Executive Summary / Key Takeaways

• Services-Led Transformation Delivers: NCR Atleos has successfully pivoted from cyclical hardware sales to high-margin recurring services, with ATM-as-a-Service (ATMaaS) revenue growing 37% year-over-year in Q3 2025 and reaching $268 million in annualized recurring revenue, demonstrating the company's ability to monetize its installed base more effectively than hardware sales ever could.

• Margin Expansion Is Structural, Not Cyclical: Adjusted EBITDA margins expanded 220 basis points to 25.5% in the first nine months of 2025, driven by a deliberate mix shift toward services (70% of revenue) and relentless productivity gains. This margin trajectory is sustainable because it stems from customer outsourcing trends and operational leverage, not temporary cost cuts.

• Network Headwinds Mask Underlying Strength: While the Network segment faces 1-2% revenue declines from immigration policy impacts on prepaid cards and dynamic currency conversion, deposit transactions surged 90% year-over-year to an all-time high, and the Allpoint network added 7-Eleven and Casey's locations. The segment's 28% EBITDA margins remain robust, and management expects a return to growth in Q4 2025.

• Balance Sheet Flexibility Enables Value Creation: Net leverage improved to 2.99x in Q3 2025 from 3.7x at spin-off, with management targeting 2.8x by year-end. This financial strength supported a $200 million share repurchase authorization, representing approximately 7% of market capitalization, as management views the stock as undervalued.

• Execution Risk Centers on Two Variables: The investment thesis hinges on sustaining ATMaaS growth momentum while mitigating vault cash cost inflation from expiring hedges, and successfully navigating tariff impacts on hardware imports. Management's guidance assumes these headwinds persist but can be offset through pricing, productivity, and supply chain adjustments.

Setting the Scene: The Pure-Play ATM Utility

NCR Atleos Corporation (NATL), founded in 1884 and headquartered in Atlanta, Georgia, completed its separation from NCR Corporation (NCR) in October 2023 to become the world's largest pure-play ATM company by revenue. This spin-off was no simple corporate reorganization—it required bifurcating 140 years of IT systems, physically separating hundreds of global locations, migrating over 700 critical customer connections, and executing more than 200 transition service agreements. The complexity of this separation explains why 2024 was a "year of unmitigated success" as management established the company as an independent entity while exceeding all financial targets.

The business model operates across three core segments. Self-Service Banking (SSB) provides ATM hardware, software, installation, maintenance, and the flagship ATM-as-a-Service offering that manages entire ATM channels for financial institutions. The Network segment operates the Allpoint surcharge-free ATM network and provides transaction processing, while Telecommunications & Technology offers managed network services to enterprise clients. This structure creates a powerful flywheel: hardware sales expand the installed base, which generates recurring service revenue, while the Allpoint network provides transaction volume that enhances the value proposition for both banks and retailers.

Industry dynamics favor Atleos's strategy. As digital transactions proliferate, the translation between physical and digital assets becomes increasingly complex, accelerating bank outsourcing of cash ecosystems. Over 70% of Atleos revenue comes from recurring services and software streams that facilitate essential customer transactions. In periods of economic uncertainty, cash usage often increases due to tighter credit conditions and consumer budget pressures. This counter-cyclical characteristic provides stability that pure digital payment companies lack.

The competitive landscape reveals Atleos's unique positioning. Diebold Nixdorf (DBD) holds the largest global installed base but lacks Atleos's service-led model and software integration capabilities. Euronet Worldwide (EEFT) competes in transaction processing but lacks the hardware manufacturing scale and end-to-end service offering. FIS (FIS) dominates core banking software but cannot match Atleos's physical self-service expertise. Atleos's moat lies in its vertical integration: it can offer banks either a shared utility estate through Allpoint or an outsourced bank-specific fleet through ATMaaS, leveraging common infrastructure with unmatched global scale.

Technology, Products, and Strategic Differentiation

The ATM-as-a-Service model represents Atleos's primary competitive advantage and growth engine. This offering manages the entire ATM channel end-to-end, including back-office functions, cash management, software management, and deployment. In Q3 2025, ATMaaS revenue grew 37% year-over-year to $67 million, with gross margins expanding 700 basis points to 40%. The business exited Q3 with $268 million in annualized recurring revenue and booked $195 million in total contract value, including first-time customers in Latin America and the Middle East.

