Cardtronics plc
Q4 2019 Earnings Call Transcript

Published: 21 Feb 2020

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Cardtronics Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] Please advised, that today’s conference is being recorded. [Operator Instructions]I would now like to hand the conference over to your speaker today, Mr. Brad Conrad, Cardtronics Treasurer and Head of Investor Relations. Thank you. Please go ahead.

[Brad Conrad:]

Thank you. Good afternoon, and welcome to Cardtronics' fourth quarter 2019 conference call. On the call today, we have Ed West, Chief Executive Officer; and Gary Ferrera, Chief Financial Officer. We will start with prepared remarks and then 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, events, market conditions and other risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings release and our reports filed with the SEC, including our Form 10-K for the year ended December 31, 2018, which describe forward-looking statements and risk factors and other events that could impact future results and other factors that could impact our business.The statements on this call are made as of the date of this call and are based on current information and may be outdated at the time of any replay of this call. 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 are 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 a reconciliation of such measures to the nearest GAAP measure, is included in the earnings release issued this afternoon and available on our website. We have also posted supplemental investor materials regarding the fourth quarter and full year results on our website.And with that, I will turn the call over to Ed.

[Edward West:]

Thank you, Brad, and welcome, everyone. I will start by highlighting three key messages I want to convey on the call today. First, the fourth quarter was a solid finish to a very good and transformational year. We delivered on our financial commitments for the year and exited 2019 in a much better place than when we started.Second, driven by business performance and our powerful network, we are investing for the future with new products, technology and partnerships which will strengthen our business and result in durable long-term organic growth.And third, we are enthusiastic about the year ahead and beyond. We're providing a 2020 outlook that continues to show solid organic growth, with margin expansion, in line with the medium term targets we communicated last March.Over the last year, we made good progress on our priorities and key initiatives. These include, first, we delivered on our financial commitments for the year. We returned to organic revenue and profit growth sooner than we initially expected with significant margin expansion and resulting in record free cash flow of $150 million. As a result of this growth, we've gained market share in the U.S. and are poised to continue building share.Second, we strengthen our network. During 2019, we added many new and important customer relationships and also renewed and expanded partnerships with long-time customers on both sides of our two sided network in the U.S. We added new business and expanded with 15 of the top 30 banks in the US. We also now have Allpoint relationships with almost 30 Premier FinTech businesses. And also quite noteworthy, we reached milestone agreements with Visa and USAA for ATM. branding and surcharge free access.Third, we also launched new products and technology enabling new partnerships and future growth. We are rolling out our deposit and cash-in network. We currently have nearly 1000 and growing deposit and cash-in Allpoint plus ATMs and service.We continue to add FI partners to this convenient retail based network. We also launched new mobile access at the ATM. and an API to enable additional mobile use cases beyond our traditional services.And we invested in our infrastructure and improved our operations. We completed the second major phase of our ERP rollout and we are now live across all of our major business units. We also reduced operating costs in several areas enabling additional margin expansion and investment and growth initiatives in additional security measures.Finally, we invested in our employees and talent, bringing on key new talent in software development, marketing, data analytics, sales, customer experience and key leadership positions, as we prepare the company for our next phase of growth. The business success throughout 2019 produced a strong financial performance in the year and we have solid momentum headed into 2020.Now let me turn to the highlights for the fourth quarter. Consolidated revenues were up 4% driven by growth in our North America segment. Adjusted EBITDA was up 15% from the prior year and adjusted EPS was up nearly 50%. Gary will get into more of the financial details in the fourth quarter results. But it was a good finish to close out the year.On the customer front during the fourth quarter we reached a key renewal and expansion with Couche-Tard in the U.S. Couche-Tard Guard which operates under several retail brands, including Circle K, Corner Store and The Pantry is a leading operator at convenience stores as one of our largest retail relationships. We will begin to operate additional ATMs and services later in 2020 and will operate approximately 5500 ATMs as part of this expanded agreement with Couche-Tard.We also signed a new retail placement agreement with Golub Corporation,which owns and operates a leading grocery chain Price Chopper in the US to place approximately 130 ATMs. These new retail expansions further enhance our leading network of convenient ATM locations in the US.On the FI front, we reached agreement with Wells Fargo to place their ATMs at approximately 200 locations as Speedway Convenience Stores in Minnesota. We now have branding and/or [ph] Allpoint relationships with eight of the top 10 largest retail banks in the U.S.We also continue to grow our Managed Services business line. Our comprehensive suite of ATM solutions, including branding, Allpoint and Managed Services is resonating with banks. During the fourth quarter, we reached an agreement with BankUnited one of the top ranked regional banks in Florida and the nation to operate close to 80 of their ATMs at branch locations in Florida and New York.BankUnited has also joined our Allpoint Network, significantly enhancing their customers convenient and fee free access to cash. Additionally, we reached an agreement with SoFi to manage their ATMs at the new SoFi stadium in Los Angeles. We continue to see demand for our ATM managed services offering as financial institutions seek to lower their operating and capital costs and improve their customer experience and security.Our Allpoint Network continues to expand and is the premier ATM solutions for fintechs, particularly in the digital and challenger banking space. Our value proposition is resonating with this customer group as they value our nationwide footprint, convenient locations, service and value proposition. We are an important element of their consumer offering. Their customers frequently cite [ph] free ATM access as one of the key points of differentiation.We recently signed new Allpoint Network agreements with several leading fintech companies in challenger banks, including Axos, Branch, Cogni, Current, Majority, Rellevate, and Revolut. Online challenger bank innovator [indiscernible] which recently surpassed a 0.5 million customer accounts also join our Allpoint plus deposit and cash gen [ph] network.Many of the fentechs are early on, but growing rapidly and are already driving volume to our ATMs. For example looking at a couple of our partners who are driving volumes measured in the tens of thousands of transactions per month, one has grown volume by over 400% just within a year and another grew by 500% within the year.Also on the Allpoint front we reached an agreement with [indiscernible] owner of the exchange network in Canada, enabling surcharge free access for approximately 5.5 million cardholders from 165 Canadian banks and credit unions to Allpoint ATMs when they travel in the United States.