Good day, and welcome to the NCR Atleos Q3 2025 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Melanie Skijus, Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining the Atleos Third Quarter 2025 Earnings Call. Joining me on the call today are Tim Oliver, Chief Executive Officer; Andy Wamser, Chief Financial Officer; and Stuart MacKinnon, Chief Operating Officer. During the call, we will reference our third quarter 2025 earnings presentation available through the webcast and on our new Investor Relations website at investor.ncratleos.com. Today's presentation will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Risks and uncertainties include, but are not limited to, the factors identified in today's earnings materials and our periodic filings with the SEC, including our annual report. During the call today, we will also refer to certain non-GAAP financial measures, which the company uses to measure its performance. These non-GAAP measures are reconciled to their GAAP counterparts in the presentation materials. The webcast this morning is being recorded and will be available for replay by accessing our Investor Relations website. With that, I will turn the call over to Tim.

Thanks, Melanie, and thank you to everyone for joining us on our call this morning. I will start this morning by quickly reviewing the quarterly operational performance and strategic progress from a more forward-looking and qualitative perspective. I'll leave the quantitative review to Andy. I will then provide some context on the current business environment and its consideration in our outlook. I'll end by reiterating the compelling Atleos story and describing a capital allocation strategy that anticipates steady growth and free cash flow. Having now passed the second anniversary of our spin from legacy NCR, our separation process is complete. The magnitude of the effort and of the accomplishment cannot be overstated. We bifurcated or duplicated 140 years' worth of IT systems and hardware. We physically separated hundreds of global locations. We established dozens of new legal entities. We migrated over 700 critical customer connections and completed over 200 transition service agreements. I'm very pleased that the resources formerly dedicated to this effort can now be focused on growing Atleos. From the outset, we described two fundamental goals that we knew would be essential to the eventual valuation of our company. First, establishing a quarterly pattern of transparent and predictable financial performance; and second, deploying free cash flow to reduce leverage and then begin returning free cash to shareholders. In the third quarter, our seventh full quarter as a separate publicly traded company, Atleos extended a series of steady financial performance that has repeatedly been consistent with our expectations and our external guidance. The resiliency of both Atleos business model and its employees that drive it, augmented by prudent contingency planning have allowed us to overcome exogenous shocks like 50% import tariffs, persistently high interest rates, disrupted supply routes and dramatic shifts in immigrant work payrolls. As we enter the fourth quarter, we have also crossed the originally targeted threshold leverage level of 3x and are on path to be at about 2.8x at year-end. While we were unable to repurchase shares in Q3 due to trading window restrictions, we expect to begin repurchasing Atleos shares in the upcoming trading window and to establish a 10b5-1 plan that dictates the repurchase program thereafter. For those following along in the presentation from the Investor Relations website, I will start on Slide 5 that provides a quick visual of our vertically integrated self-service offering. As digital transactions and asset types proliferate, the translation to and from physical assets becomes increasingly complex and is accelerating the outsourcing of self-service banking and the cash ecosystem. Banks and retailers are demanding more efficient and lower friction physical transactions and more capable devices and at convenient and safe locations beyond the branch. Our service infrastructure and installed base of machines is purpose-built to solve these needs. We become essential to any transaction that requires physical authentication and the ability to dispense or accept or even safe-keep valuable physical assets. NCR Atleos is uniquely positioned to benefit from either of the two solutions: a shared financial utility ATM estate or outsourced bank-specific fleets. Both growth vectors leverage a common Atleos infrastructure that is world-class, has unmatched global scale, and delivers significant cost leverage. Turning to Chart 6, which describes our Q3 performance against our qualitative and financial goals. The third quarter was an exceptional quarter from a strategic and competitive perspective. We grew efficiently by delivering robust hardware revenue that augments our leading installed base with record production from our manufacturing facility in Chennai. We drove incremental revenue from the global service fleet by accelerating our outsourced services business. Our Service First initiative elevated service levels and is being recognized by our partners and rewarded by our customers. And we embraced simplicity, reducing inefficiencies across the company, optimizing our production and supply chain operations, redesigning the organization to speed decision-making, and investing in systems and people to make us easier to do business with. Core top line growth was 6%, led atypically but not unexpectedly by traditional hardware revenue and the conversion of services backlog. This growth was partially offset by lower payroll card transactions in the U.S. network business. Profitability ramped nicely and was at the high end of our expectations due to an advantageous hardware revenue mix, accretive outsourced ATM-as-a-Service revenue growth, fixed cost leverage, and direct cost productivity in our service organization. These were all partially offset by higher cash rental costs and higher tariffs. Shifting to Chart 7, which describes the self-service banking segment. This is primarily a service business comprised of a global installed base of over 500,000 ATMs sold to financial institutions that run our subscription software and rely on Atleos servicing agreements for the duration