Why does this matter? Traditional ATM hardware sales generate one-time revenue with 20-25% gross margins and create a five-to-seven-year service annuity. ATMaaS converts that lumpy hardware sale into predictable recurring revenue at 40% gross margins while deepening customer relationships. The average revenue per unit of $8,300 demonstrates pricing power, and the 24% increase in unique customers shows market penetration beyond the traditional banking sector. This shift from asset-heavy to asset-light deals improves capital efficiency and reduces cyclicality.

The hardware business, far from being a legacy drag, actively supports the services transformation. Demand for next-generation recycler products has exceeded expectations, with delivery lead times reduced from months to weeks after manufacturing investments in the Chennai facility. In Q3 2025, hardware revenue grew 25% year-over-year, driven by the 2019 refresh cycle and strong incremental demand. Management expects to put 20% more devices into service in 2025 than in 2024 and sell 60% more recyclers. Each new device creates a five-to-seven-year service revenue stream, making hardware growth an investment in future recurring revenue.

Service excellence functions as a critical differentiator. Atleos extended market-leading service levels in Q1 2025, setting new highs in customer service quality. The AI-driven dispatch and service optimization model, successfully tested in Canada, launched globally in Q2 2025, delivering meaningful improvements in first-time repair rates and time-to-repair metrics. This operational excellence translates directly to financial performance: service margins expanded 150 basis points in Q1 2025, and customer health scores increased 160 basis points over the first half of 2025. When service quality improves while costs decline, the business generates sustainable competitive advantage.

The Allpoint network provides another moat through network effects. With over 55,000 locations, Allpoint offers convenient fee-free access that attracts both consumers and financial institutions. The Q3 2025 addition of 7-Eleven locations and Casey's 2,900 stores across seven states expands reach, while deposit transaction volumes growing 90% year-over-year to an all-time high demonstrate increasing utility. These network effects create switching costs: once a bank joins Allpoint, leaving means sacrificing surcharge-free access for its customers.

Financial Performance & Segment Dynamics

Consolidated revenue for the nine months ended September 30, 2025, was flat year-over-year at $3.2 billion, but this headline masks the underlying strength of the core business. Core segment revenue grew 3%, while non-core Voyix-related revenue declined 71% as expected. The revenue mix shift tells the real story: services and software now represent 70% of revenue, up from approximately 65% at spin-off, driving margin expansion despite macro headwinds.

Self-Service Banking is the growth engine. Segment revenue grew 11% in Q3 2025 to $744 million, with adjusted EBITDA up 21% to $196 million. The 26.3% EBITDA margin represents 220 basis points of expansion year-over-year, driven by ATMaaS growth, sale-leaseback gains on ATMaaS units, and continuous productivity improvements. Hardware revenue growth of 25% provides the installed base foundation, while services and software combined grew 5%. The segment's performance demonstrates the flywheel in action: hardware sales create the installed base, services monetize that base at higher margins, and productivity gains flow through to EBITDA.

The Network segment faces near-term headwinds but maintains strong profitability. Revenue declined 1% in Q3 2025 to $328 million, while adjusted EBITDA fell 9% to $93 million. The primary culprits are a $9 million increase in vault cash costs due to expiring interest rate hedges and a 4% decline in withdrawal transactions from U.S. immigration policy impacts. However, the segment's 28.4% EBITDA margin remains healthy, and deposit volumes surged 90% year-over-year. Management expects the business to return to growth in Q4 2025 as new partnerships ramp and transaction mix shifts toward higher-margin deposits.

The Telecommunications & Technology segment is managed for profit, not growth. Revenue declined 13% to $40 million in Q3 2025, but adjusted EBITDA only fell 11% to $8 million, and margins improved to 20%. This segment provides scale to the service organization and contributes cash flow without requiring growth investment.

Gross margin expansion validates the strategy. Consolidated gross margin increased to 24.2% in Q3 2025 from 23.9% in the prior year, driven by improved hardware mix and ATMaaS growth, partially offset by higher vault cash interest expense. Adjusted gross margin reached 26.5%, up 40 basis points. More importantly, SG&A expenses as a percentage of revenue decreased to 9.2% from 10.0% due to cost optimization and sale-leaseback transactions, demonstrating operational leverage.

