Q2 2025 NCR Atleos Corp Earnings Call
Please stand by.
Good day and welcome to the NCR Atleos Q2 2025 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Melanie Skiis. Please go ahead.
Good morning and thank you for joining the atlos second quarter 2025 earnings call joining me on the call today are Tim Oliver, chief executive officer, Andy, Romer Chief Financial Officer and Stuart MacKinnon. Chief Operating Officer during this call, we will reference our second quarter 2025 earnings presentation which is available on the investor relations section of our website at investor.net cam.
Today's presentation will include forward-looking statements as defined in the private Securities. Litigation Reform, Act of 1995.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
these risks and uncertainties include but are not limited to the factors identified in today's earnings materials and our periodic filings with the SEC, including our annual report,
In our review of results. Today, we will also refer to certain non-gaap Financial measures. These non-gaap measures are reconciled to their Gap. Counterparts in the presentation materials,
A replay of our earnings call will be available later this afternoon and can be accessed through our website.
I will now turn the call over to Tim.
Thank you Melanie, and welcome to the at Leo team. I first week on the job, which we write into an earnings release. Uh, we we appreciate you being here and uh, we look forward to great things.
Thank you to everyone for joining our call this morning. I'll start by quickly reviewing the quarterly, operational performance and strategic progress from a more forward-looking and qualitative perspective. I'll leave the quantitative review to Andy
Consideration in our Outlook.
I'll end by reiterating the compelling at Leo story and describing a capital allocation strategy that nicip steady growth and free cash flow.
I'll be back after Andy's review to take your questions.
For those following along in the presentation posted to the investor relations website. I'll start on slide 5.
In the second quarter, our 6 full quarter, as a separate publicly traded company at Leos reported another solid quarter relative to financial metrics and delivered exceptional quarter from Mr. Strategic and competitive perspective.
We grew a lot by delivering robust Hardware Revenue that extends our leading installed base and drove incremental revenue from the global Service Fleet by accelerating our outsourced Services business.
Our service first initiative elevated, service levels to new all-time highs and it's being recognized by our partners and rewarded by our customers.
And we Embrace Simplicity reducing inefficiencies across the company optimizing our production and supply chain operations redesigning, the organization to speed decision-making, and investing in systems and people to make us easier to do business with.
The exceptional effort across the company translated to strong financial results. Revenue is 1.1 billion.
Core Topline growth was on Pace with our plan, led a typically but not unexpectedly by traditional Hardware Revenue in the conversion of services, growth backlog.
This growth was partially offset by lower cardless. Payroll transactions in the US
and by lower TNT segment Revenue,
profitability ramp nicely and was at the high end of our expectations due to an advantageous Hardware Revenue, mix
A creative outsourced, ATM, service, Revenue growth fixed cost leverage and direct cost productivity particularly in our service organization.
These are all partially offset by a higher cash, rental costs and higher tariffs.
Considering Atleos' solid first half results, we continue to believe our full year 2025 guidance is appropriate.
Backlog that supports both multi-year, high traditional ATM deliveries and strong ATM outsourced service growth, coupled with cost productivity momentum, should together be sufficient to offset lower cardless transactions in the network business and persistently high interest rates that impact our cash rental costs.
Shifting to chart 6, which describes a self-service banking segment.
This is primarily a Services business comprised of a global installed base of over 500,000 ATMs sold to financial institutions that then run on our subscription software and rely on the at Leo servicing agreement for the duration of their deployment.
Traditionally ATM Services have been centered on maintenance and repairs. But increasingly banks are opting to Outsource more or even all of their other services necessary to run an ATM.
We now have over 120,000 machines that we support Beyond traditional brake, fix including over 33,000, that are now fully outsourced to atlas.
Segment financial performance was strong.
Revenue grew in impressive 9% in the second quarter benefiting from increased demand for our recycler product coupled with acceleration in Outsourcing services.
Services and software group combined 5%.
ATM is a service was the primary source of services growth and continued to gain momentum with meaningful additions to Total contract, value to customer count and to backlog.
This second generated significant profit growth with margins up across each Hardware, software and services.
A higher margin Hardware, mix and services growth augmented by productivity. Initiatives contributed to the margin expansion,
We also continue to make good progress on our 3 objectives for 2025, which I'll remind you are, grow efficiently.
Prioritize service and embrace simplicity.
From a growth perspective, product Innovation efforts are allowing our products to compete exceptionally. Well
Demand across the product portfolio, and especially at the recycler product has exceeded expectations.
Accelerating demand in the simultaneous relocation of the preponderance of our manufacturing and assembly to a singular plant has challenged our logistics organization. However, their diligent efforts allowed us to make every delivery commitment in the second quarter.
And they stand ready for a further ramp in the second half of 2025.
Well, we consider ourselves a Service Company growth in our Hardware installed base catalyzes, future periods of success.
After 8 years, running the ship cheerleader in our Collective. ATM markets. In 2024, we moved into the first position for installed base,
And expect to extend that lead in 2025.
The sales process improved conversion, rates resulting in our best quarter ever for ATM as a service. Bookings.
177 million dollars of new Total contract value including several orders for Enterprise level customers and a new geographies including ing, Spain.
The State Bank of India.
And Bank National Canada.
Our service first initiative is working.
Already industry-leading service levels. Continue to Trend upward in the second quarter setting, another new high and further enhancing customer satisfaction.
Over the first half of the Year. Customer Health scores have increased by 160 basis points. And happier customers are buying more
Our efforts to simplify how we operate. Our generating positive business outcomes.
Following the successful test run of our AI-driven dispatch and service optimization model in Canada.
