Cardtronics plc
Q3 2020 Earnings Call Transcript

Published: 1 Nov 2020

[Operator Ladies and gentlemen, thank you for standing by, and welcome to the Cardtronics Third Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]I will now like to hand the conference over to your speaker for today, Brad Conrad. Thank you. Please go ahead sir.Brad Conrad Thank you. Good afternoon, and welcome to Cardtronics third quarter 2020 conference call. On the call today, we have Ed West, Chief Executive Officer and Gary Ferrera, Chief Financial Officer. We'll start with prepared remarks and then take questions.Before we begin, a cautionary statement regarding forward-looking information. During the course of this call, we will make certain forward-looking statements regarding future events, results or performance. Any forward-looking statements made on this call are subject to risks and uncertainties, including, but not limited to, events, market conditions and other risks and uncertainties that could cause actual results to differ materially.Please refer to our earnings release and our reports filed with the SEC, including our Form 10-K for the year ended December 31, 2019, as updated by our Form 10-Qs this year, which describe forward-looking statements and risk factors and other events that could impact future results and other factors that could impact our business. The statements on this call are made as of the date of this call and are based on current information and may be outdated at the time of any replay of this call. We assume no obligation to update any forward-looking statements made today to reflect events that occur or circumstances that exist after the date on which they are made.In addition, during the course of this call, we will reference certain non-GAAP financial performance measures. Our opinion regarding the usefulness of such measures, together with a reconciliation of such measures to the nearest GAAP measure, is included in the earnings release issued this afternoon and available on our website.We have also posted supplemental investor materials regarding the quarterly results, along with additional information on the Investor Relations page of our website at cardtronics.com. We will make reference to some of the pages in this earnings supplement during the course of today's call.With that, I will turn the call over to Ed.Edward West Great. Thank you, Brad. It's great to be with you today. I look forward to sharing some recent developments that are transforming several key aspects of our business. The key messages I would like to convey today are as follows.First, the business continues to recover from the impacts from the pandemic and we are executing on our growth strategy. As evidenced by today's announcements FIs and Fintechs of all sizes are partnering with Cardtronics to deliver both an efficient cash solution and a physical brand presence by leveraging our unparalleled network and platform. We believe we are well positioned to benefit from the secular trend for FIs and Fintechs to leverage common infrastructure to serve their customers cash needs.Second, our investments in technology are paying dividends by opening new business opportunities and driving down costs. We have taken control over our future product flexibility by controlling and integrating the hardware, software and processing capabilities. We believe this result in accelerated product development, margin expansion, capital efficiency, and greater free cash flow conversion going forward.And third, speaking of cash flow, the free cash flow generated by this business is strong. And we expect this to grow over time as we continue to evolve Cardtronics. Our recent investments have fundamentally changed the capital profile of the business and consequently the free cash flow conversion has improved significantly.Now let me start with a brief recap of the results for the quarter. Revenues for the quarter were 279 million and adjusted EBITDA was 72 million. Our third quarter results were down versus prior year due to the continued impacts from the pandemic. The results were up significantly on a sequential basis from the second quarter as we saw continuing recovery across our markets. Our US business recovered to nearly flat year-over-year on ATM operating revenues.As you can see on Page 5 of the supplement, we saw continued recovery of our same-store transactions, which were actually up 1% for the quarter in the US. We also deployed nearly 700 new ATMs at Casey's stores during the quarter and experienced continued sequential revenue growth in our managed services and surcharge free categories.Outside the US our businesses continue to be more impacted by various local restrictions that have been implemented as a result of the pandemic. As a reminder, we also have more exposure to travel, tourism and leisure in the markets outside of the US. People, though will eventually travel again and we will lead to upside opportunity for us.The third quarter results allowed us to generate strong adjusted free cash flow for the quarter of 56 million, which was up from 48 million in the prior year. Free cash flow has been a consistent focus for us as we prudently deploy capital. It's fairly remarkable that on a current valuation basis, our free cash flow yield is over 18%.If you look at our cash flows over time, as reflected on Page 11, in the supplement, we have consistently delivered solid free cash flows year in and year out. That has continued this year in spite of the impact of the pandemic. I'll come back to this in a few minutes. But we are optimistic that we can continue to grow our free cash flows through growth and lower capital intensity, as we gain market share and leverage our recent transformative investments.I've talked extensively about the dynamics and consumer banking over the past several quarters, and we continue to see signs of accelerating digital transformation. Within the past few weeks, several large banks announced plans to significantly reduce their branch footprints, some of them by as much as 20%. As banks continue to pull back on their physical infrastructure, many of them are leveraging our network and platform to continue to provide convenient and cost-effective cash services to their customers.Our solutions and capabilities are valuable to not only small community banks and Fintech startups, but also the largest banks in the country. During the quarter, we continued our growth with Fintech partners. We recently established a relationship with Chime; a leading Fintech built on protecting its members and helping them get ahead. We're pleased that Chime has chosen to join our Allpoint Network at ATMs at select US retailers to broaden the scope of convenient and surcharge free cash access that will be available to its members in the coming year.We also established a relationship with Credit Karma, a consumer technology platform with more than 100 million members in the US, Canada and the UK. We're pleased that Credit Karma has also chosen to join our Allpoint Network to broaden the scope of convenient and surcharge free cash access available to its members. Additionally, we established relationships with MoCaFi and Central Payments, who have also both joined Allpoint to broaden their services for their customers. The team has done a terrific job of building on our recent successes of expanding with Fintechs, which will likely drive future transaction growth with these digital partners.Allpoint has definitely become the partner of choice with the digital operators and builds on our strong reputation among our growing base of 1200 issuers driving Allpoint. These relationships continue to serve as strong proof points that are convenient, on demand network and nationwide footprint provide the surcharge free solution that Fintechs and FIs need and consumers want. We continue to see strong growth in transaction volume from our Fintech partners, as reflected on Page 9 of the earnings supplement. Q3 transactions involving these partners are up over 200% since the beginning of the year. Fintechs now recognize that convenient, secure and surcharge free access to cash remains very important to their