NCR Atleos Corp (NATL) 2024 Q2 法說會逐字稿

Good day and welcome to the NCR Atleos' second-quarter earnings call.

Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Brendan Metrano.

Please go ahead.

Good morning and thank you for joining the NCR Atleos' second-quarter earnings call.

Joining me on the call today are Tim Oliver, CEO; Paul Campbell, CFO; and Stuart Mackinnon, Chief Operating Officer.

Tim will start this morning with an overview of second-quarter performance and update on 2024 objectives.

Next, Paul will review our financial results and the outlook, 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 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.

Thank you, Brendan, and thank you to everyone for joining us on the call today.

For those following along in the presentation from the Investor Relations website, we will start today on slide 5.

Before I launch into a discussion of a very successful second quarter, and because I'm hopeful many of you are newer to the Atleos' story, I think it makes sense to reiterate the significant opportunity and accompanying strategy of Atleos now as an independent pure-play ATM company.

Atleos has an installed and serviced fleet of approximately 600,000 ATMs, including over 80,000 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 installed base of 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 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 as we service both growth vectors from a common infrastructure that has unmatched scale, is leverageable, and is world class.

As global banks seek to improve their customers' experience in the most cost-effective way, the importance of self-service devices is increasing.

As a result, our customers are reinvesting back into their retail banking footprint and embracing shared financial utilities.

For them, this strategy will result in lower costs, higher quality, better consumer experience, broader reach, and higher foot traffic.

For NCR Atleos, it will drive higher revenue growth, higher profitability, growth from scale and a richer revenue mix, and predictable free cash flow.

In this vein, in the second quarter, we grew services revenue by 6% and grew ATM service revenue by more than 30%.

We added key new clients to our networks, added new network geographies, and rolled out new transaction types.

Overall financial results were strong again in the second quarter, with revenue toward the upper end of our expectations and profit above those expectations, led by strong growth in both our transaction-based and service businesses.

And profit margins are climbing as anticipated as we eliminate the incremental costs that resulted from our spin transaction.

We drove solid sequential margin expansion with beneficial revenue mix coupled with cost productivity from both direct and indirect costs.

The strong first half financial results combined with robust sales pipelines, key renewals, and improved performance metrics allow us to reaffirm our full-year guidance for 2024.

Paul will provide more detailed discussion on guidance in a few minutes.

Let's move to slide 6, operating highlights for two key segments.

On the left, self-service banking topline performance was solid for the second quarter, with services and software revenue growing 8%.

Our renewed emphasis on product and service quality this year has been recognized by our customers and has resulted in strong order volume in the second quarter, which bodes well for hardware revenue in the second half.

We've had several key wins and renewals for our traditional go-to-market model for services, software, and hardware across geographies, including with PNC in North America, with [TechBond] in Latin America, with Bank of Abyssinia in EMEA, and with SBI in Asia Pacific.

ATM as a service revenue grew 31% and active units increased modestly.

The opportunity for ATM as a service remains very large, and our customers' desire to outsource their ATM efforts is accelerating.

As this strategy has begun to play out, two things have become clear.

First, our definition of ATM as a service, as a singular product, represents the full opportunity of wallet share increase for Atleos, but many of our customers see the opportunity as a continuum of services that they can migrate over time.

In EMEA, we've seen greater preference for a la carte solutions rather than full outsourcing.

North America's smaller institutions generally prefer a fully outsourced model that incorporates new hardware, whereas larger institutions more often take a tactical approach, outsourcing off-premise fleets, adding select services, purchasing hardware up front, and even adding network access.

Second, the strategy does not need to be capital-intensive.

Increasingly we are seeing asset light winds where ATMs are either already in place or are outright purchased by the customer, allowing us to significantly improve our returns.

Some large unit opportunities in lower-cost countries, like India, that require the bidder to own the assets are not demonstrating the returns consistent with our as-a-service strategy.

