Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Cardtronics fourth quarter 2019 earnings Conference call.
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I'd now like to hand, the conference over to your speaker today, Mr., Brad Conrad Cardtronics Treasurer and head of Investor Relations. Thank you. Please go ahead.
Thank you good afternoon, and welcome to Cardtronics fourth quarter 2019 conference call.
On the call today, we had at West Chief Executive Officer, Gary Ferrera, Chief Financial Officer.
I'll 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 event market conditions and other risks and uncertainties that could cause actual results to differ materially.
Please refer to our earnings release in a reports filed with the FCC, including our form 10-K for the year ended December 30, Onest 2018, which describe forward looking statements and risk factors another events that could impact future results and other factors that could impact our business.
The statements on this call are made as at the date of this call and are based on current information and maybe outdated at the time with any replay of this call. We assume no obligation to update any forward looking statements made today reflect events that could occur or circumstances that exist after the date, which they're bad.
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.
With that I will turn the call overdone.
Thank you Brad welcome everyone.
I was struck by how many three key messages I want to convey on the call today first the fourth quarter was a solid finish to a very good and transformational year, we delivered on our financial commitments for the year and exited 2019 in a much better placed them when we started.
Second.
Driven by business performance in our powerful network, we are investing for the future with new products technology, and partnerships, which will strengthen our business and result in durable long term organic growth.
Third we are enthusiastic about the your head and beyond we're providing a 2020 outlook that continues to show solid organic growth with margin expansion inline with the medium term targets, we communicated last March.
Over the last year, we made good progress in our priorities and key initiatives. These include first we delivered on our financial commitments for the year, we returned to organic revenue and profit wrote sooner than we initially expected with significant margin expansion and resulting in record free cash flow of $150 million.
As a result to this growth we have gained market share in the U.S. inner poised to continue building share.
Second.
We strengthened our network during 2019, we added many new an important customer relationships and also renewed and expanded partnerships with longtime customers on both sides of our two sided network in the U.S.
We added new business expanded with 15 of the top 30 banks in the U.S.
We also now have all partner relationships with almost 30 Premier Fintech businesses.
And also quite noteworthy we reached a milestone agreements with visa and USA for ATM branding surcharge free access.
Third we also launched new products and technology, enabling new partnerships and future growth, we're rolling out a deposit and cash in network. We currently have nearly 1000 and growing deposit in cash and Allpoint plus ATM services.
We continue to add if I partners to this convenient retail based network. We also launched new mobile access at the ATM and an eighth yeah I to enable additional mobile use cases beyond our traditional services.
And we invested in our infrastructure and improved our operations. We completed the second major phase of our ERP rollout and we are now live across all of our major business units. We also reduced operating costs in several areas, enabling additional margin expansion and investment and growth initiatives and additional security measures.
Finally, we invested in our employees and talent, bringing on key new talent and software development marketing data analytics sales customer experience and key leadership positions as we prepare the company for next phase of growth.
The business success throughout 2019 produced a strong financial performance and a year and we have solid momentum headed into 2020 now let me turn to the highlights for the fourth quarter consolidated revenues were up 4% driven by growth in our North America segment.
Adjusted EBITDA was up 15% from the prior year and adjusted EPS was up nearly 50%.
Gary will get into more the financial details in the fourth quarter results, but it was a good finished to close out the year.
On the customer front during the fourth quarter, we reached the key renewal and expansion with could start in the U.S., whose chart, which operates under several retail brands, including circle K corner store and the pantry is a leading operator at convenience stores as one of our largest retail relationships. We will begin to operate additional ATM and.
Services later in 2020 and will operate approximately 5518 films as part of this expanded agreement with could start.
We also signed a new retail placement agreement with Gallo Corporation, which owns and operates a leading grocery chain price chopper in the U.S. to place approximately 138 ships.
These new retail expansion to further enhance our leading network of convenient ATM locations in the U.S.
On the anti fraud, we reached agreement with Wells Fargo to place very Tim's at approximately 200 locations as speedway convenient stores in Minnesota, We now have branding and or Allpoint relationships with eight of the top 10 largest retail banks in the U.S.
We also continue to grow our managed services business, one our comprehensive suite of ATM solutions, including branding Allpoint and managed services is resonating with banks.
During the fourth quarter, we reached an agreement with bank United One of the top ranked regional banks in Florida, and the nation to operate close to 80 or their ATM branch locations in Florida, and New York Bank. United has also joined our Allpoint network significantly enhancing their customers convenient and fee free access to cash.
Additionally, we reached an agreement with so five to manage their ATM at the new So five stadium in Los Angeles, We continue to see demand for ATM managed services offering as financial institution seek to lower their operating and capital costs and improve their customer experience and secured.
Our Allpoint network continues to expand and as the Premier ATM solutions for Fintechs, particularly in the digital and challenger banking space our value proposition is resonating with this customer group as a value our nationwide footprint convenient locations service and value proposition, we are an important element.
Other consumer offering their customers frequently site free ATM access is one of the key points of differentiation.
We recently signed new Allpoint network agreements with several leading fintech companies and challenger banks, including Exos branch cognitive current majority relevancy and resolute.
