Thursday , March 21, 2019

ATM Operator Cardtronics Sees Better Times Ahead After a Rough 2018

It was a rough 2018 for leading ATM network operator Cardtronics plc, but the company’s top management predicted Thursday that 2019 will be better.

Houston-based Cardtronics early last year muddled through the end of its long-standing relationship with its biggest customer, 7-Eleven Inc., which is pulling down year-on-year comparisons. At one time, Cardtronics had more than 7,800 ATMs deployed in 7-Eleven convenience stores.

Then came a 7% hit to fourth-quarter revenues from the United Kingdom, a big market for Cardtronics, thanks to a July interchange reduction from the U.K.’s Link network. And in Australia, another big Cardtronics market, the four leading banks implemented free-to-use ATM policies for their cardholders, resulting in an 8% hit to revenues in the company’s Australia-New Zealand region.

In all, fourth-quarter revenues fell 10% year-over-year to $327.9 million, and the company posted a $6.1 million loss compared with net income of $16 million a year earlier. Full-year revenues slipped 11% to $1.35 billion, though Cardtronics swung to a $3.7 million profit versus a $145.4 million loss in 2017, when the company took an Australia-related impairment charge.

Chief executive Edward H. West didn’t ignore those issues, but he preferred to highlight the bright spots in a conference call with analysts. He noted that same-store U.S. cash-withdrawal transactions rose 6% year-over-year in the fourth quarter. Twenty-one new financial institutions joined Cardtronics’ fast-growing Allpoint surcharge-free network. And ATM operating revenues grew in the double-digits in Germany, Spain, and South Africa.

“We expect to move past the negative headwinds … during the first half of the year,” says CEO West.

“This year we expect to move past the negative headwinds, the ones that we are all way too familiar with, during the first half of the year,” West said. 

Cardtronics owned, managed, or provided processing services for 229,000 ATMs in the fourth quarter, down 3% from 235,00 a year earlier. Company-owned machines totaled 75,000 versus 84,000 in 2017’s fourth quarter. The fourth-quarter 2018 transaction count of 612 million was down 2% from 624 million a year earlier.

A big component of Cardtronics’ strategy in North America, which generates more than 60% of company revenues, is continued growth in Allpoint. As of the third quarter, Allpoint had about 55,000 ATMs worldwide, including 40,000 in the U.S., and more than 1,100 participating banks, credit unions, and prepaid card issuers. Excluding the impact of the 7-Eleven exit and foreign-exchange rates, ATM operating revenues grew 5% in 2018, lifted in part by double-digit growth in Allpoint. Cardtronics didn’t disclose Allpoint transaction volumes.

The 21 new Allpoint members have about 1 million customers. West said Cardtronics is working with participants on marketing initiatives to improve “the engagement of the base” and generate transactions. 

Allpoint will need strong engagement in order to produce strong profits because surcharge-free transactions don’t generate the margins that surcharged transactions do. “It’s all about the volume in that situation,” chief financial officer Gary W. Ferrera said on the call.

Cardtronics also is looking to expand its revenue-generating bank-branding relationships in which banks put their logos on Cardtronics-owned ATMs. “Today we have about 37,000 sites that are grantable, and … a little over 14,000 of those are branded, so there’s head room,” West said.

Cardtronics also expects growth to resume in the U.K. once the impact of the Link interchange cuts is absorbed. Another interchange cut took effect in January. West said Cardtronics has removed more than 3,000 ATMs in the U.K. and “transitioned about 500 units to pay-to-use from free-to-use. In 2019, we are in the process moving up to an additional 3,500 ATMs to pay-to-use.”

He added: “It is a shame that Link has caused such disruption in the marketplace when free-to-use interchange rates in the U.K. were already one of the lowest in the world.

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