Q1 2025 NCR Atleos Corp Earnings Call

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Speaker Change: Good day and welcome to the NCR at Leo's first quarter FY25 earnings call. Today's conference is being recorded. At this time I'd like to turn the conference over to Brendan Metrano, head of investor relations, please go ahead.

Speaker Change: Good morning, and thank you for joining the Atleos First Quarter 2025 earnings call. Joining me on the call today are Kim Oliver, CEO , Andy Womzer, CFO , and Stuart McKendon, COO. Tim will start this morning with an overview of the company's business performance and strategic progress in the first quarter.

Andy Wamzer: Andy will follow with a review of our financial results and our outlook for the second quarter in full year. Then we'll move to Q&A.

Andy Wamzer: 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.

In other words, a similar meeting. [inaudible]

Andy Wamzer: 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.

Andy Wamzer: These risks and uncertainties are described in today's materials and our periodic filings with the SEC, including our annual report. Also, in our review of results today, we will refer to certain non-GAAP financial measures.

Andy Wamzer: which the company uses to measure its performance. These non-GAAP measures are described and reconciled to their gap counterparts and the presentation materials and on the investor relations website.

Tim Oliver: A replay of this call will be available later today on our website, investor.nciatleos.com. With that, I will turn the call over to Tim.

Tim Oliver: Thank you, Brendan, and thank you to everyone for joining us on this call this morning. I'll start this morning by reinforcing the compelling Atleos investment pieces, describing its successful start to our 2025 and providing some company-specific context for the current uncertain business climate.

Andy Wamzer: Andy will then walk you through the more detailed financial results and then we'll both take your questions.

Andy Wamzer: Conceparating from legacy NCR through a spin transaction in late 2023, Atleos is now a pure play independent company with a leadership position in self-service banking and a clear growth strategy.

Andy Wamzer: Atleos has an installed and service fleet of approximately 600,000 ATMs, including approximately 80,000 machines that we own and operate in our own network.

Andy Wamzer: In a global environment that continues to demonstrate steady cash-based consumer transactions and a stable base of installed ATM hardware, our growth will come from generating more revenue for every Atleos machine that we support.

Andy Wamzer: Whether that's from providing higher quality and more efficient and more comprehensive services to our financial institution clients...

Andy Wamzer: Or by driving more transaction volume across our own network machines, located in blue chip retail locations.

Andy Wamzer: Both of these strategies are fueled by our customers' desire to improve financial access for their customers while outsourcing more of their cash ecosystem

Andy Wamzer: and both growth vectors leverage a common Atleos infrastructure that is unmatched in scale in his world class.

So starting at chart six.

Andy Wamzer: Revenue was in line with our plan, with growth from the more strategic parts of our business offsetting lower non-core separation-related revenue from our former parent company, Boyix.

Andy Wamzer: Some regulatory changes in lower volumes at our Bitcoin business, Liberty X, and the timing of hardware revenue which will grow nicely across the remainder of the year.

Andy Wamzer: From a profitability perspective, a more lucrative revenue mix coupled with direct productivity efforts and our service organization push margins up almost three points overall.

Andy Wamzer: Operationally, nearly all of our customer KPIs are moving in the right direction and our service levels remain at post-spin highs.

Andy Wamzer: We exited Q1 with an order book for hardware that is very strong and an increasing backlog for new service revenues.

Andy Wamzer: Our productivity initiatives are on pace to deliver to the targeted savings levels.

Speaker Change: and our contingency planning efforts are beginning to recover some of the profitability we expect to lose to tariffs. I'd like to take a minute to describe Atleos exposure to what we know now about tariffs and what could be second order effects of a global trade rebalancing.

Speaker Change: Because we are a global company with a preponderance of a revenue coming from recurring services, our tariff exposure is generally limited to ATM hardware and replacement of repair parts produced overseas and then imported into the U.S.

Andy Wamzer: Those goods represented less than 7% of our total costs in 2024.

Andy Wamzer: Going forward, about 90% of the hardware is going to be imported to the US from India.

with a remainder split between Hungary and Mexico.

Andy Wamzer: We do also have a small pale of parts from China that are looking to this locally sourced in India.

Andy Wamzer: Beyond the direct and easier to calculate costs of tariffs, we are also watching close to the potential follow-on effects of tariffs on global consumer behavior, on bank and retailer capital spending, on interest rates or currency and exchange rates, and on the potential for reciprocal tariffs.

Andy Wamzer: Andy will walk you through the gross impact of terrorists and discuss the contingency actions we are taking to reduce that net impact.

Andy Wamzer: In past challenging economic environments, our business has proved to be very resilient.

Andy Wamzer: Over 70% of Atleos revenue is generated from recurring services and software streams that facilitate essential customer transactions for financial institutions and other partners.

Andy Wamzer: In addition, in periods of economic uncertainty, cash you should often increase as due to tighter credit conditions and consumer budget pressures.

Andy Wamzer: And our strategy to grow our share of a continuum of ATMs service revenues with comprehensive outsourcing capabilities could have a more compelling value proposition when banks are looking to enhance efficiency.

Andy Wamzer: On our year end 2024 call, I introduce three primary Atleos goals for 2025 that are appropriately broad to allow to be cascaded with increasing specificity down through our organization. These three goals provide a framework for prioritization and ensure organizational alignment for a 2025 objectors.

Andy Wamzer: I'll refer to them again as I describe success as in each of our business segments later.

