Cardtronics plc
Q2 2015 Earnings Call Transcript

Published: 2 Aug 2015

[Operator:]

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

[Phil Chin:]

Thank you. Good afternoon, and welcome to Cardtronics' second quarter conference call. On the call, we have Steve Rathgaber, Chief Executive Officer; and Chris Brewster, Chief Financial Officer. Steve will start off with an overview of the quarter's developments followed by Chris 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. Actual events, results or performance may differ materially. The statements on this call are made as of the date of this call and based on current information even if subsequently made available by us on our website or otherwise. We assume no obligation to update any forward-looking statements made today to reflect events that occur or circumstances that exist after the date on which they were made. In addition, during the course of this call, we will reference certain non-GAAP financial performance measures. Our opinion regarding the usefulness of such measures, together with a reconciliation of such measures, is included in the press release issued earlier this afternoon. With that, I'll turn the call over to Steve.

[Steve Rathgaber:]

Thank you Phil and good afternoon to and thanks for joining investors, analysts. Appreciate having you here. Let's start with the numbers. 17% top line revenue growth, 14% adjusted EBITDA growth and 16% adjusted EPS growth, continue our track record of solid double digit growth. The numbers were driven as usual by continuing solid execution in both North America and Europe. Execution headlines include installation of 1,200 ATMs on our platform this quarter, bringing our year to date installation total to 3700 ATMs live. We placed bank brands on more than 500 ATMs this quarter, bringing our year to date total to 1400. And about two dozen new Allpoint clients have signed up and a similar number were also already brought live on the network this past quarter. These efforts produced an organic growth of almost 6% and this is an upward trend from the last quarter. Turning to sales metrics we continue to have solid pipelines for new ATM placements, branding opportunities and Allpoint participation in all of our markets. In Q2 we contracted over 1200 new ATM placement locations for future installation. And this matched a very strong Q1 of 1,200 placements. We also contracted nearly 600 ATMs in the quarter for branding more than doubling our Q1 performance and I remain pleased with the pipeline of branding prospects which are in active negotiation. Let's move now to some regional headlines starting in Europe. It was a very busy and successful quarter for our team in the UK. We completed the conversion Co-op Food estate and did so ahead of schedule. This was a significant undertaking which increased our ATM counts in the UK by nearly 20% year to date. On the sales side we won a new regional supermarket and sold over 100 new locations at two gasoline station operators. We also secured a long term renewal for almost 400 ATMs for British Telecom or BT as they're known in the UK. This places some of our ATMs in iconic phone booths. Additionally in early July we sharpened our focus and improved our long term profitability position in the UK by completing the sale of the retail cash and transit business which was another known core component of an otherwise very strategically and financially valuable Sunwin acquisition last November. This deal follows the sale of the manned guarding business earlier this year. The results of all this activity now places Europe at 32% of company revenue up from 30% last quarter even as North America continues to grow. And in the quarter the UK contributed meaningful organic growth improving from a solid high single digit increase last quarter to an even stronger growth percentage in the low teens this quarter. And this was complemented by strong earnings performance which Chris will detail as well. The UK team continues to deliver and drive meaningful shareholder results. With this disposal of two noncore parts of the UK business they're now turning their attention to harvesting the synergies available from combining two large ATM maintenance and CIT operations. We look forward to additional margin contribution from these activities as we head into next year. Let's turn now to North America. Let me start with a simple observation about Allpoint. We are experiencing greater interest in our Allpoint offering from up market financial institutions. We are pleased that larger financial institutions are expressing interest in Allpoint and we think this interest confirms the importance of convenient ATM access as a core offering of any financial institution. We are hopeful that the back half of the year, will produce some newsworthy signings of larger FIs onto the Allpoint network. One noteworthy signing in the credit union space this quarter is Lake Michigan credit union. They are a top 50 credit union in the U.S. and we're pleased to note that this marks the third top 50 credit union to join Allpoint this year. Related to leveraging surcharge-free offering, Cardtronics has entered into a relationship with Visa to support their new Plus Alliance offering. Plus Alliance is a new surcharge-free network that Visa has begun offering to issuers in North America. What is significant about this deal is that Cardtronics is the exclusive independent employer over the new network, which will be on 5,000 Cardtronic owned and operated ATMs in the U.S. and well further benefit our retailers with expanded in-store foot traffic. Our bank branding product had a good headline in this quarter with the activation of the TD bank relationship announced in April. TD bank is now alive on more than 400 newly installed branding locations at Walgreen sites in Massachusetts and at Corner Store locations in Canada. We also continue to chip away at the previously chased branded portfolio and are either in advanced negotiations or have already signed contracts for over 50% of those sites. Now, I'll move to acquisitions. Earlier this month, we acquired Columbus Data Services. CDS is a best in class processor of ATM and payment card transactions. The company processes over 90,000 ATMs for banks and non-banks in the U.S. This acquisition gives us scale and discrete platform in the merchant owned segment of the ATM market, which generally operate in less prominently branded locations than our national turnkey business. I like this space because we can leverage our expertise in a way that has CapEx light and scalable. The plan is to add to CDS's arsenal of value added products by trickling down some of our turnkey products like dynamic currency conversion. This will further differentiate CDS's offering and enhance revenues for their customers and Cardtronics alike. CDS also has issue of processing capabilities and direct connections into all major credit and debit networks in the U.S. extending our capabilities set. Our acquisition pipeline remains robust with in-market place, new market place and value added place. But we will remain disciplined and deliberate in what we ultimately action. But there is plenty of opportunity and we have ample firepower on our balance sheet to act. And now I'd like to spend some time on the -- renewal. But not the one that has been top of mind for what seems like forever. After almost three years of uncertainty, we learned three weeks ago on July 6, as 7-Eleven will move their ATM business to their sister company. Chris and I will both comment in a bit on this event but for now I would like to direct your attention to the renewal history of Cardtronics through June of this year, excluding 7-Eleven. In the first half of 2015, Cardtronics renewed multiple agreements across our core product line. This yielded renewal valued at more than $120 million of annual revenues with an average life of about five years. Said differently, we contracted long-term value of more than $1.5 billion of generally recurring revenue streams with existing clients who value our services. For some illuminating perspective, which can be challenging to maintain in the shadow of the 7-Eleven news, our renewal success rate was 99.8% through June, which for the avoidance of doubt, is pre the July 6 notification by 7-Eleven. And importantly for long-term value creation, essentially all of these renewals included interest rate and interchange protections that the risk our business model and materially reduce the volatility in future earnings without incurring the material cost of interest rate hedges. We carry an expense for hedges that have totally illuminated equates to more than $0.50 a share annually in EPS impacts from the cost of mitigating interest rate increases. Now, I'm not suggesting that we can totally illuminate this expense, but we are working hard to reduce its impact. And we may trade some modest compression to deliver this long-term shareholder value. Reflecting on our renewal success, I just want to take a moment to the entire Cardtronics team to building a company and delivering a value and service, they've produces this kind of customer commitment, which is manifesting our renewal successes through June. And now I would like to turn it over to Chris to provide more color on the financial dimensions of our second quarter results, before I provide some closing remarks on 7-Eleven and the future.

