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Edited Transcript of CATM earnings conference call or presentation 21-Feb-19 10:00pm GMT

Q4 2018 Cardtronics PLC Earnings Call

HATFIELD Feb 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Cardtronics PLC earnings conference call or presentation Thursday, February 21, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Edward H. West

Cardtronics plc - CEO & Director

* Erich Bradley Conrad

Cardtronics plc - Executive VP & Treasurer

* Gary W. Ferrera

Cardtronics plc - CFO

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Conference Call Participants

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* Andrew William Jeffrey

SunTrust Robinson Humphrey, Inc., Research Division - Director

* Gary Frank Prestopino

Barrington Research Associates, Inc., Research Division - MD

* Ramsey Clark El-Assal

Barclays Bank PLC, Research Division - Research Analyst

* Reginald Lawrence Smith

JP Morgan Chase & Co, Research Division - Computer Services and IT Consulting Analyst

* Robert Paul Napoli

William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology

* Timothy Wayne Willi

Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Cardtronics Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Brad Conrad, EVP and Treasurer. Sir, you may begin.

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Erich Bradley Conrad, Cardtronics plc - Executive VP & Treasurer [2]

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Thank you. Good afternoon and welcome to Cardtronics fourth quarter and full year 2018 conference call. On the call today, we have Ed West, Chief Executive Officer; and Gary Ferrera, Chief Financial Officer.

We will start with prepared remarks and then take questions.

Before we begin, a cautionary statement regarding forward-looking information. During the course of this call, we will make certain forward-looking statements regarding future events, results or performance. Any forward-looking statements made on this call are subject to risks and uncertainties, including, but not limited to, events, market conditions and other risks and uncertainties that could cause actual results to differ materially.

Please refer to the earnings release and our reports filed with the SEC, which describe forward-looking statements and risk factors and other events that could impact future results and other factors that could impact our business. The statements on this call are made as of the date of this call and are based on current information and may be outdated at the time of any replay of this call. We assume no obligation to update any forward-looking statements made today to reflect events that occur or circumstances that exist after the date on which they are made.

In addition, during the course of this call, we will reference certain non-GAAP financial performance measures. Our opinion regarding the usefulness of such measures, together with a reconciliation of such measures to the nearest GAAP measure, is included in the earnings release issued this afternoon and available on our website.

We've also posted supplemental investor materials regarding the fourth quarter and full year results on our website.

Please note, there was a typo error in the eighth bullet of our Q4 highlights of the earnings release we issued after market closed today. The correct number of Allpoint financial institutions added during the quarter is 21. This error will be corrected within an amended press release that will be issued shortly.

With that, I will turn the call over to Ed.

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Edward H. West, Cardtronics plc - CEO & Director [3]

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Thank you, Brad, and welcome, everyone. Our messages today will focus on the following key themes. First, we had a very good performance in North America this past quarter, driven by 6% same-store withdrawals, record system availability and solid new sales execution.

Second, we delivered on our key business priorities this past year and business momentum and confidence are building. This year, we expect to move past the negative headwinds, the ones that we were all way too familiar with during the first half of the year. We then expect to have attractive top line and bottom line performance in the second half of the year, which will set a great jump-off point for the following year and establish a trend for the medium-term business outlook.

Let me start today by reminding you of our 2018 priorities: first, drive durable organic revenue growth; second, deliver operational excellence and portfolio optimization; third, create raving fans with our customers; fourth, engender employee pride; and finally, deliver growth in free cash flow and pay down debt.

Now looking back on the year where we were about this time a year ago, I'm very pleased with the team's execution and progress.

So starting with the top line. We returned to organic growth in North America. Importantly, we demonstrated the power of our unmatched retail-based ATM network in the value of Allpoint. Our U.S. same-store withdrawals were up 6% for the full year. Certainly, there were some tailwinds in the early part of the year related to the comps and recapture from 7-Eleven, but we largely cycled on those impacts in Q3 and then exited the year on solid ground. The same-store transaction levels drove ATM operating revenue growth in North America of 5% for the full year, up from a negative 2% in 2017 when you exclude 7-Eleven.

We also saw terrific performance and double-digit growth in South Africa, Germany and Spain. On the operational excellence front, we achieved record availability in the U.S. and the United Kingdom, which in turn drove improved revenues and lower cost. We are now operating at availability levels that most banks and retailers cannot cost-effectively match on their own. We also reduced operating cost in several areas, enabling investment in growth initiatives and additional security measures.

Now let me turn quickly -- touch on something that I have not spoken about at length on these calls before, engendering employee pride. I know it's an intangible one that's hard to measure, but this is an area that our management team is also focused on. And I believe talent is crucial to the long-term success of this business. We have made progress on our culture, systems and office environments. Change is in the air. We've had a strong purpose-driven mission and we're building for the long term. Our team is truly making a difference day-in and day-out, which is showing up on our bottom line.