\With new and expanded relationships with financial institutions, fintechs and retailers during the quarter we strengthen both sides of our network. The value of the network continues to grow as we add not only partners and transactions, but also new products and services.On the product front, we reach an exciting new agreement with Amazon to enable their customers to now add cash to their Amazon balance, with Amazon cash at cash accepting Cardtronics ATMs. This solution makes it easier for Amazon customers to shop online by allowing them to visit participating in Allpoint + ATMs to load between $5 and $500 in cash to their Amazon balance, which they can then use to make future purchases on Amazon's online store.They can do this using only the phone number linked to their Amazon account. The solution is available now in numerous locations and is expected to expand as we deploy more cash accepting ATMs. We are excited about this new partnership and our ability to leverage our assets to provide new convenient solutions and be the physical touch point for consumers who prefer or need to use cash.We are quite enthusiastic about this new cash-in capability and we believe there are numerous ways for us to enable both cash-in and cash-out services via a mobile phone for many different consumer transactions.The user experience is lightning fast and simple to use. Customers can receive immediate spending credit and also receive text and email confirmations for their transactions at our ATM.There is another announcement that I would like to make today. I'm equally enthusiastic about it and this is an internal capability that we previously did not possess and that will likely serve as an operational inflection point for the company.Over the past year, we have developed our own proprietary ATM software application that will enable us to quickly scale the mobile solution and other products. This technology was developed in-house and it is a major milestone achievement for the company. The software was purpose-built, for us, by us and coupled with our mobile API, it lays the foundation for numerous potential services to be deployed at the ATM in the future.We have taken control over our future product flexibility with this leap forward. Additionally, we expect that our proprietary software will bring enhanced operational and financial control over our state on a remote basis and should result in lower operating costs over time.We are rolling this out initially in the US and plan to expand the rollout globally. The software is already in the field or on a limited basis today and we expect it to be deployed on a good portion of U.S. State during 2020.Now we're continuously looking for new and expanded use cases for our network in the US. As mentioned last March, we believe our market share of transactions was less than 3% in the country. While our company-owned footprint stands at approximately 10% of the ATMs in the United States, similar in size to the top three banks combined.Over the last year, we have been implementing strategies and deploying solutions to grow this year both withdrawal and deposit transactions. In addition to expanding our footprint, today I see two key catalysts of growth which include branch transformation and serving as the physical to digital gateway, enabling convenient and simple consumer driven mobile cash applications.On the branch transformation front, we are a secure, convenient and low cost solution which will allow us to grow transaction share by partnering with FIs of all sizes to deliver a surcharge free access, as well as customer awareness and loyalty via branding and Allpoint. This owned demand solution assists FIs of all sizes as they are expanding into new markets or rationalizing their footprint in existing markets.Additionally, we support new entrants to the market, such as Neo banks and serve as a capital light on demand cash infrastructure for their customers as they rapidly grow. Branch transformation is also driving managed services opportunities for us, as FIs refocus on what is core to their business.Our managed services solution also allows an FI to simplify their business and drive direct or single point of accountability for their ATM operations in cash distribution needs.Separately, we see a whole new channel of growth on the mobile enabled cash-in and cash-out front. I believe our network can be the digital to physical gateway providing direct user enabled access to the largest most convenient cash network in the country via APIs and a closed-loop infrastructure. The Amazon announcement serves as a leading example of what is ahead.Moving to the international front. During 2019 we achieved our objectives to deliver constant currency year-over-year growth in our Europe and Africa segment. Aggressive changes to our operations in the UK to offset the dramatic price reductions implemented by LINK, combined with strong growth in Spain, South Africa and Germany resulted in year over year revenue growth for the segment. Separately the team in Australia has done a great job restructuring the operations and delivered EBITDA growth for the year versus the prior year.Now coming back to what makes it all possible? Our people. Our success is dependent on attaining, retaining and developing the right talent and that’s why we continue to invest in our team. We are committed to making Cardtronics a great place to work and always striving to do better.We are measuring and seeing progress across many of our key metrics. On the management front this quarter we made a change at our leadership level in North America. We recently brought in Carter Hunt, a seasoned commercial and product executive with a proven track record of leading and growing businesses both Western Union and Pepsico. Carter now leads our North American business unit as we seek to further enhance our network and accelerate our product driven organic growth. I'm really excited to have Carter as a partner at the company.And my final comments today. I wanted to provide some color regarding our outlook for 2020. Gary will provide the financial details here in a few minutes, but I want to offer the following from my vantage point.First, we are positioned to deliver financial performance consistent with the medium term outlook that we outlined at our Investor Day last year. We aim to deliver and aspire to outperform but we will continue to increase investments in products solutions, technology and people to drive durable top line growth.Our strong performance in 2019 has built a foundation for us to be able to deliver the outlook we are communicating today. Looking outside of the US, we have the largest ATM network in the UK. We are a very important part of the country's payment infrastructure and believe we can leverage this network in ways similar to what we have already progressing in the United States.We expect to begin exporting some of our products that we have developed in the US to leverage our platform in the UK, product enhancements combined with the state rationalisations and transaction normalization in the market will take some time to sort out. In the interim, we will focus on EBITDA and free cash flow growth as evidenced by our performance in the U.K. this past year.We continue to see strong growth in our Spain, Germany and South Africa regions driven by ATM deployments located at premier retailers, as well as additional FI partnerships. On the whole, we see solid profit growth coming out of Europe and Africa segment in 2020.In Australia in the face of our continued difficult market and top line pressure, we grew adjusted EBITDA last year with an intense operational focus. We continue to work to leverage our network and capabilities in Australia, while we optimize our operations. We will continue to focus on and generate solid cash flows from this operation, while we test and pilot new growth strategies.In our largest market North America, principally driven by the US, our business and market share is growing and we are increasingly the partner of choice for both retailers and FIs of all sizes. We have end-to-end capabilities at our two sided network, a strong value proposition and we are well-positioned to continue to grow over multiple years with favorable market dynamics. as bank branch transformation continues to accelerate and we serve as the physical to digital gateway for the ever growing mobile solutions market. Again, Amazon serves as a leading example on this front.In summary, we are pleased with the recent execution across our priorities and are enthusiastic about the opportunities ahead for Cardtronics.I’ll now turn the call over to Gary for some additional comments on the quarter and the outlook.

