Cardtronics plc
Q4 2014 Earnings Call Transcript

Published: 5 Feb 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Cardtronics Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. But later, we will be conducting 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 to turn the conference over to Phil Chin, for opening remarks. Sir you have the floor.

[Phil Chin:]

Thanks, Andrew. Good afternoon, and welcome to Cardtronics fourth 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 our fourth quarter and full year developments, followed by Chris with details on our financial performance. We will then open it up for Q&A. 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, performance may differ materially. The statements on this call are made as if the date of this call and based on current information even if subsequently made available by us on our website or otherwise. We assume no obligation to update any forward-looking statements made today to reflect events that occur or circumstances that exist after the date on which they were made. In addition, during the course of this call we will reference certain non-GAAP financial performance measures. Our opinion regarding the usefulness of such measures together with the reconciliation such measures is included in the press release issued this afternoon. With that, I turn the call over to Steve.

[Steve Rathgaber:]

Thank you, Phil. And welcome, everyone. I want to start today's commentary by acknowledging two significant milestones for Cardtronics. In 2014 for the first time in our history, we processed over 1 billion transactions. That volume drove the second history making milestone of 2014 Cardtronics generated over $1 billion in revenue. These two milestones flowed through the P&L to drive our strongest adjusted EPS growth quarter in the last two and half years. Adjusted EPS was up 31% over the fourth quarter of last year. Other key fourth quarter results include revenue growth of 17% and adjusted EBITDA growth of 15%. The full year 2014 results are just as impressive as the quarter. The $1.05 billion in revenues for 2014 represent 20% growth in revenues over 2013 levels. Adjusted EBITDA grew past the $0.25 billion mark rising 16% above last year. And we added a fifth year to our four year trend of 25% growth in adjusted EPS. For the year and the quarter these results were accomplished in classic Cardtronics fashion signing new retail clients in multiple geographic regions, gathering more share from existing retail clients, attracting more card base to our ATMs thus driving foot traffic and sales into our retailers and completing acquisitions that drive scale. The activities above produced one of my favorite numbers of the quarter. ATM operating margins were up 160 basis points excluding recent acquisitions. Chris will provide more color and context on that later. In addition to the strong economic performance, the year was a period of investment for the future. We built and are in various stages of testing, piloting, introducing and candidly in some cases re-tooling after piloting a number of products. These include the ALLTM, Allpoint deposits, our multi-bank branding suite, FeeAlert, Siteline, our enterprise data warehouse offering, enhancements to our locator search engine, ATM and marketing loyalty offerings and several other products not yet announced. These products are building blocks for our future. Early observations from our investment experience to date suggest the following. It is challenging work, it is very valuable for our clients and it will create formidable barriers to entry for others. We are excited about what we are building and we believe in a differentiated Cardtronics future. To manage that future and our next stages of growth late last year we restructured our business to drive P&L ownership, sharpen our focus and prepare us for global expansion. We brought together sales, product and operations teams into divisions that have responsibility for North America and Europe. This organization model is befitting a global company intent on attacking the global marketplace. It establishes a regional framework and an operating model for future market expansion. Let me start the segment review with a focus on our European division. Europe drove 28% of Cardtronics revenues in 2014 and accounted for 25% of consolidated gross margins. We finished 2014 with over 13,800 ATMs in place, 12% growth for the year. And our full year transaction totals surpassed $445 million, an impressive 32% growth rate. In the fourth quarter, we finalized the two part transaction with the Co-op Food Group. Part one resulted in a long-term contract for 1,900 existing high volume ATMs and the opportunity to deploy in additional several 100 ATMs at Co-op locations presently without one. Part two included the acquisition of Sunwin Services group which provides a large scale UK wide armored CIT operation which compliments our current CIT operation. We began migration of the Co-op Food sites in December and anticipate full installation across the portfolio by summer of 2015. Additionally, we expanded our relationship with Waitrose and will add more than 300 new ATM sites at the UK grocery chain and its sister company John Lewis Department Stores in 2015. We have extended our existing relationship with BP and will take over the ATMs at 75 additional sites increasing our total estate size to around 320 making Cardtronics the sole supplier of ATMs to BP in the UK. In Germany, we are expanding our ATM agreement with the Gauselmann Group for 50 new sites in gaming hall locations, yet another example of winning new business with existing customers. We