Article

Are things looking up for TRM?

Industry analysts and investors say struggling ATM ISO TRM Corp. might pull a rabbit from its hat before the company's June 15 debt-refinancing deadline.

May 15, 2006 by Tracy Kitten — Editor, AMC

When Portland, Ore.-based TRM Corp. earlier this month reported losses for the first quarter of 2006, the news wasn't surprising. The struggling ATM independent sales organization has been treading water since the fourth quarter of 2005, when it reported a negative operating margin of 69.3 percent. (Read also, TRM reports losses.)

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The photocopying company gone ATM ISO had big ambitions and likely jumped into deals that pushed the size of its ATM portfolio too far too fast, industry experts say.

"The guys running the business aren't ATM guys, they're photocopying guys, so their acquisitions tend to be a little large and pricey," said one industry investor who asked to remain unnamed.

But TRM reported a few bright spots for 1Q '06, including a long-term debt decrease, from $193.9 million at the end of 2005 to $188.7 million, and a 70 percent decline in cash losses from theft in the United Kingdom. The company also reported a drop in its net-quarterly loss, from $1.7 million in 1Q 2005 to $1.5 million.

Sam Ditzion, president and chief executive of Boston-based advisory firm Tremont Capital Group, said the company may be able to pull itself back from the depths of red.

"It was a disaster a couple of months ago, but this new CEO seems to be addressing the problems, and I think they are working to at least stay on top of it," he said. "I think they did a good job of more realistically setting expectations. I mean, they are where they are. I think tough times are still ahead, but it looks like they're moving toward getting this debt refinanced (June 15). It could fall through, but if they can refinance it, it gives them some time to figure out the rest."

A recipe for trouble

In November 2004, TRM closed on its $150 million acquisition of 17,000 U.S. and Canadian ATM contracts from Scottsdale, Ariz.-based eFunds Corp. The company boasted an ATM portfolio of 22,000 - second only to Houston-based Cardtronics Inc., which holds the largest ATM portfolio in the world at more than 26,000 units.

By late 2004, TRM also operated the largest international ATM network owned by a U.S. company. The company set its sights on continuing that growth with a $78 million deal with U.K.-based Travelex in September to buy 1,100 ATMs. The acquisition was expected to close in the fourth quarter.

But trouble lurked. Cash losses to ATM theft and raids in the U.K. plagued the company, as did the acquired eFunds' portfolio.

Ken Lovett, senior vice president of business development for Montgomery Village, Md.-based ISO ATM Systems, said TRM's problems are pretty simple to explain.

"This is a company who grew too much way too fast," he said. "In addition, I seriously question the value and viability of the 17,000 ATMs it acquired. I'm not privy to their business model, but a decade of being in this business tells me it would be extremely difficult to find 2,000 ATMs, much less 17,000, that would generate significant cash flows and decent ROI."

Because of the company's financial troubles, it announced March 30 that the deal it renegotiated with Travelex in December was dead. (Read also, TRM to renegotiate deal with Travelex.)

TRM president and chief executive Jeff Brotman told investors May 4 the company is now focusing on its current assets rather than acquisitions. Brotman took the reigns after former president and CEO Kenneth Tepper left March 13. TRM also is working to clean out some of its low-transacting ATMs from the eFunds' acquisition. The company ended the first quarter with 18,321 active ATMs in its portfolio, down from 19,262 in the fourth quarter of last year.

While ATM net sales fell 13 percent from 1Q '05, they increased 15 percent from 4Q '05. Brotman said the strong performance of TRM's legacy ATMs is credited with the improvement. He also said the company plans to add units to that legacy estate.

A sale in the works?

If TRM gets its debt refinanced in June, it will likely sell its ATM and photocopying portfolios, some observers say.

"If you talk to the strategists, they expect private equity to get involved," an industry investor said. "I think it will all go together - the photocopying and the ATM businesses. From what I hear, the shareholders want it sold."

Beyond private equity, other suitors could include Cardtronics and NetBank Payment Systems, a wholly owned subsidiary of Atlanta-based NetBank Inc.

"This quarter is a bright spot for them," an industry investor said. "They've never been able to do what they promise, but this time they've been able to catch up with the game plan. It seems like the new guy (Brotman) is doing a pretty good job stabilizing everything and making goals that are attainable."

Read also, Are TRM's woes a sign of the changing times?