[Gary Ferrera:]

Thank you, Ed. I'll start my remarks today with some additional detail on the full year and fourth quarter results before moving on to our 2020 outlook. We started 2019 staring into a significant number of headwinds and guided to approximately flat year-over-year revenue and adjusted EBITDA growth, but with a strong belief in our team and our strategy as outlined at our Investor Day last March, I am pleased to say that for the full year 2019 on a constant currency basis we actually return to growth, with revenue up almost 3% and adjusted EBITDA increasing almost 8%.I just want to take a moment to thank our team members across all of our regions for helping us deliver beyond our initial expectations and putting us in a position to continue to drive our medium term strategy.As Ed highlighted in his remarks, the fourth quarter was a good finish to a solid year. Revenues were up 3% compared to the fourth quarter of 2018 and adjusted EBITDA was up 14%. On a constant currency basis these results were slightly higher at 4% and 15% respectively. Our adjusted net income per diluted share was $0.70 for the quarter, up 49% from Q4 2018.Looking into the drivers of the performance for the quarter by segment, as expected our North American business led the way with total revenues up 7% and adjusted EBITDA up 10% both constant currency. The currency impact was minimal this quarter, especially in North America.Excluding our equipment sales, which can be a little lumpy from quarter-to-quarter, our North America ATM operating revenues were up solid at 6%. This was driven primarily by bank branding, Allpoint and Managed Services with these revenue categories producing double digit growth.Transactions were steady and fairly consistent with what we've seen over the last several quarters. On an unadjusted basis, same store withdrawal transactions in the US were up 1% in the fourth quarter. We had a tough comp this quarter due to there being a major multi-state lottery jackpot of $1.6 billion during the early part of Q4 2018 that carried over several weeks and boosted transactions, mostly at our convenience store locations.We estimate the impact could be worth around a percentage point of headwind. So normalizing for this event we believe that the adjusted same store transaction growth rate would have approximated 2% for the quarter. Also consistent with recent trends, our surcharge free withdrawal transactions continue to perform well and were up 7 %.Moving to our Europe and Africa segment. Our ATM operating revenues were about flat for the quarter and adjusted EBITDA was up 4% for the quarter, both measured on a constant currency basis. As a reminder, we still have the impact of the second LINK 5% interchange rate cut in the UK that we did not cycle on until January 1st 2020.Our same store withdrawal transactions were down 3% for the quarter. We are able to offset much of the impact of the interchange rate cut and transaction declines in the UK by switching some of our ATM to pay to use early this year and by generating slightly higher revenues from DCC.But revenues in our UK business which is the largest component of our Europe and Africa segment were still down in the quarter. However, we did continue to see double digit top line growth across Germany, Spain and South Africa in the quarter, which almost completely offset the slight decline in the UK.In our Australian segment, revenues were down 8%, while adjusted EBITDA was up 19% both on a constant currency basis for the quarter. We continue to optimize our operations and rolled out DCC on a number of our ATMs during the quarter. At the corporate level, we had a slight decline in expenses which assist in driving our strong consolidated quarterly results.Switching over to our key profit measures, adjusted EBITDA for the quarter was up 14% as reported and up 15% constant currency, as we had strong flow through of our revenue growth and continued focus on operational efficiencies, each of our segments provided EBITDA growth for the quarter. A strong testament to the team's focus on operations and process improvement.We continue to consolidate and simplify our business operations, enabling operational and cost efficiencies. We have a team dedicated to process improvement and have in-year and multi-year targets across the business.Excluding stock comp, SG&A costs for the quarter were down 2%, mostly attributable to the lower professional fees. These lower costs were achieved while continuing to invest in information security, technology and marketing.The net result of the revenue growth coupled with solid operations and cost management was at 220 basis point improvement in our adjusted EBITDA margin for the quarter, with each of our operating segments contributing to the improvement.Our adjusted net income per diluted share for the quarter was $0.70, up $0.23 or 49% from Q4 2018. Growth in adjusted EBITDA accounted for almost $0.17 of the growth. Lower interest, depreciation and share count accounted for the other $0.06 of the growth.Depreciation expense was a little lower than forecast due to a combination of timing and cost estimates of some of the new asset deployments. CapEx for this year came in at a $125 million, slightly below our most recent CapEx outlook and $10 million below our outlook at the beginning of 2019.These adjustments are due to a few deployments being pushed into 2020 and they drive a portion of the slightly higher CapEx in our 2020 outlook. Of $125 million in 2019 CapEx almost 65% related to growth and new product