As such, we have chosen not to provide an as-a-service offering on several thousand units that didn't meet this threshold.

On the right-hand side, the network segment experienced another robust quarter.

The effective execution of our utility banking strategy drove higher ARPU and higher profitability from our fleet of ATMs.

Transaction volumes were strong, with cash withdrawals growing double-digits year over year.

And the UK was our largest contributor to international growth, benefiting from the addition of the grocer ASDA in late 2023.

In North America, all-point hit on all cylinders and generated another all-time high for transactions.

Continued enhancements of our network, coupled with higher consumer usage, contributed 15% growth in surcharge-free withdrawals.

We also made good progress on transaction expansion initiatives, adding deposit acceptance for Capital One and expanding with Navy Federal.

Deposit transactions grew 170% year over year, and our partnership with Payfair on cardless cash payout for DoorDash drivers ramped across the quarter.

We expect to add Lyft in the second half of the year, providing more gig workers with quick and easy access to their daily pay.

And finally, our investment in Clip Money enabled us to efficiently add business deposit solutions to our network.

I do want to call out the expansion of our relationship with Chime that we announced last week.

Chime has been an all-point customer since 2021, and today, they are one of NCR Atleos key commercial strategic partners.

Under the newly extended partnership, we will host Chime brand on all-point ATMs in more than 4,000 Walgreens stores across the country, in addition to the 2,000 currently branded with Chime today.

Turning to slide 7 that reiterates our 2024 key objectives.

These objectives describe a path to both operational and strategic success in 2024.

While I've already described our first-half successes, I want to provide some insight into our second-half focus areas, starting with differentiating growth.

The strategies of our two reported segments are converging as our customers reconsider the entirety of their self-service banking effort and their consumer banking footprint.

Our selling effort needs to be more malleable and leverage our fully integrated solution.

While full outsourcing to Atleos of all things ATM is the eventual goal, we can generate more revenue per device by either capturing more transaction volume or by taking on more services that our bank customers are currently doing themselves.

We are driving exciting new product offerings that add new functionality to the ATM by changing the end-user experience and modernizing the hardware.

Diligent prioritization and application of resources, including people, expense, capital, time, and in some instances, components, optimizes returns and catalyzes future period growth.

In the second half, our services organization will increase the tempo of productivity initiatives and extend our successful AI pilot, having addressed in the first half certain lingering product and service issues related to our separation.

Our organizational redesign efforts will drive efficiencies, as will the modification of our manufacturing processes.

Before moving on to the discussion of the separation, when Atleos launched as a separate company, I suggested that Atleos would generate predictable free cash flows and should be able to regularly deliver a proportion of that cash back to shareholders in the form of a dividend.

Last quarter, when asked about a dividend, I said that the Board would consider returning cash to shareholders once we had a better line of sight to full-year cash generation, and at that time, I would have preferred a share repurchase over a dividend payment.

As is evident from our free cash flow guidance, we now have a better line of sight.

After careful consideration and feedback from several constituencies, we've determined that continuing to reduce our debt is currently in the best interest of both our equity and debt holders.

But we still believe that at some point, Atleos will be able to return meaningful cash to shareholders on a regular basis, and we feel good about our ability to generate free cash flow consistent with our guidance.

For now, we will continue to deploy all excess cash to reduce debt, and we expect to have the opportunity this fall to refinance some of that debt.

Lastly, the process to complete the separation from NCR Voyix is on or ahead of schedule and on budget.

During the second quarter, we transferred two more countries to Atleos that had been stranded with Voyix post-split due to legal entity status.

Only two with de minimis revenue remain, and those should transfer to us in the third quarter.

We completed the early closure of several key transition service agreements, or TSAs, between the two companies, and have only a few critical TSAs remaining.

This has allowed us to already begin evaluating productivity opportunities for functions previously covered by the TSA and sized for a larger company.

As is always the case, I want to express my gratitude to the whole NCR Atleos team for achieving another impressive quarter, fueled by enthusiastic commitment to our new company's mission and values, diligent effort, and consistently positive disposition.