We launched this product for all of North America in the second quarter.
These AI tools are delivering Improvement across our service performance metrics and are already allowing over 65% of our total dispatches in those regions to be scheduled with without intervention.
Attorney to chart 7 summar, the network segment.
The network segment is a utility banking business that consists of approximately 80,000 owned and operated ATMs across 13 countries, placed in blue-chip retail locations where consumers can meet their regular banking needs.
The network business continues to grow the number of network card holders. The number of client financial institutions, the types of transactions resident on the devices and geographies.
While second quarter transfer, most transaction types, and regions increased both year-over-year and sequentially. Lower Dynamic currency conversion, due to less International traveling and lower us. Prepaid card, transactions in cities with large migrant populations result in an overall modest decline in segment Revenue
We do anticipate both of these to be transitory and temporal rather than trends.
Adjusted Evita margin rate was on budget, but decrease year-over-year, due to the known expiration of interest rate, Hedges on our vault cash rental costs that were put in place at the time of the cardtronics acquisition.
Growth opportunities and investments. In this segment, typically expand the footprint of the network.
Or the transaction capability of the machines in the network.
In Q2, we welcome the return of 711 locations to our Allpoint, Network, and activated. The first 1,000 locations for fcti for processing
We will also deploy 5,000 Atlas devices backed by our service and support into the 711 us Fleet with the rollout beginning in the fourth quarter.
More recently, we announced that we will add convenience retailer cases and their 2900 locations for search charge free transactions for our 75 million card holders at all point.
And we added 6,500, ATMs and the access cash brand in Canada.
Our new transaction types performed. Well,
Ready code. Further expanded its presence in digital payments. Through an agreement with incomm payments. Providing additional cardless, use cases for the ATM.
And cash deposit transactions grew 170% for the first half of the year in our us retail portfolio.
We continue to build a pipeline of Partnerships and Integrations to increase transaction opportunities and volumes for the focus on fintech issuers and wallet providers.
Something to chart 8, I will use this as a backdrop to restate our strategy and illustrate our unique position.
Since separating from Legacy NCR through a spin transaction in the late 2023 at Leos is now a pure play independent company with a leadership position in self-service Banking and a clear growth strategy.
And a global environment that continues to demonstrate steady cash-based consumer transactions and a stable installed base of atem, Hardware. Our growth will come from generating more revenue for every at Leos device that we support.
Whether that's been providing high quality, and more efficient, and more comprehensive services to our financial institution clients.
Or by driving more transaction, volume across our own network machines.
Both of these strategies are fueled by our customers desire to improve Financial access for their customers. While also Outsourcing more of their cash ecosystems and NCR at Leos is uniquely positioned to benefit from either solution.
A shared Financial utility estate or an outsourced Bank specific Fleet.
Both vectors leverage a common at Leo's infrastructure that has unmatched scale and is world class.
And finally on chart 9, I summarize our investment thesis.
Our separation is done, our tsas are completed and we have no new commercial agreements with our former sister company.
Strategy and the investment to support that strategy is supremely focused on the ATM and on physical to digital transaction types.
Over the past 6 quarters, we have launched our Innovation efforts and reclaimed our leadership position, we've expanded our installed base, we've grown our capabilities. We've returned to best-in-class service levels and engaged our Global employee base in the service first culture.
We've also improved our balance sheet and are about to cross a critical Milestone of being under 3 times. Net, Leverage,
With 3 cash flow projected to ramp considerably over the next several years, and net leverage expected to drop below 3 times in the third quarter of this year.
We believe in more balanced approach to Capital allocation that favors the highest incremental Roi is now appropriate.
To that end the NCR at Leo board of directors has authorized a hundred million dollar share repurchase program with a 2-year duration.
On nearly every measure and every multiple I believe our company remains undervalued relative to our industry and relative to our peers.
And at the return of the shares, we purchased at these levels is very compelling.
We plan to execute on their purchase program using a 10 B 51 plan while also driving further, reductions in net leverage and pursuing small, bolt-on Acquisitions, that are a creative and reduced net. Leverage
Before I hand off to Andy, I want to thank our 20,000, employees all over the world, for their dedication, to our company, dedication, to each other, and to our customers.
Their service first bias is driving, our success, and their unrelenting effort, allowed us to deliver yet another strong quarter for the company.
We will continue to be Innovative to drive impactful outcomes and to lead our industry from the front.
The separation transaction is now behind us, our balance sheet continues to improve and our Outlook is very bright.
With that, Andy over to you.
Thank you. Tim building on Tim's comments, the company continued to perform well in the second quarter making good progress on our plans for the year advancing. Our long-term growth strategy and delivering solid Financial results.
The strong momentum, we built through the first half of the Year coupled with our robust, Hardware order book and sales pipeline.
Set this up well to meet our operating and financial objectives for the year.
Importantly, over the past six quarters, the company has demonstrated the ability to generate profitable growth and significant free cash flow, which has enabled us to reduce financial net leverage from 3.7 times at the time of the split from Legacy NCR to approximately 3.1 times at the end of the second quarter.
Our confidence in the company's ability, to continue growing profit and free cash flow in conjunction with good visibility and to reaching net leverage of approximately 2.8 times as we close out the year support shifting to a more balanced approach for Capital allocation.
Given the company's current valuation and significant incremental earnings power, repurchasing. Our shares offers 1 of the most compelling value, enhancing uses of our capital.
So, we are pleased to announce that the board has authorized a $200 million share repurchase program that represents approximately 10% of our current market capitalization
The repurchase authorization has a 2-year term.