[Chris Brewster:]

Thank you very much, Steve. With regard to just quickly recapping the numbers for you. Total revenues for the second quarter came in at $304 million that was up 17% from the same quarter last year. Adverse currency movements cost us about 4 percentage points of that growth rate so in other words without currency movements revenues would have been up about 21% year-over-year. Certainly acquisitions play the role in that growth although organic revenue growth was certainly also significant coming end of about 6% on a constant currency basis and when adjusted for our growth in that revenue accounting change that affects certain of our merchant owned contracts. That organic growth was filled by strong performance in Europe led by the U.K. European revenues were 41% or 55% on a constant currency basis. To break that down a little someone in the Co-op Food ATM acquisitions definitely contributed to the robust growth number but ATM operating organic growth in Europe came in strong as well on a constant currency basis as Steve said in the low teens. Growth in North America was about on par with last quarter at 9% with much of that driven by the Wallach acquisition which actually is performing quite well for us. Same store withdrawal transaction growth was about flat in the U.S. when adjusting for locations that were de-brand and for unusual vendor outage that we had during the course of the quarter. As we dug deeper into the granular figures we found the couple of interesting things so related our same store trends, and for example one of our major bank branding customers has been selling branches to other banks who are not branding customers of ours. That means the account holders can no longer get surcharge free transactions at our ATMs and we estimate that this shift negatively impacted our same store transaction counts by around four tense of a percent in the most recent quarter will cycle on that later this year. So that's just as a single example I would say that when I read around underneath this numbers I see this and other sorts of anomalies that I think probably cost us about 1% of our U.S. same store transaction count figure. My purpose in giving you this detail is to communicate that we're not seeing evidence that consumers are turning away from cash or ATMs on any sort of broad basis I continue to believe that the primary reason our U.S. same store numbers have cooled off a bit from the up 2% to 3% level that we saw a few quarters ago to something more like flat to up 1% relates to the proliferation of foreign fees charge by banks to customers who use ATMs that are not owned by their own bank. Moving down to P&L gross margins on the face of P&L came in at 34% flat compared to 34.2% a year ago. Abruptly isolate margin performance of our core ATMs operations by factoring out the effects of increased equipments sales revenue and excluding the lower margin Sunwin revenues that we took on our gross margin would be about 34.8%, core margins up about 60 basis points from last year so were pretty happy with that. Adjusted EBITDA came in at $74 million up 14% year-over-year, we did have somewhat higher professionals services spending in the SG&A line and that attracted somewhat from the operating leverage that we would traditionally looked to deliver there and meaningful piece of that was essentially due to some bankers leave up cost in the quarter. Adjusted earnings per share came in at $0.71 up 16% from $0.61 a year ago the outperformance related to adjusted EBITDA growth was due to lower interest expense from our refinancing in the third quarter of last year of our long term bonds. Currency changes versus last year's rate cost us about $0.2 a share in the quarter so on a constant currency basis adjusted earnings per share would have been up by about 20%. On the balance sheet total debt outstanding as of June 30 was $599 million or $657 million if you were using the notional value of our convertible debt. This is down about $14 million from the end of last year. Net debt to adjusted EBITDA pro-forma for 12 months EBITDA for the last year's acquisitions was approximately 2.2 to 1. Subsequent to the close of the quarter as Steve said we completed our acquisition of Columbus data services and pro-forma for the drag down on our revolver that we did to finance that acquisition and net of the proceeds of the sale of our retail cash and transit business in the U.K. our credit facility balance after those transaction fits at about $169 million and invest we had over $200 million in unused availability under the credit facility. Our forward expectation come end of quarter three is that leverage will be slightly higher around 2.3 to 2.4 to 1 essentially reflecting the effect of the CDS acquisition. I like to take this opportunity to just briefly point out that our current debt capital structure is quite long term in nature. Our $375 million revolving credit facility which can be expanded to 500 million at our option expires in 2019 our convertible notes go after 2020 and our senior notes mature in 2022. Now I'd like to follow up on Steve's comments about our 7/11 U.S. contract. The intent here is to give investors some insight into the financial impact of the non-renewal of this business as best we can without putting the company in a less favorable position as it relates to ongoing discussions with our counterparty and without putting out figures that are out of context or materially off the mark in terms of what might actually transpire out in 2017 and '18 when these revenues start to come off. So with those constraints in mind there are some items that I'd be happy to shed some further light on. First, with regards to revenues we've said that in our 2014 10-K that 7-Eleven represented -- the US contract represented 17.5% of pro forma 2014 revenues and as this pro forma revenues give full year effect to the three acquisitions that we closed in 2014. Since we didn't gave a point dollar figure on what those pro forma revenues actually were but I like to do is offer that if you simply take 17.5% multiplied by our 2015 full year