Cardtronics (CATM) CEO Steven Rathgaber on Q1 2016 Results - Earnings Call Transcript

| About: Cardtronics, Inc. (CATM)

Cardtronics, Inc. (NASDAQ:CATM)

Q1 2016 Earnings Conference Call

April 28, 2016 5:00 PM ET

Executives

Phillip Chin – Executive Vice President of Corporate Development

Steven Rathgaber – Chief Executive Officer

Edward West – Chief Financial Officer

Analysts

Andrew Jeffrey – SunTrust

Robert Napoli – William Blair

Ramsey El-Assal – Jefferies

Kartik Mehta – Northcoast Research

David Lane – Bank of America Merrill Lynch

Reggie Smith – JPMorgan

Operator

Good day ladies and gentlemen, and welcome to the Cardtronics First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference Mr. Phil Chin, Executive Vice President of Corporate Development. Mr. Chin, you may begin.

Phillip Chin

Thank you. Good afternoon, and welcome to the call. On the call we have Steve Rathgaber, Chief Executive Officer, and Ed West, Chief Financial Officer. Steve will start off with an overview of the quarter, followed by Ed with details on our financial performance then we will take questions.

Before we begin, a cautionary statement regarding 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, including our Form 10-K for the year ended December 31, 2015 as amended and other factors set forth from time to time in our other filings, including the Form S-4 registration statement that was filed yesterday and about which we will speak later.

Actual events, results or performance may differ materially. The statements on this call are made as of the date of this call and based on current information even if subsequently made available by us on our website or otherwise. We assume no obligation to update any forward-looking statements made today to reflect events that occur or circumstances that exist after the date on which they were made.

In addition, during the course of this call we will reference certain non-GAAP financial performance measures. Our opinion regarding the usefulness of such measures, together with the reconciliation of such measures, is included in the earnings release issued this afternoon and made available on our website.

With that, I will turn the call over to Steve.

Steven Rathgaber

Thank you, Phil, and welcome to everyone. In today's call, I will update you on our progress in executing our plan. Following that update, I will provide insights into the secular trends we're tracking, and finally, share with you our current thinking about Cardtronics global strategy.

Here's a quick summary of what I want you to leave with today. We're executing. It was a solid and we feel good about the year in front of us. Our model continues to deliver. We're taking share. We're driving gross margin expansion through scale leverage and strengthening our strategic advantage.

Second, secular trends in banking favor our model. Simply stated, we're helping banks to execute their strategy extending their brand and cash access offerings when traditional branch-driven physical presence is too expensive and less relevant.

We also free-up capital resources for banks to focus on their transformation initiatives by allowing them to hit the easy button on their ATM channel, which is a significant pain point for them.

And third, Cardtronics operates in a growing global ATM marketplace. We've talked in the past about international ATM placement and withdrawal transaction growth. We're pursuing this growth and to support this, yesterday we announced that we're changing the location of our parent company incorporation. This will make us a more efficient and effective international competitor.

I'll provide a bit more texture on each of these themes and then Ed will take you deeper into the numbers.

So, let's talk execution. We start the year with strong performance in the first quarter. A few key growth metrics speak to our execution. ATM operating revenues grew 15% on a constant currency basis, 9% of this was organic, our highest quarterly organic growth rate in over three years. Both businesses North America and Europe contributed to this strong result.

The U.K. had a particularly good quarter, with 27% growth in ATM revenues on a constant currency basis. Now this did include in parts of go forward of last year's Co-op Food acquisition, but we are also benefiting from quality sales execution throughout last year as well as from investments and operations that are delivering real revenue and margin gains.

For example, this past quarter we converted the U.K. ATM fleet to a new high performing processing platform. We also implemented seven day week cash replenishment schedules, enabled by our in-house CIT capability and the scale available from our Sunwin CIT acquisition last year. These moves droves our U.K. ATM availability to the highest level in several years.

This is a classic Cardtronics scale benefit and yields greater transaction revenue for ATM. I'm quite proud of the accomplishments in the entire operating team in the U.K. and the technical staff in our U.S. and India base facilities that support this business. North America also produced some exciting performance metrics.

Organic growth near 7% was complimented by 7% same-store revenue per ATM growth in the U.S. This is up from 5% last quarter, which was itself a strong same-store number. This growth was multi-fast, it did including branding, convenience fee increases, volume lift from Allpoint, and some one-time event that Ed will detail.

We also continue to build on the network effect of our transaction driving model with deployment of 700 new owned ATMs across our markets and activation of 225,000 new cards live in Allpoint. We contracted 560 ATMs replacement and signed 20 new [indiscernible] to Allpoint among other achievements.

The scale economics that come from servicing about 195,000 ATMs now operating in seven countries provides a unique strategic advantage. I believe that Cardtronics is able to operate and ATM in our core markets at both the best service level and a lower cost than any organization on the planet. This advantage is a key to our strategy and it is an advantage we work to grow in each country we enter.

