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Cardtronics continues its upward course through Q2

With profits up 25 percent year-over-year, Cardtronics is looking like a company with plenty of blue sky ahead.

July 31, 2014 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

"I am pleased to report that Cardtronics completed another very strong quarter as we closed the first half of 2014 building on our durable growth story. Key growth results compared to the second quarter of 2013 include revenue growth of 25 percent, adjusted EBIDTA growth of 20 percent with adjusted earnings per share improving 24 percent." With this, Cardtronics CEO Steve Rathgaber kicked off a Q2 earnings call that seemed to deliver nothing but good news.

Rathgaber said the company had delivered strong performance on both the top and bottom lines. Top-line growth came primarily from the company's existing relationships with growing customers and "execution against our pipeline of opportunities and the roll forward of value of acquisitions." Bottom-line growth was driven by pipeline delivery, acquisition earnings, and management execution of acquisition synergies, Rathgaber said.

A recurring topic in the call was Cardtronics' pending acquisition of Welch ATM, a Midwestern IAD with 26,000 machines under management throughout the U.S.

"Welch represents a continuation of a very successful rollup strategy for Cardtronics," Rathgaber told an analyst on the call. "And in this particular case, it comes with the very valuable added benefit of focus on the midmarket where we think there is a fair room for growth for us ... "

Rathgaber cataloged other accomplishments from Q2, besides:

• a contract with Petro-Canada to provide managed services at more than 500 locations — and the expansion of its relationship with CIBC to brand them;
• the addition of 375 locations in the CVS drug store chain;
• the addition of 240 locations in the Bi-Lo/Winn-Dixie grocery store chain;
• the addition of 116 locations in the Kroger grocery store chain;
• an agreement with Fresh & Easy neighborhood supermarkets to place approximately 167 ATMs in stores; and
• a contract covering 200 ATMs in Central England Co-op grocery store locations.

Rathgaber also gave a rundown of projects currently in the pilot phase that Cardtronics will bring to market later in the year.

The first is Allpoint deposits. This functionality will allow cardholders of participating FIs to conduct envelope-free cash and check deposits at Cardtronics ATMs.

"With the introduction of Allpoint deposits later this year, Allpoint will boast the largest retail based ATM deposit network in the United States," Rathgaber said. "The delivery of this innovation fits perfectly with the continuing favorable trend of branch closings and greater consumer self-service."

The company currently operates 2,500 deposit-capable ATMs in 7-Eleven stores, and Rathgaber said during the call that he could see bumping that number up as high as 7,500 over time.

Additionally, Cardtronics will roll out a Alltm program through its contract with Fresh & Easy. Alltm introduces branded ATMs topped with a large digital screen that delivers in-store product offers. An accompanying mobile app will allow customers to redeem these offers at the point of sale.

"[T]he clear objective of this product innovation is to drive the consumers to our retail partners and to drive additional spending while they are in the store," Rathgaber said.

Cardtronics new Siteline program represents a third new enterprise, this one in the all-important data collection category. Through Siteline, retailers can gain access to information about cardholder use and behavior at in-store Cardtronics ATMs.

Rathgaber said the program can help retailers establish a picture of repeat visits, share of ATM transactions at their stores, and use patterns — all on a unique cardholder basis. Eventually, the program will incorporate location data from the company's various mobile apps for cardholders, as well.

"This is a very powerful product which will ultimately be developed into customer dashboard that allow our retail partners to see and analyze transaction information the unique cardholders at ATMs located in their stores," he said.

Cardtronics CFO Chris Brewster provided a closer look at Q2 numbers, parsing out for analysts on the earnings call the various contributions to the company's 25 percent increase in year-over-year earnings. He said that about 17 of those 25 points came from recent acquisitions and the remaining eight were organic growth:

• 1.5 points from new merchants including H-E-B and Timewise;
• 2 points from surcharge-free bank branding and managed services;
• 1.5 points from equipment and value-added retailer sales;
• 1 point from the British pound to dollar exchange rate; and
• 2 points from new machine additions at existing national retail customers, and increased transaction numbers at those locations.

Based on "a pretty good second quarter," Brewster said the company making upward adjustments to its full-year guidance:

• revenues of $1.005 billion to $1.02 billion (up from $990 million to $1.01 billion);
• gross profit margin of approximately 33 percent to 33.5 percent (no change);
• adjusted EBITDA of $245 million to $248 million (up from $239 million to $244 million);
• adjusted net income of $2.28 to $2.32 per diluted share (up from $2.24 to $2.29); and
• capital expenditures of approximately $100 million to $110 million (no change).

Rathgaber closed executive remarks with observations about the Federal Reserve 2013 payment study released this week:

• ATM withdrawal amounts have exceeded inflation from 2009 to 2012, good news for Cardtronics transaction share growth strategies;
• branch withdrawals are a $2.1 billion transaction market that could migrate in part to ATMs if branch networks continue to shrink;
• $1 billion in cash deposits at ATMs represent a market opportunity for multi-user deposit capability like that currently being piloted with Allpoint.

More reasons why, as Rathgaber said, "management is bullish on the opportunities for convenient cash access and for Cardtronics."

photo: courtesy h.michael miley|flickr

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.