customers and critical to their customer engagement and growth plans.Increasingly, we are seeing a trend from larger banks to leverage our platform and look for ways to reduce costs or grow more cost effectively. Our managed service solution for operating ATMs continues to gain market traction, and now increasingly with larger financial institutions. Last year, we initiated a relationship with U.S. Bank to brand approximately 80 ATMs in Charlotte. And we're thrilled to report that we are now expanding this partnership with our first managed services agreement with U.S. bank. We'll own and operate about 70 off branch ATMs. We're excited about our growing partnership with U.S. Bank as we continue to earn their trust to further build and expand on this relationship. Additionally, building on our partnership in Canada, we have significantly expanded our relationship with Scotiabank in Mexico where we are adding an additional 200 ATMs that we will manage for them.These deployments are in process now and are expected to be completed by the end of the year. We have also agreed to operate an additional 200 ATMs for Scotia in 2021. This is helping drive their branch transformations strategy as they look to optimize their footprint and deliver superior service for their customers. Beyond these relationships, we also entered into numerous other branding, Allpoint and managed services arrangement this past quarter with both new and existing partners. Our value proposition continues to resonate with a wide variety of FIs including national, regional and community issuers. FIs are looking to grow strategically, but also optimize their costs and customer offerings. Our portfolio of solutions can help them with both their growth and cost optimization initiatives.Now, moving on to our international segments, with the exception of South Africa, our businesses outside of the US have been more impacted and have been slower to recover than our US business. This is partly attributable to the nature of the ATM locations, but also attributable to the tighter restrictions in different markets. In our second largest market the UK same-store transactions are down in percentage terms in the low to mid 30s range versus the prior year. While our cash dispensed amounts are only down in the teens on a per ATM basis. Cash continues to demonstrate resilience despite the recent lockdowns.In a report published earlier this month, LINK said that in April, people still drew about GBP1 billion a week from ATMs. In August this rose by 50% to GBP1.5 billion per week. With our broad network and coverage of ATMs in premium locations, we continue to benefit from the strength of the cash economy in the UK. In addition, the UK Government and the Payment Services Regulator have launched programs that indicate there could be legislation in the next Parliament protecting access to cash. As the UKs largest supporter Cardtronics is well positioned to capture the incremental volume as the market in the UK recovers and travel eventually resumes. We believe that our integrated platform and leading national footprint in the UK will result in new solutions to serve the payments ecosystem.Meanwhile, our business in South Africa continues to accelerate. September was a record month for installations and our volumes and average transaction value are ahead of those reported in the first quarter of 2020. Earlier this year, I mentioned a significant milestone achievement for Cardtronics, the development of our own proprietary ATM operating software. We're excited about this advancement in our company. I refer you to Page 10 in the supplement. This technology now live on over 15,000 of our ATMs in the US is transforming our business in two important ways. One, it has unlocked new growth opportunities and two, has improved the capital intensity of the business.We expect this technology to be deployed on nearly 20,000 ATMs by the end of the year, representing more than half of our US owned ATM footprint. This proprietary ATM software developed in house includes a suite of ATM applications that provides us greater control and speed to market while enhancing functionality and improve security. This bundle of applications that we refer to as the Neosuite platform enables us to quickly integrate and scale mobile solutions and other products. By leveraging an integrated mobile API in our new ATM application, we are effectively creating a gateway that significantly expands the transactional capabilities of the ATM, potentially including things like BillPay, Prepaid, or even cryptocurrency and other financial transactions.Our new suite of applications also allows us to provide our partners with detailed analytics into how their customers engage with our ATMs, enabling near real time marketing engagement opportunities and protecting the entire experience, all with best in class security embedded directly into the software stack. The Neosuite platform is delivering enhanced operational and financial control over our ATMs state on a remote basis. And we're already starting to realize lower operating costs through fewer physical maintenance visits, lower software maintenance costs, and enhanced uptime.In addition, this platform allows us to gain more control over our capital investments, whether it is a software change along the lines of Windows 10, a network change like EMD, or a compliance related change. Our capital costs are expected to be lower as we can update our ATMs remotely without involvement from third parties. We think this enhanced software platform delivers a step change in our ATM evolution. We're rolling the software out initially in the US and Canada and plan to expand the deployment globally, starting with our second largest market in the UK next year.In summary, it was a solid quarter across our enterprise in light of the ongoing negative impacts to our transactions from the pandemic. This is highlighted by strong operational execution, strong free cash flows and expanded new business with financial institutions and Fintech partners. Now, in spite of the continued rhetoric that we all hear, cash remains a large and very important portion of the payments ecosystem in the economies where we operate. Consumers trust cash and value its unique attributes of reliability, security and privacy. Now for the facts, cash in circulation in the US achieved a major milestone surpassing $2 trillion in August and up over 14% for the third quarter versus the prior year.As reflected on page eight, our dispense levels in the US were up 13% for the quarter versus prior year. This data is further supported by recent direct to consumer research by the Fed, and Javelin and Mercator which all indicate that consumer's desire for and interest in using cash has not changed during the pandemic, and payment choice is highly valued. Another interesting stat, the Fed recently placed an order for 2021 paper currency production that calls for a 30% to 65% increase in note production versus 2020. This is a clear testament to the expected increase in the use of cash by the Federal Reserve Bank.All of this also reflects how critical cash is for our most vulnerable segments of the population, particularly during this pandemic. There's a good reminder that our nationwide cashing infrastructure has never been more important than it is today for this large and growing segment of cash dependent consumers, many of whom are either under or unbanked. It gives our employees immense pride by delivering on our purpose as a company, which is providing convenient, safe and reliable cash access in the communities we serve.I'll now turn the call over to Gary for additional details on the quarter and a look toward the fourth quarter.Gary Ferrera Thank you, Ed. I will start with a quick recap of our financial performance in the third quarter, followed by a discussion of our balance sheet and liquidity before moving on to what we are currently experiencing and what could happen over the next few months. The comparative financial metric is provided on a constant currency basis to neutralize the slight currency tailwind we experienced during the quarter. The COVID-19 pandemic and the related restrictions on consumers continued to impact us during the third quarter.Total revenues of 279.4 million were down 21% for the quarter. Adjusted EBITDA of 71.9 million was down 19%. Adjusted EBITDA margin was 25.7%. I'd like to highlight that during the quarter we recognized 11. 