Cardtronics Inc. has shifted the majority of the automated teller machines it operates to an internal processing system, and it expects to move the rest this year.
The Houston company began working on the proprietary system last year to lower costs and reduce its reliance on third-party processors.
This year Cardtronics also plans to bring its U.K. armored car servicing in-house.
"We converted an additional 7,000 ATMs to our in-house processing switch during the first quarter," bringing the number of machines that system is processing to over 20,000, Jack Antonini, Cardtronics' president and chief executive, said on a conference call with analysts Thursday to discuss its first-quarter results.
The machines that it connected to its internal system last quarter included all 2,300 of its ATMs in the United Kingdom and all 2,000 of the Vcom kiosks it bought from 7-Eleven Inc. in July. At the end of last year there were 13,000 ATMs connected to the system. Cardtronics operates 32,475 machines.
Michael H. Clinard, its chief operating officer, said the system offers several advantages. "In addition to allowing us to better control processing costs, this move will allow us to control ATM screen flow and the user experience, which will in turn provide us the ability to provide customized branding and one-to-one messaging."
Robert Napoli, an analyst at Piper Jaffray & Co., said that developing an internal processing system "adds an interesting opportunity for them, longer-term, to add more value to the ATMs and also adds the potential for them to do … [more] third party processing, which is a much higher return."
Cardtronics also reported progress in its effort to rework the Vcom machines. Its losses from the machines shrank by more than half from the fourth quarter, to $1.3 million, and Mr. Antonini said the loss was smaller than he had expected. (Cardtronics did not offer a year-to-year comparison.)
Part of that narrowing stemmed from Cardtronics' efforts over the past six months to renegotiate some contracts and bring in-house some Vcom functions 7-Eleven had outsourced, he said. "We also made significant progress in terms of relocating Vcom units, to concentrate them in 13 selected major metro areas in the U.S."
Largely as a result of the Vcom purchase, Cardtronics' first-quarter revenue rose 26% from a year earlier, to $120.6 million, and its net loss increased 31%, to $4.6 million.
J. Chris Brewster, its chief financial officer, said the company is planning to bring some U.K. armored car needs in-house, in part to keep its machines from running out of cash.
"We continue to be somewhat negatively impacted by the service issues that have been caused by the merger of two of the U.K. armored car providers" last year, he said.
Cardtronics had expected the situation to improve once the merger was complete, but "these service disruptions actually worsened during the first quarter of 2008, resulting in a considerable increase in the number of machines that were down due to their being out of cash," he said.
To compensate, Cardtronics has been stocking more cash in its machines, increasing vault costs, Mr. Brewster said.
"This problem is one that will get fixed. People do know how to reliably provide armored car service," he said. "We've been planning now for some time to transmit part of our cash management and armored car needs in the U.K. to our own in-house armored car and cash management operation, and I'm pleased to announce that we're pretty close to making that a reality. … It is fortuitous that this project is approaching reality at this time."
Next quarter Cardtronics plans to use its in-house service to stock 300 machines in London. It plans to break from the established practice of refilling machines on a fixed route and schedule; instead it will refill them according to need. Mr. Brewster said this approach would reduce costs.