are excited about our progress in Europe, new clients, more business with existing clients, continued margin expansion, and the opportunity to enter new markets in Europe bode well for 2015. In North America, we grew the 2013 yearend ATM count from 68,000 to more than 96,300 at the end of 2014. And we grew total ATM transactions more than 16% to a total of 665 million. Organic growth delivered nearly 2,000 ATM locations and the acquisition of Welch in October added 26,000 ATMs split between higher volume turnkey and lower volume merchant and distributor owned ATMs. As a reminder, Welch provides the deeper relationship with our current customer Walgreens and adds 3,100 ATMs in Rite Aid stores, enhancing our market leadership in the pharmacy category. The Welch acquisition also brought an experience sales team focused on bank branding. That team is supporting our sales efforts as we seek new branding partners for the ATM sites being vacated by Chase, which we announced on our third quarter call. I am pleased to report that we are in advanced discussions on more than 40% of the sites with multiple new branding partners. And we have already re-branded a subset of those. While I knew these locations were high quality and would sell well, I have been pleasantly surprised by the pace with which the pipeline has built. Obviously nothing counts until it is actually closed, but I am encouraged by our early progress, and our early results re-enforce by belief for improved transaction economics for these premium locations. Our AllPoint surcharge free business continues to grow. In Q4, we won multiple deals with mid-tier financial institutions including three Top 100 credit unions and we extended our agreement with the STAR network to expand AllPoint access for their surcharge free users. We renewed a large retailer in Q4. The Pantry operates 1,400 stores across 13 states primarily under the Kangaroo Express banner. Noteworthy in the renewal discussions was the customer satisfaction with the additional foot traffic and ATM volume we have been able to drive to their stores. We like our pipelines in most markets and believe we are well positioned for 2015 in both North America and Europe. Let me pause here a moment and talk about past and future growth. Chris will walk you through our 2015 guidance in a bit but I thought it would be useful to provide some historical context about how we see the future. While historical performance is never a guarantee of future performance, trends and track records matter. Performances history validates business models and execution capability. Cardtronics 20% revenue growth for 2014 is part of a decade long history of attractive revenue growth. For 10 year Cardtronics shareholders have enjoyed average revenue growth of 18%. The last three years have seen a slight acceleration of revenue growth to an average of 19%. And as previously stated this year it is 20%. History and current performance suggest two themes associated with our revenue profile, consistency and very gradual acceleration. Cardtronics is a growing global company and a growing global ATM market. Let me provide some basic data to support that position. RBR is market research firm in the ATM and payment space based in London. They provide a country-by-country market analysis of the ATM space. Their research projects both ATM placements and ATM withdrawal transactions across the planet to enjoy a compound annual growth rate of 6% for the foreseeable future. ATM placements and ATM transactions are the growth markets for Cardtronics entering new countries in combination with an intense focus on transaction share gains in more mature markets are core elements of Cardtronics' historic and future growth story. And these tactics will continue to be complimented by strategic acquisitions that sometimes facilitate new market entry like we did for Canada and Germany, other time's acquisition will drive transaction share gain and new locations like Welch did this past year in the US, and cash zone did 2013 in the UK and still other times acquisitions will bring innovative products that drive value to our customers like iDesign. So we finished the year with over 110,000 ATMs that we own or operate. That is 110,000 ATM at over global market population presently estimated by RBR for 2014 at 3 million ATMs and growing 6% annually. We processed over 1.1 billion ATM transactions at over global market estimated by RBR for 2014 to be 95 billion transactions in 2014 and also growing at 6% annually. So at 3% of the global ATM count and 1% of the global transaction count, we've got some room to grow. It is my expectations that Cardtronics will become more aggressive in new market entry over the next year or two. What has been one new market every other year over the last four years will likely accelerate to one or two each year for the next two or three years. This is consistent with our revenue diversification strategy and consistent with our view of the opportunities available to us. At the same time, it is my expectation that Cardtronics will continue to develop and master the art of drawing transaction share to our ATMs. We've been investing to build the products and tools that will drive an increasingly unique and valuable customer experience at our ATMs. We believe that will drive share and we believe transaction share will drive shareholder value. Our focus for 2015 and beyond is growth. Our model is strong, our team is strong, and our performance is strong. We look forward to continuing to deliver the top and bottom line. And now I would like to turn it over to Chris Brewster for a look into the financials and our 2015 guidance.