And regarding our bottom line, for the full year in 2018, we generated $118 million in adjusted free cash flow, up nearly 60% from 2017, which was used to pay down debt. In the context of losing $75 million in EBITDA from the loss of 7-Eleven, the significant growth in free cash flow was a notable achievement for the year. This growth in free cash flow is the result of organic growth in the U.S., driven by surcharge-free transactions to our existing well-recognized and convenient retailer-based network. Essentially, more transactions at our installed network driving higher ROI. That factor is combined with overall disciplined operating performance and capital cost management.

Moving specifically to the fourth quarter, ATM operating revenues in North America were up 4%, excluding 7-Eleven and on a constant-currency basis. This growth was driven by strong same-store transactions of 6%, led by double-digit growth in surcharge-free transactions from the Allpoint and bank branding products in the U.S. Our transaction driving initiatives with financial institutions and retailers are working.

Additionally, we continue to add new partners to Allpoint, enabling 21 new financial institutions to our network in the fourth quarter, bringing with them over 1 million additional cardholders. New Allpoint members include RBC Bank in the U.S.; Qapital, with a Q, an innovative and fast-growing consumer, nontraditional financial services provider; and Visa, enrolling their prepaid and debit cardholders traveling to the U.S. from various South Asian countries.

We also had success with bank branding, adding new relationships to brand over 400 new units in coming periods. We completed a FI commercial triple in the fourth quarter by adding several key ATM-managed service contracts with Security Service Federal Credit Union, one of the top 10 largest credit unions in the U.S., Central Valley Community Bank and others, in total adding nearly 200 new ATMs under managed service contracts. These ATMs are located at branches and all premise locations.

Moving to the retail side. We added several new wins and expansions, including a new placement contract with a leading operator of convenience stores, located at airports and travel destinations adding high-transacting ATMs with potential to add more locations over time.

We ended the year on solid footing in North America. We experienced improving commercial performance, adding new Allpoint, bank branding and FI-managed service relationships in addition to the new retail locations. This is combined with a great operational performance in same-store transaction growth.

Let me transition over to Europe and Africa segment. On a constant-currency basis, revenue was down 3% for the quarter. Similar to the previous quarter, the largest component of this segment, the U.K., was down, driven by the negative change in the LINK interchange rate, in addition to the removal of underperforming ATMs over the past year.

These factors, combined with the same-store declines of 2%, caused revenues to be down about 7% in the U.K. in the quarter.

Our fast-growing Germany, Spain and South Africa businesses grew at double-digit rates as we continue to grow nicely in these markets. We added great retail and touristic locations and layered in bank branding and managed services arrangements.

We continue to take action in the U.K. to manage through the headwinds. As a reminder, we were impacted by the second LINK interchange rate reduction on January 1 of this year. We expect this will be the last rate reduction in the near future. This is causing many changes in the marketplace. We removed over 3,000 ATMs and transitioned about 500 units to pay-to-use from free-to-use.

In 2019, we are in the process of moving up to an additional 3,500 ATMs to pay-to-use. It is a shame that LINK has caused such disruption in the marketplace when free-to-use interchange rates in the U.K. were already one of the lowest in the world. These changes we are making will mitigate some, but not all of the impact from this pricing change. That said, even with these U.K. headwinds, we see a path where the growth countries of Germany, Spain and South Africa will largely offset the current negative impact to revenues in the U.K. this year.

We believe there are opportunities for growth in the U.K. once the market stabilizes, and we'll talk further about this at the upcoming Investor Day.

In Australia, our revenues were down 8% on a constant-currency basis for the quarter, which while down was our best-reported quarter this year. We have now just about fully cycled on the bank's removal of the direct charge in the fall of 2017. Market dynamics look to be headed in the right direction for us as banks continue to close branches and remove ATMs.

The bank ATMs are now more expensive for them to operate due to the removal of the revenue. Over time, this dynamic should be a positive one for us.

Now we generated an attractive amount of free cash flow this past year, paid down debt and we now have our sights on reaching our targeted leverage level. This year, we expect to increase our investments in new product in the United States, fund growth and infrastructure and still generate a significant amount of free cash flow.

After making investments in the business with an attractive ROI, and as we achieve our targeted leverage levels, we expect that our capital allocation plans will evolve towards returning excess cash flow to shareholders. We plan to share more with you about our plans for growth and capital allocation at the Investor Day next month.

Now on that last point, let me wrap up my comments today with a window into our upcoming Investor Day. We look forward to providing more insight into our business and management team on March 27 at the NASDAQ in New York. We will share our vision, our growth strategy, our execution plans, financial targets and capital allocation. Each of our regions have different profiles, so we will provide market and business insights across our geographies.

We see growth opportunities in all of our markets, but believe that U.S. business represents the single-largest area of value creation as we leverage our network-based business with retailers and FIs of all sizes and build on our managed services platform.