revenue guidance of about 1.2 billion that will render a 7-Eleven revenue estimate is pretty close frankly to reality and that revenue figure is fully loaded and includes all transactions and fees that are directly attributable to the 7-Eleven U.S. unit including revenues from bank branding on those units and all point revenues relevant to the transactions that occur on those units. With regard to revenue growth on this portfolio, it is one of our more mature states it's growing at a rate that is below our corporate organic growth rate and is certainly growing at a rate below our total growth rate including M&A. So it's important to consider that when calculating what proportion of our revenue this account might represent two years out in the future. Now all we acknowledge there's a great deal of interest in the profit margin on this business this frankly is a more difficult topic for me to broach with you. For starters if their company is general policy not to disclose pricing related details on individual contracts and is just not a constructive business practice in the competitive market place particularly for a public company senses us where everybody gets to read our mail and it could violate in terms of agreements to the customers and this particular instance the annual earnings impact is two-plus years and lot could occur with course of those two years, especially given our track record on acquisition next years. But most importantly there is several fundamental aspects of the migration that could impact numbers that have yet to even be discussed with a counterparty much less finalized. And due to these reasons we're not at this time releasing further details on the profitability of our 7-Eleven business. What I could offer is that due to the scale of the estate and the fact that it is in a convenient store channel that tends to drive above average ATM volume. This is in an estate that delivers EBITDA margins that are somewhat above our average. And I think this is generally consistent with a view taken by most analysts who have ever found on what this situation might look like. With regard to the equipment that we have in employed in this contract, the current net book value of the assets employee here is about $30 million, the average annual depreciation expense is about $8 million that of course take us down as the equipment more but it becomes fully depreciated and in characterizing the assets I break the fleet down in the three basic pockets. About 40% of these approximately 7,850 units are fully or nearly fully depreciated. These units have very little remaining book value now and they are relatively old and many of them would probably not be redeployed. Another 20% of the units are more in the middle of their depreciation schedule. Some of these units will be redeployed and as the value on these assets will be close to zero by the end of the contract. The last 40% of the units are newer than earlier stages of their depreciable life, they are EMV ready and they're quire redeployable. And -- we deploy most of these units and we have two-plus years to plan for that redeployment. In summary based on the current setting, two years left around on the contract and as we're continuing to run on depreciation. We do not expect to material right off from ATM equipment or a material change in our depreciation figures or amortizations schedules, or any impairment of good will or intangible assets upon the exploration of these agreement. We do expect it is a fairly organized offset to CapEx from this asset redeployment and some relief from the ongoing CapEx required to keep the 7-Elevan portfolio occurred. Turning now to guidance, and on the heels of second quarter that we're fairly pleased with along with the recently announced Columbus Data Services acquisition and accounting for their lost revenue and profit associated with the divestiture of our retail cash and transit business over in the UK. We're making a few tweaks to guidance. So the 2015 guidance we put in front of you today is as follows; we now expect revenues to come in between 1.18 billion to 1.2 billion and essentially what's happening there is the expected revenue contributions from the CDS acquisition is being roughly offset by the sale of the Retail cash and transit business over in the UK. We are [appreciating] our guidance on percentage of gross margins by 50 basis points, now expecting margins to come in between 34% and 34.5% for the year. We're also narrowing our adjusted EBITDA guidance range to 297 million to 302 million as compared to the previous range of 294 million to 302 million. Depreciation expense guidance has been adjusted downwards slightly, now expecting 89.5 million to 91 million. We're expecting cash interest expense of 19 million to 19.5 million also down a little bit. We expect adjusted net income per share to fall between $2.83 and $2.88 based on 45.4 million shares outstanding. That new guidance range is up a bit on both ends from the previous range of $2.78 to $2.86. We're now thinking capital expenditures will be a little bit lower than previous guidance and we're taking that guidance figure down to a range of a 130 million to a 140 million versus the earlier spread of a 140 million to a 150 million. These figures imply very strong cash flow performance by the company and that's exactly what we expect this year. With about 300 million in EBITDA, a 135 million in non-acquisition CapEx, 19.5 million in cash interest and about $40 million in cash taxes I see 2015 net cash generation approaching a $100 million that can be used to fund further growth of the company to generate shareholder value. So I'll just close by saying that this felt like a workman like quarter where we achieved pretty strong financial results, we continued to diversify our business both in terms of geography and product. We're excited, I'm certainly excited about our prospects for the remainder of this year and forward, given the recent announcements we've made and the other opportunities that we have in front of us. So Steve with that I'll turn it back to you for closing remarks.