One line Challenger Bank innovator current which recently surpassed a half a million customer counts also joined our Allpoint plus deposit in cash and network.
Many of the Fintechs early on.
But growing rapidly are already driving volume to our ATM.
For example, looking at a couple of our partners, who are driving volumes measured in the tens of thousands of transactions per month.
One has grown volume by over 400% just within the year and another grew by 500% within the year.
Also on the Allpoint front, we reached an agreement with Phoenix owner, the exchange network in Canada, enabling surcharge free access for approximately 5.5 million cardholders from 165, Canadian banks and credit unions to Allpoint ATM when they travel in the United States.
With new and expanded relationships with financial institutions, Centex and retailers during the quarter, we strengthen both sides of our network the value for the network continues to grow as we add not only partners and transactions, but also new products and services.
On the product front, we reached an exciting new agreement with Amazon to enable their customers to now add cash to their Amazon balance with Amazon cash at cash accepting Cardtronics ATM.
This solution makes it easier for Amazon customers to shop online by allowing them to visit participating allpoint, plus ATM to loan between $5 and $500 and cash to their Amazon balance, which they continues to make future purchases on Amazon's online store.
They can do this using only the phone number linked to their Amazon account.
Solution is available now at numerous locations and is expected to expand as we deploy more cash accepting ATM.
We're excited about this new partnership and our ability to leverage our assets to provide new convenient solutions and be the physical touch point for consumers, who prefer or need to use cash.
We are quite enthusiastic about this new cash and capability and we believe there are numerous ways for us to enable both cash and cash out services via a mobile phone from many different consumer transactions the user experiences lightning fast and simple to use customers can receive immediate spending credit and also.
Sure receive text and email confirmations for their transactions at our ATM.
There was another announcement that I would like to make today.
Equally enthusiastic about it and this is internal capability that we previously did not possess and it will likely serve as an operational inflection point for the company.
Over the past year, we have developed our own proprietary ATM software application that will enable us to quickly scale the mobile solution and other products. This technology was developed in house and is a major milestone achievement for the company software was purpose built for us by us and coupled with our mobile apiay.
It lays the foundation for numerous potential services to be deployed at the ATM in the future we have taken control over our future product flexibility with us leap forward. Additionally, we expect that our proprietary software will bring enhanced operational and financial control over our state on our remote basis and should result in.
Lower operating cost over time.
We are rolling this out initially in the U.S. and plan to expand the rollout globally software's already in the field or in a limited basis today, and we expected to be deployed on a good portion over us state during 2002 warning.
Now we're continuously looking for new and expanded use cases for our network in the U.S. as mentioned last March we believe our market share of transactions was less than 3% in country. While our company owned footprint stands at approximately 10% of the ATM is in the United States similar in size to the top three banks combined.
Over the last year, we have been implemented strategies and deploying solutions to grow this year, both withdrawal and deposit transactions.
In addition to expanding our footprint today I see two key catalysts of growth, which include branch transformation and serving as the physical to digital gateway, enabling convenient and simple consumer driven mobile cash applications.
On the branch transformation front, we are as secure convenient and low cost solution, which will allow us to grow transaction share by partnering with at buys of all sizes to deliver surcharge free access as well as customer awareness and loyalty via branding and Allpoint.
This on demand solution assist buys of all sizes as they are expanding into new markets are rationalizing their footprint in existing markets. Additionally, we support new entrance to the market such as Neovacs and serve as a capital light on demand cash infrastructure for their customers as they rapidly grow.
Branch transformation is also driving managed services opportunities for us as advertised refocus on what is core to their business. Our managed services solution also allows and at five to simplify their business and drive direct or single point of accountability for their ATM operations and cash distribution needs.
Separately, we see a whole new channel growth on a mobile enabled cash and cash out front I believe our network can be the digital the physical gateway, providing direct user enabled access to the largest most convenient cash network in the country the size and a closed loop infrastructure.
The Amazon announcements serves as a leading an example of what is ahead.
Now moving to the international front during 2019, we achieved our objectives to deliver constant currency year over year growth and our Europe and Africa segment aggressive changes to our operations in the UK to offset the dramatic price reductions implemented by link combined with strong growth in Spain, South Africa, and Germany resulted.
In year over year revenue growth for the segment.
Separately the team in Australia has done a great job restructuring the operations and delivered EBITDA growth for the for the year versus the prior year.
Now coming back to where it makes it all possible our people our success is dependent on obtaining retaining and developing the right talent.
And that's why we continue to invest in our team we're committed to making cardtronics a great place to work and always striving to do better we're measuring and same progress across many of our key metrics on the management front. This quarter, we made a change at the leadership level in North America.
We recently brought in quarter Hot as season, commercial and product executive with a proven track record of leading and growing businesses at both Western Union and Pepsico harder now leads our North American business unit as we seek to further enhance our network and accelerate our product within organic growth I'm really excited to have Carter.
As a partner of the company.
And my final comments today I wanted to provide some color regarding our outlook for 2020.
Larry will provide the financial details here in a few minutes, but I want to offer the following from my vantage 0.1st.
We are positioned to deliver financial performance consistent with the medium term outlook that we outlined at our Investor day last year, we aim to deliver and aspire to outperform but we will continue to increase investments in product solutions technology and people to drive durable topline growth.