Moving forward. Our goal is to continue to invest in the business and balance, share repurchases with further debt, reduction at a pace that optimizes sustainable shareholder value creation.
Starting on slide 11. I will focus my comments on core results for the second quarter because the wind down of voy related business, impacts comparability with the prior year period note that voy related comps will continue to be less meaningful during the second half of the year.
The key message you should take away from this slide is that we delivered solid second quarter Financial results with mid single-digit, core Topline and ebit dog growth margin expansion and high single-digit, EPS growth, all within or above the upper end of our Outlook.
For revenue of just under 1.1 billion group 4% year-over-year with 3%, growth in our services and software businesses, including acceleration and ATM as a service growth.
Hardware was up 18% year-over-year in line with our expectations which drove 3% growth for the first half of the year.
We demonstrated progress in our services focused growth strategy with recurring revenue streams accounting for over 70% of total revenue in the quarter.
We achieved strong results with high recurring Revenue alongside 1 of our best quarters for hardware sales in recent years.
With good early, progress, on productivity, initiatives, drove 4% growth, in adjusted ibida to 205 million.
The primary source of IBA. Doug growth was the self-service banking segment, partially offset by decrease in network ebida, which was expected and a slight increase to corporate costs. Justin even done margin of almost 19% expanded approximately, 40 basis points in the prior year, with strong margin expansion, for self-service, banking more than offsetting margin compression from the network segment.
Below the line. Net interest expense decreased, 9 million compared to the prior year, benefiting from a lower debt, balance lower variable rates and lower credit spreads achieved and our credit facility refinancing late last year.
The other income and expense line improved by $3 million year-over-year.
The rate was approximately 26% for the second quarter compared to 17% in the prior year.
Non-gaap fully diluted earnings per share increased in impressive at 9% year-over-year to 93 cents. We generated modest free cash flow in the second quarter due to ongoing investment in working capital to support another step up in Hardware, deliveries for the third quarter.
According to slide 12, the self-service banking segment, delivered exceptional Financial results. In the second quarter starting in the upper left Revenue, grew 9% year-over-year, and reached a new quarterly, high of 733 million. The primary factor that drove the Topline strength was 21% growth in Hardware deliveries, which reflect higher demand related to the industry, refresh cycle. Uptake of our recently upgraded recycler products and the anticipated shift towards the second quarter for a first half order book. Hardware demand remains robust and should drive another step up in revenue for the second half of the year.
Our services and software businesses, continue to generate Healthy Growth of 5% on a combined basis, with banks, increasingly Outsourcing more services to us.
We estimate that the impact of deferred Hardware Revenue related to new 18 as a service agreements was approximately 130 basis, point headwind, on second quarter Revenue growth,
Moving to the chart on the top right, SSB grew adjusted EBIT dot an impressive 20% in the second quarter to $189 million, also a new quarterly high.
The key. Takeaway here is our ability to drive significant incremental profit through efficient profitable growth and continuous productivity improvements.
Segment, adjusted, Evita margin, expanded 240, basis points year-over-year to almost 26% with margins up, across each line of business.
Terrace had a growth impact of approximately 5 million in the quarter.
Moving to the bottom of the slide, kpis, reflect the healthy, fundamentals of the business on the bottom left of the slide. The mix of recurring Revenue was 57% with recurring Revenue comprising, the majority of the business, even 1 of the strongest Hardware quarters in recent years, normalizing for Hardware volumes, we estimate the mix of recurring. Revenue would have been 60% in Q2 ARR was up year-over-year. Reflecting the continued builds in recurring services and software revenue from our existing installed base.
Next to slide 13 and our 8 team as a service Outsourcing business.
As a reminder, our bank Outsourcing Solutions business resides within our self-service, banking segment, advancing our customers through the Continuum of ATM outsourced Services towards full. Outsourcing is a key, strategic priority for the company.
We break out primary operational metrics separately to help investors better understand and track our progress.
As previously mentioned, we will continue to evolve how we discuss the Outsourcing business in the coming. Quarters for better comparability with industry reporting practices starting at the top left of the slide Revenue grew. 32% year-over-year to 62 million for the second quarter led by 25% growth in unique customers and a favorable, mix shift to nameer, which is our highest margin geography.
We also expanded to a new geography in Q2 closing, our first deal in Spain.
Kpis. Also demonstrate the positive trajectory of the business on the left ARR continues to build and was up 32% year-over-year to 249 million.
We finished the quarter with a strong backlog and sales pipeline that puts us on track with our growth targets for the year.
On the right you can see the healthy Revenue uplift. We generate from our 18 business service, business with second quarter rpu of 8,300.
The modest sequential downtick in RPO for the second quarter was influenced by a higher mix of asset like customers. Onboarded in recent quarters,
such fluctuations are expected because the base is still relatively small. So variables like region scope and timing of onboarding can impact our proof of the quarter.
Over the longer term, it should continue to trend upward from growth in higher RPU regions like North America and Europe.
Moving to the network segment on slide 4. Second quarter results were at the lower end of our expectations segment. Revenue of 320 million was down 2% year-over-year on a reported basis.
Digging into business results. Cash withdrawal transactions were approximately 4% lower than the prior year with mid single digit decreases in the UK and North America. As Tim noted North America was impacted by several factors beyond our control.
Disruption in 1 of writing code's key, digital payment Partners coupled with shifts in government policy have affected certain consumer segments.
As Tim mentioned, we've seen a decrease in Dynamic currency conversion transactions as fewer. People are traveling to the United States and also lower utilization of prepaid payment cards given certain government policies, excluding those items. We estimate North, America withdrawals would have grown low to mid single digits.
