Cardtronics' CEO Hosts the Acquisition of Cardpoint Limited Conference (Transcript)

| About: Cardtronics, Inc. (CATM)

Cardtronics Inc. (NASDAQ:CATM)

Acquisition of Cardpoint Limited Conference Transcript

August 7, 2013 8:30 AM ET


Tom Pierce -Chief Marketing Officer

Steve Rathgaber - Chief Executive Officer

Jonathan Simpson-Dent - Managing Director, European Business

Chris Brewster - Chief Financial Officer


Ramsey El-Assal - Jefferies

Bob Napoli - William Blair

Mike Grondahl - Piper

Richard Cheever - SunTrust


Good day, ladies and gentlemen. And welcome to the Cardtronics Acquisition of Cardpoint Limited Conference Call. At this time, all participants are in a listen-only mode. After our prepared remarks, we'll open up the question-and-answer session, and instructions will follow at that time. (Operator Instructions)

And as a reminder, this call is being recorded. I would now like to turn the conference over to Tom Pierce. Please go ahead.

Tom Pierce

Thanks, Operator. Good afternoon, everyone to those joining the call from Europe and good morning to those joining the call from U.S. Welcome to Cardtronics’ investor call to discuss our acquisition of Cardpoint Limited, which we completed earlier today.

Presenting on the call today we have Steve Rathgaber, our Chief Executive Officer; Jonathan Simpson-Dent, our newly announced Managing Director of our European Business; and Chris Brewster, our Chief Financial Officer. Our prepared remarks are scheduled to run for approximately 25 minutes at which point we’ll open the call up for any questions.

Before we get started, I would like to make the following cautionary statement regarding the forward-looking information. During the course of this call, we will make certain forward-looking statements regarding future events, results or performance.

Any forward-looking statements made on this call are subject to risks and uncertainties, including, but not limited to those outlined in our reports filed with the SEC. Actual events, results or performance may differ materially. Any forward-looking statements are based on current information only and we assume no obligation to update those statements.

In addition, during the course of this call, we'll reference certain non-GAAP financial performance measures. Our opinion regarding the usefulness of such measures together with a reconciliation of such measures is included in the investor presentation that we posted to our website earlier this morning.

This presentation will complement the prepared remarks on today’s call. We encourage those listening by a phone to also access the presentation which can be viewed or downloaded by going to and clicking on the link to the Investor Relations page.

I'd now like to turn the call over to Steve Rathgaber, our CEO.

Steve Rathgaber

Thank you, Tom. Welcome everyone. And we are coming to you this morning from a sunny London here. Today, I’m delighted to announce an acquisition that will expand Cardtronics International ATM footprint.

We have completed the acquisition of Cardpoint Limited, a leading European ATM operator. This deal grows our business by almost 8,000 ATMs. Cardtronics now provide consumers convenient access to cash at more than 80,000 cash machines in five countries and on two continents.

As slide three details we have acquired 7,100 ATMs in the U.K. operating under the Cashzone brand, more than doubling our presence in that market. Additionally, and in some respect, more importantly, the acquisition brings us into a new European market, Germany. With this transaction, we acquire over 800 ATMs that operate under the Cardpoint brand in Germany. The deal cost is a 100 million pounds or roughly a US$153 million. Chris will provide additional transaction details later on the call.

Slide four highlights the strategic rationale for the transaction. Growth, scale and geographic expansion sums it up and it sets up the next stage of our corporate evolution, where we have historically operated in the U.K. as Bank Machine, we are using this event to do some corporate identity housekeeping and will now operate in these markets as Cardtronics Europe.

Our obvious goal with the new corporate identity is to leverage the European state of 12,000 ATMs and the expertise of the global Cardtronics organization for future growth. The Cardtronics name is respected in many markets beyond the ones we presently operate in and we want to leverage that name.

At the present time, the three consumer facing brands will continue to operate in their respective markets. We will need a period of time, to determine the optimal consumer brand strategy.