Balance sheet strength provides strategic flexibility. Cash and cash equivalents totaled $412 million at September 30, 2025, with $348 million available under the revolving credit facility. Net leverage of 2.99x improved over 0.5 turns year-over-year and is on track to reach approximately 2.8x by year-end. This deleveraging enabled the Board to authorize a $200 million share repurchase program in Q3 2025, representing approximately 7% of market capitalization. Management explicitly stated the stock is undervalued and intends to accelerate purchases at lower prices.

Free cash flow generation supports the capital allocation strategy. Q3 2025 free cash flow was $124 million, in line with expectations, with a significant step-up anticipated in Q4 as working capital investments reverse. Full-year 2025 free cash flow is projected between $260-300 million, with conversion exceeding the 30% target and approaching 35% of adjusted EBITDA over the next 12 months. This cash generation funds both debt reduction and shareholder returns, optimizing capital allocation.

Outlook, Management Guidance, and Execution Risk

Management has consistently reaffirmed full-year 2025 guidance, demonstrating confidence in the face of macro headwinds. The guidance framework assumes core revenue growth of 3-6% on a constant currency basis, with total company revenue growing 1-3% after accounting for the 2% FX headwind and declining Voyix-related revenue. Adjusted EBITDA is expected to grow 7-10%, with margins expanding despite tariff pressures and higher vault cash costs.

The guidance embeds several critical assumptions. First, ATMaaS revenue will grow over 40% for the full year, exiting 2025 with ARR exceeding $300 million. This requires sustained bookings momentum and successful implementation of the record $195 million in Q3 contract value. Second, hardware revenue will grow approximately 8% for the year, driven by the refresh cycle and recycler demand. Third, the Network segment will return to growth in Q4 as new partnerships like 7-Eleven and Casey's (CASY) fully ramp and deposit volumes continue accelerating.

Tariff exposure represents a manageable headwind. Management expects a gross impact of $25 million for 2025, assuming a 50% rate on Indian imports in Q4. However, mitigation through supply chain adjustments, cost reductions, and pricing actions means the net impact is incorporated within the guided range. For 2026, management is budgeting for a 25% tariff rate, which would increase the gross impact to $30 million—modestly higher year-over-year but still absorbable through productivity.

Vault cash cost inflation is a structural challenge but not a thesis breaker. The $9 million quarterly headwind in Q3 2025 from expiring hedges reflects market rates normalizing after the Cardtronics acquisition. Management notes that network margins at current market rates are very similar to pre-acquisition levels, indicating that productivity gains and new business have fully offset the interest rate impact over several years. Any future Fed rate cuts would provide $13 million in annual benefit per 50 basis points, creating potential upside.

Execution risk centers on two variables. First, can Atleos sustain ATMaaS growth while maintaining 40% gross margins? The Q3 37% growth rate and record bookings suggest momentum, but scaling implementations without margin compression requires disciplined execution. Second, can the Network segment offset vault cash cost inflation with transaction growth and mix improvement? The 90% deposit growth and new retail partnerships indicate this is achievable, but immigration policy impacts on prepaid cards remain a wildcard.

Management's commentary reveals a clear capital allocation priority: debt reduction first, then shareholder returns. Having achieved the target net leverage below 3x, the company is now positioned to balance share repurchases with further deleveraging. Management explicitly prefers buybacks over dividends, viewing the stock as undervalued and wanting flexibility to invest in acquisitions or fleet expansion if opportunities arise. This approach optimizes shareholder value while maintaining financial flexibility.

Risks and Asymmetries

The material weakness in internal control over financial reporting, identified in Q3 2025, represents a genuine risk. The issue relates to contract cancellations and customer credits for subscription software revenue, leading to revisions of 2022-2024 financial statements. While management states the misstatements were not material to prior periods, the existence of a material weakness suggests potential for future errors. The "so what" is straightforward: if financial reporting lacks reliability, investors cannot trust the metrics underpinning the investment thesis. Management is designing new controls, but until the weakness is remediated, it remains a red flag.

Vault cash cost inflation could exceed expectations. The $9 million quarterly headwind assumes current interest rates remain stable. If the Fed pauses rate cuts or inflation reaccelerates, the impact could be larger. While management has absorbed similar pressures since the Cardtronics acquisition, sustained high rates would compress Network segment margins beyond the guided 29% level. The mitigating factor is that deposit transaction growth, at 90% year-over-year, provides high-margin revenue that can offset interest expense increases.