Our strong performance in 2019 has built the foundation for us to be able to deliver the outlook we're communicating today.
Looking outside of US we had the largest ATM network in the UK, we're a very important part of the country's payment infrastructure and believe we can leverage this network and waste similar to what we have already progressing in the United States.
We expect to begin export in some of our products that we have developed in us to leverage our platform in the UK.
Product enhancements combined with the state rationalizations and transaction normalization in the market will take some time to sort out in the interim will focus on EBITDA EBITDA and free cash flow growth as evidenced by our performance in the UK This past year.
We continue to see strong growth in our Spain, Germany, and South Africa region, driven by ATM deployments located a premier retailers as well as additional Fi partnerships on the whole, we see solid profit growth coming out of Europe and Africa segment in 2020.
In Australia, and the face of our continued difficult market and topline pressure. We grew adjusted EBITDA last year with an intense operational focus we continue to work to leverage our networking capabilities in Australia, while we optimize our operations. We will continue to focus on and generate solid cash flows from this operation.
And while we test some pilot new growth strategies.
And our largest market North America, principally driven by the us our business and market share is growing and we are increasingly the partner of choice for both retailers in five of all sizes, we have and capabilities at our two sided network as strong value proposition and we're well positioned to continue to grow over more.
A couple years with favorable market dynamics as bank branch transformation continues to accelerate and we served as the physical to digital gateway for the ever growing mobile solutions market.
Again, Amazon serves as a leading an example on this front.
In summary, we are pleased with the recent execution across our priorities and are enthusiastic about the opportunities ahead for Cardtronics ill now turn the call over to Gary for some additional comments on the quarter and the outlook. Thank you Ed I'll start my remarks today with some additional detailing the full year end fourth quarter results before moving onto our 2020 outlook.
We started 2019 staring into a significant number of headwinds and guided to approximately flat year over year revenue and adjusted EBITDA growth, but with a strong belief in our team and our strategy as outlined at our Investor Day last March.
Im pleased to say that for the full year 2019 on a constant currency basis, we actually returned to growth with revenue up almost 3% and adjusted EBITDA, increasing almost 8% I.
Just wanted to take a moment to thank our team members across all of our regions for helping us deliver beyond our initial expectations and putting us in a position to continue to drive our medium term strategy.
As Ed highlighted in his remarks, the fourth quarter was a good finished with solid year revenues were up 3% compared to the fourth quarter of 2018, and adjusted EBITDA was up 14% on a constant currency basis. These results were slightly higher at 4% and 15% respectively.
Our adjusted net income per diluted share with 70 cents for the quarter up 49% from Q4 2018.
Looking into the drivers of the performance for the quarter by segment as expected our North America business led the way with total revenues up 7% and adjusted EBITDA up 10% both constant currency.
The currency impact was minimal this quarter, especially in North America.
Excluding our equipment sales, which can be a little lumpy from quarter to quarter, Our North America ATM operating revenues were up solidly at 6%.
This was driven primarily by bank branding Allpoint and managed services with these revenue categories producing double digit growth.
Transactions were steady in fairly consistent with what we've seen over the last several quarters.
On an unadjusted basis same store will drop withdrawal transactions in the us were up 1% in the fourth quarter.
We had a tough comp this quarter due to their being a major multi state lottery jackpot of 1.6 billion. During the early part of Q4 2018 that carried over several weeks in boosted transactions, mostly other convenience store locations, we estimate the impact could be worth around a percentage point of headwind.
So normalizing for this event, we believe that the adjusted same store transaction growth rate would have approximated 2% for the quarter.
Also consistent with recent trend our surcharge free withdrawal transactions continue to perform well and were up 7%.
Moving to our Europe, and Africa segment, our ATM operating revenues were about flat for the quarter and adjusted EBITDA was up 4% for the quarter.
Both measure than a constant currency basis.
As a reminder, we still have the impact of the second link.
5% interchange rate cut in the UK that we do not psych long until January one 2020.
Same store withdrawal transactions were down 3% for the quarter.
We are able to offset much of the impact of the interchange rate cut and transaction declines in the UK by switching some of our ATM to pay to use early this year and by generating slightly higher revenues from DCC.
But revenues in our UK business, which is the largest component of our Europe and Africa segment were still down in the quarter.
However, we did continue to see double digit top line growth across Germany, Spain in South Africa in the quarter, which almost completely offset a slight decline in the UK.
Interestrate segment revenues were down 8%, while adjusted EBITDA was up 19% both on a constant currency basis for the quarter.
We continue to optimize our operations and rolled out DCC on a number of or ATM during the quarter.
At the corporate level, we had a slight decline in expenses, which assistant driving our strong consolidated quarterly results.
Switching over to our key profit measures adjusted EBITDA for the quarter was up 14% as reported and up 15% constant currency as we had strong flow through of our revenue growth and continued focus on operational efficiencies each of our segments provided EBITDA growth for the quarter, a strong testament to the team's focus on offer.
Regions and process improvement.
We continue to consolidate and simplify our business operations, enabling operational and cost efficiencies.
We have a team dedicated to process improvement and have in year in multi year targets across the business.