of their deployment. Traditionally, ATM services have been centered on maintenance and repair, but increasingly, banks are opting to outsource more or even all of the services necessary to run and manage their ATMs. We now have over 120,000 machines that we support beyond traditional break/fix, including those that are fully outsourced Atleos. Segment financial performance was strong. Revenue grew an impressive 11% in the third quarter, benefiting from increased demand for our recycler product, coupled with an acceleration in outsourced services. Services and software combined grew 5%. And ATM-as-a-Service was the primary source of services growth and continued to gain momentum with meaningful additions to total contract value, customer count, and backlog. This segment generated significant profit growth with margins up across each hardware, software, and services. Scalable services growth and advantageous hardware mix were augmented by indirect productivity efforts and all contributed to margin expansion. Demand across the product portfolio, and especially our recycler product, has exceeded expectations. In early 2024, we launched an effort to strengthen our manufacturing capabilities to prioritize our engineering effort and to increase throughput for next-generation recyclers. This effort has now reduced our delivery lead times from months to weeks. Demand for our ATM outsourced services is also strong and accelerating, posting 37% growth in Q3. We have streamlined the sales process and improved conversion rates, resulting in our best quarter ever for ATM-as-a-Service bookings, approximately $195 million of total contract value, including our first as-a-service customers in Latin America and in the Middle East. Backlog remains strong in this business, and we expect the fourth quarter implementations to be the highest of the year. Our Service First initiative is working. Already industry-leading service levels continue to trend upward in the third quarter. We completed our annual customer satisfaction survey in the third quarter, and the results showed an impressive 30% improvement in our Net Promoter Score from already solid scores in the prior year. We will use the detailed data from this survey to focus on areas that need improvement, and we'll follow up with every customer comment and request. Our efforts to simplify how we operate are generating positive business outcomes. Following the successful test run of our AI-driven dispatch and service optimization model in Canada, we launched for all of North America in the second quarter. These AI tools have delivered meaningful improvement in both first-time repair and time to repair metrics through automated dispatching. We will roll these tools out in the U.K. and Europe in Q1, and we'll test a third AI tool in North America in 2026 that is focused on preventative maintenance. Turning to Chart 8, summarizing the Network segment. The Network segment is our utility banking business that consists of approximately 80,000 owned and operated ATMs in 13 countries that are placed in blue-chip retail locations where consumers can meet their regular banking needs. The network business continues to grow the number of network cardholders, the number of client financial institutions, the types of transactions resident on the machine, and the geographies. Similar to Q2, positive trends in surcharge-free transactions, cash deposits, and TAP were more than offset by significantly lower payroll card transactions in U.S. cities with large migrant workforces and lower dynamic currency conversion transactions due to fewer international visitors. The net result was an overall modest decline in segment revenue. These two effects seem to have stabilized at new levels in August and September. And that said, our rolling 12-month ARPU was up slightly, and our machine count grew to about 81,000 machines, offsetting the recurring reduction we've seen from pharmacy closures. Growth in this segment typically results from expanding the number of cardholders, extending the footprint of the network, or growing the transaction capability of the machines in the network. In Q3, Allpoint executed an important branding agreement with a top 10 U.S. bank and added deposit capability with the world's largest credit union. Our emerging transaction types were equally successful. ReadyCode further expanded its presence in digital payments through an agreement with Coinme, and volumes from gig workers are recovering quickly from a contractual pause. Cash deposits were up 90%, with particular lift from cap-based deposits. Our newer fleets in Greece and Italy are outperforming expectations in these cash-preferred economies. And we continue to build a pipeline of partnerships and integrations to increase transaction opportunities and volumes with a focus on fintech issuers and wallet providers. Lastly, on Chart 9, I summarize our investment thesis. First, our comprehensive portfolio is unique and allows Atleos to be indifferent to the self-service solution our customers prefer, whether there's a full outsourcing of traditional infrastructure or membership and access to a shared financial utility network. Second, our scale is unmatched, enabling world-class service and efficient incremental costs. Third, the outsourcing of the cash ecosystem and physical transactions by banks and retailers is accelerating, and we are the obvious choice to take on that work. Fourth, we understand the importance of a new small-cap company like Atleos to establish a track record of consistency and transparency. Seven quarters in, our financial performance in every quarter has been very similar to our guided ranges. And finally, we expect to generate predictable free cash flow at steadily improving free cash flow yields sufficient to simultaneously improve our balance sheet and repurchase shares. Before Andy walks you through the detailed results, I'd like to express my appreciation to the 20,000 strong Atleos employee base. If you subscribe to any of our social media channels, you know that our recently celebrated Atleos Brand Week highlighted a positive, dedicated, and engaged global team. Our continued success is entirely due to our collaborative spirit and our collective effort. Together, let's close out a successful 2025 and carry momentum into 2026. And with that, Andy, over to you.