investments, with the balance related to maintenance and infrastructure, including our new ERP system.We had another strong quarter of adjusted free cash flow reporting $31 million for the quarter and our adjusted free cash flow for the full year was $150 million, a new company record.Moving to the balance sheet. Our net leverage ratio at the end of the year was 2.4 times adjusted EBITDA. We paid down $27 million on the revolving credit facility in the fourth quarter and $96 million for the full year. We also used $50 million of adjusted free cash flow to opportunistically repurchase 1.7 million shares during the second and third quarters of the year.With $160 million drawn on a revolver at year end, we have plenty of liquidity and available borrowing capacity on our $750 revolving credit facility. As many of you know, we have a $208 million convertible instrument that measures, I am sorry, that matures in December of this year. We continue to evaluate all options but our current plan is to repay these notes with borrowings on revolver.As a result, we are continuing to report these convertible notes as long term debt on our balance sheet since we have the ability and intent to refinance the notes with our committed revolver, which runs through 2024.With the current net leverage ratio of 2.4 times adjusted EBITDA, we are now within our target leverage ratio of 2 to 2.5 times. In the near term, we plan to continue to pay down debt, while having the ability to opportunistically repurchase shares. As we currently plan on continuing to generate strong cash flows and drive towards the lower end of our target leverage range, we would expect to communicate a longer term capital allocation plan during the year.Now let me turn to the outlook for 2020. For revenues we're expecting a range of $1.37 billion to $1.4 billion. Once again, we expect that of our three segments our largest segment North America will have the strongest revenue growth and that it will be driven by a combination of continued growth in Allpoint, bank branding, managed services and some newly ATM deployments.A couple of quick notes on our revenue outlook. First, we accept - expect same store withdrawal transaction trends to be similar to what we experienced during 2019. Secondly, we have a few retail locations such as casinos in North America with contractual changes that will create a gross to net revenue adjustment on certain revenue streams in 2020 and carrying into 2021.These changes will not impact our bottom line and will slightly benefit our margin going forward, but it results in about percentage point of total revenue growth headwind in 2020.We're also expecting another percentage point of headwind from lower equipment sales in 2020, as we had a strong 2019 in this category. This is a lower margin products that will have minimal impact on the bottom line. Adjusting for these factors, our outlook range is consistent with the medium term outlook that we provided at our Investor Day of 3% to 5%.On adjusted EBITDA, we're expecting a range of $325 million to $335 million. This will be driven by good conversion of our top line growth to the bottom line, while continuing to focus on operational improvements across the company. And as our outlook implies, we expect to deliver margin expansion again in 2020.Adjusted net income per diluted share is expected to be in the range of $2.58 to $2.70. This is driven by a few moving parts. We have a slightly higher expected tax rate in 2020 primarily as a result of a 2019 tax rate benefit related to some disallowed interest deductions in 2018 that we were able to recapture and benefit from during 2019.We are also expecting slightly higher depreciation expense as we deploy more deposit taking in ATMs and continue to invest in new products. Interest expense is expected to decline due to our continued debt reduction. Finally, we're expecting a slightly higher share count.We're expecting capital expenditures next year of approximately $140 million. The increase over actual 2019 CapEx of $125 million is partly due to some carryover of the originally planned 2019 CapEx into 2020. Approximately 70% of the expected CapEx for 2020 is growth related as we continue to deploy new machines, including deposit taking ATMs and invest in new products and technology. We anticipate spending the remaining 30% on maintaining and refreshing a portion of our ATM estate, while continuing to invest in our infrastructure.While we do not provide specific quarterly guidance, we think it is useful to provide some color regarding the anticipated quarterly distribution of our 2020 outlook. Starting with revenue. We anticipated distribution across the quarters that should look very similar to 2019 as a percentage of total revenue.We also anticipate adjusted EBITDA will have a very similar percentage distribution to that of 2019, but with slightly higher variability across quarters, primarily in Q1 and Q4 due to operating leverage and other factors. This would result in Q1 and Q4 having the strongest growth comparisons with low double-digit adjusted EBITDA growth, while Q2 and Q3 are anticipated to be in the mid single digits.I would like to conclude my remarks today by reiterating our comfort with the medium term financial outlook we provided at last year's Investor Day. As you can see, our 2020 outlook is in line with what we had communicated, which was revenue growth of approximately 3% to 5%, adjusted EBITDA growth of 7% to 9% and CapEx at 8% to 10% of revenue.With that, let me turn the call back over to Ed.