Excluding stock comp SGN, a costs for the quarter were down 2%, mostly attributable to lower professional fees.
These lower costs were achieved while continuing to invest in information security technology and marketing.
The net result, the revenue growth coupled with solid operations and cost management was a 220 basis point improvement in our adjusted EBITDA margin for the quarter.
With each of our operating segments contributing to the improvement.
Our adjusted net income per diluted share for the quarter was 70 cents up 23 cents or 49% from Q4 2018.
Growth in adjusted EBITDA accounted for almost 17 cents of the growth.
Lower interest depreciation and share count accounted for the other six cents of the growth.
Depreciation expense was a little lower than forecast due to a combination of timing and cost estimates for some of the new acid appointments.
Capex for the year came in at a 125 million slightly below our most recent capex outlook and $10 million below our outlook at the beginning of 2019.
These adjustments are due to a new deployments being pushed into 2020 and they drive a portion of the slightly higher capex in our 2020 outlook.
Of 125 million in 2019, Capex, almost 65% related to growth and new product investments.
With the balance related to maintenance and infrastructure, including our new ERP system.
We had another strong quarter of adjusted free cash flow reporting $31 million for the quarter and our adjusted free cash flow for the full year was 150 million a new company record.
Moving to the balance sheet, our net leverage ratio at the end of the year with 2.4 times adjusted EBITDA, We paid down 27 million on the revolving credit facility in the fourth quarter and 96 million for the full year. We also used $50 million adjusted free cash flow to Opportunistically repurchased 1.7 million shares during the second and third quarters of year.
With $160 million drawn on our revolver at year end, we have plenty of liquidity and available borrowing capacity on our 750 million dollar revolving credit facility.
As many of you know we have a 208 million dollar convertible instruments that measures.
Matures in December of this year, we continue to evaluate all options, but our current plan is to repay these notes with borrowings our revolver.
As a result, we're continuing to report these convertible notes as long term debt on our balance sheet. Since we have the ability and intent to refinance the notes with our committed revolver, which runs through 2024.
With the current net leverage ratio of 2.4 times adjusted EBITDA, We're now within our target leverage ratio of two to two and a half times.
In the near term, we plan to continue to pay down debt, while having the ability to opportunistically repurchase shares.
As we currently plan and continuing to generate strong cash flows and drive towards the lower end of our target leverage range, we would expect to communicate a longer term capital allocation plan during the year.
Now, let me turn to the outlook for 2020.
For revenues were expecting a range of 1.37 to 1.4 billion.
Once again, we expect that of our three segments. Our largest segment North America will have the strongest revenue growth and that it will be driven by a combination of continued growth in Allpoint bank branding managed services and some new ATM deployments.
A couple of quick Nelson our revenue outlook first we accept expect same store withdrawal transaction trends to be similar to what we experienced during 2019.
Secondly, we have a few retail locations such as casinos in North America with contractual changes that will create a gross to net revenue adjustment on certain revenue streams in 2020 and carrying into 2021.
These changes will not impact our bottom line and we will slightly benefit our margin going forward, but it results in about a percentage point of total revenue growth headwind in 2020.
We're also expecting another percentage point of headwind from lower equipment sales in 2020.
As we had a strong 2019 in this category.
This is a lower margin products will have minimal impact on the bottom line.
Adjusting for these factors our outlook range is consistent with the medium term outlook that we provided at our investor day of 3% to 5%.
On adjusted EBITDA, we're expecting a range of $325 million to $335 million.
This will be driven by good conversion of our topline growth to the bottom line, while continuing to focus on operational improvements across the company and as our outlook implies we expect to deliver margin expansion again in 2020.
Adjusted net income per diluted share is expected to be the range of $2.58 to $2 a 70 cents.
This is driven by a few moving parts, we have a slightly higher expected tax rate in 2020, primarily as a result of a 2019 tax rate benefit related to some disallowed interest deductions in 2018 that we were able to recapture and benefit from during 2019.
We're also expecting slightly higher depreciation expense as we deploy more deposit taking an ATM and continue to invest in new products.
Interest expense is expected to decline due to our continued debt reduction.
Finally, we're expecting a slightly higher share count.
We're expecting capital expenditures next year of approximately 140 million.
The increase over our actual 2019 Capex of 125 million is partly due to some carryover of the originally planned 2019 capex into 2020.
Approximately 70% of the expected Capex for 2020 is growth related as we continue to deploy new machines, including deposit, taking ats and invest in new products and technology.
We anticipate spending the remaining 30% on maintaining and refreshing a portion of our ATM estate, while continuing to invest in our infrastructure.
While we do not provide specific quarterly guidance. We think it is useful to provide some color regarding anticipated quarterly distribution of our 2020 outlook.
Starting with revenue, we anticipated distribution across the quarters that should look very similar to 2019 as a percentage of total revenue.
We also anticipate adjusted EBITDA will have a very similar percentage distribution to that of 2019, but was slightly higher variability across quarters.
Primarily in Q1 in Q4 due to operating leverage and other factors.
This would result in Q1 and Q4, having the strongest growth comparisons with low double digit adjusted EBITDA growth. While Q2 in Q3 are anticipated to be in the mid single digits.
