India. So we will talk about revenue growth in this business rather than units that said I think it'll be.
George Tong: We've got 6000 units currently in backlog.
George Tong: I think we'll exit the year.
George Tong: 40000 units at rounding to 40000 units an important I think the E. R R and that business will be.
George Tong: North well north of $300 million.
George Tong: From about $210 million today.
Got it.
George Tong: And then in your network business. The number of managed units went down because of the rationalization of low performing stores can you talk about how much longer you expect this rationalization process to go on for.
George Tong: [laughter], Yeah, we don't know we're watching it very carefully. These these pharmacies are very good customers of ours. They they keep it constant contact with that you'll see there is a transaction announced the Walgreens I think last or rumored.
George Tong: Walgreen's transaction last night, we're very tied in with these folks the good news is when they shut down a store, it's probably machine that wasn't performing particularly well for us anyways and so if it's underperforming for them, it's probably underperforming for US we move that machine elsewhere, and we pick up just across the street the transaction volumes on device that's around it.
George Tong: Corner. So we don't we don't tend to lose revenue, we just lose a node on the system.
George Tong: I think we will sign deals in 2025.
George Tong: Add three or 4000 units to that count, which will in essence get us back to where we were so overtime.
George Tong: Over time, this may hurt abate, a bit but fundamentally that 80000 units unless we add new geographies and fleets in other parts of the world is probably where we're going to get back around that midpoint overtime, but so look for some size.
George Tong: Sizable wins and 25 that allow that number to come back up I don't know, how many more drugstores youre going to close.
George Tong: But as long as they're underperforming and I Havent machine nearby.
George Tong: I'm not that concerned about it.
George Tong: Got it very helpful. Thank you.
George Tong: My pleasure.
George Tong: We will take our next question from Dominick Gabriele with Compass point.
Dominick Gabriele: Hey, good morning, everybody and welcome Andy Good morning.
Dominick Gabriele: If you if you just think about the strategy that's focusing.
Speaker Change: You've discussed focusing on North America, and Europe for the higher RPM machines in general.
Speaker Change: Versus India.
Speaker Change: Some of the comments that you made just on this call.
Speaker Change: Suggested the backlog might be for ATM as a service might be mixing towards India, a little bit just because of what you've sold.
Speaker Change: I guess the question is just.
Speaker Change: Are you still focused on shifting towards these higher profitable.
Speaker Change: Our revenue generating units in North America, and Europe versus India still.
Speaker Change: No I'm, sorry, I might have said I'm not emphasizing one over the other they are both good markets for us and scale matters a lot we have great scale in India over 120000 machines in India. So it's a very good market for us it'll stay a good market and I wanted to preserve that installed base and perhaps grow. It there are parts of the world. They didn't talk about like Brazil, Argentina, where there.
Speaker Change: Moved toward.
Speaker Change: ATM as a service is very strong and networks are starting to emerge that is also a different price point market, we will compete there.
Speaker Change: When we talk about the incremental gain in revenue or profitability when the mix shift more towards North America or Europe, it would be more beneficial for us net period, but.
Speaker Change: I hope I didn't create that the idea that somehow we're going to really get ourselves only to those.
Speaker Change: Those larger more developed markets Theres real opportunity in other parts of the World. In fact, we were just in Latin America, and there's huge opportunity for us down there. So we're the we're the largest the largest player in Brazil.
Speaker Change: At the end of an installed base that is very leverages. Both so we need a strategy there to that device will be somewhat less expensive and the service cost will be somewhat lower experienced for instance in North America. So.
Speaker Change: We like them all the same.
Speaker Change: But some move the needle a little bit more for our reported results than others.
Speaker Change: Right right well, thank you and then.
Speaker Change: There was a really nice beat versus our expectations on gross profit margins versus like I said, our expectations in the quarter, you are effectively absorbing 2% FX headwind.
Speaker Change: The revenue while still showing.
Speaker Change: Pretty pretty good adjusted EBITDA.
