Cardtronics Incorporated Q2 2010 Earnings Call Transcript

Cardtronics Incorporated Q2 2010 Earnings Call Transcript
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Cardtronics Incorporated (CATM)

Q2 2010 Earnings Call

August 4, 2010 5:04 pm

Executives

Melissa Schultz - Investor Relations

Steve Rathgaber - Chief Executive Officer

Mike Clinard - President of Global Services

Rick Updyke - President of Global Development

Chris Brewster - Chief Financial Officer

Analysts

Andrew Jeffrey - SunTrust

Chris Mammone - Deutsche Bank

Chris Shutler - William Blair

Jason Kupferberg - UBS

Bob Napoli - Piper Jaffray

Reginald Smith - JPMorgan

Gary Prestopino - Barrington Research

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to Cardtronics Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. (Operator instructions). As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Melissa Schultz. Ma'am, you may begin.

Melissa

Schultz

- Investor Relations

Thank you, operator. Good afternoon everyone and welcome to Cardtronics Second Quarter Conference Call. On the call today are Steve Rathgaber, Chief Executive Officer; Mike Clinard, our President of Global Services; Rick Updyke, our President of Global Development; and Chris Brewster, our Chief Financial Officer. Our prepared remarks are scheduled to run for about 25 to 30 minutes at which point we'll open up the call for any questions you might have.

Before we get started I'd like to make the following 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 those outlined in our reports filed with the SEC. Actual events, results or performance may differ materially. Additionally, any forward-looking statements are based on current information only and we assume no obligation to update those statements.

In addition, during the course of this call we will reference certain non-GAAP financial performance measures. Our opinion regarding the usefulness of this measures together with the reconciliation of these measures is included in the press release issued this afternoon.

Now, I would like to turn the call over to Steve Rathgaber, our CEO.

Steve Rathgaber

Thank you, Melissa. Thanks to all of you on the line for joining us today. I think it is appropriate to start at the end of the quarter that is and acknowledge that we had a good quarter which helped the results in most components our business. I am proud of the results and of the team that continues to produce them.

The quarter was clearly defined by solid performance at Cardtronics, but outside of Cardtronics the quarter was defined by turbulence in the industry due to regulatory activity. When environments get complicated I always find it useful to go back to basics and then to reassess opportunity and risk.

So, let’s start with the basis of Cardtronics. I continue to be bullish on Cardtronics for the simple reason that it remains a unique and critical asset in the current financial ecosystem. A looked back on the quarter underscores this point. We enjoyed solid organic growth, closed on several new and substantial opportunities, renewed several large clients, saw a significant improvement year-over-year in our Allpoint surcharge-free network and continued progress with prepaid cards at our ATMs.

We expanded key branding relationships further validating this component of our revenue model. We enjoyed record operational availability in the US. We achieved record transaction volumes and also our best ever operational quality performance in the UK business.

Importantly, our sales pipeline is stronger than when I arrive back in February and in fact is the strongest at anytime in our history. So, I find this a relatively sturdy position from which to catch one's business breathe and reflect on the industry turbulence.

First, let’s focus on a subject which may surprise you was increasingly in our control, network interchange fees. In the last quarter call, we reported that one of the global payments networks lowered the interchange they paid ATM acquirers including all banks and Cardtronics for a portion of the transactions and increased the acquirer fees that they charged for network access. Interchanges an important component of our revenue model, about 28% domestically, and historically a revenue component largely outside of our control. It has been viewed as under the control of the various debit network because they set the rate that an issuer will pay to an ATM owner.

We are both a network and a valuable ATM portfolio. We have an asset that our customers want and actually in many cases need to complement their own ATM network. Our network persona allows us to set in control a material amount of interchange because we in the market are solely responsible for Allpoint interchange.

Importantly, we are also able to contract directly with card portfolios for access to our ATMs in a variety of ways that allows us to lock in a predetermined price for interchange unrelated to third-party network interchange pricing. The critical effect of our ability to contract directly for fair value exchange is that we now have multiple contracts that lock in the rate on 39% of what historically would be termed US domestic interchange. This is up from 23% two years ago and we should exit next year near or above 50%.

This continues to diminish the impact any third-party can have on our revenues via interchange fee moves. Management is committed to controlling this additional element of our revenue. The more we succeed at this objective, the more stable and certain this component of the revenue base. We look forward to continue progress on this key objective.

During this quarter, we will buffeted like everyone else in this space by the uncertainty of rolling regulatory winds that had various times served by both headwinds and tailwinds. Financial reform legislations bought in the Harkin Amendment, the Durbin Amendment and the Consumer Financial Protection Bureau. These legislative events was supplemented with additional activities in Mexico, which Mike Clinard will discuss.

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