Cardtronics plc
Q3 2016 Earnings Call Transcript

Published: 28 Oct 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Cardtronics' Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Phil Chin, Executive Vice President, Corporate Development, and Investor Relations. Sir, you may begin.

[Phil Chin:]

Thanks. Good afternoon and welcome to Cardtronics' third quarter conference call. On the call, we have Steve Rathgaber, Chief Executive Officer and Ed West, CFO and Chief Operations Officer. Steve will start off with an overview of the quarter, followed by Ed with details on our financial performance. Then we will take questions. Before we begin, a cautionary statement regarding forward-looking information. During the course of this call we will make certain forward-looking statements regarding future events, results, or performance. Any forward-looking statements made on this call are subject to risks and uncertainties including but not limited to those outlined in our reports filed with the SEC, including our Form 10-K for the year ended December 31, 2015 as amended and other factors set forth from time-to-time in our other filings, including the definitive proxy statement filed on May 19th of this year. Actual events, results, or performance may differ materially. The statements on this call are made as of the date of this call and based on current information, even if subsequently made available by us on our Web site or otherwise. We assume no obligation to update any forward-looking statements made today to reflect events that occur or circumstances that exist after the date on which they were made. In addition, during the course of this call we will reference certain non-GAAP financial performance measures. Our opinion regarding the usefulness of such measures, together with a reconciliation of such measures, is included in the earnings release issued this afternoon and available on our Web site. With that, I will turn the call over to Steve.

[Steve Rathgaber:]