8 million of net UK business rate recoveries. You might remember that on our last earnings call, I mentioned the recent legal decision by the Supreme Court in the United Kingdom, removing business rates in England and Wales effectively a form of property tax for certain ATMs.We have been pleased with the speed at which we've been recovering amounts owed to us and anticipate recovering a slightly higher amount in Q4. Adjusting out these UK business rate recoveries, we delivered adjusted EBITDA of approximately 60 million for the quarter, which is up nearly 30% sequentially from 47 million in the second quarter.This sequential improvement is mostly attributable to improved transactions across all of our regions relative to the second quarter, partially offset by suspension of the temporary compensation expense savings measures we put in place in Q2. Even with the suspension of these compensation related cost control measured measures, and excluding the business rate recoveries, we delivered an adjusted EBITDA margin of 21.5%, up from 20% in Q2.These strong margins and the underlying business along with the UK business rate recoveries and a net working capital benefit driven in part by an $8 million income tax refund we received during the quarter drove adjusted free cash flow to 56 million, allowing us to reduce net debt by 53 million compared to the end of June.To round out our key consolidated performance metrics, adjusted EPS was $0.49 for the quarter, up sequentially from $0.13 in Q2, but down compared to $0.79 in Q3 last year. The decline in adjusted EPS compared to Q3 last year was driven by the decline in EBITDA and higher interest expense.Looking at our financial results by segment, North America remains the most resilient, as revenue and adjusted EBITDA were both down 15% year-over-year. During the quarter with continued strength in our bank-branding and surcharge free offerings plus new ATM deployments, we almost returned to flat on the top line for the quarter in our core US ATM operating business.While our smaller businesses in Canada and Mexico and our merchant processing businesses continue to recover more slowly, and were each down over 30% for the quarter. Canada and Mexico both have a much higher percentage of casino and leisure-oriented ATMs compared to the US. And many of these ATMs remain not operating or operating on a very limited basis.For the third quarter US same-store withdrawal transactions increased 1%. As shown in the earnings supplement on Page 5, this measure of same-store transactions is more aligned with the metric that we reported prior to the pandemic and illustrates the trend at our transacting company owned ATMs.For compatibility purposes, we've also shown the COVID adjusted same-store metric, which we've provided since March and was a negative 3% for Q3. As a reminder, this lower same-store metric includes temporarily non-transacting ATM to illustrate the impact of temporary pandemic related site closures on our US business.As illustrated on Page 7 of the earnings supplement, our bank-branding and surcharge free network revenues, almost all of which are in North America continue to grow and rub 8% year-over-year in the third quarter. This growth continues to be driven by new and existing FI partners and our expanding list of Fintech partners.We have a relatively high percentage of variable costs in our North America segment. This dynamic along with focused cost savings and growth from new and existing partners on our network drove a solid adjusted EBITDA result in light of the lower transaction-based revenues.We were able to keep our North America adjusted EBITDA margin flat compared to Q3 last year at 26% as growth in our higher margin revenue categories such as bank-branding, and surcharge free along with continued cost controls delivered a solid margin results in light of the overall transaction in revenue declines.Our Europe and Africa segments saw the steepest revenue decline down 35% while EBITDA was down 20% from Q3 last year. The transaction decline rates improved sequentially from Q2, as shown on Page 6 of the earnings supplement. The largest component of this segment is our UK business, which was down about 33% on same-store transaction volume, which was a solid improvement from the 50% decline in Q2.However, as we've seen across many geographies, the UK has recently implemented more restrictions in new guidance on social gatherings and recently seen the transaction decline rates flatten out in the low to mid 30% range. We continue to see a significant decline in our cross-border revenues in this segment. As travel and tourism remains very limited.Our high margin cross border revenues were down 11 million in this segment compared to the prior year. Q3 adjusted EBITDA in our Europe and Africa segment was positively impacted by the previously mentioned UK business rate recoveries of 11.8 million.In our smallest segment at approximately 7% of revenues, Australia, New Zealand revenue declined 25% from Q3 2019, while EBITDA declined 37%. The travel tourism and leisure sectors were hit particularly hard in this segment throughout Q3. However, transactions across location type steadily improved during the quarter.Moving to liquidity and the balance sheet on Page 12 of the earnings supplement, at the end of the third quarter, we had total gross debt outstanding of 914 million and had unrestricted cash of 263 million, resulting in net debt of approximately 651 million. As a reminder, we have $116 million principal amount outstanding on our remaining convertible notes, which mature on December 1.We plan to settle the remaining notes with cash on hand. With over 250 million of unrestricted cash and zero outstanding on our $600 million revolving credit facility, we have substantial liquidity and we also expect to continue to generate strong cash flows in the foreseeable future.Net debt outstanding of 651 million at the end of Q3 was down 53 million sequentially from the end of Q2. Our net leverage ratio as defined in the revolving credit facility was 2.6 times at the end of Q3, improved from 2.7 times at the end of Q2. We continue to have significant headroom under our revolver covenants.Moving on to capital expenditures, year-to-date, our capital expenditures were 61 million, down 32% from 90 million during the first nine months of 2019. We believe that the recent trends in capital expenditures reflect a material decrease in the capital intensity of the business. These improvements are driven by technology enhancements, such as our Neosuite platform, and operational improvements that we implemented prior to and during the pandemic.To be clear, we are not compromising growth through this rebase lining of capital requirements. To highlight this point further, we expect to purchase 3000 more ATMs than in 2019, despite spending significantly less than CapEx this year.As I had previously mentioned, across the company, we have prioritized delivering strong free cash flow. Looking at Page 11 of the supplement, you can clearly see that in the results these last few years, and with our improvements in technology, and a focus on enhancing our operational and strategic outsourcing, our strategic sourcing efforts, we have driven down the capital intensity of the business.For many years CapEx was 10% to 12% of revenues. In 2019, CapEx was 9% of revenues, while CapEx has been 8% of revenues over the last 12 months, even with revenues being impacted by the pandemic. At our Investor Day back in March 2019, in our medium-term outlook, we estimated annual CapEx to approximate 8% to 10% of revenues. Due to the previously mentioned technology improvements in enhanced strategic sourcing, we now expect annual CapEx to approximate 7% of revenues over the medium term.As we navigate through this pandemic, we have not provided formal guidance. However, we feel it is important to be as