Article

Cardtronics achieves organic growth in ATM network operations

Besides acquisitions aimed at long-term growth, the world's largest ATM operator is pursuing steady internal expansion.

May 6, 2013 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

After 17 consecutive quarters of year-over-year growth, Cardtronics Inc. still isn't taking anything for granted — an attitude that was made clear during the company's first quarter earnings call late last week when the company reported a 3.5 percent increase in revenue over Q1 2012, despite difficult comps with last year's ADA rush.

"To continue this impressive track record of earnings growth throughout 2013 and beyond, we continue to make investments in our network and products," said Cardtronics CEO Steve Rathgaber.

"[T]he acquisition of i-design during the first quarter is a great example of our continued dedication to grow our product offering and enhance the value we provide to our premier retail and financial customer bases."

In fact, the company said that 1.5 percent of its revenue growth in the quarter came from acquisitions made in 2012 and the first quarter of 2013.

But deducted from an overall increase of 3.5 percent over the same quarter in 2012 ($197.7 million as compared with $191 million), this still leaves a majority of growth derived organically.

Building from the inside out

"[O]ur core business grew just under 9 percent for the quarter versus last year," said Rathgaber. "More than 7 percent of those 9 percentage points were pure organic growth."

Not only was Q1 growth in line with targets, but it also was achieved without the driving force of ADA regulation updates, which contributed to an extraordinary revenue boost of 18 percent in Q1 of 2012, as compared with the same period of 2011. 

"So this growth is on top of our best organic revenue quarter certainly in my time here," Rathgaber said. "Management is pleased with this growth and believes it to be another affirmation of our strong and durable business model."

The company reaffirmed its full-year guidance, forecasting $835 million to $850 million in revenues with margins of 32 percent to 32.3 percent, and adjusted net income of $1.72 to $1.79 per diluted share.

Due to the drop in ADA-driven product demand, the company's year-over-year ATM product sales were down approximately $8.8 million from the first quarter of 2012. However, the company said, its ATM product sales generally yield about 10 percent less in margins than ATM operating revenues, so the decline did not have a significant impact on profitability for the quarter.

Rathgaber said that Cardtronics accomplishments for the quarter went beyond revenue, as the company also achieved an increase of 170 basis points in its gross margins.

"Last year, we told you we needed a bit more time to complete the synergy value extraction," he said. "This quarter benefits from our successful use of that time."

Improved earnings — and an acquisition — in the U.K.

In particular, Rathgaber said, the U.K. division had made encouraging strides, improving its gross margins by 80 basis points, helped by an intensified focus on financial performance. "I am encouraged by the progress that the team is making in the U.K. and I am reinvigorated in my enthusiasm for further growth and margin expansion in this important international market."

"In a world where digital screens of all shapes and sizes, smartphones, tablets, laptops and TVs command and dominate consumer attention, i-design enables financial service providers, retailers and third-party advertisers to bring the ATM screen into that screen experience," Rathgaber said. "It is our intention to leverage the i-design platform across our ATM fleet to create greater consumer loyalty for both our retailer and financial institution clients." 

The company would also leverage i-design capabilities to give FIs and retailers additional reasons to work with Cardtronics, he said. "The acquisition also provides another pathway for Cardtronics to grow internationally; i-design is actively selling in more countries today than Cardtronics."

In the Q&A portion of the earnings call, Rathgaber said he expected the effects of the i-design acquisition would show up short term, but especially, would be felt over time.

"I wouldn’t want you to think its an add water and stir, sort of thing, but it is certainly something that give us a ramp to begin to drive transaction volume up with," he said. "And I think it’s a ramp that will be implemented over several years and serve us well with growth."

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About Suzanne Cluckey

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Suzanne’s editorial career has spanned three decades and encompassed all B2B and B2C communications formats. Her award-winning work has appeared in trade and consumer media in the United States and internationally.