Thank you, Tim. Building on Tim's comments, the company continued to drive strong performance in the third quarter, making good progress on our plans for the year, advancing our long-term growth strategy, and delivering solid financial results. The strong momentum we have built in ATM-as-a-Service, coupled with our robust hardware order book and sales pipeline, has us on track to meet our operating and financial objectives for the year. Starting on Slide 11, I will focus my comments on core results for the third quarter as the Voyix-related business continues to wind down and impact comparability with the prior year period. As a reminder, Voyix-related comps have increasingly become less meaningful as we progress throughout the year. In 2026, the Voyix-related revenue will be negligible. The key message in the quarter is that we are delivering strong financial results and successfully overcoming various macro-related impacts on our business. Results for the quarter either met or exceeded the upper end of our guidance ranges and included 6% core top line growth and a 7% increase in EBITDA, including 8% growth in the core business, strong margins and an impressive 22% earnings per share growth. We achieved 4% growth in our services and software businesses, including an acceleration in ATM-as-a-Service growth of 37% year-over-year. Hardware was up 24% year-over-year, in line with our expectations. We achieved strong results with high recurring revenue alongside a second sequential quarter of meaningfully higher hardware sales versus recent years. Strong growth in our higher-margin recurring businesses, coupled with productivity improvements, drove adjusted EBITDA in the third quarter to $219 million, an increase of 8% year-over-year in our core business. The primary source of EBITDA growth was the self-service banking segment and was partially offset by a decline in the Network segment and a slight increase in corporate costs. Adjusted EBITDA margin of 19.5% expanded approximately 40 basis points from the prior year with strong margin expansion for self-service banking, more than offsetting margin compression from the Network segment. Net interest expense decreased $12 million compared to the prior year, benefiting from a lower debt balance, lower variable rates, and lower credit spreads achieved in our credit facility refinancing late last year. The other income and expense line increased by $5 million year-over-year. The non-GAAP effective tax rate was approximately 19% for the third quarter compared to 18% in the prior year. Non-GAAP fully diluted earnings per share increased an impressive 22% year-over-year to $1.09. On Slide 12, we present our third quarter 2025 free cash flow reconciliation and strong financial position at quarter end. We generated $124 million of free cash flow in the third quarter, which was in line with expectations and supportive of our full year outlook. We expect to deliver a nice step-up in free cash flow in the fourth quarter as adjusted EBITDA increases sequentially and we recover investments in working capital. Net leverage exited the third quarter at 2.99x and was an improvement of more than 0.5 turn compared to the prior year. We made $20 million of debt principal payments in the quarter and finished under $2.9 billion of debt. Our unrestricted cash balance was just over $400 million at quarter end and resulted in a net debt balance of under $2.5 billion. Based on our financial outlook and capital allocation priorities, we expect net leverage to be approximately 2.8x as we close out the year. Turning to Slide 13, the self-service banking segment delivered exceptional financial results in the third quarter. Starting in the upper left, revenue grew 11% year-over-year and reached a new quarterly high of $744 million. The primary driver of top line growth was 25% growth in hardware deliveries, which reflects continued higher demand related to the industry refresh cycle and uptake of our recycler product. Hardware demand remains robust and should drive another step-up in revenue in the fourth quarter. Our services and software businesses continued to generate healthy growth of 5% on a combined basis with banks increasingly outsourcing more services to us. Moving to the chart on the top right, SSB grew adjusted EBITDA an impressive 21% in the third quarter to $196 million, also a new quarterly high. The key takeaway here is our ability to drive significant incremental profit through efficient, profitable growth and continuous productivity improvements. Segment adjusted EBITDA margin expanded 220 basis points year-over-year to above 26%, with margins up across each line of business. This strong performance includes absorbing approximately $7 million of gross tariff impacts in the quarter. Moving to the bottom of the slide, KPIs reflect