Cardtronics plc
Q2 2018 Earnings Call Transcript

Published: 3 Aug 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Cardtronics Second Quarter 2018 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. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference Mr. Brad Conrad, Executive Vice President and Treasurer. Mr. Conrad, you may begin.

[E. Brad Conrad:]

Thank you. Good afternoon and welcome to Cardtronics' second quarter 2018 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, 2017, 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 updated 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've also posted supplemental investor materials regarding the second quarter results at www.cardtronics.com. With that, I will turn the call over to Ed.

[Edward H. West:]

Well, thank you, Brad, and welcome, everyone. We had a very good second quarter, one that was marked by excellent operational performance across our business units, solid cash flows and an improving outlook for the business. My remarks today will focus on three main points, first, the company is executing on the operating priorities that we outlined at the beginning of the year, and the second quarter results are a testament to that execution. Second, we've had some positive developments in the marketplace impacting our business, most notably in the United Kingdom. And third, we are increasingly more optimistic about being the champion of cash, which we believe is a good place to be going forward. Starting with execution. Let me first remind you of the priorities that we outlined earlier this year, first, drive organic growth and improve the durability of our revenue streams; second, maintain a relentless focus on operational excellence and portfolio optimization; third, generate free cash flow and pay down debt; fourth, engender employee pride. And we had a lot of progress against these priorities during the quarter as evidenced by a double-digit same-store surcharge-free growth in the U.S., solid organic growth, excluding 7-Eleven in the U.S., exceptional network availability, margin expansion and investing in and piloting new products in an effort to drive future durable organic revenue growth and finally, good cash generation. Looking to North America, excluding 7-Eleven, ATM operating revenues were up 5% on a constant currency and organic basis for the quarter. The result was driven by a combination of U.S. same-store transaction growth and growth in network and bank-branding revenues. Looking specifically at same-store withdrawals, we experienced year-over-year growth in the U.S. of approximately 8% driven by double-digit growth in surcharge-free withdrawals led by Allpoint. This growth represents new customers going to brick and mortar retailers that our network is driving. For example, our pharma segment experienced high-teens year-over-year percentage growth and withdrawal volume representing over 2.5 million additional transactions this quarter alone. We anticipated this strong surcharge-free volume growth due to the recapture of Allpoint transactions and new program additions. We estimate that about half of this quarter's 8% withdrawal growth is attributable to the retention of Allpoint customers staying in the Allpoint network and going to other retailers post the termination of the 7-Eleven agreement. But what pleasantly surprised us was the level of surcharge transactions which steadily improved throughout the quarter versus our expectations. Any way you look at it, it was a solid quarter in terms of transactions. On the new relationship front, Bank of the West has become one of our newest branding clients. By late September 2018, ATMs at over 140 Walgreens locations in the Sacramento and Denver areas will be branded with Bank of the West, one of the nation's largest banks, enhancing the bank's distribution and cardholder access to cash in key markets. We also renewed and expanded a relationship with Parkland convenience stores in Canada, which enabled just over 250 new sites. These new sites will also be bank branded. We signed 28 new participating financial institutions to Allpoint during the quarter enabling an additional 225,000 cardholders with surcharge-free ATM access. North America results are also benefiting from an operational standpoint as a result of consistently high availability of our fleet across the quarter. The improved availability combined with other actions we have been taking have resulted in an improved cost structure. Gross margins in our North America segment were about flat compared to Q2 of 2017 even after losing the higher margins 7-Eleven relationship in the U.S. To summarize, the performance in North America segment this quarter was quite strong and was driven by operational execution and was complemented by improving sales execution including several nice commercial wins. As a result of our secure, well-recognized and convenient platform in the U.S., we are gaining traction on becoming an increasingly important partner to financial institutions. Moving across the Atlantic, revenues in the Europe and Africa segment were up 5% this past quarter on a reported basis, down 2% constant currency. This constant currency result was about in line with what we saw last quarter. Similar to the first quarter, revenues in the UK were down but we continued to see significant top line growth in our Germany, Spain and South Africa businesses, which all grew at double-digit rates again this quarter. The UK decline was in part driven by our optimization efforts and removals related to the anticipated rate reductions announced by LINK. Since the beginning of the year, we have removed over 2,000 ATMs from service. We estimate that the ATMs that we removed had a negative impact on year-over-year revenue growth by approximately 5 percentage points within the segment this past quarter. That lost revenue did not mean lost profits though as our reported results reflect profits in our Europe and Africa segment were up from the second quarter of last year on the lower revenues. Adjusted EBITDA was up 20% for the quarter or 13% constant currency. We experienced a moderate rebound on transaction volumes in the UK during the second quarter when compared sequentially to the first quarter. In the second quarter, the same-store withdrawal metric was down about 4%. The year-over-year rate improved as the quarter progressed and was likely benefited by the good weather in the UK. Additionally, the Visa network experienced a widespread disruption for several hours on a Friday in June in the UK, providing a minor boost for us in the second quarter, but also served as a nice reminder to the public of the importance of cash and consumer choice. The additional transactions resulted in a record-high volume day for us and the UK. As I previously mentioned, we had been adjusting our fleet in preparation for the 5% decrease in the LINK interchange rate that went into effect on July 1 and the next 5% reduction scheduled to occur in January of 2019. In addition to the over 2,000 ATMs we've removed from service, we have now converted over 500 ATMs to pay-to-use from free-to-use. We're monitoring the performance of these ATMs as well as the actions by LINK. And to the extent it makes sense to do so, we may convert a few thousand additional ATMs to pay-to-use over time. As we mentioned on the last call, we believe 2018 revenue growth in Germany, Spain and South Africa will mostly offset the headwind in the UK for this year but we'll see an uptick in the rate of decline in the second half of the year in this segment compared to the first half of the year as the initial LINK interchange rate reduction became effective on July 1. In Germany, we are very