This is the right time and the right asset for Cardtronics next growth spurt via acquisition. One week ago on the earnings call, I shared our success in delivering on our long-term investments in the U.K.

Our vertically integrated U.K. model is now contributing its share of earnings and is on a positive trajectory for future earnings delivery. We have proven the Cardtronics model in the U.K. and are now ready for next steps. We like both the U.K. and German markets. They are active cash utilization environments and will detail a little more on that shortly.

There are obvious scale benefits we realize by leveraging our proven operational infrastructure across a broader ATM portfolio. The killer combination for Cardtronics is our continuing ability to grow the topline both organically and through acquisition, while at the same time, harvesting scale synergies from our continued growth. This transaction tees up the next round of growth and freshens our inventory for margin improving synergy extraction.

As we previously mentioned, we have been looking for the right opportunity to enter the German market and we cannot think of a better way than to acquire the leading independent deployer in that country.

Now having said that, Cardpoint is the leading independent in Germany, it is important to note that independence are a very small piece of the ATM market in Germany, especially compared to the U.K. And in the U.K. independence are small share of the market compared to the U.S. We believe that defines the growth opportunity.

And sometimes when putting companies together one plus one really does equal a little bit more than two. We believe that these companies complement one another and blend very well.

The resulting entity is stronger not only because it is bigger and more profitable. It is stronger because it is more confident. Each organization brought their state’s strength to this transaction. Our new managing director will detail some of these for you in a moment.

Slide five provides some context for these markets. Both the U.K. and Germany are clearly established ATM markets. The U.K. has a 1,000 ATMs per million people and Germany has 758 ATMs per million. But those are still well below the 1,500 ATMs per million people in the mature U.S. market leaving room for both machine growth and transaction growth.

In Germany, annual ATM withdrawals per adult match those in the U.S. market at approximately 30 withdrawals per year. But the U.K. market has more active ATM users ATM users with adults conducting nearly 60 withdrawals per year on average.

And consumers in both countries like to pay with cash. Almost 55% of consumer payments are made with cash in the U.K. and nearly 80% of all payments in Germany are cash based. That compares for the U.S. market where about 30% of payments are made with cash. So you can see the opportunity.

In summary, our market share in both countries is modest to small, banks control the vast majority of the ATMs in both countries and we see that as a growth opportunity.

As we discuss these markets, Cardtronics looks for two key attributes in the local market revenue model, stability and for lack of a better term, multiplicity of sources.

Slide six gives a look at the revenue models. We do not want to rely on only one revenue source. The revenue models in these markets are not quiet as diverse as in the U.S. work for us.

In the U.K., we earn either interchange or surcharge revenue based on the type of ATM we deploy. Free-to-use ATM are interchange driven and the aptly named Pay-to-use ATMs yield surcharge revenues for withdrawals and interchange the balance increase.

As a point of reference, about a third of the ATMs in the U.K. are of the pay-to-user ID. Both pay-to-use and free-to-use ATMs can support currency conversion fees and we are always accounting for new revenues sources, including the advertising model associated with our recent i-design acquisition.

The good news about U.K. interchange is that it is fairly stable. It is set by the link network and is based on a surveyed course model conducted annually by an independent accounting firm. In the case of currency conversion transactions, Cardtronics sets the competitive price point and the consumer elects to pay.

In the German market there is no interchange in the majority of local transactions, so our revenues will be earned through the surcharges on withdrawal transactions at a price point we control for our fleet.

There is also a growing opportunity for currency conversion transactions in strong tourist locations. And of course, we expect to derive revenues from whatever other valuable service we can create over time.

One of the truly fortuitous outcomes of the transaction involves assembling a collection of talented managers. I’m pleased to announce some of the key management team members who will be joining the Cardtronics family to lead the new Cardtronics European organization. They are listed on slide seven.

Jonathan Simpson-Dent who I believe is our first Cambridge alum has been leading the combined Cashzone Cardpoint organization since early 2012. He will lead Cardtronics Europe and our excellent team as managing director.