We have the right solutions, scale and technical capabilities to enable FIs to refocus their resources towards other digital priorities and allow us to serve their customers' cash needs. It is our vision and goal to manage their cash transactions on our convenient low-cost network. This is a substantial opportunity and Cardtronics is best positioned to capitalize on this evolving secular shift in the market.

There are many good things happening across the business, and we are excited to share our enthusiasm with you next month.

And with that, let me turn the call over to Gary.

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Gary W. Ferrera, Cardtronics plc - CFO [4]

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Thank you, Ed. We entered 2018 focused internally on some key objectives such as getting back to organic growth, operational excellence and focusing on delivering cash flows and repaying debt.

We communicated an outlook for performance based on our view of the market at that time, especially considering market disruptions in the U.K. and Australia and the loss of our largest partner in the U.S., 7-Eleven.

Talking to you a year later, I believe that we've delivered on these objectives and throughout the year, we were able to raise our outlook several times as we executed on our priorities and had better-than-expected conditions in some of our markets, such as Australia.

With that, let me jump into the Q4 results.

Consolidated revenues were $328 million for the quarter, adjusting the prior year to exclude 7-Eleven, this result was approximately flat to the prior year on a constant-currency basis.

Fortunately, this is the last time we'll need to report our year-over-year results excluding 7-Eleven. As a reminder, 7-Eleven's impact in 2018 was limited to approximately $6 million in revenues and no EBITDA in the first quarter. Excluding the 7-Eleven impact, the revenue growth rate in our North American segment was 4% for the quarter. This growth rate was once again driven by strong same-store transactions in the U.S., which were up 6%. A -- noteworthy in the fourth quarter was our same-store surcharge transactions, which were basically flat, a solid indicator that while consumer payment options continue to evolve and be adopted, cash remains an important tool for consumers and they like and trust our convenient and safe ATMs when there is a fee.

The solid top line growth in our North America segment was offset by declines in our Europe and Africa and Australia segments. Our Europe and Africa segment was down 3% constant currency for the quarter, primarily due to the U.K. LINK interchange rate decline that came into effect in July of 2018, and same-store transactions, which were down approximately 2% for the quarter.

Our Germany, Spain and South Africa businesses continue to perform nicely and were up double digits for the quarter on the top line, offsetting a good portion of the U.K. headwinds.

As a reminder, the U.K. accounts for over 80% of our revenues in this segment. Australia was down 8% in constant currency for the quarter; a portion of this decline was unit related, and we've seen a moderation in the rate of decline of same-store transactions.

Consolidated adjusted gross margin for the quarter was 33.3%, down from 35.3% in Q4 of 2017. Similar to the third quarter, this decline in margin is primarily attributable to the 7-Eleven deconversion in the U.S. and the LINK interchange reduction in the U.K.

Adjusted EBITDA was $68.5 million compared to $89.8 million in Q4 2018. This result was, of course, also impacted by the 7-Eleven deconversion and U.K. LINK interchange reduction.

SG&A was also up $2.6 million in Q4 versus the prior year and is primarily attributable to higher professional services fees.

Adjusted EPS was $0.47 for the quarter compared to $0.73 in the fourth quarter of last year. It was impacted by the same factors that affected adjusted EBITDA.

Our fourth quarter was stronger than we had anticipated when we provided our guidance update on the third quarter earnings call. And these results pushed us slightly above the top end of our full year 2018 guidance range for revenue, adjusted EBITDA and adjusted net income per diluted share.

This outperformance was mainly due to the better-than-expected same-store performance in the U.S. and the U.K., along with the continued focus on operational excellence throughout the organization.

Capital expenditures for the year were $107 million. This result was lower than the $115 million we anticipated as we entered Q4. This was primarily due to a combination of increased focused on capital expenditures as well as timing of these investments.

We finished the year with free cash flows of $118 million, up nearly 60% from the $74 million in 2017. This increased cash flow enabled a significant reduction of our net debt levels on a year-over-year basis of $113 million. Free cash flow and debt reduction were a major priority in 2018 and will continue to be a major priority in 2019.

We ended the year with total debt outstanding of $847 million, grossed up to the face value of our debt instruments. We also had $40 million in unrestricted cash. Net debt to adjusted EBITDA was approximately $2.8 million as of year-end.

During the fourth quarter, we completed a major refinancing effort, whereby we expanded our revolving credit facility from $400 million to $600 million and called and retired an outstanding 2022 notes. This refinancing allowed us to lower our cash interest expense and improve our financial covenants, which will provide us more flexibility for capital allocation.

After investing in our business to generate long-term growth, we will still continue to generate significant free cash flow. And in the near term, we will focus on driving our net leverage to our targeted range of 2 to 2.5x.