[Edward West:]

Thank you, Gary. I'd like to finish our comments today with a special thank you to the global Cardtronics team. You have made a real difference. Our customers believe in this company because of you. You helped us deepen relationships across both our retail and financial partners. You are part of a transforming and growing company that has a purpose driven mission.To our shareholders, thank you for your confidence in this team. We recognize that trust is not given but earned over time. We are committed to delivering long term value creation through durable and increasingly diversified growth and cash flows. In addition to the business results, we return some value to you in the form of an opportunistic share repurchase in 2019.With our strengthening balance sheet and forecasted growth, we expect to announce further plans for longer term capital allocation this year. We have spoken to many of you on this subject and value your input on the topic.Lastly to both our shareholders and employees, Cardtronics has a purpose-driven mission. We are champions of cash, not because cash is far superior to all other forms of payment, but because citizens and the communities we serve deserve payment choice.Cash is freedom and freedom is choice. People should not be mandated on how they pay for their goods and services. They should have the freedom of privacy of their transactions. It should be secure, not able to be hacked and it should be reliable, meaning, it always works irrespective of the environmental conditions.Increasingly consumers and now elected officials are recognizing the importance of protecting choice in consumer payments. Many jurisdictions across the U.S. have recently passed laws, including states in major cities requiring cash to be accepted at the physical point of sale. And now we are pleased that it's being recognized at the federal level in the United States with a bill in the House called the Payment Choice Act. This bill has strong bipartisan support and we encourage everyone to support the Payment Choice Act.So with that, operator we’ll now turn it back to you and open up for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Peter Heckmann with D.A. Davidson. Your line is now open.

[Unidentified Analyst:]

Good afternoon, gentlemen. This is Alexis on for Pete. Congratulations on a strong end to 2019.

[Edward West:]

Great. Thank you, Alexis.

[Unidentified Analyst:]

So just a couple of questions on the guidance expectations for 2020, is with the expected slightly higher share count, can we assume that there are no buybacks included in the guidance?

[Gary Ferrera:]

That's correct.

[Unidentified Analyst:]

Okay, great. And then are there any FX headwinds or tailwinds built in?

[Gary Ferrera:]

There is a probably a slight tailwind when you look at our numbers on the earnings release and you add them altogether there's probably just a slight tailwind, but it's pretty close, if you think about it as a year-over-year.

[Unidentified Analyst:]

Okay, great. And then could you just walk us through some of the biggest drivers that you're seeing for margin expansion in the 2020 guidance?

[Gary Ferrera:]

Yes. I mean, as I mentioned on the call it's pretty much flowing through the revenue we have. I mean, very high margin, stuff we're doing. And then obviously just consistently focusing on operational efficiency here and driving margin. So it's a big focus for us.

[Edward West:]

Yes, I would just say the other thing, as we talked about really last March going back to the two sided the network in the U.S. and driving more, more transactions at those are key locations in our network scale and offers more and more scale. So they come in on an effective way to grow margin and scale with that additional transaction volume.And then ongoing like what we've done around other parts around the world, just driving a relentless focus on efficiencies, effectiveness and an operational performance and the team has just done a super job on that and we'll continue on.

[Unidentified Analyst:]

That’s great. Thanks. And then if I could just squeeze one more. And so the new mobile API software program that you developed in-house, how is that, if you could I guess, please explain how that will fit into the existing operating software programs and whether or not that will require any rollout expenses or what you're looking at in terms of rolling it out?

[Edward West:]

Well, so two different things. So one, we've got an API for coming in for cash, cash-out and coming into our network. So that then allows you to - an entity to come in directly to us into our API and then through a mobile transaction either a code or a QR code to take cash out at the ATM.Separately, is also - wee developed a software application that really sits on top of the operating system at the ATM which allows different business layer transactions to occur that we can drive from here centrally. It's agnostic to the different operating systems. As you know, we have a very diverse fleet. But now having this controlled where we've developed it in-house we manage it, will allow for a lot more scalability, but we're going to roll that out on a measure basis. It's in the market now and we'll continue to do that through this year.

[Unidentified Analyst:]

Perfect. Thank you.

[Edward West:]

Thank you.

[Operator:]

Thank you. Our next question comes from Andrew Jeffrey with SunTrust. Your line is now open.

[Andrew Jeffrey:]

Hi, guys. Good afternoon. It's certainly nice to have an uneventful call like it.

[Edward West:]

Keep it that way, but thank you.

[Andrew Jeffrey:]

So, I'd like to dig in a little bit on the Neo bank opportunity and I wonder Ed, if you can opine a little bit or shed some light on perhaps the ongoing opportunity for growth there. I mean, you've signed a number. There are a couple maybe bigger ones that are missing from the roster, do you anticipate? Or do you think there's opportunity there?