This proven model allows us to win profitable business that powers the next improvement in our scale. We have solid pipelines for ATM placements in multiple markets. Our acquisition pipeline is robust and international. Allpoint has a healthy pipeline and our branding offering has a good outlook for the remainder of the year. The business model that powers these numbers is durable and performing well.

Now let's turn to cycle of trends in our business. Bank transformation is real, well underway and global in scope. Digital and mobile are forcing banks to adapt. Many banks are responding by cutting the expenses associated with physical presence, branches and personnel. But this creates a challenge for the banks since ATM access is table sticks for attracting and retaining customers.

These are the market conditions under which a deeply experienced, high quality and well established specialist like Cardtronics becomes the obvious partner of choice. Banks are retreating from owning and operating out-of-branch ATMs even at quality locations. We see this as opportunity.

This morning we announced the acquisition of about 2,600 off-branch ATM from Chase. The portfolio is comprised of several recognizable, high quality retail brands with both new and existing customers for us, including Duane Reade in New York City, Walgreens in Chicago among other markets, amp convenient stores up and down the West Coast, and a host of airport locations.

The retail placement contract claims vary from retailer-to-retailer, but the economics of the acquisition were based on the remaining committed life of the contracts. This is a great deal for us as it adds high quality retailers to our customer list, deliveries day one earnings accretion, and gives us a key incumbency position when it comes time to extend these contracts.

We're pleased that Chase turned to us to take over their [indiscernible] and we're pursuing these types of opportunities with other FIs in multiple geographies.

Second, but equally significant trend is the cling of unprofitable bank branches. In the U.K., over 400 bank branches are said to be closed in 2016. About a 5% decline in branch count in one year. In the U.S., two of the top banks have either recently cut or planned to close roughly 150 branches a piece. This is about 5% of their respective branch footprints. That's material and we're seeing comparable examples in Canada, Germany, and other markets that we serve. We see this trend as opportunity.

As banks rationalize their branch infrastructure, Cardtronics can work with the bank to maintain a lower cost physical presence by leveraging our ATMs or we can simply win volume that is less stranded by the branch closure.

Let me share a small example with potentially big implications of a recent experience in the U.K. And what I locally referred to as market towns or smaller towns, Glastonbury and Woolacombe, the last banks in operations closed their unprofitable branches which were in effect the only branches in the town. The result, Cardtronics worked with the towns to reestablish convenient cash access for the citizens of these towns.

Now with those and I'll take a whole lot of imagination to see the possibilities for Cardtronics as banks in the U.S., U.K. and elsewhere rationalize their high cost branch delivery channel. We are the ATM plumbing that can help banks focus on their strategy yet deliver for them the convenient cash access that there customers will demand for years and years to come.

Our core service, convenient access to cash for everyone with the debit of credit card is table six from us anyone offering card based account services to consumer. It may not be glamorous, but it has the virtual being necessary for most of society to function. The last trend item I wish to share with you, deals with the ancient myth of the cashless society.

You may know that Sweden with the support of the government was on a path to the so called cashless society. But an article in Finextra last month indicates a possible change apart. The Bank of Sweden, the Central Bank has called for a legal requirement to be introduced requiring banks to provide cash service as a basic feature of payment accounts. That's worth repeating. The Bank of Sweden, once access to cash to be a legal right.

I assume that means the people of Sweden want cash access and payment choice, not a cashless society. I find that to be a dramatic turnabout and I feel comfortable saying that I now have a new affection for Sweden.

Now let's go global. Yesterday we announced the move of the location of our parent company incorporation from Delaware to the United Kingdom. This move is of course subject to shareholder approval. We determine this move would better align our corporate structure with our future strategy and support more efficient and effective global expansion. Cardtronics already has a substantial business and physical presence in the U.K. including approximately 60% of our global workforce.

In addition, the U.K. and Europe today, represent the fastest growth part of our business in terms of revenue and earnings growth rates. You've seen evidence of this in our first quarter results as well as over the last couple of years. Appropriate for a multinational company we will maintain our North American headquarters in Houston and our European headquarters will be in London. We do not anticipate any changes that would felt either by our customers or our employees. This action is strategic and multidimensional in its benefits. Ed will detail these benefits in greater depth in this section.

And right on cue, our global expansion continues. We have entered the Republic of Ireland and signed an agreement with Topaz, one of Ireland's leading convenient and fuel retailers for more than 100 ATM locations. Our U.K. team will provide services to Ireland which should facilitate a lower cost entry. We continue to investigate new markets for expansion and we anticipate launching in at least one additional country this year.

Let me now turn it over to Ed, for a deeper look into the financial results after which we will take your questions.

Edward West

Great. Thank you, Steve and good afternoon. The key things and takeaways from my comments today are as follows; first we had a solid start in the quarter and as of today we are on-track for the year and slightly raising our outlook for 2016. Second, we recently closed on the acquisition of a high quality portfolio of approximately 2,600 ATMs from Chase with great customers. And third, we have taken a significant and affirmative step in facilitating our long-term growth strategy by redomiciling the company to the United Kingdom.