Thank you, Phil. And welcome, everyone. My remarks today will focus on three key messages. The first focus is execution. I am very pleased with the breadth, depth and quality of our execution this quarter. The highlights in this quarter demonstrate continued success with our classic model. But we also achieved key milestones in the continuing evolution of our Company. I'll share more detail in a moment. The second noteworthy message deals with our ability to expand more deeply into the financial institution ATM segment. We are gradually evolving and growing our way into a whole new market segment by embracing a financial institution customer well beyond our classic approach with our Allpoint and branding products. Our goal is to become the ATM infrastructure partner for financial institutions. We can take our scale, expertise and unique capabilities from the retail site to the bank or Credit Union site, whether remote or in the branch. We can be the solution provider for the ATM infrastructure, which for Cardtronics opens access to a new and larger market that contains the majority of both ATMs and withdrawal transactions. For perspective, Cardtronics has accomplished our growth to-date with the smaller retail off-premise segment of the market which is less than half the ATMs and well less than a third of the transaction volumes. We're bullish on the potential of the financial institution owned segment but we recognize that we'll have to incrementally raise our game to fully bank grade if we are to migrate beyond the retail site placements that have been our traditional stable. And I will comment in a bit about some of the investments we are making in this space. The third message focus is on our recent announcement about DCPayments and our market entry into Spain. But now let's get to execution specifics. I want to briefly run through a list of accomplishments that continue to demonstrate the strength of the Cardtronics model and components. Let me start with three numbers that frame the third quarter. Organic ATM operating revenues on a constant-currency basis was 7%. We continued our gross margin expansion, reaching an all-time high of 36.6% and we grew constant-currency adjusted EPS by a very strong 26%. Next execution category, organic sales into new retail locations. We secured agreements for a 1,000 retail ATM locations globally, fairly evenly split between Europe and North America. This brings us to 2,700 new sites year-to-date organically. Now an Allpoint update. You will recall that last quarter we added Fifth Third Bank to our surcharge free network. I'm delighted this quarter to add First Tennessee Bank, a top 50, $27 billion retail bank and the largest financial institution headquartered in Tennessee. This is another proof point of our ability to move up market. One way to think about the momentum of Allpoint is to look back over the past year. Year-to-date, we were effectively selling a new participant every four days and adding about 85,000 cards per week. We anticipate more good news on the Allpoint front in the coming months. Renewal highlights include 2,500 retail ATM sites covered by Kroger, Albertsons Safeway and SPAR Convenience stores in the UK. We continue a track record of near perfect success with our renewal efforts. On the branding front, TD, a current client for both branding and managed services has now agreed to brand about 200 additional Walgreens locations in the Miami and Tampa markets. Now let’s dive deeper into an example that demonstrates two Cardtronics strengths. The first is an example of leveraging current client relationships for additional growth and the second is our ability to extend our expertise into a new segment specifically serving the financial institutions in the branch as well as outside the branch as we’ve historically done. Pentagon Federal Credit Union is one of the largest credit unions in the country, with $21 billion in assets and serving 1.5 million members worldwide. We have an existing relationship for both Allpoint and bank branding. They have now asked us to manage their ATM fleet, comprised of 135 ATMs including off branch ATMs and in branch ATMs. This represents our biggest in branch deal to date, and we are very excited about the opportunities to grow within this segment. Now, I indicated earlier, the need to raise our game to support these opportunities. Two examples, of that have to do with talent. We have recently announced additions to our leadership team. These are senior professionals who have lived in and sold into these environments. We are very pleased to have Brian Bailey, formerly of MCR and Brad Nolan from JP Morgan Chase, and their combined 40 years of experience in the financial industry space join the Cardtronics team. Brian joins us as Managing Director of our Global Financial Institution segment after over two decades at NCR and he will be responsible for helping the Company capitalize on our unique opportunity to be a comprehensive ATM solutions provider to advise [ph] globally. Brad is taking on the role of the Managing Director, Global Product and marketing, following a 20-year career at JP Morgan Chase, most recently serving as Managing Director of Branch Systems and Innovation. He will be responsible for evolving our product and service suite, with a focus on driving ATM productivity and establishing Cardtronics as the Premier Global ATM partner [Indiscernible]. Beyond Allpoint, bank trending an ATM outsourcing, we continue to work with financial institutions on multiple fronts as they evaluate the future of their ATM business, even if that mean exiting the business and working with Cardtronics to acquire their portfolio. We like those opportunities, while they may exit the acquirer side, their cardholders still need the exact same access to ATMs as they did before. Earlier this year we were excited to have the opportunity to acquire the retail ATM portfolio from JP Morgan Chase, and now we are pleased to take on a similar opportunity in the UK by acquiring the 300-strong off premise retail ATM portfolio of a major bank there. The consistent theme across all of these accomplishments is our focus on becoming the ATM infrastructure partner for our financial institution customers. Now on to international growth activities and acquisitions. This month we made two announcements that demonstrate our commitment to international expansion. Our October 3rd announcement of an agreement to acquire DirectCash Payments and our news this week about our ATM business launch in Spain. DCPayments is a leading operator of approximately 25,000 ATMs in Australia, Canada, United Kingdom, New Zealand and Mexico. The rationale for bringing this company into the Cardtronics portfolio is multi-faceted. It scales our presence in Canada and the UK. It establishes Australia and New Zealand as new markets for Cardtronics. It brings in new financial institution relationships as we expand our global focus on that market segment and it presents opportunities for operating efficiencies and new growth prospects. Let's spend some time discussing the Australian market since it's really the new geographic footprint that DCPayments would bring to Cardtronics. DC's positioning in Australia has a lot of parallels with how we are positioned today in the U.S. and the UK. It's a mature market with well-established off-premise ATM consumer behavior. DC is a market leader with a great ATM real-estate mix, particularly with their recent acquisition of First Data's cash card business. It has relationships with banks for a surcharge fee and managed services support. And there is the opportunity to ship the cash access model over time by working with financial institutions to meet their evolving business needs. Cardtronics would be positioned as the enterprise class player that can work with banks to evolve the cash access model from what it is today. There is a similar story in Canada. Cardtronics today has a smaller, but high quality presence in Canada. The addition of DC's ATMs in Canada delivers us a more scaled presence that we can incorporate into our FI strategy there. The Canadian banking industry is relatively concentrated and we believe there is an attractive opportunity to drive a more cost efficient model for banks versus in-sourcing. Ed will have a few additional comments on this deal in his remarks, a deal we anticipate closing early in the first quarter of next year. And in this week, we announced our entry into Spain, our second new European market launched in 2016 following Ireland earlier this year. We have hired a senior leader from the Spanish banking space, Ramiro Sanchez Crespo to lead our new business. Like Spain, well like many other European countries, the financial institutions there are evaluating their footprints and reducing branch locations and thus creating an opportunity for a company like Cardtronics to serve the consumer for convenient cash access. We've already secured our first two retail partner pilots, the convenience store arm of Spanish retail leader, El Corte Inglés, and a large grocery store chain and have established a relationship with the Spanish EURO 6000 ATM network, one of Spain's largest to provide low fee access at Cardtronics ATMs. We have already installed at our fist retail sites, and anticipate having our first 50 ATMs on the ground this year. We are bullish about the opportunity for executing our strategy with both financial institutions and retailers to expand ATM access in Spain as a growth market for Cardtronics for the future. So lots of execution this quarter, but the kind of quarter that demonstrates the value of our unique company. We are executing on our classic model and expanding into new frontiers, both geographically and into a new market segment. It is an exciting time and as I've said repeatedly over the past six years, it is a good time to be Cardtronics. Now a few thoughts on the trends we like and some thoughts on cash. Fed research indicates that in the U.S. more than 1,400 branches closed in the last 12 months, and I am talking '16 back to June '15. For perspective, that is the size of the top 15 bank. Those branch closings didn't eliminate any card holders. They just eliminated real-estate and cost. And we are here for those card holders and those consumers for ATM access. We are also bullish about the ongoing case for consumer interest in cash in all of the markets we serve. While the payments mix continues to broaden diversify, cash has carved card a prominent place within that blended mix and in consumer's everyday lives. From our recently released U.S. health of cash study, 56% of consumers are using cash as frequently as they did a year-ago and 23% are using it even more frequently. Cash remains the preferred tender for person to person payments, smaller purchases and at convenience stores. With nearly 80% of consumers in the study claiming they can't imagine a world without cash, the new normal is not a cashless society but rather one in which consumers will continue to demand a wide variety of payment options, and cash will continue to play a role and how consumers choose to pay. To wrap up, let's circle back on the key messages I wanted to leave you with today. First, it was a very active execution quarter for Cardtronics and we are pleased with the results. Second, we are continuing to see evidence that we are a trusted partner of financial institutions as they evolve their physical presence and we are investing in the horsepower to expand these capabilities for the future. We see growth opportunities in this segment. And finally, the DC payments acquisition will be an exciting addition to our company, building scale presence and existing markets and establishing a leadership position in new markets. And now I'd like to turn it over to Ed for an expanded look at financials of the quarter.

