News

Turnaround at TRM

After a rough spell, the company hopes to improve its lot through acquisitions.

December 11, 2003

It's back to Plan A for TRM Corporation.

When the Portland, Ore.-based provider of photocopiers decided to enter the retail ATM business in 1999, the plan was to acquire the portfolios of several existing ISOs.

No go, said TRM Executive Vice President Dan Tierney, "We couldn't find any opportunities we thought were fairly priced at the time."

So after receiving a $20 million infusion of capital from an investment firm, TRM learned the business from the ground up, placing machines in retail outlets where it already had copiers including The Pantry and Cumberland Farms. Unlike many ISOs, all of TRM's machines were full placements. TRM, which sold photocopies in the UK and France, in late 1999 also entered the burgeoning UK ATM market.

Money troubles

The emphasis on growth came at a price, however. TRM reported a $6.5 million net loss in 2001. "We overextended ourselves, and we weren't in a good financial position. We weren't as liquid as we needed to be," Tierney said.

After a management shake-up that saw former top executives Fred Stockton and Dan Spalding leave the company, TRM's board decided to move then-Chairman Kenneth Tepper, a former president and chief executive of USABancShares, into the president and CEO slot.

Turning it around

Under Tepper's guidance, TRM got back into black ink in 2002's third quarter, reporting net income of $182,000. Since then, its fortunes have continued to rise, with net income of $3.4 million for the first nine months of 2003.

"Ken helped us get a healthier balance sheet and returned us to profitability," Tierney said, noting that TRM reduced its long-term debt by $10 million and developed a $50 million vault cash facility with Deutsche Bank.

So healthy, in fact, that TRM is again in the hunt for ATM portfolios.

With its finances climbing, Tierney said TRM, which has some 3,600 machines in the United States and the UK, is "ready for some consciously controlled growth." Like other large ISOs, TRM wants to buy portfolios of smaller competitors -- not only in the U.S. but in the UK and possibly Canada.

"We've got close to 4,000 copy centers (in Canada). We'd like to leverage our people and offices there," Tierney said.

Turning to turnkey

Tierney said TRM is in a position to assign a relatively high value to some existing ATM locations, especially turnkey placements, which have been its specialty. "A lot of companies don't have the wherewithal and desire to grow turnkey locations. We do," he said.

More than 100 employees servicing its copier and ATM locations in the U.S., as well as customized cash management software and a vault cash arrangement funded through the commercial paper market helps TRM keep its turnkey costs down.

TRM thinks it has a better shot than many ISOs at picking up retail ATM locations being divested by financial institutions.

"We're a public company. We've spent a lot of money every year to stay that way, and it might be time to appropriate some of the benefits," Tierney said, adding that a number of bankers sit on TRM's board of directors.

TRM's business is no longer only turnkey placements, however. In 2003, the company introduced its first merchant sales/leasing program, which resulted in an $865,000 boost to its revenue.

"The marketplace was telling us that in some instances, particularly independent merchants with existing locations, they preferred to buy or lease machines," Tierney said. "We didn't want to walk away from good business, so we started offering that kind of a program. It allowed us for the first time to expand our sites without relying on our capital exclusively."

Tierney believes the ATM sales/leasing business will remain strong for some years, especially as many independent merchants seek to replace hardware that won't meet Triple DES mandates.

"They know what their transaction volumes are and the revenues associated with owning those machines," he said. "They're not going to want to give those revenues up."

Yet even as the replacement market heats up, TRM hopes to maintain existing placements and acquire new ones by "providing aggressive onsite support" for its ATMs rather than offering site owners a larger share of transaction revenues.

"With more and more people competing for the same sites, you've got people giving away 100 percent of the surcharge and 15 or 20 cents of the interchange," Tierney said. "That's the equivalent of selling five-cent copies, where we came from. There's not a lot of wriggle room there. Our preference is to take the higher risk (of a placement) and enjoy more of the profit stream."