Now let me move on to our outlook for 2019. I'll first go through the numbers and then I'll provide some color on a few other items. Consolidated revenues are forecasted to be $1.31 billion to $1.35 billion. Our North America business is expected to grow in the low single-digit range, and we expect our Europe and Africa segment to be about flat on the top line and Australia to be down a few percentage points.

As a reminder, we have significant interchange rate reductions on our free-to-use ATMs in the U.K. in 2019, but we expect the other countries in the segment to largely offset this decline for a full year.

On adjusted EBITDA, we're expecting to be in the range of $285 million to $295 million. This result is meaningfully impacted by the interchange rate reduction in the U.K., along with the property tax adjustment benefit that we recorded in the first half of 2018 and currency headwinds versus a significant currency tailwind during the same period.

The combined impact of the prior year property tax benefit, the impact of 2 LINK interchange rate reductions and currency headwinds account for over $30 million in EBITDA headwinds in 2019, much of it which is weighted toward the first half.

Adjusted EPS, we are currently expecting a range of $1.94 to $2.05. A few moving parts in adjusted EPS. First, the refi I spoke about earlier should save us about $8 million in interest expense. This savings is being offset by an increase in depreciation expense, driven by some of the investments we made in the last year or 2 and the in-year effect of increased 2019 capital expenditures. We expect our non-GAAP tax rate to be similar to 2018 at approximately 24%. Cash taxes are expected to be about $10 million to $15 million in 2019 versus less than $1 million in 2018. This assumes status quo tax rates and regulations in our major jurisdictions.

We currently anticipate 2019 capital expenditures to be approximately $135 million. While this investment is elevated compared to 2018 levels, this increase is completely due to growth projects that will benefit us in late 2019 and beyond.

These expenditures are made up of 3 broad categories: first, we anticipate investing approximately $65 million in 2019 for growth initiatives, primarily involving ATM placements to enhance and expand our network along with continued growth in managed service contracts with financial institutions. We also continue to expect strong unit growth in South Africa, Spain and Germany.

The second category of capital investment is IT maintenance infrastructure and product enhancements, and we project about $35 million in 2019 to continue to invest in our infrastructure for items such as IT security, our ERP implementation, which we expect to largely complete in 2019, and technology development.

The third broad category is physical infrastructure CapEx, which includes upgrades and security for our ATMs, general life cycle replacements and other operating CapEx. We estimate investing approximately $35 million in this category in 2019. Similar to 2018, we'll watch capital spending very closely and place an ROI lens on each project. All of our guidance is based on exchange rates, remaining about where they are today, which we have detailed in our earnings release. As many of you know, our results are most sensitive to the U.S. dollar-British pound exchange rate. We have assumed a full year of $1.28, which is a little worse than 2018's average exchange rate of $1.34.

Let me close off the guidance discussion by talking about the distribution of EBITDA adjusted -- adjusted EBITDA across the 4 quarters. While we don't give specific quarterly guidance, I wanted to offer some direction as we expect significant year-over-year variability by quarter. Based on how we currently anticipate the year unfolding, it really is a tale 2 halves. As we expect adjusted EBITDA to decline year-over-year in the first half and then begin to show growth in the second half.

More specifically, we expect that Q1 will have the toughest year-over-year comparisons as it is typically our lower-transacting quarter, and we will experience some tough comparisons versus prior year.

In fact, the impact of the 2 LINK interchange rate reductions compared to prior year, coupled with a property tax benefit we had in Q1 2018, along with an exchange rate headwind equates to approximately $13 million of headwinds for the quarter. Therefore, we see Q1 being down almost 20% compared to the prior year.

While Q2 is much stronger quarter for us, we will continue to have the LINK in currency headwinds as well as the remainder of the property tax headwind compared to the prior year. Therefore, we anticipate adjusted EBITDA being a few million below prior year.

In Q3, which is typically is our strongest quarter, we will cycle on the first interchange rate cut that started in Q3 of 2018 and the property tax adjustment will no longer impact our year-over-year comparisons.

We also anticipate seeing an increased impact of growth from our continued sales efforts. Therefore, we expect Q3 to be the first quarter in 2019 we will see year-over-year growth in adjusted EBITDA. We currently expect the growth in adjusted EBITDA to be relatively similar in both Q3 and Q4.

Based on what we know today, we believe this projected stronger second half is a good indicator of future growth as we lack many of the headwinds of 2018 and early 2019. We look forward to providing a longer-term view on our strategy and key financial metrics next month at our Investor Day.

With that, I'll turn it back over to the operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Andrew Jeffrey with SunTrust.

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Andrew William Jeffrey, SunTrust Robinson Humphrey, Inc., Research Division - Director [2]

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Certainly good to see the beginning of a turn in the U.S., long time coming. On that front, Ed, can you talk a little bit about how you view the U.S. market perhaps changing with the introduction of contact list? I know this is something that Visa has pushed pretty hard and it sounds like later this year and maybe in the next, it's going to be more of a reality. How do you factor that into your long-term planning?