I'm extremely proud of what the global NCR Atleos team has accomplished in nine short months and more opportunity awaits.

With that, over to you, Paul.

Thank you, Tim, and thank you all for joining us today.

We closed out the first half of the year with a strong second quarter that was on the higher end of our expectations.

We were particularly pleased with the financial results, momentum of our business, and accelerated progress of our key objectives.

Importantly, the results further validated the earnings power of our strategy to generate higher revenue and profit per unit across our global installed base of 600,000 ATMs by adding incremental transaction and service revenue streams.

We will start on slide 9 for a review of the consolidated second-quarter results.

Total company revenue was $1.08 billion, led by 7% growth in software revenue and 6% growth in services revenue that demonstrated continued success in generating consistent and higher margin sources of revenue from stable installed base of ATMs.

The strong software and service revenues contributed to 9% growth in recurring revenue to $793 million, which comprised 73% of total revenues, up from 70% in the prior year.

We delivered second-quarter adjusted EBITDA of $193 million and a margin of 17.9%, benefiting from upside in revenue growth for self-service banking and upside in margins for the network business.

EBITDA margin rate expanded 250 basis points sequentially.

The year-over-year decrease in EBITDA and margin was consistent with our projections that incorporated known dis-synergies and higher labor cost.

Macro headwinds remained consistent with last quarter, partially offsetting the productivity savings we have accomplished.

Moving down to P&L, interest expense was $79 million on an average total debt balance of $3.2 billion that includes approximately $1.8 billion of variable rate debt.

The weighted average interest rate on the debt was approximately 9.4%.

The second-quarter effective tax rate of approximately 18% was 200 basis points lower than we projected due to known discrete tax benefits accelerated from the third quarter.

Fully diluted average share count was 73.7 million shares.

Putting it together, we drove second-quarter diluted adjusted earnings per share of $0.81 and generated approximately $16 million of adjusted free cash flow in the quarter.

Moving to slide 10, self-service banking is our largest business and is comprised of a stable global install base of approximately 520,000 of our 600,000 ATM units.

These 520,000 units primarily generate recurring revenue from soft -- services and software.

We are transforming the business by leveraging our network infrastructure capabilities to deliver a broader range of services to our customer and a more comprehensive outsourced services model.

Self-service banking had a solid second quarter with financial results above our guided range.

Starting in the upper left, revenue grew 3% year over year to $673 million including 12% growth in recurring revenue to a new high of 63% of segment revenues.

The recurring revenue growth reflects the continued success of our strategy to drive more revenue from a global install base of ATMs led by 18% growth in software and 5% growth in services.

The continued growth of our ATM as a service solution resulted in a decrease in upfront revenue hardware line due to revenue shifting to ATM as a service bucket being recognized relatively over the contract period.

That said, we had a higher-than-expected hardware orders in the quarter, particularly for a recycling product, giving us a robust backlog that increased our segment revenue expectations for the second half.

Second-quarter adjusted EBITDA of $158 million benefited from the strong growth in high margin software revenue and productivity initiatives which offset the previous mentioned macro cost headwinds.

On a year-over-year basis, EBITDA was down approximately $15 million primarily due to anticipated dis-synergies, higher labor costs, and the impact of one-time hardware sales shifting to ATMs as a service being amortized over future years.

Adjusted EBITDA margin was 24% compared to 27% in the prior year.

Moving to the bottom of the slide, KPIs continued a positive trajectory in the second quarter.

The mix of recurring revenue climbed to 63% for the second quarter, up approximately 500 basis points year over year and 100 basis points sequentially on growth in recurring software and services revenue in addition to the incremental impact of ATM as a service revenue.

Annual recurring revenue or ARR is up 11% year over year and up 6% sequentially.

Another proof point that our strategy of driving more recurring revenue from our existing installed base is progressing.

