CARDTRONICS The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto included under Item 1. Financial Statements of this Form 10-Q and our Consolidated Financial Statements and notes thereto and related Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 (the "2020 Form 10-K"). OverviewCardtronics plc , together with its wholly and majority-owned subsidiaries (collectively, "us," "we," "our," "ours," the "Company" or "Cardtronics") is the trusted leader in financial self-service, enabling cash transactions at over 285,000 automated teller machines and multi-function financial services kiosks (collectively referred to as "ATMs") across 10 countries inNorth America ,Europe ,Asia-Pacific , andAfrica . The total number of ATMs that we service includes our estimate of ATMs that were temporarily closed as a result of the coronavirus pandemic ("COVID-19" or the "Pandemic") as further described in Results of Operations - Key Operating Metrics, below. The total number of transacting ATMs we serviced as ofMarch 31, 2021 was approximately 279,000. During the three months endedMarch 31, 2021 , approximately 72% of our total revenues were derived from operations inNorth America (including our ATM operations inthe United States ("U.S."),Canada , andMexico ), approximately 21% of our total revenues were derived from operations inEurope andAfrica (including our ATM operations in theUnited Kingdom ("U.K."),Ireland ,Germany ,Spain , andSouth Africa ), and approximately 8% of our total revenues were derived from operations inAustralia and New Zealand . We deliver financial-related services to cardholders through our networks. We also provide ATM management and ATM equipment-related services (typically under multi-year contracts) to large retail merchants, smaller retailers, and operators of facilities such as shopping malls, casinos, airports, and train stations. In doing so, we provide our retail partners with a compelling automated solution that helps attract and retain customers. In turn, it increases the likelihood that customers will utilize the ATMs placed at their facilities. We also partner with financial institutions and other consumer financial services providers to enable convenient and fee-free access to our ATMs via our surcharge-free solutions for their customers. Included in our network are approximately 200,000 ATMs (including our estimate of ATMs that were temporarily closed as a result of the Pandemic) to which we provided processing only services or various forms of managed services solutions. Under a managed services arrangement, retailers, financial institutions, and ATM distributors rely on us to handle some or all of the operational aspects associated with operating and maintaining ATMs, typically in exchange for a monthly service fee, fee per transaction, or a fee per service provided. We own and operate the Allpoint network ("Allpoint"), the world's largest retail-based surcharge-free ATM network (based on the number of participating ATMs). Allpoint has over 55,000 participating ATMs and provides surcharge-free ATM access to approximately 1,200 participating credit unions, banks, financial technology companies with a primary focus on the retail consumer finance business (or "FinTechs"), and stored-value debit card issuers. For participants, Allpoint delivers the scale, density, and convenience of surcharge-free ATMs that surpasses the largest banks in theU.S. Under Allpoint, we typically earn either a fixed monthly fee per cardholder or a fixed fee per transaction paid by the consumer's financial institution or the card/benefit issuer. We also earn interchange revenues on each transaction performed at one of our participating Allpoint ATMs. Allpoint includes a majority of our Company-owned ATMs in theU.S. and certain ATMs in theU.K. ,Canada ,Mexico , andAustralia . Allpoint also provides services to organizations that manage stored-value debit card programs on behalf of corporate entities and governmental agencies, including general-purpose, payroll, and electronic benefits transfer ("EBT") cards. Under these programs, the issuing organizations pay Allpoint a fee per issued stored-value debit card or transaction in return for allowing the users of those cards surcharge-free access to Allpoint's participating ATM network. For additional information related to our operations and the manner in which we derive revenues, see our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Recent Trends and Events Proposed Transaction with NCR. OnJanuary 25, 2021 , we entered into a definitive agreement to be acquired by NCR Corporation ("NCR") for$39.00 per share in cash. This followed our delivery of a notice to terminate our previously announced definitive agreement withCatalyst Holdings Limited ("Catalyst"), an affiliate ofApollo Management, L.P. andHudson Executive Capital, LP , dated as ofDecember 15, 2020 , pursuant to which we would have been acquired by Catalyst for$35.00 per share, in accordance with the terms of such agreement. In connection with such termination, NCR paid on our behalf a termination fee of approximately$32.6 million , which we must reimburse if our agreement with NCR is terminated under certain specified circumstances. The proposed transaction with NCR is subject to the satisfaction of customary closing conditions, including the receipt of regulatory approvals. Cardtronics shareholders approved the transaction onMay 7, 2021 . 36 -------------------------------------------------------------------------------- Table of Contents It is expected that, subject to the satisfaction or waiver of all relevant conditions, the proposed transaction will be completed in mid-year 2021. For a discussion of certain risks related to the proposed transaction with NCR, including related to certain covenants with which we must comply during the pendency of the proposed transaction, see Part I. Item 1A. Risk Factors - Risks Associated with the Proposed Transaction with NCR Corporation in the 2020 Form 10-K. For more information, see our definitive proxy statement filed with theSEC onMarch 30, 2021 and the supplement to the definitive proxy statement filed with theSEC onApril 27, 2021 . COVID-19 Update. OnMarch 11, 2020 , the respiratory virus commonly known as COVID-19 (the "Pandemic") was declared a pandemic by theWorld Health Organization . By lateMarch 2020 , there were confirmed cases and deaths from the Pandemic in each of the countries in which we operate. In response, throughout 2020 and in 2021, national and local governments instituted various degrees of travel restrictions and shelter-in-place orders while generally deeming financial institutions, grocery stores, pharmacies and convenience stores as "critically essential" in providing their services to citizens during this global emergency. Although our primary focus has been and remains on protecting the health and safety of our employees and the communities in which we operate, we continue to coordinate with our partners, where possible, to ensure continued and seamless operations of our ATMs. Specific locations, such as casinos, theme parks, malls, tourist-focused ATMs, education facilities and other ATM sites were closed for all or parts of the second, third and fourth quarters of 2020. Some of these locations remain closed or continue to be negatively impacted as a result of the Pandemic. At the end ofMarch 2021 , closed ATMs, including but not limited to ATMs at casinos, theme parks, malls, tourist-focused ATMs, and education locations, represented approximately 6% of our total Company-owned ATM fleet. Due to the Pandemic, we have experienced decreased transaction volumes of varying degrees across our network, depending on the location. The majority of our revenues are transaction volume dependent; therefore, continued declines due to Pandemic-related restrictions resulted in lower first quarter 2021 revenues compared to the same period in 2020 and may continue to adversely impact our results in future periods. In response to the Pandemic, we implemented business continuity plans, with most of our employees working from home sinceMarch 2020 , without issue. Some of our employees continue to perform cash delivery, maintenance and other technical services on site and at certain office and warehouse locations to ensure the continued operations of our ATMs. During 2020, we also implemented cost reduction plans and took action to manage expenses, temporarily deferred capital spending and suspended our opportunistic share repurchase program to optimize cash flow. We continue to monitor the situation actively and may take further actions that could alter our business operations as may be required by national, federal, state, and/or local authorities or that we determine are in the best interests of our employees, customers, partners and shareholders. Despite the transaction declines impacted by the