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Edward H. West, Cardtronics plc - CEO & Director [3]

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Thanks, Andrew. And first, going back to where you started, it is -- we're very pleased with the direction what we see in the U.S. and the performance and having a 6% same-store transaction growth and frankly, the double-digit surcharge-free growth is very rewarding and then getting back to organic growth. And as Gary put in his comments, we see ongoing improvement next year as well in terms of the performance with positive withdrawals and organic growth next year as well in North America. Sure, contact list, Visa, MasterCard, others are working to roll that out with retailers, others and with financial institutions. We've seen it clearly in other markets as well. And we factor and believe that, that is -- we will see that over time in the U.S. Although, but we also believe the opportunity that I spoke about in the U.S., as it relates to a secular shift over time in terms of where we can support financial institutions and their needs for their customers as we have talked about and then rolling out this past year with -- and seeing very good performance with our various products and the solutions that we can offer them, combined with Allpoint, bank branding, managed services leads to overall long-term growth for us. And we'll go into more of that at the Investor Day.

And then, I guess the last thing I would say, you wanted -- the U.S. market is very different from the other markets around the world with the diversification of retailers, diversification of financial institutions, and frankly, just the consumer base here. It's very different, and I think we'll all do well going forward.

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Andrew William Jeffrey, SunTrust Robinson Humphrey, Inc., Research Division - Director [4]

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Okay. Yes, looking forward to details. And as a follow-up, we hear a lot about Allpoint and clearly, it's point of emphasis for the company. Is there a point in time and if so when might that be, that we think less -- we think about Cardtronics less as a -- in the U.S. anyway, a business that's tied to U.S. retail foot traffic and more independent of that by virtue of Allpoint monetization, whatever that winds up looking like?

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Edward H. West, Cardtronics plc - CEO & Director [5]

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Sure. Allpoint, obviously, as you pointed out, is just absolutely terrific asset and terrific network. I would encourage you for all of us to think about it overall surcharge-free. Because when we work with a financial institution, the ability to offer, either through Allpoint and through a surcharge-free network or bank branding products to really promote their brand and marketing at well-known retailers and get a better presence into a particular market and then combine that with the managed services' capabilities, the scale, the expertise, the knowledge that we have, those products offer together a comprehensive solution for an FI. And then I think as plain as you see, this past quarter and frankly, throughout the year, where we've had double-digit surcharge-free growth growing at our retailers, and we have great relationships with has been very valuable. Just the trend and the transition that you've seen. So I think we'll just be pointing on more to the traffic there.

And I guess, the last point I would just note on is when you have that double-digit growth, the traffic that's going to these locations is quite frankly material. What the recapture that we were able to experience from the change of 7-Eleven, of leaving obviously our portfolio, which by the way, was a significant portion of the U.S. business and to have that recaptured and to show the kind of growth that we've been able to experience and recover from that this past year, I think, is a great, great data point for the business and the strength and the value that we also bring retailers.

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Operator [6]

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Your next question comes from Bob Napoli from William Blair.

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Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [7]

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The U.S. business you point out is the biggest opportunity I think by far. I'd just like a little more color on how you are going to take up your market share of transactions, I guess, it's kind of big picture while you have 2% market share and if you go to 3%, that's pretty good. But the FI opportunity, the outsourcing, you have a, I think, a new team or you've invested more in the team or -- what kind of metrics are you expecting? I mean, getting 200 ATMs in outsource, I mean, that's nice. But I think you need to get some more momentum in that to really move the needle. So I mean, if you could give some color on how you're really going to improve materially your U.S. market share of transactions? And then some color on the outsource of working more to manage ATMs for financial institutions?

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Edward H. West, Cardtronics plc - CEO & Director [8]

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Sure. Thanks, Bob. So I think some of the data points from this past year, I mean, we had double-digit surcharge-free growth at -- across our network is a significant performance. And then obviously, the beginning, we're on the very early stages of growing out of the managed services. I think that's an evolving market that will be years in the making. If we just step back and just look at the overall transactions that happened in the U.S., over 80% of those were happening at a financial institution, whether at a bank teller or an ATM. We are very small. Obviously, one of the largest independently but small percentage. It doesn't take a whole lot of growth there to be a material impact. We'll go into more of this on the Investor Day on where we see that market opportunity to be. And we believe this will be very, very substantial. The way this will happen is just the disciplined effort that we started on this past year. Having the right people, the right FI capabilities, the sales force going into the comprehensive solution sale, into a financial institution, offering those surcharge-free solutions between Allpoint, bank branding, plus managed services, driving more transactions. Again, as illustrated, working with both the retailers and FIs and what we've experienced this past year, a lot of that's just -- it's hand-to-hand combat, working with our team, with the retailer and the financial institution of bringing awareness to their customers and frankly, tying our W-2s and our team's compensation to that performance. And all of us align to seeing that growth. I don't think it's going to be one of these things, Bob, where it's all of a sudden, it's skyrocket into the next quarter, but it's going to be long-term build on our secular shift in the marketplace and no one has the scale, leverage and capability to leverage on that than we.