[Ed West:]

Thank you, Steve, good afternoon. Key points I'll cover today are as follows. First, we had a solid financial execution this quarter and its customer wins, adding a new market, making a significant strategic acquisition and closing out in our recent [indiscernible] affiliation to the United Kingdom. Second, we generated strong free cash flow for the first nine months of a $138 million, and third the DC Payments acquisition brings a blend of value and leadership, by enhancing presence and efficiency in existing markets and adding leading positions in new markets for Cardtronics. Number four I get into the results. Let me comment about the recent weakening of the British Pound relative to the U.S. dollar. This past quarter, the exchange rate is down 15% from the third quarter a year-ago. And we're forecasting it to be down over 20% for the fourth quarter versus prior year. This will adversely impact our UK results from a U.S. dollar reporting perspective. So in describing on financial results, I will state both the recorded numbers and the corresponding constant currency figure to show the underline operational performance. With that, I'll go through a summary of our quarterly results. Total revenues for the quarter were $328.3 million, up 6% from prior year, or up 11% on a constant currency basis. At the ATM, operating revenue level growth was also 6% or almost 11% on a constant currency basis. Constant currency organic growth in ATM operating revenue was 7%, up from 5% in the second quarter. This organic constant currency revenue growth was driven by strong performance in Europe, led by the United Kingdom. In the UK, we benefited from consistent ATM unit growth as well as year-over-year improvements in our uptime performance, which made our ATMs more available to conduct transactions. Recall a year ago, we are in the middle of rationalizing our CIT infrastructure, after we sold the retail CIT, part of our acquired Sunwin business. That caused some deterioration of ATM uptime last year, but it was transitory and due to the extraordinary work by the team in the UK, we are back to up time at or above normalized levels. This shows up in our UK same-store transactions growth, which is up almost 3% for the quarter compared to a first half average of negative 1.5%. Same-store revenues in the UK were a bit higher, driven principally by a higher interchange rate. ATM operating revenue growth from acquisitions was primarily driven by the approximately 2,600 Chase ATMs that we acquired earlier this year. Organic revenue growth in our North American segment was fairly consistent with recent trends in the low single-digit percent range, and our same-store transactions for the quarter growth up approximately 1%, excluding the Chase ATM sites that we’re debranding. Let’s now turn to gross margin, which expanded by 50 basis points year-over-year to 36.6%. The margin expansion was principally the result of scale efficiencies and solid organic growth in our European segment. Adjusted EBITDA for the quarter was $86.6 million, up 6% or 12% on a constant currency basis. EBITDA margin expanded by 20 basis points to 26.4%. Adjusted EPS in the quarter was quite strong at $0.98, up 19%from a year ago. On a constant currency basis, adjusted EPS would have been a $1.03 or up 26% from prior year. The difference in growth rates between the adjusted EBITDA and adjusted EPS growth rates is attributable to two main factors. First, significantly lower tax rate driven by our recent redomicile to the UK which I’ll come back to when I talk about guidance, and second lower cash interest expense as we did not have any borrowings under our revolving credit facility for the majority of the quarter. Focusing on the salient point of cash flow, for the first nine months we generated $138 million of free cash flow. That is cash flow from operations after CapEx which was up 3x from the same period last year. We have completely paid off our revolver and now sit on approximately $60 million of cash. Moving to the balance sheet, our ratio of net debt to trailing 12 months adjusted EBITDA at quarter end was 1.5 times. Total debt outstanding as of September 30, was $485.6 million. As mentioned previously, when we announced our direct cash payments acquisition in early October, we have received commitments from our existing lenders to increase the capacity of our credit facility to accommodate the acquisition, which has a transaction value of approximately $460 million plus customary fees and expenses. We expect pro forma leverage to be in the mid 2 times range, which is within the range of recent leverage levels. The combined businesses will generate significant free cash flow, which we currently expect to use to pay down debt, reinvest in our core business and pursue acquisitions opportunistically. While we do have secured financing for the Direct Cash acquisition through our credit facility, we are evaluating all available alternatives for more permanent capital, particularly given the current interest rate environment. More permanent capital, for example in the high yield market would be at higher rates versus the revolver. Turning now to, I was going to reiterate that the recent devaluation of the British Pound relative to the U.S. Dollar has impacted our updated guidance. We now forecast the GBP to USD rate of 1.2 or $1.20 which is almost down almost 21% from the same period a year-ago. Guidance for the calendar 2016 is as follows. Revenues in the range of $1.25 billion to $1.265 billion, full year gross margin of approximately 35.5% to 35.7%, adjusted EBITDA of $317 million to $319 million and we're tightening our adjusted net income per diluted share range and are now expecting that measure to come in at approximately $3.21 to $3.26 based on approximately 45.8 million diluted shares outstanding. And we're reducing our capital expenditure forecast to $120 million to $130 million. The fourth quarter assumes a tax rate of 29%, which is unchanged from what we had guided to last quarter. Following from our last call, the U.S. Treasury Department did finalize and implement the new Section 3 and 5 regulations earlier this month, as we had anticipated in our prior tax guidance. We reiterate our 2017 GAAP tax rate guidance of approximately 30%. This does not include to the Direct cash acquisition which is expected to slightly lower our overall effective tax rate but we will reserve more specific guidance until such time that we close the transaction in early Q1. As is customary, we'll issue 2017 guidance in conjunction with our Q4 earnings and the guidance will include the DC payments acquisition as appropriate. With that operator, let's open up the line to take some questions.