pleased to announce a new relationship with Total. This new relationship will initially be for over 200 sites at Total gas and convenience locations. We're gaining some momentum in Germany and we believe we are well-positioned in this attractive market. Moving to Spain where our install base is comparatively smaller than our other markets, our growth in momentum is accelerating. As a result of focus and execution, we have already sold more new sites in the first six months of 2018 than we had in the previous two years combined. In South Africa, our business continues to grow at an exceptional pace. We have grown our ATM count in South Africa by nearly 50% since we acquired the business in early 2017 and now stand at over 3,300 ATMs. Over two-thirds of our ATMs in South Africa are branded by leading banks in the market. Just this year, we have already added over 200 ATMs at premier retailer, Shoprite, in South Africa. All of these locations are bank branded. We expect to add additional sites with Shoprite over the remainder of the year. We also have partnered with the Mercantile Bank, our fourth FI partner in South Africa adding over 200 high-traffic locations. Moving quickly to Australia and New Zealand, revenues were down about 12% for the quarter which is consistent with the first quarter result and driven by 6% same-store declines, portfolio optimization and attrition and partly offset by new business. Same-store transactions do still continue to decline at a mid to high-single-digit rates. However, we have not experienced a material further decrease in transactions since the action by the four largest banks in Australia removing direct charges for domestic transactions at all of their ATMs. On the new business front, we're also pleased to announce that we are now the exclusive operator with 7-Eleven in Australia now handling over 600 ATMs. The second area that I wanted to bring your attention to on the call are the encouraging developments we're witnessing in our markets, which frankly is a nice turn of events. These developments include the previously mentioned power of our network in surcharge-free offering for traditional and non-traditional financial institutions. After several quarters of the transition in the U.S., it is now clear that the Allpoint transaction recapture has been sustained at new retailers. In partnership with our retailer and Allpoint issuing FI partners, we are driving cardholder awareness through targeted marketing and transaction-driving initiatives. The transaction levels have been consistent and growing. That said, the comparable year-over-year surcharge-free growth rates in the U.S. will now begin to ebb going forward due to the cycling of the Allpoint network access being removed from the 7-Eleven U.S. locations in July of last year. Second, we have clear and further evidence that convenience does matter. In Australia and places where we are competing with free, consumers are opting for convenience where they see good value proposition. Third is the recent market-driven decision by LINK in the United Kingdom. As we announced a few weeks ago, the LINK board decided to cancel the third interchange rate cut and suspend the fourth 5% rate cut subject to further review. In addition, LINK plans to implement a more responsive cost recovery model when setting interchange that recognizes changes in interest rates and other costs. This is a positive development for us in the market and we are pleased that the various stakeholders involved in the process are willing to have open, constructive dialogues about what makes sense for the citizens of the United Kingdom and ensuring that the appropriate incentives are in place to support a broad, free-to-use ATM system. While we are pleased with the recent progress, it is just that, progress. We continue to evaluate our fleet in the context of this latest development and are continuing to convert certain ATMs from free-to-use to pay-to-use where the lowered interchange rates no longer support the free-to-use model. To summarize, we will have near-term headwinds as a result of the current and upcoming 5% interchange rate cuts, but our outlook and action plans are firming given the recent announcements by LINK. Now, a few remarks about cash which continues to demonstrate tremendous value to consumers and businesses cash does, of course, continue to face competition from traditional competitive payment mechanisms such as credit and debit as well as new emerging payment technologies. Clearly, new payment technologies and consumer adoption have taken some market share from cash, but we believe there's opportunity in this environment where consumers have multiple payment options. Our network-based platform and franchise is uniquely positioned to take advantage of not only the shifting dynamics of consumer behavior but also banks' actions as they look to enhance their customers' access to convenient cash transactions while ensuring customer experience efficiency and security. While consumers are changing their shopping and payment behaviors, banks are adapting and no longer view extensive branches as critical to their customer offering. We continue to see an increasing trend of branch and teller consolidation and reduction across our markets. With that branch contraction, we also believe financial institutions recognize the value of Allpoint and other solutions that we can provide to their retail franchise. We alone are uniquely positioned to offer a full suite of solutions to a traditional or non-traditional retail, financial institution. Our goal is to not only grow our issuer base within Allpoint but the participating FI's customers' usage and engagement rates of Allpoint. As evidence, our U.S. same-store withdrawal transactions were up 8% for the second quarter. That is our best quarterly performance in over 6 years. This growth rate was fueled by growth in surcharge-free transactions which were once again up double digits in percentage terms. While our Allpoint and bank-branded surcharge-free products are driving transactions to our ATMs, we also saw improvement in surcharge transactions. While slightly negative for the quarter, the rate of decline for surcharge transactions was an improvement from recent results. I believe that the surcharge improvement is a testament to a strong economy that is benefiting all income levels in the U.S. as well as our network of conveniently placed ATMs. On a separate note, whether it be recent major card-based network disruptions in the UK or Australia, or recent privacy concerns surrounding social media, consumers and businesses alike are also becoming more aware of the benefit of maintaining choice in payments and the primary benefits of cash, which are reliability, security, and privacy. Now, I could go on about cash for a long time but we are encouraged by our recent results and outlook, and we look forward to reviewing more with you regarding our product investments, outlook and longer-term objectives at an Investor Day in the first quarter of 2019. One other item before I hand it over to Gary, in June, we announced the addition of two new board members, Doug Braunstein and Warren Jenson. Both come to us with outstanding credentials. In addition to being a Founder and Managing Director of our largest shareholder, Doug was previously the CFO of JPMorgan Chase. Therefore, he clearly recognizes the opportunity we have ahead of us within financial services. Warren also brings significant and valuable experience as CFO of a number of industry-leading companies. We're very pleased to have Doug and Warren on the board, and we look forward to working with them to create value for all of our stakeholders. Gary, over to you?