Pandemic that may continue in the remainder of 2021, we anticipate generating positive adjusted free cash flows in 2021 after considering our required capital expenditures. See Part I, Item 1A. Risk Factors - We are subject to business cycles, seasonality, and other outside factors such as extreme weather, natural disasters or health emergencies, including the ongoing outbreak of the coronavirus pandemic ("COVID-19" or the "Pandemic") that has adversely affected our business, and that may in the future have a material adverse impact on our business in the 2020 Form10-K. Withdrawal transaction and revenue trends. We present cash withdrawal transaction trends on a comparable ATM, or "same-store," basis as supplemental information for investors. Our same-store cash withdrawal transactions include withdrawal transactions on Company-owned transacting ATMs registering withdrawals for 12 consecutive months preceding and including each quarter of the fiscal year. Withdrawal transactions on ATMs deployed under managed services arrangements are not included. In addition, we also may make adjustments to exclude ATMs that change formats (e.g., change between pay-to-use and free-to-use). We present same-store cash withdrawal transactions to help us and our investors evaluate the ongoing performance of our comparable ATMs, including the impact of the Pandemic on our operations. Our method of calculating same store cash withdrawal transactions is not necessarily comparable to similarly titled measures reported by other companies. Our two largest markets are theU.S. andU.K. , and on a combined basis, these markets represent approximately 80% of our revenues. OurU.S. same-store cash withdrawal transactions increased by approximately 6% during the three months endedMarch 31, 2021 when compared to same period in 2020, and were up 5% compared to the same period in 2019 (non-pandemic impacted). OurU.S. transactions were up compared to both periods as we continue to see strong growth in our surcharge-free transactions. OurU.K. same-store cash withdrawal transactions decreased by approximately 39% during the three months endedMarch 31, 2021 when compared to same period in 2020 and were down 46% compared to the same period in 2019 (non-pandemic impacted). In each of our other jurisdictions, same-store transaction results have been adversely impacted by the Pandemic beginning inmid-March 2020 . 37 -------------------------------------------------------------------------------- Table of Contents With varying measures implemented by governments, including travel and social gathering limitations and their corresponding impacts to consumer activity, our business remained impacted throughout most of 2020 and during the first quarter of 2021 by the consequential impacts of the Pandemic. Further social gathering restrictions or the introduction of additional restrictions in any or all of our markets would likely adversely impact our transaction volumes. Conversely, we would expect to recover more transaction volume as social gathering and travel restrictions are reduced or removed in each of the markets in which we operate. 38 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following table reflects line items from the accompanying Consolidated Statements of Operations as a percentage of total revenues for the periods indicated. Percentages may not add due to rounding.
Three months ended
2021 2020
(In thousands, excluding percentages)
Revenues:
ATM operating revenues $ 255,018 95.2 % $ 291,799 95.2 %
ATM product sales and other revenues 12,816 4.8 14,803 4.8
Total revenues 267,834 100.0 306,602 100.0
Cost of revenues:
Cost of ATM operating revenues (1) 150,803 56.3 193,630 63.2
Cost of ATM product sales and other revenues 8,796 3.3 12,092 3.9
Total cost of revenues 159,599 59.6 205,722 67.1
Operating expenses:
Selling, general, and administrative expenses (2) 42,909 16.0 42,378 13.8
Restructuring expenses 1,692 0.6 1,209 0.4
Acquisition related expenses 1,440 0.5 - -
Depreciation and accretion expense 32,285 12.1 32,211 10.5
Amortization of intangible assets 6,086 2.3 8,413 2.7
Loss on disposal and impairment of assets 353 0.1 921 0.3
Total operating expenses 84,765 31.6 85,132 27.8
Income from operations 23,470 8.8 15,748 5.1
Other expenses:
Interest expense, net 10,761 4.0 6,421 2.1Amortization of deferred financing costs and note discount 1,043
0.4 3,486 1.1
Other expense, net 2,842 1.1 3,829 1.2
Total other expenses 14,646 5.5 13,736 4.5
Income before income taxes 8,824 3.3 2,012 0.7
Income tax expense (benefit) 2,951 1.1 (3,737) (1.2)
Net income 5,873 2.2 5,749 1.9
Net loss attributable to noncontrolling interests (3) - (6) -
Net income attributable to controlling interests and available to common shareholders
$ 5,876 2.2 %$ 5,755 1.9 % (1)Excludes effects of depreciation, accretion, and amortization of intangible assets of$32.0 million and$31.2 million for the three months endedMarch 31, 2021 and 2020, respectively. See Item 1. Financial Statements, Note 1. General and Basis of Presentation - (c) Cost of ATM Operating Revenues Presentation. The inclusion of this depreciation, accretion, and amortization of intangible assets in Cost of ATM operating revenues would have increased our Cost of ATM operating revenues as a percentage of total revenues by 11.9% and 10.2% for the three months endedMarch 31, 2021 and 2020, respectively. (2)Includes share-based compensation expense of$4.0 million and$4.6 million for the three months endedMarch 31, 2021 and 2020, respectively. 39 -------------------------------------------------------------------------------- Table of Contents Key Operating Metrics The following tables reflect certain key measures that gauge our operating performance for the periods indicated: As of March 31, 2021 % Change
2020
Ending number of transacting ATMs(1): North America 44,021 0.5 % 43,792 Europe & Africa 20,736 (9.7) % 22,971 Australia & New Zealand 5,946 (11.3) % 6,703Total Company -owned(2) 70,703 (3.8) % 73,466 North America 11,664 (12.6) % 13,351 Europe & Africa 126 (44.7) % 228 Total Merchant-owned 11,790 (13.2) % 13,579 Managed Services and Processing: North America 194,772 (0.7) % 196,196 Europe & Africa 151 4.1 % 145 Australia & New Zealand 1,321 (21.7) % 1,687
Total Managed services and processing(2) 196,244 (0.9) %
198,028
Total ending number of transacting ATMs 278,737 (2.2) %
285,073
(1)The ending number of transacting ATMs presented in the table above includes only those ATMs transacting during the months ofMarch 2021 and 2020. The 2021 and 2020 counts do not include ATMs at casinos, theme parks, malls, education facilities, tourist-focused sites and other ATM sites that were temporarily closed and not transacting as a result of the Pandemic. The Company estimates, that during the month ofMarch 2021 , approximately 10,400 ATMs were not transacting due to the Pandemic including approximately 4,600 ATMs, 2,400 ATMs, and 3,400 ATMs in the Company-owned, Merchant-owned, and Managed services and processing arrangement types, respectively. In total, we estimate that the number of ATMs we service exceeds 285,000. (2)Company-owned ATMs that are deployed under managed services agreements are classified under Managed services and processing. 40
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Three months ended March 31,
2021 % Change 2020
Average number of transacting ATMs(1):
North America 43,456 (0.6) % 43,702
Europe & Africa 20,979 (10.3) 23,376
Australia & New Zealand 5,982 (11.0) 6,725
Total Company -owned (2) 70,417 (4.6) 73,803
North America 11,285 (16.3) 13,480
Europe & Africa 145 (37.2) 231
Total Merchant-owned 11,430 (16.6) 13,711
Managed Services and Processing:
North America 189,813 (3.4) 196,561
Europe and Africa 151 145
Australia & New Zealand 1,397 (19.2) 1,728
Total Managed services and processing (2) 191,361 (3.6) 198,434
Total average number of transacting ATMs 273,208 (4.5) 285,948
Total transactions (in thousands):
ATM operations 211,639 (19.5) 263,048
Managed services and processing, net 341,993 5.7 323,544
Total transactions (3) 553,632 (5.6) 586,592
Total cash withdrawal transactions (in thousands): ATM operations (3)
135,215 (22.0) 173,413
Per ATM per month amounts (excludes managed services and processing): Cash withdrawal transactions (3)
551 (16.6) 661
ATM operating revenues (4) $ 935 (8.1) $ 1,017
Cost of ATM operating revenues (4) (5) 565 (18.9) 697
ATM adjusted operating gross profit (4)(5) $ 370 15.6 % $ 320
ATM adjusted operating gross profit margin 39.6 % 31.5 %
(1)The average number of transacting ATMs presented above represents an average
of the ATMs transacting in the respective months of 2021 and 2020. The 2021 and
2020 counts do not include ATMs at casinos, theme parks, malls, education
facilities, tourist-focused sites and other ATM sites that were temporarily
closed and not transacting as a result of the Pandemic.