On slide 11, we have introduced new information disclosures for the ATM as a service business to help assess and model this important growth opportunity and the broader self-service banking segment.

On the top left of the slide, ATM as a service grew 31% year over year to $47 million for the second quarter on addition of approximately 4,100 incremental active units.

On the right, gross profit increased 37% year over year to $14.4 million, consistent with the ramp in the ATM as a service revenues.

Moving to the bottom of the slide, ATM as a service KPIs also continued a positive trajectory in the second quarter.

ATM as a service active units increased year over year and sequentially to over 22,000 units.

Customer interest remains strong, and the backlog also increased for the second quarter to over 4,000 units.

Adding to Tim's earlier comments, we acknowledge that the pace of ATM as a service activations has been slower this year than we originally projected.

That is primarily because we maintained ROI discipline on some large deals expected to close earlier this year that did not meet our return on investment hurdle rate.

With that said, we still have line of sight to finishing the year with our targeted 30,000 active units.

On top of the 4,000 unit backlog, there are a few large service-orientated deals with existing customers that we have high degree of confidence will close and activate this year.

The last 12 months average revenue per unit, ARPU, continued to build during the second quarter, reaching $8,600 per unit, up from $8,000 in the prior year.

The increase in the ARPU is largely a result of adding customers in higher yield regions to a base of units with a large mix of cash dispensers in India, where the yield is lower.

It is important to keep in mind that there is a lot of variability in ARPU between geography, the product type, the set of services included, and the institution size.

For example, India favors less advanced units generating much lower revenue and profit than North America, where institutions generally prefer a higher specification of ARPUs and higher specification multi-function unit with a fully outsourced model that has a stronger yield.

The previously mentioned backlog of 4,000 units are more heavily weighted to North America and Europe, with backlog ARPU above $14,000 and a higher margin profile.

Demand for ATMs as a service is broad-based across all regions and particularly healthy in North America, which we expect to become an increasing mix of our ATMs as a service unit installed base.

ARR continued a consistent upward trend in the second quarter, growing 30% year over year to almost $200 million.

Moving to the network segment on page 12, our network utility banking strategy is focused on offering financial institutions and retail partners access to industry-leading scale of our owned and operated ATM network, which enables increased utilization of network driving higher ARPU across approximately 80,000 units base of ATMs.

The network segment had another strong quarter, starting on the top left, revenue increased 6% year over year to $326 million, with 10% growth in withdrawal volumes, partially offset by lower volumes for LibertyX transactions, which are lower margin.

Withdrawal volumes increased 8% for North America and 11% for international transactions.

Also of note, we continue to execute our nationwide deposit strategy by adding a second top-tier US bank to our deposit network.

Deposit transactions continue to accelerate, growing approximately 170% year over year and 50% over Q1 but from a small base.

On the right, adjusted EBITDA of $101 million was also above the high end of our guidance range and increased 11% year over year on revenue growth and margin expansion.

Adjusted EBITDA margin expanded 160 basis points year over year, which is a significant increase of 31%, primarily due to a lower mix of LibertyX revenue that ties a lower margin offset by growth in higher margin all-point transactions.

The key metrics at the bottom of this slide highlight the validity and execution of our strategy.

On the left, you can see our ATM portfolio has been stable over the past year, finishing the quarter at approximately 81,000 units.

The small reduction in unit count is the result of planned retail footprint optimization to remove units with lower profitability.

The chart on the right shows the last 12 months average revenue per unit, ARPU, was up 10% year over year in the second quarter.

As Tim noted, we made significant progress on multiple strategic initiatives in the second quarter that laid the foundation for future growth.

Moving to slide 13, starting on the left with a summary of our segment revenue and EBITDA results for the total company.

Technology and telecom segment revenue and adjusted EBITDA were slightly up year over year due to new customers and expanding services.

As a reminder, the other segment represents legacy NCR Voyix exited geographies and commercial agreements between NCR Atleos and NCR Voyix.

