Friday , January 19, 2018

Cardtronics Shows Resiliency Despite ‘an Incredible Streak of Bad Luck’

A strong third-quarter earnings report helped lift shares of ATM network owner and operator Cardtronics plc by 4% Friday morning after they plunged 17% Thursday on news that Link, the ATM network in the United Kingdom—a key market for Cardtronics—floated a proposal to reduce interchange by 20%.

Cardtronics, which has made big moves into the U.K. and Germany in recent years through acquisitions, generates more than $100 million per quarter from Europe. The U.K. cuts, which must be approved by Link’s bank owners, will come in 5% annual increments beginning in 2018. Next year’s cut alone could cost Cardtronics $15 million in earnings before interest, taxes, depreciation and amortization (EBITDA), according to chief financial officer and Edward H. West, the designated successor to chief executive Steve Rathgaber, who plans to retire at year’s end.

Cardtronics also was hit by unexpected news in late September that four big banks in Australia, another important market for the Houston-based firm, are going to lift direct charges on their ATMs, a move that could make Cardtronics’ fee-based machines less attractive.

The U.K. and Australian news came as ATMs from Cardtronics’ biggest customer, convenience-store giant 7-Eleven Inc., in July began moving its approximately 7,800 ATMs off of Cardtronics’ system to that of an affiliate of 7-Eleven’s Japanese owner.

“Cardtronics, whose management has executed very well for a long time, has been inflicted with an incredible streak of bad luck,” analyst Robert Napoli of Chicago-based William Blair & Co., wrote in a Nov. 2 report. “The loss of the 7-Eleven relationship, the sudden radical change in surcharge fees in Australia, and the reduction of interchange revenue in the United Kingdom have inflicted massive pain on the company. Visibility of the outlook for the business at the moment is strained, and will be at least for several quarters.”

Despite the bad news, Cardtronics reported that total revenues rose 22% year-over-year in the third quarter to $402 million. After recognizing asset impairments because of the Australian banks’ fee changes, the company took a net loss of $175.6 million compared with net income of $27.5 million in 2016’s third quarter. But after factoring out the Australian impairment and other items, Cardtronics reported adjusted EBITDA of $99.9 million, up 15% from a year earlier.

There was even a silver lining in the removal of machines from 7-Eleven locations. The ATMs still on Cardtronics’ system during the transition have been removed from Cardtronics’ Allpoint surcharge-free network and generated some temporary surcharge revenues.

Cardtronics owns or services 238,000 ATMs nearly everywhere but Latin America.

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