NCR Atleos Corp

Key Strategic Financial Metrics

The following tables show our key strategic financial metrics for the years ended December 31, the relative percentage that those amounts represent to total revenue, and the change in those amounts year-over-year.

Recurring revenue as a percentage of total revenue

(1)Refer to our definition of Recurring revenue in the section entitled “Non-GAAP Financial Measures and Use of Certain Terms” below.

Net income (loss) attributable to Atleos and Adjusted EBITDA(2)as a percentage of total revenue

(2)Refer to our definition of Adjusted EBITDA in the section entitled “Non-GAAP Financial Measures and Use of Certain Terms” below.

Non-GAAP Financial Measures and Use of Certain Terms:

Non-GAAP Financial Measures

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)Atleos’ management uses the non-GAAP measure Adjusted EBITDA because it provides useful information to investors as an indicator of performance of the Company’s ongoing business operations. Atleos determines Adjusted EBITDA based on GAAP Net income attributable to Atleos plus interest expense, net; plus income tax expense (benefit); plus depreciation and amortization; plus acquisition-related costs; plus pension mark-to-market adjustments, pension settlements, pension curtailments and pension special termination benefits; plus separation-related costs; plus transformation and restructuring charges (which includes integration, severance and other exit and disposal costs); plus stock-based compensation expense; plus other special (expense) income items. These adjustments are considered non-operational or non-recurring in nature and are excluded from the Adjusted EBITDA metric utilized by our chief operating decision maker (“CODM”) in evaluating segment performance and are separately delineated to reconcile back to total reported income attributable to Atleos. This format is useful to investors because it allows analysis and comparability of operating trends. It also includes the same information that is used by Atleos management to make decisions regarding our segments and to assess our financial performance. Refer to the table below for the reconciliations of Net income attributable to Atleos (GAAP) to Adjusted EBITDA (non-GAAP).

Special Item Related to Russia The war in Eastern Europe and related sanctions imposed on Russia and related actors by the United States and other jurisdictions required us to commence the orderly wind down of our operations in Russia beginning in the first quarter of 2022. As of December 31, 2023, we have ceased operations in Russia and have completed the liquidation of our only subsidiary in Russia. As a result, our presentation of segment revenue and Adjusted EBITDA for the years ending December 31, 2022 and 2021 exclude the immaterial impact of our operating results in Russia, as well as the impact of impairments taken to write down the carrying value of assets and liabilities, severance charges, and the assessment of collectability on revenue recognition. No charges have been recognized for the twelve months ended December 31, 2023. We consider this to be a non-recurring special item and management has reviewed the results of its business segments excluding these impacts.

Atleos’ definitions and calculations of these non-GAAP measures may differ from similarly-titled measures reported by other companies and cannot, therefore, be compared with similarly-titled measures of other companies. These non-GAAP measures should not be considered as substitutes for, or superior to, results determined in accordance with GAAP.

Use of Certain Terms

Recurring revenue: All revenue streams from contracts where there is a predictable revenue pattern that will occur at regular intervals with a relatively high degree of certainty. This includes hardware and software maintenance revenue, processing revenue, interchange and network revenue, Bitcoin related revenue, and certain professional services arrangements, as well as term-based software license arrangements that include customer termination rights.

Reconciliation of Net income (loss) attributable to Atleos (GAAP) to Adjusted EBITDA (Non-GAAP)

(1)Includes Related party interest expense, net, as presented in the Consolidated Statements of Operations.

Consolidated Results

The following table shows our results for the years December 31, the relative percentage that those amounts represent to revenue, and the change in those amounts year-over-year.

(1) The percentage of revenue is calculated for each line item divided by total revenue, except for product gross margin, service gross margin and total gross margin, which are divided by the related component of revenue.

Revenue

Product revenue includes our hardware and software license revenue streams as well as Bitcoin-related revenues. Service revenue includes hardware and software maintenance revenue, implementation services revenue, cloud revenue, payments processing revenue, interchange and network revenue, as well as professional services revenue.

Revenue results in the fourth quarter of 2023 were negatively impacted by the delayed transfer of eleven legal entities to Atleos following our separation from Voyix, due to local processes of setting up Atleos legal entities. Prior to the Separation, the operating results of each of these entities were included within Atleos’ results under carve-out methodology as all entities were dedicated to the Atleos business. Of these eleven entities, four transferred during the fourth quarter of 2023 and the remaining entities are expected to transfer by the second quarter of 2024. We estimate the delayed transfer of these entities resulted in an approximately $40 million decline in revenue in 2023 compared to the prior year period.

Total revenue increased 1% for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by our shift to recurring service revenue streams. Product revenue decreased 6% due to decreases of approximately $48 million in hardware revenue and $26 million in software license revenue, partially offset by an increase in Bitcoin-related revenue of $10 million. Declines in hardware and software license revenue are partially due to the shift in the business from one-time hardware and perpetual license sales to ATM as a Service and software subscriptions as well as a $12 million reduction due to the delayed legal entities described above.