[Steve Rathgaber:]

All right, thanks Chris. As I said earlier, we have lived with the uncertainty of the future of 7-11s for almost three full years. We now know the outcome and we also know that we have two full years remaining on this contract. For most of that three years we have demonstrated through action and results our strategic intention to grow past 7-11, just in case. And in each of those three years we have achieved revenue growth near 20% annually and earnings growth near 25% annually. As noted in today's call after doubling the size of the UK business literally just two years ago we just grew the top line another 41% and have created a business that makes meaningful contributions to earnings. In two more years we will be still further along in the execution of our growth strategies. What I can commit to you is the following. We will grow organically with new placements in existing markets; we will grow organically by growing our share of the transaction pie on an absolute and percentage basis. We will grow our international footprint with targeted expansion into meaningful growth markets and we will use our strong cash flow to make acquisitions in aerospace and adjacent to aerospace as we see strategic fits. We will grow because we're part of a growing global marketplace in ATM placements and ATM cash withdrawals and we are committed to creating meaningful shareholder value all along the way. There is much work to be done to prepare for optimizing shareholder value during the next two years. I'm aware of your desire for certain information and Chris alluded to the challenges of sharing some of that information. We are committed to providing the most information we can while protecting the interests of the shareholders. We ask for your patience as we navigate this journey. And most importantly we look forward we look forward to sharing our continuing growth story with you in future earnings calls. Thank you for your support and your interest in Cardtronics. And now operator we'd be happy to take any questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Dane Huckles of Piper Jaffray.

[Dane Huckles:]

Hey. Thanks for taking my questions. Say, I'm curious if you can potentially -- is there a way that you're thinking about in ranked order of filling back the 17% revenue that 7-Eleven represents? Is it more acquisitions? Is it more organic? Have you thought about kind of a mix between those two? Is it a geographic? How do you think you're going to go about filling in that revenue?