healthy fundamentals of the business. On the bottom left of the slide, the mix of recurring revenue was 57%, with recurring revenue still comprising a majority of the business, even with one of the strongest hardware quarters in recent years. Annual recurring revenue, or ARR, was up year-over-year, reflecting the continued build in recurring services and software revenue from our existing installed base. Next is Slide 14 and our ATM-as-a-Service outsourcing business. As a reminder, our Bank Outsourcing Solutions business resides within our self-service banking segment. Advancing our customers through the continuum of ATM outsourced services to full outsourcing is a key strategic priority for the company. We break out primary operational metrics separately to help investors better understand and track our progress. Starting at the top left of the slide, revenue grew 37% year-over-year to $67 million for the third quarter, led by 24% growth in unique customers and a favorable mix shift to North America, which is our highest margin geography. We also expanded to two new geographies in Q3, closing our first deals in Latin America and the Middle East. The chart on the top right highlights the strong profitability of our ATM outsourced services business with gross profit up an impressive 65% year-over-year and gross margin up 700 basis points to 40%, benefiting from faster growth and margin expansion in NAMER. Moving to the bottom of the slide, KPIs also demonstrate the positive trajectory of the business. On the left, ARR continues to build and was up 37% year-over-year to $268 million, and we are on track to exceed $300 million of annual recurring revenue as we close out the year. We finished the quarter with a strong backlog, up approximately 100% and the sales pipeline to deliver our growth target for the year. On the right, you can see the healthy revenue uplift we generate from our ATM-as-a-Service business with third quarter average revenue per unit or ARPU of $8,300, which is well above segment and total company averages. The modest sequential downtick in ARPU for the third quarter was influenced by a higher mix of asset-light customers onboarded in recent quarters. Such fluctuations are expected because the base is still relatively small, so variables like region, scope, and timing of onboarding can impact ARPU for the quarter. Over the longer term, we expect this performance metric to trend upward from growth in higher ARPU regions like North America and Europe. Moving to the Network segment on Slide 15, segment revenue of $328 million was down 1% year-over-year. As we exit this year, we see positive fundamentals in the business, which is demonstrated by an increase in device count, an increase in new retail customers, deposit volumes, and new geographies. As we look at Q3 results, cash withdrawal transactions were approximately 4% lower than the prior year, with mid-single-digit decreases in the U.K. and North America. As mentioned in our second quarter call, North America continues to be impacted by several factors beyond our control. An acquisition of one of ReadyCode's key digital payment partners, coupled with shifts in immigration policy have affected certain consumer segments. We continue to see lower utilization of prepaid payroll cards given certain government policies. Excluding those items, we estimate North America withdrawals would have grown low to mid-single digits. In Q3, we expanded our presence in Canada with the addition of Access Cash. The asset added over 6,000 ATMs to our network fleet in one of our key markets. We have also seen an improvement in dynamic currency conversion transactions as travel to the United States began to recover and stabilize in the third quarter. Additionally, our ReadyCode platform continues to attract strong interest from leading wallet providers, fintech innovators, and money service businesses. In Q3, we successfully stabilized transaction volumes by onboarding several new partners, leveraging our seamless digital-to-cash and cash-to-digital capabilities. We also deepened our strategic Allpoint relationships, expanding access through key retail partnerships. As a result, we are seeing a solid rebound in transaction volumes, driven by our commitment to delivering surcharge-free access for gig economy users, unlocking value and driving sustained growth. We generated strong top line trends from sources other than withdrawals, helping to diversify the business and support future growth. Our utility deposit network continues to gain strong traction with deposit volumes up 90% year-over-year and reaching an all-time high, clear evidence of market enthusiasm and a fundamental shift toward modern banking solutions. Moving to the upper right. Adjusted EBITDA for the third quarter was $93 million. The year-over-year