Jonathan is a seasoned leader and a fairly unique combination of entrepreneurship and corporate management skills. He has extensive experience in both private equity and public company business models. Before expending his recent years in several private equity back benchers he served as CFO for PepsiCo Europe and before that as a senior engagement manger with McKinsey.

I believe his background to be the perfect combination of focus on value creation for shareholders from his PE days, focused on financial performance and tight controls from his CFO days and I suspect he can even give himself some free consulting advice from his experience at McKinsey.

Jeremy Craft who brings over 25 years of financial management experience, joined the team as Finance Director for Cardtronics Europe. And Andreas Raabe who has spent 20 years of experience in the ATM and payments industry will continue in his role as Managing Director of the Cardpoint operation in Germany.

We are fortunate to have this team to lead the Cardtronics Europe growth story and it is no exaggeration to say that we are truly looking forward to working with this team of professionals.

And now I would like to turn it over to our new managing director for Cardtronics Europe, Jonathan Simpson-Dent. Jonathan?

Jonathan Simpson-Dent

Thank you, Steve. I’m delighted to be joining the Cardtronics team with your international expertise and really very impressive track record in the ATM industry. So, moving on to slide eight, Steve mentioned that the key rationale for this transaction is to bring together two very complementary organizations.

From a portfolio perspective, we are combining the many treatise fleet of Bank Machine with the primarily pay-to-use ATM offering from Cashzone in the U.K. and Cardpoint in Germany, giving us a broad reach right across the consumer cash access market.

On the organizational side, we are brining together the established service delivery expertise of Bank Machine with the proven outbound sales and marketing platform of Cashzone, which is being rapidly growing as U.K. fleet.

I firmly believe the Bank Machine’s integrated operation which includes the new wave of installation in Green Team cash-in-transit groups is second to none in the U.K. market and I look forward to building on this strength to support and grow our combined customer base going forward.

On slide nine, we have a great portfolio of recognized customers and consumer brands to provide convenient cash access to U.K. consumers. Both Bank Machine and Cashzone have longstanding customer relationship with industry leaders. We are well-represented on the U.K. motorway networks and petrol forecourts, in convenience and grocery retailers and in the food and leisure sectors.

In addition, we already share relationships with a umber of key customers including BP, Murco, McDonalds and convenient store operator McColl's. It is a strong combination of some of the highest profile U.K. consumer brands now featuring ATMs managed by our joint team and a strong base on which to building a future.

I’m truly excited by the opportunities to lead this new organization and to build on the progress that both businesses are made independently of each other. I have no doubt that we will be better still as one business and look forward to the new Cardtronics Europe being a significant contributor to the overall Cardtronics business.

And now I’ll turn over to Chris Brewster who will give you some more insight into the transaction is itself.

Chris Brewster

Thank you, Jonathan. And moving to slide 10, you can see illustrated there some operating statistics for the components of the new Cardtronics Europe. The basic themes of this slide that come out of the numbers are balanced between the free-to-use and pay-to-use ATM businesses, scale, diversification of revenue sources and just pure substance, the size that it takes to fund, innovation and the fund growth.

Speaking to those, speaking to balance, Cashzone has a proven sales engine in the U.K., pay-to-use space and Bank Machine has the infrastructure to support high volume free-to-use ATMs. This combination helps Cardtronics Europe to have a strong balance position with about 4,600 free-to-use ATMs and about 6,800 pay-to-use ATMs in the U.K. market.

Speaking to scale, Cashzone by itself is a pretty significant enterprise with trailing 12 months revenues of about $105 million and adjusted EBITDA of approximately $26 million. Its EBITDA margins are similar to Cardtronics historical EBITDA margins. So you won’t see dilution there and you should see some improvement overtime as synergies are realized.

The combined enterprise, Cardtronics Europe has trailing 12 months revenues of about $230 million and adjusted EBITDA of $47.5 million. That speaks the scale and that speaks to the ability to fund innovation and the ability to afford a first-rate management team to drive growth.