(2)Company-owned ATMs that are deployed under managed services agreements are
classified under Managed services and processing.
(3)Total transactions, total cash withdrawal transactions, and total cash
withdrawal transactions per ATM per month were adversely impacted by the
Pandemic, particularly in the U.K. where average transactions per ATM exceed our
Company average.
(4)ATM operating revenues and Cost of ATM operating revenues relating to managed
services, processing, ATM equipment sales, and other ATM-related services are
not included in this calculation. The Cost of ATM operating revenues in the
three months ended March 31, 2021 includes business rate tax recoveries totaling
$12.0 million .
(5)Amounts presented exclude the effect of depreciation, accretion, and
amortization of intangible assets, which is reported separately in the
accompanying Consolidated Statements of Operations. For additional information,
see Item 1. Financial Statements, Note 1. General and Basis of Presentation -
(c) Cost of ATM Operating Revenues Presentation.
41
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Revenues
Three Months Ended March 31,
2021 2020 % Change
(In thousands, excluding percentages)
North America
ATM operating revenues $ 182,959 $ 193,241 (5.3) %
ATM product sales and other revenues 9,086 12,756 (28.8)
North America total revenues 192,045 205,997 (6.8)
Europe & Africa
ATM operating revenues 52,835 79,958 (33.9)
ATM product sales and other revenues 3,243 1,942 67.0
Europe & Africa total revenues 56,078 81,900 (31.5)
Australia & New Zealand
ATM operating revenues 19,712 20,252 (2.7)
ATM product sales and other revenues 487 105 363.8
Australia & New Zealand total revenues 20,199 20,357 (0.8)
Eliminations (488) (1,652) (70.5)
Total ATM operating revenues 255,018 291,799 (12.6)
Total ATM product sales and other revenues 12,816 14,803 (13.4)
Total revenues $ 267,834 $ 306,602 (12.6) %
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Three Months Ended
ATM operating revenues. ATM operating revenues, during the three months endedMarch 31, 2021 , decreased$36.8 million , or 12.6%, compared to the same period of 2020. Absent foreign currency exchange rate movements, ATM operating revenues would have decreased$44.1 million or 15.1% due to the impacts of the Pandemic that resulted in lower transaction volumes. The decrease in revenue was partially offset by growth in the interchange, bank-branding and surcharge-free network, and managed services and processing revenues inNorth America . The following table details, by segment, the changes in the various components of ATM operating revenues for the periods indicated. As presented, certain prior year amounts have been reclassified to ensure consistency with the current year presentation and management's current views concerning the classification of revenues related to managed services and processing arrangements. The reclassified amounts previously presented as Managed services and processing revenues were reclassified as Surcharge revenues and Bank-branding and surcharge-free network revenues, respectively, in theNorth America segment, and amounts previously presented as Interchange revenues were reclassified as Managed services and processing revenues in theEurope &Africa andAustralia &New Zealand segments. We determined that these reclassifications are not material to the previously reported financial statements. Three Months Ended March 31, 2021 2020 Change % Change (In thousands, excluding percentages)North America Surcharge revenues$ 61,452 $ 81,977 $ (20,525) (25.0) % Interchange revenues 32,160 31,610 550 1.7 Bank-branding and surcharge-free network revenues 61,309 54,538 6,771 12.4 Managed services and processing revenues 28,038 25,116 2,922 11.6 North America total ATM operating revenues 182,959 193,241 (10,282) (5.3) Europe & Africa Surcharge revenues 16,734 32,596 (15,862) (48.7) Interchange revenues 34,135 44,825 (10,690) (23.8) Bank-branding and surcharge-free network revenues 280 347 (67) (19.3) Managed services and processing revenues 1,686 2,190 (504) (23.0) Europe & Africa total ATM operating revenues 52,835 79,958 (27,123) (33.9)Australia &New Zealand Surcharge revenues 15,203 15,945 (742) (4.7) Managed services and processing revenues 4,509 4,307 202 4.7Australia &New Zealand total ATM operating revenues 19,712 20,252 (540) (2.7) Eliminations (488) (1,652) 1,164 (70.5) Total ATM operating revenues$ 255,018 $ 291,799 $ (36,781) (12.6) %North America . For the three months endedMarch 31, 2021 , ATM operating revenues in ourNorth America segment decreased$10.3 million , or 5.3%, compared to the same period of 2020 due to the impacts of the Pandemic that resulted in lower transaction volumes driving lower surcharge revenues. The decrease in total revenues was partially offset by growth in bank-branding and surcharge free network revenues in theU.S. , driven by growth from our Allpoint Network. The additional volume on our Allpoint Network also drove an increase in interchange revenue. The decrease in total revenue was also partially offset by an increase in our managed services and processing revenues in theU.S. , driven by new outsourcing arrangements with both financial institution and retail customers.Europe &Africa . For the three months endedMarch 31, 2021 , ATM operating revenues in ourEurope &Africa segment decreased$27.1 million , or 33.9% compared to the same period of 2020. Absent the foreign currency exchange rate movements, our ATM operating revenues would have decreased by$30.7 million , or 38.4%, primarily due to the impacts of the Pandemic that resulted in lower transaction volumes driving lower surcharge and interchange revenues as well as lower managed services and processing revenues. The lower surcharge revenues were also impacted by travel restrictions associated with the Pandemic, which resulted in a decrease in dynamic currency conversion revenues (recognized within surcharge revenues). The decline was partially offset by an increase in revenues inSouth Africa attributable to an increase in the number of transacting ATMs and additional transactions per ATM. 43 -------------------------------------------------------------------------------- Table of ContentsAustralia &New Zealand . For the three months endedMarch 31, 2021 , ATM operating revenues in ourAustralia &New Zealand segment decreased$0.5 million , or 2.7%, compared to the same period of 2020. Absent the foreign currency exchange rate movements, our ATM operating revenues would have decreased by$3.4 million , or 17.0%, primarily due to a reduction in the number of transacting ATMs and the impacts of the Pandemic that resulted in lower transaction volumes driving lower surcharge revenues as well as lower managed services and processing revenues on a constant currency basis. ATM product sales and other revenues. For the three months endedMarch 31, 2021 , ATM product sales and other revenues decreased$2.0 million , or 13.4%, compared to the same period of 2020. The decrease was primarily related to lower equipment sales in theU.S. as a result of the Pandemic. For additional information related to our constant-currency calculations, see Non-GAAP Financial Measures, below. In addition, see Factors Impacting Comparability Between Periods, below. Cost of Revenues (exclusive of depreciation, accretion, and amortization of intangible assets) Three Months Ended March 31, 2021 2020 % Change (In thousands, excluding percentages) North America Cost of ATM operating revenues$ 113,368 $ 128,838 (12.0) % Cost of ATM product sales and other revenues 6,809 11,065 (38.5) North America total cost of revenue 120,177 139,903 (14.1) Europe & Africa Cost of ATM operating revenues 23,869 51,790 (53.9) Cost of ATM product sales and other revenues 1,506 844 78.4 Europe & Africa total cost of revenues 25,375 52,634 (51.8)Australia &New Zealand Cost of ATM operating revenues 13,832 14,093 (1.9) Cost of ATM product sales and other revenues 481 183 162.8 Australia & New Zealand total cost of revenues 14,313 14,276 0.3 Corporate total cost of revenues 222 561 (60.4) Eliminations (488) (1,652) (70.5) Cost of ATM operating revenues 150,803 193,630 (22.1) Cost of ATM product sales and other revenues 8,796 12,092 (27.3) Total cost of revenues$ 159,599 $ 205,722 (22.4) % Three Months EndedMarch 31, 2021 Compared to Three Months EndedMarch 31, 2020 Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets). Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) during the three months endedMarch 31, 2021 decreased$42.8 million , or 22.1%, compared to the same period of 2020. These results include unfavorable foreign currency exchange rate movements of$4.4 million . This decrease is consistent with the decline in revenues due to the Pandemic that resulted in lower transaction volumes and the reduced cost of operations that primarily resulted in lower merchant commissions, vault cash rental fees, transaction processing, and other operating costs across all of our segments. In addition, in response to the Pandemic, cost reduction initiatives were implemented that included workforce reductions and restructuring activities. The decrease in Cost of ATM operating revenues is also attributable to the recovery of previously paid business rate taxes in theU.K. , discussed below. 44 -------------------------------------------------------------------------------- Table of Contents The following table details, by segment, the changes in the various components of Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets): Three Months Ended March 31, 2021 2020 Change % Change (In thousands, excluding percentages) North America Merchant commissions$ 46,216 $ 60,811 $ (14,595) (24.0) % Vault cash rental 11,006 11,314 (308) (2.7) Other costs of cash 17,522 16,054 1,468 9.1 Repairs and maintenance 14,606 13,473 1,133 8.4 Communications 3,318 3,424 (106) (3.1) Transaction processing 1,250 1,731 (481) (27.8) Employee costs 8,775 8,730 45 0.5 Other expenses 10,675 13,301 (2,626) (19.7) North America total cost of ATM operating revenues 113,368 128,838 (15,470) (12.0) Europe & Africa Merchant commissions 11,790 19,311 (7,521) (38.9) Vault cash rental 2,989 3,525 (536) (15.2) Other costs of cash 2,905 4,724 (1,819) (38.5) Repairs and maintenance 2,413 3,178 (765) (24.1) Communications 2,716 2,613 103 3.9 Transaction processing 1,452 3,945 (2,493) (63.2) Employee costs 8,130 9,217 (1,087) (11.8) Other expenses (8,526) 5,277 (13,803) (261.6) Europe & Africa total cost of ATM operating revenues 23,869 51,790 (27,921) (53.9)Australia &New Zealand Merchant commissions 7,505 7,512 (7) (0.1) Vault cash rental 848 1,306 (458) (35.1) Other costs of cash 1,316 1,240 76 6.1 Repairs and maintenance 1,829 1,631 198 12.1 Communications 475 418 57 13.6 Transaction processing 242 612 (370) (60.5) Employee costs 1,189 923 266 28.8 Other expenses 428 451 (23) (5.1)Australia &New Zealand total cost of ATM operating revenues 13,832 14,093 (261) (1.9) Corporate 222 561 (339) (60.4) Eliminations (488) (1,652) 1,164 (70.5) Total cost of ATM operating revenues$ 150,803 $ 193,630 $ (42,827) (22.1) %North America . For the three months endedMarch 31, 2021 , our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) in ourNorth America segment decreased$15.5 million , or 12.0%, compared to the same period of 2020. This decline was primarily due to the Pandemic that resulted in lower transaction volumes driving lower merchant commissions, vault cash rental fees, transaction processing costs and other operating costs. The decrease was partially offset by an increase in Other costs of cash primarily related to higher cash-in-transit costs to ensure cash availability in theU.S. Also offsetting the decline were higher repair and maintenance costs driven by an increase in Company-owned ATMs utilizing third-party maintenance, including an increase in the number of full function ATMs. 45 -------------------------------------------------------------------------------- Table of ContentsEurope &Africa . For the three months endedMarch 31, 2021 , our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) in ourEurope &Africa segment decreased by$27.9 million , or 53.9%, compared to the same period of 2020, including a$1.7 million unfavorable impact of foreign currency exchange rate movements. This decrease was primarily due to the Pandemic that resulted in lower transaction volumes driving lower merchant commissions, transaction processing costs, vault cash rental fees and other operating costs. The decrease was also due to the closure of certain cash management and office facilities as part of our restructuring activities, primarily in theU.K. , and lower employee costs due to workforce reductions partially in response to the Pandemic. In addition, inMay 2020 , theU.K. Supreme Court eliminated our obligation to pay business rate taxes to certain local authorities that resulted in net cash recoveries of$12.0 million related to previous periods, which is reflected as a cost reduction in the Other expenses line within the Cost of ATM operating revenues, as well as the ongoing reduction in business rate tax expense during the three months endedMarch 31, 2021 , compared to the same period of 2020.Australia &New Zealand . For the three months endedMarch 31, 2021 , our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) in ourAustralia &New Zealand segment decreased$0.3 million , or 1.9%, compared to the same period of 2020, including a$2.0 million unfavorable impact of foreign currency exchange rate movements. The decline was primarily due to the effects of the Pandemic including lower transaction volumes driving lower merchant commissions, vault cash rental fees, cash-in-transit services and other operating costs. Cost of ATM product sales and other revenues. For the three months endedMarch 31, 2021 , our cost of ATM product sales and other revenues decreased 27.3% from the same period of 2020. The decrease was primarily related to lower equipment sales in theU.S as a result of the Pandemic. Selling, General, and Administrative Expenses Three Months Ended March 31, 2021 2020 % Change (In thousands, excluding percentages) Selling, general, and administrative expenses$ 38,909 $ 37,730 3.1 % Share-based compensation expense 4,000 4,648 (13.9) Total selling, general, and administrative expenses$ 42,909 $ 42,378 1.3 % Percentage of total revenues: Selling, general, and administrative expenses 14.5 % 12.3 % Share-based compensation expense 1.5
1.5
Total selling, general, and administrative expenses 16.0 %
13.8 %
Selling, general, and administrative expenses ("SG&A expenses"),
excluding share-based compensation expense. For the three months ended March 31,
2021 , SG&A expenses, excluding share-based compensation expense, increased
$1.2 million , or 3.1%, compared to the same period of 2020. This increase was
primarily a result of pandemic impacted compensation costs in the prior year
partially offset by restructuring activities as well as lower professional fees
and other cost reductions implemented as a result of the Pandemic.