On a positive note, already code solution, continues to Garner interest from a variety of wallet fintech and Money Services providers.
Several new participants are in the process of coming live. We expect ready code to return to growth in the coming months as these new partners such as income aggregate programs and funnel, existing transactions to self-service.
Additionally we've completed certifications for our ATMs, in South Africa and we're seeing strong growth of 13% year-over-year in the region driven by a mixture of product and operational enhancements.
We generated strong trapline trends for sources, other than withdrawals helping to diversify the business and support future growth. We continue to see strong momentum across our utility deposit Network. As deposit volumes were up 170% year-over-year with volumes exceeding 1 billion dollars of annualized deposits for the first time.
Moving to the upper right adjusted ebata of 86 million was at the low end of our expectations.
The year-over-year decrease in IBA was expected and was primarily due to a 12 million increase in Vault. Cash costs, resulting from the wind down of previous Hedges and macro related transactional. Headwinds
adjusted deep atom margin was 27% in the quarter.
The metrics at the bottom of the slide highlight. Key elements of our strategy, the chart on the left shows our last 12 months, average revenue per unit continues to move higher sequentially and was up 3% year-over-year in the second quarter.
On the right, you can see our ATM portfolio, which finished the quarter at approximately 77,000 units, remaining flat sequentially. Looking forward, we expect the number of ATM network units to increase in 2025 through the addition of both new retail partners and geographies.
Slide. 15 presents a trending product Centric. View of our results.
This helps visualize how the complimentary nature of our businesses creates a company that operates in attractive growing and highly profitable markets.
Most notably, it reinforces that at Leos is primarily a Services business that generates recurring streams of revenue and profit.
Second, the trend demonstrate that our strategy is working our services and software. Businesses have accelerated coupled with the solid momentum and Hardware revenues, fueling Topline and profit growth.
The consistent performance in our transactional business reaffirms, the resilience of our business strategy. As a reminder, the other voice operations represent Legacy, NCR voy exited geographies and Commercial agreements between at Leos and NCR voices. We expect business results to continue to decline in these non-core operations.
16, we present a Reconciliation of our second quarter free cash flow and a snapshot of our financial position at quarter end. We generated 15 million of free cash flow for the second quarter, which includes investments in our inventory, to support our robust Hardware delivery. That is scheduled to the third and fourth quarters and is consistent with our outlook for the year.
We expect to generate significant free, cash flow in each of the remaining quarters as adjusted ebit. Dot progressively, builds in the second half of the year.
Net leverage was 3.1 times. The second quarter and was down at approximately a half a turn compared to the prior year.
We made 20 million dollars of debt, principal payments in the second quarter and finished with 2.9 billion of gross debt.
Our unrestricted cash balance was just under $36,060 million at quarter-end and resulted in a net debt balance of $2.5 billion.
Based on our financial Outlook and capital allocation priorities. We expect net leverage to be below 3 times and the third quarter.
Moving to slide 17 for financial Outlook, given our solid second quarter results and positive momentum. Heading into the third quarter, we've reaffirmed the full year 2025 guidance ranges presented earlier this year
For the third quarter, we expect Consolidated core Revenue to grow in the mid single digit range. The voi related impact on Topline should diminish further in the third quarter and result in low to mid single digit growth for the total company.
We expect self-service banking revenues should grow mid to high. Single digits, benefiting from approximately 20% year-over-year growth in hardware and positive, Topline growth for services and software.
We expect Network Revenue will be flat year-over-year, with growth in the core ATM network business offset by lower Liberty crypto revenues.
Adjusted ebit dot is projected to be between 210 and 225 million with margins. In the mid 20s, for self-service banking, high 20s for networks and High Teens for TNT.
Below the line interest expense should be similar to Q2 effective tax rate is expected to be approximately, 25% and share count, approximately 75 million.
Putting the pieces together, we expected adjusted EPS to be in the range of 95 cents to A110.
Respect free cash flow to meaningfully, step up in the third quarter. As a reminder, the midpoint of our free cash flow guidance was 280 million and we expect a 40 60% split between quarters 3 and 4.
Concluding my comments at Leo's, we had a successful second quarter and first half of the year, which sets us up well to achieve our plan for the year. We delivered solid financial results, had great operational execution, and made progress on our key strategic priorities to grow efficiently.
Prioritize service and embrace simplicity.
We have reaffirmed our guidance for 2025 despite continued tariff, uncertainty and macro related transactional, headwinds and have developed plans to mitigate risks. We move into the second half of 2025 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.
Thank you. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press *1 to ask a question. We'll pause for just a moment to assemble the queue.
We will take our first question from Matt Somerville with D.A. Davidson.
About, um, with respect to the, as of service business, what the average RP is in the, as of service, backlog, and how that's trending. And speaking of backlog, can you put a finer point or some level of of quantification on the as a service backlog. And then I have a follow-up. Thank you.
yeah, it's uh, through, thanks, Matt, uh, north of 9,000, I think it's 90 9100 of of, uh,
Arpu in the backlog. That moves much like of course, it does in the in the installed base, right? It depends on the mix. It's in there but it's a very lucrative mix.
Yeah, really good quarters. I said it it was our best quarter from a book weeks perspective. Since we started this initiative some 2 and a half years ago. Yeah. And just to add I mean that that backlog you know of 105% um up year-over-year that really does set us up well for the balance of this year and then gives us momentum into 26. You know as we as we you know continue to expand this product offering
thanks and then in your prepared remarks Tim you made the point to talk about
some of the achievements you've had in the services side of the organization. Can you put a finer point on that and any sort of metric quantification? I remember. You said 160 basis points but I I don't actually know what what metric you're actually using there. And then, you know, relative to the stock price in the share buyback, announcement. Given where you're at 3233, how would you expect at Leo's, relative out of the gate aggressiveness to look with repo? Thank you.