Speaking to diversity of revenue and profit sources, you can see that Cardtronics Europe is now providing about 25% of consolidated Cardtronics revenue and about 21% of consolidated adjusted EBITDA, and that effectively reduces the revenue concentration we have with some of our large U.S. merchants.

Now moving on to slide 11, and the details of the transaction itself, as Steve said, we paid 100 million pounds for the enterprise equivalent to about US$153 million all consideration was paid at closing. This price represents about six times multiple of trailing 12-month adjusted EBITDA.

We also in the transaction inheritance some significant tax assets in the form of net operating loss carryforwards and capital allowances, and we estimate that the net present value of this is about 11 million pounds when adjusting for this benefit the purchase price is roughly 5.3 times trailing 12-month EBITDA.

To provide the funding to close the transaction the company expanded bank credit facility, which was at $250 million sizes, we expanded that to $375 million, post closing we have about $270 million drawn on the bank credit line and that leaves us about $100 million in unused liquidity to help fund future growth.

The leverage ratio for Cardtronics now expressed as the ratio of net debt to trailing 12-month pro forma adjusted EBITDA is now write at 2 to 1 leaving us with substantial financial flexibility, with the solid free cash flows that we expect from the acquired business and added to that of our existing operations, absent any further acquisitions we -- acquisitions we expect this ratio to be back well under 2 within the next six to 12 months.

Now turning to slide 12 in the deck, we provided some updated guidance for 2013 and some very preliminary guidance for 2014 and as background to these figures, I’d like to elaborate for a moment on three issues.

First, these guidance figures assume that we replace to the bank debt that we took on to close the Cashzone acquisition with permanent long-term financing in the form of high yield debt at current market rates. We anticipate making a firm decision on choice of long-term financing method within the next few months.

Second, we do expect to realize some material synergies from this acquisition both in terms of revenues and costs. However, they provide the precise timing of realization of synergies is harder to predict here than from many of the transactions we’ve done in the past. Most of our prior deals involve observing relatively small acquisitions into our large U.S. platform and synergy timing in that setting is fairly predictable.

In this case, however, we are truly merging two like-sized enterprises. We want to keep the best from both. We believe that we have solid estimate on the synergy dollars we can realize but the precise timing of that realization is little harder to call.

This initial guidance effectively assumes that we realize little or no synergies from the Cashzone acquisition in the remaining four months of 2013 that we are able to realize about half of the long-term expected synergy run rate in 2014 with four synergies expect to be realize out in 2015. As we complete our immigration planning we will provide more insight into that on future calls.

So to be specific about guidance, the updated guidance for 2013 includes revenues of $860 million to $875 million, adjusted EBITDA of $214 million to $219 million and adjusted earnings per share of $83 to $89, that’s up about nickel from prior guidance for 2013.

Our initial preliminary guidance for 2014 includes revenues of $980 million to $1 billion, adjusted EBITDA of $240 million to $250 million and adjusted net income per share in the range of $2.15 to $2.25.

The third thing that is reflected in the 2014 number is not directly related to the Cashzone acquisition and this is the fact that we have over $200 million more in notional principle amount of interest rate swaps coming into being on January 1, 2014 to lock in our cost on more vault cash for a longer term. This were actually arrange some time ago as a matter of financial conservatism and to further support the company’s growth as described in our public filings over the last two years.

And good news is that this increases the proportion of our U.S. vault cash that we have hedged that as we have fixed the rate the interest cost on increases that percentage from 60% hedge to 75% hedge, consequentially, taking potential volatility out of our P&L.

However, it adds cost as effectively we’re taking part of our vault cash, which is historically been priced off of LIBOR floating which is only about quarter 1% today and prices it at a fixed rate of all the fleet of about 3%.

The bottom line is that that result in about $9.5 million pre-tax costs increase in 2014, worth about $0.14 a share, that increased cost has been taken into consideration in our 2014 preliminary guidance that we put in front of you today.