Share-based compensation expense. For the three months ended March 31, 2021 ,
share-based compensation expense decreased $0.6 million , or 13.9%, compared to
the same period of 2020 as a result of the amount, timing and terms of
share-based payment awards granted during the respective periods, net of
estimated forfeitures. For additional information related to share-based
compensation expense, see Item 1. Financial Statements, Note 4. Share-based
Compensation.
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Restructuring Expenses
During 2020, we implemented certain cost reduction initiatives intended to
improve the Company's cost structure and operating efficiency partly in response
to the Pandemic. During the three months ended March 31, 2021 and 2020, we
incurred $1.7 million and $1.2 million , respectively, of pre-tax expenses
related to these restructuring activities that primarily included facility
closures, workforce reductions, professional fees and other related charges. The
facility closures and related workforce reductions during the three months ended
March 31, 2021 and 2020, respectively, primarily occurred in the U.K. related to
reducing the number of facilities associated with cash delivery operations.
For additional information, see Item 1. Financial Statements, Note 1. General
and Basis of Presentation - (d) Restructuring Expenses.
Acquisition Related Expenses
We incurred legal and professional fees and certain other administrative
expenses totaling $1.4 million during the three months ending March 31, 2021 in
connection with the proposed acquisition of the Company by NCR. For additional
information related to the proposed acquisition, see Recent Trends and Events -
Proposed Transaction with NCR, above.
Depreciation and Accretion Expense
Three Months Ended March 31,
2021 2020 % Change
(In thousands, excluding percentages)
Depreciation and accretion expense $ 32,285 $ 32,211 0.2 %
Percentage of total revenues 12.1 % 10.5 %
Depreciation and accretion expense. For the three months ended March 31, 2021 ,
depreciation and accretion expense increased $0.1 million or 0.2%, compared to
the same periods of 2020 due to the amount and timing of capital additions in
the ordinary course of business and the fluctuation in foreign currency exchange
rates.
Amortization of Intangible Assets
Three Months Ended March 31,
2021 2020 % Change
(In thousands, excluding percentages)
Amortization of intangible assets $ 6,086 $ 8,413 (27.7) %
Percentage of total revenues 2.3 % 2.7 %
Amortization of intangible assets. For the three months ended March 31, 2021 ,
amortization of intangible assets decreased by $2.3 million , or 27.7%, compared
to the same period of 2020 primarily due to the timing of certain intangible
assets becoming fully amortized.
Loss on Disposal and Impairment of Assets
Three Months Ended March 31,
2021 2020 % Change
(In thousands, excluding percentages)
Loss on disposal and impairment of assets $ 353 $ 921 (61.7) %
Percentage of total revenues 0.1 % 0.3 %
Loss on disposal and impairment of assets. The losses recognized during the
three months ended
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Interest Expense, net
Three Months Ended March 31,
2021 2020 % Change
(In thousands, excluding percentages)
Interest expense, net $ 10,761 $ 6,421 67.6 %
Percentage of total revenues 4.0 % 2.1 %
Interest expense, net. For the three months ended March 31, 2021 , Interest
expense, net, increased $4.3 million , or 67.6%, compared to the same period of
2020. This increase was primarily attributable to interest on the $500 million
term loan facility entered into in June 2020 ("Term Loan"), partially offset by
the repurchase and repayment of our 1% convertible senior notes ("Convertible
Notes") in the second half of 2020. The increase was also partially offset by
lower interest expense on the revolving credit facility, which was fully repaid
in June 2020 .
For additional information related to our outstanding borrowings, see Item 1.
Financial Statements, Note 9. Current and Long-Term Debt.
Other Expenses, net
During the three months ended March 31, 2021 , our Other expenses, net of $2.8
million were primarily attributable to foreign currency remeasurement
adjustments and other non-operating costs. During the three months ended March
31, 2020 , we recognized a gain of $4.1 million in Other expenses, net to revise
the estimated fair value of the acquisition related contingent consideration
liability. This gain was entirely offset by foreign currency translation losses
and other non-operating costs totaling $7.9 million .
Income Tax Expense (Benefit)
Three Months Ended March 31,
2021 2020 % Change
(In thousands, excluding percentages)
Income tax expense (benefit) $ 2,951 $ (3,737) (179.0) %
Effective tax rate 33.4 % (185.7) %
Income tax expense (benefit). Our income tax expense for the three months ended
March 31, 2021 totaled $3.0 million resulting in an effective tax rate of 33.4%,
compared to a benefit of $3.7 million , and an effective tax rate of (185.7)%,
for the same period of 2020.
The increase in tax expense for the three months ended March 31, 2021 was
primarily attributable to the higher pre-tax profits recognized in the current
period, without an offset from any non-recurring tax benefits, as was recognized
in the same period of 2020. The benefit recognized for the three months ended
March 31, 2020 was primarily attributable to a non-recurring benefit from the
carryback of net operating losses to prior tax years at the higher 35% U.S. tax
rate, compared to the current tax rate of 21%, as a result of the Coronavirus
Aid, Relief, and Economic Security (CARES) Act that was signed into law in the
U.S. in March 2020 .
Factors Impacting Comparability Between Periods
COVID-19 pandemic. As discussed in our Recent Trends and Events and our Results
of Operations above, the Pandemic has had a significant impact on our operating
results during the three months ended March 31, 2021 , and continues to have an
impact on our operating results.