Now, let's get into the details. Total revenue growth was 8% in the first quarter, or 10% on a constant currency basis. On an organic constant currency basis, revenue growth was 9%. Both America -- North America and Europe contributed to the strong result.

We did benefit from a couple of non-recurring revenue items in the first quarter. The extra day from Leap Year and record Powerball lottery in January in the United States helped transaction volume.

The record Powerball lottery, each -- both of those each contributing to about 1% growth in the quarter in our estimation. Normalizing for these factors, constant currency revenue growth was approximately 7% for the quarter.

Now, focusing on core ATM operating revenues, ATM operating revenues were 15% as compared to the prior year on a constant currency basis. In North America, ATM operating revenues were up 7%, while the European segment was up 27% in constant currency terms.

On a same-store revenue basis, U.S. was up 7%, excluding the sites that were recently debranded. Same-store revenues in the United Kingdom were up 1% in constant currency.

Finally, looking at the underlying same-store withdrawal transaction growth in the U.S., excluding ATMs that have recently been debranded, growth in the U.S. was 3%. If we normalize to exclude the Leap Year and Powerball impacts, we end up with around 1% which is a bit better than what we experienced through most of 2015. In the U.K. same-store rate was down 1% which is also an improvement relative to the previous quarters.

However, our gross margin in the quarter increased 200 basis points year-over-year to 35.4% there were three main drivers to the margin expansion. First, our Columbus data services acquisition which was completed in July 2015 is accretive to margin. Second, rationalize our Sunwin operations in the U.K. by divesting the retail CIT and manned guarding business during the course of 2015 which operated at lower margin and third the core operations in U.S. and Europe did benefit from scale during the quarter.

If you focus solely on the gross profit from ATM operations the margin was up 110 basis points to 36.3% which includes a nice trend over the last couple of years to illustrate the same metrics was 32.9% a couple of years back in the first quarter of 2014.

SG&A expenditure continue to show year-over-year growth driven in part by the project related spending outline last quarter. In addition to other increases,, that said you will see the year-over-year growth rate moderate beginning in the second quarter, excluding the redomicile related expenditures. We believe the fourth quarter of 2015 and in the first quarter of 2016 represents the near-term high watermark in SG&A experiences as a percentage of revenue when excluding the redomiciliation and acquisition related expenditures, we will have an our ordinary on this line item going forward.

Yesterday we announced the plan to change our location incorporation from Delaware to the United Kingdom. We believe the benefits are numerous and align to our growth strategy. As Steve mentioned, a substantial portion of our business and a majority of our employees today are based in the United Kingdom. Additional benefits include, it enables us to reach more global financial institutions and retailers, especially in Europe.

At the same time, maintaining our North American headquarters in Houston continues to give a strong identity in North America to work with existing and perspective customers. It allows flexibility and creating a more efficient operating and financing structure to support our global expansion. It enables us to be more competitive for acquisitions on a global scale. It allows for future earnings and cash flows to more efficiently fund expansion. It allows us to benefit from a territorial versus worldwide taxation regime, and it elevates our visibility among potential U.K. and other European investors.

Our plan to re-domicile is quite different from the versions that you hear about, whereby an unrelated foreign company acquires a larger U.S. company and consequently enables the U.S. Company to move offshore. In contrast, we have initiated a self-directed re-domiciliation of Cardtronics. Congress and the U.S. Treasury has specifically provided for this type of self-directed transaction where there are substantial business activities in that specific jurisdiction of re-domicile, for us that is the United Kingdom.

Few companies have re-domiciled in the fashion as result of the rigorous thresholds and the treasury regulations. These tests are required to be met in order to demonstrate sufficient substantial business activities in the foreign jurisdiction. And we have carefully vetted and analyzed this decision and we believe it is highly aligned to our long-term growth strategy and will be quite impactful to creating shareholder value.

Given the non-recurring nature, cost associated with our planned redomicile have been broken out separately in our P&L and excluded from adjusted earnings. As reported in our earnings release and 10-Q, this expense was about $6 million in the quarter, most of which was professional services fees. We were continued to incur cost related to our redomicile effort in the second quarter and expect it to tail-off sometime in the third quarter.

From an administrative standpoint, we filed an SEC Form S-4 yesterday, which included the details on the planned redomicile transaction. The S-4 is a preliminary filing and the official shareholder vote will not commence until the S-4, which is a combined proxy and registration statement is declared effective by the SEC. We will continue to have our previously annual shareholders meeting on June 2nd and in addition, we're tentatively scheduling the shareholder vote to approve the redomiciliation on June 28th.

With regard to earnings, we recoded adjusted net income per diluted of $0.68, up 6% on the first quarter of 2015. Foreign currency exchange rate had an adverse impact of approximately $0.02 per share.

