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| CATM > SEC Filings for CATM > Form 10-Q on 6-May-2009 | All Recent SEC Filings |
6-May-2009
Quarterly Report
Although we believe that the characteristics described above should benefit us
given current market conditions, we expect the current issues that are
negatively impacting the economy and many of the nation's largest banks could
have an adverse impact on our ongoing operations. For example, the continued
turmoil seen in the global credit markets may have a negative impact on those
financial institutions and our relationships with them. In particular, if the
liquidity positions of the financial institutions with which we conduct business
deteriorate significantly, these institutions may be unable to perform under
their existing agreements with us. If these defaults were to occur, we may not
be successful in our efforts to identify new bank branding partners, and the
underlying economics of any new branding arrangements may not be as favorable as
our current branding arrangements. Additionally, it appears that the
decision-making process on new bank branding arrangements has slowed
considerably with potential branding partners, which we believe is directly
attributable to the current economic and financial crisis facing financial
institutions around the world. If this trend continues, it will have an adverse
impact on our ability to enter into new bank branding arrangements.
While we are continuing to monitor current economic conditions, we cannot at
this point accurately predict their impact. However, despite the factors
discussed above, we currently believe that our revenues in 2009 will not differ
materially from 2008 (excluding the effects of negative year-over-year foreign
currency translation adjustments), and we currently expect that any reduction in
revenues will be mitigated, at least in part, by certain cost reduction measures
that we recently put in place as well as anticipated lower interest rates in
each of our key markets.
Recent Events
Foreign Currency Exchange Rates. The strengthening of the United States dollar
relative to the British pound and Mexican peso negatively impacted our results
during the first quarter of 2009 in terms of translating those foreign earnings
into United States dollars. Despite the negative impact on our revenues and
gross profits, we do not expect this trend to have a negative impact on our cash
flows as we do not currently rely on cash generated by our international
operations to fund our domestic operating needs. Additionally, given the fact
that we continue to explore potential growth opportunities in the two
international markets in which we currently operate, the strengthening of the
United States dollar could enhance our ability to invest in those markets at
favorable exchange rates.
Revolving Credit Facility Modification. In February 2009, we amended our
revolving credit facility to (i) authorize the repurchase of common stock up to
an aggregate of $10.0 million (further discussed below); (ii) increase the
amount of aggregate "Investments" (as such term is defined in our revolving
credit facility) that we may make in non wholly-owned subsidiaries from
$10.0 million to $20.0 million and correspondingly increase the aggregate amount
of Investments that we may make in subsidiaries that are not Loan Parties (as
such term is defined in our revolving credit facility) from $25.0 million to
$35.0 million; (iii) increase the maximum amount of letters of credit that may
be issued under our revolving credit facility from $10.0 million to
$15.0 million; and (iv) modify the amount of capital expenditures that may be
incurred on a rolling 12-month basis, as measured on a quarterly basis.
Stock Repurchase Program. In February 2009, our Board of Directors approved a
common stock repurchase program up to an aggregate of $10.0 million. The shares
will be repurchased from time to time in open market transactions or privately
negotiated transactions at our discretion. The timing and extent of any
purchases will depend on a variety of factors, such as market price, overall
market and economic conditions, the level of cash generated from operations,
alternative investment opportunities, regulatory considerations or other
commitments. We plan to fund repurchases made under this program from available
cash balances and cash generated from operations. The share repurchase program
will expire on March 31, 2010, unless extended or terminated earlier by our
Board of Directors. We have not yet repurchased any shares pursuant to this
program because the approval of the program occurred in such close proximity to
the date the trading window closed for insider transactions.
Departure of Chief Executive Officer. In March 2009, we announced that our Chief
Executive Officer ("CEO") would be leaving our Company and that the Chairman of
our Board of Directors (the "Board") would serve as interim CEO while our Board
conducts a formal search for a new CEO. As a result of our former CEO's
departure, we recognized approximately $1.2 million in severance costs during
the quarter.
Results of Operations
The following table sets forth our Condensed Consolidated Statements of
Operations information as a percentage of total revenues for the periods
indicated. Percentages may not add due to rounding.
