Cardtronics Inc. is crediting record transaction volumes and a growing global presence to its significant rise in second-quarter net income, which rose 228% to $8.2 million from $2.5 million during the same period last year.
Revenues for the quarter ended June 30 totaled $132.9 million, up 6.6% from $124.7 million, according to the ATM independent sales organization.
As the owners and operator of the Allpoint surcharge-fee ATM network, Cardtronics’ ability to negotiate interchange rates with card issuers helped “diminish the impact any third party can have on our revenues via interchange-fee moves,” company CEO Steve Rathgaber told analysts Aug. 4 during a conference call to discuss earnings.
MasterCard Worldwide on April 1 set new tiered-interchange rates that Cardtronics stated in a Securities and Exchange Commission filing would cut its gross profit by $1.5 million during the remainder of the year for transactions routed over MasterCard’s Cirrus network.
Card issuers pay ATM acquirers interchange.
MasterCard’s new tiered system reduces the gross interchange MasterCard’s Tier 1 card issuers pay ATM ISOs and bank-owned ATM operators to 35 cents from 50 cents per domestic cash withdrawal routed over Cirrus. Tier 2 card issuers pay a gross interchange rate of 45 cents per h domestic cash withdrawal, down from 50 cents (
Cardtronics will continue to work on contracts with debit card issuers that lock in interchange rates for the company, Rathgaber said.
About 39% of Cardtronics’ domestic interchange revenue is set at a fixed price, up from 23% two years ago, Rathgaber says. The company wants the fixed ratio 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 for 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 tells PaymentsSource. He rated the stock as a “buy.”
As of June 30, the number of Cardtronics transacting ATMs increased 2.7%, to 33,877 machines worldwide from 33,002 a year earlier. Cardtronics operates ATMs in the United States, United Kingdom and Mexico.
Cardtronics’ ATMs handled 105.4 million transactions during the quarter, up 9.2% from 96.5 million during the same period in 2009. Total cash withdrawal transactions were up 5.6%, to 65.5 million from 62 million.
Cardtronics is still evaluating recent regulatory changes in Mexico that affect future revenues from the region. The new law requires banks and ATM operators to either charge a convenience fee for cash withdrawals or an interchange fee to customers and financial institutions, according to Mike Clinard, Cardtronics president of global services.
Banks and ATM operators could charge both in the past. Cardtronics chose to charge a convenience fee and raised fees accordingly to offset lost interchange revenue, Clinard said.
The regulation has caused confusion among consumers, “resulting in what we expect to be a temporary slowdown in volume, including [at ATMs] located at financial institutions,” Clinard said.
In response, Cardtronics will slow ATM installments for the remainder of the year.
Shutler believes the new regulation in Mexico will have little impact because the market represents just 6% over Cardtronics’ revenue. Overall revenue in Mexico was up 60.5%, to $6.9 million from $4.3 million during the same period last year.
In the UK, overall revenue was up 12.8%, to $20.3 million from $18 million.
Cardtronics expects several new deals to help the company sustain growth in the second half of 2010.
Last week, the Houston-based company announced it would provide ATM-management services in approximately 800 stores operated by grocery and convenience store chain Kroger Inc. (see story). http://www.paymentssource.com/news/cardtronics-manage-atms-kroger-stores-3002802-1.html
Cardtronics believes it also could benefit from the financial reform bill recently signed into law, specifically with the Durbin amendment it contains that will affect debit card interchange revenue for banks.
Merchants may offer cash discounts for certain transactions, and some might not accept debit cards for smaller-ticket purchases, Rathgaber notes. “I believe that these outcomes would be good for cash, and cash is good for Cardtronics,” Rathgaber said.
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