NCR Atleos: Can Margin Gains and Strategic Shifts Sustain Growth Through 2026?

The financial landscape for NCR Atleos (NYSE: NATL) in Q1 2025 reveals a company navigating a pivotal transition: shifting from hardware-driven revenue to a services-first model. While top-line growth faltered, margin expansions and recurring revenue gains suggest this pivot is paying off. But can this momentum sustain through 2026? Let's dissect the numbers.

Key Q1 Takeaways: Recurring Revenue as the Lifeline

Total revenue dipped 7% to $980 million, driven by declines in the T&T and non-core segments. However, recurring revenue—now 76% of total—grew to $742 million, thanks to a 24% surge in ATMaaS revenue. This segment's unique customer base expanded 40% year-over-year, proving demand for subscription-based services.

The Self-Service Banking segment, despite a 1% revenue dip, sawAdjusted EBITDA jump 14% to $153 million**, with margins expanding 320 basis points to 24.5%. This signals that cost discipline and focus on high-margin services are working.

Margin Strength Amid Revenue Headwinds

While revenue contracted, profitability metrics soared:
- Adjusted EBITDA rose 9% to $175 million, with margins up 270 basis points to 17.9%.
- Gross margin improved 300 basis points to 24.0% (GAAP) and 26.2% (non-GAAP), as software/services contributions rose.
- Non-GAAP EPS jumped 56% to $0.64, reflecting operational efficiency gains.

These figures are critical. Even as legacy hardware segments like T&T (down 16%) and non-core operations (down 77%) drag on revenue, NCR's focus on high-margin services is shielding profitability. The FY2025 guidance—3–6% core revenue growth, 7–10% EBITDA growth—hinges on this margin resilience.

2026 Outlook: A High-Stakes Gamble on Services Dominance

The 2026 financial targets are ambitious:
- Revenue: $4.74 billion (+9% from 2025's $4.30B guidance).
- EPS: $3.98, up 54% from 2025's $2.59.

Analysts have already revised their 2026 EPS estimates upward to $3.51 from $3.13, signaling growing confidence. But execution risks remain:
1. Segment Dependency: The Network and Self-Service Banking segments must offset T&T's decline.
2. Cash Flow Challenges: Q1's negative adjusted free cash flow ($23M) hints at working capital strains.
3. Macroeconomic Uncertainty: Proposed tariffs and recession risks could further squeeze hardware sales.

Why Investors Should Bet on NCR's Transition

• Recurring Revenue Flywheel: ATMaaS's 40% customer growth and 24% revenue expansion create a compounding revenue stream. With 600,000 ATMs installed globally, NCR holds a near-monopoly in services for legacy hardware.
• Margin Leverage: Even modest revenue growth could amplify profits. A 1% rise in recurring revenue could boost non-GAAP EPS by ~$0.10, given current margins.
• De-Risked Balance Sheet: NCR's $260–300 million adjusted free cash flow guidance for 2025 (up from $242M in 2024) suggests it can fund innovation without over-leveraging.

Risks to Avoid

• Tariff Exposure: 25% of revenue comes from hardware, which faces proposed U.S. tariffs. Management's contingency plans are vague.
• T&T Turnaround: The segment's 16% revenue drop and margin contraction signal deeper structural issues. A failure to stabilize this could strain 2026 targets.

Investment Thesis: Buy the Margin Upside, Hedge Tariff Risks

NCR's stock trades at 15.8x 2026 EPS estimates, a discount to peers like Diebold Nixdorf (18x). The margin tailwinds and recurring revenue growth justify this valuation. However, investors should:
1. Monitor Q2 2025 results for signs of margin sustainability.
2. Track geopolitical developments on tariffs, which could force a hardware pricing overhaul.

Final Call: A Long-Term Play on Financial Services 2.0

NCR Atleos is betting its future on becoming the Microsoft of banking infrastructure—a SaaS-driven ecosystem for ATMs, networks, and transaction processing. The Q1 results confirm this strategy is working, even if imperfectly. With 2026 EPS growth priced at 54%, the stock offers asymmetric upside: Buy now, target $60+ by late 2026 (vs. $45 current price), but hedge with puts if tariffs escalate.

The transition isn't without potholes, but NCR's services flywheel is too strong to ignore. This is a buy for investors willing to look beyond quarterly noise.

Disclosure: This analysis is for educational purposes. Always conduct your own research before investing.