5 reasons to be bullish on Cardtronics
by Daryl Cornell, CEO, Triton Systems
One of the advantages of being a public company is the ability to issue and sell shares to raise capital. On the flip side, the SEC requires you to confess annually to the world in gory detail all of your hopes, fears, successes and failures.
Whether by accident or by design, these opaque annual reports (10-Ks in SEC-speak) come cloaked in sheer volume, legalese and 1-point type, making it likely that only the hardiest of souls ever take the time to plow through them.
Case in point is this year's Cardtronics annual report, which weighs in at a whopping 329 pages. We've taken the challenge to digest this tome and have found much to like, including these five nuggets that make us bullish on Cardtronics:
The shift to financial leadership
After five years of near-uninterrupted acquisitions and subsequent write-downs, the CEO baton was handed recently the company's former chief financial officer, whose job now is to coherently assemble the pieces. This will be no small task given that many of these acquisitions have been left unintegrated and in need of rationalization to deliver on promised synergies.
Oh, and there's debt, lots of debt. Nearly a billion dollars of debt, with interest payments that are now only partially deductible. Look for Cardtronics to spend the next few years consolidating facilities, jettisoning people, paring capital expenditures and rationalizing operations and product offerings.
The good news is that given Cardtronics current leverage there will be few opportunities to continue acquisitions at the pace they've set previously. The focus will have to be on organic growth and operational excellence as debt is pared and year-over-year comparables are no longer muddied.
Look for Cardtronics to emerge in the next few years as a much stronger and more tightly managed company.
Cardtronics is the world's largest ATM owner-operator with more than 230,000 ATMs. At this unrivaled size, the Cardtronics name continues to open doors through which competitors simply cannot hope to gain entrance.
Whether it is the weary financial institution looking to outsource a cumbersome ATM operation or a large merchant seeking a substantial ATM partner, the company's scale continues to be a major selling tool.
Also, operating 230,000 ATMs worldwide allows Cardtronics to share best practices throughout its organization.
Clearly every market is different, but expertise in administration, supply chain and operations is of real value across Cardtronics global operations.
Cardtronics is a strong-to-dominant player in most of the countries where they operate. A rough estimate of Cardtronics total ATM market share by country looks like this:
- United States, 38 percent
- United Kingdom, 31 percent
- Australia and New Zealand, 28 percent
- Canada, 19 percent
- South Africa, 9 percent
This global footprint brings a number of benefits to Cardtronics, including improved insulation from the risk of overconcentration on one country or customer.
Wounded severely in 2017 by the loss of 7-Eleven, Cardtronics appears to have learned its lesson and looks to be minimizing dependence on any single market or account.
A strategic focus on organic growth in existing and new markets should continue this trend.
Diversified revenue mix
Unlike many of its competitors, Cardtronics does not operate with a "one size fits all" model. Certainly, the Allpoint network is an important piece of the Cardtronics offering, as are bank branding programs and surcharge-free ATMs.
However, what most people don't know is that Cardtronics generates as much surcharge revenue as it does interchange, bank branding and surcharge-free network revenue combined.
By offering both high-transaction "free-to-use" ATMs and lower transaction surcharging ATMs, Cardtronics is able to partially insulate itself from negative market moves such as the recent interchange reduction threatened in the U.K.
In addition, the ubiquity of Cardtronics terminals of all flavors in the countries where they operate helps to reinforce consumer confidence in the Cardtronics brand.
With $1.5 billion in annual revenue at risk, Cardtronics has wisely avoided putting all of their eggs in the "free-to-use" ATM model.
One of the effects of the recent Cardtronics acquisition binge is a move toward vertical integration.
Certainly the Cardpoint, Spark and DC Payments acquisitions have added terminals, opened new markets and diversified the revenue mix, but it several of the company's other purchases could prove to be more transformative over the longer term.
For instance, the 2014 Sunwin acquisition in the U.K. added new capabilities to Cardtronics, including cash delivery operations and ATM maintenance.
Cardtronics primarily contracts with third parties to deliver an average of almost $4 billion in vault cash to nearly 70,000 ATMs worldwide. Cardtronics also outsources the maintenance of many of its ATMs deployed globally. The purchase of Sunwin has allowed Cardtronics to insource both maintenance and cash delivery to nearly 15,000 of those ATMs in the U.K.
The ultimate success or failure of the Sunwin integration may well determine whether Cardtronics expands cash delivery and ATM maintenance capabilities to other markets.
In addition to Sunwin, the 2013 acquisition of i-design was an attempt to insource ATM marketing and advertising software services. Integration of the U.K.-based i-design may also yield benefits for Cardtronics in other markets.
Clearly Cardtronics faces headwinds in a global cash delivery market that is increasingly competitive and uncertain. However, if the company can manage to build on a culture of operational excellence while shoring up a wounded balance sheet, the future in Houston would appear to be bright.
atm Atom Posts for the atmAToM blog are contributed by a collective of writers from Triton Systems and ATMGurus seasoned ATM pros who thought they might like to share a few things they've learned during the last 30 years in the ATM industry. www