Last thing I’ll mention briefly on guidance is that in the investor deck, you may notice in the non-GAAP reconciliation that our non-GAAP tax rate for 2013 has been lowered slightly and we’re currently expect that rate for 2014 to be more like 31% to 32% versus the rate of 35% that we have historically used, and that’s because a larger portion of our profits were expected to come from the U.K. which will have 21% corporate tax rate next year. The effective corporate tax rate in Germany is also somewhat lower than our U.S. tax rate of 35%.

So, just to recap of 2014, we've not completed our annual bottom of detail budgeting process of this point. So the projections here certainly somewhat preliminary but we want to at least provide some insight into the general direction, we anticipate per revenues in earnings as a result of the event discussed on this call.

We’re expecting another solid revenue and adjusted earnings growth year that would expect to see driven both by very solid based business by organic growth from that business, by growth from the acquisition, we now announced today and by organic growth within that acquisition.

So, with that I’ll turn the call back over to Steve Rathgaber for few final comments.

Steve Rathgaber

Thank you, Chris. We are building a stronger more diversified and more valuable Cardtronics. And for the record, the old Cardtronics wasn't doing to badly as evidenced by the recent quarter results.

I believe the numbers tell part of the story but there is much more going on here. Shareholder should derive more value from Cardtronics, able to execute our model and perform in multiple markets.

Revenue and earnings diversification is a good thing. International retails have partnering Cardtronic’s with the ability to serve their needs in multiple markets. Local retailers enjoy the benefits of a best-of-breed provider with unmatched scale economics.

Consumers get convenient reliable transactions which for the vast majority of consumers is provided free at Cardtronics ATM. And we sit poised in multiple markets to help financial institutions avoid costly ATM placements and stand ready to help in deliver the ultimate distribution convenience and increasingly large global network of ATMs operating in the most convenient location, where there customers go very day to transact the life necessities. And we know those necessities include retrieving cash.

Thank you for your attention and now operator would be happy to open it up for any questions.

Question and Answer Session


(Operator Instructions) and our first question in queue is from Ramsey El-Assal of Jefferies. Your line is open.

Ramsey El-Assal - Jefferies

Congratulations on the deal. I was wondering can you walk us through your thinking around whether to place a free-to-use versus a pay-to-use ATM at a particular U.K. location. What determines what type of machine you place and do you have any plans to kind of alter your mix with the combined entity going forward?

Steve Rathgaber

Well. I’ll take sort at that Jonathan, feel free to add anything you want to on this well. But it depends on what else obviously is around you. So I know what we will do, we will place a pay-to-use machine right in the smack of bunch of free-to-use machines because that isn't going to generate a lot of opportunity

But we find that within the bunch of the city of free-to-use is often the appropriate model. And as you get out into the perimeter areas or into some venues that have on and off sort of timing like sports stadiums and those sorts of things, there's an opportunity for pay-to-use placement.

So, I believe there is an opportunity for us to get smarter about how we manager are pay-to-use inventory. We think that's something that Cashzone has worked hard on perfecting the art of and we want to incorporate those skills into our owned fleet of pay-to-use machines.

And we think across both fleet free-to-use and pay-to-use, there is an opportunity to add other revenue generating services, like currency conversion as we begun doing on the a fleet that is historically Bank Machine fleet. Jonathan, anything you want adds on that.

Jonathan Simpson-Dent

Thanks. We get just a couple of comments. Firstly in the acquired business, the Cashzone business here in U.K. we consider ourselves proposition agnostic. And what we really mean by that is we looking each particular location on find the right solution. And that’s the combination to the right solution for the consumer and right solution for the customer.

So placing in ATM is all about microeconomics -- what is in the immediate vicinity, as Steve has just mentioned. We will work with the customer to identify the right proposition for that particular location, which will be driven by footfall, and the immediacy see of other available cash etcetera.