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Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [9]

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Then just my follow-up question is the back half of the year getting back to growth, would you expect revenue growth to be higher than EBITDA growth in the back half of the year. Maybe talking mid- to upper single-digits revenue growth? Or mid-single digits, what are you thinking?

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Gary W. Ferrera, Cardtronics plc - CFO [10]

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Yes. No, I think, Bob, it's probably revenue growth to be lower, but EBITDA growth to be higher, just as you'd expect from the leverage coming out of that. But we haven't given anything specific about revenue growth in the second half.

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Operator [11]

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Your next question comes from Tim Willi with Wells Fargo.

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Timothy Wayne Willi, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [12]

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Two questions. The first one, I guess, as a -- you've touched a little bit on it I think in a couple of answers. But I was thinking about like the competitive landscape for Cardtronics in the United States, you still have -- well, it's been consolidated, there's still, what I'd guess, I would say is a reasonably large market for independent [deployers] and ISOs and that type of competitor. And I guess, I'm curious as we hear what you're doing with CapEx, product development, cost of capital advantage you may have versus those sort of independent-type competitors. Are you seeing anything in terms of what's driving your growth as their loss where they no longer can sort of add that value proposition to an independent location or afford the revenue share or the cost of capital to keep up with the evolution of the model where maybe that's an element that plays out in your favor as well competitively?

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Edward H. West, Cardtronics plc - CEO & Director [13]

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Couldn't agree more in terms of looking at the various markets. I think you have to just kind of step back and look at the segmentation, where you're referring to is maybe into some of the smaller retailers and some of the independent operators versus larger retail base or financial institutions. Obviously, our scale, size, capability, security measures, our breadth in terms of globally, what we see around the world, how we can bring that to bear in different markets, and then frankly, on the FI side, the solution set that we have is -- no one replicates that because of the various products. At the smaller end, where you're talking about, clearly, our size -- the size, scale, operating advantage, buying power and frankly, just information and security is -- it's hard to replicate. So we do see that as an advantage and something where -- an area we'll continue to grow and build on.

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Timothy Wayne Willi, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [14]

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Great. Then my second question and my follow-up was, again, this goes back years ago, there was a product roadmap around all kinds of different things, analytics and different types of content and product you can bring to the ATMs. I know that's probably taken a backseat to the work you guys have had to do over the last 1.5 years. Just any thoughts around additional functionality, revenue-generating type capabilities that you see that could evolve into the marketplace in your revenue model in the next couple of years, irregardless of this year, just curious any thoughts there?

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Edward H. West, Cardtronics plc - CEO & Director [15]

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Sure. It's actually to the contrary, it's actually to going to the front seat, where our top priority is driving durable organic revenue growth. And actually, we pulled back, as you know, on the M&A front, reallocated resources and have actually been investing heavily in product, new capabilities and designing other functionality and capabilities, in particular with the financial institutions. And we really look forward to showcasing some of that and reviewing that with you all next month at the Investor Day. So that's actually front and center and it will build to our durable competitive advantage.

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Operator [16]

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Your next question comes from Ramsey El-Assal with Barclays.

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Ramsey Clark El-Assal, Barclays Bank PLC, Research Division - Research Analyst [17]

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I wanted to ask you about the kind of growth algorithm of the company, sort of prior to 7-Eleven rolling off in the last couple of years, I always thought of it as a -- and I think this might have been something that you all had put out, it was sort of 50% new placements and 50% new transactions effectively flowing over the footprint. I mean, how would you characterize the growth algorithm now? It sort of feels like we're leaning more heavily towards the -- flowing more transactions over the footprint, given how built out some of the key markets are perhaps. But I was just wondering how we should think about the underlying drivers of the business going forward in that context?

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Edward H. West, Cardtronics plc - CEO & Director [18]

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Yes. That's a great question, Ramsey. It really varies by market with where we are and depends on the stage where we are in the business and trying to, as I talked about in my comments here, like in the U.S., where you're seeing more transactions going through our network and we will continue to add to that, build that by working very closely with financial institutions to support them and with their customers going to our network at well-known retailers. And honestly, the ROI on that is very attractive, as we talked about earlier in the comments. In addition to that, we'll grow through fixed-rate contracts, through managed services, which are long-term agreements, where we have lots of visibility and contract value. Then the rest of the country's different markets and regions around the world, they vary by market whether that's new placements and/or driving transactions. We'll share this with you and go through that next month at the Investor Day when we'll have a, as I mentioned earlier, a market-by-market review.