Three Months Ended March 31,
2009 2008
Revenues:
ATM operating revenues 98.5 % 96.5 %
ATM product sales and other revenues 1.5 3.5
Total revenues 100.0 100.0
Cost of revenues:
Cost of ATM operating revenues (exclusive of
depreciation, accretion, and amortization, shown
separately below) (1) 71.3 73.9
Cost of ATM product sales and other revenues 1.6 3.5
Total cost of revenues 72.9 77.4
Gross profit 27.1 22.6
Operating expenses:
Selling, general, and administrative expenses (2) 9.4 7.1
Depreciation and accretion expense 8.4 7.5
Amortization expense 3.9 3.7
Loss on disposal of assets 1.8 1.0
Total operating expenses 23.5 19.3
Income from operations 3.6 3.3
Other expense (income):
Interest expense, net 7.2 6.8
Other income (0.1 ) (0.1 )
Total other expense 7.1 6.6
Loss before income taxes (3.5 ) (3.3 )
Income tax expense 0.9 0.5
Net loss (4.4 ) (3.8 )
Net income attributable to noncontrolling interests (0.0 ) -
Net loss attributable to controlling interests (4.4 )% (3.8 )%
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(1) Excludes effects of depreciation, accretion, and amortization expense of $12.6 million and $12.5 million for the three month periods ended March 31, 2009 and 2008, respectively. The inclusion of this depreciation, accretion, and amortization expense in Cost of ATM operating revenues would have increased our Cost of ATM operating revenues as a percentage of total revenues by 10.9% and 10.3% for the three month periods ended March 31, 2009 and 2008, respectively.
(2) Includes effects of $1.2 million in severance costs associated with the departure of our former CEO during March 2009.
Key Operating Metrics
We rely on certain key measures to gauge our operating performance, including
total transactions, total cash withdrawal transactions, ATM operating revenues
per ATM per month, and ATM operating gross profit margins. The following table
sets forth information regarding certain of these key measures for the three
month periods ended March 31:
2009 2008
Average number of transacting ATMs:
United States: Company-owned 18,257 17,854
United States: Merchant-owned 10,145 10,947
United Kingdom 2,544 2,252
Mexico 2,094 1,422
Total average number of transacting ATMs 33,040 32,475
Total transactions (in thousands) 89,371 83,457
Total cash withdrawal transactions (in thousands) 57,564 53,890
Average monthly cash withdrawal transactions per
average transacting ATM 581 553
Per ATM per month:
ATM operating revenues (1) $ 1,146 $ 1,194
Cost of ATM operating revenues (exclusive of
depreciation, accretion, and amortization) (2) 830 915
ATM operating gross profit (2) (3) $ 316 $ 279
ATM operating gross profit margin (exclusive of
depreciation, accretion, and amortization) 27.6 % 23.4 %
ATM operating gross profit margin (inclusive of
depreciation, accretion, and amortization) 16.5 % 12.7 %
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(1) The decline in ATM operating revenues per ATM per month was due to foreign currency exchange rate movements between the first quarter of 2008 and the first quarter of 2009.
(2) Excludes effects of depreciation, accretion, and amortization expense of $12.6 million and $12.5 million for the three month periods ended March 31, 2009 and 2008, respectively. The inclusion of this depreciation, accretion, and amortization expense in Cost of ATM operating revenues would have increased our cost of ATM operating revenues per ATM per month and decreased our ATM operating gross profit per ATM per month by $127 and $128 for the three month periods ended March 31, 2009 and 2008, respectively.
(3) ATM operating gross profit is a measure of profitability that uses only the revenue and expenses that related to operating the ATMs in our portfolio. Revenues and expenses from advanced ATM equipment sales and other ATM-related services are not included.