And we will absolutely flex our commercial arrangements to make sure that whatever proposition we put in the ground generate our required pay back on the capital that we then deploy into that location. It's pretty proven model and it’s been working very well for so every recent years.

Steve Rathgaber

Ramsey, that will add that one of the things that is typically true about pay-to-use environment, is a tend to going the smaller retail locations. And one of the assets we acquired with Cashzone is a multilingual call center that sells to these ethnic areas within the country that provide an opportunity for ATM placement of which our market that might have not been reach before, so it’s very exciting assets as that assemble and a brand-new one our to bring bearer on the Cardtronics umbrella.

Ramsey El-Assal - Jefferies

Great. Great. Relative to your own preacquisition organic growth profile say in the U.K., how does the Cardpoint, Cashzone business compare? Has it been growing with those same growth rates, growing faster, growing slower? How should we think about kind of the growth rate of the combined entity?

Steve Rathgaber

So, I’ll put it this way of historically Cardtronics some was public company and pretty the excess to capital of we grew our footprint in the U.K. from about 1,000 units of back when we acquired bank machine in 2005 to about 4,300 units today. So fairly robust organic unit growth but not with that capital cost, the Cashzone organization for the last few years has been private equity owned.

I think there’s been considerably more capital constrained and it's organic growth has not been as robust but it’s has been positive, where as the Cardtronics historical operation in the U.K. bank machine as shown organic growth rates in double-digit cashzone has been more like single digit.

Ramsey El-Assal - Jefferies

Okay, great. That's all for me. Thanks, guys.

Steve Rathgaber

Thank you.


Thank you. Our next question in queue is from Bob Napoli from William Blair.

Bob Napoli - William Blair

And also nice to see the acquisition, low leverage is for sissies, I guess.

Steve Rathgaber


Bob Napoli - William Blair

But just on the synergies and the timing of the synergies and as you made acquisitions and, Chris, I understand you said less clarity than when you do one in the U.S. But I was wondering where the big synergies are coming from? Is it on the processing side? Is that -- what does Cashzone do today on the processing side. And then I guess you’ve internalized the lot of like the -- there is a lot -- lot of services in U.K. Is there additional benefits from that, so maybe a little more on the cost synergies.

Steve Rathgaber

Frankly, I’d say in terms of the source of synergies, they would be no different than what we’ve typically experienced on the cost side. They would be no different than what we’ve experienced in our U.S. acquisitions and the root of a lot of them is simply the fact that ATMs have to be visited quite frequently. They have to be visited to load cash or they have to be visited for a hardware or software maintenance service call or perhaps for some other reasons but visited frequently that takes people in trucks and whenever you have people in trucks, you have density issues and the more units we have within a given piece of geography generally the better the unit economics are.

So that’s certainly a driver of a significant part of the cost synergies. Cashzone currently is using a third-party processor. Cardtronics currently processes the Bank Machine transaction flow in-house and there is opportunity potentially for migration there.

On the revenue side, we’re -- I mean, typically you would hear us talking about revenue side synergies in our U.S. acquisitions but we do see some opportunity for that here. I mean for example, Cashzone is not particularly active in terms of providing dynamic currency conversion as a consumer service at the ATM.

In other words, letting the consumer decide whether if you have, say, a visitor from France and the U.K. whether that transaction gets routed back to France, denominated in pounds such that his bank does the conversion or whether we effectively do the conversion for him at the ATM and route it back to his bank in Euros.

That’s a service that we provide on the Bank Machine fleet and I believe that over time we’ll be able to provide on the Cashzone fleet in the U.K. They already provide it on their fleet in Germany. So that’s an example of revenue side synergies that you would normally hear us speak about in the States but we see the potential for here.

Chris Brewster

Yeah, Bob. I would characterize it as there is seven to 10 line items that have materiality, both on the revenue and expense side that we have to assemble teams around and go after. And quite frankly, it’s not particularly about people synergies. That’s not anywhere near the more significant piece.