Yeah, let me take the first 1. So uh on the performance perspective, we've been on a steady climb back to our leading levels of proposed service performance since the separation. You'll recall that back in October of 23 and really through January of February of 24, we found ways to frustrate our customer base. We we were taking 2, service organizations that were comprised in many regions for by generalists who fixed equipment across both businesses, and necking down to singular, specialist organizations. And we we just, uh,
We didn't have people in the right places. Sometimes we left machines. Uh, unrepaired the biggest problem at that point in time was our, um, our outlier machine. So on average, our service levels were okay, and probably were still at the top of the pack, but, um, we had a lot of outlier machines that would sit for days without getting repaired which is a, a, a big irritant to our customers.
Uh, we're well back. The the effort was uh, was huge by the service organization. We are fully separate now and nearly every region. We we Supply little bit of support to voy. They don't Supply any to us, any longer from a service perspective and we've shifted entirely to to Specialists uh rather than generalists the uh we measure an NPS score annually. And then we we update that with pulse surveys uh at midpoint of the year at least once a year. Those pulse surveys, came back, incredibly strong. This pulse survey is we go out to only those who are detractors in the previous survey and asked 1 question. Are we getting better?
And the answer in the most recent survey was emphatically. Yes. So and that's not just on service, right? That those those questions go out on a lot of different things. Uh you can 1 of the things that most irritated customers going back a year or so ago, was our invoicing capability was we had convoluted invoices and so we're working on every aspect of customer service and uh and right now they're all getting better.
On the repo, repos are hard to predict exactly when you're going to do them. Look, I I think in the low 30s, here it it's a no-brainer we buy back as much stock as we could remember, there were only allowed to buy under certain circumstances. We can't buy in the uptick, we can only represent a certain percentage of the total volume in any given day and we will operate under a plan. Uh otherwise we can only buy in our open Windows which are relatively short. But really only give you let's call it 3 months out of the year to be able to repurchase that wouldn't be effective or efficient. So we'll put a 10 B 51 plane in place. Uh I I don't know exactly what that'll be structured like now. But it will have, it will accelerate purchases at lower stock value stock prices. It will allow us to take more advantage of days. We have significant disconnects in our evaluation, or our performance relative, to the rest of the market. We've had several in the last couple of months that, uh, on on no news, the stock traded. Let's call her at radically. It's less An Elegant trading by others. I'd say created by buying opportunities. We
Just weren't there to buy. So, um, I want to make sure that we're under 3 times levered before we start. And, uh, we'll work with the legal department to get that $10 billion by 1 point of place as quickly as possible. And, uh, start buying back shares.
we're very pleased to board allowed us to
To, to get this authorization in place and and we'll use it very wisely. I I think
Hundred million dollars over the next 2 years. I
If cash flow, free cash flow plays out the way they think that it will. I don't think we'll need 2 years.
I hope that helps.
Very good thanks for the color Tim.
Yeah, my pleasure.
We will take our next question from Dominic Gabriel with compass point.
hey guys, uh
You know, really good results and and really exciting to hear the capital return.
For sure. I know, uh, you've been waiting to get the approval and investors have been waiting to to jump in when when they see something like this.
Now right, you're shedding your old skin. The business is starting to accelerate in many ways.
Uh, and you're really starting to transform the business and so there's a lot of investors I think that are going to revisit this name. So if you could just give us kind of your your, your 2 to 3 year Vision. As you see it today given some of the developments in the quarter and over the last 1 or 2 quarters. I, I think that'd be really excellent. I just have a follow-up if you don't mind.
Yeah. Separation is messy and it's hard. It's a lot harder than the I even knew.
Um, we had a lot to get done to just get a foundation under us to mature as a company and the leadership team and to make sure that our customers were comfortable with the new, with the new NCR athletes. We're there and I I think this quarter the results that the reported results were great. Right. We live 90 days at the time, as a public company, I get that. But far more important was the huge progress you made. Competitively, we're winning everywhere again and we're winning more than our fair share.
And we're winning the the we're getting the benefits of the doubt from our customers and they're giving us more service revenue. And so, um, I I would trade, you know, 90-day Financial results for the kind of strategic results we just posted every day. And, and I think that's if you get Confidence from Andy. And I today is because it's working and our customers, see it and um and the model we put together is 1 that it takes advantage of really the most unique portfolio of capabilities of anybody. In our space, No 1 else can win both ways. If, if an
Economy, what wants to go to a totally shared, uh, Financial utility called the network of devices like, some, like maybe New Zealand has done. We're there to help. We got it. We know how to run networks. We can run them better than anybody in the world because we run the biggest 1 in the world.
If on the other hand, economies want to continue to have lots of banks, like the US does, and have each of those banks have their own Fleet, we can help out there as well. We know, we can run fleets for most of our bank, customers more efforts than they can and more effectively than they can. We want to be able to do that for them. That traditional models worked incredibly well they worked really well this quarter. Uh so uh I don't think anyone else wins both ways and and that's what makes us feel good. We can go to the customer and say we'll give you a hybrid approach. You tell us what you want your footprint to look like and we can optimize that for you across that entire entire Spectrum. Our vertical integration is to approving out to be a huge asset for us because all of those new machines we bring on either from a service perspective or we add to the network are are incredibly inexpensive to run the leverage. The fixed cost leverage and that the leverage off of our of our Fleet and install base. That is is very very powerful and allows us to expand margin or generate incremental margins. Now then on that new Revenue that are much higher than the average margin of the company. And
Retreat. And then lastly, um, we know, we knew when we went out on the road and talked about this business to it, it could and should generate, uh, predictable and and, and High free cash flows.