[Gary W. Ferrera:]

Thank you, Ed. I will start with a quick recap of the numbers and some of the key points that drove our financial performance in the quarter. And I will then conclude my remarks with our updated outlook for the year. Just like in the fourth quarter, this quarter's results are significantly impacted by the 7-Eleven deconversion, which commenced in the third quarter of 2017. As a reminder, 7-Eleven in the U.S. accounted for about 12.5% of our revenues and approximately $75 million of our EBITDA in 2017. As a result, many of our reported revenue and profit metrics are down this quarter, as they were last quarter, and will likely be for the remainder of this calendar year. In addition, currency was a tailwind during the quarter and the first six months. So, I'll refer to some of our results on a constant currency basis. However, the second quarter impact was less significant than in the first quarter. Starting with revenues excluding 7-Eleven on a constant currency basis, the overall consolidated growth rate for the second quarter was 1%. In North America, organic constant currency ATM operating revenues, excluding 7-Eleven for the quarter, were up 5%. This growth rate was fueled by strong transactions at our U.S. fleet as our same-store transaction growth rate in the U.S. was 8% for the quarter. This is the third straight quarter of solid same-store transaction growth in the U.S. Similar to the first quarter, growth in financial institutions participating in Allpoint, and growth in bank branding drove additional traffic to our locations. We also benefited from stronger than anticipated volumes at retailers that joined the Allpoint Network within the last 12 months. As Ed mentioned, operational performance and uptime across our U.S. fleet was exceptional this quarter, which also contributed to the transaction strength. Finally, we also likely retained some transactions from cardholders that are continuing to use ATMs within our Allpoint Network after the 7-Eleven relationship ended. It is very difficult to precisely estimate this impact, but the effect to recapture these transactions at Allpoint locations could have accounted for 3 percentage points to 4 percentage points of the same-store transaction growth this quarter. It is important to note that we will begin to cycle through this Allpoint recapture impact during the third quarter, which is when Allpoint stopped being available at 7-Eleven locations last year. Moving down the income statement, our consolidated adjusted gross margin for the quarter was up 80 basis points to 33.9% compared to 33.1% in Q2 2017. A few factors are in play that drove this margin improvement. First, we estimate about 30 basis points of improvement from higher margins on equipment sales compared to last year. Similar to the first quarter, we had a non-recurring benefit in our Europe segment, largely related to an adjustment to our liabilities for estimated property taxes of $2 million. We do not expect any further significant property tax adjustments in the foreseeable future. This non-cash adjustment was worth about 60 basis points of benefit. Looking at the core business excluding 7-Eleven, we estimate cost improvement in the U.S. drove about 130 basis points attributable to lower maintenance costs and chargebacks due to the EMV enablement of our U.S. fleet that we were still managing through particularly during the first part of the Q2 2017. These margin contributors more than offset the loss of the 7-Eleven relationship and resulted in the overall 80 basis point improvement from Q2 last year. In addition to the gross margin improvement, we've been able to effectively manage SG&A expenses which were down approximately 6% for the quarter. Part of this is attributable to expected synergies from the integration of the UK portion of our DCPayments business and to our existing UK operations which were largely completed during the first quarter of this year. One item that adversely impacted our GAAP income in the quarter was a $10 million impairment loss we recognized related to our ATMs in our warehouses. Most of these assets are functional ATMs that were removed from 7-Eleven locations but we now considered not likely to be redeployed. Moving to capital expenditures, Q2 CapEx was $25.9 million and our total spend on a year-to-date basis was $46.7 million, down from $69.9 million in the first six months of 2017. While this result was in line with what we anticipated, the FX benefit we received on revenue works against us in CapEx spend. Therefore, we are slightly increasing our CapEx outlook to approximately $115 million from $110 million for the full year 2018. Adjusted free cash flow for the quarter was $33.3 million, up significantly from $4.5 million in Q1, but down from $42.8 million in Q2 of 2017 with the decline from the prior year being mostly attributable to lower adjusted EBITDA in 2018 as a result of the 7-Eleven deconversion and higher cash interest payments this quarter related to the notes we issued early last year on the heels of the DCPayments