[Chris Brewster:]

Thank you, Steve. As Steve mentioned, our consolidated revenue in the fourth quarter was $284 million, that was up 17% year-over-year, adjusted net income per share were $0.64, up $0.15 or up 31% year-over-year. Revenue growth continues to be fueled by mix of organic growth and acquisitions and that was driven by good fundamental execution and just basic blocking and tackling rather than one or two big wins. Organic growth was 6% for the quarter excluding foreign exchange impacts with contribution by all parts of our business most notably strong momentum in the European business with organic revenue growth in high single digits driven largely by new merchant contract wins. We had continued growth in all point in our bank branding business in North America and that represented about one percentage point of the overall organic revenue growth. Looking forward, loss of the Chase branding is a headwind in this pocket of revenue in 2015, but we do expect this to subside in the back half of the year as we replenish branding on these units which as Steve said, we have early optimism about doing it at this date. We added about 2,000 owned ATMs in North America versus last year, and in broad numbers about a third of those were with a existing US customers, about a third with new customers in the US, and about a third with new customers in Canada. And I would point out that the revenue gain in Canada was well into double digits. Turning now to the acquisition side of the house, the fourth quarter included almost the full quarter of contribution from Welch which was closed in early October. And we had just less than two months of contribution from the Sunwin acquisitions over in the UK. Our recent win of the Co-op Food contract in the UK to operate approximately 900 existing ATMs in their stores is being characterized as an acquisition in our numbers work due to its linkage with the acquisition of Sunwin from the Co-op Group, it was the parent company of Co-op Food. And those ATMs and those sales gains are excluded from our organic revenue growth figures. We began taking over these Co-op locations in December of 2014 and as today's date we have migrated about one-third over to Cardtronics. Turning to consolidated gross margins for the quarter, they came in at 33%, up about 50 basis points year-over-year, our UK business experience nice margin expansion as we realize synergies from the 2013 Card Point acquisition and achieved operating leverage there from. As previously mentioned, Sunwin is somewhat dilutive to our margins excluding all acquisitions; our ATM operating margins were up about 160 basis points as Steve said in the quarter versus last year. Sunwin came in the door being dilutive to margins, it will continue to pressure margins somewhat in 2015 but that pressure will diminish in magnitude through the course of this year as we realized synergies and as we migrate the rest of the Co-op Food ATMs and I would like to elaborate on that in a few minutes when we talk about guidance. Moving on to the quarter's earnings, adjusted net income for diluted share was $0.64, up 31% from $0.49 last year, certainly strong revenue growth and margin expansion were helpful, but results also improve further down the P&L, certain asset became fully depreciated in the quarter and we also made some adjustments to our charges for estimated feature cost to de-install ATMs and those charges flow through the depreciation line as well. That year-over-year reduction and depreciation contributed about $0.01 per share in the quarter. On the financing side, we reduced cash interest expenses by about a $1 million on a higher amount of debt outstanding thanks to the refinancing we did in quarter three which if you recall in which we replaced 8.25% debt with 5.125% debt. Currency changes versus prior year cost us about a penny a share in the quarter on the bottom line. Turning to the balance sheet. We continue to maintain good liquidity with modest leverage and I believe we have plenty of access to capital for growth. Total debt outstanding at yearend was $613 million that was comprised of $250 million or 5.125% notes that we issued in late 2014. $225 million or 1% coupon convertible notes and a $137 million of revolver borrowings leaving us with $238 million of unused revolver capacity. Net debt outstanding to adjust EBITDA and this figure is pro forma for recent acquisitions was approximately 2.3 to 1 which is comfortably within the range of the capital structure that we seek to manage too. Apps and additional acquisitions in 2015, we would expect this ratio to decline 2 to 1 by year end as we generate free cash flow and continue to execute synergies on acquisitions. As we move to talk about guidance for 2015, we believe that revenues will range from a $1.170 billion to $1.200 billion, this figure incorporates today’s exchange rates which in comparison to 2014 exchange rates reduce revenue by about $47 million. In addition, we expect certain of our contracts and our merchant own business to migrate from what we call gross revenue accounting to net revenue accounting as we conclude the detail contract review process. By a way of explanation certain contract language might causes to report a merchant own transaction by example as 2% of gross revenue against which there might a merchant payment cost of a $1.60 resulting in $0.40 of contribution. Other forms of contract language on the same economic transaction might cause to just report the $0.40 as net revenue with no cost for the merchant payment. In both cases, we have the same $0.40 contribution. One is reported with higher growth revenues and lower