[Operator:]

Certainly. [Operator Instructions]. And our first quarter comes from the line of Ramsey El-Assal with Jefferies. Your line is now open. Please proceed.

[Ramsey El-Assal:]

Hi guys, great quarter. I wanted to ask you about '17 guidance and the context of the 7 Eleven ramp down. I am just trying to get and understanding of how much visibility you'll think you have to the deinstallation process, and other relationships potentially that you maintain with 7 Eleven, like Allpoint to see how conservative an approach you're going to have to take with all those sort of unknowns happening?

[Steve Rathgaber:]

Let me take a swing at that Ramsey. I think it's fair to say that with the passage of time and planning cycles, we're on a path to have an increasing amount of visibility on the outcomes between now and when we guide in 2017. So I expect to have pretty good visibility in what's likely to be February next year, still a full five months before de-conversion activities begin to what the moving parts will look like and feel like. Having said that, as I just went through. There is a lot going on with acquisitions and integrations and that particular de-conversion, and it's going to be a fun budgeting cycle. But I do expect that we'll be able to share pretty good insights with you in February of 2017.

[Ramsey El-Assal:]

Okay. on DC Payments, is their other any jurisdiction that you will need to get regulatory approval that are more risky than others in terms of potentially not gaining that approval or is it -- are you feeling pretty optimistic about the whole thing. I'm sure you are, but?

[Steve Rathgaber:]

Yes I would characterize it as cautiously optimistic. I think none of us are thinking that anything would keep the transaction from proceeding, whether or not something has to get a haircut to be determined. But I think we're in good shape. But it's very, very difficult to project what governments and authorities will do other than perhaps to project what Donald Trump might say, but for most of other entities, it's pretty difficult to estimate what it might be.

[Ramsey El-Assal:]

Okay, I guess last one for me. Can you go over your kind of market entry approach in Spain? So EURO 6,000 is another ATM network that you basically are partnering with. Can you just kind of walk through the details of how you are entering that market?

[Steve Rathgaber:]

Yes, we're entering I would say with a couple of characteristics that are important. We've acquired local talent, that has a very strong reputation in the market. Ramiro is a terrific guy with a long history of innovation at the third largest bank in Spain and is viewed as an industry thought leader and he's been on our team for months now and been working on formulating our entry strategy. Two is there is a consortium of banks there under the banner of EURO 6000 and that we think is a wonderful pairing for Cardtronics. And because of events in Spain with a number of branch closings that went on during the difficult years of banking consolidation in that 2008, 2009 period there, that lasted for years, there has been a tremendous amount of branch closings and ATM closings which opens up the possibility for retail placements very materially. So in combination with the finance institutions, not only in EURO 6,000 but specifically working to get some energy behind the card based side early, we think we can place ATMs in retail locations and build a nice partnership there to move forward. From an investment perspective, it's a very low cost entry in relative terms. We're not building out data centers or doing anything like that. We're leveraging other folks existing infrastructures. And I don’t like what we do in Germany. So that's a good market for us with good margins. We anticipate the same in Spain and we look forward to a nice long run there, of a pretty sizable market, very cash friendly and very opportune in terms of the bank partners and consumer appetites.