I would like to conclude my remarks today by reiterating our comfort with the medium term financial outlook. We provided at last year's Investor Day as you can see our 2020 outlook is inline with what we had communicated which was revenue growth of approximately 3% to 5% adjusted EBITDA growth of seven to nine present and capex at 8% to 10% of.
Revenue with that let me turn the call back over to Ed. Thank you Gary I'd like to finish our countless today with a special thank you to the global Cardtronics team.
You have made a real difference our customers believe in this company because of you you helped us deepening relationships across both our retail and financial partners. You are part of a transforming and growing company that has a purpose driven mission.
To our shareholders. Thank you for your confidence in this team we recognize that trust is not given that earned over time, we're committed to delivering long term value creation through durable and increasingly diversified growth and cash flows.
In addition to the business results. We returned some value to you in the form of an opportunistic share repurchase in 2019.
With our strengthening balance sheet and forecasted growth, we expect to announce further plans for longer term capital allocation this year.
We have spoken to many of you on this subject and value your input on the topic.
Lastly to both our shareholders and employees Cardtronics has a purpose driven mission, we are champions of cash because cash as far superior to all other forms of payment, but because citizens and the communities. We serve deserve payment choice cashes freedom and freedom is choice.
People should not be mandated on how they pay for their goods and services. They should have the freedom of privacy of their transactions, which should be secure not able to be happy and it should be reliable, meaning it always works irrespective of the environmental conditions increasingly consumers and now elected officials are recognizing.
The importance of protecting choice in consumer payments, many jurisdictions across the US have recently passed laws, including states in major cities requiring cash to be accepted at the physical point of sale and now we're pleased that is being recognized at the federal level in the United States with a bill in the house called the payment choice.
At.
This bill has strong bipartisan support and we encourage everyone to support the payment Choice Act.
With that operator, we'll now turn it back to you and open up for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press. The pound key please standby will be compiled the culinary roster.
Our first question comes from Peter Heckmann with D.A. Davidson. Your line is now open.
Good afternoon, gentlemen, this is the Lexus on for Keith Congratulations on a strong until 2019.
Great. Thank you a license.
So just a couple of questions on the guidance expectation for 2020 would be expected slightly higher share count can we assume that there are no buybacks included in the guidance.
Thats correct.
Okay, Great and then are there any FX headwinds or Tailwinds Hilton.
There is a probably a slight tailwind when you look at our numbers on the earnings release.
Out of them altogether. This probably is the slight tailwind, but it's pretty close if you think about it is a year over year.
Okay, Great and then could you just walk us through some of the biggest drivers that you're seeing for the margin expansion in the 2020 gun.
Yeah, I mean, as I mentioned on the call. It it's pretty much flowing through the revenue we have I mean very high margin stuff we're doing.
And then obviously just consistently focusing on operational efficiency here and in driving margin. It's it's a big focus for us.
Yeah, I want to say the other thing as we talked about really last last March going back to the two sided network in the us of driving more and more transactions at those are key locations in our network.
Scale and offers more and more scale so the come in on a.
And effective way to gross margin and scale without additional transaction volume and then ongoing like what we've done around other parts around the world, which is driving a relentless focus on efficiencies effectiveness.
And and operational performance and the team has done a super job on that and we'll continue on.
Great. Thanks, and then if I could just squeeze one more and so the new mobile software program that you developed in house. How is that if you could you. Please explain how that will fit into the existing operating software programs and whether or not that will require any rollout expenses are or what you're looking at in terms.
Rolling it out.
So two different things so one we delta.
For coming in for cash cash out in coming into our network. So that then allows you to our an entity to comment directly to us into our our Apiay and then we'll do a a mobile transaction either our code or QR code to take cash out at the ATM.
Separately.
It is also we've developed a software application that really sits on top of the operating system at the ATM, which allows different business layer transactions to occur that we can drive.
From here essentially is agnostic to the different operating systems. As you know we have a very diverse fleet, but now having this controlled where we've developed in house, we manage it.
It will allow for a lot more scalability, the we're going to roll that out on a measure basis in the market now and we'll continue to do that through through this year.
That's great. Thank you.
Thank you.
Thank you. Our next question comes from Andrew Andrew Jeffrey with Suntrust. Your line is now open.
Hi, good afternoon.
Certainly nice to have an eventful call Mike.
So we want to keep that way, but.
Thank you.
So I'd like to dig in a little bit on the Neo bank opportunity.
And I wonder that if you can opine, a little bit or shed some light on perhaps.
The ongoing opportunity for growth there I mean, you signed a number there are a couple of maybe bigger ones that are missing from the roster.
I anticipate there or do you think theres opportunity there.
There's ongoing so.
For for from many different ones that are still out there clearly as I talked about before allpoint being recognized as the a network of choice or there because of the convenience.
The experience and just the value proposition for.
For many of the new banks and Fintechs.
And also obviously the national footprint that we have in the convenience so that really brings forward too.
Their customers that they have.
Separately, we're continuing to where I think this last this last quarter, we announced several who were up and running and several who were actually coming into the market as well and then spoke to the growth that several have experience as you can imagine. These many of these are earlier on but as they get get launched and they begin to scale Barry.