decrease in EBITDA was expected and was primarily due to a $9 million increase in vault cash costs resulting from the wind down of previous hedges and macro-related transactional headwinds. Adjusted EBITDA margin was 28% in the third quarter, and we are on track to maintain this margin performance in the fourth quarter. The metrics at the bottom of the slide highlight key elements of our strategy. The chart on the left shows our last 12-month ARPU remained strong and continued to move higher by 2% year-over-year in the third quarter. On the right, you can see our ATM portfolio finished the quarter at approximately 81,000 units, which is up both year-over-year and sequentially. We anticipate ATM network units will remain relatively flat as we close out the year, while we focus on driving new transaction types and other opportunities to monetize our fleet. Turning to Slide 16 for our approach to capital allocation. Over the past seven quarters, the company has demonstrated the ability to generate profitable growth and significant free cash flow. We continue to have a clear and compelling path to strong financial results with margin levers in the business providing outsized earnings growth potential and improved free cash flow conversion. Our capital allocation priorities are focused and disciplined, continue to reduce debt, investing in our business, pursuing strategic bolt-on acquisitions, and returning capital to shareholders. Our guiding principles remain consistent, a balanced approach designed to deliver the highest long-term value for our shareholders. As we exited the third quarter, we successfully achieved our net leverage target of below 3x, reinforcing the strength of our balance sheet and our financial flexibility. We take a disciplined approach to investment opportunities, ensuring that both strategic innovation investments and bolt-on M&A meet rigorous return thresholds. Reflecting confidence in the forward outlook of our business, you will recall that our Board authorized a $200 million share repurchase program that has a two-year duration. In the fourth quarter, we will begin to repurchase our shares in the open market and also through a 10b5-1 plan. With the capacity of our business to generate significant and improving free cash flow, we have unique flexibility to return capital to shareholders, while at the same time, strengthening our capital structure and investing for future growth. In short, we are confident in our ability to deliver predictable growth, disciplined capital deployment, improved free cash flow conversion, and strong shareholder returns. Moving to Slide 17 for financial outlook. Given solid third quarter results and positive momentum heading into the fourth quarter, we have reaffirmed the full year 2025 guidance ranges presented earlier this year. We have confidence we will deliver full year 2025 free cash flow conversion in excess of our 30% target. Looking beyond 2025, we anticipate further improvement in our free cash flow conversion, approaching 35% of adjusted EBITDA over the next 12 months. This progress will be driven by continued margin expansion, particularly in recurring long-term services, monetization of our network ATMs, lower debt costs through recent and anticipated rate cuts, and ongoing working capital efficiencies. Concluding my comments, Atleos had a successful third quarter and sets us up well to achieve our plan for the year. We delivered solid financial results, had great operational execution, and made progress on our key strategic goals to grow efficiently, prioritize service, and embrace simplicity. We are reaffirming our guidance ranges for 2025 as we effectively manage higher and uncertain tariffs and macro-related headwinds on our business. Our risk mitigation actions have been successful and are ongoing. To put a finer point on the year with nine months behind us, we are tracking toward the high end of our guided range for revenue given stronger hardware demand trends versus our original assumptions. In line with our previously provided comments for adjusted EBITDA, we expect to deliver results at the lower end of the guided range. The adjusted EBITDA outlook reflects the impact of previously discussed tariff increases and broader macroeconomic pressures. Finally, both adjusted EPS and free cash flow performance in 2025 continue to track at the midpoint of our original guidance with internal initiatives executed to reduce interest and tax expenses and as we benefit from working capital efficiency improvements. We are moving into 2026 with confidence in our approach and our ability to drive continued profitable growth. With an unmatched platform of ATM solutions, we are focused on expanding our leadership and delivering significant value for shareholders. With that, I will turn it back to the operator.