percentage margins, and the other as reported with no lower net revenues and higher percentage margins. This gross to net shift on a subset of our merchant owned fleet is expected to reduce reported revenue by about $18 million with no impact on profits. In summary, our revenue guidance that you are hearing today absorbs $65 million of unfavorable movements foreign exchange and gross to net revenue accounting shifts. Moving down to P&L gross margins, we expect gross margins in the range of 33% to 33.5% in 2015 versus 33.3% in 2014. We are expecting margin expansion in our core ATM business, but this will be offset by some measures by the lower margins of the Sunwin business in the first part of 2015. And as you consider revenue and margins for 2015, it would be helpful to understand in some detail the revenue accounting dynamics of Sunwin in relation to the ATM operating contract in the Co-op Food Stores. So as some numbers to talk around, I'd like to refer you to the consolidated statement of operations in our earnings release. You'll note that ATM product sales and other revenues on the P&L statement increased from $7 million in Q4, 2013 to $23 million in the fourth quarter of 2014. On which we earned the gross margin of about 8%. Most of that increase relates to Sunwin. Sunwin's primary activity as the provision of armored car and maintenance services to the ATMs in Co-op Food Stores that we have begun to takeover. Upon migration of the Co-op ATM to Cardtronics, a portion of this Sunwin revenue sees as being external revenue from Co-op and becomes inter company revenue within Cardtronics, and consequently is not reported as revenue on our consolidated financial statements. Instead, we begin reporting the interchange and other revenues from the Co-op ATM as ATM operating revenues in our consolidated statements. So what you'll see over the course of the first half of 2015 as we migrate the Co-op ATMs across is a reduction in the lower margin other revenue category of our P&L and an increase in the higher margin ATM operating revenues category in our P&L. Reported revenues from the combination of Sunwin and the Co-op ATMs will increase as we move through 2015, and the associated margins are expected to increase as higher margin ATM operating revenues more than replace the lower margin other revenues. Moving further down to P&L on the adjusted EBITDA measure, we're expecting results to range from $293 million to $302 million. We expect depreciation expense to be in the range of $91 million to $93 million. And since depreciation is largely driven by CapEx, so let's go to that topic next. We expect CapEx in the range of $140 million to $150 million and that compares to about $110 million in 2014 and the increase in CapEx is being driven by a few factors which I'll try and quickly recap here. First, our global pipeline is strong and we've budgeted significant organic unit growth in 2015. We also have a number of merchant renewals in which we expect to replace our upgrade equipment. The combination of new business and key renewals is expected to drive CapEx in year of about $90 million to $100 million. And I point out that each of these new pieces here helps us build our product delivery capability and build future revenues. We have compliance related cost associated with upgrading our US fleet to EMV compliance. That's an ongoing program and we estimate that we'll spend around $20 million on EMV compliance in 2015 to make a lot of progress towards positioning ourselves to be ready for the EMV deadlines coming in 2016 and 2017. We intend to spend additional capital on strategic investments related to product development that will serve to drive future revenue growth as well. And we expect that spend to approximately $10 million. Lastly, we expect to spend about $20 million just on basic infrastructure. So now coming back to the P&L. We're looking for cash interest expense in the range of $20 million to $21 million for the year. We continue to use a long term GAAP tax rate of 32%. And we're expected adjusted net income per diluted share to be in the range of $2.74 to $2.83 based on about 45.2 million shares outstanding. Now that outcome would represent a pretty nice increase over 2014's earnings, but to give you a more pure view of the basic earnings power of the business I would also tell you that if we were to neutralize the foreign exchange impacts from 2014 levels earnings per share guidance would be about $0.09 higher than what we're relating to you here. I would close off on guidance just by saying that this guidance does not include the benefit of any future acquisitions and it assumes that we continue operations at existing economic terms under our material customer contracts. From a cash flow perspective, we are currently projecting that cash tax is in 2015 will be about $35 million, up from $26 million in 2014. So even after a relatively heavy CapEx year and increased taxes, we would expect almost a $100 million of free cash flow after CapEx in 2015 that can be used to reduce leverage, fund acquisitions or otherwise to drive shareholder value. Now I'd like to make a brief comment about the relative distribution of earnings across the next four quarters. We are expecting to realize cost synergies on the Welch and Sunwin acquisition throughout 2015 and the Co-op Food ATM contract will progressively come online through the first half of 2015. These factors along with the early 2015 headwinds from the Chase de-branding suggest a more tampered quarter one earnings growth rate relative to the rest of the year. So with that I'll turn the call back over to you Steve for a few closing comments.

