NCR Atleos Spin-off Deep Dive
November 6, 2023
On October 16, 2023, NCR (now NCR Voyix) spun off its ATM business, NCR Atleos (NATL).
Cash usage / and ATM usage is in secular decline. As such, NCR Atleos faces a challenging future.
The company does have some positives
- 68% recurring revenue
- 55% exposure to ex-US (higher usage of cash outside the US)
Nonetheless, I’m not too excited about NATL.
The company is burdened by a significant debt burden (net debt to EBITDA: 3.3x) and my experience is that a significant debt burden coupled with secular headwinds is not a good combination.
Further, management provided overly optimistic guidance (6% annual revenue growth and 15% annual EBITDA growth) for the foreseeable future. I think the guidance is unrealistic unless NATL makes a sizable acquisition.
NATL’s best comps are Euronet (EEFT) and The Brinks Company (BCO) which trade at 5.7x and 6.5x forward EBITDA, respectively. These valuations imply a fair value range for NATL of $24 to $32. The stock currently trades at $25.
What could get me more excited about the stock?
- Demonstrated ability to grow organically and improve margins
- Insider buying
- A share repurchase authorization
Resources from NCR Voyix Corporation:
NCR Corporation Investor Relations:
Michael G. Nelson
Vice President, Investor Relations
NCR Atleos Overview
The spinoff of NCR Atleos was originally announced on September 15, 2022. The spin-off was tax free in nature.
The spin-off took place on October 16, 2023.
NCR shareholders received 1 share of the spin-off for every 2 shares owned of NCR.
Why the Spin-off?
Company: NCR Atleos (Ticker: NATL)
The company’s main source of revenue is its ATMaaS (ATM-as-a-service) offered to banks and retail establishments that are looking for a turnkey solution or simply wish to have Atleos’ software integrate their existing infrastructure. Atleos delivers mission-critical solutions to a durable customer base under long term contracts, which allow the company to generate diversified and largely recurring revenues across contracted software, services and predictable transactional revenue streams.
The company is undergoing a shift in its revenue model. This shift is aimed at increasing the share of total revenue represented by recurring revenue. This recurring revenue stream flows directly from the subscription fees paid to Atleos in exchange for its ATMaaS.
ATMaaS is a term used to refer to an assembly of solutions offered by Atleos:
The software component constitutes the driving force behind the revenue model shift towards predominantly recurring revenue by allowing Atleos to earn said recurring revenue on a subscription basis via multi-year contracts. This process consists of developing, installing, supporting and running software.
The software is branded as Digital First ATM software platform and has numerous functionalities: device management, endpoint security, ATM marketing, cash management (Optisuite), transaction processing, personalization and application software.
2- Managed services
ATM distributors rely on Atleos to handle some, or all of the operational aspects associated with operating and maintaining ATMs, typically in exchange for a monthly service fee, a fee per transaction, or a fee per service provided. ATMaaS is a solution that helps banks run their end-to-end ATM channel through various offerings: transaction processing, managing cash and cash delivery, supplies, and telecommunications as well as routine and technical maintenance.
There is also a full line of software offered as part of the suite of services: Multi-vendor ATM management systems software application suite and related hardware including multi-function ATMs, ITMs (interactive teller machines), thin-client ATMs, cash dispensers, and cash recycling ATMs.
There are also additional service offerings as part of the managed services: back office, cash management, software management, ATM deployment.
Atleos managed/serviced approximately 715,000 ATMs as of Dec. 31, 2022.
Atleos augments its revenue streams through branding arrangements by attaching customer logos to hardware units. Atleos will typically receive a fixed fee per branded ATM from the financial institutions while retaining their standard fee schedule for other cardholders using the bank-branded ATMs.
Atleos develops, assembles, distributes and maintains a variety of ATM hardware units. The company can also repair or maintain its own units as well as third-party units.