Speaker Change: And so I guess do you expect the variability.
Speaker Change: And the gross profit margin quarter to quarter in 2025.
Speaker Change: To be moving up and down quite significantly from quarter to quarter due to some sort of seasonality or do you think the fourth quarter's gross profit margin level as the right jumping off point for as we start the year.
Speaker Change: Yeah. So we said we were going to exit the year with margin rates in aggregate on the EBITDA level at about 20% that translates into the gross profit you are describing.
Speaker Change: We do have a seasonal business right.
Speaker Change: Last our hardware business grows across the year and is more profitable as we produce more units, we've got very big unit outputs in.
In Q2 and for this year and so that Youll see that business have nice cost leverage as they generate more units.
Speaker Change: The network business is very strong Qs two and three in natural and natural curve to their business and so youll see their property would be higher there. So the regular <unk> to regular seasonality of our business will play out again in 2025, I think that will describe any perturbation in the gross margin rate.
Speaker Change:
Speaker Change: You know the.
Speaker Change: The profitability on the other.
Speaker Change: The reported profitability, we have more of a headwind associated with B b voyage, the lack of <unk> revenues in the first half of the year and FX appears to be more of a hit earlier in the year. So.
Speaker Change: You also see margin rate accumulate across the year much like this year the shape of the curve for EBITDA margin rate of gross profit margin rate next year should be very similar to this year.
Speaker Change: Great.
Speaker Change: I really appreciate it thanks so much.
Speaker Change: Our pleasure.
Speaker Change: Really everybody, saying Hello to Andy and I will let him talk.
Speaker Change: If you find that your question has been answered you may remove yourself from the queue by pressing star two and if you'd like to join the queue. You May Press Star one well move to our next question from Shlomo Rosenbaum with Stifel.
Shlomo Rosenbaum: Hi, Good morning, Thank you for taking the questions Hey, Tim.
Speaker Change: I understand you're not going to focus on like the units and the ATM as a service because it's more of a continuum.
Speaker Change: So it's less relevant but could you talk about the success you might have had over the year in terms of moving customers up that continuum. So in other words customers they might be taking some of the outsourcing services, where youre starting to get them to take more of the outsourcing services.
Speaker Change: Yes, that's helpful.
Speaker Change: Thats a helpful question to us thanks for asking it.
Speaker Change: We did find ATM as a service as the monolithic holistic outsourcing if everything associate every services social with ATM.
Speaker Change: <unk> cash in transit that we would obviously have to subcontract for.
Speaker Change: And others, who have jumped into the space and use the term ATM as a service have a much less broad definition of that term. We have about 90000 machines that we currently call. We describe as managed services, which is very similar to what others are describing as ATM as a service.
Speaker Change: Of those 90000 machines, we saw in last year many.
Speaker Change: Many of those customers moving up into in many devices moving from managed services up into our very tight definition of ATM as a service and I think that's an obvious step and so when I think about success in the services business in aggregate in 2025 and beyond I think it's taking customers who currently are traditional comfort.
Speaker Change: So you only buy hardware, where they a break fixed service agreement and its software subscription agreement over the five years to seven year life of the device and moving them into managed services and asking them what subset of those services they'd like us to take on and we'll grow into the rest over time I also think there is a huge proportion of those folks in the managed services.
Speaker Change: Area that we have now proven ourselves to be very effective and very cost efficient and driving those devices for them that are likely to move up into the full outsourcing of the ATM as a service and so.
Speaker Change: We're likely to start talking a little bit about our managed service portfolio, maybe talking about the two together. So you can see that migration of the customer up through this continuum I think we have a chart at 1.1 of the conferences that we can posted again the describes kind of what's what's the midpoint of managed services and then importantly, what would you add to get to the full ATM as a service, but yes, we had some.
Speaker Change: Success doing that and they said the more obvious.
Speaker Change: Path for our customers to take from traditional to managed services that onto full outsourced ATM as a service.