[Steve Rathgaber:]

Thanks, Chris. I'd just like to take a moment to thank and acknowledge the outstanding efforts of my colleagues in five countries and in two continents driving the major milestones results I opened yesterday. And the all around strong business performance 2014. I am fortunate to work with such quality team. And I look forward to working with them in 2015 to continue to drive high quality results for our shareholders. And with that operator we can open it up for questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Mike Grondahl from Piper Jaffray. Your line is open.

[Mike Grondahl:]

Yes, thank you. Thank you guys and congratulation on the quarter. Could you give a little update on some of the newer products and developments all point deposits ALLTM in the multi bank branding? Just kind of let us know where you at there?

[Steve Rathgaber:]

Well, I just say it is a journey, so in the case of ALLTM, we have a pilot operating in one set of stores in the Southwest and in that same city we are adding a second retailer now to expand that pilot. And see how the dynamic operates between the multi store multi retailer situations. So that is a journey. That's underway. We are also looking at reshaping the footprint for example from the experience we had in stores, some retailers would like a smaller footprint in terms of height so there is learnings that are coming along the way. And that's essentially the case with all of the product activity that we have going on. There is a lot that we put out there, lot of it's in test mode, lots of it is in pilot mode and a lot of it's in reshaping mode. We also have a rollout that is complicated. We are installing over the next two years new software and in essentially all of our ATMs to support EMV and a lot of what we have to do rollout products into the market place gets tied up and based on that. So the products are out there. We are exercising them, we are learning from them. We are feeling good about them. And we are tuning them and preparing for more dramatic rollout of them over the coming months and into next year. And it will take that long to get through the rollout at the ATM. The sideline product which is particularly exciting for us, that's our enterprise data warehouse. We are already active with that with customers and that is turning out to be a very powerful selling tool for delivering the concrete examples of the value with the Cardtronics offering. So it is a potpourri of stuff. It is a long list and to be honest I would say that we are much better at extracting synergies than when we somewhat new at rolling out products. So we are learning a little bit there. But it is going well. We build them, they are operational and we are excited about the future with them.

[Mike Grondahl:]

Okay, thank you. And then maybe just quickly, are you seeing any pickup in transactions or activity due to the lower gas prices?

[Steve Rathgaber:]

I'd say this Mike on that point in January -- if you look back at what gas prices did in -- the averages I seen around the country at in late like about the end of November they were in the high 2s by the end of December they were down around $2.30 and today they are down around $2. So they have been coming down over about the last 80 days or so. I would say we didn't see much effect of that November, December but we have in January. And we also see anecdotal evidence just from reading about what some of the analysts have to say that follow the some of the publicly traded convenient store chains that they seemed to be seeing benefits in their same store merchandize sales. And I have to say we saw somewhat other pick up in them in transactions as well.

[Chris Brewster:]

Particularly willing us to pay a surcharge. We've seen little nice bump in there.

[Operator:]

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

[Ramsey El Assal:]

Hi, guys. Terrific results. I wanted to push your comments a bit JPMorgan Chase re-branding effort. So if I understood correctly you mentioned advanced conversation is about 40% of the portfolio. Do you think you might rebrand more than that during the year? Are there incremental conversation? I assume you get started and I guess how do we tie that back to your preliminary guidance on the headwinds from that for the year?

[Steve Rathgaber:]

Well, I think what I can say is the following. I am not much good at pricing but putting that point aside, I would tell you that the 40% number, my point in highlighting that number is I did not expect to be that far along this quickly in terms of an active pipeline and we certainly didn't budget to be that far along this quickly. And as I also indicated in my remarks, pipeline is not a signed contract. Now we have actually signed some contracts under that 40% and we actually already done some rebranding. And we are trying to prioritize those as we go along. But I think the message is we are bullish on our opportunity to rebranding entire fleet and while it might be bold to the clear that we will do the full fleet in one year. We certainly feel good about the start we are off to and I would just say stay tune to, and I think Chris' headwinds comments stand with the budget in terms of how we laid out the budget. And I think that where we can beat that we hope to beat it. But we are pleased with early start and hope it continues.

[Ramsey El Assal:]

Okay, great. You mentioned you called out some expenditure for new ATMs on renewal the some decent size customers. Can you give us little color on kind of renewal environment coming up in 2015? I mean is it a big percentage of your large guys or is there anything kind of a typical about the year in terms of your renewals?

[Steve Rathgaber:]

Well, we tend to think in terms of five or six years contracts and therefore there is a pretty continuous stream of rollover on a 20% sort of basis or 15% sort of basis. There are obviously ebbs and flow in that in any given year. We have a handful of brand names that are up for renewal that we have been in negotiation with. We feel very good about our progress on those. And I feel that our strategy and our product plans are feeding into those good feelings about what we can do. So it looks good, the renewal pipeline is looking good from my perspective. And I would not say it's particularly a typical of a given year. But it might be little heavier this year than last year for example.

[Ramsey El Assal:]

Okay, last one for me. And that has to do with your comments on kind of potentially accelerating the expansion into global markets. You called up before a new market that you maybe entering soon organically. A, I guess just a quick update on that. And then also just any color on any change in your thinking about where you might be expanding? Are you seeing incremental opportunity for example like in Asia as opposed Europe or are you still sort of euro centric when it comes to the sort of non US place?

