Title

Presentation

Operator: Good day, and welcome to the NCR Atleos First Quarter FY ’25 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.

Brendan Metrano : Good morning, and thank you for joining the Atleos First Quarter 2025 Earnings Call. Joining me on the call today are Tim Oliver, CEO; Andy Wamser, CFO; and Stuart MacKinnon, COO. Tim will start this morning with an overview of the company’s business performance and strategic progress in the first quarter. Andy will follow with a review of our financial results and our outlook for the second quarter and full year. Then we’ll move to Q&A. Before we get started, let me remind you that our presentation and discussions will include forward-looking statements, which are often expressed by words such as may, will, include, expect, and other words of similar meaning. These statements reflect our current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially from those expectations.

These risks and uncertainties are described in today’s materials and 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, which the company uses to measure its performance. These non-GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials and on the Investor Relations website. A replay of this call will be available later today on our website, investor.ncratleos.com. With that, I will turn the call over to 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 thesis, describing a successful start to our 2025 and providing some company-specific context for the current uncertain business climate. Andy, will then walk you through the more detailed financial results, and then we’ll both take your questions. Since separating 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. 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.

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, whether that’s from providing higher quality, more efficient and more comprehensive services to our financial institution clients or by driving more transaction volume across our owned network machines located in blue-chip retail locations. Both of these strategies are fueled by our customers’ desire to improve financial access for their customers while outsourcing more of their cash ecosystem. And both growth vectors leverage a common Atleos infrastructure that is unmatched in scale and is world-class. So starting on Chart 6.

Revenue was in line with our plan with growth from the more strategic parts of our business offsetting lower noncore separation-related revenue from our former parent company, Voyix, some regulatory changes and lower volumes at our Bitcoin business, LibertyX, and the timing of hardware revenue, which will grow nicely across the remainder of the year. From a profitability perspective, a more lucrative revenue mix, coupled with direct productivity efforts in our service organization pushed margins up almost 3 points overall. Operationally, nearly all of our customer KPIs are moving in the right direction, and our service levels remain at post-spin highs. We exited Q1 with an order book for hardware that is very strong and an increasing backlog for new service revenues.

Our productivity initiatives are on pace to deliver the targeted savings levels, and our contingency planning efforts are beginning to recover some of the profitability we expect to lose the tariffs. I’d like to take a minute to describe Atleos’s exposure to what we know now about tariffs and what could be second order effects of a global trade rebalancing. Because we are a global company with a preponderance of our revenue coming from recurring services, our tariff exposure is generally limited to ATM hardware and replacement or repair parts produced overseas and then imported into the U.S. Those goods represented less than 7% of our total costs in 2024. Going forward, about 90% of the hardware is going to be imported to the U.S. from India, with the remainder split between Hungary and Mexico.

We do also have a small tail of parts from China who are looking to locally source in India. Beyond the direct and easier to calculate cost of tariffs, we are also watching closely the potential follow-on effects of tariffs on the 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 will walk you through the gross impact of tariffs and discuss the contingency actions we are taking to reduce that net impact. In past challenging economic environments, our business has proved to be very resilient. Over 70% of Atleos revenue is generated from recurring services and software streams that facilitate essential customer transactions for financial institutions and other partners.

In addition, in periods of economic uncertainty, cash usage often increases due to tighter credit conditions and consumer budget pressures. And our strategy to grow our share of a continuum of ATM service revenues with comprehensive outsourcing capabilities could have a more compelling value proposition when banks are looking to enhance efficiency. On our year-end 2024 call, I introduced 3 primary Atleos goals for 2025 that are appropriately broad to allow to be cascaded with increasing specificity down through our organization. These 3 goals provide a framework for prioritization and ensure organizational alignment for our 2025 objectives. I’ll refer to them again as I describe successes in each of our business segments later. The first is grow efficiently.

Accelerating growth while we reduce leverage to targeted levels requires judicious allocation of growth capital and operating expense. We’re emphasizing the growth vectors that drive the most immediate returns and are accretive to margin and cash generation. The second is to develop a service-first culture. We believe service, not product is the primary differentiating factor in the ATM industry and in the cash ecosystem. Service already makes up a preponderance of the revenue base and carries higher margins. 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. 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.