The rapidly.
For example, a couple of them that the transactions or the tens of thousands.
Per month.
Grew within the year, four and 500%.
So it's an important aspects of the where we see is more future growth I think also the final point Andrew I'd make on this is a goes back to the importance of the software as well and that will we see and building here is that physical to digital gateway.
And allowing for both cash and cash out capabilities and drive a tailored experience for their customers as you can imagine manny's Fintechs I know there customers I know there segment very well, we can tailor that experience at the ATM for them because we are an end to end solution and having all part.
So that network.
Now, having the software with with the key capabilities.
And so as they grow so can we and we both a evolve and and went together.
Okay, well look forward.
Hearing more about that.
And.
I guess the other thing that that has come up I guess and in the last week or two is.
And I know, it's hard for you to to comment directly on it but I guess there have been just in some conjecture in the market that perhaps.
One of your competitors would be coming for for Speedway from a takeout perspective can you.
Maybe frame out, especially since you have a newer announced recently announced deal can you frame up what that might mean or how you think about that in terms of long term planning that might get a better way to refresh question sure. Yeah. So just obviously.
As you are speaking out on the Speedway Speedways, just a terrific partner.
We have a long time relationship with them, which gone through a multiple renewals.
We operate both branding and all point to on the network. It's about yeah, I'd say, it's about 3300, approximately 3300 a units on that.
And obviously this we read the same thing you have about the speculation we know as much as a as you do on that.
Think of what's really important though.
As as we think about this there are one of our top five retailers in the world.
As you will see in our 10-K that we'll file a here here soon.
You combine that a top five retail locations.
Our total of about 22% of revenue and no single retailer has more than 6%.
Obviously, they are one of those top five and in that period. The other thing that we've put in our 10-K is that the average remaining duration of the contracts of those top five is is approximately three and a half years.
And as is.
The relationship with Speedway is inline with the with that average.
Okay, and if I can just squeeze in the last one quickly.
Gary any commentary on free cash flow for 2000.
Yeah, we haven't provided any guidance on it but.
We have slightly higher capex, we got lower interest expense. So maybe you can do the math has done a lot a whole lot I hope that we haven't told you other than working capitals.
Okay fair enough. Thank you.
Thank you.
Thank you and our next question comes from Randy Ellis All with Barclays. Your line is now open.
Hi, guys and thanks for taking my question.
I wanted to.
Ask about the evolution of the kind of competitive landscape and both the UK, Australia, where we've seen a lot of dislocation from different types of development in those markets are you seeing a winnowing down at this sort of independent ATM deployer competition in those markets as the ACA.
Our next have sort of changed maybe don't support.
The business models the way they used to.
Have you seen competition kind of get cleared out in those markets in a certain Chen so is that too optimistic of the statement.
I wouldn't say a cleared out clearly there are changes in the market those markets have been more challenged or those who have lower scale, a products and solutions and.
Probably weaker balance sheets, we would see see issues over time and obviously there is.
Some of that is out there where we've actually seen more is in the reduction of capacity in the markets and turn to pulling out the number of ATM. For example, you mentioned the UK UK just a couple of years ago few years ago was roughly about 70000 ATM is as of 12 31 was around 60000 ATM. So.
As I mentioned in my Mark in my comments earlier, we think that these markets will continue to rationalize overtime. It does take time to do that a lot of those reductions have been both independent and on the bank side with ongoing bank closures branch closures pulling 18 pounds, but also the independents are right.
Rationalizing their footprints.
As well same things happen in Australia is a as well where the market is now approximately 26000, ATM and continuing to decline with a lot of that we get on both sides the bank as well as independent.
Okay.
And then and you you've addressed a little bit of this in your prepared remarks, but can you give us a little more commentary on the accelerating.
Tim operating revenues in North America sort of parse out the drivers and that market.
So in North America Ella's is focused on Friday now on the United States, which is obviously the largest component and element on that.
Going forward, specifically into 20, and 20 I think as Gary said in his comments, we would see.
Again ongoing strong growth in the bank branding and surcharge free networks line.
Really we've seen a lot of allpoint ongoing.
Expansions with all points as the signings there will continue to see see branding those would be big drivers managed services continuing to bring in additional managed services relationships as well those three key areas. We think will be a the biggest driver, but obviously you will have additional solutions.
That are becoming on as well, but those were early on.
On the on on the market.
So despite the you called out some really high growth rates for some of the.
Challenger Bank and Fintech type business, but thats, just really too early to have made it kind of the contribution near to the Pan out so thats really a potential future source of growth has that Steph ramps I would think exactly as the other thing in the U.S.
I think you'll probably see I think Gary kind of touched on a little bit on the capital side additional placements, where we had not had.
As much over the last couple of years to see more placements. Just for example, like the expansion with Costar.
And see additional placements coming onboard.
Great. Thanks, so much thank you.
Thank you. Our next question comes from Tim Willi with Wells Fargo. Your line is now open.
Thank you and good afternoon.
Since the first one I apologize I Miss sort of the first 10 minutes in the call but relative to.
Revenue declines.
Is there any different than their trajectory I guess sort of the same question for Australia, and then I have a follow up.
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So I think.