acquisition. Moving to the balance sheet, our net leverage ratio for the quarter was 2.6 times adjusted EBITDA, down slightly from the last quarter. This leverage ratio calculation uses the same definition as the total net leverage ratio covenant in our revolving credit facility. We expect this leverage ratio to tick up slightly over the next couple of quarters, as we continue to lose the contribution from 7-Eleven in the trailing 12-month results. Due to our previously mentioned strong cash flows in the quarter, we paid down just over $40 million on a revolving credit facility, which more than offset the decline in our trailing adjusted EBITDA from the loss of 7-Eleven. At the end of the quarter, we had $77 million drawn on our $400 million credit facility. As I did on the last call, I'll reiterate that we expect to have healthy headroom throughout the year on all of our covenants in our outstanding debt agreements, and we expect to use our free cash flow to continue to pay down debt throughout the course of the year. Our GAAP tax rate for the quarter was 41% on pre-tax GAAP net income of $6.4 million. With a low GAAP pre-tax income in the quarter, adjustment items are magnified, which results in the relatively high GAAP tax rate this quarter when compared to the high-teens, low-20s statutory corporate tax rate in our largest markets, the U.S. and the UK. Our non-GAAP rate for the quarter was 25% which is close to what we would expect our GAAP tax rate to be over time as we grow our GAAP income. In light of the recent actions and comments by the U.S. Federal Reserve Bank and based on questions we have received, we thought we should take a moment to give some color on the impact of changes in interest rates. First, I'll just say that there are good quantitative disclosures on our interest rate exposure in the MD&A portion of our 10-Qs and 10-Ks. As additional background, our vault cash balances in the U.S. and UK on a combined basis generally account for in excess of 80% of our outstanding vault cash. As many of you know, Cardtronics has exposure to floating interest rates as a result of the cash and the ATMs that is supplied by banks and is generally priced on a spread above LIBOR or another key benchmark rate depending on the market. What the company has done over time is try to mitigate this financial exposure through a variety of tactics, which include financial hedges. Additionally, the company has structured many of its contracts with its partners primarily in the U.S. such that in interest rates can be in part offset by adjustments to payments or billings. We believe we're in very good shape for the remainder of 2018 relative to our outlook and we continuously monitor this exposure and evaluate forward hedging strategies to mitigate risk. Based on current market interest rate forecasts and our current hedges, contractual protections, operational adjustments, and based on the current vault cash level, we do not expect a material net increase in vault cash interest cost from 2018 to 2019. Now, let me turn to our 2018 outlook. The second quarter results were solid and better than we anticipated. The U.S. in particular was a bit better than expected driven by a combination of both top and bottom line improvements Australia was also a little better than we projected. While we initially anticipated significantly higher incremental transaction decline in the wake of the late 2017 announcement by the major Australian banks, we still haven't seen that materialize. As a result, we have increased confidence that while the results in the Australian segment are down, they may still continue to exceed our original expectations for the remainder of the year. Looking into the second half of the year, we do not expect to continue to benefit from a currency tailwind which has mostly been based on the strength of the British pound versus our original forecast. We also will no longer have a benefit from the property tax adjustment. The combined benefit of these two items in the first half was approximately $8 million. In addition, we will be hit in the second half of 2018 by the 5% LINK interchange rate decrease, a $6 million to $7 million EBITDA impact in the back half of the year. While we don't provide a specific quarterly outlook, we can say that Q3 has historically performed slightly better than Q4. And based on the factors previously mentioned, we'd expect to see more significant year-over-year declines in adjusted EBITDA in the final two quarters than we experienced in the first half of the year. Based on the underlying strength of our operations in the first half of the year and our expectations for the second half, we're adjusting our outlook upward for the full year. We are now expecting revenues of $1.28 billion to $1.32 billion, up $20 million on both ends of the range. Adjusted EBITDA in a range of $270 million to $280 million for the year, up $15 million on each side of the range, and adjusted EPS in a range of $1.70 to $1.85. With that, let me turn it back over to the operator for any questions.