[Ramsey El-Assal:]

Okay. Thank you. Lastly for me, can you just give us an update on EMV? I know we have the master card deadline come to pass. Have you seen -- has there been any perceptible change or impact from that occurring and are you guys feeling pretty confident, at least specifically in your own fleet, but also maybe speaking to the merchant owned and the Ice [ph] owned relationship that you possess as well, that the upgrade cycle is occurring and sort of just a status report on that.

[Steve Rathgaber:]

Sure. Good afternoon. Just going back on EMV so everybody is on the same page, obviously this is a liability shift that's occurring over time, which happened just this past week was for the MasterCard network, and a year from now, the other networks and Visa. What's important to recognize, it's a liability shift, it's not a mandatory thing to occur. So operators can continue to operate during this period of time. As we think about our overall transactions on our network, frankly the majority of the transactions actually route through networks that are not subject to this current shift. So actually, a minority of the transactions are now through networks that are now subject to this. We would expect over time, there's a lot of work that’s going on right now, that's been going on, will continue to going on, throughout the operation. Obviously, we're talking about 10s of 1,000s of units in this migration, lot of moving parts, and we would expect to be largely, fully migrated by the end of the first quarter. We're pleased with where we're right now, what we're seeing, what's happening on frankly on a day-to-day basis, and like I said we expect to be largely done by the end of the first quarter. And as you noted, that's on our network and also continue to work with some of the other merchants that we have close relationships with as well.

[Ed West:]

So, I mean net debt -- I'm just sorry, it's a pain in the neck. It's harder than we would like it to be as a distraction, but it's moving forward and as we've said before, we're combining that with an opportunity to upgrade software and get some additional revenue generating capabilities laid down out there. So, it's moving good enough.

[Operator:]

Our next question comes from Andrew Jeffrey with SunTrust. Your line is now open. Please proceed with your question.

[Andrew Jeffrey:]

Thank you for taking the question, and I feel like Steve, I can ask you this question this quarter without leading you, because you've had some progress in terms of bank outsourcing. So that's great to see. Is this perhaps the dam cracking, if not breaking open? Can you use some of these wins in the U.S. and the UK, the two you mentioned on the call as sort of proof-of-concept? Can we think about that possibility from an outsourcing perspective?

[Steve Rathgaber:]

Yes, I think Andrew, I think it's fair to say that. The hesitation in my voice is only that there are many sizes and shapes of these things, and when we see things like the opportunity I mentioned in the UK, I think there are half a dozen or a dozen of those around the various markets we're in. And we look forward to seeing more of that come our way. That’s pretty vanilla. It's more in our sweet spot of tradition. When we talk about the Pentagon Federal Credit Union, we're talking about the future, or a piece of the future anyhow. And there it's a nice size, it's a great proof-of-concept opportunity for us. We're investing in the space by getting some of these resources we talked about. But we also have to upgrade other dimensions of our business to get more bank grade quality. And that's going to be a journey. And there'll be new requirements coming along the way, but I suspect that we'll have an interesting story or two to tell you quarter-to-quarter, as we go forward and I look forward to the opportunity to share that. But I'm pleased with the evolution and I'm feeling a pull to this space across multiple geographies. A dam implies a flood, and I don’t want to go there, but I do want to go into a steady state of movement and I'm hopeful we can report that going forward quarter-on-quarter.

[Andrew Jeffrey:]

Okay. That helps. Thanks. With regard to entering into Australia and some of the trends you've seen, transaction wise there, can you talk a little bit about value added services perhaps DCC, maybe other things that could blunt sort of the decline in transactions much as you've improved transaction yield another markets.

[Steve Rathgaber:]

Well I think a couple of things we are noting. One is the transaction declines that have occurred in Australia have been part of sort of a tap and go wave, that has largely ridden and crested and is coming to the end of its journey. So I don’t think reasonable people think that the transaction challenges in Australia are on some straight-line basis at this point. We expect a tapering off. We look forward to a tapering off, and see that as some upside to the business case quite frankly. We do believe that there is opportunity in Australia and I'm not going to build a big case around DCC, but when we talk about Cardtronics, this festinating notion of is cash is declining, cash usage is declining or transactions are declining gradually in a particular market, we think that is huge opportunity for Cardtronics, because that means that banks aren’t going to be able to operate the ATM fleets on a cost effective basis that they used to, and they're going to look for our scale leverage to help them manage that increasing cost center and we see a long, long runway from acting on that and we think a market like Australia is exciting and intriguing in that capacity and could be a poster child for us as we move into other markets with those kinds of concepts. So there's a counter intuitive thing here. We don’t want cash to crash down, but a gradual decline is a lovely opportunity for Cardtronics, and that is an important concept for our investors to keep in mind, because it means banks can't afford to carry that overhead anymore.