[Edward West:]

There's ongoing, so - or you know for many different ones that are still out there. Clearly as I talked about before, Allpoint being recognized as the network of choice there because of the convenience, the experience and just the value proposition for many of the Neo banks and fintech. And also obviously the national footprint that we have and the convenience that that really brings forward to their customers that they have.Separately, you know, we're continuing that - I think this last - this last quarter we announced several who were up and running and several who were actually coming into the market as well and then spoke to the growth that several have experienced. As you can imagine many of these are earlier on, but as they get launched and they begin to scale very rapidly, for example a couple of them that you know the transactions or the tens of thousands per month grew within the year 400% and 500%. So it's an important aspect where we see is more future growth.I think also the final point Andrew make on this, is it goes back to the importance of the software as well. And that what we see in building here is that physical to digital gateway and allowing for both cash-in and cash-out capabilities and drive a tailored experience for their customers.As you can imagine I mean, these fintech they know their customers, they know their segment very well, we can tailor that experience at the ATM for them because we are an end to end solution and having all parts of that network and now having the software with the key capabilities. And so as they grow, so can we. And we both evolve and win together.

[Andrew Jeffrey:]

Okay. I'll look forward to hearing more about that. And I guess, the other thing that has come up I guess in the last week or two is - and I know it's hard for you to comment directly on it, but I guess there have been - just been some conjecture in the market that perhaps one of your competitors would be coming for Speedway from a takeout perspective.Can you maybe frame up, especially since you have a newer announced - recently announced deal? Can you frame up what that might mean or how you think about that in terms of long term planning that might be the better way to approach the question?

[Edward West:]

Sure. So just obviously as you're speaking out on Speedway, Speedway is just a terrific partner. We have a long time relationship with them which is going through a multiple renewals. We operate both branding and Allpoint on the network. And it's about - you know I’d say it's about 3,300, approximately 3300 units on that. And obviously you know, we read the same thing you have about the speculation, we know as much as you do on that.I think what's really important though as we think about this. They are - you know, one of our top five retailers in the world, and as you'll see in our 10-K that will file here soon, if you combine that the top five retail locations, our total of about 22% of revenue and no single retailer has more than 6%. Obviously they are one of those top five and in that period.The other thing that we've put in our 10-K is that the average remaining duration of the contracts of those top five is approximately 3.5 years. And as is the relationship with Speedway is in line with that average.

[Andrew Jeffrey:]

Okay. And if I could just squeeze in the last one quickly, Gary any commentary on free cash flow for ’20?

[Gary Ferrera:]

Yes, we haven't really provided any guide on it, but you know, we have slightly higher CapEx, we got lower interest expense. So I mean, you could do the math. There's not a lot of whole lot of bits that we haven't told you other than working capital.

[Andrew Jeffrey:]

Okay. Fair enough. Thank you.

[Edward West:]

Thank you.

[Operator:]

Thank you. And our next question comes from Ramsey El-Assal with Barclays. Your line is now open.

[Ramsey El-Assal:]

Hi, guys. Thanks for taking my question. I wanted to ask about the evolution of the kind of competitive landscape in both the UK and Australia where we've seen a lot of dislocation from different types of development in those markets. Are you seeing a winnowing down and the sort of independent ATM deployer competition in those markets as the economics have sort of changed and maybe you don't support the business models the way they used to? Have you seen competition kind of get cleared out in those markets in a certain sense or is that too optimistic of a statement?

[Edward West:]

I wouldn't say it cleared out. Clearly there are changes in the market. Those markets have been more challenged, those who have lower scale, products and solutions and you know, probably weaker balance sheets would see issues over time and obviously there's - some of that is out there.Where we've actually seen more is in the reduction of capacity in the markets in terms of pulling out the number of ATMS. For example you mentioned the U.K. UK just a couple of years ago, a few years ago it was roughly about 70,000 ATMs, as of 12/31 was around 60,000 ATMs.So as I mentioned in my mark - in my comments earlier you know, we think that these markets will continue to rationalize. Over time it does take time to do that. A lot of those reductions have been both independent and on the bank side with ongoing bank closures, branch closures, pulling ATMs, but also the independents are rationalizing their footprints as well.Same things happened in Australia as well where the market is now at approximately 26,000 ATMs and continuing to decline with a lot of that - again on both sides of the bank, as well as independent.

[Ramsey El-Assal:]

Okay. And then - and you've addressed a little bit of this in your prepared remarks, But can you give us a little more commentary on the accelerating ATM operating revenues in North America sort of pass out the drivers in that market?

[Edward West:]

So in North America, now let’s just focus on right now on the United States which is obviously the largest component, an element of that, going forward specifically in the 2020, I think as Gary added in his comments, we would see you know, again ongoing strong growth in the bank branding and surcharge free networks line, really we've seen a lot of Allpoint ongoing expansions with Allpoints the signings there.You know we'll continue to see branding, those would be big drivers. Managed services you know, continuing to bring in additional managed services relationships as well. Those three key areas we think would be the biggest driver, but obviously you will have additional solutions that are becoming one as well. But those were early on, on the market.

[Ramsey El-Assal:]

So despite you called out some really high growth rates for some of the challenger bank and fintech type business. But that's really too early to have made it kind of a contribution here to the P&L. So that's really a potential future source of growth as that stuff ramps. I would think?

[Edward West:]

Exactly. And the other thing in the U.S., I think you probably see I think Gary kind of touched on a little bit on the capital side you know, additional placements where we had not had as much over the last couple of years to see more placements just for example like the expansion with Couche-Tard and see additional placements coming on board.

[Ramsey El-Assal:]

Great. Thanks so much.

[Edward West:]

Thank you.

[Operator:]

Thank you. Our next question comes from Tim Willi with Wells Fargo. Your line is now open.