transparent as possible as to what we are currently experiencing and our expectations for the remainder of the year. Based on recent transaction trends and commercial wins and execution, our current estimate for our fourth quarter is an adjusted EBITDA amount, excluding the UK business rate recoveries, similar to the 60 million we experienced in the third quarter.Ordinarily Q4 is seasonally weaker than Q3. And while we have seen some recent new unit and branding growth, some of this growth may be offset by seasonal factors and in some cases, re-tightening of social restrictions. This estimate does not assume any further significant lockdowns beyond what we have recently seen. And on the other hand, we are not assuming any significant loosening of social restrictions across our geographies.Based on the additional business rates that we have already received in October, along with reasonable assumptions of continued recoveries, we could see business rate recoveries in Q4 in the $15 million to $20 million range, which would put us at a total adjusted EBITDA number of about 75 million to 80 million for the fourth quarter.As I mentioned earlier, in the year, we renegotiated and extended several contracts in North America on slightly different terms, which caused the portion of the revenues related to these contracts to convert from a gross revenue recognition basis to a net basis.This change is expected to cause a $6 million revenue reduction in Q4, but no reduction to EBITDA. This change could cause up to $20 million revenue impact in 2021 and again, no impact to EBITDA. At about 75 million to 80 million in Q4 adjusted EBITDA and taking into consideration the change in revenue recognition that I just mentioned, we'd expect an adjusted EBITDA margin approaching 30%.Turning to CapEx, we now expect to spend approximately $90 million in capital expenditures for the full year 2020. This would approximate 8% of revenues and would be weighted about equally between growth CapEx and maintenance and infrastructure CapEx.We expect to see continued solid free cash flow in Q4 and could end the year with net debt of approximately 620 million, which would bring us back down towards the upper end of our previously stated target leverage range of two to two and a half times.I'd like to take a moment to highlight our strong free cash flow generation. Even during the worst of the pandemic, we managed to continue to generate free cash flow and pay down debt. Highlighted on Page 12 of the supplement, since the beginning of 2018, we've generated 678 million in adjusted net cash provided by operating activities.We've invested 293 million of this amount back into the business. The remaining balance of 385 million in adjusted free cash flow has allowed us to decrease net debt by 258 million, repurchase $67 million worth of shares and complete small acquisitions or other financing activities. Our strong cash generation provides a lot of flexibility going forward. And between already contract and new business and our growing business opportunities, we're positioning ourselves for growth in 2021 and beyond.Let me conclude by saying that the company is well positioned both financially and strategically to not only weather this pandemic, but to emerge even stronger. We are encouraged by our new business wins, favorable market dynamics, and our recent investments in technology that are helping create new growth levers and lower capital on operating costs. The business has proven to be resilient and we are excited about the opportunities ahead.Now, let me turn it back to Ed for some final thoughts.Edward West Thank you, Gary. Let me summarize today by emphasizing our conviction in this business and our plans for growth. First, the business continues to recover from the pandemic and we continue to execute on new business. We find ourselves at a rare tipping point where pundits question the long-term prospects for cash. This in turn actually leads to an acceleration of our business growth plans, as FIs leverage our unique surcharge free network and outsourcing platform. When looking through the lens of digital transformation, we believe we're at the beginning of a secular trend, and Cardtronics is the optimal partner for FIs of all sizes, Fintechs, and premier retailers. Again, we believe this is a significant market opportunity for us whereby we own about 10% of the ATMs in the United States, but only have a 3.5% share of transactions in a $15 billion market in the US.Second, our technology investments are delivering value. We have enabled new product capabilities and have fundamentally improved our operating and capital expense profile. These capabilities will deliver speed to market for enhancements and new products, margin expansion and CapEx efficiency. And third, this business simply delivers consistent and durable cash flows. Today we are trading at an 18% free cash flow yield. We control a greater share of our revenues than ever before and have improved our free cash flow conversion. We are well positioned to grow as the momentum from digital transformation and new products accelerates.Operator we'll now turn the call over for you for some Q&A.Question-and-Answer Session Operator Thank you, sir. [Operator Instructions] And our first question comes from Ramsey El-Assal from Barclays. Your line is now open.Ramsey El-Assal Hi, guys. Thanks a lot for taking my question. And congratulations on another solid quarter here. You gave us a good sense about the rest of this year. Could you help us think through 2021, modeling out 2021, any thoughts for example on the current EBITDA consensus of about 275 million in '21?Edward West Thanks. Thanks Ramsey. Let me turn it over to Gary to start off on that one.Gary Ferrera Okay. Ramsey, I don't have a crystal ball obviously. But and will officially give guidance in February late February probably. But based on current trends of where we are excluding out those business rates, Q3 we did 60 million in EBITDA, as you can tell, we just discussed approximately 60 million in EBITDA for Q4. If you annualize that you should be right around 240 million and adjusted EBITDA. However, our aspiration, obviously, is to get probably up to 310, which is what we did close to in 2019. But, obviously, that had about 50 million in cross border revenues in it, and that's very high margin. So we'd really need to see international markets recover soon for that to happen. But if you - consensus you mentioned seems that sort of you're right in the middle of those two numbers. So considering we've got new business already contracted, we plan to keep closing the business in the pipeline. We obviously continue to focus on operating efficiencies. So with all that and assuming we get somewhat of a recovery later in the year, next year that consensus number seems reasonable to me. Ed?Edward West Yeah, I mean, that's - I agree. I mean, that assumes some moderate recovery, but that would be in the back half of the year and obviously, cross border pickup with the - provide more confidence to that, but I think is Gary's saying somewhere in the middle there which is currently close to consensus.Ramsey El-Assal Great, that's super helpful. Thanks. My follow up is basically on the competitive environment in general, maybe in the context of the pandemic? I mean, are you seeing smaller ATM deployers pull back or disappear? And I guess how do you expect the marketplace to look kind of when the dust settles, let's say next year and just the impact of the virus on your competitors?Edward West Sure. So obviously, we'll know in hindsight next year, we'll look back and see who's left. A lot of the markets that are smaller, smaller merchants, single locations have been some of the places that have been most hit where some of the smaller operators operate. So there could be issues there. But frankly, where we really operate and our bread and butter are very large retail partnerships, significant size, scale, and product solutions that we bring forth with surcharge free and other solution, store traffic growth. We are kind of one and alone there. And continue to see opportunities like what we announced this past quarter, or