Moving onto the balance sheet, our net leverage in terms of debt to adjusted EBITDA was 1.9 times. We 350 million of borrowing capacity on our revolving credit facility due in 2019 which gives us ample flexibility for future acquisitions.

During the quarter, we entered into forward staring in swaps. In the United Kingdom to further manage our exposure to floating interest rates. The swaps going into effect starting January 1 of 2017. The notional amount in 2017 and 2018 is ₤550 million sterling, stepping down to ₤300 million sterling in 2019. For the first two years, about half of our current broadcast in the U.K. is covered by these swaps. The weighted average fixed rate of the swaps is 82 basis points in 2017 and 2018 and slightly higher in 2019.

The hedges effectively lock-in a portion of sterling exposure at U.K. LIBOR rates of less than 1% from 2017 through 2019. While the current annual item change rate setting mechanism in the U.K. does take into changes in interest rates over time. We wanted to give ourselves greater control and visibility on a significant exposure item and took advantage of the opportunity to lock-in attractive rates.

Regarding CapEx, we invested approximately $16.5 million in the quarter, of which about $9.5 million was growth related and about $7 million was maintenance, infrastructure and compliance CapEx.

One other item worthy a mention before I discuss the guidance, we have slightly changed how we report segments. As of the first quarter, we are now reporting three segments, North America, Europe and corporate and other. The intent of this change is to provide more clarity into the performance of the individual business units by removing unallocated overhead expenses into a separate corporate segment. The new corporate segment also includes our processing, operation including CDS.

Now I would like to turn to our updated 2016 guidance. The first quarter came in a bit stronger than previously forecast. We are raising our outlook for the calendar year based on the recent performance and business transaction volume trends. Please note that this guidance does not include any impact from our planned re-domicile to the United Kingdom. We will incorporate that into our guidance following the close of the re-domicile.

We now expect revenues of $1.25 billion to $1.27 billion. Our previous guidance already included the completion of the Chase ATM estate at the end of the range. Our gross margin guidance ranges from 35% to 36%, up 50 basis points on the high end. We are lifting our adjusted EBITDA range and now expect $320 million to $328 million. Depreciation guidance remains unchanged at $94 million to $96 million. We expect cash interest of $18 million to $18 million, down slightly on the high end. And we are leaving our estimated non-GAAP tax rate unchanged at 32%. And again this does not contemplate the completion of the re-domiciliation.

We assume a fully diluted share count of approximately 45.8 million shares. And we currently expect adjusted net income per diluted share to be in the range of $3.08 to $3.18 up on both ends of the range from the previous forecast. We are not changing the CapEx expectations at this time.

Operator, we would now like to turn the call back to you, to take some of the questions from the listeners. Thank you.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Andrew Jeffrey with SunTrust. Your line is open.

Andrew Jeffrey

Hi, thanks for taking the question. And appreciate the simplified reporting. I think that's really helpful. Steve, the Chase acquisition albeit relatively small to me is notable and as much as perhaps it represents a tipping point in terms of the way banks are thinking about their ATM businesses. Can you just sort of pine on that, and perhaps give us a sense as to whether this is a new leg on the North American growth stool?

Steven Rathgaber

Yes. Thank you, Andrew. I think it's absolutely not only that in the North America, but I think we're seeing in several of our markets, U.K., Canada, in particular, but also even in Mexico a desire by banks to have access without having to be the capital deployer and without having to be the entity that is focused on having to service it.

Several of the trends I talked about in my remarks, talk about the desire for banks to either reduce bank footprint or to -- with the branches they keep reduce staff. Even that sets up some opportunities that will be new to Cardtronics, because as they do that, they are less equipped to take care of their own ATMs.

So, we're seeing a pipeline build of opportunities and multiple markets around this kind of thing and we're optimistic it is definitely a transition point in our journey to a new kind of opportunity. So, we're quite excited about it actually. And believe it's real.

Andrew Jeffrey

Do you think it's a function of regulatory or cost pressure I mean, was there some event that perhaps precipitated the change or is it a cumulative?

Steven Rathgaber

I think it is a cumulative thing. I mean, if you go back in history and you watched – and I refer to this in the years that I've been here. The whole journey of point-of-sale in the 80s, when banks used to be doing all of that for themselves, never to release it, and then they realized, it wasn't the thing that differentiated, and all of a sudden you have First Data as an organization created out of the journey of unloading some of that activity.

Now, I'm not suggesting we're at that turning point by any stretch, but I do believe that the cumulated build of just the ongoing cost of servicing ATMs, they get more expensive in some respects, if you don't have our scale, the things like security concerns, things of that nature EMV upgrades. There is just a lot of constant work that goes into maintaining a fleet that trend in conjunction with the pressure on course by banks, the new course introduced by regulatory burdens, that in conjunction with the need to invest in their new model.

Banks are going through a transformation and all entities are finite resources. So I do think it's a cumulative, Andrew. And I do think it is a trend. And I do think it is a trend that we will benefit from many years to come. I think as I said, we're perfectly positioned to be the entity that helps the bank execute its strategy by freeing up their capital, focused on their branch transformation and assisting and providing the cash access that they all need.