[Tim Willi:]

Hi, thank you. And good afternoon. Two questions. The first one I apologize I missed sort of the first 10 minutes of the call. But relative to the revenue declines in the U.K., is there any difference in the trajectory, I guess sort of the same question for Australia. And then I had a follow up.

[Edward West:]

So I think Tim, you all have background noise where you are. I think your question is around the revenue implications in both the U.K. and Australia?

[Tim Willi:]

Yes, that's correct. If the rate of decline has changed to any great degree.

[Edward West:]

Yes. I mean, obviously in the U.K. you had the big change year over year change, kind of - it's really kind of hard to compare. There's been such a dramatic shift in terms of our network, the move from free to use to pay to use, rollout pay to use light. We pulled ATMs out of the market.I think now we really kind of looking at what's the ongoing headwind in terms of transaction which were all declined in that market and also frankly in Australia as well.As we talked about in our guidance, you know, the UK as we talked about last year from a revenue standpoint offset by growth where we have strong growth in our growth markets of South Africa, Spain and Germany, those continue to do well, to mitigate and offset that in our Europe and Africa segment and in Australia the team has just done a super job in terms of rationalizing its base, operational excellence and drawing - resulting in strong EBITDA and free cash flow growth.In the UK as I put in my comments earlier. You know, we're going to over time some of the products that we've been developing and incubating on the US side over time we'll export that to the UK. I do believe over time that market will continue to rationalize as we've been seen and the transactions will normalize too.So I just think some of that takes time. In the interim we'll continue to optimize our network and really generate a lot of free cash flow that - that we drive there.

[Tim Willi:]

My follow up, sort of is around I guess Allpoint in the branding and Managed Services side a bank, you know, through this first quarter and I guess first quarter earnings season. A lot of that bank technology providers have actually been signing various types of technology - contracts with I think banks get more larger than we typically would have thought would be making outsourcing decisions for their core or so their online, it definitely seems like the bigger banks are coming to that conclusion.So I'm just sort of curious as we think back through your last year or so with you all and you think about small mid versus large banks. Is there any of that same type of dynamic where you're sort of seeing the responsiveness or the interest level from larger than sort of the sweet spot is emerging?

[Edward West:]

Absolutely. I can't - you know I would say that's probably been one of the biggest changes since I've been at the company. And then over the last two years that our solution is a suite of solutions, whether it's Bank branding, Allpoint, Managed Services are really resonating at all levels, at all size institutions.And it really goes back to that theme, a central theme of one of our key areas and thrush for growth and the catalyst behind that is branch transformation. You mentioned some of the big banks, but you know just over the last few quarters we've announced expansions with P&C, USAA, surcharge free branding with Visa, a leading retailer, Cap One expansions with Citi and a new relationship with U.S. Bank. So yes, with FIs at all levels and frankly that's what drives some of that - that enthusiasm as we look forward.

[Tim Willi:]

Great. That's all I had. Thanks very much you.

[Edward West:]

Thank you.

[Operator:]

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

[Kartik Mehta:]

Good evening. Ed, I want to ask a little bit about the U.K. market, as you said it's changing and I know you've converted some of your machines over to a surcharge. And I'm wondering what you're seeing in terms of pricing power, how consumers are adapting to the new - to the new marketplace and if you have pricing power there?

[Edward West:]

Well, obviously we’re not going to talk about pricing power. But as I step back thinking about the U.K., obviously is a big part in the culture and society is the free to use and we add you know more than half of our state continues today being free to use environment, which is a is a fixed interchange.And with that obviously some very important from a societal standpoint, the communities, we're now citizens recognized much more and the importance of having that ATM particularly as our branches have pulled back, ATMs have pullback in that capacity.And I said we would continue with more and more free to use ATMs, but obviously that’s been in a rational basis because of the pricing changes that LINK put forth, which drove that conversion to many more pay to use. But it just would be just to make it economical. Otherwise, it wouldn't be economical based on the various needs and we would pull the machine.We have multiple different levels. Some machines are out there around £2 or less and others or are less than a £1 in charge. And it just depends on that. We're constantly looking at various locations, see where is supply demand opportunities, we’ll move machines, we will can switch on different things based on if we see others changing and which has implications on demand in a particular area. So we would try to stay fairly dynamic on that.

[Kartik Mehta:]

So just in that regard, do you see - do you see much of mix shift in your portfolio in the UK or kind of where you are from a free and free to use and surcharge mix and do you think that's going to stay where it is or do you see that changing in 2020?

[Edward West:]

Yes. We look at it every day in terms of where it needs to be and constantly trying to optimize. Today the majority of our machines are free to use and we will continue to evaluate and look at those again based on supply and demand.The great news is we have a terrific network there. We have the locations where our largest footprint in the country. We have our own operations teams, our own CIT teams. We can be very flexible. The team there is done on great job this past year making our platform and operations much more variable where it used to be more fixed and more variable which allows for more flexibility.So we'll change that, optimize it. I wouldn't want to forecast what exactly is going to look like by the end of the year, but I do believe the market will continue to rationalize in terms of capacity in the space.

[Kartik Mehta:]

And then just one last question, Gary, you talked a little bit about BTC and you said you added some markets this quarter, I think you started off with London. And are there other opportunities, do you see opportunities where your ATMs are in these other countries where there is enough tourist traffic which would benefit you?

