Cardtronics Inc. executives during a conference call with analysts Feb. 10 cast their company as a potential beneficiary of financial reform that, as proposed, would require issuers to attach more than one unaffiliated payment network to their debit cards.
Though the Federal Reserve Board will not announce its final rules until April, the Houston-based ATM operator stands to have more options for choosing among payment networks that enable it to receive higher interchange from card issuers and that charge it lower fees, said Steve Rathgaber, Cardtronics chief executive.
“The regulatory drama of the past year in the United States served to create an unusual environment for the payments industry,” Rathgaber said during the call. But “there does not appear to be any regulation of our revenue sources, nor any regulation of our operating procedures. … That’s good for us.”
Additionally, retail banks have hinted at raising fees attached to debit cards as a response to restrictions that would affect debit-interchange revenue for banks with more than $10 billion in assets. Rathgaber said that could drive consumers away from cards and toward using cash more often.
The ATM independent sales organization’s fourth-quarter profits were up 375%, to $8 million from $1.7 million during the same period a year earlier (
ATM operating revenues totaled $132.6 million, up 8.7% from $122 million, while ATM product sales and other revenues totaled $2.2 million, down 21.4% from $2.8 million. Surcharge revenues were up 4.5%, to $65 million from $62.2 million, while interchange revenues totaled $40.9 million, up 4.6% from $39.1 million.
In the U.S., revenues were up 4.2%, to $69.9 million from $67.1 million. United Kingdom revenues totaled $16.6 million, up 14.5% from $14.5 million. Revenues from Mexico were up 15%, to $4.6 million from $4 million.
Cardtronics said recent deals with prepaid providers have also helped its revenue, as did deals to put banks’ brands on its ATMs.
Indeed, Cardtronics said its earnings growth is a sign that it is benefiting from an acquisitive streak that lasted much of the past decade. From 2001 to 2007, the ATM ISO made 15 acquisitions, spending about $500 million, much of which it borrowed.
“That’s a process that really got worked through in 2008 and 2009,” Chris Brewster, Cardtronics’ chief financial officer, said during the call. “It’s really here, in 2010, that you are starting to see the real profitability and the real potential.”
Recently, Cardtronics also reorganized its debt to lower its interest, he said.
Branding opportunities, wherein banks enter into agreements to place their names on Cardtronics’ ATMs, also aided the ISO’s bottom line. Roughly 45% of the company’s machines are available for such deals.
“If you go to a CVS drugstore in New York City, you will see a Sovereign Bank ATM. It has the Sovereign Bank trade name on it. It has their screens. But we own and operate that ATM,” said Brewster. “We have the contract with CVS, and Sovereign Bank has a separate contract with us.”
Cardtronics also has a deal with PNC Financial Services Group Inc. to place PNC’s brand on 135 ATMs in CVS Caremark Corp. stores across Indiana.
Cardtronics also acknowledged some obstacles it faces, such as a regulation in Mexico that allows ATM operators to collect only interchange or surcharge fees. The company recently added about 2,500 ATMs in the country to its Allpoint network.
“They are really scaling back their growth in the meantime,” said Christopher Mammone, an analyst at Deutsche Bank Securities.
At midday Friday, the Cardtronics shares were up 8.9%, to $19.29 from Thursday’s $17.72 closing price.
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