Speaker Change: Got it didn't have a couple of I guess questions for Andy.
Speaker Change: First can you just describe whats being stripped out of the EBITDA or what's being added back to the EBITDA for the new calculation is it moving from FX. So I'm just trying to understand whats changed over there.
Speaker Change: Sure. So as we look at EBITDA, we are gonna be excluding other income and expense going forward I mean look at the volatility associated with our let's say our old methodology.
Speaker Change: One would be pension and.
Speaker Change: And then it would be FX, and then to a degree bank fees, but we think by doing this new definition, that's going to remove some volatility that we would have I would say.
Speaker Change: In a quarter and so you know the order of magnitude could be $5 million to $10 million in aggregate in a given quarter and we think this will remove some of the volatility associated with our guidance.
Speaker Change: Results.
Speaker Change: Okay, and then could you comment a little bit about the change in our vault cash interest expense and how we should think about that flowing into gross margin.
Speaker Change: Sure so for ball cash we'd be rent directionally about $3 billion in cash and we would have fairly aggressive were also favorable terms in terms of how we get that cash from select bank partners, we look at.
What happened, let's say three or four years ago, a lot of we put in place a lot of hedges.
Speaker Change: That we're able to lock in rates and a much lower rate environment. So when I look at.
Speaker Change: Some of those hedges that were layered in and so then what's happening then in 2025 is that is that were rolling off.
Speaker Change: As we get to the back half of the year some of those favorable hedge. It. So that is really the key driver in terms of whats happening too.
Speaker Change: I'll say, our Cogs within network the thing that I would emphasize though is while there is going to be some pressure year over year in.
Speaker Change: In that segment.
Speaker Change: The EBITDA margin is still I said would be close to 29% I mean, it's just around 30%. So it's still a great business.
Speaker Change: But we are going to be lapping some of the impact of hedges, while cash yeah. Andy wasn't here and we did the acquisition of Cardtronics, but at the time, we we sold a model to our board and committed to a model to our border a profitability that describe that as a good acquisition and it has turned out to be good acquisition, but we hedged that model by putting in place.
Speaker Change: That amount of.
Speaker Change: But swaps around the three or $4 billion of bulk cash at the time as those roll off we're not paying market rates and so.
Speaker Change: The good news is our margin rates now at market rates are very very similar to what they were prior to the acquisition.
Speaker Change: <unk>, which was in a period of time, which rates were very very low or say differently the productivity and the profitability you generated with new business in the across the network has allowed us to in essence absorb all of all of the hit over the last several years from those interest rates I'm hopeful that we'll see some relief going for at some point, we'll see.
Speaker Change: See some relief in interest rates, but.
Speaker Change: What youre seeing now is us performing at market rates with the highest margins in our company and margins that are approaching 30%.
Speaker Change: Great I've taken a lot would you can I squeeze in one more if you're okay with that.
Speaker Change: Yeah, Yeah. It was it talk a little while ago in terms of third party financing for some of the ATM as a service hardware and stuff like that is that still something that's being focused on or is it really because were going till ATM as a service kind of light.
Speaker Change: Customers are really just doing stuff on their own that thats not really part of what you guys are working on internally in order to kind of accelerate that business.
Speaker Change: So the answer is yes, we still that opportunity still exists just actually both sides of your question, we have seen when when Paul and I built this model a long time ago, we thought that ATM as a service to be much more capital intensive than it's been than we thought at the time that maybe 70% of the transactions we didn't require new hardware on our balance sheet, it's actually been reciprocal of that.
Speaker Change: Ted closer to <unk>, 25, or 30% of the deals required new hardware. So.
Speaker Change: And we've shown a preference for those type of transactions. So we have seen far less use of capital. It is also true though that we are still looking for nonrecourse off balance sheet financing opportunities.
Speaker Change: For fleets of devices. It makes some sense Paul's worked really hard to put some devices in place we've not had deals big enough yet to get those to get those off the ground, but maybe I'll, let andy elaborate what they might be.