Our 24/7 always-on customer service mindset is essential to our long-term success. 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. Investment in modern systems, improvement in processes and organizational redesign that reduces layers and handoffs will extricate us from our former parent and make us more nimble, make our employees’ jobs more rewarding and make us much easier to do business with. I will illustrate progress on each of these overarching goals as I walk through the segment results. Moving to Slide 7 and the Self-Service Banking business review. This is primarily a service business comprised of a global installed base of over 500,000 ATMs that we sell to financial institutions with a software subscription and a service and support agreement.

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. And for the eighth year running, this business was named the global ship share leader for the ATM industry. First quarter financial results were either in line or slightly ahead of our expectations. Revenue grew modestly on a constant currency basis. Combined services and software revenue grew 6%, which translated to similar growth for our recurring revenue streams. 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. 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.

Favorable revenue mix combined with cost productivity generated more than 300 basis points of margin expansion year-over-year. Moving to the bottom of the page, Q1 is an important quarter for our reinvigorated innovation efforts. Our prototype machines and technologies have been installed in 2 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 inject their strategic needs into our labs. While our service-first initiative is just getting started, we already are seeing returns. 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. Our customers are already rewarding us with add-on orders that are additive to our installed base or gained more share of wallet. 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. 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. The network business continues to grow the number of network cardholders, is now in 13 countries and is expanding the capability of its installed base. 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 U.K. and some decline in cross-border or travel-related transactions. And we anticipated the further erosion in the LibertyX Bitcoin transaction revenue due to regulatory changes. Allpoint cash withdrawals grew modestly and cash deposits continue to ramp quickly. Adjusted EBITDA margin expanded by more than 140 basis points and ARPU continued to increase sequentially and year-over-year, hitting another new high. Moving to the bottom of this page. This business signed 7-Eleven to the Allpoint network, adding thousands of convenient and safe locations for our 75 million cardholders to conduct their daily banking. We also signed a partnership in the U.K. to extend our deposit network there and added more deposit-enabled locations in the United States.

The benefit of higher service levels also accrued to this business. Higher availability of our owned and operated 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. We’re also implementing upgraded and modern ERP modules that will improve our invoicing and collections capabilities. 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 clear line of sight. 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.

Andy will give you more details on that next. But before I hand off to Andy, I want to recognize the 20,000-strong Atleos team for their performance this quarter and a great start to 2025. We were not distracted by the most recent and a long string of uncertain business environments but rather embrace the opportunity and began developing solutions. With your collective effort, we will lead our industry from the front and deliver strong 2025 results. With that, Andy, over to you.

Andy Wamser: 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. 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. I will focus my comments on core results because the wind down of Voyix-related business had a meaningful impact on year-over-year growth in the first quarter. The impact of Voyix steps down in the second quarter and lessens progressively throughout the balance of the year. First quarter core revenue was $966 million, just slightly less than the prior year period on a constant currency basis and in line with our outlook.

Our core services and software businesses grew a healthy 4% year-over-year on a constant currency basis, led by strong growth in ATM as-a-Service and software. ATM network transaction services were flat on a constant currency basis. Hardware was down year-over-year as planned, reflecting a skew in first half deliveries to the second quarter. Note that we expect combined first and second quarter 2025 hardware revenue will grow mid-single digits compared to the first half of 2024. 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. The T&T segment, which comprises less than 5% of the 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. 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. The primary source of EBITDA growth was the Self-Service Banking segment. Network EBITDA was up modestly and was offset by a decrease in T&T and incremental corporate costs. Adjusted 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. Below the line, net interest expense decreased $11 million compared to the prior year, benefiting from a lower debt balance, lower variable rates and lower credit spreads achieved in our credit facility refinancing late last year.