Tariff policy remains fluid and unpredictable. Management's guidance assumes a 50% rate in Q4 2025 and 25% in 2026, but trade negotiations could produce outcomes ranging from 15% to 50%. A worst-case scenario of sustained 50% tariffs would increase the annual impact to $50 million, pressuring hardware margins and potentially requiring price increases that could dampen demand. The company's limited exposure—hardware and parts represent less than 7% of total costs—provides some insulation, but the uncertainty creates execution risk.

The Network segment's reliance on immigration policy-exposed revenue streams creates political risk. Prepaid payroll card transactions declined 15-16% year-over-year, and dynamic currency conversion remains weak due to reduced international travel. While management expects these headwinds to persist through Q3 2025, a further deterioration or expansion of restrictive policies could deepen the impact. The offset is that deposit transactions, which are the highest-margin transactions, continue growing rapidly and now represent a meaningful portion of segment revenue.

Hardware cyclicality could disrupt the services growth narrative. The 25% hardware growth in Q3 2025 benefits from the 2019 refresh cycle, which will eventually mature. If demand normalizes faster than expected, it could slow installed base expansion and future services revenue growth. However, the recycler product's superior capabilities and management's comment that "we're winning more than our fair share in most bids" suggest market share gains can sustain growth beyond the refresh cycle.

Valuation Context

Trading at $36.90 per share with a market capitalization of $2.73 billion, NCR Atleos trades at 0.63x trailing twelve-month revenue of $4.32 billion and 6.26x adjusted EBITDA. These multiples appear attractive relative to peers. Diebold Nixdorf trades at 0.65x revenue and 7.70x EBITDA despite slower growth and lower margins. Euronet trades at 0.75x revenue and 5.20x EBITDA with similar growth but less exposure to the services-led transformation. FIS trades at a premium 3.33x revenue and 15.14x EBITDA, reflecting its software focus but also its scale and enterprise positioning.

The enterprise value of $5.34 billion implies an enterprise value-to-revenue multiple of 1.24x, below the peer average of approximately 1.5x for payment and fintech infrastructure companies. The price-to-free-cash-flow ratio of 49.58x appears elevated, but this reflects working capital investments in Q3 2025 that will reverse in Q4. Management's guidance for $260-300 million in free cash flow implies a forward free cash flow yield of 9.5-11.0% at current prices, which is attractive for a business with 70% recurring revenue and expanding margins.

The balance sheet metrics support valuation expansion. Net debt of $2.5 billion represents 2.99x EBITDA, below the 4.0x threshold where valuation multiples typically compress. The company has $412 million in cash and $348 million in undrawn revolver capacity, providing liquidity to execute the $200 million buyback while continuing to invest in growth. Return on equity of 44.52% demonstrates efficient capital deployment, while return on assets of 6.28% reflects the asset-intensive nature of the hardware business that is gradually shifting toward asset-light services.

Management's explicit statement that "on nearly every measure and every multiple, I believe our company remains undervalued relative to our industry and relative to our peers" provides a clear signal. The authorization of a $200 million buyback, representing 7.3% of market cap, demonstrates conviction. For investors, the key is whether the market will reward the services transformation with a higher multiple, or whether hardware cyclicality and Network headwinds will keep the stock range-bound.

Conclusion

NCR Atleos has executed a remarkable transformation from a hardware-centric business to a services-led recurring revenue machine in just two years as an independent company. The 37% ATMaaS growth, 220 basis points of EBITDA margin expansion, and achievement of sub-3x leverage demonstrate that management's strategy is working. The company's unique position as the only pure-play ATM provider with end-to-end capabilities—from hardware manufacturing to network operations to outsourced services—creates competitive moats that peers cannot easily replicate.

The investment thesis hinges on two critical variables. First, can Atleos sustain ATMaaS momentum while absorbing vault cash cost inflation and tariff impacts? The Q3 record bookings and 40% gross margins suggest yes, but execution must remain disciplined. Second, will the market reward the services transformation with valuation multiple expansion? The stock trades at a discount to fintech peers despite superior growth and margins, creating potential upside if management delivers on guidance.

The risks are manageable and well-identified. The material weakness in financial controls requires monitoring but does not impair the underlying business. Network segment headwinds from immigration policy are offset by deposit growth and new partnerships. Hardware cyclicality is mitigated by market share gains and recycler demand. With $200 million in buyback authorization and a clear path to 35% free cash flow conversion, Atleos has the financial flexibility to create shareholder value while investing in growth. For investors willing to look past near-term macro noise, the stock offers exposure to a durable, cash-generative business at an attractive entry point.