Those would not become evident until we get a few quarters away from the separation because of of cash costs associated with the separation and some other things we needed to work through.
We're right now able to invest back into our business, from an innovation and growth perspective and reduce debt and now repurchase share. We've got our strategic flexibility back. We've got our, we've got our Capital balance sheet flexibility back. We'll still continue to to reduce the debt. And this is It's a good practice. We'll keep getting it down further. I, I don't know whether we get down to 2 and a half times or what the ultimate threshold is, but we'll have the opportunity of the next several years, to redeploy that cash flow, uh, to drive all 3, which I think, uh, at this point now, where they're leveraged at about 3 times,
All 3 of, those can accrete good value to all of our constituencies customers, shareholders, Bond holders, and employees.
Hope that helps.
Yeah, absolutely. It's It Feels Like The Leverage Target actually jumped the quarter from was brought forward a little bit to get below 3 times too if I remember, right? And so that that's really positive and I guess the the only thing I was curious about I think there is a misconception when investors just, you know, first look at this company sales hardware and that's just not the case. And so you know I think what
Some people worry about um, is some of the India impacts and you see the tariffs going from 25 to 50. Uh, but just remind everybody how small the the hardware really is and kind of what those impacts are going to change in tariffs. Thanks so much.
You want to make sure that that happens and the reason we're so excited about Hardware right now is not because it's pushing, uh, Revenue growth currently. It's because it feels like we're taking share, and it feels like we're growing our install base and that's super important to Future period success.
The, um, but it is only, uh, 800 million dollars of revenue for us.
Our our we've gone out of our way to co-locate all of our Manufacturing in India. India is a great market for us. We have over 6,000 employees in India and we have manufacturing Just 4 or 5 years ago, and 5 or 6 locations. We have swing capacity in Europe and swing capacity in Mexico that we can utilize. If necessary to manage down tariffs that get out of line, look, I don't anticipate a 50% tariff in India lasting for the long haul, it won't affect our third quarter. Uh, because most of our stuff are already on the water in the fourth quarter to be a modest impact that we didn't deal with it. If it stays at 50%, we'll find a different solution.
I don't think that it will.
And I I I also think that tariffs won't drive
uh, competitive differentiation, meaning all of us procure. Our parts from other parts of the world. There's very few people stringing wiring harnesses or, or stuff in printed circuit boards in the United States currently, and I don't anticipate that happening.
It's also true that if you sub segment out your manufacturing too, terribly much, you lose scale, you lose scale, pretty rapidly. I don't believe there's enough demand for our product inside of the US to make it worthwhile to open an assembly plant here in the United States. And even if I did, you'd only save, uh, the Tariff on the 30% or so, of the, the cost to build associated with the labor content in that device. So we spent a lot of time thinking about this, we have for many years thought about the right manufacturing footprint for us. Uh, the includes, uh, cost of use of supply chain costs as well, localization of of supply chain and transportation costs. We will adjust if we have to, I don't know where it's going to go. Nothing's permanent yet. I think that India is an incredible partner for the United States. I think that ultimately, the 2 sides will figure something out. I perfectly fine at 25%. It's still the best place for me to manufacture. I can prove that out and, um, and I'm still competitive. So we'll, um,
We'll deal with that when the time comes before the third quarter, no change for the fourth quarter, we'll have stuff on the water that gets us through the first month of that fourth quarter. So I I'm really not. This is not a 20.
25 issue, it would be coming, 2026 and 2027 issue. And we would act to make sure that, uh, we, we have net effects, offset the gross tear. I, I hope that answers your question.
Absolutely, thanks so much.
Yeah, my pleasure.
We'll take our next question, from George Tong, with Goldman Sachs.
Hi, thanks. Good morning.
Your ATM is a service business. Saw 32% Revenue growth in the quarter uh from an increase in unique customers and high rpu geographies. Can you elaborate on how sustainable this growth is and how you expect the growth drivers to evolve over time?
Yeah, a great question. I, I would say first off in terms of thinking about the sustainability, I think the first thing to look at is just look at the year-over-year backlog that we had. I mean, so it's up 105%. I think as we talked to customers, uh, more and more in terms of about our product portfolio and our services is offering. I think we are seeing a, a real validation into this, you know, full 18 minutes of service, uh, you know, portfolio or a solution. So we we we think about the 18th of service. It was up. 32% in Q2, we expect that to accelerate, um, further into uh, Q3 and Q4 um, you know, certainly above 40% plus rates. Um, you know, for the for the balance of the year and when you look at the backlog, it really it's both. Well in terms of thinking about that can
Continued growth and even even uh, potentially higher um, for for 26. So, um, I would tell you, as every week, we get new, uh, I'll, I'll call it deal reviews in terms of looking at, uh, different proposals from customers and the pipeline in terms of the activity, we're looking at, it is robust. Um, so we have a lot, a high yield confidence in terms of what the Outlook is for that growth business for this year and certainly Beyond
Got it, that's that's helpful. Um, and then you expect a network uh, business to see managed units, uh, swing back to positive growth and the full year basis, can you talk about how much of this, uh, growth, you expect to come from new partners that you that you signed versus a stabilization of unit declines from existing Retail Partners.