Andy: That was a great introduction to that so what I would say, it's an absolute key focus for us and as we move into the second quarter I would expect us to be able to find a solution.
Andy: No that will work and that will be financed off balance sheet, but that is that's certainly in our plan and we fully expect to do that.
Andy: Great. Thank you so much.
Andy: Yeah.
Andy: Thank you Sir.
Speaker Change: Well move to our next question from Chris <unk> with Wolfe Research.
Chris: Hi, guys. Thanks for taking my question.
Chris: Wanted to ask how we're thinking about capital allocation here I know you'd mentioned you know near term debt paydowns.
Chris: It is a priority, but with the stock trading at the level at which it is currently because of the broader macro concerns and something are you guys, considering maybe perhaps implemented a buyback plan.
Chris: Sooner than otherwise anticipated.
Chris: Yes, I love announcing earnings into weak market, so I seem to figure out how to do that every every quarter.
Chris: Yeah.
Chris: It hasn't changed I think the only thing that has changed somewhat the discussion with our investors is the hurdle rate score.
Chris: For overall leverage at which point, we think that equity investors start to clamber, a little bit more free cash we returned to them and to your point in this market through it through a share repurchase.
Chris: It's maybe moved down a little bit so we've talked a lot about getting down to three times net leverage.
Chris: That would translate to about four times gross leverage which some of our investors focus more at four times gross leverage when you get under three and four times.
Chris: The analyses say that.
Chris: You should pick up a significant change in your valuation, meaning that those docs that have.
Chris: Those companies that have leverage below below four times gross traded almost a full multiple it quite higher than those that trade.
Chris: Demonstrate above Forex, we think we'll get there at the midpoint of this year at.
Chris: At that point in time, I think we have to have a good debate with our board and maybe even with some investors about what we do with the next incremental dollar of free cash flow.
Chris: Don't think it'll be uniform meeting until we get there. It's very obvious we apply every dollar of free cash flow, we generate to reduce our debt once we get to three times.
Chris: Net and four times gross I think we should at least start talking about whether we continue to reduce debt either.
Chris: It holistically or if we if we in fact start to deliver some cash back to show share share of the upside to certain extent between our equity holding our debt holders.
Chris: Nothing has changed.
Chris: In terms of wanting to get down to three times nothing has changed in our calendar as Asian of getting there I think we'll get there by the midpoint of the year.
I think the desire for yet even lower leverage amongst investors.
Chris: <unk> has become more apparent and we'll.
Chris: Debate that with their board and you all are when we get there at the mid part of the year, but I agree with your stock too cheap and we should if we can we should be bikes it back.
Speaker Change: Yeah. Thanks, and then one more question kind of longer term strategic in terms of you know when you when you did the.
Speaker Change: Kind of did the road show and were spun out you had different long term objectives for recurring revenue and the argument was that you'd get a higher multiple on the stock is the recurring revenue percentage went up what's the outlook today and has it changed any just given the preference of customers for where you get to recurring revenue.
Speaker Change: Over the next couple of years.
Speaker Change: Yeah, well, we're a recurring revenue performance is tracking pretty close to where we thought we were a little bit behind if you go back to those models from.
Speaker Change: Two two and a half three years old now.
Speaker Change: We're a little behind on our ATM as a service.
Speaker Change: Revenue, which we've talked a bit about the adoption rate and our ability to onboard folks which causes the.
Speaker Change: Total services growth to be a little bit behind to those models, but we have every belief that it.
Speaker Change: It is a lag in the model not a change to the model and then ultimately our service levels.
Speaker Change: The total value of our service to our customer would be a much higher percentage of total revenue that wasn't the outset.
Speaker Change: The transaction volumes are growing as well and we we countered as Youll remember we cut our transaction.
Speaker Change: Revenues as recurring too so.
I think of all the metrics that we've laid out in that five year model I think theres two that were most likely to still be perfectly in line with which is free cash flow and percentage of revenue coming from recurring sources.