The other expense line increased $3 million year-over-year. The non-GAAP effective tax rate was approximately 28% for the first quarter compared to 27% in the prior year. Non-GAAP fully diluted earnings per share increased an impressive 56% year-over-year to $0.64. 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. Turning to Slide 12. Self-Service Banking had another strong quarter with results that were in line with our expectations. Starting in the upper left, revenue grew 1% year-over-year on a constant currency basis to $624 million. The primary growth driver was 6% growth for combined software and services revenues, partially offset by a shift in the timing of hardware deliveries from the first to the second quarter.

In addition, the impact of deferred hardware revenue included in new ATM-as-a-Service agreements reduced segment revenue growth by around 100 basis points. In the chart on the top right, the key takeaway is the impressive year-over-year growth in adjusted EBITDA and margin expansion that we delivered in the first quarter. Adjusted EBITDA increased 14% year-over-year to $153 million and margin expanded 320 basis points to 24.5%. 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 in services, combined with the mix shift towards services and software. 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.

Tariffs had a minimal negative net impact in the quarter of approximately $2 million. Moving to the bottom of the slide, KPIs remained on a positive trajectory in the first quarter. The mix of recurring revenue was 64%, up approximately 200 basis points year-over-year. ARR was up 2% year-over-year, reflecting the continued build in services and software revenue from our existing installed base. Next is Slide 13 and our ATM-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 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.

Referring to the top left of the slide, revenue grew 24% year-over-year to $57 million for the first quarter. We continue to build momentum in this area as we onboarded new customers and expanded into new markets. 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. 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%. Moving to the bottom of the slide, KPIs also demonstrate the positive trajectory of the business. On the left, ARR continued to increase sequentially in the first quarter and was up 26% year-over-year to $230 million.

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 ATM-as-a-Service business with first quarter ARPU of $8,400. ARPU ticked down modestly in the first quarter, which was influenced by a higher mix of asset-light customers onboarded in recent quarters. Such fluctuations are expected because the base is relatively small, so several variables like region, scope and timing of onboarding can impact ARPU for the quarter. Over the longer term, it should continue to trend upward from growth in higher ARPU regions like North America and Europe. Moving to the Networks segment on Slide 14. First quarter results were in line with our expectations.

Segment revenue of $299 million was down 4% year-over-year on a reported basis. Excluding the effect of currency headwinds and the Liberty Crypto business, our ATM network revenue was essentially unchanged compared to the prior year. Digging into business results, cash withdrawal transactions were approximately 3.5% lower than the prior year, primarily driven by a high single-digit decrease in the U.K. On a positive note, we outperformed broader U.K. withdrawal trends, suggesting we gained share in the market. Our Allpoint network continued to generate solid withdrawal volumes and grew transactions in the low single digits year-over-year in the first quarter. We also generated strong top line trends from sources other than withdrawals, helping to diversify the business and support future growth.

Deposit transactions increased more than 200% year-over-year and 9% sequentially, and branding revenues increased 10% year-over-year. Moving to the upper right. Adjusted EBITDA of $88 million was at the high end of our expectations and grew low single digits year-over-year. Adjusted EBITDA margin was 29% and expanded approximately 150 basis points year-over-year, benefiting from a mix shift to more profitable transactions and lower SG&A and R&D expenses. The metrics at the bottom of the slide highlight key elements of our strategy. The chart on the left shows our last 12-month average revenue per unit continued to move higher sequentially and was up 5% year-over-year in the first quarter. 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 2 largest markets in the U.S. and the U.K. 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. The reductions in the U.K. were also a combination of internal optimization plans and retail partners rationalizing their footprint. Looking forward, we expect the number of ATM network units to increase in 2025 through the addition of both new retail partners and geographies. This is evidenced by the recently announced partnership with FCTI 7-Eleven that our leading utility banking platform is increasingly a sought-after partner in the broader payments and cash ecosystem. Slide 15, presents a trending product-centric view of our results. This helps visualize how the complementary nature of our businesses create a company that operates in attractive, growing and highly profitable markets.

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. 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. As a reminder, the other Voyix operations represent legacy NCR Voyix exited geographies and commercial agreements between Atleos and NCR Voyix. We expect business results to continue to decline in these noncore operations. On Slide 16, we present a reconciliation of Q1 2025 free cash flow and a snapshot of our financial position at quarter end. 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.