[Steve Rathgaber:]

Okay, well there's a variety of ways but essentially it's what's reflected in the three years of look back it's our belief that we can continue to move forward on those kinds of parameters. We've got historical mix over the last ten years of being Cardtronics of 18% top line growth and that's been a combination of acquisitions and organic. We see an opportunity to grow internationally, we're ramping up efforts and activities there and we expect that to be a meaningful contributor in coming years. We are still on the cusp of producing the fruits of our investments in our 3.0 strategy which is about transaction share increase focus in the US. And as I indicated earlier in my remarks we continue to enjoy pretty healthy pipelines both in everything from placement to Allpoint sales to acquisition opportunities. So I guess without trying to be cute the answer is we're going to be Cardtronics, we're going to do what we do and plug away at it as fast and furious as we can and hopefully we will see the multiple legs of our strategy kick in right around the time we need them all to kick in as the 7-Eleven contract begins the flying down, which could be late in 2017 as we have the contract through July of 2017. I don't know

[Dane Huckles:]

Yes, it sounds like it's opportunistic as time goes on. None of them really stand out, I guess, right now specifically, but it's opportunistic as time goes on over the next two years and you filed through the markets

[Unidentified Company Representative:]

Yes, it's a doing what we do.

[Unidentified Company Representative:]

I think that's a fair comment, although I react to it slightly in the sense that, it's not as -- we're going to wait for things to come at us. I mean, we have added muscle in our acquisition shop, we have added muscle in our business development efforts of focused on potential entry into new geography and we certainly added muscle in the sales and marketing area. So, sometimes opportunism may imply that you sort of sit back and wait for good things to happen and as just simply not what's happening here, we've taken a lot of steps to get the growth engine in good shape.

[Unidentified Company Representative:]

Yes, hopefully you don't think the last three years, just sort of happened.

[Dane Huckles:]

No, no, definitely not. I was just trying to get a feel for if there was one avenue that stood out more to you than another. I guess -- you mentioned some of the customer banks that have been selling branches to banks that weren't on Allpoint network. Have you had any success in using the new sales force that you've kind of built up in contacting those new banks and potentially getting -- generating new sales down that channel?

[Steve Rathgaber:]

Yes, I mean we certainly are calling on banks all the time and one of the actions we took that's been very positive for us, we took this action, I believe it was late last year under David Dove's leadership. We rededicated a sales force particularly to Allpoint and have a different sales force focused on the branding and both of those groups are very actively engaged with all the FIs. They have got some meaningful numbers there and we're knocking on doors, it's one of the reasons. We have incredible and meaningfully deep pipelines.

[Dane Huckles:]

Okay, that's great. And then one last question. Can you give us any update on the product development front? I know the last couple of quarters you've had a lot of different products that have been coming to market with the ALLTM and the ATM Locator? Any new products coming out in that end?

[Steve Rathgaber:]

Candidly, our focus is on getting rolled out to the bulk of the fleet. What is our foundational product the golden master, if you will, that we call it internally, now that has a broad set of capabilities and that is part of the EMV related activities that and as you may you may not be aware we've been working over the past several years to build a fairly comprehensive single application that can operate on multiple platforms and that has been a challenging effort but we're on the cusp of success with that. And that will be our focus over the next 12 months as we prepare not only for EMV delivery but for the rollout potential of that product and it's a contribution to the very kinds of sales that you're talking too, that will help us to plug the 7-Eleven challenge.

[Operator:]

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

[Andrew Jeffrey:]

So, I wonder if I could follow up maybe a little more granular level on that last question with regard to growth opportunities. Specifically, I am wondering if CDS in any way signals a change in your view of the economics of the merchant-owned market and whether or not going in, perhaps acquiring a big ISO or something like that now looks more economically compelling than it might have in the past. And as a corollary, when you look at chunky deals, and I know you kind of bought most of the big stuff in the US, are there big deals in the UK that you can do like a Welch or even comparable sized deals in the UK, or are we thinking more about single or double? So, a couple questions there.

[Unidentified Company Representative:]

Okay. So, we'll start at the back first, do you want that?

[Unidentified Company Representative:]

Yes, I think if we're talking about the U.S. and the U.K. there are certainly just a handful of potential assets of the scale of a Welch and as you can imagine those opportunities are fairly well understood by us. I think the challenge for us is to act on the most attractive opportunities in a pipeline that is fairly rich, with not only those two countries but the other four countries that we're in plus new markets that we have our eyes on. And so, I think the starting point is that we have achieved definitely critical mass in both the U.S. and U.K. we feel pretty good about our ability to go out in this win business on an organic basis and won that closing the door on any other significant deals in those two markets we are spending more and more energy outside of this two markets on bigger more transformational deals.