Speaker Change: Okay, great. Thank you and congrats on a great year.
Speaker Change: Thanks, a bunch.
Speaker Change: Our next question will return to Dominick Gabriele with Compass point.
Dominick Gabriele: Okay, great. Thanks, so much actually just right on that point I was just curious about the free cash flow outlook.
Speaker Change: With the kind of more updated.
Speaker Change: Long term targets that were given more recently.
Speaker Change: I know, it's not going to be linear as far as year over year free cash flow growth.
Speaker Change: But overall how are you thinking about the free cash flow.
Speaker Change: Targets in particular, and given where you ended up in 2024 with a nice almost like pull forward rate that you mentioned that gave you a $119 million.
Speaker Change: Free cash flow in the quarter adjusted how.
Speaker Change: How do we think about how that pulls that a 2025 and this is the sustainability of the ramp in free cash flow to hit kind of your 2027 targets. Thanks. So much guys. Yeah. Yeah. So we only have so many levers and cash flow and it wasn't so much a pull forward into the fourth quarter. So we had a we get a break.
Speaker Change: On.
Speaker Change: Taxes based on some changes in legislation.
Speaker Change: And we had some at some.
Speaker Change: Costs that accrued in 2004, they get paid it will get paid this quarter. So what's so much pull forward.
Speaker Change: Theres only so many levers and free cash flow right you can manage working capital better.
Speaker Change: You can have capital capex that under runs depreciation and amortization or you can grow profitability.
Speaker Change: I know, we're gonna grow profitability over the next several years and you can extrapolate out to kind of longer term goals of growing at eight 8% to 10% EBITDA year, you can extrapolate that out and presume that most of that should should.
Speaker Change: Fall down through to free cash flow, we talked about tax rates and cash tax rates coming down in fact that was one of the overdrive. This year for us and it's going to be an overdrive against the model yet again next year, our interest expense will come down and it's a huge expense for us and a lot of our our interest expense isn't tax deductible because of how long.
Speaker Change: It is relative to our profitability any relief in that tax law or our every our ability to generate more profitability relative to that interest should make it more deductible and drive better cash flows. So I think there are several levers that we can pull across time, but.
Speaker Change: Yes, I mean, we talked about.
Speaker Change: A number approaching $300 million of free cash flow when we thought we'd only do $200 million in 2024 now.
Speaker Change: Now, we're still holding onto the high end of that range of $300 million.
Speaker Change: In 2025, even having over driven by about 40 million Bucks. So we are doing a better job on free cash flow than we thought that we might.
Speaker Change: We will use a little bit of cash for working capital in the first part of this year as we have a pretty significant ramp in hardware, but at $80 million ramp in hardware keys wanted to just have to get stuck on the water to make sure that you get that done.
Speaker Change: We did collect really really well in the fourth quarter of last year, and so we've got a little bit of.
There's less to collect in the first quarter, but I fully expect that to happen again in this year's fourth quarter. So if you're thinking about free cash flow as being the fastest growing metric in this business for the next several years you'd be exactly right free cash flow growth will outpace.
Speaker Change: <unk> growth will outpace EBITDA growth pretty handily over the next several years.
Speaker Change: Thank you very much for taking my follow up.
Speaker Change: My pleasure.
Speaker Change: It appears there are no further questions at this time I'd like to turn the conference back over for any additional or closing remarks.
Speaker Change: Great. Thank you for that and thanks for paying attention today, Paul Thank you.
But Andy welcome and look we just completed a pretty remarkable year and if my employees are listening expect many of them are thanks again, you killed. It you did a great job I know, we expect a lot of you going forward I suspect you'll step right up to that challenge as well.
Speaker Change: We appreciate those investors who are long and tell all your friends. This is a good story more people should be hearing it. So thanks very much and we'll talk to you in 90 days.
Speaker Change: This concludes today's call. Thank you again for your participation you may now disconnect and have a great day.
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