Revenues
Three Months Ended March 31,
2009 2008 % Change
(In thousands)
ATM operating revenues $ 113,580 $ 116,297 (2.3 )%
ATM product sales and other revenues 1,765 4,278 (58.7 )%
Total revenues $ 115,345 $ 120,575 (4.3 )%
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ATM operating revenues. ATM operating revenues generated during the three months ended March 31, 2009 decreased $2.7 million from the three months ended March 31, 2008. Below is the detail, by segment, of changes in the various components of ATM operating revenues:
2008 to 2009 Variance
U.S. U.K. Mexico Total
Increase (decrease)
(In thousands)
Surcharge revenue $ (3,315 ) $ (2,537 ) $ 984 $ (4,868 )
Interchange revenue 529 (317 ) 300 512
Branding and surcharge-free network
revenue 1,732 - (2 ) 1,730
Other (89 ) (2 ) - (91 )
Total increase (decrease) in ATM
operating revenues $ (1,143 ) $ (2,856 ) $ 1,282 $ (2,717 )
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United States. During the three months ended March 31, 2009, our United States
operations experienced a $1.1 million, or 1%, decrease in ATM operating revenues
compared to the three months ended March 31, 2008. This decrease was due to a 6%
decline in surcharge revenues that resulted from a decreased level of surcharge
transactions during the period. While much of the decline was due to our bank
and surcharge-free network programs, which allow participants' cardholders the
ability to make cash withdrawals on a surcharge-free basis at our ATMs, the
decline was also due to there being one less day in the first quarter of 2009
compared to the first quarter of 2008 as a result of 2008 being a leap year.
Although our surcharge-free programs resulted in a decline in surcharge
transactions, they contributed to an increase in the total number of withdrawal
transactions conducted on our ATMs, which resulted in increased interchange
revenues generated by our domestic operations. These higher interchange
revenues, coupled with higher bank and surcharge-free network fees, partially
offset the decline in surcharge revenues.
United Kingdom. Our United Kingdom operations also contributed to the lower ATM
operating revenues for the three months ended March 31, 2009, decreasing over
16% from the first quarter of 2008. However, this decrease was the result of
unfavorable foreign currency exchange rate movements between the two periods.
Excluding the impact of foreign currency movements, total surcharge and
interchange revenues actually increased by $1.3 million and $1.4 million,
respectively. These increases were primarily driven by a 13% increase in the
average number of transacting ATMs in the United Kingdom, based on ATM purchases
made throughout 2008, and higher withdrawal transactions on our free-to-use
ATMs, which resulted in the year-over-year increase in interchange revenues.
Mexico. Higher revenues generated by our Mexico operations partially offset the
decrease in ATM operating revenues from our domestic and United Kingdom
operations. The increase in revenues generated by our Mexico operations during
2009 was the result of a 47% increase in the average number of transacting ATMs
associated with these operations as well as higher surcharge and overall
withdrawal transactions per machine during the three months ended March 31,
2009.
ATM product sales and other revenues. ATM product sales and other revenues for
the three months ended March 31, 2009 were lower than those generated during the
same period in 2008 primarily due to lower equipment and value-added reseller
("VAR") program sales. Under our VAR program, we primarily sell ATMs to
Associate VARs who in turn resell the ATMs to various financial institutions
throughout the United States in territories authorized by the equipment
manufacturer. In light of the current economic climate, financial institutions
and others have reduced their ATM purchases and we have, therefore, seen a
decline in these sales during 2009. Also contributing to the decline was the
completion of our Triple Data Encryption Standard upgrades, which generated a
higher amount of product sales and service-related revenues in the first quarter
of 2008 compared to the first quarter of 2009.