Andy Wamzer: The first is grow efficiently. Accelerating growth, while we reduce leverage to targeted levels requires judicious allocation of growth capital and operating expense.

Andy Wamzer: We're emphasizing the growth vectors that drive the most immediate recurrence and are created in the margin in cast generation.

The Second is to develop a service-first culture.

Andy Wamzer: We believe service, not product, is a primary differentiating factor in the ATM industry and in the casheco system.

Andy Wamzer: Service already makes up a preponderance of the revenue base and carries higher margins.

Andy Wamzer: As our strategic plan plays out, service revenue opportunities will outpace the underlying market growth dynamic.

Every customer interaction should start with a conversation about solutions.

Andy Wamzer: Gaining share of wallet through outsourced services requires a deep customer trust that can only be achieved through sustained customer excellence and leading service performance.

Andy Wamzer: Our 24-7 Always On Customer Service mindset is essential to our long-term success.

Andy Wamzer: And finally, we will embrace simplicity. The complexity we inherited from our former life as part of a larger legacy NCR is unnecessary and inefficient.

Andy Wamzer: Investment in modern systems, improvement in processes, and organizational redesign that reduces layers and handoffs will extricate us from our form of parent and make us more nimble, make our employees jobs more rewarding, and make us much easier to do business with.

Andy Wamzer: I will illustrate progress on each of these over-action goals, as I walk through the segment of those.

Moving to slide 7 and the self-service banking business review.

Andy Wamzer: This is primarily a service business comprised of a global installed base of over 500,000 ATMs that we sell to financial institutions for the software subscription and a service and support agreement.

Andy Wamzer: Traditionally, those services have been centered on maintenance and repairs, but increasingly banks are opting to outsource more of their other services necessary to run the ATM to us.

Andy Wamzer: and for the eighth year running, this business would name the Global Ship Share Leader for the ATM industry.

Andy Wamzer: First quarter financial results were either in line or slightly ahead of our expectations. Revenue grew modestly in a constant currency basis.

Andy Wamzer: Combined services and software revenue grew 6% which translated to similar growth of our recurring revenue streams.

Andy Wamzer: ATM as a service was the primary source of service growth with good sequential and year-over-year gains in revenue, number of customers, and backlog.

Andy Wamzer: While Hardware Revenue was down year over year in Q1, Hardware will post strong growth across the remainder of the year with a higher refresh replacement cycle orders and strong incremental demand for our recycler product.

Andy Wamzer: Favorable revenue mix, combined with cost productivity, generated more than 300 basis points of margin expansion year over year.

Andy Wamzer: Moving to the bottom of the page, Q1 is an important quarter for our reinvigorated innovation efforts.

Andy Wamzer: Our prototype machines and technologies have been installed in two of our locations and have received hundreds of customer visits. We held our first North American multi-day customer event and launched our customer feedback panels that allow us to reflect customer preference in further development and eject their strategic needs into our labs.

Andy Wamzer: While our service first initiative is just getting started, we already are seeing returns.

Andy Wamzer: A more robust set of key performance indicators is allowing a more refined approach to incremental improvement. In Q1, we extended our market leading service levels and set new highs in customer service quality.

Andy Wamzer: Our customers are already rewarding us with add-on orders that are added to our installed base or gained more share of wallet.

Andy Wamzer: And finally, our AI-driven dispatch and service optimization model is completing a very successful test run in Canada and is now ready for global rollout.

Andy Wamzer: Moving to the network on slide 8. The network segment is our utility banking business that consists of approximately 80,000 owned and operated ATMs located in blue chip retail locations.

Andy Wamzer: The network business continues to grow the number of network card holders, is now in 13 countries and is expanding the capability of its installed base.

Andy Wamzer: First quarter financial results were generally in line with our expectations. From a revenue perspective, we experienced typical seasonality, some lower transaction volumes in the UK, and some decline in cross-border or travel related transactions.

Andy Wamzer: and we anticipated the further erosion in the Liberty X Bitcoin transaction revenue due to regulatory changes.

Andy Wamzer: All point cash withdrawals grew modestly and cash deposits continued to ramp quickly.

Andy Wamzer: Adjusted even though a margin expanded by more than 140 base points, an ARP who continued to increase sequentially and year over year, hitting another new high.

Andy Wamzer: Moving to the bottom of this page, this business signed 7-Eleven to the All Point Network adding thousands of convenient and safe locations for our 75 million card holders to conduct their daily banking.

Andy Wamzer: We also signed a partnership in the UK to extend our deposit network there, and added more deposit-enabled locations in the United States.

Andy Wamzer: The benefit of higher service levels also accrued to this business. Higher availability of our own and operating machines means more foot traffic for our retail partners and more revenue for Atleos. And finally, we made our devices easier to interact with by expanding the access to tap enabled machines.

Andy Wamzer: We're also implementing upgraded and modern ERP modules that will improve our invoicing and collections capabilities.

Andy Wamzer: Back in March, we provided guidance that reflected only what we knew at the time, including the then-pending tariffs on imports from Mexico. Since then, a lot has happened. Uncertainty has increased significantly, and many companies have suspended their guidance, waiting for a clearer line of sight.

Andy Wamzer: That said, we believe Atleos through pricing actions, supply chain adjustments, and indirect cost productivity can absorb the net effect of the tariffs and remain inside the guided ranges we provided back in March.

and he will give you more details on that next.

