NCR Atleos Corporation — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report, not a standalone fourth-quarter filing; quarterly Q4 results are not separately presented in the provided text.
Business context
Atleos provides self-directed banking solutions, including ATM and interactive teller machine hardware, software, managed services, payment processing, and the Allpoint surcharge-free ATM network. Its reportable segments are Self-Service Banking, Network, and Telecommunications & Technology (T&T). The company completed its separation from NCR Voyix on October 16, 2023 and began trading independently on the NYSE under the ticker NATL on October 17, 2023.
Atleos operated in 11 ATM-network countries and serviced ATMs in 60 countries. Revenue outside the United States represented 55% of 2023 revenue. The company had approximately 20,000 employees and approximately 83,000 self-service banking terminal locations.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $4,191 million | $4,131 million | 1% |
| Product revenue | $1,030 million | $1,098 million | (6)% |
| Service revenue | $3,161 million | $3,033 million | 4% |
| Recurring revenue | $2,982 million; 71.2% of revenue | $2,795 million; 67.7% | 7% |
| Gross margin | $933 million; 22.3% | $919 million; 22.2% | 2% |
| Income from operations | $271 million; 6.5% | $269 million; 6.5% | 1% |
| Net income attributable to Atleos | $(134) million; $(1.90) per share | $108 million; $1.53 per share | Declined from profit to loss |
| Adjusted EBITDA | $732 million; 17.5% | $685 million; 16.6% | 7% |
| Cash flow from operations | $355 million | $274 million | +$81 million |
| Adjusted free cash flow-unrestricted | $184 million | $208 million | $(24) million |
Net loss was driven primarily by $239 million of income tax expense, including $120 million of discrete tax expense related to spin-off restructuring and a $44 million valuation allowance for deferred tax assets. The effective tax rate was 223% in 2023 versus 32% in 2022.
Segment performance
| Segment | 2023 revenue | Year-over-year | 2023 Adjusted EBITDA | Year-over-year |
|---|---|---|---|---|
| Self-Service Banking | $2,581 million | Flat | $630 million | 15% |
| Network | $1,267 million | 6% | $379 million | 8% |
| T&T | $196 million | (11)% | $33 million | (30)% |
Growth reflected a continued shift from hardware and perpetual software sales toward ATM as a Service, subscriptions, transaction processing, and other recurring services. Network revenue benefited from higher-value ATM transactions and Bitcoin-related revenue.
Liquidity, debt, and cash flow
- Cash and cash equivalents were $339 million at December 31, 2023; total cash, cash equivalents, and restricted cash were $586 million.
- Total debt was $3.099 billion, consisting principally of $1.350 billion of 9.5% senior secured notes due 2029, Term Loan A, Term Loan B, and $155 million drawn on the revolving facility.
- Available borrowing capacity under the revolving credit facility was $337 million, after $155 million of borrowings and $8 million of letters of credit.
- The company paid $2.996 billion to Voyix in connection with the separation, funded with debt proceeds and cash on hand.
- Debt agreements include restrictive covenants and a consolidated leverage ratio covenant of 4.75x through September 30, 2024, stepping down thereafter, subject to specified exceptions.
- A trade receivables facility provides up to $166 million of funding; the full $166 million of receivables sold and derecognized was outstanding at year-end.
- The U.S. pension plan was underfunded by $333 million at year-end. Atleos contributed $150 million to that plan in 2023 and does not plan a U.S. pension contribution in 2024 based on current funding requirements.
Material changes versus the prior comparable period
- Atleos became an independent public company, materially changing its capital structure, liquidity sources, debt profile, pension obligations, and cost base.
- Recurring revenue increased from 67.7% to 71.2% of total revenue, while product revenue declined 6%.
- Product gross margin improved to 17.9% from 11.5%; service gross margin declined to 23.7% from 26.1%.
- Higher interest rates increased vault-cash rental expense by approximately $46 million and remain a significant margin and cash-flow risk.
- Income tax expense increased from $50 million to $239 million, converting reported net income into a net loss.
- Separation-related costs totaled $170 million in 2023, with additional separation costs expected through at least fiscal 2024.
- Delayed transfer of 11 legal entities following separation reduced estimated 2023 revenue by approximately $40 million; the remaining entities were expected to transfer by the second quarter of 2024.
- T&T revenue and Adjusted EBITDA declined due to lower activity from several large customers.
Guidance, outlook, commentary, and risks
Management describes Atleos as a cash-generative business focused on expanding ATM as a Service, increasing recurring software and services revenue, growing the Allpoint network, increasing transaction volumes, and pursuing selective acquisitions. The filing does not provide a clear numerical 2024 revenue or Adjusted EBITDA guidance range.
- Management expects macroeconomic and geopolitical pressures, including higher interest rates, logistics and energy costs, foreign-exchange volatility, and regional conflicts, to negatively affect the business at least in the short term.
- Interest-rate exposure is material: a hypothetical 100-basis-point increase would raise annual variable-rate debt interest expense by approximately $4 million and vault-cash rental expense by approximately $37 million, excluding certain swap effects.
- The company faces substantial leverage, variable-rate debt, refinancing, covenant, vault-cash availability, pension, foreign-exchange, and trade-receivables-facility risks.
- Cash usage may decline as consumers shift toward electronic and mobile payments, potentially reducing ATM transaction volumes and fee revenue.
- Network goodwill totaled $1.696 billion, and the Network reporting unit’s fair value exceeded carrying value by less than 10%; changes in growth, margins, discount rates, or market multiples could result in a material impairment.
- Atleos shares environmental liabilities with Voyix, including Kalamazoo River remediation. Voyix estimated Atleos’s 2024 contribution for shared environmental matters at approximately $2 million, but the obligation is uncertain and could increase over time.
- The company reported no cybersecurity threat that had materially affected, or was reasonably expected to materially affect, the organization as of the filing date, although attempted attacks have occurred and cybersecurity remains a significant risk.
Most important facts for investors to verify
- Whether recurring-revenue growth and ATM as a Service expansion offset lower hardware revenue and associated capital requirements.
- Actual 2024 cash generation after debt service, pension and postemployment contributions, separation costs, capital expenditures, and working-capital needs.
- Compliance with the leverage covenant and the company’s ability to reduce or refinance approximately $3.1 billion of debt.
- The sustainability of margins given floating-rate debt, vault-cash rental costs, labor costs, and transaction-volume trends.
- The resolution and financial impact of delayed legal-entity transfers and remaining transition services with Voyix.
- Potential valuation pressure on the Network reporting unit’s $1.696 billion goodwill balance.
- Future tax cash payments, deferred-tax-asset realizability, and the effect of the 2023 restructuring-related tax charges.
- Potential environmental, tax, indemnification, regulatory, cryptocurrency, litigation, and cybersecurity liabilities not fully quantifiable at December 31, 2023.