Andrew Jeffrey

Okay. And then just one more quick one to be clear. It's part of – it's accurate to think of it is part of the overall growth strategy, in other words M&A is still a big part of your thought process in terms of long-term share gains?

Steven Rathgaber

It absolutely is. The standard legs of our stool continue to include trying to drive for transaction share in some of our core markets, acquiring additional ATM locations if trends like this emerge. Acquiring internationally or domestically as opportunities present themselves, and just increasing our footprint internationally by entering new markets, maybe small entry to start with, but consistent drum beat entry and growing more organic flow from those entries. So those are sort of four legs continue to power the engine and produce the numbers of this quarter.

Andrew Jeffrey

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Rob Napoli with William Blair. Your line is open.

Robert Napoli

Thank you. Just related to the Chase acquisition – first of all is Chase going to maintain a brand on the ATMs?

Steven Rathgaber

Yeah, there will be a period where their brand continues and where their customers continue to have free access to the ATMS as if they were operated by Chase. That will be provided for a period of time.

Robert Napoli

But then they are not – then they don't plan to brand them long-term?

Steven Rathgaber

It's a sort of a mixed bag that I really can't get into all the details of because of the variety of contracts involved. But we are talking about five or six different retailers with different terms and different opportunities in there. So, there is a little bit of everything, I would say Bob. But it would not be appropriate to declare that they are going to be all long-term brand to Chase.

Robert Napoli

And then high volume ATMs, I mean generally that would suggest something like $20,000 in revenue per ATM per year, is that a reasonable estimate or is that am I way off?

Steven Rathgaber

I don't think that would be our normal sort of number there. Hang on while we do -- you're talking about Chase ATMs being that kind of--?

Robert Napoli

Right. That's right. Yeah. You say high volume ATMs and high volume locations. I think seven or 11 would make 2,600--

Steven Rathgaber

Yeah. I think these could certainly be well north of 15, 17, but we have to do some additional detailed research on that for you.

Robert Napoli

Okay. So, it's not that, than can you give me the revenue that you expect like the first year?

Steven Rathgaber

I cannot.

Robert Napoli

And what did you pay for them?

Steven Rathgaber

We're not disclosing that either at this point in time.

Robert Napoli

Was it like a cost of ATMs or was there a franchise value or a cash flow. How did -- how should we think about it?

Steven Rathgaber

You should think it as a very cost-effective deal for Cardtronics and a good value exchange. And you should think about it with a major element of the price being just the equipment, but I wouldn't say only the equipment.

Robert Napoli

Okay. Then you’re -- the secret investment that you were making in the first quarter, is this -- have you finished that investment?

Steven Rathgaber

So, secret investment is an interesting choice of words. Cardtronics has been making a variety of investments. As we've talked about -- and somewhat has shown up accelerated – with some accelerated SG&A for a variety of reasons, one of the ones that showed up in the fourth quarter that would no longer be secret is certainly expenditures attendant to the self-directed re-domiciliation. But there are other things we have been doing as part of our standard planning to try to accelerate our growth in the phase of the departure of – the impending departure of 7/11.

So I would say that the investments we have made in that have hit the high watermark and we expect those to trial down as we go into future quarters. And I would say that, the results from those investments will begin to materialize I think over the next several quarters, I hope. And we would be at that point happy to share with you some of the things that we have learned that we were investing in and how we are making additional growth materialize.

Robert Napoli

And just last quick question, have you rolled up dynamic currency conversion in the U.S. broadly?

Steven Rathgaber

Not at all. In fact we do it at an increasing number of machines. It's like a lot of our other software development activity has been tied up in the EMV migration. But we have actually rolled it out in some of our merchant own and load business, our independent business group with a fair amount of success and fair amount of margin. It’s not giant numbers for those kind of ATMs but we do enjoy some flow from that.

Robert Napoli

And by the time I just further amplify the point and the question around the cost in the first quarter, just to reiterate the cost associated with the re-domiciliation was separate and pulled out separately as the $6 million in cost, and we would expect somewhere that this quarter as well and kind of trickle into some degree in the third quarter. And as we mentioned in our previous comments, we would expect that other remaining SG&A as a percentage of revenue that was a high water mark and continue – we will see better performance going forward relative to the last year.

Steven Rathgaber

Okay. Thank you.

Robert Napoli

Thank you.

Operator

Thank you. Our next question comes from the line of Ramsey El-Assal with Jefferies. Your line is open.

Ramsey El-Assal

Hi guys. I have some questions on the re-domiciling. How should we think about your tax rate, let's just say assuming it gets done, what are we talking about in terms of where your tax rate could end up?