Bit of decline in the uh in the pharmacy space to go. But it it it's going to be dwarfed by the new machines that we're adding on. So I I feel good about where that number is going. The as, you know, the arc who's been growing more quickly than the devices declined, as we've been seeing growth in the, particularly in Allpoint Network, in the United States, for some time. But the the most recent, uh,
Deals with 711 and with Casey's. And the addition of devices in in Canada, I think all vote very well for for the fleet size. Uh, and and I also think that some of those new
Entrance and the new new partners in the network business have fleets that actually augment where we are. So it's it's adding density to places where we needed to add density cases is often, in more rural locations, the the Canadian devices. I think we we had room to increase the density of devices and candidates. So in most urban populations in the United States we don't we don't need more devices the access points. We're adding now are pretty terrific.
And George. Maybe the only thing I also thought that is
Yeah, my pleasure. No other thing else. I'd add relates to the network businesses, you know. So we think about Q3, we do see sequential Improvement, you know, with that business. We think Q2 is really the low point in terms of, you know, certainly where we see profitability, we absorbed all the balance cash, um, you know, kit. And so what we're now on a sort of a steady state there, but as I talked about in my comments and Tim's, just with the new partners, uh, that we're going the different,
Transaction types that are being added, we certainly expect sequential Improvement in network particularly in Nea dot uh next quarter.
Got it. Very helpful. Thank you.
Great.
We will take our next question, from Antoine Leggo with wedbush securities.
Oh, good morning. Thanks for taking my question. Just 1 from me in terms of the refresh cycle. Are you seeing any?
Anything new in terms of customer demand, uh, you know, given the Windows 10, uh, end of Life coming up in October. Is there has there been any anything on that front that you can speak to?
Yes, so will not be that phenomenon that causes people to order more devices this year or next, the the devices since the force migration in 2019 of Windows 10, uh, that we and our banks made, sure it will never be caught in that situation again. So there's no, there's no forced, uh, device upgrades caused by by the next change in, in Windows, what you've seen is a lapping of the, the huge Hardware years that all of us, who manufactured devices experienced in 2019, those machines are aging out. They're hitting their 5 to 7 year duration, and so you're seeing some modest uptick in in Hardware Revenue, just because of what I call normal refresh cycle.
That that, uh, that sine wave is up for sure. And it's, we're benefiting now. It would not explain, however, all of the upside that we're seeing in the hardware business. I think there's 2 other reasons, um, 1, we're winning more often than, than, in the past, we're winning more than our fair share in most bids, and we feel great about that. The other is, uh, there is an upgrade associated with the, the capability of the device. So it's not a force Migration by the underlying software, but rather, uh, for operating system. But rather by the capability of the device, whether it be recycling, or multi multi-purpose devices, or whether it be the capability of the device around different transaction types and tap, and all the, all the rest, um, you are seeing more demand for more expensive and more capable devices around the world. And we're, um,
I think you're going to see the look and feel of the device over the next say, several years change, pretty dramatically as people decide that it's not just about
The screen size anymore, but rather about how people interact with the machine. So there is definitely demand for Hardware, that's associated with change. But probably not the, uh, the change of the operating system.
Understood, thank you.
My pleasure.
We will take our next question from Chris senick, with Wolfe research.
Uh, hi. Good morning, uh, solid quarter. Um, could you talk about the trends? You're seeing in ATM as a service heavy versus asset light deals? I know there'd been a mix, uh, change a little bit and some of the past quarters. And then if you could break that out US versus International, that would be super helpful. And then I have a follow-up question.
A North American in your perspective, which will vote well, for a better mix of asset light deals. The, um, it's also true that Andy and his team finally after
Uh many quarters of trying uh have found a way to to finance. Some of these devices off of our balance sheet non-recourse financing which is really helpful uh from an asset life perspective.
Right? And then a question on uh, margins and the Cadence of them giving the the next of of more Hardware stuff. And the in the second quarter, uh, how should we be thinking about the margin Cadence, uh, in the back half of the year. And as we exit 2025,
Yeah, so is it as we think about next quarter? I I would say um you're probably going to see it in an uplift in SSB just to continue to grow growth with as a service. Even that's going to offset some of the, you know, the strong Hardware growth. I would expect, um, you know, year-over-year, maybe sequential decline, um, or actually sorry, sequential Improvement. And and network, uh, year-over-year decline, just given the ball, the ball cache of expect TNT, uh, needs to be up modestly and you saw that again, in terms of the results, we we posted in in Q2, and then, as we think about Q4, we'd expect to continue to punch all Improvement, really driven by the same things. Um, in terms of continued SSB is going to continue to step up as as we move throughout the, the balance of the year. And that's going to drive a lot of the margin.
Yeah, this SSB business really is the recipient of most, of most of our productivity initiatives. Yeah, and those are going very well. Our service organization, we talked about some of the AI tools and other things rolling out. This is a good old-fashioned 6 Sigma Total Quality. However, you want to describe it. It's just productivity and those productivity initiatives. Uh, I think on a, on a net basis, we're looking to deliver 40 to 50 million dollars worth this year. On a gross business, a gross basis, closer to 100 million dollars. Uh, those are on plan and working, and they accelerate the second half of the year. So it also gives us really good uplift. It is interesting that we're posting in improved margins when our mix is more heavily weighted to Hardware, that is, that is somewhat, uh, counterintuitive to how you perceive our business. But when you get the volumes of devices that you have that we've seen and you get the right mix of devices. It can be, at least accretive to what the hardware of profitability was in the prior period, and and that's what we've seen.
Okay, great. Thank you.
Sure.
They will take our next question from shomo rosenbalm.
Hi, this is James Holmes on for Rosen bomb.