Speaker Change: But before I head off to Andy, I want to recognize the 20,000 strong Atleos team for their performance this quarter and a great start to 2025. You were not distracted by the most recent and a long string of uncertain business environments, but rather embraced the opportunity and began developing solutions.

Speaker Change: With your collective effort, we will lead our industry from the front and deliver a strong 2025 result. With that, Andy over to you.

Andy Wamzer: Thank you Tim. Building on Tim's comments, we are off to a solid start for 2025 with the first quarter essentially playing out as we expected.

Andy Wamzer: Starting on slide 10, the key takeaway from this slide is that the top line trends remain solid in our key strategic businesses that will drive profitable growth and value for shareholders.

Andy Wamzer: I will focus my comments on core results because the wind down of Boyix-related business had a meaningful impact on year-to-year growth in the first quarter.

Andy Wamzer: The impact of voyage steps down in the second quarter and lessens progressively throughout the balance of the year.

Andy Wamzer: First quarter, core revenue was $966 million, just slightly less in the prior year period on a constant currency basis and in line with our outlook.

Andy Wamzer: Our core services and software businesses grew a healthy 4% year-to-year on a constant currency basis, led by strong growth in ATEM as a service and software.

Andy Wamzer: Note that we have expect combined first and second quarter 2025 hardware revenue will grow mid-single digits compared to the first half of 2024.

Andy Wamzer: The Growth in Services and Software Revenue in conjunction with lower hardware drove recurring revenue mix to 75% for the first quarter for our core businesses.

Andy Wamzer: The TNT segment, which comprises less than 5% of a total business, was down year-over-year and in line with plan. And as a reminder, we manage this segment for profit, and it does enhance the scale of our service operations.

Andy Wamzer: Moving to slide 11, top line growth in our higher margin recurring businesses coupled with good early progress on productivity initiatives drove 9% growth in adjusted EBITDA or 11% on a constant currency basis to 175 million.

Andy Wamzer: The primary source of EBITDA growth was the self-service banking segment.

Andy Wamzer: The network EBITDA was up modestly and was offset by decrease in TNT and incremental

Andy Wamzer: Ajusted EBITDA margin expanded 270 basis points from the prior year to 17.9%. Illustrating the tremendous earnings power of our strategy to drive incremental, high margin service revenue from our installed base of 600,000 devices.

The other expense line increased 3 million year-to-year [inaudible]

Andy Wamzer: The non-GAAP effective tax rate was approximately 28% for the first quarter compared to 27% in the prior year. non-GAAP fully deluded earnings per share increased in impressive 56% year-to-year to 64 cents.

Andy Wamzer: As anticipated, we did not generate positive free cash in the first quarter due to working capital associated with the ramp in hardware deliveries planned for the second quarter and was in line with our expectations.

Andy Wamzer: Starting to slide 12, self-service banking had another strong quarter with results that were in line with our expectations.

Andy Wamzer: Starting in the upper left, revenue grew 1% year-to-year on a constant currency basis to 624 million.

Andy Wamzer: The primary growth driver was 6% growth for combined software and services revenues, partially offset by shift in the timing of hardware deliveries from the first to the second quarter.

Andy Wamzer: In addition, the impact of deferred hardware revenue included a new ATM as a service agreement reduced segment revenue growth by around a hundred basis points

Andy Wamzer: In the chart on the top right, the key takeaway is the impressive year-over-year growth in the Joseph Evita and Margin Expansion that we delivered in the first quarter.

Andy Wamzer: Adjusted EBITDA increased 14% year-to-year to 153 million and margin expanded 320 basis points to 24.5%.

Andy Wamzer: At a high level, margin expansion was due to higher gross margins in each of our business lines. Most notably, 150 basis points of expansion and services combined with a mixture toward services and software.

Andy Wamzer: Key accretive developments within our businesses included solid revenue growth in high margin software and ATM as a service revenues and net cost savings from productivity initiatives.

Andy Wamzer: Harris had a minimal negative net impact in the quarter of approximately $2 million.

Andy Wamzer: Moving to the bottom of the slide, KPIs remained on a positive trajectory in the first quarter.

Andy Wamzer: The mix of recurring revenue was 64% up approximately 200 basis points year-to-year. ARR was up 2% year-to-year reflecting the continued build in services and software revenue from our existing installed base.

Andy Wamzer: Next is slide 13, and our ATM is a service outsourcing business.

Andy Wamzer: As a reminder, our bank outsourcing solutions business resides within our self-service banking segment.

Andy Wamzer: Advancing our customers through the continuum towards full outsourcing is a strategic priority for the company. Therefore, we present key operational metrics separately to help investors better understand and track our progress.

Andy Wamzer: Referring to the top left of the slide, revenue grew 24% year-to-year to 57 million for the first quarter. We continued to build momentum in this area as we onboarded new customers and expanded into new markets.

Andy Wamzer: The strong momentum we've built over the past year is highlighted by a 44% increase in unique customer count compared to the prior year period.

Andy Wamzer: On the right, you can see the impressive profitability of the outsourcing model, with 24% top-line growth, translating to 54% gross profit growth, and over 700 basis points of gross margin expansion to 38%

Andy Wamzer: Moving to the bottom of the slide, KPIs also demonstrate the positive trajectory of the business.

Andy Wamzer: On the left, ARR continued to increase sequentially in the first quarter and was up 26% year-to-year to $230 million.