Steven Rathgaber

Well, for a lot of reasons right now, we are not at a position to go into discussion regarding the guidance and outlook with respect to the re-domiciliation. Obviously we have put the registration statement of proxy on file. It's being reviewed by the SEC. Once that becomes effective then we will hopefully have the shareholder vote, that's scheduled for the 28. Once all that is finalized and presuming the shareholders the approve it, which we believe there is a lot of value, long-term value to this, we will then come back and give guidance in terms of what it means in terms of the expectations and the outlook for the company.

Ramsey El-Assal

So I guess that means you can't give me what you current U.K. tax rate is, so I get back and do it myself?

Steven Rathgaber

Well, I mean, if you just look at the market rates that's in United Kingdom, the corporate tax rates roughly 20% going down to what's on the books right now is roughly 18% in 2020 and I think proposal in the budget is taking that to a 17% corporate rate. And that's in contrast to the U.S. which is roughly 35% corporally and then you have various state tax rates across the country from there.

Ramsey El-Assal

Okay. That's perfect. That's very helpful. Does this redomiciling take effect as soon as the shareholders approve it. Or is there is some extra process? I guess in other words, do you get -- if everything goes as planned and you get the shareholder vote on the 287th, does that mean that your tax rate reset at that point? Or is there some incremental process that needs to occur?

Steven Rathgaber

I would separate the tax rate part of it. We would -- didn't want to have effective rate soon after it's approved by the shareholders and that should be early Q3, presuming we have the shareholder vote on the scheduled date of the 28th.

Ramsey El-Assal

Okay. So, at that point tap you with the subject -- tax jurisdiction.

Steven Rathgaber

Well, we have operating entities today in the United Kingdom and honestly on our U.S. operating entity will continue to be subject to taxation in the U.S. And again we'll provide guidance in the -- after our second quarter is compete. Once everything is finalized about what that could mean in both the short run and the long run.

Ramsey El-Assal

Okay. And one last one from me on this. What is -- how would you gauge the risk of that? I mean you said there's a rigorous test in terms of whether you're qualified for this type of redomiciling and obviously you feel pretty confident about. Is there a -- how should we evaluate the risk that regulators basically say no, we're not comfortable? Is it kind of a slam-dunk or is there a process that they may or may not go your way?

Steven Rathgaber

We've spent a lot of time working on this. We feel very good about it. They are rigorous test, which is why you don't see a lot of companies that can meet those. But fortunately, we have a substantial portion of the company that's based in United Kingdom and the other test, include such things as the number of employees our overall, compensation in the jurisdiction, percentage of our assets, and the jurisdiction as well as other income test that relate to the entity. We feel very good and we pass the threshold about that, and look forward to moving forward once the shareholder vote is finalize.

Ramsey El-Assal

Fantastic. That's all for me. Thank you very much.

Steven Rathgaber

Thank you.

Operator

Thank you. Our next question comes from the line of Kartik Mehta with Northcoast Research. Your line is open.

Kartik Mehta

Thank you. Good afternoon. I wanted to ask you a little bit about Europe and some of the results you had there. And I was wondering, if you could talk about the benefits that you receive because of the energy increase in the U.K., how much of that impacted the results?

Edward West

Sure. As I mentioned earlier, Steven mentioned obviously very strong results in the U.K. on almost all fronts. That team and the organization activity executed. So overall growth on a constant currencies roughly 27% revenue growth year-over-year that's largely driven by combination of the organic performance and help supported by the acquisition that was completed about a year ago with the cohort. As that happen transaction occurred during the first quarter and it has kind of phased in during the period so some of that is on an organic basis, where we have year-over-year and some have become on line into at the end of the quarter and into April. The majority of the growth for the year was year-over-year was organic related and there were changes in the interchange rate but the – that was the minority of the benefit, it was really mostly execution and the year-over-year growth as well as the benefit from the new business.

And as Steve mentioned earlier, obviously operational execution availability of the machines and the systems for servicing the financial performance of the operations all butcher their performance year-over-year.

Kartik Mehta

Steve, I was hoping maybe you could provide an update on the 7Eleven business in terms of it – if you've had anymore conversations with FCTI, actually when the transition will occur and what that might mean for Cardtronics?

Steven Rathgaber

Well Kartik, it's difficult for us to get into any specifics. We continue to work with stakeholders involved in all of the elements of that to build the best outcome for Cardtronics. As we have something specific to declare we will certainly declare it. As to the specific, the mention of our question about potentially timing, the contract is in full effect through the July date of 2017 and conversion activities would begin from our perspective after that point in time. So, that does have the benefit of securing sort of full revenue through the first half of the year and having a back half of the year that will be somewhat mixed as the inventory winds down, the pact at which that inventory winds down will be dependent on a number of factors; some in our control, some not. But I think bias is towards certainly better revenue than just the -- everything changing on the July 20th, if that helps.

Kartik Mehta

No. That is helpful. And just finally, Steve, can you talk about maybe the length contracts that came along with ATMs you purchased from Chase. If they have to be renegotiated or -- what the terms are?