Background noise, where you are I think your questions around the revenue implications in both the UK and a and Australia.
Yes, Thats correct, it's a bit if the rate of decline has changed any great degree, yes, I mean, obviously in the UK you had the big change year over year changes has really kind of hard to compare there has been such a dramatic shift in terms of our network. The move from for used to pay to use rollout pay to use lights, we pulled ATM is out of them.
Market.
I think now you're really kind of looking at what's the ongoing a headwind in terms of a transaction, which we're all over.
Declines.
And that market and also frankly and.
In Australia as well.
As we talked about in our guidance with the UK as we've talked about last year from a revenue standpoint, offset by growth, where we have strong growth.
And our growth markets, South Africa's, Spain, and Germany, a those continue to do well.
To mitigate offset that and our Europe and Africa segment.
And then.
In Australia. The team has done a super job in terms of rationalizing the space operational excellence and drawing.
Resulting in strong EBITDA and free cash flow growth in the UK.
I put in my comments earlier.
We're going to.
Over time as some of the products that we've been developing in incubating and the U.S. side over time will export that to the UK I do believe overtime that market will continue to rationalize as we've been seeing.
And the transactions will normalize too so I just think some of that takes time and the interim.
We'll continue to optimize our network.
And really generate a lot of free cash flow.
That.
That that we that we drive there.
Great and my follow up.
Sort of is around I guess, all pointing that brand bone and managed services side a bank.
Yes.
First quarter, and I guess first quarter earnings season, a lot of advanced technology providers.
Actually been signing various types of technology.
No contracts with I think banks, one larger than we typically would have thought would be making outsourcing decisions for the core on for their online. It's definitely seems like the bigger banks are coming to that conclusion. So I'm just sort of curious as we think back through the last year or so with you all and we think about small to mid versus large banks is there.
Any.
With that same type of dynamic where you're sort of seeing the response of yes for the interest level from larger then sort of the sweet spot.
There's a margin.
Absolutely I can't I would say, that's probably them one of the biggest changes since.
I've been at the company and then over the last two years.
That our solution suite of solutions, whether its bank branding.
All point managed services are really resonating at all levels at all size a institutions and it really goes back to that theme central theme as one of our key areas and for us for growth and the catalyst behind that is branch transformation.
You mentioned some of the big banks, but just over the last.
Few quarters, we've announced expansions.
With PNC USA.
Surcharge free.
Branding with visa at a leading retailer.
Cap one expansions with Citi.
In a new relationship with US bank up so yes, it's with at buys at all levels and and frankly, that's what drives some of that.
That enthusiasm as we look forward.
Great. That's all ahead, thanks very much you.
Thank you. Our next question comes from Kartik Mehta with Northcoast Research. Your line is now open.
Hey, good evening.
And then we'd ask you a little bit about the UK market as you said, it's changing and I know you're you've converted some of your machines over to surcharge and I'm wondering.
What you're seeing in terms of pricing power, how consumers are adapting to the new.
To the new marketplace, and if you have pricing power there.
Well I, obviously ragged on about pricing power.
But as I step back thinking about the UK, obviously is a big part in the culture and society as a free to use.
And we had more than half of our state continues today being and free to use environment.
Which is a fixed interchange.
And with that obviously is very important from a societal standpoint, the communities, where now citizens recognize much more in the importance of having that ATM, particularly as our branches.
Have pulled back ATM to pull back in that capacity and honestly, we would continue with more and more free to use ATM.
But obviously as we enter into rational basis, because of the pricing changes that linked put forth, which drove that conversion to me more pay to use because I just would be hedges to make an economical otherwise.
You know wouldn't be economical based on.
On the various needs and we were pulled the machine we have multiple different level. Some machines are out there.
As you know kind of around a two pounds or less and others are are less than a pound on charge. It just depends on that we're constantly looking at.
Various locations a see where there's is supply demand opportunities, we'll move machines, we will.
Ken switch on different things based on if we see others changing.
In which has implications.
On the on demand.
In a particular area. So we would try to say fairly dynamic on that.
So just in that regard I do see do see much of a mixed shift in your portfolio in the UK or kind of where you are from a of free app free to use that answered charge.
Mixed do think that that's going to stay where it is or do you see that changing in 2020.
Yeah, we look at it everyday in terms of where it needs to be and constantly trying to optimize today.
The majority of our machines are free to use.
And we will continue to evaluate and look at those again based on supply and demand. The great News is we have a terrific network. There we have the locations where largest footprint in the country.
We have.
Our own operations teams our own CIA teams, we can be very flexible the team. There is done on great job. This past year, making our platform and operations much more variable where it used to be more fixed spend more variable, which allows for more more flexibility. So we'll change that opto.
Why is it a I wouldn't want to forecast.
What is out because gonna look like by the end of year. So I do believe the market will continue to rationalize in terms of capacity in the space.
And then just one last question Gary you talk a little bit about DCC and you said you added some markets. This quarter I think you started off with London and.
Are there other opportunities do you see opportunities where your ATM is our in these other countries, where there's enough tourist traffic.
Which would benefit you.