Andy Wamzer: We finished the quarter with a strong backlog and sales pipeline to support reaching 40% growth for the year. On the right, you can see the healthy revenue uplift we generate from our A team of the service business, with first quarter R-Pu of 8,400.

Andy Wamzer: Arpu ticked down modestly in the first quarter which was influenced by a higher mix of asset-like customers onboarded in recent quarters.

Andy Wamzer: Such fluctuations are expected because the base is relatively small, though several variables like region, scope, and timing of onboarding can impact ARPU for the quarter.

Andy Wamzer: Over the longer term, it should continue to trend upward from growth and higher R. Poo regions like North America and Europe . Moving to the network segment on slide 14, first quarter results were in line with our expectations.

Andy Wamzer: Segment revenue of $299 million was down 4% year-to-year on a reported basis.

Andy Wamzer: Digging in to business results, cash withdrawal transactions were approximately 3.5% lower than the prior year, primarily driven by a high single-digit decrease in the UK.

Andy Wamzer: On a positive note, we outperform broader UK withdrawal trends, suggesting we gain share in the market.

Andy Wamzer: Our all-point network continued to generate solid withdrawal volumes and grew transactions and the low single digits year-to-year in the first quarter.

Andy Wamzer: We also generate strong top line trends from sources other than withdrawals helping to diversify the business and support future growth.

Andy Wamzer: Deposit Transactions increased more than 200% year-to-year and 9% sequentially and branding revenues increased 10% year-to-year.

Andy Wamzer: Moving to the upper right, adjusted EBITDA of 88 million with at the high end of our expectations and grew low single digits year-to-year.

Andy Wamzer: The Justin EBITDA margin was 29% and expanded approximately 150 basis points year-by-year, benefiting from a mixed shift to more profitable transactions and lower SG&A and R&D expenses.

Andy Wamzer: The metrics at the bottom of the slide highlight key elements of our strategy.

Andy Wamzer: The chart on the left shows our last 12-month average revenue per unit continued to move higher sequentially and was up 5% year-to-year in the first quarter.

Andy Wamzer: On the right you can see our ATM portfolio finished the quarter at approximately 77,000 units, with year-over-year decreases about evenly split between our two largest markets in the US and the UK.

Andy Wamzer: The reductions in the U.S. were a combination of our optimization plans and pharmacy partners closing low-performing stores that also had less productive ATM locations for us. Our analysis suggests that this had limited impact on our transaction volumes.

Andy Wamzer: The reductions in the UK were also a combination of internal optimization plans and retail partners rationalizing their footprint.

Andy Wamzer: Looking forward, we expect the number of ATM network units to increase in 2025 through the addition of both new retail partners and geographies.

Andy Wamzer: This is evidenced by the recently announced partnership with FCTI 7-11, that our leading utility banking platform is increasingly a sought after partner in the broader payments in cash

Andy Wamzer: By 15, presents a trending products-centric view of our results. This helps visualize how the complimentary nature of our businesses create a company that operates in attractive, growing, and highly profitable markets.

Andy Wamzer: Most notably, it reinforces that Atleos is primarily a services business that generates recurring streams of revenue and profit rather than a hardware company with cyclical sales associated with refresh cycles.

Andy Wamzer: Second, the trends demonstrate that our strategy is working. Our services, software and transactional businesses have solid momentum with respect to both revenue and profit.

Andy Wamzer: As a reminder, the other voics operations represent legacy NCR, voics, exited geographies, and commercial agreements between Atleos and NCR voics. We expect business results to continue to decline in these non-core operations.

Andy Wamzer: On slide 16, we present a reconciliation of Q1 2025 free cash flow and a snapshot of our financial position at quarter-end.

Andy Wamzer: We had a 23 million cash outflow for the first quarter to support our robust hardware delivery that is scheduled for the second quarter and is consistent with our plan for the year.

Andy Wamzer: We expect to generate positive free cash flow in each of the remaining quarters as adjusted at EBITDA, progressively builds throughout the year.

Andy Wamzer: Net leverage was 3.2 times for the first quarter, and was down approximately a quarter of a turn compared to the prior year.

Andy Wamzer: We made 25 million of debt principal payments in the first quarter and finished with 2.9 billion of gross debt.

Andy Wamzer: Our unrestricted cash balance decreased by $67 million during the quarter and resulted in a net debt balance of just under $2.6 billion.

Andy Wamzer: Based on our financial outlook and capital allocation priorities, we expect net leverage to be less than three times by the third quarter.

Moving to Slide 17 for Financial Outlook.

Andy Wamzer: Given our solid first quarter results and positive momentum heading into the second quarter, we have reaffirmed the full year 2025 guidance ranges presented earlier this year.

Speaker Change: On a related note, I'll add some perspective related to terrace. First, this is clearly a very uncertain and fluid situation. As Tim noted, our tariff exposure primarily stems from hardware and parts produced in India, but our supply chain does have exposure to other countries.

Speaker Change: Hardware and Replacement Parts represents about 20% of our total revenue base, and about one third of that is imported into the U.S.

Speaker Change: We are developing plans to mitigate the potential costs of the terrorists. If the current terror proposal stand, we still believe we can deliver results within our 2025 guidance ranges, but probably in the lower half of the range.

Speaker Change: Recapping our full year 2025 guidance. We expect total company core revenue will grow 3-6% on a constant currency basis.

Speaker Change: Adjusted EBITDA to grow 7-10% on a constant currency basis.