We expect to generate positive free cash flow in each of the remaining quarters as adjusted EBITDA progressively builds throughout the year. Net leverage was 3.2x for the first quarter and was down approximately 0.4 of a turn compared to the prior year. We made $25 million of debt principal payments in the first quarter and finished with $2.9 billion of gross debt. Our unrestricted cash balance decreased by $67 million during the quarter and resulted in a net debt balance of just under $2.6 billion. Based on our financial outlook and capital allocation priorities, we expect net leverage to be less than 3x by the third quarter. Moving to Slide 17 for financial outlook. 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.

On a related note, I’ll add some perspective related to tariffs. 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. Hardware and replacement parts represents about 20% of our total revenue base and about 1/3 of that is imported into the U.S. We are developing plans to mitigate the potential cost of the tariffs. If the current tariff proposals stand, we still believe we can deliver results within our 2025 guidance ranges, but probably in the lower half of the range. Recapping our full year 2025 guidance, we expect total company core revenue will grow 3% to 6% on a constant currency basis, adjusted EBITDA to grow 7% to 10% on a constant currency basis.

adjusted EPS to be in the range of $3.90 to $4.10 and free cash flow to be between $260 million and $300 million. We currently forecast that foreign currency will be approximately a 1% headwind to EBITDA. For the second quarter, we expect consolidated core revenue to grow in the low to mid-single-digit range, including a modest FX headwind. The Voyix-related impact on top line should diminish further in the second quarter and result in low single-digit growth for the total company. We expect Self-Service Banking revenues should grow mid-single digits, benefiting from approximately 20% year-over-year growth in hardware and positive top line growth for services and software. We expect network revenue should be flat year-over-year with growth in the core ATM network business, offset by lower Liberty Crypto revenues.

Adjusted EBITDA is projected to be between $190 million to $205 million, with margins in the mid-20s for Self-Service Banking, high 20s for Network and low 20s for T&T. Below the line, interest expense should be similar to Q1. Effective tax rate is expected to be approximately 26% and share count approximately 75 million. Putting the pieces together, we expect adjusted EPS to be in the range of $0.75 to $0.90. We expect positive free cash flow 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. We delivered solid financial results, great operational execution and progress on our strategic priorities to grow efficiently, prioritize service and embrace simplicity.

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

Operator: [Operator Instructions]. And our first question is going to come from Matt Summerville from D.A. Davidson.

Matt Summerville : A couple of questions. First, just on the Self-Service Banking business, looking at kind of the legacy hardware-driven piece of the company, can you give a little bit more color on overall backlog this year relative to last? And how much of 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 through the remainder of the year. Can you help sort of paint a picture on how that ramp builds from here? And then I have a follow-up.

Tim Oliver: Matt, it’s Tim. I’ll give it a shot and then I’ll let either Stuart or Andy jump in. First on hardware, I think it’s going to be the best hardware year we’ve had since 2019. It’s going to be 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. And our product is supremely competitive. And while we may have been a little bit challenged a year or so ago, we’re back and our recycler demand is very strong. So I think 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 ATM-as-a-Service and into our own network. So from a unit perspective, it will be an exceptional year.

As I said, I think it will be the best since 2019. So really good backlog, really good demand, very good customer reaction to our product offering. On 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. We had a huge fourth quarter, as you’ll remember, in terms of machines coming on board. And then you haven’t inducted any or started the process and some of the others are focused on completion. And so you just start a little bit slow in the first quarter. Much like last year, implementations will ramp across the year, very similar, in fact, in pattern to how we did last year. So as much as I hate riding that cyclicality, we see it in hardware as well. The spend it or lose it mentality of customers, the annual planning cycle of customers and frankly, our behaviors as we ramp up across the year just caused those 2 revenue streams to be somewhat back-end loaded.

Matt Summerville : As a follow-up, spend a minute on the balance sheet. Leverage is sort of flat at 3.2 next quarter — or excuse me, in Q3, you expect to be a little bit lower than 3x. How is that informing your view on potential buyback timing? Has that evolved further, Tim, since 3 months or a couple of months ago the last time we spoke?