[Operator:]

Thank you. Our first question comes from Andrew Jeffrey with SunTrust.

[Andrew Jeffrey:]

Hi, guys. Good afternoon. Appreciate you taking the questions. I guess first off, Ed, maybe I can start digging in a little bit on the bank outsourcing prospects. I think we've seen some real challenges, obviously, from the ATM manufacturers. And I wonder if there's read-through to what banks are doing from that, one. And, two, kind of where you are in terms of standing up the sales force to go after that opportunity.

[Edward H. West:]

Sure. Good afternoon, Andrew, and thanks. I can't speak for the manufacturers but from our standpoint, we look at a very broad opportunity with financial institutions versus just managed services. And I think that's one of the areas where we are fairly unique and differentiate ourselves when we speak with a financial institution, because we have a broad suite of solutions to go into the retail side of the bank or credit union. And we can have presence for their brand at well-known retailers and we can also try to tailor that presence by market and we have a strong surcharge-free solution for their customers in their community that is convenient. And we can also bring forward the largest surcharge-free network in the nation which is Allpoint and then combine that with the managed services solution that you noted earlier. So it's not just that single, it's an enterprise-wide solution and that's where we really differentiate ourselves and I think that's resonating. Now, that said, a lot of the changes and some of the dynamics that I spoke about in my comments regarding the market evolution with banks, contraction with branches, this will take time. These are long sales cycles; and frankly, we believe we're at the early stage of that and encouraged with what we see today going forward.