about a quarter ago with, with Casey's and Sobeys in Canada. So feel very strong about that. On the FI side of the business - frankly, most of the competition, there is the status quo, with meeting with financial institutions and talking about their needs, and we're able to bring forward a solution and have a kind of a solution sale with them and conversation about what they're looking for, whether it's market growth, cost efficiencies, improving their efficiency ratio, and we have multiple solutions to bring forward, whether that's on demand with surcharge free, marketing, through branding, managed services, driving other efficiencies, and we're the only ones who kind of bring forth that full suite of solutions to help them in their business.Ramsey El-Assal That's super helpful. Thanks so much.Gary Ferrera Thanks Ramsey.Operator Thank you. And our next question comes from Tim Willi from Wells Fargo. Your line is now open.Tim Willi Thank you and good afternoon. First question is about - for the Fintech side now and obviously, in the new logo with Chime, I guess I'm just sort of curious as you pursue these types of contracts and come to these arrangements, there's your perspective of how to position or develop product for Allpoint et cetera. Has it been altered or evolved? And then just also curious about the plans of these new partners in Syntax in terms of their marketing, to their customer base and really getting the activity across the network, I know you've worked a lot with your banks in the last year to two to sort of promote that awareness and one other way to sort of compare and contrast the two different constituents there. And then I had a follow up.Edward West Sure. Good afternoon, Tim. It's really interesting, because we've clearly through Allpoint become the partner of choice with the Fintech community and really their distribution partner. As they've learned about the importance of cash, and having surcharge free access to cash that's convenient, conveniently located like through our network of leading retailers, we've become that distribution partner with them, for a lot of reasons, and it comes back to that convenient network. The fact that we can customize and tailor the experience at the ATM because we own the network, we own the ATM and we own the processing platform, and can tailor a unique relationship and experience for them. So to the latter - other part of your question about does this inform about other solutions going forward? Absolutely, we have some very - some excellent partnerships, tight relationships there just like we do with traditional financial institutions. But where some of those Fintechs want to do some customized solutions for their customers to engage with them, we can partner with them to do that. And that's also ties back into why we're really excited about rolling out the Neosuite solution and platform. Because that allows - gives us much more flexibility, much more control to tailor some of those things going forward.Tim Willi Great, and then my follow up was about the bank side where obviously some nice activity there. And as you pointed out, banks are, I think, more focused on changing the physical footprint they have. Is there anything about the business model in terms of staffing? Maybe it would touch the capital intensity, I'm not sure that if this really momentum continues to build it could look like in a 24 to 36 month window, there's a lot of opportunity around the managed services, the outsourcing that kind of stuff. Is there anything we should think about in terms of making that happen if it really were to accelerate?Gary Ferrera Yeah, simple tax.Tim Willi Yeah, just anything around the model that you would have to do to make sure you could manage if there was a pretty big acceleration in demand from the bank community?Edward West Sure. Well, fortunately that's what we've been hard at work on over the last couple of years, which gets back to that investments in the technology and having the proprietary solutions with Neo, as well as changing the operations, integrating our platforms. We've been very focused on, as we talked about back at our Investor Day, of integrating our different platforms, making sure the scalability of that, bringing on both search heart free solutions, as well as managed services. We're seeing managed service continuing to pick up, having wins each quarter on that, the pipeline on managed services continues to grow. Initially, it was more community than mid market banks, midsize and now some of the largest banks in the country and frankly yeah, the world coming on to that. And I agree that we believe that's going to continue to grow and accelerate. I think the other real new differentiator there for us is a security where we've invested heavily in both technology and infosec and we have a terrific infosec team.And having the security embedded into our platform, I think it's very important with these financial institutions. We will continue to invest in that. As the final comment, there is the scale where we gave our outlook, we expect the key drivers of our growth is one surcharge free network probably being about half of our growth going forward over the medium term, which scales very nicely. Managed services, probably a quarter of it that could even be even a higher percentage, potentially, although, we also implied a fair amount of margin expansion, which we've been delivering on. We were exceeding on that through the end of 2019, through the third quarter, the fourth quarter accelerating and even the first quarter, accelerating even more with even more margin expansion in organic revenue growth pre-COVID. So there's really nothing to say about what would be significantly different other than continue to scale the business for that opportunity that we see building each quarter.Tim Willi Great, that's very helpful. Thank you very much.Edward West Thank you.Operator And thank you. And our next question comes from Peter Heckmann from Davidson. Your line is now open.Peter Heckmann Hey, good afternoon, thanks for taking the question. Wanted to know if there's a way that you can help us quantify - over the last several quarters, you've announced a number of deals, but trying to quantify the backlog of ATM agreements like the Casey's deal, some of the others, that might give us an idea of how many ATMs you have yet to deploy or put market and in that same vein, similarly on branding, how many ATMs do you have contracts for branding, but haven't actually rolled that branding out yet, and so that we may not be seeing the revenue in the model?Edward West Sure, let me - I'll start with that. And then turn it over to Gary to do any other ads. Let me start with the second part of that around branding. And that - usually branding arrangements were also - are coming on to Allpoint is a fairly - can't be a fairly short cycle for those, so I would say that the backlog is not tremendous on that front. Managed services can take longer, where you would see more of a build over time and then that is just nice, durable fixed revenue that builds under longer term contracts. We do have a fair number of units in the warehouses that are being staged, going out - some of the full function that will be going out into the market later this year and into the first quarter. And clearly, as I mentioned earlier, both Casey's and Sobeys those rolling out in the US, as well as continuing rollout more in South Africa. I think the last point is right now, Pete, things are so murky from the market because of the pandemic where you still have capacity. That's mothballs, hibernated, lack of traffic, lack of consumers moving around, we have ATMs who are just sitting there, some of them which is de-cashed during hibernation, they'll come back on as a travel comes back up. So it's kind of hard to say, here's something you should just count on, as you think about over the next few quarters until we get to more normalcy eventually this will pass. And we'll get back to where people are getting back out. And getting back out into communities and feeling safer in that time. I think we probably give you more of a future pipeline.Gary Ferrera