[Operator:]

Our next question comes from the line of Bob Napoli with William Blair. Your line is now open. Please proceed with your question.

[Bob Napoli:]

Thank you. Just on add on, the debt to EBITDA was post the deal, the DC deal you said at 2.6 times. Now is that assuming that you keep 7 Eleven for a full year or what does that assume from 7 Eleven?

[Steve Rathgaber:]

That figure was on a kind of a pro forma basis. I think that's the number we used when we announced to the acquisition as it occurred as of June 30 this past year. So pro-forma as of now. Going forward obviously, cash flows earnings change. You're bringing that added and then you would have to a factor in 7 Eleven on a post 7 Eleven basis once we give guidance for that.

[Bob Napoli:]

Okay, very good. Understood. The cash withdrawals per account, I'm getting kind of -- a little bit confused with so much going on. The cash withdrawals per ATM were up 12.7% in the quarter according to your press release, up from 8.8% last quarter. Is that the right number or is that wrong? It seems like too big of a number. What's driving cash withdrawals per ATM up by that much? Is it the Allpoint network? It is the addition of the JP Morgan ATMs that are branded or some of these new installations? What's driving?

[Steve Rathgaber:]

Yes, you're answering them all. It's all of those plus. So one was the case portfolio coming on and with that those are high transactions machines, as I mentioned earlier, in the United Kingdom. We've just seen great volume and growth in the United Kingdom which drove as we talked here a year-over-year growth, and you need to look at that in a constant currency basis. But this having 3% same store volume. So which is, those are high transaction machines. So that combines and then as well as you talked about Allpoint. So it's multiple different factors.

[Bob Napoli:]

Then what was the same store revenue per ATM?

[Steve Rathgaber:]

We didn’t give that, but like in the UK, where we saw the same store being up 3%, obviously the revenue is slightly little higher just as a benefit from their interchange rates. And then U.S. has been in line with the recent trends.

[Bob Napoli:]

Okay I understand. Let's see in Spain, do you expect surcharging to come into play there sometimes in?

[Steve Rathgaber:]

Well that's a possibility, and again crystal ball activities are hard. But it's certainly one of the markets where there is some dialogue going on about the best way to service the public with convenient access to cash, and that could be one of the vehicles chosen by the banking community and the regulators to help that. That would not be a bad thing from our perspective.

[Bob Napoli:]

That is not in your business model though at this point?

[Steve Rathgaber:]

Can't count on what you can't count on. We want to make sure we can make it work either way. We think we're in good shape but we see potential upside there.

[Bob Napoli:]

Last question, you reduced your CapEx guidance for the second quarter in a row I believe, but you've added I think more ATMs than what we expected. Why is the CapEx down but the installations up?

[Steve Rathgaber:]

It's a mix of different things, just timing on certain projects, as we do refine pulling some things off the docket, pushing some other ones back, timing of certain renewals. A lot of different efforts throughout the system, and frankly doing some projects that cost us less than we had anticipated.

[Operator:]

Our next question comes from the line of Tim Valley with Wells Fargo. Your line is now open.

[Tim Valley:]

I missed a couple of the comments at the beginning. So I apologize, but I had three questions here. Number one is, there's been a lot of I think press in the trade magazines et cetera about ATM fraud. I think it's actually been accelerating. I'm just curious if that is something that plays to your favor relative to the discussion around bank outsourcing, or just how banks think about maintaining an ATM footprint et cetera. Intuitively, I think it would. But since you guys are doing it day-by-day, is there anything to think about relative to what appears to be an escalation in ATM product?

[Steve Rathgaber:]

I think a couple of things are true Tim. The first is yes, I agree with you. I think it plays to upside for us, generally because the cost of doing business with ATMs when you're not -- when it's not solely what you for living is going up, and the distraction impact is going up and the negative surprise for a financial institution might be increasing. We often consult with financial institutions who call us and say what are you guys doing and we're always doing a couple of things different than they're doing. And it’s a cat and mouse game. One step forward, one step back sort of thing. So we certainly have our challenges with it as well. But it's what we for a living. So we're on it all the time. So yes, there are trends in the industry that do favor Cardtronics. The EMV challenge is painful as it is from operating flowing into the system. When workout the other end of that, we've got a wonderful fleet that quite frankly banks will be happy to have their customers use, versus other ATMs that will create more risk. So even if the liability shifts, the bank still doesn’t want a customer who's unhappy. So yes, we think it plays to our strengths. We think it's something we have to be focused on, and we hope that it can help us grow business with financial institutions both in branch and out of branch.