Steven Rathgaber

We generally don't like to give out a lot of those kinds of terms. For competitive reason, I don't like to queue up competitors with opportunity, but I would say that there's a mixed bag of terms. Some multiple years, some a little bit less. In several cases, these are clients we already have and that presents opportunity for us.

In other cases, they are brand new clients. But there is opportunities for renewal and I'd always rather be incumbent than not be incumbent. So, I can't drill into the detail for you. But these are not a collection of our classic seven year type contracts. Although we're hopeful that someday we will make them that.

Kartik Mehta

Thank you very much. I appreciated.

Steven Rathgaber

You are welcome.

Operator

Thank you. Our next question comes from the line of David Ridley-Lane with Bank of America Merrill Lynch. Your line is open.

David Lane

Sure. I'm just kind of curious on what your though might be the impact on how your number of U.S. ATM is fall in the AMP transition it’s come out surely. Do you think you'll see is there any fair amount of independent ATM operators just to exit or how do you think that will pulling out?

Steven Rathgaber

It is really a tough one David to see into the crystal ball. When we look back as in industry on things like triple there is a upgrades there have been several cycles over the past 15 years where you know everybody had a jump by a certain date. And from the most part, they have been cycles that did not create a major shift in the ATM footprint. I do think that what might be true in this case is that people who are used to doing their own ATMs might look for some assistance. So we might see people or banks or financial institutions be open to having certain fleets taken off their hands, so they don't have to deal a change, but that is the different than the ATMs going away. For this smaller mom and pop type entities, the distributors of the world this is their living and they want to find the way to keep their business alive.

So they will look to create incentives for those ATMs to stay in place. For the single ATM grocery type buy, that will be depends. We know that for our business where we have tens of thousands of ATMs with variety of merchants the small mom and pops, through distributors and some direct, we know that we have developed programs for them that will actually help us sell to them and the upgrade lock-in longer term contracts and value and grow the relationship by offering them things like DCC and other services that can help them make more money.

So, creative minds come to the market and try to create opportunity at a challenge and that's certainly what we are doing. So, a windy way of saying I don't know and I apologize for that. But, I don't think it's going to mean that 10% of the ATM population disappears. I certainly expect some shrinkage, but I don't think it would be on a scale where folks would go wow.

David Lane

Got it. Got it, that's understood. And then the – there was this report that you are seeing I think you may have said that the top bank branches – sorry top banks are closing branches at a faster pace. I am wondering have you sort of looked that back – should we think about the share pick up that Cardtronics gets from a branch closure, being similar to their share of ATMs in the U.S. is it a little bit more, is it little bit less. Just trying to think about how often those transactions migrate when they do close branch?

Steven Rathgaber

Well I think that's a great question and when we are damn into and I don't want to answer to you quite frankly. I think it comes under the heading of a bit too soon to tell from our perspective. But ask me at the end of the year, and I'd bet we have a fairly scientific view of it based on what will be an increasing sample size.

But I do believe that we're in the places that are convenient and when bank branches disappear I don't think it's unreasonable to expect that we will be a beneficiary because the need for cash doesn't disappear. The need for the consumer to have access doesn't disappear. So, difficult for me to pinpoint some numerics for you now, but I bet that you're talking to the group that will be the experts in about a year's time.

David Lane

Thank you very much.

Steven Rathgaber

You're welcome.

Operator

Thank you. [Operator Instructions]

Our next question comes from the line of Reggie Smith with JPMorgan. Your line is open.

Steven Rathgaber

Reggie? Reggie are you there?

Operator

Mr. Smith please check your mute bottom.

Reggie Smith

There it goes. Can you hear me?

Steven Rathgaber

Yes, we can.

Reggie Smith

Sorry about that.

Steven Rathgaber

No worries. We needed that pause. That refreshes.

Reggie Smith

I guess the news about safe is great. I guess should we think about this as it relates to -- your relationship with Chase maybe to begin additional ATM acquisitions from them. I mean is there still, I guess, an untapped or do they still attain relationships with other retailers that you're going to eventually acquire from them as well? And then I guess kind of remind us I guess history of this relationship. I believe few years ago they decided to go directly with Duane Reade and if that is correct this kind of reversal of that, I guess kind of strategy, any color you can provide there will be great?

Steven Rathgaber

Sure, a lot in that. So first of all, I consider any leading financial institution and opportunity so I am very much interested in developing and growing and maintaining relationships with any organization because as history shows even within organization like Chase things changed. And we are in the business of having the best possible relationship we can when they exchange. So I don't want to speak for Chase at any level relative to their particular strategy, I don't think that's appropriate.

But they had been involved with Duane Reade many years ago after we were involved with Duane Reade and I think that relationship has worked very well for both parties. Although, the other one speak to about that. So right now we are the owners and the operators assume to be but certainly the owners now of those ATMs in those various retail locations. Chase has lots of ATMs and maybe someday there is other things we can do with them, but lots of things, they have lots of ATMs.