Tim Oliver: Yes, 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. Look, I still think the right goal for us is to — there’s supreme consistency and opinion around us getting under 3x leverage. And so without a doubt, I would like to apply every dollar of free cash flow we generate to getting us under 3x leverage. And I think we’re now within eyesight of that goal. Our cash flow is because of the weighting of hardware, the hardware you I just described as being very good and back-end loaded. I had to use some working capital in the first half of the year that we’ll collect in the second half of the year. So my free cash flow is a little more back-end loaded than we expected, let’s say, a year or so ago when we talked about getting to 3x by the midpoint 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 into July, I’m going to have to be more descriptive on what we’re going to do with free cash flow thereafter. Here’s how I think about it. When we get to this time of 90 days from now, we’ll be staring at a second half free cash flow number that, let’s call it, round numbers is going to be $300 million, $250 million to $300 million. I’ll be looking at a free cash flow number in the following year that’s closer to $400 million. And so I’ll have $700 million worth of free cash flow over the successive 6 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. I don’t think that’s the right thing to do. I’m hopeful that there’ll be some growth opportunities that allow us to absorb some of that into accelerating our growth with acquisitions or investments in fleets. But a large percentage of that excess free cash flow should be delivered back to shareholders. And I think the right form of that is a share repurchase as we sit here today. So I don’t have any news to break today, but I think you should expect a more definitive answer from us 90 days from now.

Operator: And our next question comes from Dominick Gabriele from Compass Point.

Dominick Gabriele : If you just think about the hardware 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.

Tim Oliver: So most of the hardware goodness, all of the hardware goodness that we report as revenue will come through the Self-Service Banking segment. The Network segment, we don’t recognize any hardware revenue there because, in essence, it’s an investment in PP&E to support that business. So we — if you look at the analysis of free cash flow that Andy provided you, you can see in there that we invested about $10 million in the quarter. back into PP&E, you can presume that most of that is units that we’re replacing and upgrading their existing network fleet. You can also then look and the $16 million number in there that describes how much we invested into machines that are in the ATM-as-a-Service business. So when I was talking about 2019 and demand for hardware being 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 Cardtronics. And so that was real revenue to us back then because they were an outside customer. That $10 million would have been revenue. Actually would have been $12 million of revenue because I would have made 20 points from Stuart when he worked there. And then we would have — that $16 million would have been recognized upfront as well. So units will be very strong. I think the impact of both refreshing the network and the units we invested in ATM-as-a-Service were both pretty consistent with the annual model. If you take those numbers and multiply it by 4, you’ll be pretty close to the impact for the full year. But otherwise, you’ll see revenue growth in the hardware business associated with higher count of machines manufactured and better price points in some of those.

I hope that’s responsive.

Dominick Gabriele : Yes, absolutely. No, that makes a ton of sense. And to me, it means the Self-Service Banking business really did do quite well this quarter, excluding that.

Tim Oliver: I’m thrilled. 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 in the Self-Service Banking business is we’re crushing it from a service perspective. We’re hitting every 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 opportunities because of what that service organization is doing. Our CEs are killing it out there. We’re giving them better tools. But I think the most exciting thing about this quarter, yes, hardware is fun, but our service business is hitting on all cylinders right now.

Dominick Gabriele : And I may have missed it in the prepared remarks, but did you guys provide — and would you mind providing the backlog average unit sale price that you usually give in the thousands per unit.

Tim Oliver: So that would be on ATM-as-a-Service. Yes, Andy, do you want that one? Our backlog in ATM-as-a-Service units is up. It’s about 7,500 units and the ARPU on those devices is significantly above the average that we posted of the 8,200 or. So it’s a good backlog as it exists now. 8,200 units won’t quite get us — or 7,200 units won’t quite get us to where we want to be for the full year. We’ve got some other orders we’re working on that I think will 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 guided to.