[Unidentified Company Representative:]

And certain markets due lend themselves to assets of more size and without going into particulars we think there are growth like opportunities scattered around the globe comfortably and so that's part of the analysis that we work to everyday. Going back to the first part of your question and as CDS signaling something new and exciting I guess I would have to answer that with little bit of fussiness in the following way. They suddenly bring a different perspective to the business that fits much more of a process remind set and they have some ideas and motions that were in traded by and we are letting them to operate on a pretty much and independent basis and we are looking to leverage some of their software capabilities that are different from ours. Some of the banks they do could take us in a few different directions for experimentation on growth areas but I wouldn't want to leave you with the impression that it signals some new leap into an uncharted area and some dramatic fashion were pretty much in eating potatoes folks and we do think on a consistent incremental basis and I don't think there is a radical shift their having said that Phil has pointed out, I pointed out, Chris has pointed out that as we continue our strategic formulations we do look for acquisitions that might be someone non-traditional but even those would be or presumably manageable from a placing of the bet perspective. That helps?

[Andrew Jeffrey:]

Okay. As a follow-up, Chris, could you just comment on any specific callouts on the ATM operating gross margin and the sustainability thereof, because it looked pretty good?

[Chris Brewster:]

Yes. I look through kind of look through the numbers what I see is a couple of things certainly some we talk about 60 basis points increase year-over-year in the core margins that drivers of that, that I'm seeing included the harvesting of some acquisitions synergies both in the U.S. and the U.K. and we're also seeing somewhat fair margins in the managed services side of our business. And frankly I think that I'm relatively optimistic about forward margins and you can see some of that reflected in the guidance that we put out. [Indiscernible] by go forward basis as and I look over the next they are coming say two or three, fourth quarters and I see synergies in the U.K. for the combination of the two big amity car operations and two big ATM maintenance operations that we have over there I see some relatively low margins business departing the same that's being the retails IT business that we sold and I see some solid margin arriving on the same I believe from the CDS acquisition. And I don't see any sort of material margin pressure [Indiscernible] we've been so that those would I think be the significant moving pieces some Andrew.

[Operator:]

Thank you. [Operator Instructions] And next question comes from Ramsey El-Assal of Jefferies. Your line is now open.

[Ramsey El-Assal:]

Hi, guys. In terms of the 7-Eleven loss and sort of what the profile of the business looks like afterwards, when you mentioned that 7-Eleven was growing at a slower pace than your intrinsic organic growth. And if you assume that you continue to grow at similar organic rates that you're growing today over the next two or three years, I mean should we expect once 7-Eleven drops out that your organic growth rate would just mathematically improve?

[Steve Rathgaber:]

That is the resulting math.

[Ramsey El-Assal:]

Okay. And then I guess along similar lines, would we expect to see a favorable shift in your tax rate as well given, I'm assuming there is a higher U.S. tax rate to non U.S. and once that mix changes how would we expect to see your tax rate come down for 7-Eleven?

[Steve Rathgaber:]

That's also a logical outcome and I'm looking at my Chief Accounting Officer to track me through on a part of this but the effective tax rate in the U.S. was federal at 35% and plus state local taxes is about 39% the current statutory tax rate in the U.K. is 20% and Brad it's schedule to go to 18%. So we are seeing as U.K. is growing we've seen a higher proportion of our revenues coming out of a lower tax environment and certainly having a revenue loss of out of the 7-Eleven contract within the personally in charter in that there actually so as the windy ware are saying the presumption of little bit more favorable tax position is probably valid?

[Ramsey El-Assal:]

Okay. Another question on all of the issues around 7-Eleven. Do you expect to the competitive environment to intensify with FCTI/Seven Bank with a little more scale under their belt. Do you think that you'll be facing any more aggressive competition for deals and renewals in the US post this event?

[Steve Rathgaber:]

Well I think it's fair to say that we've always had a competition and we've always had competition that was willing to price a very aggressive way. And I would suspect that we'll see competition from that entity and perhaps others continuing to do that. I think where the difference will be is perhaps in category and in terms of status relative to product capabilities but I think I would make an argument that's a really feature that made the entity you're asking about attractive to 7-Eleven which was its DNA is likely to make them less attractive at least I hope competitively to everybody who competes with 7-Eleven. So, I don't know how that's going play out but I do suspect that we will bump into this competitor and I do expect them to bit aggressively. And I would remind you that in the four contracts that we have bit against them on, we have one great of their existing customers and they -- none of which we have an ownerships relationship with and they have one-one -- one of which they have an ownership relationship with. So that's about what I can answer there.

