NCR Atleos (NATL) - 2023 Q4 - Annual Report

Forward-Looking Statements This section outlines the company's forward-looking statements and cautions investors about the numerous risks that could affect future results - This section outlines forward-looking statements regarding the company's strategy, plans, and financial outlook, cautioning that they are subject to numerous risks and uncertainties[10] - Key risk categories that could affect future performance include strategy, technology, business operations, data privacy, finance, legal compliance, governance, and separation-related issues[11] PART I Business NCR Atleos Corporation provides global self-directed banking solutions and operates through three distinct business segments - NCR Atleos Corporation launched as an independent, publicly-traded company on October 16, 2023, after separating from NCR Corporation (now Voyix)[14] - The company operates in three segments: Self-Service Banking, Network, and Telecommunications & Technology (T&T)[25][26] - Key strategic initiatives include shifting to a recurring ATM as a Service model, growing the Allpoint network, and expanding internationally[26][29] Research and Development Expenses | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Research and Development Expenses | $77 million | $64 million | $107 million | - As of December 31, 2023, Atleos had approximately 20,000 employees worldwide, with 82% located outside the United States[61] Diversity Metric (as of Dec 31, 2023) | Diversity Metric (as of Dec 31, 2023) | Value | | :--- | :--- | | Countries with employees | 56 | | Global workforce self-identifying as women | 19% | | U.S. workforce self-identifying as ethnically/racially diverse | 39% | | U.S. management positions held by women | 29% | Risk Factors The company faces significant risks related to its business model transformation, competition, operational challenges, and substantial post-spin-off debt - The company faces risks in its shift to a software- and services-led, recurring revenue model, particularly with its "ATM as a Service" strategy[88] - The business is exposed to risks from the payments industry, including a decline in ATM usage and the need to maintain bank sponsorships for network access[102][103] - Atleos incurred significant indebtedness of approximately $3.1 billion in connection with the spin-off, which could limit financial flexibility[126] - The company assumed sponsorship of pension plans with significant underfunded obligations, including a $333 million shortfall in the U.S. plan as of year-end 2023[148][149] - There is a risk that Atleos may not achieve the expected benefits of the spin-off, and its historical financial information may not represent future results[174][177] Unresolved Staff Comments The company reports no unresolved comments from the Securities and Exchange Commission - None[211] Cybersecurity Cybersecurity risks are managed through an enterprise risk management program overseen by the Audit Committee of the Board - Cybersecurity risk management is integrated into the company's overall Enterprise Risk Management (ERM) framework[212] - The Audit Committee of the Board of Directors has oversight responsibility for managing cybersecurity threat risks and incidents[218] - As of the report date, the company has not identified any cybersecurity threats that have had or are reasonably expected to have a material effect on the organization[217] Properties The company operates 277 facilities totaling 3.3 million square feet across 56 countries, with the majority being leased - As of December 31, 2023, the company operated 277 facilities, totaling 3.3 million square feet in 56 countries[225] - On a square footage basis, 13% of the facilities are owned and 87% are leased[225] Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 10 of the Consolidated Financial Statements - Details on legal proceedings are provided in Note 10 of the financial statements[227] Mine Safety Disclosures This item is not applicable to the company - Not applicable[228] PART II Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Atleos' common stock trades on the NYSE under the symbol "NATL," and the company did not pay cash dividends in 2023 - Atleos' common stock is listed on the NYSE under the ticker symbol "NATL"[230] - As of March 15, 2024, there were approximately 66,170 holders of Atleos common stock[230] - The company did not pay cash dividends in 2023[231] Stock Performance Graph | Company / Index | 10/17/2023 (Base) | 12/31/2023 (Value) | | :--- | :--- | :--- | | NCR Atleos Corporation | $100 | $114 | | S&P 500 Stock Index | $100 | $109 | | Russell 2000 Index | $100 | $115 | | S&P Composite 1500 Transaction & Payment Processing Services Index | $100 | $108 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) The company's 2023 financial performance saw 1% revenue growth to $4.19 billion but a net loss of $134 million due to spin-off related tax expenses Overview Atleos became an independent public company post-spin-off, with historical financials derived from its former parent and a new capital structure - The spin-off from NCR Corporation was completed on October 16, 2023, establishing Atleos as a standalone publicly traded company[243] - Historical financial statements prior to the spin-off include allocated corporate overhead from NCR and may not be indicative of future costs[246][247] - The company's strategy is to be a cash-generative business focused on delivering ATM as a Service and shifting to a highly recurring revenue model[256] Results of Operations Total revenue grew 1% in 2023, while a significant one-time tax expense related to the spin-off drove a net loss of $134 million Key Financial Metrics | Metric (in millions) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $4,191 | $4,131 | 1% | | Recurring Revenue | $2,982 | $2,795 | 7% | | Net Income (Loss) | $(134) | $108 | (224)% | | Adjusted EBITDA | $732 | $685 | 7% | - Total revenue increased by 1% in 2023, driven by a 4% rise in service revenue that offset a 6% decline in product revenue[277][278] - Gross margin as a percentage of revenue was stable at 22.3% in 2023, as improved product margins were offset by higher vault cash rental costs[279] - The effective tax rate was 223% in 2023, driven primarily by $120 million in discrete tax expenses related to the spin-off restructuring[288] Segment Revenue | Segment Revenue (in millions) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Self-Service Banking | $2,581 | $2,582 | 0% | | Network | $1,267 | $1,198 | 6% | | T&T | $196 | $219 | (11)% | Segment Adjusted EBITDA | Segment Adjusted EBITDA (in millions) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Self-Service Banking | $630 | $549 | 15% | | Network | $379 | $352 | 8% | | T&T | $33 | $47 | (30)% | Financial Condition, Liquidity and Capital Resources The company ended 2023 with $3.1 billion in debt and believes its current liquidity is sufficient to meet over $5.3 billion in material cash requirements Cash Flow Summary | Cash Flow Summary (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $355 | $274 | | Net cash used in investing activities | $(316) | $(417) | | Net cash provided by financing activities | $31 | $183 | - In connection with the spin-off, the company issued $1,350 million in senior secured notes and entered into new credit facilities[305][306] - As of December 31, 2023, the company had total debt of $3,099 million, cash of $339 million, and available borrowing capacity of $337 million[310] Material Cash Requirements | Material Cash Requirements (Undiscounted, in millions) | Total | 2024 | 2025-2026 | 2027-2028 | 2029 & Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt obligations | $3,099 | $76 | $210 | $934 | $1,879 | | Interest on debt obligations | $1,307 | $277 | $490 | $454 | $86 | | Lease obligations | $176 | $40 | $53 | $32 | $51 | | Purchase obligations | $728 | $728 | — | — | — | | Total obligations | $5,310 | $1,121 | $753 | $1,420 | $2,016 | - The company contributed $150 million to its U.S. pension plan in 2023, which was underfunded by $333 million at year-end[318] Critical Accounting Estimates Key accounting estimates involve goodwill impairment, pensions, and income taxes, with the Network segment's goodwill facing a heightened impairment risk - The annual goodwill impairment test revealed that the Network reporting unit, which holds $1,696 million in goodwill, had a fair value less than 10% in excess of its carrying value[329] - Pension benefit calculations rely on critical actuarial assumptions, where a 0.25% change in key rates could impact annual pension expense by approximately $1 million[336] - The company maintains a valuation allowance of $263 million against deferred tax assets, reflecting uncertainty about their future realization[340] - For periods prior to the spin-off, financial statements include allocated corporate costs from NCR that may not reflect standalone costs[347] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from foreign currency exchange rates, interest rates, and credit concentrations - A hypothetical 10% appreciation in the U.S. Dollar would result in a $4 million decrease in the fair value of the company's hedge portfolio[351] - A hypothetical 100 basis point increase in variable interest rates would increase annual pre-tax interest expense by approximately $4 million[353] - A hypothetical 100 basis point increase in variable rates would increase ATM vault cash rental expense by approximately $37 million for the year[354] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements and supplementary data for the last three fiscal years Consolidated Statements of Operations | (in millions) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total revenue | $4,191 | $4,131 | $3,549 | | Income from operations | $271 | $269 | $248 | | Net income (loss) attributable to Atleos | $(134) | $108 | $186 | | Net income (loss) per share - basic and diluted | $(1.90) | $1.53 | $2.63 | Consolidated Balance Sheets | (in millions) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $1,895 | $1,649 | | Goodwill | $1,952 | $1,949 | | Total assets | $5,741 | $5,772 | | Total current liabilities | $1,747 | $1,369 | | Long-term borrowings | $2,938 | $— | | Total liabilities | $5,454 | $2,510 | | Total stockholders' equity | $287 | $3,262 | - The company's goodwill balance was $1,952 million as of December 31, 2023, primarily allocated to the Network segment[506] - In connection with the spin-off, the company entered into a new credit agreement for $2,085 million and issued $1,350 million in senior secured notes[524][536] - The company shares liability with Voyix for certain environmental matters, with Atleos' estimated 2024 contribution being approximately $2 million[634][636][638] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure matters - None[693] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023 - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the period[694] - The annual report does not include a management assessment or auditor attestation on internal control over financial reporting, per rules for newly public companies[696] Other Information The Compensation & Human Resource Committee approved an Amended and Restated Executive Severance Plan in March 2024 - On March 20, 2024, the company's Compensation & Human Resource Committee approved an Amended and Restated Executive Severance Plan[698] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - None[700] PART III Directors, Executive Officers and Corporate Governance Information regarding directors and corporate governance will be incorporated by reference from the 2024 Definitive Proxy Statement - Required information will be incorporated by reference from the company's upcoming Definitive Proxy Statement[702] Executive Compensation Information regarding executive compensation will be incorporated by reference from the 2024 Definitive Proxy Statement - Required information will be incorporated by reference from the company's upcoming Definitive Proxy Statement[704] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership will be incorporated by reference from the 2024 Definitive Proxy Statement - Required information will be incorporated by reference from the company's upcoming Definitive Proxy Statement[705] Certain Relationships and Related Transactions and Director Independence Information regarding related transactions and director independence will be incorporated by reference from the 2024 Definitive Proxy Statement - Required information will be incorporated by reference from the company's upcoming Definitive Proxy Statement[706] Principal Accountant Fees and Services Information regarding accountant fees and services will be incorporated by reference from the 2024 Definitive Proxy Statement - Required information will be incorporated by reference from the company's upcoming Definitive Proxy Statement[707] PART IV Exhibits and Financial Statement Schedule This section lists all exhibits filed with the Form 10-K and includes a schedule of valuation and qualifying accounts Financial Statement Schedule II | Valuation and Qualifying Accounts (in millions) | Balance at Beginning of 2023 | Charged to Costs & Expenses | Deductions | Balance at End of 2023 | | :--- | :--- | :--- | :--- | :--- | | Allowance for doubtful accounts | $16 | $2 | $4 | $14 | | Deferred tax asset valuation allowance | $169 | $44 | $— | $263 | Form 10-K Summary This item is not applicable - None[718]