We will take our first question from George Tong with Goldman Sachs.

You talked about how the network business was affected by lower prepaid card transaction volumes. Can you elaborate on how prepaid volumes played out during the quarter and exiting the quarter, if there were any improvements in trends seen?

Yes. Thanks for asking that question. They got better. So they stabilized at not great levels, but they've stabilized. They stopped getting worse. So I think those who are being paid differently or have chosen not to be paid at all and gone somewhere else to work, that effect has now stabilized, which means that, that downdraft should abate, and we expect to see this business return to growth in the fourth quarter.

Got it. That's helpful. And then can you provide an update on how you expect tariffs to impact the business in the fourth quarter and beyond?

Yes, that’s a good question. We wish we could provide a clearer answer. Here’s what we’ve been doing: we worked to reduce costs and adjusted our shipping locations to lessen the impact of tariffs this year. Ultimately, we expect the total tariff impact to be around $25 million for this year. Any changes to the tariff at this point, considering we're already halfway through the quarter, would be beneficial and could better position us for 2026. There's an expectation that the current tariff rate of 50% will decrease to around 15% to 16% if negotiations with India yield positive results. For next year, we'll plan based on a 25% rate. Our budget will assume a 25% rate, which would lead to a modest increase in tariffs year-over-year, from $25 million to about $30 million. If the rate remains at 50%, it would result in a $20 million increase. Conversely, if it drops to 15% or 18%, it could improve by $10 million to $12 million compared to this year. There’s a range of potential outcomes, but we believe it’s prudent to assume a 25% rate for now, which is a midpoint of the range we’ve observed. However, we’re optimistic that we will see rates closer to 15% to 18% in the near future, which would positively affect our margin rate. Andy, do you have anything to add?

No. I mean you hit the key points. So Tim is right, the gross tariff impact will be possibly $30 million for this year. I would say, though, that if you follow the news, which we do track, probably on an hourly basis, that the expectation that something should be announced here imminently. And as Tim mentioned, it's in that 15%-ish range. So we will see, and we'll also see what the Supreme Court says.

But we presumed no change to the tariff rate in our guidance for the fourth quarter. We presume it stays at 50%.

We will take our next question from Matt Summerville with D.A. Davidson.

I want to ask one first on the network business. What percent of the transactional mix today is traditional withdrawals versus what it was 2 or 3 years ago? And can you talk about the relative profitability of withdrawal transaction sets versus non-withdrawal as you try and expand beyond kind of that historical dependence on withdrawal?

Thanks, Matt. The withdrawal transactions in the United States have been growing for some time. The volume of surcharge-free transactions has consistently been enough to counterbalance the slight declines in surcharge transactions. The dynamic has only changed due to the growth of the surcharge fee and the decline of the prepaid payroll card, which is down about 15% to 16% year-over-year, affecting the business. In other regions, withdrawal transaction volumes remain strong, especially in cash-intensive economies, except for the U.K., which has experienced a downward trend for the last four to five years, even before the pandemic. This trend has remained consistent. Approximately 75% of the Network business is U.S.-based, so what we’re discussing impacts around 75% of total revenue. Stuart, do you have anything to add?

Yes, I want to address your second question regarding the percentage of our revenue that comes from withdrawal-based transactions compared to other factors in the network business, such as ReadyCode transactions, deposit transactions, branding, and other revenue drivers. Withdrawal transactions still account for the majority of our revenue, in the high 80s. However, we are beginning to offset that each quarter, as demonstrated by the 90% increase in deposit transactions. These are our highest margin transactions, and we are seeing significant demand for them as banks seek alternative locations to serve their customers due to branch footprint consolidation activities.

Got it. As a follow-up regarding self-service banking, I want to clarify some of the numbers you mentioned about the as-a-service offerings. You expect to end 2025 with an ARR of $300 million or more, and you had $195 million in contract bookings. What would the total as-a-service backlog be? Also, based on the total contract value and bookings, what do you anticipate the exit rate for 2026 could look like for that business?

I believe we'll experience another year with an approximate 40% growth rate in that business, with growth around 40% in the fourth quarter. We had anticipated a more linear rollout of the machines this year compared to 2024, but it turned out to be back-end loaded. However, we expect to finish the year with a solid annual recurring revenue, which should secure much of the growth we anticipated for 2026. So, we can expect a 40% growth rate in Q4 and a similar rate for 2026. Initially, we expected even higher growth for this business. While demand has been robust, the adoption rate has been slower mainly due to the time required to finalize sales and implement solutions. Consequently, the rollout of devices onto the as-a-service program has proceeded more slowly than we would have preferred. Nevertheless, we're optimistic about our backlog, which stands at $195 million, and we aim to achieve similar figures in most quarters. We're committed to maintaining that 40% growth rate. Last quarter, that figure was $175 million, and now it's $195 million. It should continue to align with our business growth. To get an idea of how the $195 million impacts future annual recurring revenue, you can divide that total contract value by six, which represents the typical average duration for contracts in this sector.