[Steve Rathgaber:]

Well I think in terms of the very near term, we do fully expect to rollout an additional country in Europe in the very near term, measured in weeks, not months. And we are hopeful of doing that as I said quite shortly. In terms of the one to two years for the next several years in new countries, new markets, our eyes are wider than just Europe. We believe there are opportunities that are maturing in certain markets where we can play a role and should play a role. And we've been spending some time and we will continue to spend a lot of time this year exploring new markets. And I prefer not to identify them by name because other folks listen and go look. So I prefer not to announce that. But I do think it is a wider swath than just Europe and I am excited about our ability to enter markets and grow.

[Operator:]

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

[Andrew Jeffrey:]

Hi, guys. Good afternoon, thanks for taking the questions. I guess to follow up little bit on Ramsey's line of questioning, Steve, I appreciate sort of the high level views of Cardtronics share relative to the global opportunity and also as you expand globally and become more of an international but just kept the sense that perhaps you would like us as analysts and investors maybe you think more about Cardtronics as an integrated growth company and maybe not concentrate as much on organic revenue growth in any given period or any given geography. Is it right if we take a step back to position Cardtronics over a multi year period for long-term investors to think about the company that way, gaining global share, posting perhaps sustainable double digit reported revenue growth with improving margin as a way of driving long-term shareholder value?

[Steve Rathgaber:]

Yes. I would invite Chris to comment here as well, but I would offer Andrew that, I think Cardtronics is aspiring to have one foot solidly in a consistent 6% to 8%, 6% to 9% organic growth, and one foot solidly in acquisition growth of a similar or greater number. And somehow juicing that with potential country expansion. And potentially juicing that depending on how successful we are driving transactions share. The multiple legs of our strategy have to do with working mature markets to grow a share which we think is very high margin valuable growth. And international growth markets for entry to drive the top line but probably a little bit lower on the margin in the early stages until we catch up with scale and begin to do our traditional thing that we do where we gather more scale in a country which is extract those margin expansion opportunities. So I think we are trying to perfectly balance and have done -- if you look over the last five years, we've done a very nice job of blending organic and acquisition. So I'll pause there and let Chris clean up whatever I said and maybe provide additional color on it.

[Chris Brewster:]

I think you described a body with three legs, to round it out I'll add a four, so the other opportunity that that gives us is as we are in a market is to build scale which essentially energizes the acquisition engine, that is one of the core strength of Cardtronics over time, once we've entered the market is to be able to grow it through M&A and we’ve certainly done that in the US. We've done in the UK. We have opportunities to do that elsewhere and markets we are in now. And as we enter new markets that will raise new opportunities. So I think it’s a company that look forward to the future with a vision of quite a number of different levers that we can pull to drive both growth and margins.

[Andrew Jeffrey:]

Okay. And so at 6% organic revenue growth this quarter, you are in that range down I guess a couple hundred bps sequentially. Chris can you describe what drove that and how we should think about organic revenue and in fact perhaps the mix between ATM operating revenue and equipment revenues as we look out to 2015 in your guidance?

[Chris Brewster:]

Well, taken the question is asked I mean we - the sort of organic revenue growth that's incorporated in our guidance is consistent with the range that we described. I don't expect frankly changes in equipment sales to be a significant part of that revenue.

[Andrew Jeffrey:]

I guess I mean other revenue as you reported.

[Chris Brewster:]

Well, as I said we've managed to make life a little more complicated for you by now reporting the Sunwin revenues which at the outset are largely third party revenues through that other revenue line. That will gradually decline. It won't go to zero because Sunwin still has some third party business outside of servicing our ATMs but it will decline. So you will see some year-over-year growth in that line as we move through 2015 but not the sort of triple like we saw in the fourth quarter.

[Andrew Jeffrey:]

Got you, okay. And just anything specific you would call out that might have informed slower organic revenue growth in 4Q compared to 3Q?

[Chris Brewster:]

I would say vibrating around by a percentage point. It is probably just hard to comment on frankly. I will think about it further but it is -- it could be as simple as just when a particular contract is realized and when we cycle on something. I don't -- what I wouldn't attribute to is any sort of environmental change. I don't see anything like that in play.

[Operator:]

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

[Bob Napoli:]

Thank you. Just on the renewals that you guys did I guess at The Pantry, the early renewal and you said you have a pretty good pipeline of new renewals for this year. Are you seeing -- what kind of competition are you seeing on those renewals and how many competitors are there? I mean you consolidated the market quite a bit but how many other bidders are there and what do they look like?

