How Non-Bank ATM Owners Are Culling Subpar Machines

Culling seems to be a popular practice at the two largest non-bank ATM networks these days. Both Cardtronics Inc. and financially troubled TRM Corp., which is telling investors it might not survive, lost money in the second quarter and say their U.S. ATM counts are down. TRM, which has been selling assets and restructuring, says its average number of transacting ATMs in the second quarter was 10,473, down from 10,808 in the first quarter. The reduction is an effort to cull low-profit machines. “The company expects the number of ATMs will continue to decrease during the remainder of 2007 unless the company executes on its previously announced desire to seek acquisition-led growth,” TRM said in its earnings report Tuesday. Portland, Ore.-based TRM, the No. 2 non-bank ATM operator, lost $2.21 million in the quarter, a 51% improvement from the $4.5 million loss a year earlier. Gross sales increased by 17% to $27.6 million from $23.5 million in 2006's second quarter. But the reduced loss, higher revenues, and higher per-machine margins weren't enough to prevent TRM from giving another “going concern” warning to investors, as it did after the first quarter. Poor financial performance last year put the company in violation of its financial covenants, ultimately leading to the restructuring of its loans and the sale of its Canadian, British, and German ATM operations and its U.S photocopier business. Those businesses accounted for 61% of TRM's net sales in 2006. Despite using $98.4 million of the sale proceeds to pay down debt, TRM said in its second-quarter report to the Securities and Exchange Commission that it is uncertain whether its cash flows will cover the payments required on its current lending agreements, which have cross-default provisions. “These factors, among others, may indicate that we may be unable to continue as a going concern for a reasonable period of time,” the filing says. In additional to removal of underperforming machines, TRM under new president and chief executive officer Richard Stern has embarked on a program of cost controls and deployment of so-called full-placement ATMs?TRM-owned machines in national and regional merchants' locations?that generate higher margins than the merchant-owned ATMs it manages for smaller retailers. TRM has added 1,093 new ATMs since Jan. 1, including 531 in the second quarter. Some 128 machines are full-placement units. Despite its financial troubles, TRM professes to be looking for companies to buy. “Regarding potential acquisitions, we continue to explore strategic opportunities and we hope to have something positive to say in the coming weeks,” the earnings report says. No. 1 non-bank ATM manager Cardtronics last week reported a $5.6 million net loss in the second quarter compared with net income of $800,000 a year earlier, on revenues of $77.2 million, up 5.3% from $73.3 million in 2006's second quarter. The loss came mostly from higher expenses, including development costs for a new in-house processing system. The average number of transacting ATMs declined 1.1% to 25,756, mostly because of fewer lower-volume, low-margin merchant-owned ATMs in the U.S. Cardtronics expects the approximately 2,000 multifunction Vcom units it acquired in its $138 million acquisition of 7-Eleven Corp.'s 5,500-machine ATM fleet (Digital Transactions News, June 6) to lose $4 million to $6 million in the remainder of 2007. Part of Houston-based Cardtronics' plan to improve the Vcoms' performance is to move some of them to better locations.