Cardtronics Preps for a Big Gulp of Recovery Work Ahead of 7-Eleven’s Exit

Retail ATM network operator Cardtronics Inc. says it has been preparing for the possible loss of its biggest merchant, convenience-store giant 7-Eleven Inc., for three years and will stick to its established growth plan to fill the impending hole now that that possibility has become a reality.

Houston-based Cardtronics has 7,850 ATMs deployed in U.S. 7-Eleven stores. The withdrawal fees and other revenues those machines generate will account for 17.5% of the $1.2 billion in revenue Cardtronics expects this year, chief financial officer Chris Brewster told analysts Thursday afternoon in a conference call to review the company’s second-quarter earnings. Those numbers work out to $210 million.

Dallas-based 7-Eleven notified Cardtronics early this month that it would not renew the longstanding contract under which Cardtronics owns and operates ATMs in 7-Eleven locations. Instead, 7-Eleven, which is owned by Japan-based Seven & i Holdings Co. Ltd., will get ATM services from a corporate affiliate, a Los Angeles-based ATM independent sales organization called Financial Consulting & Trading International Inc. of California (FCTI), which is a wholly owned subsidiary of Seven Bank Ltd. The bank, in turn, is 46%-owned by Seven & i Holdings.

The good news for Cardtronics is that the 7-Eleven contract doesn’t expire until mid-2017. And chief executive Steven Rathgaber indicated during the earnings call that 7-Eleven started giving signals three years ago that renewal wasn’t guaranteed. He and Brewster fielded numerous questions from analysts about how Cardtronics will deal with the impending loss.

“For most of that three years, we have demonstrated through action and results our strategic intention to grow past 7-Eleven, just in case,” Rathgaber said. He noted that Cardtronics has been posting annual increases of nearly 20% in revenues and almost 25% in net income over the past several years.

The company is doing fine at the moment. Cardtronics, which services 113,500 ATMs in the U.S., Canada, Mexico, the United Kingdom, Germany, and Poland, posted second-quarter revenues of $303.7 million, an increase of 17% from $260 million a year earlier and up 21% on a constant-currency basis. Net income grew 7% to $15 million from last year’s $14 million.

Cardtronics will continue doing what it’s been doing to fill the 7-Eleven hole, according to Rathgaber. The strategy rests on acquisitions, both in the U.S. and abroad, as well as growing organically and getting more business from existing customers. Acquisitions will include not just ATM providers, but also companies “adjacent to our space,” Rathgaber said.

“Hopefully we will see the multiple legs of our strategy kick in right when we need them to kick in,” he said.

Cardtronics recently bought Columbus Data Services, a Dallas-based operator of 90,000 bank and retail ATMs, for $80 million. Other acquisitions and new deals are coming. “We continue to enjoy a pretty healthy pipeline,” Rathgaber said. He also said that Cardtronics has won three merchant contracts from FCTI customers.

Another new venture is Cardtronics’ participation in Visa Inc.’s new surcharge-free ATM network called Plus Alliance. Visa in the early 1990s bought the Plus ATM network, which at the time was based in Denver. A Visa spokesperson was unavailable for comment Friday afternoon about Plus Alliance.

Cardtronics, which owns the Allpoint surcharge-free network, has 5,000 ATMs linked to Plus Alliance, according to Rathgaber. Surcharge-free ATM networks do not charge fees to non-customers who use participating machines; instead, the ATM owner is compensated by the customer’s bank.

Cardtronics also announced Thursday that it had signed a long-term renewal of its ATM-services contract with Speedway LLC, the nation”s second-largest company-owned and -operated convenience-store chain. The contract covers 2,750 stores.