The other segment results were below our expectations due to accelerated exits from TSA and lower manufacturing demand from NCR Voyix.

We expect this weakness to continue.

Unallocated corporate cost decreased 5% to $77 million with the primary contributors being the movement of some cost departments into self-service banking business segment, expense optimization, and a difference between historical cost allocation methodologies under [variable] accounting.

On slide 14 is another view of new information that we're providing to help investors assess and model the company.

These are not KPIs that we currently use internally, but I've been asked for this information by a number of investors and will build this up to a rolling five-quarter view over time.

The key takeaway from this slide is to show the progress of maximizing the monetization of each unit of our 600,000-unit fleet by attaching more transactions, services, and software, regardless of which segment drives the additional revenue.

On slide 15, we present a breakdown of free cash flow for the quarter and a snapshot of our financial position at the end of the second quarter.

The key takeaway in this slide for the second quarter is that we generated $16 million of free cash flow, and leverage was essentially unchanged at 3.5 times.

Year to date, we generated approximately $85 million of free cash flow, putting us on pace to meet our full-year net leverage target of 3.2 times.

On the bottom of this slide, year to date, our net debt is down by $45 million, and net leverage ratio dropped from approximately 3.7 times to 3.5 times.

We have ample liquidity of $672 million at the end of the second quarter.

Expanding on Tim's comments for capital allocation, the company's strong fundamentals and cash flow generation can comfortably support more than our current debt, which the market has clearly shown with our 2029 notes trading at almost 110% of par value.

That said, our internal analysis and feedback from investors and the board confirmed that a more optimal leverage level is our priority.

Therefore, we have decided that debt reduction is the best use of free cash flow to increase shareholder value.

We will continue to evaluate this position and adjust for developments appropriately.

Coming to slide 16 and our total company financial outlook for Q3 and full-year 2024.

Starting with the full year, for revenues, the midpoint of the range is unchanged at $4.3 billion.

We tightened the range to $4.26 billion to $4.34 billion based on solid first half revenues plus a robust order backlog and sales pipeline for the second half.

We reaffirmed the outlook for the adjusted EBITDA of $770 million to $800 million.

This reflects the first half adjusted EBITDA that was above midpoint for the quarterly guidance ranges, offset by uncertainty with macroeconomic risk due to softening economic trends globally and geopolitical risk.

Moving down to P&L, there are no material changes to the outlook below the line, which leaves diluted adjusted EPS unchanged at $2.90 to $3.20. Based on the strong first half free cash flow, second half EBITDA outlook, and effective CapEx and working capital management, we narrowed the free cash flow outlook to $190 million to $220 million, raising the midpoint by $5 million.

For the third quarter, we expect total company revenue in the range of $1.045 billion to $1.075 billion, adjusted EBITDA of $195 million to $205 million, and adjusted EPS of $0.71 to $0.81. We expect free cash flow will be between $40 million and $60 million.

Note that free cash flow conversion should improve sequentially on higher EBITDA and having no semi-annual cash interest expense payment.

We highlighted other relevant assumptions for the consolidated Q3 and full-year outlook in the earnings presentation, including interest expense, effective tax rate, and share count.

Moving to slide 17 and the segment level outlook, there are movements between the segments as we recalibrate based on learnings from the first half and current backlog and cost profiles.

Starting with the full-year outlook, we modestly increased and narrowed the self-service banking revenue outlook range to $2.655 billion to $2.690 billion, reflecting better growth across product lines, including strong hardware revenue from improved backlog exiting Q2.

We lowered the outlook range for adjusted EBITDA margin to 23% to 24% due to higher than previously expected service costs and shipping costs that will dampen the impact of our continuous improvement initiatives.

We modestly decreased and narrowed the network revenue outlook range to $1.28 billion to $1.31 billion, primarily due to continuous softness in the Liberty business.

We increased the outlook range for adjusted EBITDA margin to 30% to 31%, reflecting the lower mix of Liberty revenue that carries a lower margin than the overall segment.