Yeah and obviously, we're also taking ATMs down. So on a net basis, because we're trying to optimize the network in the UK is another reason. So you'd actually could see declines in numbers of ATMs, but we're also net, it would be an addition.Peter Heckmann Got it, all right and then just another question, I haven't had a chance to review the10-Q although I know without just the - have you changed your estimate of what the potential total future recoveries could be from the UK tax issue? If I remember correctly, I thought you said something like 45 million, 50 million in a prior filing?Gary Ferrera Yeah, that was - the only difference Pete, is gross versus net. What you saw last quarter was a gross number. And then what we put in there now is a net number. So just that's - we weren't quite sure last quarter with the net numbers sort of percentage to be, we got a little bit more comfortable with the net number. So the number you see now we recovered 11.8 plus I believe the 30 million to 31 million is the remainder left. So that's a net number.Edward West Then that's the total amount that it could be, not the - we don't know really what all will come back then.Gary Ferrera Yeah. Assuming we will cover on.Peter Heckmann Got it, thank you very much.Edward West Thanks Pete.Operator Thank you. And our next question comes from Gary Prestopino from Barrington Research. Your line is now open.Gary Prestopino Hey, good afternoon, everyone. Ed, could you just - with the Fintechs that you've signed, do they offer a debit cards every one of their account holders? I'm trying to get an idea of what is the uptake from these account holders, on taking a debit card? And then do you have any way to measure what their usage is viz-a-viz a traditional brick and mortar bank that's issuing these debit cards to the Allpoint network?Edward West Yeah. And a great question. No, all their members do not have debit cards on there, on the first part. And as I pointed out earlier, they have - the volumes we've seen there has grown significantly from June of the year, where our volume now is up 200% from July. And what we've seen is even throughout this pandemic, month-over-month volume growth and better engagement in some of their customers. And we see this across traditional FIs as well, because each group - different groups of people in their customer profile, but we'll see somewhere just heavy engagement. While we do see this different with the Fintechs is they are highly engaged with their customers. There's awareness, there's awareness of here's the where you go to Allpoint on the locator search and encouraging people to use that because it's surcharge free and helping them save money. So we do see a lot more engagement. And we've seen many of these Fintechs growing rapidly. So as they grow cards, then we obviously have - see more opportunity and volume onto the network. And they're also driving more and more engagement. So it's a three-way partnership win where we have more accounts, more debit card holders and more engagement.Gary Prestopino Thank you.Edward West Thank you, Gary.Operator Thank you. And our next question comes from Andrew Jeffrey from Truist Securities. Your line is now open.Andrew Jeffrey Hey, guys, good afternoon. Thanks for taking that question.Edward West Yeah. Good afternoon.Andrew Jeffrey So just as a matter of trying to understand this, I think you've offered a little more disclosure this call than you have in the past about tourist markets, cross border markets. Can you quantify how much revenue is in maybe in 2019 in terms of how much revenue was in, not only in Europe and in cross border markets, tourist revenue? But also, I think Gary, you mentioned, Mexico and Canada are under sort of disproportionate pressure in North America, just trying to gauge how much revenue might be sort of shed here at this point?Gary Ferrera Well, what we've said in the past is the cross-border piece of that was about 4% of revenues. And I think this year, under normal circumstances we've been - we were tracking towards 5%. When you look at what we were talking about, I think the other part of your question is probably about 10% of revenues were impacted because of being in the tourist market, maybe cruise ship, things like that, or even just leisure activities themselves, not necessarily travel.Edward West Yeah, the 10% and it also goes back to what we mentioned a couple quarters ago, after the onset of the pandemic as we learned a lot of different things and about how our network, really, with over 80% percent of it, and essential locations, but about 10% of our revenues were highly tied to travel, entertainment, leisure, could be a cruise ship, could be an amusement park, could be a casino, but also cross border transactions represent a total of about 10% of revenue exposure.Andrew Jeffrey And is it safe to assume it's higher than corporate average margin in aggregate?Gary Ferrera I would say it's safe to say cross border transaction opportunities, like a DCC is much higher than corporate average, some locations where like a casino where it's a very captive consumer, right, there would be lower than system average.Andrew Jeffrey Okay, all right. And then as a follow up, it's kind of an unfair question, but since you brought it up. This is my disclosure. Your stock does trade at what appears to be kind of [indiscernible] cash multiple relative to any kind of objective metric. And I think you've done a really nice job of managing through free cash flow and managing through pandemic and everything else. What can you possibly do just spitballing, maybe to change the narrative?Edward West See, going back.Andrew Jeffrey I thought it's unfair?Edward West Yeah, the unfair part. We continue to execute where - outline where we're going, what we've been doing. We talked about getting back to organic growth two years ago, and delivering on that in 2019, accelerating in the organic growth, 2019 and accelerating even more so through January and February. Frankly, for the first two months as of 2020, our organic growth consolidated, was over 8%, and very strong double-digit EBITDA growth. So we were been hitting on all cylinders and executing and meanwhile, continuing to grow more cash flow. Where team about hitting singles and doubles every day, and executing and delivering consistency and performance and growth from free cash flow. We've invested in new products and solutions. We'll be rolling out those new products over time here that broaden our market. I think people will want to see and like we've been doing a growing opportunity with financial institutions, which is clearly happening and we're executing on that. And also, now evaluating other things have broadened our total addressable market into other transaction opportunities that we can leverage onto our platform. Because what do we have? We have scale, operating efficiencies, that scale or broad network, key convenient locations and a very valuable digital physical location that can be a multifunction gateway and there'll be more to come on those type of things, meanwhile, hitting singles and doubles and growing free cash flow. I mean as we - as you started off on that, Andrew, we're sitting here today with an over 18% free cash flow yield on an investment opportunity.Andrew Jeffrey Yeah. Okay. Appreciate it. Thanks.Gary Ferrera Thanks.Edward West Thank you.Operator And thank you. And our next question comes from Bob Napoli with William and Blair. Your line is now open.Bob Napoli Thank you, good afternoon. Thank you. Good afternoon guys. Just as you look at 2021, can you give any thoughts just broadly on what you expect out of the revenue growth out of bank branding and surcharge free network revenues?Edward West Gary walked through earlier based on, I think, it was Ramsey's question just about thoughts on there. I guess while I go back to the Investor Day, where we looked at the growth of the company going forward over the medium-term outlook. And we sit here today, actually more confident about that than we were a year and a half ago, because of what we've experienced and what we've learned in that growth in the surcharge free solutions being