Well I mean, we've been talking about it during the year that we rolled it out quite a few places I think when I was trying to get across is that in some of these more touristic areas you saw spike up in because we we had it pretty much deployed in Q3 minutes started last spring. So as you get the Q4 when the tourists obviously trail off a little bit Thats, why you would've seen a little bit of weakness in the UK.
For example, but I mean, we're always looking to optimize it and so we'll continue to monitor but it's not like we just need to go too.
A major country that we haven't done about yet.
Eric if I can add on that I think that's an example also of why.
Im pretty excited about we'll announce today around our new proprietary ATM.
Operating application.
This is goes back to the company's history, where a lot of growth a lot of acquisitions. We spent a lot of time in the last two years integrating platform systems people, bringing in skills talents technology.
Capability software developments, where now we would have command and control.
Over our network and our platforms to go to rollout product solutions in control it.
Centrally.
An example, which we decided there with TCC.
That's one of the reasons why it took longer for us to roll that out should have been quicker, but it's because we had a fairly we have a different systems all around the world as a result of lot of different applications.
This is a key reason why we're also optimistic about our ability to drive margin expansion, because the efficiency or the time to market and capabilities that will allow going forward is very different than historically.
That makes sense. Thank you very much I really appreciate it.
Thanks Kartik.
Thank you and as a reminder, if you'd like to ask a question. Please press Star then one on your touched on telephone. Our next question comes from Bob Napoli with William Blair. Your line is now open.
Thank you good afternoon.
Nice job on the year and.
Thanks, Jeff the.
At the bank branding and surcharge free revenue growth actually accelerated for the last several quarters and it was up 19%.
In the fourth quarter.
That's that's pretty impressive and I would imagine that's relatively high margin revenue stream what is the outlook for.
The growth of that in is it broad based.
Now what is what's growing faster bank branding or surcharge free.
And any color on relative size would be really helpful.
Sure.
I would say a first of all is it really as a result of a lot of the different things we've been announcing over the last year, which is why we we talked about the beginning of year. The pipeline that we had a this is very broad based both branding and all point solutions is remember as one reasons why we always talk about on the cost we go when they're talking to him.
Financial institution with a broad suite of solutions and we can tailor that based on what they need they need more presents a branding awareness for their customers say once surcharge free access on a nation wide basis.
They wanted to keep their platform, but allow and operational expert to manage that we can tailor a lot of different solutions there.
So we've announced throughout the year many relationships expanded many relationships at new ones on multiple fronts, and you'll see the compounding of that showing up.
Into the to the fourth quarter.
We haven't given you must be to going forward, yes, no just going forward I mean, it continued same.
Same track, but as we as we said in the on our Investor Day last year I mean that was if you remember the chart we showed.
A good 40 40, 550% of.
The growth, we expected to come from surcharge free and we're in that in that range Little high low in 2019, but right right on track from what we told everybody. That's just goes back to where we drew out there and talked about in March of that two sided network in the United States of having that and we're in the middle of that.
Network et cetera, and then solution, a working with a with customers and close partnerships with financial institutions and retailers and driving more and more volume there too to those locations and getting that scale and so I just think you see that coming together.
Where we see more and more interest in that it just goes along with that theme around branch transformation.
As a solution for the market and now I think you combine that with the digital to physical gateway on a cash and cash out solutions.
Before that mobile enabled.
And so you would expect that line item to be a double digit grower then for the next few years is that.
We were just they could be one of the lines that has their greater percentage.
Okay.
Can you give any feel for the the size of the combination I guess of.
Spain, South Africa in Germany, and the combined growth rate.
And we haven't got specific is to those there rather large but off a smaller base, so, but we have not broken down in.
Anything so.
We did recently announced that.
South Africa has now surpassed 4000 ATM.
In that market.
The team there is doing a terrific job we have key partnerships with most many of the leading financial institutions in the country and believe we still see a long pathway or growth there, but frankly also in Spain, and Germany, Mercy and actually more.
Bank relationships in those markets building as well.
And then.
Last question you have your balance sheet, obviously isn't very good shape.
Beverages, where you wanted to be and I. Thank God, adding Gary you guys had sworn off that acquisitions at least for awhile was it.
Now that.
You have the ship really clicking if you would is it are there areas of interest on the M&A front that would be.
Yes, they would improve the network.
Significantly. So are you are you looking at M&A.
Head in any way shape or form.
We're never not looking at M&A I mean, we we take all the inbounds, we look at things, but again and since then I've worked together the two and a half years, it's been about focused right now.
That's all we want to do is focus and as time moves on bill there'll be some transactions that will pop up that will make sense like the smaller one we did last in 2019, but it's got to be the right. One is should we just take a very disciplined approach there would have very high hurdle rate and how do we leverage our current current platform.
So we'll continue on that but I think what's really important for all of us as a team.
As continuing to focus on that product driven organic growth rate.
Rolling out more and more solutions, and you're hitting singles and doubles everyday.
And continuing to to move forward on that front.
Okay. Thank you appreciate it.
Thank you Bob.
Thank you and I'm showing no further questions in the queue at this time like to turn the call back to add west CEO for any closing remarks.
Great well. Thank you. Thank you all very much. Thank you for your support and interest in Cardtronics and we look forward to talking to again and about 90 days and have a terrific day bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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Okay.
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