We're in the process of implementing plans to remedy the Liberty challenges.

P&T revenue is now expected to be $188 million to $197 million, with adjusted EBITDA margin of approximately 20%.

Moving to the other segment.

Last week, Voyix announced an asset divestiture and corporate reorganization.

We expect to retain most of the projected second half EBITDA relating to Voyix, but the financial implications are not yet clear.

Based on volume interlocks with Voyix, we've reduced revenue expectations from this segment by $43 million at the midpoint.

Other revenue for the year is now expected to be $137 million to $143 million, with an adjusted EBITDA margin of approximately 10%.

Unallocated corporate costs should be approximately 7% of total company revenues.

For the third quarter, we expect self-service banking revenue to be $655 million to $670 million, with adjusted EBITDA margin rate of 24% to 25%.

We expect network revenue to be $325 million to $335 million, with an adjusted EBITDA margin of 30% to 31%.

P&T revenue is expected to be $43 million to $45 million, with an adjusted EBITDA margin rate of approximately 20%.

We expect other revenue of $22 million to $25 million, with an adjusted EBITDA margin of high single digits.

Concluding my comments on slide 18, we delivered a strong second quarter and first half result at or above guidance across the board.

We grew revenue in all Atleos' core businesses with a focus on increasing transactional, software, and services revenue.

We sequentially expanded margins and generated positive free cash flow.

We issued Q3 guidance, improving sequentially and reiterating our full-year guidance midpoints with tightened ranges.

With that, operator, please open up the line for questions.

(Operator Instructions) Matt Somerville, DA Davidson.

Couple questions.

First, just with respect to the balance sheet, you mentioned you may embark upon some sort of debt refinancing this fall.

Can you remind us what your cash interest expense is on an annual basis and where you think ultimately your new weighted average cost of debt, what that could look like relative to the 94?

And then similarly, I think with respect to your comments on buyback in dividends, what leverage level would you need to see to start entertaining those ideas again?

And then I have a follow-up.

Paul, I'll take the first one, and I'll let you take the second one.

I'll take the second one.

You can take the first one on the debt cost and the potential relief from refinancing.

I think on the second half of that question, 3 times leverage is probably where we want to get to.

We've talked about getting to 3 times in the midpoint of next year.

We think we can get there more quickly if we don't pay a dividend or we don't return cash to shareholders, either as a dividend or a share of purchase.

A share of purchase authorization would take action by our Board.

We've had one in the past.

I think it was a very compelling choice last quarter when our stock was in the $22 range.

I still believe we're undervalued, but not as undervalued.

So I think once we get down to 3 times, which should be sometime in the first half of 2025, that we could reinitiate this discussion.

Paul, would you take the first one?

The annual interest cost, Matt, is between $295 million and $305 million in 2024.

We have roughly $3 billion of debt.

Around $750 million of that is a term loan B, which is no call through the end of Q3, and then it's callable at the end of Q3, so that's our highest cost debt at SOFR plus 4.85%.

So that's the debt we're probably looking to refinance, Matt, just the $750 million of the $3 billion.

We don't know yet what the interest would be.

There's a number of different options we can take when we're refinancing that, be it replacing with more term loan A, there's options around converts, and there's just repricing the debt.

So we're working with our bank partners to come up with the best optionality for us for interest rates that are available at a time we can refinance.

Got it.

And then with respect to the hardware side of self-service banking, it sounds like there's a pretty good chance you actually see some unit growth in '24 over '23 based on some of the order comments you had.

Does this give you an early read on how you're thinking about '25 big picture for that portion of the business, and what inning would you say we're in with respect to this recycling proliferation in the western part of the world particularly in North America?

Yeah, I'll take this one.

I feel good about demand for hardware this year.

Our demand is going to be better than we anticipated at the beginning of the year.

The order book is very strong particularly in the second half of the year.