Andy Wamser: And let me just add a little bit more color. So if I look at the backlog, it is up 25% year-over-year. And then when we think about the ARPU, it was down on an LTM basis, down $200. But when we think about it, that just had to do with timing in terms of when the units went into service. But if we look at that on a quarterly basis versus an LTM basis, ARPU was actually up 5% in the quarter, quarter-to-quarter. So what that says to us is that we’re really optimistic about the ARPUs that we’re getting from North America and Europe, and we would expect it to go up higher meaningfully. And the only, I would say, caveat to that is that we have significant deals in India, which could change that. But given the small base, there could be volatility, as I said in my comments.

Tim Oliver: Yes. And we’re hopeful that we do have some deals in India. We’ve talked in the past, we’ve walked away from some deals where we could not make money. We’ve also seen some of those deals that were reverse optioned come back around that those that won the bid weren’t capable of executing against 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 might hear us at the end of the year or in the second half, talk about larger unit deals and lower-cost portions of the world that are 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 markets.

Dominick Gabriele : Yes. And it looks like the adjusted EBIT — if I could sneak one more in. It looks like the adjusted EBITDA growth was towards the higher end of your annual target, especially if you think about perhaps some of the hardware changes. But you did mention tariffs could put you towards the lower end of the range. Just wondering if you could kind of help just flash that out just a little bit more, if that’s okay.

Tim Oliver: Yes, I’ll let Andy take this one. But remember that the tariffs didn’t really impact the first quarter. I mean it was a couple of million bucks. We did see lower transaction volumes. I think actually was part of this whole tariff follow-on effect. But those would ramp across the year. And so any conservatism around guidance would not be associated with demand. It would be entirely tariff related, and it will be related to as those tariffs roll on in Q2 through Q4. I don’t know, Andy, if you want to give.

Andy Wamser: Sure. I mean to help maybe Dominick dimensionalize some of this, I said for hardware and parts, revenue could be directionally, call it, $850 million. We assume a 20% margin on that. That would mean our costs — that could be subjected to tariffs would be $680 million. But the part that is subjected would only be 1/3 of that because that is what’s coming into the U.S. So that would be a base of about $225 million. And if we assume — as Tim and I mentioned, in the current environment today, a lot of it is 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 of about 15% on that $225 million would give you an annualized number of about $34 million for the year.

And then if we have 3 quarters left in the year, you’re talking about a $25 million sort of cost impact. That being said, we are working on a number of initiatives in terms of productivity initiatives, looking at changing our supply chain, particularly some of that small tail that Tim mentioned in China. And then pricing is a discussion that we always have to have. Great.

Dominick Gabriele : And I guess most of what you’re saying about comes through cost of revenue, correct?

Tim Oliver: Yes, it would. It would hit gross margin.

Operator: [Operator Instructions] Our next question is going to come from Shlomo Rosenbaum from Stifel.

James Holmes: This is James Holmes on for Shlomo. The ATM-as-a-Service customer count growth was quite strong in the quarter. Can you talk about what kind of customers you are adding and in which geographies was weighted to in the quarter? And then I have a follow-up.

Andy Wamser: Sure. In the Q1, most of the customers that we added were actually in [indiscernible], which, again, as I mentioned, had really good ARPU. But as we look to the balance of the year, it’s going to be — when we look at the pipeline, it is pretty balanced between [indiscernible], APAC, India and to a degree, Europe as well. So it’s pretty balanced.

James Holmes : And can you also talk about what’s driving the strength in ATM-as-a-Service gross profit? Is it just more weighting towards smaller customers and that’s — those customers are more profitable or anything around that?

Tim Oliver: Yes, that’s 100% right. We’ve talked in the past about the North American transactions or contracts being better for us from a profitability perspective, typically because it’s for fewer machines. So we have to hit a lot of singles in North America. We have to win 100 and 200 and 300 machines at a time. And when we do that, our cost structure is incredibly scalable and the value we can deliver to those customers is very high. And so it leaves room for a little bit more profit. There are markets in the world where you have to compete harder like India or Brazil, where margins are much tighter. And if you want to participate, you need to be more productive. But yes, I think in general, winning in North America 100 and 200 machines at a time is going to be what distinguishes the margin rate in this business and allows to put upward pressure on overall margin.

