Cardtronics Looks for 2008 Payoff from Former 7-Eleven Vcom Fleet

Bolstered by the acquisition of convenience-store giant 7-Eleven Inc.'s sizable ATM business, leading non-bank ATM network operator Cardtronics Inc. on Thursday reported fourth-quarter financials that show an improvement in most operating measures. Company executives insist their efforts to improve the performance of 7-Eleven's high-function Vcom kiosks as well as other initiatives will start paying off this year. Houston-based Cardtronics, which raised $110.1 million in December through an initial public offering of stock, reported its average number of owned or managed transacting ATMs rose to 31,941 in the fourth quarter from 25,417 a year earlier, an increase of 26%. Much of the increase came from Cardtronics' $135 million purchase of 7-Eleven's 5,600-machine ATM fleet in July that included the Vcoms. The total also includes 2,060 ATMs in the United Kingdom and 1,191 in Mexico. “A number of our key operating metrics significantly improved over the fourth quarter of 2006,” chief information officer Michael H. Clinard said in analysts' conference call Thursday. Most of the growth came from the 7-Eleven machines, which Clinard said traditionally have had higher transaction volumes than Cardtronics' legacy domestic portfolio, and the international portfolio, especially the British machines, which also have relatively high volumes. But some 7-Eleven machines are more equal than others. The self-service Vcom kiosks “historically have generated losses,” Cardtronics president and chief executive Jack M. Antonini said in the call. Cardtronics is addressing that by moving some of the machines around, replacing poor performers with regular ATMs in some 7-Eleven stores (Digital Transactions News, Aug. 16, 2007). Cardtronics will concentrate the 2,200 Vcoms in 15 large cities, where 90% of the 7-Eleven stores will have one. Cardtronics also is beefing up the Vcoms' advanced functions, such as check cashing and the imaging of deposited checks?a rare feature among non-bank ATMs. All of the Vcom machines can accept imaged deposits, Antonini said. That function is now available to the 12 million credit-union members whose institutions belong to the Financial Service Centers Cooperative Inc. Cardtronics expects to have two more such arrangements in place by June. Meantime, in check-cashing tests at some Vcoms, check-cashing volumes are up 75%, and that function is now being rolled out across the system, Antonini said. On the marketing front, Cardtronics' branding program is picking up speed. Cardtronics signed contracts with 18 financial institutions in 2007 to brand another 1,900 machines. All of the Vcoms carry Citigroup Inc.'s Citibank brand. In all, more than 10,000 machines had a financial-institution brand at the end of 2007, up from fewer than 2,600 a year earlier. Cardtronics' Allpoint surcharge-free network, meanwhile, doubled in size last year to more than 1,000 members. And on the technological front, Clinard said Cardtronics now has 18,000 ATMs converted to its new in-house processing platform and that the entire network should be on the new system by year's end. Cardtronics had used third-party processors. “In addition to allowing us to better control costs, this move will allow us to control the ATM screen flow, which will in turn provide us the ability to provide customized branding and one-to-one messaging at our ATMs,” he said. Cardtronics gets its most of its revenues from transaction fees, especially surcharges on cash withdrawals, as well as through branding agreements with banks in which banks put their logos on Cardtronics ATMs, which don't surcharge customers of the partner bank. The average monthly withdrawal transactions per machine rose 33% to 546 in the quarter from 411 a year earlier. Withdrawal transactions totaled 52.3 million in the quarter, up 67% from 31.2 million a year earlier, while total transactions grew 82% to 80.4 million from 44.3 million. The average Cardtronics machine generated $1,171 in gross operating revenues per month in the fourth quarter, up 25% from $937 in the year-earlier period. Although gross margins decreased from 26.4% in 2006's fourth quarter to 24.9% in the 2007 period, gross operating profit increased 18% to $292 per machine in 2007's fourth quarter from $247. While pre-tax operating earnings grew 32% to $18.3 million in the fourth-quarter over the 2006 period, Cardtronics still reported a loss of $43.5 million compared with net income of $2.09 million a year earlier. The loss included a $36 million non-cash charge for converting convertible stock into common for the IPO. Other expenses included development costs for the in-house processing system and upgrades to so-called Triple DES security technology. Fourth-quarter revenues totaled $116 million, up 55% from $74.8 million a year earlier. The 7-Eleven fleet added $36.1 million in revenues. For the year, Cardtronics reported a loss of $63.4 million compared with a loss of $796,000 in 2006, on revenues of $378.3 million in revenues, up 29% from $293.6 million in 2006.