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Cardtronics Inc. last Thursday post-ed a smaller third-quarter net loss compared with the same three-month period last year, but one of the ATM independent sales organization's top executives and an analyst agree the results were disappointing.
"We weren't particularly happy with our third-quarter numbers," J. Christopher Brewster, Cardtronics chief financial officer, told analysts during a conference call.
Cardtronics reported a third-quarter net loss of $4.2 million. That compares with a net loss of $10.7 million during the same period a year ago. The company generated third-quarter revenue of $127 million, up 15% from $110.6 million but below analysts' expectations.
"It was below our estimate of $130.2 million and the consensus estimate of $130 million," Franco Turrinelli, an analyst with Chicago-based William Blair & Co., wrote in an analyst report.
As a result, in late October the Houston-based company cut its workforce by 8% in the United States and the United Kingdom. The move will save Cardtronics $4.5 million to $5 million annually, Brewster says.Cardtronics will charge its fourth-quarter earnings to pay employee severance.
Cardtronics also made unspecified reductions in nonpayroll expenses, Brewster says. It also cut its 2008 full-year revenue guidance to $490 million to $495 million from $490 million to $505 million, Turrinelli said in his report.
The ATM ISO faces a variety of issues in the United Kingdom that are affecting the performance of Bank Machine Ltd., Cardtronics' ATM ISO based in Hatfield Hertfordshire, England.
Unreliable armored-car delivery service, increased competition from surcharge-free ATMs and a stronger U.S. dollar all have worked against Cardtronics' UK operations.
Cardtronics hired an armored-car company to service Bank Machine's ATMs, but the company's service is erratic.
"We continue to encounter issues with our largest third-party [armored-car] provider, which has resulted in a high number of cash-outs, thus resulting in loss of transactions," Michael Clinard, Cardtronics president of global services, told analysts. "As a result, we have been forced to maintain higher cash balances in those ATMs in an effort to avoid running out of cash, which further increases our operating costs and places downward pressure on our margins."
Cardtronics plans to replace the armored-car service with its own in the next three quarters, Clinard says.
The ISO also has been challenged by events in the U.S.
Bank consolidations caused by the economic downturn have affected Cardtronics' bank-branding business, and Hurricane Ike, which produced flooding in parts of Texas and throughout the Midwest in September, reduced ATM transactions for a couple of weeks (ADN, 9/18).
"One area where the economic crisis has had some impact on us is in our booking of new bank-branding business," Brewster says. "We are not signing new business at the rate that we had anticipated."
Cardtronics' inability to sign new bank-branding agreements will lead to fewer U.S. ATM deployments in the future, Turrinelli says.
Cardtronics is the world's largest ATM ISO based on 2007 shipments.
At the end of September, the ISO operated or managed 33,106 ATMs in the United States, the UK and Mexico. Last year, the company either owned or managed 29,880 ATMs in the three countries.
Besides Bank Machine, Cardtronics owns Cardtronics Mexico in Mexico and Allpoint, the largest U.S. surcharge-free ATM network with more than 35,000 ATMs.
Cardholders made 59.1 million in cash withdrawals from Cardtronics' ATMs during the third quarter, up 19% from 49.7 million during the same period last year.
The ATMs dispensed an average of 595 cash withdrawals per month during the quarter, up 7% from 555 a year ago, the company says.
Turrinelli was not optimistic about the expectations for the ATM ISO for next year.
"Cardtronics' results fell (modestly) short of our expectations, a surprise given good progress of the business during the quarter," Turrinelli wrote in his report.
"The cumulative impact of the performance in the quarter, expectations of continued weakness in the U.K., foreign currency-exchange impacts and reduced growth from branding opportunities and associated ATM deployments in the United States have resulted in the company deciding to lower its guidance for the remainder of 2008. We believe growth in 2009 will continue to be challenged by these factors."