But the operating ecosystem of what we do is out there to be tuned. And every time we add volume of this type, there is a wonderful tuning opportunity across multiple line items. And that’s what we think we’ve done well in the past and what we’re going to continue to do in the future.

Bob Napoli - William Blair & Company

And then just maybe a question for Jonathan on his thoughts on the growth opportunities in Europe for Cardtronics Europe and Germany, the German market I mean you’re very small relative to the size -- potential size of that market. Is there more growth in U.K., Germany or are there other markets that you think Cardtronics should be in?

Jonathan Simpson-Dent

A combination of all the above but with appropriate timeframe around it I’d say. So let’s start off in the U.K. The U.K. overall ATM fleet is growing and I’d envisage it continuing to grow over the coming years. There is also quite a marked shift in the U.K. for some of the large clearing banks over here who are looking to offload non-branches that they built up over the last 10, 20 years, which is opening up quite an exciting chunk of the market.

And at Cashzone we’ve successfully converted round about 400 ATMs just in the last four or five months which has been really positive out of banks. So I do see a decent organic opportunity in the U.K. Ditto in Germany, the German market is very different from the U.K. The independents are very small as Steve mentioned in his talk earlier. And the independents are naturally growing over time and filling in quite a lot of wide space over there.

And secondly, the banking market is incredibly fragmented in Germany with a number of very small regional banks as well. So it is a market that is well poised for development and in my view will look very different in five years time and we’re well positioned to take advantage of that. And then yeah, you’re correct as we look at the rest of Europe we covered two markets here in Europe and there will be other exciting markets.

And I just send a note of caution to you folks each market does have a different regulatory environment. And I think as we think about the whole European opportunity, we think about it carefully and communicate our thinking at appropriate point in time.

Bob Napoli - William Blair & Company

Thank you very much.


Thank you. Our next question in queue is from Mike Grondahl of Piper. Your line is open.

Mike Grondahl - Piper

Thanks for taking my questions and congratulations on the acquisition. It looks very attractive. Could you give us a sense of the total dollars of cost synergies or maybe just a range on the low and the high end kind of what you’re looking for hoping for?

Steve Rathgaber

I’d rather not do that at this point Mike. We’ve obviously got numbers incorporated in the preliminary 2014 guidance that we’ve put out to you and would rather leave it there for the time being.

Mike Grondahl - Piper

Okay. And then is the timing of the synergies or maybe when will Cardtronics Europe be in a position to maybe tack on further growth via acquisition. Does this kind of hold you guys up for three to six or nine months or when do you potentially back in the market to find even more scale?

Steve Rathgaber

Yeah. I would jump in there and say that focus is relevant certainly and you don’t want to spread yourself too thin. But as Chris outlined in the leverage and certainly as Bob Napoli outlined about the depth of our leverage, we certainly have a bandwidth financially for more acquisition opportunity.

But these things tend to come at their own pace. And we’d like to be ready to receive them which is why we’re always going to hurry to extract the synergies that are available to us. So we can be ready for the next opportunity that comes along. So I wouldn’t say we’re precluded but know what I say that we’re in a hurry to do something else Tuesday, if that’s fair.

Mike Grondahl - Piper

Sure. And then can you maybe just help us understand some of the larger items on the revenue synergy side?

Steve Rathgaber

DCC is certainly one and that’s not -- in a sense is not an enormous revenue item but it is very, very high margin revenue such that it is noticeable -- it’s been noticeable. It’s part of -- frankly part of why we’ve been able to approve -- improve the legacy of Cardtronics results in the U.K. here recently that’s one.

Chris Brewster

And there are others that are out there that we’ve talked historically about Bank Machine having higher availability and uptime as an entity in the U.K. than anybody else because we do everything ourselves, one of the reasons we do everything ourselves. And with all due respect to the folks at Cashzone, they’ve had to really on a vendor community that hasn’t always been fully up for the task is maybe a way to characterize it.

So we see the opportunity to add several single digits of percentage points uptime which automatically translates to more revenue just from being there and operating so that’s an example of the second and there are others but I would leave it with those two as good examples.