[Steve Rathgaber:]

So a lot of these renewals are -- we are attacking early so we are bringing our products strategy and trying to lock in a longer term and sort of more negotiate on our terms than letting something go out to bid, okay. So I think smart business people try to preemptively avoid a bid process. And I think we've been fairly successful in doing that along the way so far. And we expect to be able to continue to do that. One of the things when I talk about in my comments a differentiated Cardtronics, we are becoming more and more wired into the fabric of the retailer. And certainly the product suite that we talk about as that gets activated and folks are interested in that product suite. But if we get involved for example with the retailer’s loyalty program that kind of thing it becomes more difficult to manage -- for them to manage the renewal process. We like the stickiness factor. So that’s sort of the way I would answer the question at this point. We've been aggressive about trying to get renewals done. Getting them locked in for the long term and taking advantage, quite frankly taking advantage for multiple reasons. So we've got to invest in EMV gear, we want to make sure we got a good long-term contract on that retail side to facilitate that investment.

[Bob Napoli:]

Okay. And then just on the Co-op ATM, what is the average revenue per ATM for those ATMs, those high volume ATMs?

[Chris Brewster:]

Well, the average transaction count on that fleet is around 5,500 per month. And taking the mix of withdrawal transactions and balance inquiries into consideration the average revenue per transaction in US sense would be -- I think say the high 40s around or about $0.50 a transaction. So you could take out as something in the ballpark of $25 to $100 a machine per month. Just take that as sort of vintage and elevation but it is in that range.

[Bob Napoli:]

Okay. And the Sunwin services, how much revenue is that bringing to you? And is there any strategy to build -- did you have to take that to get a Co-op ATM or is there some significant strategic reason to own in that business?

[Steve Rathgaber:]

Well, I would say that there was a certain package nature that made the deal easier rather than harder. And I would say that we have a history in the UK with our green team capabilities that we recognize the benefit of scale in that business. So while it is not clear how will view the long term future on all the elements of the business, it is clear that the transaction is a great transaction for us. And it is clear that the Sunwin operation will provide an opportunity for us to improve our economics on cost of servicing an ATM.

[Bob Napoli:]

And Chris the revenue. Do you have the revenue from services piece, do you expect --

[Chris Brewster:]

Well, I'll put it this way. So you can see in the P&L the change in other revenues that occurred from third quarter --fourth quarter of last year to fourth quarter of this year. And I would tell you the substantial majority of that relates to bringing in the Sunwin business for the roughly two months that we owned in the fourth quarter. So that will give you a bit of starting point but without delivering my somewhat belated comments about how the revenue characteristics will change in 2015 as we bring across the ATM fleet. I'd just say that -- what you would conclude from looking at the fourth quarter data, it is not necessarily than instructive for 2015 because the third party Sunwin revenues are in declines through ATM fleet across and as I said the ATM revenue more than offset that at higher margins.

[Bob Napoli:]

What percentage of that business was managing the Cardtronics' ATMs? Or do you just hit the Co-op ATM in Cardtronics ATM?

[Chris Brewster:]

I would say very rare numbers in the range of half of it.

[Operator:]

Thank you. Our next question is from the line of Reggie Smith from JPMorgan. Your line is open.

[Reggie Smith:]

Hey, guys, nice quarter and thanks for taking my questions. And just two quick one. I noticed that revenue per transaction was down sequentially in year-over-year, but your gross margins are up. I am just wondering if you guys could talk a little bit about what's driving that dynamic.

[Chris Brewster:]

Well, the revenue per transaction is a makeshift. In other words, as we continue to drive growth in the UK which in large measure comes in the form of these very high transaction volume free to use as they call them, non-surcharging ATM. We are bringing in more and more ATMs that are running thousands of transactions a month at say $0.50 a transaction as opposed to hundreds of transaction a month at say $2.50 a transaction. So I consider that sort of natural state of affairs if you will as tha makeshift occurs that on a consolidated basis the revenue per transaction decline somewhat. If you looked at the business as we are able to do inside in terms of looking at all its component pieces, you would not see any particular piece where we have a decline in revenue per transaction. In other words, we are not seeing pressure on interchange rates. We are not seeing downward pressure on surcharge rates. We are not seeing downward pressure on branding rates or other components. They what you are saying is purely the result of makeshift. In terms of margins, and the gain in roughly 160 basis points of gain in ATM operating margins, the UK is a significant contributor there. I mean we've made a lot of progress in terms of harvesting synergies out of the cash zone acquisition that happen in 2013. The Welch acquisition actually came in the door running somewhat higher not dramatically so but somewhat higher margins than the existing Cardtronics. And frankly the US operating team just never ceases us to delight me in terms of how they can keep turning over rock and finding money under them and figuring out ways to save on the cost side in the US business. I mean lastly we do have a nice forward march in our bank branding and all point surcharge free network revenues and view those as among our higher margin products.

