Strong transaction volume and a growing presence abroad contributed to surging second-quarter profits at Cardtronics Inc.
The Houston ATM network operator on Wednesday reported net income of $8.2 million, up 228% from the year earlier. Revenue was up 6.6%, to $132.9 million.
The company's ability to set its own network fees helped "diminish the impact any third party can have on our revenues via interchange fee moves," Chief executive Steve Rathgaber told analysts during a conference call.
In April MasterCard Inc. announced tiered-interchange rates that Cardtronics said would cut its gross profit by $1.5 million during the remainder of the year for transactions routed over MasterCard's Cirrus network.
The new tiered system reduced the gross interchange MasterCard's largest issuers pay ATM independent sales organizations, to 35 cents, from 50 cents per domestic cash withdrawal routed over Cirrus.
Smaller card issuers pay 45 cents for each domestic cash withdrawal, down from 50 cents.
However, Cardtronics said that much of its transaction revenue is based on fixed contractual rates so that the company may not be significantly affected by rate changes by MasterCard or other networks.
About 39% of its domestic interchange revenue is set at a fixed price, up from 23% two years ago, the company said, and it wants to exceed 50% by the end of 2011.
"The more we succeed at this objective, the more stable and certain this component is to the revenue base," Rathgaber said.
Christopher Shutler, an analyst at William Blair & Co., wrote in a research note that Cardtronics' admission of a "strong sales pipeline," combined with ATM-branding deals in the works, will help the company maintain its current path.
"Momentum there is very strong," Shutler said in an interview. He rates the company's stock as a "buy."
At June 30, Cardtronics operated 33,877 machines in the United States, Mexico and the United Kingdom, up 2.7% from the year before.
Its ATMs handled a record 105.4 million transactions during the quarter, up 9.2%. Total cash withdrawal transactions were 65.5 million, up 5.6%.
Rathgaber said Cardtronics could benefit from the regulatory reform law, especially the plans to overhaul debit interchange rates.
The Dodd-Frank Act gave merchants the ability to offer cash discounts and to refuse debit cards for small purchases.
"I believe that these outcomes would be good for cash, and cash is good for Cardtronics," Rathgaber said.
Cardtronics expects several new deals will help the company sustain growth in the second half of the year.
On Monday, the company announced a deal to provide ATM-management services in approximately 800 stores operated by the grocery and convenience store chain Kroger Inc.