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Ramsey Clark El-Assal, Barclays Bank PLC, Research Division - Research Analyst [19]

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And -- so in that context, could you give us sort of an update on, I guess, both Allpoint and bank branding, which are sort of the primary methods currently, where you're kind of increasing the flow over the transactions, kind of a state of the state on Allpoint and branding, I guess, in terms of like the Allpoint pipeline, are there -- do you have more large FIs in that pipeline, I think that's what's been helping to move the needle recently. And on the branding side, do you still have an inventory of company-owned machines that are suitable and attractive for branding? And is there a pipeline there as well? Just a little more color there would be helpful.

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Edward H. West, Cardtronics plc - CEO & Director [20]

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Yes. If you look, kind of stepping back, looking at the FI pipeline, since -- as we've talked about before, again, a lot of changes in the commercial organization, the team, the commercial leadership team has done a terrific job. Talent, new talent, new organization, rolling out sales force, getting very disciplined on the market segmentation, go-to-market strategies, who we're working with in the financial institutions, what's the value proposition, and then aligning everybody's W-2 to the performance that we would like to see. And with -- having now a pipeline, disciplined pipeline reporting and fill, I would say, sitting here today versus a year ago, our confidence is up significantly in the pipeline, and particularly, the FI pipeline is up considerably from a year ago.

And that's by the products. As you pointed out, whether that's Allpoint, branding or managed services and who we're talking to. I think this is probably the second area I had mentioned in terms of the financial institutions, just the size of who we're working with and speaking with in different markets around the country is ranging all size -- all sizes of institutions from the very largest to community-based banks and credit unions.

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Ramsey Clark El-Assal, Barclays Bank PLC, Research Division - Research Analyst [21]

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And then a really quick follow-up. So on the branding side, you have enough kind of inventory, unbranded inventory to continue rolling out the branding relationships? Or is there sort of a ceiling that we'll hit or have hit in terms of the availability of incremental units that are suitable for those types of relationships?

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Edward H. West, Cardtronics plc - CEO & Director [22]

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So today, we have about, I would say, call it 37,000 sites that are brandable and about little over 14,000 of those are branded. So there is headroom. There is availability. And we look forward and have conversations routinely with financial institutions on key markets. I think another thing that's also changed over the last year or 2, the larger banks are on the move. Markets are becoming interest. Some banks have to support and defend the markets where they are, other regional and larger institutions are moving into new markets so obviously, the interest level there is continuing to increase.

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Operator [23]

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Your next question comes from Gary Prestopino with Barrington Research.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [24]

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Just wanted to maybe touch on -- if you can give us some statistics in terms of the Allpoint Network. What's been the year-over-year change in the card base and the year-over-year change in financial institution base? And the numbers of cards that you're servicing now? The number of FIs that you have out there now on Allpoint?

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Edward H. West, Cardtronics plc - CEO & Director [25]

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I would say, if you -- over -- the year-over-year, it's not significantly different, because obviously, you had to roll off from overall volume a year ago with 7-Eleven. Today, we have over 60 million card members that are holders of that and that is growing. The number of financial institutions, as you know, as we've been reporting out, is growing. I think what's -- what we're really focused on and obviously, is growing the totals, but it's really the engagement of the base, the awareness, the knowledge, what people have in their wallet and the use of the network, which is why as we talked about those transactions driving initiatives across the company and helping bring up that awareness and the utilization of Allpoint.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [26]

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So your same-store transactions were up 6% in the quarter, is that right? And 6% for the year?

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Edward H. West, Cardtronics plc - CEO & Director [27]

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Total transactions. Surcharge-free were up double-digit.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [28]

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Okay. What was that like last year? What was the growth last year? Do you have that, x anything that you lost?

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Edward H. West, Cardtronics plc - CEO & Director [29]

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You talking about on an ex-7-Eleven basis, we'd have to pull that figure out.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [30]

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Okay, but that's fine, but it's growing. And I guess the question that I want to get to is what are you doing to drive that engagement?

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Edward H. West, Cardtronics plc - CEO & Director [31]

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Well, that gets back into the transaction driving. Well, first of all, is selling new relationships, like we pointed out this past quarter when we had 21 new financial institutions with 1 million new card members of that from -- for this past quarter. What we're doing specifically working with them is with -- in particular, the financial institution is awareness, whether that's programs with their apps, so that their customers are aware of it, having the locator built into their app, doing e-mail campaigns, digital campaigns, having temporary branding on key retailers around bringing that awareness to the financial institutions, putting signage and awareness in branches and also having programs with the retailers of bringing up the awareness. So it's -- there is no one silver bullet, it's multifaceted, working with the financial institutions and getting the awareness. And we're seeing, as we've demonstrated, seeing the growth here.

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Operator [32]

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(Operator Instructions) Your next question comes from Reggie Smith with JPMorgan.

