Article

For Cardtronics, 'a choppier year than usual' ahead

After a long run of smooth sailing, Cardtronics hits choppy waters in Q1 as it navigates software issues, EMV and the integration of its largest-ever acquisition halfway around the world — all while tacking toward a new growth phase as a provider of in-branch ATMs.

photo istock

May 9, 2017 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

After what seemed like endless quarters of smooth sailing, Cardtronics CEO Steve Rathgaber gave Wall Street analysts a heads-up in last week's Q1 earnings call that 2017 will be "a choppier year than usual."

That was one of three themes Rathgaber enlarged upon during the one-hour call; the other two involved major projects the company is undertaking this year and investments aimed at making Cardtronics stronger, more capable and more geographically diversified.

In the meantime, fasten your seatbelts — it's going to be a bumpy ride.

A rough stretch

A perfect storm of events contributed to rough going in Q1, starting with software stability issues encountered in Q4 that continued into the new year.

These issues have led to an "unusual" amount of downtime (resulting in lower transaction revenues) and a delay in the completion of EMV implementation at Cardtronics U.S. ATMs (resulting in higher fraud liability), Rathgaber said.

"These operating issues in combination with an unrelated vendor software issue with PIN Pads and the timing of a branding transition effectively trimmed 14 cents of [earnings per share] from the quarter."

What's more, an unusually strong Q1 2016 did nothing to help to soften the blow in the year-over-year comparison (see insert, right).

But even the most perfect of storms dissipates eventually, and Cardtronics is beginning to see light on the horizon.

"The good news is that several of these factors have passed and we expect that we are through the most challenging period of the year," Rathgaber said. "We have substantially addressed our software stability issues and are now tracking to our traditional availability levels prior to the onset of those issues. This, in turn, enables us to push ahead on our EMV upgrades towards completion in Q3."

EMV rollout gives Cardtronics relief on two fronts, reducing exposure to fraud chargebacks and paving the way for multibank branding services on Cardtronics ATMs, Rathgaber said.

A full agenda

No question, Cardtronics has a lot going on organizationally in 2017. For one, there's the integration of the DirectCash Payments business, Cardtronics' largest acquisition to date, which wrapped up in January.

Though the company is based in Australia, its operations encompass markets in Canada, the United Kingdom Mexico and New Zealand.

"This feels more like four acquisitions in that it spans five countries and three continents," Rathgaber said. "We have to combine our Canadian operations, our U.K. operations, our Mexican operations and our Australia-New Zealand operations."

And then there's the fact that just before being acquired itself, DCPayments acquired another company, Australia-based Cashcard. So there's that Australia-New Zealand combination to work out, as well.

Rathgaber estimated that the process would take two years, and that it would be somewhat different in each market.

It will be especially tricky in the U.K., whose Competition and Markets Authority announced the morning of Cardtronics' earnings call that the deal would lead to a "substantial lessening of competition" in the nation's ATM market.

Rathgaber, emphasized that Cardtronics would work with the CMA to address its concerns, but until matters are settled to the authority's complete satisfaction, Cardtronics and DCP must continue to operate as wholly separate entities in the U.K.

Banking on ATM outsourcing

After several years spent hammering out ATM cobranding agreements with financial institutions, Cardtronics is taking the next logical step — positioning itself as an in-branch ATM partner to banks and credit unions.

Rathgaber announced the plan during the company's Q4 2016 earnings call in February, but acknowledged that the job was more easily said than done.

"We do have to fortify our capabilities in some areas that are of particular importance to banks," he said in last week's call. "An example of this is in the area of information security. We want banks and credit unions to know that Cardtronics is the safest place to put their ATMs, because we aim to be the most secure environment for ATMs."

To this end, Cardtronics has made several strategic hires from NCR, Chase and, most recently, Bank of America.

This month, the company announced the hiring of Dan Antilley, previously head of information security at BofA, to serve as Cardtronics chief information security officer.

In Q1, the company did meet with some success getting its foot in the branch door, scoring an agreement with Australia's Bank of Queensland to manage its 200 in-branch ATMs.

In reference to that deal — and Cardtronics larger in-branch delivery aspirations, Rathgaber said, "We want to enable the banking market to migrate to a more efficient model of cash distribution by turning to the leading specialized operator in the market — Cardtronics — to further improve customer convenience while lowering their total cost of serving their cardholders."

About Suzanne Cluckey

---

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.