[Reggie Smith:]

Got it, okay. That's helpful. Few more I guess I think since you just talked about it before but could you remind us what I guess what the broad buckets of CapEx spend will be next year just want to kind of --I guess get some color on that just given that year-over-year increase, so how much of it is devices, how much is it roughly new product developments and things like that.

[Chris Brewster:]

Yes. I will be happy to do that. The core of the company, we are expecting to spend -- we do have a pretty robust pipeline in terms of potential new unit acquisitions in the existing geographies we operate in. And in some cases as we go through renewals we will be replacing hardware. And that combination of replacement in existing locations on renewal and new unit growth, we think it will be about $90 to $100 million spend. For EMV, we are figuring on about $20 million as a rough number for the work that we are going to do on that front this year. New product development and this is primarily software with some computer hardware started as well about $10 million. And then what would I call general infrastructure which is anything from -- work on one of our offices to some vehicles for the armored car operation to service in the computer center, to telephone equipment, laptops or people what have you. All of that infrastructure spends rough number of around $20 million for 2015.

[Reggie Smith:]

Got it. And then I guess just my last question quickly. And I am not sure if you guys have in front of you but just curious what same store sales or transaction growth was and if you could remind us again kind of when comps start to annualize there next year at what point. Thank you.

[Steve Rathgaber:]

The same store transaction count in the US in the fourth quarter were pretty consistent with what we've seen over the last two or three quarters. They were up right above 1% year-over-year. And I would say as we -- I don't have the spread of our quarterly numbers in front of me but I think as we've reported in the first quarter of 2015, we will be looking back against from memory numbers that were up 1% to 2% in the quarter in the prior year.

[Operator:]

Thank you. Our next question comes from the line of Meghna Ladha from Susquehanna. Your line is open.

[Meghna Ladha:]

Yes, hi, thanks for taking my question. And congratulation on a good quarter. A quick question on the Co-op ATM. How does the EBITDA margin look like Chris on these ATMs versus the corporate average?

[Chris Brewster:]

I think it is going to be pretty strong. I mean I guess I should say one sort of tampering reality and that is we are only operating over a third -- about a third of them as we speak today. That is they are coming across align to us gradually. And the only financial statements we have on them would be for the month of December and they only began coming across in the month of December. So that's only a partial month. But I don't -- let's put it this way. I do expect to be able to make some forward motion next year on gross margins. And I am not expecting to be talking about dilution in margins from the Co-op activity.

[Meghna Ladha:]

Okay. And then on Welch, do we still expect about $70 million of revenue contribution this year. Could we see an upside to this number from revenue synergies?

[Chris Brewster:]

So I'll tell you, frankly I would bring that $70 million number down a bit because of the issue that we were talking about on our prepared remarks with regard to the gross revenue versus net revenue accounting shift. Part of that contract review revolves around them, getting through all of the -- they are literally thousands of merchant owned contracts that we picked up in the course of Welch acquisition. So the number I would suggest today might be a little bit lower than that $70 million not because anything is deteriorated in the business but simply because the way those contracts would be accounted for has come in somewhat differently than our earlier expectations. And I should stress and saying that gross to net revenue accounting shift does affect reported revenue, but doe not affect reported dollar gross profit. It has no impact on profitability.

[Meghna Ladha:]

Got it. And lastly so in the prepared remarks clearly you all want to expand to more international markets. And there is going to be an imminent announcement in a new market in Europe. In the US, do you still see it -- do you see additional opportunities for potential acquisition?

[Steve Rathgaber:]

Yes. There are certainly opportunities for acquisition in the US and in all the markets we operate in quite frankly. So we continue to have pipelines that have opportunities in them for acquisition in a variety of countries, the US among them.

[Operator:]

Thank you. [Operator Instructions] And it looks like we have no other questioners in the queue at this time. I'd like to turn the call back over to the speakers for closing remarks.

[Steve Rathgaber:]

Well, thank you. I just want to say to everybody, thank you for your interest in Cardtronics and belated Happy New Year.

[Operator:]

Ladies and gentlemen, thank you again for your participation in today's program. This now concludes the conference. And you may all disconnect your telephone lines. Everyone have a great day.