Service revenue increased 4% due to increases of approximately $74 million in ATM as a Service revenue and $55 million of transaction processing services revenue as well as $11 million in other software-related revenues, partially offset by a decline in hardware maintenance and installation revenue of $23 million. The increase in transaction processing services was driven by the favorable mix of payments transactions year-over-year, while the growth in ATM as a Service revenue and declines in hardware maintenance and installation revenues were partially due to the continued shift to our ATM as a Service offering, whereby we own the ATMs and charge per ATM for the service. The delayed transfer of legal entities resulted in a reduction of hardware maintenance and installation revenue and other software-related services revenue of approximately $19 million and $9 million, respectively.

Gross Margin

(1) The percentage of revenue is calculated for each line item divided by the related component of revenue.

Gross margin as a percentage of revenue was 22.3% in 2023 compared to 22.2% in 2022. Gross margin for the year ended December 31, 2023 included $51 million of reserves on net assets transferred and incremental retention costs paid out as part of the Spin-off from Voyix, $65 million related to amortization of acquisition-related intangible assets, $20 million of stock-based compensation expense, and $1 million related to transformation and restructuring costs. Gross margin for the year ended December 31, 2022 included $60 million related to amortization of acquisition-related intangible assets, $27 million of stock-based compensation expense, $17 million related to transformation and restructuring costs, and $10 million related to operating losses, impairments and other actions taken with respect to our operations in Russia. Excluding these items, gross margin as a percentage of revenue increased slightly from 25.0% to 25.5%. Following the series of geopolitical and macroeconomic challenges that had a significant impact on costs in the first and second quarters of 2022, we took action to mitigate these impacts and have had reductions in fuel, shipping costs and component parts cost compared to prior year which has improved our product gross margins by approximately $64 million. These improvements were partially offset in our services gross margin by increased interest rates driving $46 million of higher rental cost on our vault cash agreements.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses were $585 million in 2023, compared to $586 million in 2022. As a percentage of revenue, selling, general and administrative expenses were 14.0% in 2023 and 14.2% in 2022. In 2023, selling, general and administrative expenses included $8 million of transformation and restructuring costs, $43 million of stock-based compensation expense, $33 million of acquisition-related amortization of intangibles, and $97 million in IT separation, consulting, audit, legal, and incremental retention costs related to the Company’s Spin-off from Voyix. In 2022, selling, general and administrative expenses included $38 million of transformation and restructuring costs, $35 million of stock-based compensation expense, $40 million of acquisition-related amortization of intangibles, $8 million of acquisition-related costs, and $3 million of costs related to actions taken with respect to our operations in Russia. Excluding these items, selling, general and administrative expenses decreased as a percentage of revenue from 11.2% in 2022 to 9.6% in 2023, due to higher allocated IT infrastructure costs of $13 million in the second quarter of 2022 related to the enterprise resource planning (“ERP”) system conversion as well as lower real estate costs compared to prior year driven by cost mitigation actions implemented.

Research and Development Expenses

Research and development expenses were $77 million in 2023, compared to $64 million in 2022. As a percentage of revenue, these costs were 1.8% in 2023 and 1.5% in 2022. In 2023, research and development expenses included $5 million of stock-based compensation expense and $3 million of costs related to the Company’s separation from Voyix. In 2022, research and development expenses included $8 million of transformation and restructuring costs and $4 million of stock-based compensation expense. After considering these items, research and development expenses increased as a percentage of revenue from 1.3% in 2022 to 1.6% in 2023 due to higher employee benefit related costs in 2023.

Interest Expense and Related Party Interest Expense, Net

Interest expense was $77 million in 2023. Interest expense is primarily related to the Company’s senior unsecured notes and borrowings under the Company’s Senior Secured Credit Facility entered into in connection with the Spin-off. The Company had no external interest expense in 2022. Refer to Note 5, “Debt Obligations”, for further details regarding the issuance of debt.

Related party interest expense, net was $13 million in 2023 compared to $31 million in 2022. The decrease was related to repayment of certain related party borrowings during the period.

Other (Expense) Income, net

Other (expense) income, net was expense of $74 million in 2023 and expense of $81 million in 2022, with the components reflected in the following table:

Employee benefit plans within Other (expense) income, net includes the components of pension, postemployment and postretirement expense, other than service cost, as well as actuarial gains and losses from the annual pension mark-to-market adjustment. In 2023, there was a net actuarial loss of $27 million compared to a net actuarial loss of $78 million in 2022. The net actuarial loss in 2023 was primarily due to a decrease in discount rates in measuring the benefit obligation, partially offset by the impact of economic improvements on the value of plan assets. The actuarial loss in 2022 was primarily due to the impact of economic downturns on the value of plan assets, partially offset by an increase in discount rates in measuring the benefit obligation.

In 2023, the Company incurred bank-related fees of $14 million related to certain structuring and commitment fees as a result of the financing transactions entered into in connection with the Separation.