[Ramsey El-Assal:]

Okay. Last one for me coming up here. I'm not sure if it's anything you can comment on, but is it a possibility that you could continue to support that business in some way, shape or form after this contract expires, thereby mitigating the impact here a little bit?

[Steve Rathgaber:]

I think that's an interesting question and I would say that three weeks into phase two, after three years of the dance we don't know the answer to that. We do believe that there is a lot of work that has to be done by lot of parties and Cardtronics carries an open mind. One of the things I want to definitely be true is that after and when assuming that ultimately 7-Eleven leaved us, I'm committed to have in our service to be so good between now and at date that they'll miss us. Okay. And along that two year journey what transpires in terms of possibilities for other relationship with 7-Eleven, I can't say but I can say we keep an open mind and we look for opportunity as that make financial and economic sense for our shareholders.

[Operator:]

Thank you our next question comes from Bob Napoli of William Blair. Your line is now open.

[Bob Napoli:]

Good afternoon, and I apologize. There are several calls going on at the same time, so I missed some of your comments. If you wouldn't mind kind of going over what our thoughts around the profitability of the 7-Eleven versus the revenue, and what your goals would be as you get into 2017 and 2018 on your earnings growth?

[Steve Rathgaber:]

What we've said was on the revenue side, we had put out disclosures on in our 2014 10-K to the effect that the 7-Eleven unit contract represented 17.5% of pro forma revenue and we never get a point estimated on pro forma revenues and to just cut to the chase on it, we sort of said -- take that 17.5% figure and we just multiplied buyer, our 2015 full year guidance about 1.2 billion. We come up with a pretty good estimate of what? -- the 7-Eleven revenue is -- went on to say that the revenue growth on that portfolio is somewhat below our for our corporate average organic growth rate and that's important to think about when you start thinking about, you know how important we'll might or might not be when we get a couple of years out. With regard to earnings we continue to be on a spot where we think it is in the better interest of our shareholders that we don't disclose highly specific details around earnings, some on a single contract. Some of that just relates if you go through a policy issue, you know where public company everybody gets the list of this call, everybody gets to read our mail and sort of negotiating things in public is probably just not that wise. Secondly, the -- we've got a timeframe, it's not like this is going drop on next week, we got a contract that runs for another couple of years and lots can happen in that two year time including acquisitions on our part other executions that drive by the revenue profits and then lastly as Steve was just discussing their aspects of this migration, this transformation that could impact numbers that haven't been discussed yet between ourselves and 7-Eleven. For that reason -- you know really series of reason on we didn't gave a point details on profitability. We did make the statement that due to scale of the estate and the fact that it's a convenience store channel and they tend to run higher average transaction counts that is in the states it delivered EBITDA margins better somewhat above our corporate averages and I think from what we've seen here that probably pretty consistent with the view taken by most of the analytical community that's opined on what those numbers might be.

[Bob Napoli:]

Great, that's very helpful thank you and just the interchange revenue this quarter was up quite a bit quarter-over-quarter and year-over-year. Is that because of the new business you put on in the UK, or what's driving the very strong growth in the interchange income? The withdrawal transactions were also pretty healthy.

[Steve Rathgaber:]

The major driver would be the conversion of the what we refer to as the Co-op brown field ATMs in the UK, that process started very late in 2014. It was substantially completed in about April. So we have not cycled on it yet, didn't have quite a full benefit from it in the June quarter but those are very high volume units, they average thousands of transactions a month as opposed to hundreds, and that's a major piece of what's driving that metric.

[Bob Napoli:]

Okay. And then on your international business, are there opportunities -- you know, one of your public competitors generates what appears to be a lot of revenue from value-added products, other products, and I guess dynamic currency conversion is certainly one big one. But are there opportunities to continue to add other products and other fee revenue streams in you European business or other businesses?

[Steve Rathgaber:]

I think the answer is it maybe. To your point there is a competitor who's had some success doing that, we have had some success doing that with BCC for example and we have had some success doing that with advertising for example in the UK market in particular. As we see and learn about some of these new international markets we will be attempting to fill up the ATM with whatever we can fill it up with to make money. Having said that the tried and true way in our model historically is get the most withdrawals you can through the ATM and optimize the expense base around that and you'll get the margin growth that we like to keep contributing to the mix here, so yes and stay tuned.