Speaker Change: Just at EPS, to be in the range of $3.90, to $4.10, and free cash flow to be between $260,000,000 and $300,000,000.

Speaker Change: We currently forecast that foreign currency will be approximately a 1% headwind to EBITDA.

Speaker Change: For the second quarter, we expect consolidated core revenue to grow in the low to mid-single digit range, including a modest FX headwind.

Speaker Change: The voice-related impact on top line should diminish further in the second quarter and result in low single digit growth for the total company.

Speaker Change: We expect self-service banking revenues should grow mid-single digits, benefiting from a approximately 20% year-by-year growth in hardware and positive top-line growth for services and software.

Speaker Change: We expect network revenues should be flat year-to-year with growth in the core ATM network business Offset by Lower Liberty Crypto Revenues

Speaker Change: Adjusted EBITDA is projected to be between 190 to 205 million with margins in the mid 20s for self-service banking, high 20s for network and low 20s for TNT.

Speaker Change: Although the line interest expense should be similar to Q1, effective tax rate is expected to be approximately 26% and share count approximately 75 million.

Speaker Change: Putting the pieces together, we expect adjusted EPS to be in the range of 75 cents to 90 cents.

Speaker Change: We expect positive recast for the second quarter, concluding my comments, Atleos is off to a successful start to 2025 with a strong first quarter that positions us well to achieve our plan for the year.

Speaker Change: We delivered solid financial results, great operational execution, and progress on our strategic priorities to grow efficiently, prioritize service, and embrace simplicity.

Speaker Change: We have reaffirmed our guidance for 2025 despite the external uncertainty and our developing plans to mitigate risks.

Speaker Change: We move forward with confidence in our approach and ability to drive profitable growth with our unmatched platform of ATM solutions for our customers which will ultimately translate to shareholder value. With that, I will turn it back to the operator.

Speaker Change: Your signal to reach our equipment. Again, press star one to ask a question. And our first question is going to come from Matt Summerville from DA Davidson.

Thanks, public questions first.

Speaker Change: You know, this year is sort of spoken for from a hardware standpoint. And then on the as a service side of the business, in order to get to 40% growth for the year, that obviously implies a pretty big ramp.

Speaker Change: Through the remainder of the year, can you help sort of pay the picture on how that ramp builds from here? And then I'd follow up.

Speaker Change: Hey, Matt, Tim, I'll give it a shot and then I'll let you their steward or Andy jump in. First on Hardware, I think it's going to be the best Hardware year we've had since 2019.

Speaker Change: It's made a very good year from a hardware perspective. For a couple of reasons, the replacement cycle is clearly giving us some lift, lapping those 2019 units.

Speaker Change: and our product is supremely competitive, and while we may have been a little bit challenged.

Speaker Change: A year or so ago, we're back and our recycler demand is very strong, so.

Um, I think-

Speaker Change: We get to the end of the year. We're going to post probably 8% revenue growth on hardware. And that's after absorbing some of those machines into a team as a service and into our own network. So from a unit's perspective, it will be an exceptional year. As I said, I think it'll be the best since 2019. So

on...

Speaker Change: As a service, this is just like last year. There's a race at the end of the year to implement machines and onboard customers.

Speaker Change: We had a huge fourth quarter as you'll remember in terms of machines coming on board, and then you haven't inducted any of your start of the process and some of the others you focused on completion, and so you just start a little bit slow in the first quarter. Much like last year, implementations will ramp across a year, very similar in fact in pattern.

Speaker Change: to how we did last year. So, as much as I hate riding that cyclicality, if we see it in hardware as well, to spend it or lose it mentality, it customers the annual planning cycle of customers and frankly our behaviors as we ramp up across the year, just cause those two revenue streams to be somewhat back and loaded.

Thank you to Nick Collar. It's a follow-up.

Speaker Change: Settlement on the balance sheet. Lever just sort of flat at 3.2, next quarter or excuse me in Q3 you expect to be a little bit lower than three times. How is that informing your view on potential buyback timing? Is that evolved further Tim since three months or a couple of months ago last time we spoke? Thank you.

Speaker Change: Yeah, it evolves all the time because I get a lot of feedback from investors, I get a lot of feedback from board members, and then the world changes as well.

Speaker Change: Look, I still think the right goal for us is to there's there's supreme consistency and opinion around us getting under three times leverage and so without a doubt.

Speaker Change: I would like to apply every dollar free cash flow we generate to getting us under three times leverage and I think we're now within eyesight of that goal.

. . . .

Speaker Change: Our cash flow is because of the weighting of hardware. The hardware year I just described is being very good and back-and-loaded. I had to use some working capital on the first half of the year that we'll collect in the second half of the year. So my free cash was a little more back-and-loaded than we expected, let's say a year or so ago when we talked about. [inaudible]

Speaker Change: Getting to three times by the mid-point of the year. So maybe I'm off by 30 or 60 days, but we're going to get there. And by the time we talk to you 90 days from now about our results in the second quarter in July .

Speaker Change: I'm going to have to be more descriptive on what we're going to do with free cash flow there after here here's how I think about it when we get to the to this time of 90 days from now. Thank you very much.

Speaker Change: I'll be looking at a free cash loan or the following year that's closer to $400 million. And so I'll have $700 million worth of free cash flow over the success of six quarters that I'll need to describe what I'm going to do with and I'll be prepared to do it at that time. I'm not interested in paying a dividend.