Mike Grondahl - Piper

Okay. Thank you.


(Operator Instructions) Our next question in queue is from Richard Cheever of SunTrust. Your line is open.

Richard Cheever - SunTrust

Thank you guys and congratulations on the deal. I was hoping you could talk a little bit about maybe of the footprints of machines in the U.K., how much overall or if you have duplicate machines in existing locations. How you might handle that as you start to brand put the Cardtronics brand on the machines.

Steve Rathgaber

Well, the first thing I would say is it’s not the intent to change the consumer facing brands anytime soon. The legacy Cardtronics operation in the U.K. operate as Bank Machine. Cashzone has a Cardpoint brand and a Cashzone brand active in the market.

We’ve already done some consumer research and have not seen in that any great preference on the part of the marketplace for one brand over another so we’re not driven to do anything in a big hurry. We may well --- not every user of Cardtronics as a consumer brand. So that’s some canvas that we’ve got the opportunity to paying on I think over an extended period of time.

Chris Brewster

And as it relates to side overlap and that sort of thing, that really isn’t the nature of the business. It’s not like bank branches where one bank buys another and they want to take out 10% of the branches. If we’ve got a ATM placement that’s profitable and there is one down the street that we now own both of and is profitable, that’s two profitable machines and the next best thing would be dream how long that same street.

So we see the opportunity with density to improve our scale economics which makes us able to create more profitable machines in the same area just because we can do it more cost effectively. So it’s very much a different model than your classic by two of a kind and take out some of the overlaps it’s quite the opposite. We get stronger from the overlap if they were both profitable to begin with and quite frankly even if one or two of them are marginally profitable they’ll probably become profitable fully with our scale economic delivery.

Jonathan Simpson-Dent

Yeah, there may be a handful of sites where we can retain pretty well all the custom just from one ATM but it’s going to be a handful of sites. So I don’t think this is about a large scale rationalization of the most of the fleet in the U.K.

Richard Cheever - SunTrust

And the 800 units in Germany, are those free-to-use or pay-to-use machines and how does the or is there a mix like there is in UK?

Jonathan Simpson-Dent

They’re pay-to-use machines and in terms of German market it’s slightly different to the UK so for any not on us transaction in general in Germany would be a pay-to-use transaction so that is the market norm in Germany if you were to go to any of the non-branch independent ATMs they’d all be on a pay-to-use basis.

Richard Cheever - SunTrust

Thank you.

Steve Rathgaber

So I think a subset of transactions from MasterCard and Visa that can be interchanged based. So it’s a mix but it’s predominantly like 90 plus percent surcharge based.

Jonathan Simpson-Dent


Richard Cheever - SunTrust

And Jonathan you hinted at the regulatory environment, can you talk about any sort of regulatory fortune I guess that would hinder your ability to expand that that base machines in the German market?

Jonathan Simpson-Dent

Germany went through a significant regulatory change early 2011. And prior to 2011, the consumer have been paying twice effectively for a withdrawal one of the point of withdrawal and also then secondly direct from his bank which would only become visible to the consumer as a minority to bank statement.

And the German state is very admin that it wanted to make the cost of a transaction directly visible to the consumer and they would only see that and they would only get charged once for the transaction at the point of sale that was the significant shift in the regulatory environment in Germany. Our business has responded to that the market responded to that and at this stage the market is stable so we’re not envisioning any of significant regulatory change in the near term in Germany.

Richard Cheever - SunTrust

Okay. Great. Thank you.


Thank you. And with that, I’m showing no further question in queue, I’d like to turn it back to Steve Rathgaber for further comments.

Steve Rathgaber

I’d just like to say thank you to everyone for your interest in Cardtronics. We’re obviously very excited about this acquisition and believe it has great potential and look forward to keeping you all informed as earnings calls roll out in the future. That’s it. Thank you.


Thank you. And again thank you, ladies and gentlemen for joining today’s conference. You may now disconnect. Have a great day.

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