[Tim Valley:]

Okay. The other question I had was maybe just a bit of housekeeping. I apologize Ed, if you mentioned this, but relative to the pound and your expectation for 4Q, did you at all just sort of qualify what that might have cost you on the bottom line, relative to sort of the tightness on full year guidance. [indiscernible] handful of pennies. Is that really just the impact of the pound as you think through the fourth quarter?

[Ed West:]

Yes it’s a large part of it. As I mentioned in the conversation earlier, our guidance reflects a pound to dollar exchange rate of $1.20, which is down over 20% from the same period a year-ago, and then obviously down from where we were a quarter ago, looking at the balance of the year. So yes, when we pulled back the range and tightened the range, about half of that is due to the exchange rate.

[Tim Valley:]

Okay.

[Ed West:]

Just under the heading of nuances, one of things that's happened with that reduced British Pound is a they're getting a lot more travel when we're seeing ATM traffic. So it has an upside.

[Steve Rathgaber:]

To a point, it comes from this past summer and there is a very solid period for in the UK, and London was great weather, great volume and reflected in the results.

[Tim Valley:]

Yes. Last question. So you guys obviously were able to execute on the DCP transaction. Euronet was able to buy your cash. I guess I find it ironic that within a short window there were two reasonably large ATM properties that traded hands. In terms of [indiscernible] pipeline, is that truly unique or has there been a bit more activity by potential sellers to explore the sale process for whatever the reasons may be? I'm sort of curious. I thought that was sort of interesting to see both transactions happen pretty closely.

[Steve Rathgaber:]

I think if the question is, has two ever happened in a quarter like that, I'm not sure I know the answer on that. But if the question is do we see and have we talked about an active pipeline from small-to-medium-to-large in terms of the ATM assets, yes we've seen that for a while and doesn't mean they're all worth buying, doesn't mean they're all worth having. But we look at a lot of stuff and we try to exercise the discipline that yield the synergy opportunities along with the growth opportunities. We think we've done that here, and as Ed said, with all about cash, we'll continue to look at acquisition opportunities selectively as they're presented to us, and they're pretty routinely presented to us. So it's active would by my answer.

[Tim Valley:]

But on a relative basis, would you feel like there's more sincerity or urgency on the part of sellers to find [indiscernible] compromise.

[Steve Rathgaber:]

No, I wouldn't call it a fire sale or something like that. I think people are seizing opportunities where they make sense.

[Operator:]

[Operator Instructions] Our next question comes from the line of David Ridley-Lane with Bank of America Merrill Lynch. Your line is now open. Please proceed with your question.

[David Ridley-Lane:]

Steve, one for you. Any early thoughts on the economics, in-branch ATM outsourcing relative to what you've done historically?

[Steve Rathgaber:]

Well, I'm going to be extremely cautious there, for a variety of reasons. But I can tell you the high-level formula is fundamentally for us to take as much of the scale and cost differential of our operation versus any other ATM operator, and create a mutually meaningful benefit for both parties, the person we're providing the service to and our shareholders. So that's a game that we're early in, early innings here. And as I said earlier, there'll be some investments to get what I'm calling bank grade particularly, as we move up market on these kinds of things. And I would just say that at this point, easier for me to say we're in some learning and development mode rather than to try to even pinpoint any broad level margins, but we believe this could be a market that is a consistent, at least consistent with what we do in other elements of our business, and that's certainly what I'm hoping for.

[David Ridley-Lane:]

Understood. And then one for Ed. Can you sort of talk through CapEx savings from lower EMV next year in the U.S. and then potentially redeploying 7 Eleven ATMs. Any thoughts on how low CapEx could be in 2017?

[Ed West:]

So, I think overall when we talk about the EMV, I think the Company has historically spoken about that as roughly $35 million to $45 million investment, and it's kind of straddled over this year and a little bit into next year. It's combined with a lot of different and other activities that are going on as well. So it will have a defined period. And then evolve. And as you pointed out once we resolve, work through 7 Eleven, there would be more clarity on that estate and the redeployment of those machines. We'll provide more guidance on our Q4 results talking about CapEx, but I think we should anticipate over time we would see CapEx would moderate from this level. Now I think we had a question about the timing of all of that and how the timing from what's flowing between Q4 and Q1, and I think I would just suggest we give you better visibility in our next earnings call for '17.