Speaker Change: I don't think that's the right thing to do. I'm hopeful that there will be some growth opportunities that allow us to absorb some of that into accelerating our growth with acquisitions or investments in fleets.

Speaker Change: A large percentage of that excess re-cash flow should be delivered back to shareholders, and I think the right form of that is a share of purchase as we see it here today. So I don't have any news to break today, but I think you'd expect a more definitive answer from us 90 days from now.

Thanks Tim, appreciate to call him.

Yeah, my pleasure.

Dominic Gabriel: And our next question comes from Dominick Gabriele from Compass Point. Please go ahead.

Dominic Gabriel: Hey guys, good morning. Thanks for taking the question. If you just think about the hardware,

Dominic Gabriel: You know, impact to the quarter, just mixing to the second quarter and the second half. Is there any way to discuss the amount of hardware impact by the segments? And then I just have a follow-up, thanks so much.

Speaker Change: So most of the hardware goodness, all of the hardware goodness that we port as revenue will come through the self-service banking segment, the network segment, we don't recognize any hardware revenue there because of an essence of an investment in P.P. and E to support that business.

So, we...

If you look at that...

Speaker Change: Analysis, a free cash flow that Andy provided you. You can see in there that we invested about $10 million in the quarter back into P.P. and E. You can presume that most of that is units that were replacing and upgrading their existing network fleet.

Speaker Change: You can also then look into the $16 million dollar number in there that describes how much we invested into machines that are in the 18th of the service business.

Speaker Change: So, when I was talking about 2019 and demand for hardware being...

Speaker Change: The biggest since then, you'll recall in 2019 and really until 2022, we didn't have either of those numbers. We didn't own cartronics and so that was real revenue to us back then because they were an outside customer. That 10 million would have been revenue. Actually, it had been 12 million or revenue because I would have made 20 points on Stewart when he worked there.

Speaker Change: and then we would, if that $60 million would have been recognized up front as well, so...

Speaker Change: Units will be very strong I think the impact of both refreshing the network and the and the units we invested in 18 of the service, we're both pretty consistent with the annual model. If you take those numbers in multiply by four you'll be pretty close to the impact for the full year.

Speaker Change: But otherwise you'll see revenue growth in the hardware business associated with higher.

Speaker Change: Count of machines manufactured and better price points than some of those I hope that's responsive.

Speaker Change: Yep, absolutely no that that makes [noise] excuse me a ton of sense and to me. It means a self service banking business really did do quite quite well this quarter excluding that.

Speaker Change: But I'm thrilled here here's the other thing here's the other thing before you leave that I love, what the hardware business did and is going to do and the position. They put us in our engineers have put us in to be successful with a recycler I'm very very excited about that the more important thing the self service banking business is we're crushing it from a service perspective.

Speaker Change: Objective for our customers, we're posting the best customer service levels, we've posted in some time and we're doing it at less expense and so we're generating huge productivity and incremental revenue opportunity because of what that service organization is doing our our CES are killing it out there, we're giving them better tools, but.

Speaker Change: I think the most exciting thing about this quarter guest hardware is fun, but our service business is hitting an all cylinders right now.

Speaker Change: Great Yeah, Yep, and I may have missed it in the prepared remarks, but did you guys provide and would you mind, providing the the backlog average unit sell price that usually give in the thousands for unit.

Speaker Change: Self service that'd be on a T M. As a third a T. M is a service, yes, and do you want that one our backlog and a T. M is the service units is up it's about it's about.

Speaker Change: 500 units in the the.

Speaker Change: The ARPU on those devices is significantly above the average that we posted of the 8200 or soap bucks. So it's a good backlog as it exists now 8200 units won't quite get us or 70, 7200 units well quite it gets to where we want to be for the full year. We've got some other orders.

Speaker Change: I think we'll not only hit the unit number that we've talked about internally, but help us hit the revenue number which is the one we've got it too and let me just add a little bit of more color. So if I look at the backlog, it's up 25% year over year and then when we think about the RPU.

Speaker Change: It was down on a L T M B b.

Speaker Change: Percent in the quarters, you know quarter to quarter. So with that says to US is that we're really optimistic about you know the rps that we're getting from North America and Europe, when we'd expect it to go up higher meaningfully.

Speaker Change: And the only I would say caveat to that is if we have significant deals in in India, which could you know change that but given the small base there could be volatility as I said in my in my comments, Yeah, and we're hopeful that we do have soon in deals in India. We've talked in the past we've walked away from some deals where we could not.

Speaker Change: Some of those deals that were reversed auctioned come back around that those that won the bid weren't capable of executing against it the the deal that they agreed to and so I think we'll be more competitive in some of the lower cost markets. We have to be and you you might hear us at.

Speaker Change: About larger unit deals and lower cost portions of the world that are not not accretive to ARPU, maybe mildly dilutive to overall ARPU, but are very accretive from a revenue perspective, and put us and give us more scale in those in those markets.

Speaker Change: Yeah, and it looks like the adjusted even if I can speak one more in banks I. It looks like the adjusted EBITDA gross was towards the higher end of your annual target, especially if you think about you know, perhaps some of the hardware changes.

Speaker Change: But you did mention tariffs could put you towards the the lower end of the range. Just wondering if you could kind of help just flush that out just a little bit more if that's okay. Thanks.

Andy Wamzer: Yeah, I'll, let Andy take this one but remember that the terrace didn't really impact the first quarter and it was a couple of million Bucks. We did see lower transaction points I think actually was part of this whole tariff follow on effect, but those would ramp across the year and so any conservatism around.