And we think there is a transition as I said in my prepared remarks underway where banks are beginning to bank differently about is the ATM the differentiator or is the way I message on the ATM and combine it with my mobile service delivery is that differentiator, but not actually running and owning and operating the pluming. So, I am hopeful that independent of Chase, Cardtronics is seeing the edges of new era that will have us being more and more important to both retailers and financial institutions with the services we provide, because we are the best at it, we are the lowest cost at it. We can make the model work better than anyone I think in the business and that's we want to leverage strategically going forward.

Reggie Smith

Got it. And that actually leads into my next question. I don't think I heard anything about potential synergies whether be the cost per users or revenue synergies that you guys can extract from the Chase deal. Is anything worth speaking about there?

Steven Rathgaber

Well I think there are a couple of things, to the extent that we start as the owner of the ATMs but we are in a transition services agreement model with Chase right, where they are actually the processor for us. We began transitioning some of those ATMs already to our base and over the next several months we will do the rest. So, there will be some margin opportunities that just comes with the fact that we will be able to leverage our scale economics in our cost of processing.

Beyond that, the fact that we have relationships with several of these clients, there is opportunities to bring contracts together I presume over time and get benefit out of that, that's a form of synergy and certainly the more scale we add to our business nationally, the more negotiating leverage we have with our full suite of vendor supplier. So, there's stuff in there Reggie. It's not going to change the world stuff, but its good incremental drumbeat progress. It's the kind of stuff we do well. And I look forward to taking full advantage of it.

Reggie Smith

Sounds good. If I can sneak one more in. I guess could you guys talk a little bit about the structure of the market in Ireland, what if it was bank-dominated, surcharge free? Like, how should we think about that marketplace versus say the U.K. or United States? Any color you could provide there would be great. Thank you.

Steven Rathgaber

Sure. Well, obviously, it's not the largest market on the planet. I think I can safely declare that. But it's a market that we're very familiar with. We know a lot of the organizations. We do business with some of those organizations that already branch over into the U.K. because there are some multinational banks and institutions there. And we're able to leverage some of those relationships as we go forward.

It's a U.K. like market. And we think it's an opportunity to continue to drive some quality organic growth. I think contracts like the one we announced. There's not dozens of them, but there's a good number of them and we'll do our best to earn those and create a respectable organic growth rate associated with that.

Reggie Smith

Perfect. Thank you. Congratulations guys.

Steven Rathgaber

Thank you.

Operator

Thank you. And we have a follow-up question from the line of Bob Napoli with William Blair. Your line is open.

Robert Napoli

Thank you. I was just hoping you give maybe a little color on some of the markets, the European markets that you're in and the growth outlook. Looking at number of ATMs in Germany and Poland were flattish in the first quarter, just kind of thoughts on growth opportunities in those markets -- the what do you would -- what you think you can grow at adding new ATMs in the U.K. and you said you expect to had at least one more market is that, hey, would you that to be in Europe as well?

Steven Rathgaber

Yes. So, hopefully there. Let me try to hit a few points on that. I'm actually, fairly bullish on the opportunities in Poland and Germany at this point in time. We see a good number of – yeah, when I say that I have said in the context of the size of those markets. So, I consider that we have credible and constructive pipelines there in both Poland and Germany. And we do well in Germany from a margin perspective and we are doing better if we can close one or two with the deals in our pipeline in Poland will be doing some nice margin in that country as well.

So, yes, the market we are likely to enter it will be in Europe. We certainly have our eyes there and have already hired some staff in some of that SG&A number to place there in one of those countries to help us with additional growth not only in that country but perhaps surrounding countries as we go forward. So, I think in terms of -- we are trying to build a routine – we can add 3,000 to 5,000 ATMs a year and these countries and my goal is to create a stack of pipelines that feed that gross number and keep edging it up as we continue to grow. But also to find good pools of transactions that can add to the organic growth. So, it's not just capital intensive ATM location based.

Robert Napoli

Then just question, your merchant owned locations continues U.S. merchant owned, I know that doesn't generate a ton of revenue but it does continue to decline at pretty rapid pace is that a business you are going to essentially get out of, or is it not?

Steven Rathgaber

No, it's a business where we are actually focusing on the profitable customers more effectively over time, so what we have started to do is not to be concerned with ATM count, particularly when they've been transaction based ATM counts. We want to get the BCR clients.

So our focus in measuring our success in that business going forward is going to be more total transactions driven and total transactions and they are going to come from the larger distributors and the larger more active locations. And we are going to try to not focus on some of the smaller volume ATMs that are just less valuable to us, but equally distracting as some of the busier ATMs. So, I would call that constructive screening more than anything else. I wouldn't go so far as to say we are firing customers, but we are trying to manage expectations.

Robert Napoli

Okay, great. Thank you very much. Appreciate it.

Steven Rathgaber

All right. Well I believe that covers all the questions that have been posed. So, I would just like to say to all the folks listening. Thank you very much for your continued interest in Cardtronics. And look forward to talking with you all next quarter. Have a good day.

Edward West

Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.

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