The margins on ATM-as-a-Service in India or Brazil are not that different from the margins you would get from simply selling the hardware itself. So the model is — it’s accretive to overall revenue dollars. It doesn’t change the margin rate nearly as much as it does in North America and Europe.

Andy Wamser: And the only thing I’d maybe just add is just because when we think about the ATM-as-a-Service, one, you saw the top line growth in terms of the mid-20s. But if you look at the flow-through in terms of just the margin expansion we had in terms of 700 basis points, I mean we’re really impressed with that and with the leverage that we’re getting into the business. I would say the second thing that I think is important as we mentioned the customer count. And so in terms of that customer count being up about 40%. And with that customer count, why that’s important is we have a number of customers who are trying out the service and then potentially will expand. So we’re not beholden. We don’t have a customer concentration issue as we diversify that base.

It lends itself to our bank customers expanding their portfolio offering and moving that further down the continuum. So we think all those factors together really make us optimistic for this business, not just for this year but for the longer term.

Tim Oliver: And we didn’t see that when we first rolled this strategy out, we presumed to 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 is if people want to incrementalize their way there and build trust with us and let us show them that we can perform as well or better than they do. So they’ll give us a portion of the fleet or they’ll give a portion of the services of a portion of that fleet and allow us to grow into it over time.

Operator: Our next question comes from Matt Summerville from D.A. Davidson.

Matt Summerville : I just had a couple of 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 rest of world? And then I guess, what’s the game plan for LibertyX? I mean it was a pretty big material headwind last year. I guess I was under the impression maybe that was starting to stabilize and some things have changed, so it’s falling off again. I guess, one, why keep it? And two, — 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?

Tim Oliver: Yes. Thanks, Matt. So LibertyX, 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 singular currency. It’s only Bitcoin, and we did generate some revenue when we first completed that transaction. Regulatory changes have caused us to have to significantly reduce the maximum size of the transaction to take place at the device and it has caused people to change the way they consume that service. We have deemphasized that business. It has very little profitability. So it doesn’t impact 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 detractor to overall revenue as we go through the year. But your suggestion that why — look, we’re not investing more back into this business. 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 that we’ve reduced some of the things we used to do. We don’t do cross-border in that business anymore. And we’ll keep necking it down. It’s a distraction. I wish it wasn’t there. On — what was the other half of the question?

Brendan Metrano : On M&A.

Tim Oliver: M&A. Look, as we sit here right now, we have a very — we have a long list of ideas. most of which have relatively low price tags on them because of what we’re trying to get done from a debt perspective. There are other ideas that are much more expensive and much more strategic and frankly, more exciting that we can get to once we’re — once we’ve taken care of our debt. So back to the conversation earlier about the $700 million or so of free cash flow we’ll have to deploy once we get over 6 quarters, once we get through this next quarter. I would hope that some of these good ideas that have come forward, particularly around extending 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 technologies we could add to the network business that could allow us to — if we could spend a little bit more money there and add some technology to the device itself. I think that would be helpful. There are some parts of our nearly perfectly vertically integrated solution to the Self-Service Banking business. There’s a couple of holes in there that would be interesting to fill and round out our portfolio. And there’s some international opportunities that we would might chase in an environment where 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 that, there are a lot of ideas that we just need to time a little more carefully.

Andy Wamser: And maybe just to add on to — and Tim had exactly right. I would say the one point about LibertyX, just to emphasize is that it is low margin. So it does sort of skew the top line results. But from an EBITDA perspective, it does have minimal impact. And then you asked the question about just volumes, network volumes. I would say if we think about network volumes in [indiscernible], it was relatively flat. But as we look out, we’re optimistic that we’d see an acceleration of some ready-code 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.

Tim Oliver: So you did ask about the global withdrawal transactions. So network transactions, U.S. network transactions global were up 2% withdrawals. — whereas in the U.K., I think we said they were down 6% or 7%. So the U.S. still pretty good, U.K. down. And by the way, March is a really tough month for some reason. I think April has been better. So I’m hopeful that, that decline was temporal and had more to do with the timing of Easter and some other things. But April has been better. And I’m hoping we report next quarter, it’s not down 6% or 7%.