Income Taxes

Our effective tax rate was 223% in 2023, 32% in 2022, and 25% in 2021. In 2023, the Company completed certain internal restructuring transactions in connection with the Spin-off, resulting in a net of $120 million discrete tax expenses. Approximately $105 million of the discrete tax expense is for non-cash deferred tax items, primarily related to the tax effects upon the transfer of certain intangible assets among our wholly-owned subsidiaries prior to the Spin-off. The 2023 tax rate was also impacted by the establishment of a $44 million valuation allowance from recording a valuation allowance against deferred tax assets in the United Kingdom, Canada, Cyprus, Austria and other jurisdictions. During 2022, our tax rate was impacted by a $1 million benefit from the reversal of valuation allowances against changes in deferred tax assets in certain foreign jurisdictions and a $10 million expense attributable to U.S. and foreign return-to-provision true-up adjustments.

While we are subject to numerous federal, state and foreign tax audits, we believe that appropriate reserves exist for issues that might arise from these audits. Should these audits be settled, the resulting tax effect could impact the tax provision and cash flows in future periods. During 2024, the Company may resolve certain tax matters in foreign jurisdictions that could have an impact on the effective tax rate in 2024.

We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on the evaluation of positive and negative evidence. This evidence includes historical taxable income/loss, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies.

Revenue and Adjusted EBITDA by Segment

The Company manages and reports its businesses in the following segments: Self-Service Banking, Network and Technology & Telecommunications (T&T). Segments are measured for profitability by the Company’s chief operating decision maker (CODM) based on revenue and segment Adjusted EBITDA. Refer to the section above entitled “Non-GAAP Financial Measures and Use of Certain Terms” for our definition of Adjusted EBITDA and the reconciliation of Net income (loss) attributable to Atleos (GAAP) to Adjusted EBITDA (non-GAAP).

The following table shows our segment revenue and Adjusted EBITDA for the years ended December 31, the relative percentage that those amounts represent to revenue, and the change in those amounts year-over-year.

(1)The percentage of revenue is calculated for each line item divided by total revenue, except for Adjusted EBITDA, which are divided by the related component of revenue.

(2)Other immaterial business operations, including commerce-related operations in countries that Voyix exited that are aligned to Atleos, that do not represent a reportable segment. For periods after the Separation, Other also includes revenues from commercial agreements with Voyix.

(3)Other adjustment reflects the revenue attributable to the Company’s operations in Russia that were excluded from management’s measure of revenue due to our announcement in Q1 of 2022 to suspend sales to Russia and anticipated orderly wind down of our operations in the country.

Segment Revenue

For the year ended December 31, 2023 compared to the year ended December 31, 2022

Self-Service Banking revenue for the year ended December 31, 2023 was flat in comparison to the prior year period. ATM as a Service revenue increased approximately $74 million compared to the prior year period. These increases were partially offset by declines in ATM hardware of $46 million, hardware maintenance and installation of $24 million, and software-related revenue of $6 million compared to the prior year period. Revenue results for the periods were primarily due to the shift from non-recurring revenues to recurring ATM as a Service arrangements whereby we own the ATMs and charge per ATM for the service, as well as the shift to recurring software subscriptions. The delayed transfer of legal entities drove a reduction of approximately $34 million. Software and services revenue as a percent of total Self-Service Banking segment revenue were 70% and 68% in the twelve months ended December 31, 2023 and 2022, respectively.

Network revenue increased 6% for the year ended December 31, 2023 compared to the prior year period. The increase in revenue was due to an approximately $55 million increase in transaction processing services revenue driven by an increase in higher value ATM transactions and a $10 million increase in Bitcoin-related revenue.

T&T revenue decreased 11% for the year ended December 31, 2023 compared to the prior year period. The decrease was due to declines in hardware and software license revenue of $10 million and hardware maintenance and installation service revenue of $13 million, driven by a reduction in activity for some of our larger customers and approximately $2 million related to the delayed transfer of legal entities.

Segment Adjusted EBITDA

For the year ended December 31, 2023 compared to the year ended December 31, 2022

Self-Service Banking Adjusted EBITDA increased 15% for the year ended December 31, 2023 compared to the prior year period. The margin expansion is due to improvement in component and fuel costs, particularly in ATM hardware, as well as an increase in higher margin recurring revenue streams. These improvements were partially offset by an increase in employee benefit-related costs and approximately $12 million decline due to the delayed transfer of legal entities.

Network Adjusted EBITDA increased by 8% for the year ended December 31, 2023 compared to the prior year period due to the increase in higher margin transaction revenue described above. These improvements were partially offset by significantly higher interest rates on our vault cash agreements driving additional cost of $46 million, as well as higher cash-in-transit costs driven by the higher volume of cash dispensed in the period, and an increase in employee benefit-related costs.

T&T Adjusted EBITDA decreased 30% for the year ended December 31, 2023 compared to the prior year period. The decrease in Adjusted EBITDA was driven by the decrease in revenue.