[Gary Ferrera:]

Well, I mean we've been talking about it during the year that we rolled it out in quite a few places. I think when I was trying to get across is that in some of these more touristic areas you saw a spike up because we had it pretty much deployed in Q3 and it started last spring. So as you got to Q4 when the tourists obviously trail off a little bit that's what you want to see seen a little bit of weakness in the U.K. for example.But I mean we're always looking to optimize it. And so we'll continue to monitor but it's not like we just need to go to a major country that we haven't thought about yet.

[Edward West:]

And if I can add on that, I think that's actually an example also of why I'm pretty excited about what we announced today around our new proprietary ATM operating application. This just goes back to the company's history where a lot of growth, a lot of acquisitions. We've spent a lot of time in the last two years integrating platform, systems, people, bringing in skills, talents, technology, capabilities, software development where now we would have command and control over our network and our platforms to able to roll out products solutions and control it centrally.An example which we decided there with DCC. That's one of the reasons why it took longer for us to roll that out, should have been quicker but it's because we had a fairly - we have different systems all around the road as a result of a lot of different applications. And this is a key reason why we're also optimistic about our ability to drive margin expansion because the efficiency, the time to market and capabilities that will allow going forward is very different than historically.

[Kartik Mehta:]

That makes sense. Thank you very much. I really appreciate it.

[Edward West:]

Thanks, Kartik.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from Bob Napoli with William Blair. Your line is now open.

[Bob Napoli:]

Thank you. Good afternoon. Nice job on the year and I guess the bank branding and surcharge free revenue growth actually accelerated for the last several quarters and it was up 19% in the fourth quarter. You know that's pretty impressive and I would imagine that's relatively high margin revenue stream.What is the outlook for the growth of that and is it broad based. What is what's growing faster, bank branding or surcharge free. And any color on relative size would be really helpful?

[Edward West:]

Sure. I would say first of all it's a really as a result of a lot of the different things we've been announcing over the last year which is why we talked about the beginning of the year the pipeline that we had its very broad based, both branding and Allpoint solutions, is remember as one of the reasons why we always talk about on the call, as we go when they're talking to a financial institution with a broad suite of solutions so we can tailor [ph] that based on what they need, they need more presence, branding awareness for their customers, they want surcharge free access on a nationwide basis, they want to keep their platform but allow an operational expert to manage that, we can tailor a lot of different solutions there.So we've announced throughout the year many relationships, expanded many relationships, add new ones on multiple fronts and you'll see the compounding of that showing up into the fourth quarter. We haven't given - you must be clear going forward.

[Gary Ferrera:]

Yes. No just going forward I mean, it continued same track, but as we as we said on our Investor Day last year I mean, that was if you remember the chart we showed you know a good 40%, 45%, 50 % of the growth we expected to come from surcharge free. And we're in that in that range a little high, little low in 2019, but right on track from what we told everybody.

[Edward West:]

That's - just goes back to what we drew out there and talked about in March of that two sided network in the United States having that and we're in the middle of that network. And then solution working with customers and close partnerships with financial institutions and retailers and driving more and more volume there to those locations and getting that scale.So I just think you'll see that coming together where we see more and more interest in that, it just goes along with that theme around branch transformation as a solution for the market. And now I think you combine that with the digital to physical gateway on a cash-in, cash-out solutions for mobile enabled.

[Bob Napoli:]

And so you would expect that line item to be a double digit grower then for the next few years is that?

[Edward West:]

We just think they could be one of the lines that has there the greater percentage of growth…

[Bob Napoli:]

Okay. Can you give any feel for size of the combination I guess of Spain, South Africa and Germany and the combined growth rate?

[Gary Ferrera:]

We haven't gotten specific as to those there - they're rather large but off a smaller base. So - but we have not broken down anything so. We have recently that you know, South Africa is now surpassed 4000 ATMs in that market. The team there is doing a terrific job. We have key partnerships with most many of the leading financial institutions in the country and believe we still see a long pathway of growth there. But frankly also in Spain and Germany and we’re seeing actually more bank relationships in those markets building as well.

[Bob Napoli:]

And then last question, do you have - your balance sheet obviously is in very good shape, you’re leverage is where you wanted to be and I think Ed and Gary you guys had sworn off acquisitions, at least for a while. Is it now that you know, have the ship really clicking if you would, is it – are there areas of interest on the M&A front that would be - that would improve the network significantly. So are you looking at M&A in anyway shape of form?

[Gary Ferrera:]

We never – not looking at M&A. I mean, we take all the inbounds, we look at things. But again, since Ed and I have worked together in the last 2.5 years, it's been about focus right, that’s all we want to do is focus and as time moves on there will be some transactions that will pop up that makes sense like the smaller ones we did last – in 2019, but it’s got to be the right one.

[Edward West:]

We just take a very disciplined approach to it and have a very hurdle rate and how we leverage our current platform. So we’ll continue on that but I think was really important for all of us a team is continuing to focus on that product driven organic growth rolling our more and more solutions and hitting singles and doubles everyday and continuing to move forward on that front.

[Bob Napoli:]

All right. Thank you. Appreciate it.

[Edward West:]

Thank you, Bob.

[Operator:]

Thank you. And I am showing no further questions in the queue at this time. I’d like to turn the call back to Edward West, CEO for any closing remarks.

[Edward West:]

Great. Thank you all very much. Thank you for your support and interest in Cardtronics, and we look forward to talking to you again in about 90 days. And have a terrific day.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, you may now disconnect.