Operator: And our next question comes from Chris Senyek from Wolfe Research.

Chris Senyek : Great quarter, guys. And thinking about the cash flow and the cadence this year and next year, in 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 2026 because that would forecast a pretty significant ramp into ’26.

Tim Oliver: Yes, I’ll go first because Andy has not been here that long and can’t refer to history. But that’s been the history for us from a free cash flow perspective, consume a little bit in the first quarter and maybe a little bit even in the second. and then generate most of the free cash flow in the latter half of the year. I think that will 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-end loaded. So 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 publish the cash outflows associated with taxes. Our best guess on taxes and interest. And so you can just lay that over our performance, the growth in profitability, the ability to harvest $110 million of working capital that we just utilized to seed future period hardware revenue. And I think it will — you can map that out. But I don’t know anything you want to add?

Andy Wamser: Yes. 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 EBITDA does ramp, our free cash flow conversion should be closer to like 60% in each of those quarters. So it will considerably ramp as we go through the back half of the year, and that’s relatively consistent with how it’s been in the past.

Chris Senyek : And then one follow-on. In terms of the CapEx is — remind me with the ATM as a Service CapEx, is more of that skewed internationally or placed in service in the U.S.

Andy Wamser: It’s going to be balanced. So if we think about the potential for CapEx for ATM as a Service, it could be between, I’ll call it, like $30 million to $40 million and — but it could be balanced between all geographies, frankly.

Operator: And our last question is going to come from George Tong from Goldman Sachs.

George Tong : In the Hardware business, is there any way to quantify how much of the orders were shifted out of the quarter into 2Q and the second half of the year?

Tim Oliver: Yes, none shifted. So this was exactly the hardware number we expected to deliver 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 planned this way. We tried to, on the last call, let people know that and say we have to use working capital to get there. I’d prefer not to have it be this way, but that’s how the customers ordered it. So there’s no delays. There was no cancelled orders. It was exactly as we had planned.

George Tong : And then in the Network business, you’re continuing to see optimization of the portfolio and some retail partners closing down some lower performing locations. Do you have visibility into how much of a continuation of this trend will sort of play out? Are there additional closings you’re expecting on the horizon?

Tim Oliver: Yes. I think that pharmacy customer set is challenged. And I think there’s overcapacity to a certain extent. And you saw Rite Aid the other day suggested that they may be closing a bunch of stores in bankruptcy. And so we would — we have a good — I think we have what, Stuart, 1,200 machines or so 1,100 machines with Rite Aid. So I think those are at risk. 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 in the next nearest machine, we’re fine. In fact, we’re better off in a lot of ways. You’re rolling trucks to fewer locations, you’re fixing fewer machines, so getting much better leverage. So I think 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 7-Eleven that’s going to allow us to put our machines — our network inside of 7-Eleven, which is a big deal. I don’t know how many locations Stuart, do they have?

Stuart MacKinnon : Roughly 11,000.

Tim Oliver: Only 11,000 locations. Go ahead.

Stuart MacKinnon : We’ll roll out sequentially. But as we look at the Pharma segment, which has been announcing closures for the last 3 years, we’re very familiar with sort of optimizing that portfolio and making sure those transactions move to the rest of our portfolio. Our relationship that we announced with 7-Eleven 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 Allpoint network actively seeking out an Allpoint network. So they’re going to now actively seek out another location — and you can see that through our ARPU as our units go down. We continue to see the transaction volumes stay strong and migrate to our other locations.

So we’re very confident in the growth of that Allpoint network. And as we add additional transaction types, our 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 Allpoint.

Tim Oliver: All right. I think that’s 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 that were asked on this call. We feel very, very good about our start to the year. It’s working. The strategy is working. Our hardware is competing exceptionally well. Our service organization is 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.

Operator: And this concludes today’s call. Thank you for your participation. You may now disconnect.