Dominic Gabriel: Entirely tariff related and it'll be related to has this tariffs roll on in Qs two through four I don't and if you want to get you I mean to help maybe Dominic Dimensionalize. Some of this if I said for hardware and parts you know revenue could be directionally call. It 850 million.

Dominic Gabriel: We assume Tim Tim and I mentioned, the current environment today, a lot of it's coming from India, which is at a 10% tariff rate, but if we assume right now because we have other exposures to other countries a blended rate about 15% on that 225 million.

Dominic Gabriel: 34 million for the year and if we have three quarters left in the year, you're talking about a 25 million dollar you know sort of cost impact that being said you know we are working on a number of initiatives in terms of productivity initiatives looking at changing our supply chain.

Speaker Change: Great and I guess most of what you're talking about it comes through cost of revenue correct.

Speaker Change: Yes, it would yes.

Speaker Change: Hi, This is James alms on for Slomo, good morning, and thanks for taking the questions.

Speaker Change: HM as a service customer concludes.

Speaker Change: Sure in the Q1 most of the customers that we add were actually enabler, which again as I mentioned had really good ARPU, but as we look through the balance of the year. It's gonna be we look at the pipeline it is pretty balanced between NAMER a.

Speaker Change: Into into a degree Europe as well, so it's pretty balanced.

Speaker Change: Okay and can you can you also talk about what's driving this throat the strength in a T. M's service gross profit is it just more waiting towards smaller customers and that's you know those customers are more profitable or anything around that.

Speaker Change: And when we do that our it's our cost structure is incredibly scalable and the value. We can deliver to those customers is is very high and so it leaves leaves room for a little bit more profit there are markets in the world, where you have to compete harder like in the or Brazil that where.

Speaker Change: Margin the margins on a T. M is a service in India, or Brazil are not that different from the margins you would get from simply selling the hardware itself. So the the model is a it's accretive to overall revenue dollars. It doesn't change the margin rate nearly.

Speaker Change: And the only thing I'd, maybe just add is just because we think about the a team of the service. One you saw the top line growth in terms of the mid twenties, but if you look at the flow through in terms of just the margin expansion. We had in terms of 700 basis points, we were really impr.

Speaker Change: What would the levers that we're getting into the business I would say the second thing I think is important as we mentioned the customer count and so in terms of that customer count being up 40% and with that customer count why that's important is you have a number of customers.

Speaker Change: And then it potentially will expand so the we're not beholden, we don't have a customer concentration issues, we diverse diversify that base. It lends itself to the to our bank customers expanding their portfolio offering and moving down further down the continue so.

Speaker Change: All those factors together really make us optimistic for this business not just for this year, but for the longer term and we didn't see that when we first ruled this strategy out we presumed it'd be all or nothing all services all machines, all the time and that's not the way, it's playing out the way, it's playing out as if people want.

Speaker Change: Okay. Thank you very much.

Speaker Change: My pleasure.

Speaker Change: Once again, if you'd like to ask a question plus star one or next question comes from Matt Summerville from D. A Davis.

Matt Summerville: Yes. Thanks, I just had a couple quick others I just want to put a finer point on some of the transactional trends you're seeing in the network business can you comment specifically on withdrawal transactions North America versus withdrawal transactions.

Speaker Change: You know I I guess, what's the game plan for Liberty acts I mean, it was a pretty big material headwind last year I guess I was under the impression maybe that was starting to stabilize them. Some things have changed so it's falling off again I guess, one why keep it in two.

Speaker Change: You mentioned M. A Tim is there anything are you actively cultivating a pipeline and if so where would you be looking to expand or how would you be looking to expand inorganically. Thank you.

Speaker Change: Yeah. Thanks, Matt So Liberty X look you're not wrong that was an acquisition done using equity some years back when everybody thought they needed a bitcoin solution. Our solution is decent it's a it's a singular currency, it's only bitcoin and we did generate some revenue when we first completed that.

Speaker Change: Profit it just impacts top line. It is it had its biggest impact of the year this quarter because it had a pretty punky second half of last year and so it won't be as big a contractor to overall revenue as we go through.

Speaker Change: Suggestion that why look we're not investing more back into this business. We've tried we're trying a couple of different things right now, including the ability to monetize bitcoin at the device to see whether that business can be more successful, but otherwise it's a business.

Speaker Change: We do we don't have to cross border in that business anymore, and we'll keep necking it down it's a it's a distraction and I wish it wasn't there on.

Speaker Change: What was the other.

Speaker Change: Ideas that are much more expensive and much more strategic and frankly more exciting that we can get to once we're once you take care of our dad. So back to the conversation earlier about the $700 million or so free cash flow how the deploy once we get.

Speaker Change: Once we get through this next quarter I I would hope that some of these good ideas that have come forward, particularly around.

Speaker Change: Sending our fleet our network fleet around the globe, it's much easier to step into an existing fleet and make it better than it is to start from scratch I think there's some technology, we could add to the network business that would could allow us to if we could spend a little bit more money there add some technology to the device itself.

Speaker Change: Helpful.

Speaker Change: There's some parts of our nearly perfectly vertically integrated solution to the sell service banking business such a couple of holes in there that would be interesting to fill and round out our portfolio and there's some international dot.

Speaker Change: We would we would might chase an environment, we had a little bit more to go. So we have I'd say a long list of ideas that are $100 million to $5 million in aggregate price that we could probably execute this year, but then beyond.