[Andrew Jeffrey:]

Okay. Appreciate that. And Gary, as a follow-up, obviously, lots and lots of puts and takes but you reported EBITDA and gross margin for that matter comfortably above where the Street was. Is it – can I sum up at least on EBITDA in the second quarter saying there was $2 million and change of tailwind from FX and then about a $2 million benefit from the UK and if we adjust the reported adjusted EBITDA number accordingly, that isn't sort of a clean number. Is that the right way to think about it?

[Gary W. Ferrera:]

The FX is to – I didn't quite understand the $2 million UK...

[Andrew Jeffrey:]

Well, the property tax benefit I assume that's just the bottom line.

[Gary W. Ferrera:]

Oh, okay. Yeah. Yeah. Yeah. Yeah. Yeah.

[Andrew Jeffrey:]

Okay. Okay. So still cleanly better. Sorry. Great. Appreciate it. Thank you.

[Gary W. Ferrera:]

You're welcome.

[Operator:]

Thank you. Our next question comes from Cris Kennedy with William Blair.

[Cris D. Kennedy:]

Hey, guys. Thanks for taking the question. Can you just talk about the momentum that you've seen in Germany, Spain and South Africa and kind of talk about the profitability of those businesses relative to the UK? Thank you.

[Edward H. West:]

Sure. Good afternoon, Cris. So we feel very good about the direction and the performance in each of those markets. Now, as you know, that that (00

[Cris D. Kennedy:]

And that's great color. And then just another question on – I think you mentioned that surcharge transactions kind of improve throughout the quarter. Can you talk about the, I guess, the how they improved throughout the quarter by month, and then any color on July? Thanks a lot.

[Edward H. West:]

Sure. So you're speaking specifically to the U.S. where we did experience a surcharge transaction levels improved throughout the period. Still down slightly for the quarter, but each month, sequentially, it did improve through the period. And again, don't have a clear answer as why other than just believe that strong economy and benefiting all income levels is showing up at our locations which are very convenient. So that has progressed on and July has been attractive at both surcharge and surcharge-free levels as well.

[Cris D. Kennedy:]

Great. Thanks.

[Operator:]

Thank you. Our next question comes from Tim Willi with Wells Fargo.

[Charles J. Nabhan:]

Hi. This is Chuck Nabhan from Tim Willi's team. Thanks for taking my question. I was wondering if you could comment on – a little further on the LINK interchange announcement in the UK and specifically comment on how that changes your view of the economics within the region. And if any operational flexibility the announcement and the removal of the reduction adds to your operations there?

[Edward H. West:]

Sure. Thanks, Chuck. Just a little bit of background on that. Good progress. We're very pleased with the announcement that the board of LINK made which was to cancel the third 5% rate reduction and suspend the fourth rate reduction subject to a review throughout this next year. So that is positive and also understand that cost models and recapture rates there is under further discussion as well. So we – that's all positive. Now, that said, we still have the rate cut that went into effect this past July, this last month, and also have another one ahead of us here in January which Gary noted is reflected in our outlook for the balance of this year. The team there has been very active pulling ATMs in response to this, lowering overhead, moving unprofitable ATMs, moving ATMs from pay-to-use to free-to-use. We have more to go on that. I would just, say, reiterate with my comments that these actions have resulted in more clarity on some of the actions that we have been taking and will continue to take. We'll continue to monitor the market and development. We still have more actions that are ahead of us going through the balance of this year. You'll see more movement into pay-to-use. We do feel better about – from an outlook understanding the various levers to pull, just given some of these recent developments.

[Charles J. Nabhan:]

Okay. Great. Thank you for taking my question.

[Edward H. West:]

Thank you.

[Operator:]

Thank you. Our next question comes from Reggie Smith with JPMorgan.

[Reginald Lawrence Smith:]

Hey. Good evening, guys. Can you hear me?

[Edward H. West:]

Yes, sir.