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Foreign currency exchange rates. Our reported financial results are subject to
fluctuations in foreign currency exchange rates. We estimate that the
year-over-year fluctuation of the currencies in the markets in which we operate
relative to the U.S. dollar caused our reported total revenues to be lower by
approximately $7.7 million during the three months ended March 31, 2021 .
Please see the Form 10-K for the year ended December 31, 2020 , for discussion of
developing trends and recent events with relevance to the business.
Strategic Outlook
Over the past several years, we have expanded our operations and our ATMs'
capabilities and service offerings through strategic acquisitions and
investments. We have continued to deploy ATMs in high-traffic locations under
contracts with well-known retailers. We have expanded through the growth of
Allpoint, our retail-based surcharge-free ATM network, and our bank-branding
programs. We have recently seen increased demand from financial institutions of
all sizes to evaluate their physical banking services and branch strategies. We
have also expanded our ATM capabilities and service offerings to financial
institutions due to increasing interest from financial institutions to outsource
ATM-related services due to our cost efficiency advantages and higher service
levels.
We aim to continue to expand our ATM footprint organically and launch new
products and services that will allow us to leverage our existing ATM network.
We believe our network can serve as the digital to physical gateway for
financial institutions, digital-based businesses, and consumers for cash-based
transactions. We see opportunities to expand our operations by:
•broadening our relationships with leading financial institutions;
•working with financial technology companies with a primary focus on the retail
consumer finance business (or "FinTechs") and card issuers to further leverage
our extensive ATM network;
•increasing transaction levels at our existing locations;
•expanding the number of deployed ATMs with existing and new merchant
relationships;
•developing and providing additional services at our existing ATMs;
•pursuing additional managed services opportunities; and
•pursuing opportunities to expand into new international markets over time.
For additional information related to each of our strategic points above, see
Part I. Item 1. Business - Our Strategy in our 2020 Form 10-K.
Non-GAAP Financial Measures
DISCLOSURE OF NON-GAAP FINANCIAL INFORMATION
In order to assist readers of our consolidated financial statements in
understanding the operating results that management uses to evaluate the
business and for financial planning purposes, we present the following non-GAAP
measures as a complement to financial results prepared in accordance with U.S.
GAAP: EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Tax Rate, Adjusted
Net Income per diluted share, Adjusted Net Cash Provided by Operating
Activities, Adjusted Free Cash Flow, and certain other results presented on a
constant-currency basis. We believe that the presentation of these measures and
the identification of notable, non-cash, non-operating costs and/or (if
applicable in a particular period), certain costs not anticipated to occur in
future periods enhance an investor's understanding of the underlying trends in
our business and provide for better comparability between periods in different
years. In addition, we present Net Debt as a measure of our financial condition.
We also believe that these measures are relevant and provide useful information
widely used by analysts, investors and other interested parties in our industry
to provide a baseline for evaluating and comparing our operating performance,
financial condition and, in the case of free cash flow, our liquidity results.
We use these non-GAAP financial measures in managing and measuring the
performance of our business, including setting and measuring incentive-based
compensation for management.
Furthermore, the non-GAAP financial measures presented herein should not be
considered in isolation or as a substitute for operating income, net income,
cash flows from operating, investing, or financing activities, or other income
or cash flow measures contained within our consolidated financial statements
prepared in accordance with U.S. GAAP. The non-GAAP measures that we use are not
defined in the same manner by all companies and therefore may not be comparable
to other similarly titled measures of other companies.
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EBITDA and Adjusted EBITDA
EBITDA adds net interest expense, income tax expense, depreciation and
accretion, amortization of deferred financing costs and note discounts,
amortization of intangible assets, and certain costs not anticipated to occur in
future periods to net income. Adjusted EBITDA excludes the items excluded from
EBITDA as well as share-based compensation expense, certain other income and
expense amounts, acquisition related expenses, gains or losses on disposal and
impairment of assets, certain non-operating expenses (if applicable in a
particular period), and includes an adjustment for noncontrolling interests.
Depreciation and accretion expense and amortization of intangible assets are
excluded from Adjusted EBITDA as these amounts can vary substantially from
company to company within our industry depending upon accounting methods and
book values of assets, capital structures, and the methods by which the assets
were acquired.
Adjusted Net Income, Adjusted Net Income per Diluted Share, and Adjusted Tax
Rate
Adjusted Net Income represents net income computed in accordance with U.S. GAAP,
before amortization of intangible assets, deferred financing costs and note
discounts, gains or losses on disposal and impairment of assets, share-based
compensation expense, certain other income and expense amounts, acquisition
related expenses, certain non-operating expenses, and (if applicable in a
particular period) certain costs not anticipated to occur in future periods
(together, the "Adjustments"). The non-GAAP tax rate used to calculate Adjusted
Net Income was approximately 27.1% for the three months ended March 31, 2021 and
23.6% for the three months ended March 31, 2020 , respectively. The non-GAAP tax
rates represent the U.S. GAAP tax rate for the period as adjusted by the
estimated tax impact of the items adjusted from the measure and excluding
non-recurring impacts of tax rate changes and valuation allowances. Adjusted Net
Income per diluted share is calculated by dividing Adjusted Net Income by
weighted average diluted shares outstanding.
Adjusted Net Cash Provided by Operating Activities and Adjusted Free Cash Flow
Adjusted Net Cash Provided by Operating Activities is defined as net cash
provided by operating activities less the impact of changes in restricted cash
due to the timing of payments of restricted cash liabilities.
Adjusted Free Cash Flow is defined as Adjusted Net Cash Provided by Operating
Activities less payments for capital expenditures, including those financed
through direct debt, but excluding acquisitions. The Adjusted Free Cash Flow
measure does not take into consideration certain financing activities and other
non-discretionary cash requirements such as mandatory principal payments on
portions of our long-term debt.
Net Debt
Net Debt represents the principal amount of current and long-term debt
outstanding less cash and cash equivalents. The carrying value of current and
long-term debt is reconciled to the principal amount by adding the unamortized
debt issuance costs and discounts.
Constant Currency
Management calculates certain U.S. GAAP as well as non-GAAP measures on a
constant-currency basis using the average foreign currency exchange rates
applicable in the corresponding period of the previous year and applying these
rates to the measures in the current reporting period to assess performance and
eliminate the effect foreign currency exchange rates have on comparability
between periods.