[Bob Napoli:]

Okay. And then do you have other big renewals? What does kind of the renewal pipeline look like? Obviously, you announced some good renewals, Speedway and I think Shell in the last couple of days, but what does the pipeline for renewals look like?

[Steve Rathgaber:]

You may not have heard this on, if you're on the other call but we book this in the first half of the year, we've done a $120 million of annualized revenues and renewalize around five year contracts generally speaking. That's essentially recurring revenue type streams of over $0.5 billion based on the contracted, the total contracted value. We've achieved basically putting 7-11 off to the side which occurred in July, that news, but not through the end of June we had like a 99.8% success rate with our renewal activity. In terms of the remainder of the year we don't have anything that is expiring but we generally find ourselves in discussions and we seek to do that early to create the right kind of renewal activity on terms and conditions if that makes sense, so there could be some that comes, announced this year, but there's nothing that needs to be announced this year if that helps.

[Bob Napoli:]

Great. And then last question just on Poland. I mean, you moved in a few ATMs. What is the game plan around Poland, specifically?

[Steve Rathgaber:]

Well we are learning, so we got ATMs, some of the ATMs have been more active than others, we are seeing on a relatively small set of ATMs some decent ramps now over the last couple of months. Was a little more sluggish in the beginning than we had hoped but as we get better at our location, [indiscernible] skills we're seeing some improvement there, beyond that we will slip into the mode of doing deals on the ground with new retailers and we will look for acquisition opportunities as they makes sense.

[Operator:]

[Operator Instructions], our next question comes from Meghna Ladha of Susquehanna, your line is now open.

[Meghna Ladha:]

Thanks for taking my question. Chris, what is the revenue and EBITDA contribution from the CDS acquisition?

[Chris Brewster:]

So far we said publically about that, we haven't. We disclosed the purchase price Meghna but did not give any associated P&L metrics around it.

[Meghna Ladha:]

Okay. And then with respect to the U.S. same store sales, I know you said it was flat this quarter, how should we think about the trend in the same store transaction for the rest of the year? And what is being done or can be done to reaccelerate the [growth year]

[Steve Rathgaber:]

I'll try to take the first part of that and I'll Steve and Phillip chip in on the second part of it. That number doesn't tend to move around dramatically, frankly. At this point I have no particular reason to think that it would logically change dramatically in one direction or another over the next two quarters. I can think of a couple of things that -- cycling on them that might cause it to uptick a little but we're probably talking fractions of our percentage point or percentage point and suppose to some sort of significant move. So, as relates to what do we do to change the tilt line on that and accelerate it, that's our product set and that's our strategic initiative around what we call [$3] here. But for each of the branding clients we've signed up, a new to an ATM site that's going to bring additional traffic to that site that is going to drive up same store sale. We have reported now two quarters in a row stronger sales and implementation numbers in all point then we have had in prior years. We have reported in the last two quarters a decent number of branding sales and we have called out a pretty substantial pipeline that we're pretty excited about that could be coming to close throughout reminder of this year that we hope to have some announcements on those kinds of executions should have impact assuming increases correct and the stability of the number sort of its sluggish to 1% those kinds of executing the kind of things I was just talking about would begin to have a positive impact on those numbers.

[Meghna Ladha:]

Thanks. And then in terms of the organic growth, I believe it was about 6% this quarter. What was the organic growth in the U.S. business and how should we compare that to the point that you made earlier, that the 7-Eleven was growing below the corporate organic growth rate of around 6%?

[Unidentified Company Representative:]

We haven't specifically disclosed organic growth by market I guess by implication it's the consolidated figure is 6% and we said, Europe was higher than that. So imply that the U.S. is somewhat lower than that in terms of organic growth. But at this point I'll leave it to that.

[Unidentified Company Representative:]

Okay, and just the last one from my side. The monthly cash withdrawals for ATM grew [16] or it was up quite a bit this quarter. Is that largely due to an increasing mix shift to the UK ATM post the Co-op migration?

[Unidentified Company Representative:]

Yes, it's the short answer. Those Co-Operator machines are very high volume machines. They are what we call free use that is they don't surcharge anybody where there is a primary revenue source there is interchanged with some help from dynamic currency conversion and some other odds and ins and they intend to drive our transaction metrics in a way that's noticeable in consolidation.

[Operator:]

Thank you. And at this time, I'm showing no further questions in the queue. Ladies and gentlemen, thank your participation on today's conference. This concludes our program. You may now disconnect. Everyone have a great day.

[Steve Rathgaber:]

Thanks, everybody.

[Chris Brewster:]

Thank you.