Uh, I just wanted to take a deeper look at ATM as a service, gross margin. It continues to be really strong with margins up, 900 bits per year over year. Is there anything in the backlog that could impact the margins going forward? Such as a large deal in India or any other geography and what what can the smart? The margins in the segment reach sustainably? Thanks.
Yep. So in my comments, I talked about in terms of the, the margin profile can change based on the scope the region at. And really frankly the number of devices, uh, when we think about this, also, the flow through in terms of, you know, Revenue being up 32 and, and, you know, the, the gross profit being up, you know, 74. I mean, that that margin is, is really healthy. It's really going to change and sort of evolved, but, but we can expect it to continue to grind higher, particularly with, as we get more name or deals or deals done in North America done. So, um, you know, we're looking at opportunities all around the globe, um, and, you know, their friends. They are attractive opportunities everywhere. But, um, you know, we expect this Market profile to continue to go up as we, um, you know, continue to get more productivity. Um, you know, as we launch this product offering globally. I think what Andy was saying is do not expect 72% profit growth on 39% Revenue, correct, right. This is this is a right. We will very advantageous mix what it does to
Describe is a business that is entirely scalable. And the conversion on those incremental, service dollars is exceptionally High. It may not be as exceptionally high as it just was in the quarter to just pass but it will remain exceptionally high. And that's the beauty of this model is that, uh, you should see profitability grow well, in excess of Revenue and that Revenue growth rate is somebody asked earlier, right? It's going to be, uh, North to 30% for a long time to come.
Thank you and maybe just a quick follow-up regarding Network. Even Del margin what level of Interest incorporated into the guidance and what what is the segment sensitivity to any potential?
Interest rate Cuts going forward.
Which means it's over plus 7090 basis points when we think about the the the debt that we borrow, if you want to think about simplistically um about potential rate cuts, um, you know, so if you had we brought 3.8 billion. And if you had a 1, Point, decrease, and and so for rate, that's 38 million. So if you had a forward curve that looked, you know, that said that there could be, you know, a 4 Cuts, you know, over the next call it year year and a half, you know, that will be a benefit to our just pure profitability. So, um, I'm, I'm Tim and I can tell you when the feds going to cut and what the pace of that, you know, Cuts going to be. But we certainly think the Outlook should be positive in terms of what our vault cast. This should be a low point in terms of where our vault cash cost should be and should certainly improve, you know, as we look to the outer years. Yeah. When we put this plan together, we anticipated 4 rate Cuts this year for for a full point. And uh, of course, as you know, we've not seen them. So, uh, We've absorbed that into our guidance and we're figuring out how to how to cover that. But um,
Uh, it would be that one full point across the year. Assuming that it was played out across the year, that would have been half of $38 million bucks or, you know, a $19 million pickup for us. So we found ways to cover that, but in future periods when those rates come down, we should see some nice lift and even beyond.
Okay, thank you.
We will take a follow-up question for Matt Somerville with the a Davidson.
Thanks to all.
Quick here. I just want to make sure I understand within the network business. Can you parse out the impacts of the couple of Dynamics? You pointed out ready, code being 1 of them that weighed on absolute withdrawal volumes this quarter. And when you expect withdrawal volumes to re-accelerate, an absolute terms. Thank you.
Yeah, I I the ready code, the pause and the ready code growth associated with it, the an acquisition and then resign it. An agreement is about a few million bucks in the quarter. Uh, and the was the other 1, Andy DCC, and prepaid or you know, directly about 2 to 3 million in aggregate. So that that was responsible for in addition to the ball cache. I I think the concern with with the
With the cardless payments in some. Let's call it the Immigrant intensive economies in in blue States. Is uh, we don't. It got it got worse at the end of the quarter and so we don't know where it goes from here. Uh, the others, we suspect, that things will adjust and they always do. But we have to be cautious in our, in our expectations for that. And we're going to find other ways to offset that or in anticipation of that being a little bit more persistent problem, maybe playing out. It through the third quarter, we'll go find other ways to, uh, to get back some profitability.
Filling out business but the uh, ready code thing is is ready, ready to be fixed and, and the other we're watching carefully.
Yeah, and just the other thing I would add is, you know, I said, in my comments, we fully expect ready code to ramp over the next few months, uh, you know, with Partners like income and, you know, Tim mentioned in his comments, you know, just with the fcti and Casey's and others, you know, that business we have, uh, plans to recover all other, vectors of growth, feel great in that business. We just got a modest us
Unanticipated change in consumption and and and uh, and paying behavior and but we'll, it has to settle back in.
Understood, I'll leave it there. Thank you guys.
Great great. I think that's, I think we've hit time but I don't want to keep people passed if we could help at operator. Thank you for your help today.
Um,
a quick quick summary, a great quarter, a good quarter from an from a reporter Financial results and kpis perspective and exceptional quarter when it comes to our competitive positioning and our strategic progress
We uh, we're very pleased to be able to say that our separation of transaction is in the rearview mirror as 1 of you as and it does, it does do a good to make that statement. It was a longer path perhaps than any of us knew. And we're very glad to be here the, uh, the confidence that our board showed on us to allow us to uh approve. A a shared purchase program suggests that they believe like we do that. We are going to generate strong free, cash flows at our company for many quarters and years to come. And that the call on that capital.
Uh, this is Natty Capital intensive business to call that Capital will not be high. We'll be able to continue to get it back to both shareholders and debt holders over the next. Uh, several quarters and years. So thank you very much for your interest. We appreciate your time, very much and we'll talk to you again in 90 days.
This concludes today's call, thank you for your participation. You may now disconnect