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Reconciliation of Non-GAAP Financial Statements
Reconciliations of the non-GAAP financial measures used herein to the most
directly comparable U.S. GAAP financial measures are presented as follows:
Reconciliation of Net Income Attributable to Controlling Interests and Available
to Common Shareholders to EBITDA, Adjusted EBITDA, and Adjusted Net Income (in
thousands, excluding share and per share amounts)
Three Months Ended
2021 2020
Net income attributable to controlling interests and available to common shareholders
$ 5,876 $ 5,755
Adjustments:
Interest expense, net 10,761 6,421
Amortization of deferred financing costs and note discount 1,043 3,486
Income tax expense (benefit) 2,951 (3,737)
Depreciation and accretion expense 32,285 32,211
Amortization of intangible assets 6,086 8,413
EBITDA 59,002 52,549
Add back:
Loss on disposal and impairment of assets 353 921
Other expenses (1) 2,842 3,829
Noncontrolling interests (2) 15 13
Share-based compensation expense 4,258 5,193
Restructuring expenses (3) 1,692 1,209
Acquisition related expenses (4) 1,440 -
Adjusted EBITDA (5) 69,602 63,714
Less:
Depreciation and accretion expense (6) 32,285 32,210
Interest expense, net 10,761 6,421
Adjusted pre-tax income 26,556 25,083
Income tax expense (7) 7,197 5,920
Adjusted Net Income $ 19,359 $ 19,163
Adjusted Net Income per share - basic $ 0.43 $ 0.43
Adjusted Net Income per share - diluted $
0.42
Weighted average shares outstanding - basic 44,959,960 44,729,824 Weighted average shares outstanding - diluted 45,609,764 45,741,261 (1)Includes foreign currency translation gains/losses, the revaluation of the estimated acquisition related contingent consideration, and other non-operating costs. (2)Noncontrolling interest adjustment made such that Adjusted EBITDA includes only the Company's ownership interest in the Adjusted EBITDA of one of the Company's Mexican subsidiaries. (3)For the three months endedMarch 31, 2021 , restructuring expenses included costs incurred in conjunction with facility closures, workforce reductions and other related charges. For the three months endedMarch 31, 2020 , restructuring expenses included professional fees and costs incurred in conjunction with facility closures and workforce reductions. The facility closures during the three months endedMarch 31, 2021 and 2020, respectively, primarily occurred in theU.K. related to reducing the number of facilities associated with cash delivery operations. (4)For the three months endedMarch 31, 2021 , acquisition related expenses includes legal and professional fees and certain administrative costs incurred in connection with the proposed acquisition of the Company, as further discussed in Note 1. Basis of Presentation - (a) Description of Business. (5)The results for the three months endedMarch 31, 2021 include business rate tax recoveries of$12.0 million , classified as a cost reduction within Cost of ATM operating revenues. (6)Amounts exclude a portion of the expenses incurred by one of the Company's Mexican subsidiaries to account for the amounts allocable to the noncontrolling interest shareholders. 51 -------------------------------------------------------------------------------- Table of Contents (7)For the three month periods endedMarch 31, 2021 and 2020, the non-GAAP tax rates used to calculate Adjusted Net Income were 27.1% and 23.6%. The non-GAAP tax rates represent the Company'sU.S. GAAP tax rates adjusted for the net tax effects related to the items excluded from Adjusted Net Income. Reconciliation ofU.S. GAAP Revenue to Constant-Currency Revenue (in thousands, excluding percentages) Consolidated revenue: Three Months Ended March 31, 2021 2020 % Change Foreign U.S. Currency Constant - U.S. U.S. Constant - GAAP Impact Currency GAAP GAAP Currency ATM operating revenues$ 255,018 $ (7,306) $ 247,712 $ 291,799 (12.6) % (15.1) % ATM product sales and other revenues 12,816 (401) 12,415 14,803 (13.4) (16.1) Total revenues$ 267,834 $ (7,707) $ 260,127 $ 306,602 (12.6) % (15.2) % North America revenue: Three Months Ended March 31, 2021 2020 % Change Foreign U.S. Currency Constant - U.S. U.S. Constant - GAAP Impact Currency GAAP GAAP Currency ATM operating revenues$ 182,959 $ (810) $ 182,149 $ 193,241 (5.3) % (5.7) % ATM product sales and other revenues 9,086 (61) 9,025 12,756 (28.8) (29.2) Total revenues$ 192,045 $ (871) $ 191,174 $ 205,997 (6.8) % (7.2) % Europe & Africa revenue: Three Months Ended March 31, 2021 2020 % Change Foreign U.S. Currency Constant - U.S. U.S. Constant - GAAP Impact Currency GAAP GAAP Currency ATM operating revenues$ 52,835 $ (3,599) $ 49,236 $ 79,958 (33.9) % (38.4) % ATM product sales and other revenues 3,243 (258) 2,985 1,942 67.0 53.7 Total revenues$ 56,078 $ (3,857) $ 52,221 $ 81,900 (31.5) % (36.2) %Australia &New Zealand revenue: Three Months Ended March 31, 2021 2020 % Change Foreign U.S. Currency Constant - U.S. U.S. Constant - GAAP Impact Currency GAAP GAAP Currency ATM operating revenues$ 19,712 $ (2,897) $ 16,815 $ 20,252 (2.7) % (17.0) % ATM product sales and other revenues 487 (82) 405 105 363.8 285.7 Total revenues$ 20,199 $ (2,979) $ 17,220 $ 20,357 (0.8) % (15.4) % 52
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Reconciliation of Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income
per diluted share on a Non-GAAP basis to Constant-Currency (in thousands,
excluding percentages and per share amounts)
Three Months Ended
2021 2020 % Change
Foreign
Non - Currency Constant - Non - Non - Constant -
GAAP (1) Impact Currency GAAP (1) GAAP (1) Currency
Adjusted EBITDA $ 69,602 $ (2,086) $ 67,516 $ 63,714 9.2 % 6.0 %
Adjusted Net Income $ 19,359 $ (522) $ 18,837 $ 19,163 1.0 % (1.7) %
Adjusted Net Income per share
-
diluted (2) $ 0.42 $ - $ 0.42 $ 0.42 - % - %
(1) As reported on the Reconciliation of Net Income Attributable to Controlling
Interests and Available to Common Shareholders to EBITDA, Adjusted EBITDA, and
Adjusted Net Income above.
(2) Adjusted Net Income per diluted share is calculated by dividing Adjusted
Net Income by the weighted average diluted shares outstanding of 45,609,764 and
45,741,261 for the three months ended March 31, 2021 and 2020.
Reconciliation of Current and Long-Term Debt to Net Debt
March 31, 2021 December 31, 2020
(In thousands)
(Unaudited)
Total Current and Long-term Debt $ 777,693 $ 778,177
Add: Unamortized discounts and capitalized debt
issuance costs 18,557 19,323
Less: Cash and cash equivalents (197,363) (174,242)
Net Debt $ 598,887 $ 623,258
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Net Cash Provided by Operating Activities and Adjusted Free Cash Flow
Three Months Ended
2021 2020
(In thousands)
Net cash provided by operating activities $ 69,352 $ 1,120
Restricted cash settlement activity (1) (4,346) 39,871
Adjusted net cash provided by operating activities 65,006 40,991
Net cash used in investing activities, excluding acquisitions (2)
(16,246) (18,429)
Adjusted free cash flow $
48,760
(1)Restricted cash settlement activity represents the change in our restricted
cash excluding the portion of the change that is attributable to foreign
exchange and disclosed as part of the effect of exchange rate changes on cash,
cash equivalents, and restricted cash in the Consolidated Statements of Cash
Flows. Restricted cash primarily consists of amounts collected on behalf of, but
not yet remitted to, certain of the Company's merchant customers or third-party
service providers that are pledged for a particular use or restricted to support
these obligations. These amounts can fluctuate significantly period to period
based on the number of days for which settlement to the merchant has not yet
occurred or day of the week on which a quarter ends.