And Matt, maybe just one thing to emphasize is that growth of 37% is also coming with phenomenal margins. So the gross profit was up 65% in the quarter, and we saw a gross margin expansion of 700 basis points. So I think the point there is not only the backlog continuing to be strong, but it's also a very high-quality backlog in terms of what we're able to generate from a top line and then from a flow-through perspective.

Got it. And if I can just sneak one more in. What does the ARPU look like as a service backlog today? And how are you thinking about maybe pivoting over to the hardware side of the business? How are you thinking about the duration of the hardware cycle?

As we evaluate the ARPU in our current backlog, it remains relatively unchanged from Q3. This stability is partly due to the timing of some additional deals in the APAC region, which are slightly lower. However, I wouldn't place too much emphasis on that. The sales team is performing exceptionally well in securing new contracts in NAMER and EMEA, which could influence the average ARPU in the future. We are very confident about the total contract value we have secured, and our team is doing an excellent job of building on that.

Yes, I'll address the second question because it's an important point. This year, we plan to put about 20% more devices into service compared to last year, and we expect to sell 60% more recyclers than we did last year. The growth rates in our hardware business are surprising us, thanks in large part to the excellent service from Len’s organization that has impressed our customers. Additionally, the focused effort on the recycler, led by Stuart, has been executed nearly flawlessly. I feel very positive about our position. When I look at our closest competitors, their hardware performance has been relatively flat, which is puzzling. The market conditions are very favorable, with strong bookings and high demand, and we anticipate this trend will persist into next year. While we may eventually reach a peak, I expect hardware revenue to increase again next year, even with tough comparisons. We are very excited about this. Although we typically emphasize our service aspect, securing these 5- to 7-year contracts on highly profitable devices beyond the hardware sale is incredibly rewarding for us. The balance is right, and profitability is robust. Occasionally, if we have a higher concentration of hardware, profitability can dip because it's lower margin compared to services. However, the productivity we've achieved and the pricing on the devices we deliver have contributed to better profitability than we initially expected. Overall, our hardware business is currently performing exceptionally well, and I believe this momentum will continue.

We will take our next question from Dominick Gabriele with Compass Point.

I guess let's focus on the recycler since it seems to be contributing more significantly. You mentioned the 60% increase in recyclers. Can you provide some insight into how much revenue this accounts for and what the revenue outlook is for the recycler business? I have a follow-up question as well.

I won't differentiate between the traditional devices, including both multifunction and dispense devices. However, we will continue to share the growth rates for the recycler if you want. Keep in mind that our growth rate may have been somewhat self-inflicted, as we didn’t ship as many machines from a recycler standpoint as we would have liked last year, and our competitive position wasn’t where it needed to be. This year, you are witnessing a couple of things. First, our recycler is performing exceptionally well, and we are proud to have it in service, with some of the larger banks opting for our solution and placing our machines in their labs, which is significant. Additionally, larger banks are increasingly buying recyclers for their fleets. There is a clear trend as they are fully committed to the recycler, benefiting from both profitability and reduced costs associated with implementation. So, to summarize, we are doing an excellent job with our recycler product compared to last year, and our major bank clients are consistently choosing recyclers when they acquire new machines.

Great. I appreciate that. I guess if maybe you could just walk through some of the puts and takes and you talked about the tariff piece, which was really helpful. But maybe even beyond that, can you talk about kind of the headwinds and the tailwinds, the puts and takes to adjusted EBITDA growth that were in 2025? Just trying to think about the trajectory of the business as we exit '25 into '26, given...

Yes, it’s a relevant question, and I expected it would come up. It's time for you all to consider projections for 2026. I can't discuss our guidance for that year now, as we are currently in our budgeting process. Regardless of what happens with tariffs, I'm confident we will find a way to manage it like we did this year. I doubt tariffs will present significant challenges next year, and they may even provide some support. We will see lower interest expenses next year, which will benefit us. Each time interest rates are cut by 0.25 points, we gain annually.

If you focus solely on the U.S. Federal Reserve, we currently have about $2.6 billion in cash. Considering today's situation, we have had a 50 basis point reduction, which translates to approximately $13 million annually if that were to be halved. If we see another point decrease, we can estimate an additional impact around 6.5 or so.