Our recycler product will compete exceptionally well going into next year, and I think that from a hardware perspective, both because demand feels pretty good, it feels good not just for recycling, but for all things ATM, I think we're at somewhat of a sweet spot in the refresh cycle at this point.

I think we're in the third inning, the fourth inning.

I think it's going to play out more slowly than the 2019 bubble, but I think 2025 for us should be a very, very good hardware year.

I'll sneak in one more.

If you think about the network side of the business and the growth algorithm there, if LibertyX is sort of lower for longer, and back of the envelope, that to me looks like a 2, maybe 3 percentage point drag on network organic growth this year, so first one, if you could confirm that.

But I want to think about the long-term growth algorithm outside of Liberty.

How much growth can you get from incremental withdrawal transaction volume gains versus continuing to add to the transactional set?

I guess I'm trying to make sure I understand which is the bigger underlying driver of incremental growth from here in network.

It's going to be the withdrawal transactions in the shorter run.

The new transaction types we're describing are relatively small compared to the whole, and so despite the fact they're growing very rapidly, they're not moving the whole business that much.

Fast forward a couple of years, and I think deposit transactions and some of our cardless, pinless transactions might be still growing very rapidly and be contributing significantly to the overall growth rate of the business.

But I think for the next several quarters, it's going to continue to be really robust growth in our withdrawal transactions.

(Operator Instructions) George Tong, Goldman Sachs.

You're continuing to target 30,000 ATM as a service units by 4Q of this year compared to about 22,000 in the second quarter and cited strong visibility into large contracts that will likely close in the second half.

Can you describe where these large contracts are coming from and your confidence around the timing of implementation?

Paul, why don't you take that?

Yeah, we have a line of sight.

These are customers we have today, George, that have moved somewhat along the continuum.

They've outsourced some services to us today.

And we're looking to convert them to an ATM as a service structure either late third quarter or early fourth quarter.

So we have good line of sight.

Specific customers, it's negotiations that are deep into the closing cycle.

I want to add there.

I'd love to add there that we're not going to chase units.

We could chase units and be less profitable and have returns that are not what we've been targeting.

We're going to continue to participate in transactions in lower cost markets.

But it's unlikely the trend we're seeing right now will allow us to be as competitive there.

So you're going to see more smaller deals in the US and Western Europe.

It takes a little longer for those to accumulate.

But we're not going to chase that metric of 30,000 simply because we want to hit that metric.

We'll do it profitably or we won't do it.

As Paul said, we've got line of sight to get to 30,000 units.

There's -- I guess there's two relatively large transactions in there that we think will get closed.

Other customers we've spoken about before, you'd know them.

But we're not on a mad tear trying to get that unit number up.

Got it.

That's helpful context.

Related to that, you're leaning more and more into your ATM as a service light strategy.

Can you talk more about that strategy?

How many ATM as a service light implementations there were in the quarter?

And if this strategy alters your medium-term target, assuming you continue down this path of preferring light implementations?

That is certainly one of the reasons why we have reined in our units expectation is because we're not inclined to want to own the device unless the return is significant.

And in some deals, particularly in India, they are not significant enough.

The returns are disappointing.

And so we'd rather not own the device.

It has really been our customers preference thus far that has caused the strategy to be less capital intensive.

We are admittedly prioritizing transactions that are asset light.

And we've been able to take our free cash flow number for the guidance for the year up a bit, as Paul described, because we're not spending nearly as much as we thought we would to drive these strategies.

So I think part of it is a choice that we're making.

And part of it is our customers understand that their cost of capital is significantly lower than ours.

And they just assume own the devices themselves and let us do what we do well, which is serve those machines.

And at this time, there are no further questions.

Operator, thank you.

I think that concludes our call.

I appreciate everyone joining tonight.

And I know that Paul and his team will be standing by to take any questions that you have today or tomorrow.

Hope all's well.

Bye.

Thanks, everyone.

This does conclude today's conference.

We thank you for your participation.