Allpoint and branding and that being about half of the growth, and seeing the organic growth there, in addition to the managed services. So we feel quite good about that. We just need to get past this period with the pandemic, the uncertainty, the murkiness of that, and getting people back out and executing on what we saw. And as I mentioned earlier with these changes in the market, I believe serves as a catalyst to that same thesis. And the differences now we've been executing on that thesis. And we've seen that accelerate.Bob Napoli So that's - I mean, I'm trying to remember from your Investor Day, you were like high single - 50% of your growth. So it's - you're looking for double digit growth for bank branding and surcharge free.Edward West Well, we talked about on the Investor Day then in that outlook, then also Gary talked about earlier was an organic revenue growth of 3% to 5% and seven to nine EBITDA growth, and now we've down - and improved the cash flow conversion on the CapEx side. And that three to five organic revenue over the long-term was really driven by the surcharge free and managed services, and in particular, that surcharge free growth scales nicely.Bob Napoli Yeah. Okay. Thank you. Why do you think that UK is so much less resilient than the US?Edward West Well it really comes back to a couple different things. First, our locations differ. We do have more exposure there, in the United Kingdom relative to the US, more travel, more tourist locations, I mean, frankly, look at London in the UK is a highly tourist location. So we've been impacted, that's our largest DCC market in the world, so that's been more impacted as a result of that to the EBITDA. So that's nice upside when travel and tourism come back up. The other real big driver, is it's been much tighter in terms of the restrictions through the shelter in place throughout the period since the onset of the pandemic, whereas in the United States, it's really managed at the state and local level in the municipalities where there may be a shelter in place directive, where we might see a tightening in one community, but a loosening in another, which is why it's been so dynamic for us in the US, as markets evolve and change. In the UK, they've locked down, obviously, through the pandemic, restriction has been across the country with some easing on that and now going back down into tightening and in certain parts of the country. So it's been much more restrictive from that, which is also had a greater impact on commuting. A lot of commuting going into London has impacted, day to day habits, but eventually these things will change and come back around. Going back to another question on that also previous, we've seen the market capacity coming out of the market. So as things come back around, we believe we're well positioned as activity picks back up, because there's less ATM capacity in the marketplace.Bob Napoli Then last question, just I mean, Chime is a real nice signing, really good business, growing very fast, but the revenue you're getting right now from the Fintechs, I know, you threw out some very big growth numbers. Can you give any? Is that all showing up in the Allpoint and the surcharge free line item?Edward West The ones who are partnered with us through Allpoint are in the surcharge free, that category, with bank branding and surcharge free networks plus interchange. We receive interchange predominantly through Allpoint in the interchange line. So it shows up in a couple of different areas. And yes, that grows with their growth. And so there the number signs there.Bob Napoli And most of that were also partnering with the other large network. Is that -Edward West Some do and not sure, specifically where they are or various ones are on that. But as evidenced by the growth here, the coverage, clearly Allpoint has become the partner of choice. And it also comes back again to the question of why is that? It goes back to that customizable experience, where we own the ATM, we own the network, we own the processing capability, so we can customize that experience and also, we are purely a retail-based network. That other network you mentioned, most of that's bank-to-bank, so they would be sending their, for the most part, their customers to their competition versus with Allpoint you're going to where your customers already are, which is the finest shopping places and most convenient locations in the United States.Bob Napoli Thank you. Appreciate it.Edward West Thank you.Gary Ferrera Thanks Bob.Operator Thank you. And our next question comes from Kartik Mehta from Northcoast Research. Your line is now open.Kartik Mehta Hi, gentlemen. Curious - I was wondering, in the past, you've been kind enough to kind of give trends for a month to just to get an idea of what's happening. When you gave the September 17 day, the business update, you gave kind of an update there as what was happening in September. I'm wondering if you could provide kind of what you're seeing in terms of October.Gary Ferrera You're saying on the same-store trends?Kartik Mehta Yeah, just in transactions or just - yeah, same-store trends or transaction trends, just kind of what you're seeing in October versus what you saw in September, if it's the same, accelerating, decelerating whatever the case may be?Gary Ferrera Yeah, so as I mentioned, in my scripts, that in the UK, for example, we're sort of leveling out in the down 30 - low to mid 30s. In the US, it's similar to what we discussed on the call for the quarter sort of flattening out there. I wouldn't say it's accelerating right now, but flattening out right now. That's why when we were given the Q4 estimates we said you know, assuming current trends, et cetera, no major release in population movement and no major lockdowns, just kind of where things are now.Edward West Yeah, it looks like [indiscernible] where we exited, and the US being roughly flat on a year-over-year basis. And we have periods, it's dynamic. So yeah, it goes up, it goes down on a week-to-week basis.Kartik Mehta And then just one last question, Ed, you kind of alluded to this in the previous answer. I'm wondering are the UK lockdowns. I know, they've started kind of new lockdowns, I don't know how extensive they are. Is that - are you seeing any impact yet on the business? Or is it just too early to see anything?Edward West I think Gary just said, what we know right now, with what we've seen is it's kind of staying in that low to mid 30s on a year-over-year basis. At that level, it's been at that way for a little while.Gary Ferrera Yeah, Kartik that's literally up until yesterday, so low to mid 30%.Kartik Mehta Perfect. I appreciate it. Thank you very much.Edward West All right, thanks Kartik.Gary Ferrera Yeah.Operator Thank you. And our next question comes from Steve Comery from G. Research. Your line is now open.Steve Comery Hey, good evening. If I could start with the CapEx on Slide 11, I appreciate that you expect to purchase 3000 more ATMs in 2020 versus 2019 despite spending significantly less. Maybe just to contextualize this, could you give us what the total amount purchased in either year was? And I know Gary, you mentioned that a lot of the savings from better sourcing, but I was wondering if you give us like little more tangible detail as to what exactly is costing less or what you guys aren't spending on?Gary Ferrera Well, remember when we're acquiring machines, they're at all different price points to see if I was going to take that into consideration. And in prior years, we had other things going on. So I mentioned that when we look at CapEx going forward, it's kind of 50-50, between growth and maintenance and infrastructure. In prior years, we had ERP systems going in, et cetera, so that would have increased the maintenance and infrastructure portion. So that's one of the reasons why, obviously we've done a lot of work and sort of taken advantage of our global network. That's something that hadn't been done previous years. And we've just started working into it recently. So across the board, when we're purchasing, I mean, we're doing it on a global basis now. Ed already mentioned, the Neosuite and all the