[Steve Rathgaber:]

And I would add on that, that in this world of providing services to financial institutions different than we've done in the past, that's going to inject a little more of a wild card into the different ways we execute that and whether or not capital gets deployed in some of those transactions. So it -- I'm not going to say it creates volatility, but it just creates a little more planning challenge for us as we think through -- and that's a new force coming into 2017 for your consideration.

[Ed West:]

Which then again we would provide update on that for next year.

[David Ridley-Lane:]

And just to clarify, it's -- you're saying $35 million to $40 million in 2016 or…

[Steve Rathgaber:]

No…

[Ed West:]

Between '16 and '17. As I mentioned earlier, we would anticipate to be largely complete with this by the end of the first quarter. So that is going to flow somewhat into 2017.

[Operator:]

Our next question comes from the line of Kartik Mehta with Northcoast Research. Your line is now open, please proceed with your question.

[Kartik Mehta:]

Steve I wanted to ask you a little bit about Allpoint. You mentioned last quarter you announced Fifth Third, this time you announced First Tennessee, and I'm wondering, is the asset size of the bank that's interested in the Allpoint network changing, or it's still the bread and butter of the community bank and these are more anomalies in terms of what you're seeing?

[Steve Rathgaber:]

So, I believe that we are moving up market. I believe we are maintaining our mid-market and down-market status. So I think what is happening with Allpoint is an expansion of the audience. The whole trend of banks looking to manage their costs more effectively, the whole rationale for a Fifth Third or a First Tennessee, that is not their sole -- rationale unique to them. That is a rationale that is increasingly a need for many, many, many banks. So, I don't know that we'll pull in a top one, two or three, but I'm hopeful someday of a four to 10, and certainly believing that we have a great story to tell for the banks in the -- from 10 to 50 type range. So, I think you're going to hear more, Kartik, about our success in that space. I know that's one quarter, but I think it's going to be a more regular drumbeat than we've seen before.

[Kartik Mehta:]

And then I know you've talked a lot about EMV in terms of expanse and how you're upgrading the fleet. I'm wondering do you see it as a positive or negative in terms of transactions if there are -- the third party stays out there seeing hey 10% of ATMs could go away because of EMV. So I'm wondering from your perspective how you look at that as maybe a benefit or a detriment in any way for Cardtronics?

[Steve Rathgaber:]

Yes, I think I look at almost all of it as a benefit other than going through it. That part ain't no benefit. But when you come out the other side, it wouldn’t be our ATMs that are going away. It will be our ATMs that are prepared to handle the needs of the cardholders in the most effective and efficient way. So it’s very difficult to project these things. We went back and looked hard at things triple dez [ph] back in the 10, 15 years ago. Those were major upgrades and people talk about ATMs going away. Nothing really seemed to happen that much. It depends on the individual incentives. If you've got a small merchant for example who has an ATM and doesn’t want to do the upgrade, they might do something to eliminate it. But by and large, they’re using that ATM to help drive store sales. So it will pay back for them pretty effectively. So I’m not counting on a big windfall from it. But it is another brick on the load of operating your own ATM platform, and I like bricks on that load relative to causing financial institutions and others to think about leveraging Cardtronics.

[Ed West:]

I’m sorry, just add on to that that, anytime there's complexity and complication, it drives need for specialization and being a specialist. And I think as Steve just talked about, Cardtronics is specialist in the space.

[Kartik Mehta:]

Thank you. Just one last question. I'm wondering, in terms of merchant commissions, as you’re entering other markets getting the larger in the UK, if you’re seeing any pressure or maybe benefit on the merchant commission side as you're gaining scale obviously in the UK and what you’re seeing in other markets?

[Steve Rathgaber:]

It’s difficult to put a finger on a particular trend there. It’s almost country-by-country question. But I guess, if I was forced to answer, I would say the balance of the forces in the universe between retailer and us from a merchant commission perspective remains pretty stable. It has up moments, it has down moments, but pretty stable. And one of the things Cardtronics has talked about for more than a year certainly, and that we continue to do is to leverage our agreements to get the protections for things like interest rate increases and interchange decreases and that sort of thing. And as we’ve gotten those things into the merchant agreements, particularly in the U.S., I would say that on balance that feels like favorable movement towards us, at least for future risk exposure. In other markets like the UK, it’s choppy. So no pattern I can declare emerging, although in the U.S., I would say, we’ve done pretty well getting our protections in without having to pay a lot for that. And I think on balance over the long-term, we’ve done good work for our shareholders there.

[Operator:]

Ladies and gentlemen, this concludes today’s Q&A session. Thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.

[Steve Rathgaber:]

Thank you.

[Ed West:]

Thank you.