Speaker Change: We just need the time, a little more carefully and maybe just to add on to I mean, Tim had had exactly right I would say the one point about liberty access to emphasize is that it is low margin. So it does sort of skew the top line results, but from a from an EBITDA perspective.

Speaker Change: It does have minimal impact and then you you ask the question about you know just volumes you know network volumes I would say you know we think about network name you know network volumes and NAMER. It was relatively flat, but as we look out.

Speaker Change: Of some ready code you know transactions and as we talked about some of the high profitable sort of deposit transactions in terms of what we're doing there again on a small base, but we're diversifying the transaction mix.

Speaker Change: So network transactions the U S network transactions global were up 2% withdrawals, whereas in the U K I think we said they were down six or 7%. So.

Speaker Change: U S still pretty good U K down and and by the way March is a really tough month for some reason I I think April has been better. So I'm I'm hopeful that that decline was was temporal and had more to do with the timing of Easter and some other things you know.

Speaker Change: But April has been better and I'm, hoping we report next quarter, it's not down six or 7%.

Speaker Change: Got it thank you.

Speaker Change: Yeah, Hi, good morning, great quarter, guys and thinking about the cash flow and the cadence this year and next year.

Speaker Change: And your prepared comments you had mentioned that there could be and should be substantial cash flow. How should we think about the cadence of that over the remainder of the year. I know Q1 is always a use type position and as we look to 26 because that would.

Speaker Change: Pretty significant ramp into 26, thanks, guys. Yeah, I'll go first because andy's not been here that long and can't refer to history, but that's been the history for us from a cat free cash flow perspective, consumer a little bit and the first quarter and maybe.

Speaker Change: And then generate most of the free cash flow in the latter half of the year I think that'll play out again this year, we're a little more linear last year, which was terrific. It was a little bit of an atypical year and our hardware business actually didn't have a great year last year, and that's what gets back and loaded so.

Speaker Change: I I think you'll see us get north of breakeven for this so you have mildly positive in Q2 that offsets the loss. We just the use we just had in the first quarter and then you see a pretty good second half of the year, we have published or will published the cash outflows associated with taxes our best.

Speaker Change: The only thing I would add is in the comments I talked about how EBITDA will ramp as we go throughout the balance of the year and I think Tim said exactly right. When we look at the front half of the year it could be relatively flat slightly positive, but when we look in Q3 and Q4 as.

Speaker Change: Our free cash flow conversion should be closer to like 60% in each of those quarters. So it will you know considerably ramp as we go to the back half of the year and that's relatively consistent with you know how it's been the house been in the past.

Speaker Change: Okay, Great and then one follow on in terms of the Capex is remind me with the a T M service.

Speaker Change: Capex is more that skewed internationally or place in service in the U S.

Speaker Change: It it's it's gonna be balance so if we think about the potential for you know capex for 18 of the service it could be between I'll call. It like 30 to 40 million and and but it could be balanced between all geographies frankly.

Speaker Change: That's all I had sure. Thank you.

Speaker Change: I think's good morning in the hardware business is there any way to quantify how much of the orders were shifted out of the quarter into two Q and the second half of the year, yeah, none shifted so.

Speaker Change: This quarter. It was just how the orders fell that we took last year. So it has nothing to do with orders moving out or moving in it was it was planned. This way we tried to on the last call that people know that and say we'd have to use working capital get there I'd prefer not.

Speaker Change: Got it that's helpful and then in the network business you continuing to see optimization of the portfolio in some retail partners closing down some lower performing locations do you have visibility into how much of a continuation this trend.

Speaker Change: Are there additional closings your expecting on the horizon.

Speaker Change: Yes, I think that pharmacy customer said is challenged and I think there's overcapacity to a certain extent and you saw rite aid. The other day suggested that there they may be closing a bunch of stores in bankruptcy and so we would we have a good think we have.

Speaker Change: So 1100 machines rite, yeah. So I think those are at risk that.

Speaker Change: But remember we don't get paid by the device there right, we get paid by the transaction and so as long as we grab those transactions. The next nearest machine. We're fine in fact, we're better off in a lot of ways, you're rolling trucks, if fewer locations you're fixing to your machine so getting much better leverage so.

Speaker Change: There's some continued pressure there that said we're moving those machines. We can put those machines back into service. We do have we announced a really nice deal with 711, that's gonna allow us to put our machines our network inside of 711, which is a big deal.

Speaker Change: How many locations do it do they have.

Tim Oliver: That we announced a 711 allows us to infill some of those locations, where we may not have another retailer in that same zip code, but as Tim said the majority of the transactions that are attending those units those are our customers on the all point network.

Tim Oliver: We're very confident in the growth of that upon network and as we add additional transaction types customers are continuing to push their customers off of the teller lines outside the branches into our retail locations continuing that sort of growth trajectory for alpoin.

Tim Oliver: My pleasure.

Tim Oliver: Alright, I think that's the the last question. Thank you operator, that's the last question. We're right on time, we appreciate everybody tuning in today, we'll be available as the week plays out to answer questions beyond those are asked in this call. We we feel very very good about our start to the year it's work.

Tim Oliver: Our hardware is competing exceptionally well our service organizations performing remarkably well and it bodes well for the rest of 2025. So thanks for tuning in today and we'll talk to you again 90 days from now.

Tim Oliver: And this concludes today's call. Thank you for your participation you may now disconnect.