technology that's assisting, so it's not one thing, it's multiple things all together that are helping to drive that.Steve Comery Okay, appreciate that. And then, on the debt, talked about settling the convertible cash in the fourth quarter, once you get on a Pass - pass the fourth quarter get pass to convert, would you expect to continue to pay down debt? And how do you think about other cash use priorities in the pecking order?Gary Ferrera Yeah, I'll start and I'll pass it over to Ed. Obviously, that's a board decision versus mine. But I would think in the near term, our focus is to get into that range that two to two and a half times, that we mentioned. I think it'll be close on the edge by the end of the year, I'm hoping we're inside of it, if things keep continuing to progress. And then at that point, I think we'll have to start thinking about things once we get into the range. But we still got a little ways to go there.Edward West Yeah, it's a board discussion, and we'll be discussing that with the board upcoming meetings in the future. The important part is the business is generating a lot of free cash flow. It's very durable, and even through a pandemic demonstrated very strong, consistent free cash flow generation, which just gives a lot of confidence and the confidence that we have and the outlook in the business. And we're on the doorstep of being back into that range and gives us a lot of option. And we'll be back more to talk about that.Steve Comery Okay, thank you very much.Edward West Thank you.Operator Thank you. And our next question comes from Reggie Smith from JP Morgan. Your line is now open.Reggie Smith Good evening. Thanks for taking my question. Most of them have been hit. I had one point of clarification, you may have mentioned this, but I wanted to make sure. Looking at - in your supplement you kind of break out I believe it's got other ATM expenses and that was down considerably sequentially. And I was curious, I believe that that tax rebate issue in the UK, but I wanted to verify that. And then I guess maybe get a little clarity, it sounds like you're expecting a similar or maybe a slightly larger benefits next quarter, so just clarity on that would be helpful.Gary Ferrera So just to be clear, you're talking about the other expenses in the ATM operating expenses line going from 18 to three.Reggie Smith Yeah, that one.Gary Ferrera Yeah. So that is the UK business rates would have flown through those lines before. And this year, obviously, it is a reverse expense, if you think about it. So that that's one of the reasons.Reggie Smith Right and so when you talked about the fourth quarter, and you gave kind of a $16 million EBITDA baseline, but then you grossed that up for something, is that - that growth that -Gary Ferrera Yes, that's that. Exactly Reggie, so just to recap, in Q3, we had EBITDA of close to 72 million and close to 12 million of that was this UK business rate recovery. So the base underlying business generated 60 million in adjusted EBITDA. And what I had said is, I think we're expecting in Q4 to run a similar rate on the underlying business, which is 60. But we expect to recover even a little bit more of the business - of the UK business rates, so more like 15 to 20. So that would be a total EBITDA of 75 to 80.Reggie Smith Got it and is that - as you think about '21 does that go away or what should we think about that?Gary Ferrera No, there's still - there was a question that was asked earlier, we have 11.8 in the books, right. And then you'll see in the Q that we said to be another approximately 30 million that is remaining. So we got to the top end of that range of 20 we would still have another 10 and that's assuming we collect everything, but as I mentioned in my script that so far, we've been having really good luck with recovery.Edward West That would be upside, but not counting on that.Gary Ferrera Yeah,Reggie Smith Sure. And then one last question and you guys have kind of - it's been asked, I guess a few times, but not really explicitly. But I hear you talk about the free cash flow yield in the business. I hear that the free cash flow conversion is improving. You've bought back 67 million in stock previously, now, obviously, you're trying to pull the balance sheet out the debt. Ignoring the board, just between us five here on the call? How do you guys like if it were up to you? I mean, I'm looking at the stock price, thinking about things that can improve the narrative, I think the share repurchase, and even maybe management purchase of stock would probably go a long way to show a sign of confidence. I'm going to leave that there and let you guys respond to it.Edward West Yeah, sure, so both Gary and I have been buyers in the stock, obviously, room blackouts. But from a repurchase standpoint, clearly, we've been there before pre-pandemic. We had an ongoing stock repurchase on an opportunistic basis there. So obviously, the board is had that comfort and we've consistently deleveraged back into that range. As I mentioned earlier, we're on the doorstep on that. We will review various alternatives, which could include repurchases, could include dividends, could include other things. Obviously, we looked at a lot of different things. But I think there's a consistent track record there of focus on delivering that and the focus on the shareholder value creation. And right now, as you point out, as I said before, we're sitting here with an 18%, free cash flow yield, with good confidence, even though we are still in pandemic, but we've demonstrated - this business has demonstrated the consistency and the durability. We're sitting here now also with better visibility, and control of our revenues and free cash flow conversion. So we look forward to talking about that at the board. But also backed up with investors and keeping you updated.Reggie Smith Sure, perfect. If I can sneak one last question. Bob had asked earlier about the UK. And I was just curious, so it sounds like this is definitely a little more tourism there. And that's something that has had a snap back. But if we were to compare that to New York, would you say the trends in the UK are similar to what you see in New York City? Or would they even be different is there between the two? Because I would imagine New York probably looks and feels a lot like the UK, but I wasn't sure.Edward West New York, earlier in the pandemic, it's interesting you raised in New York. So like New York, I go back to pre-pandemic period in the first quarter and the end of last year and going in the first quarter, contrary to what some alleged in the market is concern with tap rolling out at the subway and concerns around what that can mean, that was one of our strongest markets in the country. I mean, literally one of the strongest markets with the growth we've seen. And why is that because partnering with the core financial institutions, partnering with them, branding locations, joining Allpoint and serving those customers' needs and the growth, we saw that in our key retail partnerships in New York is one of our strongest ones. Then honestly, with a pandemic, it went to one of the worst ones in the shelter in place that's come back around and see it can be - we have weeks where it's very, very attractive. So that's come back quite considerably. The UK has been a different market, obviously with the commuting issues there and also the tighter restrictions. It has been more impacted there. And then also with the travel coming into what was anticipated historically there into London from a tourism standpoint, but we would expect that to come back around as well. New York has been very dynamic, periods recovered, some periods down, so spend dynamic.Reggie Smith Got it. Okay. Thank you.Edward West Thanks, Reggie.Operator And thank you. I would now like to turn the call back over to Ed West, Chief Executive Officer for closing remarks.Edward West All right, well, we just thank you very much. Thank you for your interest in the company. We look forward to keeping you posted and updated and speaking to you next quarter. Have a great day. Thank you.Operator Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.:]