Cost of Revenues
Three Months Ended March 31,
2009 2008 % Change
(In thousands)
Cost of ATM operating revenues (exclusive of
depreciation, accretion, and amortization) $ 82,229 $ 89,101 (7.7 )%
Cost of ATM product sales and other revenues 1,814 4,164 (56.4 )%
Total cost of revenues (exclusive of depreciation,
accretion, and amortization) $ 84,043 $ 93,265 (9.9 )%
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Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization). The cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization) incurred during the three months ended March 31, 2009 decreased $6.9 million from the same period in 2008. Below is the detail, by segment, of changes in the various components of the cost of ATM operating revenues:
2008 to 2009 Variance
U.S. U.K. Mexico Total
Increase (decrease)
(In thousands)
Merchant commissions $ (1,901 ) $ (411 ) $ 309 $ (2,003 )
Cost of cash (1,422 ) (2,415 ) 283 (3,554 )
Repairs and maintenance 225 108 163 496
Communications (236 ) (506 ) 54 (688 )
Transaction processing (704 ) (484 ) 92 (1,096 )
Other expenses (99 ) 46 26 (27 )
Total increase (decrease) in cost of
ATM operating revenues $ (4,137 ) $ (3,662 ) $ 927 $ (6,872 )
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United States. During the three months ended March 31, 2009, the cost of ATM
operating revenues (exclusive of depreciation, accretion, and amortization)
incurred by our United States operations decreased $4.1 million when compared to
the cost incurred during the same period in 2008. This decrease was primarily
the result of lower merchant fees, which resulted from the year-over-year
decline in the number of domestic merchant-owned ATMs and the overall decline in
surcharge transactions and related surcharge revenues. Also contributing to the
decline in the cost of ATM operating revenues was a lower cost of cash,
primarily due to reduced market interest rates on the unhedged portion of our
vault cash rental obligations, and lower transaction processing costs resulting
from the continued conversion of our ATMs over to our EFT processing platform.
With respect to our vault cash rental obligations, we are currently in the
process of negotiating new pricing terms and conditions with one of our domestic
vault cash providers, the results of which would likely become effective after
July 2009. While it is too soon to predict the ultimate outcome of those
negotiations, the revised pricing terms and conditions could be less favorable
to us than those currently in effect under the existing agreement. If that were
to occur, our vault cash rental costs would increase in future periods, thus
negatively impacting our domestic ATM operating gross profit margin.
In terms of our other operating expense amounts, we continue to aggressively
strive to manage our costs without compromising the quality of our services. For
example, during the three months ended March 31, 2009, we circulated a proposal
to a number of our existing maintenance providers to have them bid for a
significant portion of our domestic ATM maintenance business. Although we are
still in the process of finalizing our discussions with those vendors, we
believe the outcome of this process will result in additional cost savings later
in 2009 and beyond.
United Kingdom. Our United Kingdom operations also contributed to the decrease
in the cost of ATM operating revenues (exclusive of depreciation, accretion, and
amortization) during the most recent quarter. The overall $3.7 million decrease
was due to foreign currency exchange rate movements between periods. Excluding
the impact of exchange rate movements, our United Kingdom operations' cost of
ATM operating revenues increased $0.4 million. This increase was primarily due
to higher merchant commissions, which increased by $1.3 million as a result of
the increased number of ATMs operating in the United Kingdom during 2009
compared to the same period in 2008, and a $0.4 million increase in direct
operations costs. Partially offsetting these increases was a lower cost of cash,
primarily due to reduced market interest rates on our vault cash rental
obligations. However, similar to the situation outlined above with respect to
our United States operating segment, we are currently in the process of
negotiating new pricing terms and conditions with our primary vault cash
provider in the United Kingdom. While it is too soon to predict the ultimate
outcome of those negotiations, the revised pricing terms and conditions could be
less favorable to us than those currently in effect under the existing
agreement. If that were to occur, our vault cash rental costs would increase in
future periods, thus negatively impacting our ATM operating gross profit margins
in the United Kingdom.
Mexico. Partially offsetting the decrease in the cost of ATM operating revenues
(exclusive of depreciation, accretion, and amortization) of our United States
and United Kingdom operations were the costs incurred by our Mexico operations.
As a result of the increase in the average number of transacting ATMs associated
with these operations and the increased number of transactions conducted on
these machines during the first quarter of 2009, when compared to the first
quarter of 2008, all of our general categories of cost of ATM operating revenues
in Mexico increased during the period.
Cost of ATM product sales and other revenues. Consistent with the decrease in
ATM product sales and other revenues discussed above, the cost of ATM product
sales and other revenues decreased during the three months ended March 31, 2009
compared to the same period in 2008 primarily due to lower equipment and VAR
program sales during the period.
Gross Profit Margin
2009 2008
ATM operating gross profit margin:
Exclusive of depreciation, accretion, and amortization 27.6 % 23.4 %
Inclusive of depreciation, accretion, and amortization 16.5 % 12.7 %
ATM product sales and other revenues gross profit margin (2.8 )% 2.7 %
. . .
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