[Reginald Lawrence Smith:]

Hey. Congratulations on the quarter.

[Edward H. West:]

Thank you, Reggie.

[Reginald Lawrence Smith:]

A few questions. So the surcharge-free transactions were up double digits which is – it's very impressive. I was curious, is there a way or have you guys looked at, I guess, the growth in the number of cards that fall under that? I guess I'm trying to better understand the drivers there. How much of it is positively driven by a growing portfolio of signings that you've done versus kind of more usage by people? Have you guys looked at that number at all?

[Edward H. West:]

Yeah. That's a good – it's a good question. And I'd say it's multifaceted on multiple fronts. So in the U.S., and I think we'll just kind of step back looking at the total withdrawal growth of 8%, as I said in my comments, about half of that, it's hard to know exactly what was the actual retention of Allpoint customer who were using 7-Eleven now went to another retailer in Allpoint. But we attribute about half of that. So some of that is just that same person staying in the network on a now same-store basis. So there's a benefit of that. Separately, there is additional Allpoint. We've had more Allpoint growth across the network and compounded with better engagement. As I said in our – in my comments, we have a proactive activity within our relationship management teams and working with financial institutions and our retailers and partnering with them. How do we draw more engagement? Whether if someone may not even be aware that they have Allpoint capability in their wallet, or if they are, using it more frequently, so it's multi-front there and I just feel like that's a big opportunity in the future going forward. So it's all three of those areas that have benefited in there, Reggie.

[Reginald Lawrence Smith:]

Understood. If I can sneak two more and I guess you talked about Australia being a little better than feared as far as it gets attrition there. What do you think the key – what should we take from that, is it that convenience seems to be more important than free ATM usage in Australia? Like what's your takeaway from that data point?

[Edward H. West:]

Well, a couple of things. One, convenience does matter. So I think this really supports that. Of course, we know that in many markets we have like the United Kingdom, but free-to-use and pay-to-use and based on convenience. There in Australia, it holds true as well. I think it's also on placement. If you went through our analysis as we talked about, when all this first came out looking at locations that are more protected and less protected, moving certain ATMs in other areas that may be more protected or in areas that may be more convenient versus lined up with the – right next to four different of the major banks that are all free. So I think active management by the team there has helped out. But you really never know until now you can see in hindsight because of the actions and locations and breadth we feel based on what we've seen now over the last couple quarters that we're a little (00

[Reginald Lawrence Smith:]

Got it. And one last housekeeping I guess on the tax rate. I thought – I heard 25%, but I wasn't sure what the tax rate – full year tax rate is that's implied in your EPS guidance?

[Edward H. West:]

Yeah. It's about 26%. Full year, we would expect around 26%.

[Reginald Lawrence Smith:]

Got it. Okay. Thank you. Congratulations on the quarter, guys.

[Edward H. West:]

All right. Thanks, Reggie.

[Operator:]

Thank you. Our next question comes from Gary Prestopino with Barrington Research.

[Gary Frank Prestopino:]

Hi. Good afternoon. Hey, Gary, could you just go over some of the puts again for the back half of the year because based on your guidance, in order to get to the range you gave, you're looking at $0.63 to $0.78 of adjusted EPS over the next two quarters. And you did $0.61 in Q2. You didn't have 7-Eleven. Now, I realize you got the LINK issue coming in the back half of the year too. But could you maybe just go over that again just so I can get a better handle on why the dramatic step down in EPS the back half of the year?

[Gary W. Ferrera:]

Sure. So you kind of hit one of the very, very big ones which was LINK, which when you look at that, that's a large number. It's approximately $12 million to $13 million a year or $6 million to $7 million probably in the second half of this year. You also have – we won't have those FX benefits that we had in the first half, which is probably about $6 million between that, but $6 million for the UK rate and it's probably around $4 million from FX. And I think that's probably the same thing. Tax and that's really – those are the main buckets.

[Gary Frank Prestopino:]

Okay. Thank you.

[Edward H. West:]

Thank you, Gary.

[Operator:]

Speakers, I'm showing no further questions in the queue. I'd like to turn the call back over to management.

[Edward H. West:]

Great. Well, thank you very much. We appreciate the support and look forward to talking to you all next quarter and have a great day. Bye.

[Operator:]

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