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Reginald Lawrence Smith, JP Morgan Chase & Co, Research Division - Computer Services and IT Consulting Analyst [33]

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So great, good to see the same-store transaction growth accelerate in the fourth quarter in the U.S. Obviously, notice that the revenue growth in the U.S. was lower than transaction growth and recognizing that these surcharge-free transactions don't generate as much revenue as surcharge transactions, can you kind of help us understand how the margin profile of these transactions may vary from a surcharge transaction? And if it matters or if the fact that you may own the Allpoint ATM versus not owning, does that impact the margin profile of those transactions? Just trying to figure out how we should think about the profitability of the surcharge-free transactions.

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Gary W. Ferrera, Cardtronics plc - CFO [34]

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Yes, Reggie, it's Gary. It is very hard to get specific on that. I mean, there are so many different variables. The advantage on the surcharge-free, obviously, is volume, right? I mean, we're trying to -- it's a lower price, obviously, but there is a significantly higher volume. And then when you start looking down, obviously, it's lower revenue, but on that one, it -- we haven't given out specific metric on profitability on surcharge-free versus surcharge. But as I said, again, it's all about the volume in that situation.

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Edward H. West, Cardtronics plc - CEO & Director [35]

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And I would say also, it does make a difference, to the second part of your question, on us owning the term loan, that's actually a differentiator where -- a comprehensive solution, where we can manage that experience for Allpoint as well for the customer and the financial institution.

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Gary W. Ferrera, Cardtronics plc - CFO [36]

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Yes. Where we own the equipment, we have better results, obviously.

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Reginald Lawrence Smith, JP Morgan Chase & Co, Research Division - Computer Services and IT Consulting Analyst [37]

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Got it. Okay. Is -- so the way to think about it, obviously, on a lot of your transactions, you have a commission that you split with the retailer, on the surcharge-free, it means -- is it safe to assume that there is no commission split and that retailer is just happy that someone is coming in to their store? Is that the way to kind of think about that?

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Edward H. West, Cardtronics plc - CEO & Director [38]

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No, the -- I would say, it wouldn't be safe to assume that there would be no commission or sharing, but it is very important seeing the traffic come into the store as evidence of the growth that we've experienced, the double-digit growth going into the retailers. And the retailers are very aware and value that greatly in these -- the relationships.

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Reginald Lawrence Smith, JP Morgan Chase & Co, Research Division - Computer Services and IT Consulting Analyst [39]

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Understood. If I could move over to, I guess, South Africa and maybe even Germany as well, I guess, you made a comment that you kind of feel like at some point that will help offset some of the pressure you're seeing in the U.K. Obviously, we are very U.S.-centric and have a lot of discussion about the U.S. market, can you kind of give us a sense of like what does South Africa look like from an ATM perspective? Like what's the -- where are they in the transition to -- point of sale of transactions, like who owns the ATMs out there? Like what does that market kind of look like? If you can make it a little realer for us here in the U.S. or maybe I'm jumping the gun and this is what you're going to cover at the Analyst Day in a month or so?

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Edward H. West, Cardtronics plc - CEO & Director [40]

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Well, we -- so the last part of that, yes, we will cover some of that in terms of some of the markets and regions. But I would just tell you from an ATM penetration, it's at the lower end of the spectrum, where there's lots of opportunity to need for the cash across the country. Obviously, we're based in Cape Town, but have locations all over the country growing quite rapidly and the great news is, we also have excellent relationships with the largest financial institutions in the country and helping to support their growth and their needs, and we feel like there's a long runway ahead of us there in a attractive market. But again, it's one the lower-penetrated markets that we operate in and will share more with you next month.

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Reginald Lawrence Smith, JP Morgan Chase & Co, Research Division - Computer Services and IT Consulting Analyst [41]

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Got it. If I can get one last housekeeping question. You provide, I guess, bank branding and I guess, Allpoint revenues as you break it out, is that the entire revenue from bank branding? Or does -- are there also some Allpoint revs that show up in the interchange bucket? Like how is that -- is it fully captured in that figure...

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Edward H. West, Cardtronics plc - CEO & Director [42]

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No, it's not. It's also an interchange, as you pointed out.

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Operator [43]

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And I'm showing no further questions at this time. I'd like to turn the call back over to Ed West, CEO, for closing remarks.

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Edward H. West, Cardtronics plc - CEO & Director [44]

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Great. Thank you, operator. 2018 was an important year for the company. By transitioning Allpoint and bank branding off of our largest customer in 2017, who previously represented about 30% of our revenues in the U.S., and recapturing a significant percentage of the transactions and traffic on our remaining estate, we clearly proved the strength, durability and value that our network and scale offers to both retailers and FIs. We have been relentlessly focused on our key priorities and are encouraged about the momentum that we are seeing in the business. I would like to thank all of our employees for their dedication this past year to help transform Cardtronics and position us for the future. Thank you very much. Good day.

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Operator [45]

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Ladies and gentleman, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.