Yes, it's challenging to depend on those estimates. We've allocated more in our budget over the past couple of years than what we've actually experienced. I'm optimistic we'll see a positive outcome at the end. They tend to arrive later than we prefer, so we don’t get the full annual impact. Overall, looking ahead to 2026, I believe we've adjusted to what have been both obstacles and advantages in those situations. I anticipate it will resemble this year. We expect a 40% growth in ATM-as-a-Service and strong hardware performance, although the second half of the year may present tougher comparisons. The network business is set to recover and begin growing again in the fourth quarter, returning to respectable growth rates as the year progresses. In total, we expect our growth rate to be between 4% and 5%, with profitability growing at twice that rate. Our cash flow from convergence is projected to increase from 30% to 35% or more next year. Using this framework to build your model and consider our current year’s experiences, I believe not much will change.

And maybe actually, if you don't mind, maybe just one last one. The hardware sales in the quarter are obviously good for the quarter, but it feels like they set up the opportunity for a long-term contract effectively, right, through the life of the machine and there's knock-on effects from that device being put in place over the next multiple years. And so maybe could you just talk about, given that the demand for your products seems to be increasing, how that could flow through the income statement and financial metrics in the kind of years to come, next 12 to 18 months?

Growing our installed base is our top priority this year. We have the right to sell software on a subscription basis and service these devices for 5 to 7 years, which depends on our ability to install them and earn the trust of our customers. While we don't frequently discuss hardware since we are primarily a service company, our service business depends on the success of the hardware business, and our software business is reliant on those devices performing well. It's critical to note that missing a device means missing out on that revenue stream for 5 to 7 years, which can be quite detrimental. This year is crucial because, as we witness growth in service revenue beyond ATM-as-a-Service, we'll also see growth in software and services linked to an expanding fleet, enhancing our overall service and software offerings. If this replacement cycle remains strong, which we anticipate it will, it is an excellent time for our hardware, as we will be securing 5 to 7 years of revenue that can be approximately four times the cost of the device itself.

We will take our next question from Antoine Legault with Wedbush Securities.

You mentioned having about $3.6 billion in vault cash, which drives interest expense. I understand that the Fed has been cutting rates, allowing you to benefit from that. However, regarding that amount, do you have the ability to adjust it? Is $3.6 billion the optimal figure, or could it be further optimized based on activity in quarters with lower volume? What can be done in this area? Please help me understand how this could work.

Yes. It's $2.6 billion that we have out in our machines around the world.

Total USD 2.6 billion.

USD 2.6 billion. And that number has come down substantially over the last couple of years as we've implemented optimization. It's our biggest expense. So it's the area where we have the highest amount of focus in terms of optimizing efficiency. And it's one of the big drivers for ATM-as-a-Service as we take over a customer's fleet, we're able to optimize their utilization of cash and return capital back to them as well. So it's a number we're incredibly focused on, and we try to drive that number down every chance we get. So a combination of improved efficiency and lower interest rates next year will help the network as it returns to growth.

Stuart, what are the inputs of that algorithm to help us decide how much cash and how often roll trucks?

It's a combination of where the machine is. So some machines are harder to get to, so the drop cost is higher. Combination of the vault that's getting to and obviously, a combination of the utilization of the machine. So we make decisions around whether we refill the machine weekly, monthly, biweekly, depending on the drop cost and then a combination of whether we have a recycler or a cash dispenser in there. If we have a recycler in that unit as we have been increasing our deposit-taking network, that machine becomes increasingly more optimized and requires less visits, and thus lower cash rates.

There are no further questions at this time. I will turn the conference back to Mr. Oliver for any additional or closing remarks.

Great. Well, thank you. This quarter looked a heck of a lot like the one that preceded it, and I suspect that the next one will be the same. We're making good, steady progress everywhere. We're winning more often than not. Our employees are performing exceptionally well. Our customer service levels are high and continue to get higher. It's very hard not to feel good about where this business is headed. We hope that will translate into a closing out a good year here in our fourth quarter, and then most importantly, probably give us good momentum going into 2026. We appreciate your time today. And I guess, happy holidays. We won't talk to you again until February. So an early happy holidays from the Atleos team for those on the call. Thanks a bunch. We'll talk to you again in 90 days.

This concludes today's call. Thank you for your participation. You may now disconnect.