(2)Capital expenditures are primarily related to organic growth projects,
including the purchase of ATMs for both new and existing ATM management
agreements, technology and product development, investments in infrastructure,
ongoing refreshment of ATMs and operational assets and other related type
activities in the normal course of business. Additionally, capital expenditure
amounts for one of our Mexican subsidiaries are reflected gross of any
noncontrolling interest amounts.
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Liquidity and Capital Resources
Overview
As of March 31, 2021 , we had $197.4 million in cash and cash equivalents and
$777.7 million of current and long-term debt (or $796.3 million , including $18.6
million of capitalized debt issuance costs and unamortized discounts). In
addition, we currently have a $600 million revolving credit facility, with
currently no borrowings outstanding and approximately $10.0 million in
outstanding letters of credit.
We have historically funded our business with cash on hand, cash flows from
operations, borrowings under our revolving credit facility, and the issuance of
debt and equity securities. We have generally used a portion of our cash flows
to invest in additional ATMs, either through acquisitions or through organic
growth. We have also used cash to pay interest and principal amounts outstanding
under our borrowings. As we collect a sizable portion of our sales on a daily
basis but generally pay our vendors on 30 day terms and are not required to pay
certain merchants until 20 days after the end of each calendar month, we have
historically utilized the excess available cash flow to reduce outstanding
borrowings and to fund investments and capital expenditures. Accordingly, it is
not uncommon for us to reflect a working capital deficit position in our
Consolidated Balance Sheet.
Taking into consideration the foregoing and the expected effects of known
trends, we believe we have sufficient liquidity available from cash on hand,
cash flow from operations and potential borrowings to fund our operations for
the foreseeable future. See Financing Activities below.
Operating Activities
Net cash provided by operating activities totaled $69.4 million during the three
months ended March 31, 2021 compared to net cash provided by operating
activities of $1.1 million during the same period of 2020. Excluding changes in
restricted cash liabilities during the periods due to the timing of settlements,
our cash flows from operating activities increased $24.0 million . This increase
in operating cash flow (excluding settlement changes) is primarily due to higher
operating profits and positive changes in working capital.
Investing Activities
Net cash used in investing activities totaled $16.2 million during the three
months ended March 31, 2021 compared to net cash used in investing activities of
$18.4 million during the same period of 2020. The change in net cash used in
investing activities during the three months ended March 31, 2021 relative to
the prior year was primarily a result of reduced capital expenditures, driven by
technology enhancements, strategic procurement initiatives and ordinary course
business requirement fluctuations.
Financing Activities
Net cash used in financing activities totaled $24.2 million during the three
months ended March 31, 2021 compared to cash provided by financing activities of
$565.0 million during the same period of 2020. During the three months ended
March 31, 2021 , we paid $9.2 million to satisfy the 2020 portion of our
obligation under the Spark acquisition contingent consideration arrangement,
made $14.5 million in tax payments upon vesting of share-based compensation
awards, and made the mandatory quarterly principal repayment on our Term Loan
facility. During the first quarter of 2020, we borrowed $587.1 million under our
revolving credit agreement in anticipation of the maturity of our Convertible
Notes due on December 1, 2020 and for additional liquidity given the economic
uncertainty caused by the worldwide COVID-19 pandemic. During the three months
ended March 31, 2020 we also used $16.9 million to repurchase 505,699 Class A
ordinary shares. We have from time to time sought to repurchase our outstanding
debt and / or equity securities in privately negotiated transactions.
For information related to our financing facilities, see Item 1. Financial
Statements, Note 9. Current and Long-Term Debt.
Effects of Inflation
Our monetary assets, consisting primarily of cash and receivables, are not
currently significantly affected by inflation. Similarly our non-monetary
assets, consisting primarily of tangible and intangible assets, are not affected
by inflation. However, inflation may in the future affect our expenses, such as
those for employee compensation, operating costs and capital expenditures, which
may not be readily recoverable in the price of services offered by us.
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Critical Accounting Policies Our consolidated financial statements included in this Form 10-Q have been prepared in accordance withU.S. GAAP, which requires management to make numerous estimates and assumptions. Actual results could differ from those estimates and assumptions, thus impacting our results of operations and financial position. For discussion of the critical accounting policies and estimates that are most important to the depiction of our financial condition and results of operations see Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates and Item 8. Financial Statements and Supplementary Data, Note 1. Basis of Presentation and Summary of Significant Accounting Policies within our 2020 Form 10-K. Goodwill Impairment During the year endedDecember 31, 2020 , we performed quantitative impairment tests and determined that the fair value of all reporting units exceeded the carrying value and, as such, no impairments were recorded. During the three months endedMarch 31, 2021 , we did not identify any impairment indicators. To the extent that we are unable to perform in accordance with our projections, including the estimated impact of the Pandemic, further goodwill impairment charges are possible. New Accounting Pronouncements For information related to accounting pronouncements adopted and not yet adopted during 2021 see Item 1. Financial Statements, Note 2. New Accounting Pronouncements. Item 3. Quantitative and Qualitative Disclosures About Market Risk The following market risk disclosures should be read in conjunction with the quantitative and qualitative disclosures about market risk contained in our 2020 Form 10-K. We are exposed to certain risks related to our ongoing business operations, including interest rate risk associated with our vault cash rental obligations and variable rate debt. The following quantitative and qualitative information is provided about financial instruments to which we were a party atMarch 31, 2021 and from which we may incur future gains or losses as a result of changes in market interest rates or foreign currency exchange rates. We do not enter into derivative or other financial instruments for speculative or trading purposes. Hypothetical changes in interest rates and foreign currency exchange rates chosen for the following estimated sensitivity analysis are considered to be reasonably possible near-term changes generally based on consideration of past fluctuations for each risk category. However, since it is not possible to accurately predict future changes in interest rates and foreign currency exchange rates, these hypothetical changes may not necessarily be an indicator of probable future fluctuations. Interest Rate Risk Vault cash rental expense. As our ATM vault cash rental expense is based on market rates of interest, it is sensitive to changes in the general level of interest rates in the respective countries in which we operate. We pay a monthly fee on the average outstanding vault cash balances in our ATMs under floating rate formulas based on a spread above various interbank offered rates in theU.S. , theU.K. ,Germany , andSpain . InAustralia , the formula is based on the Bank Bill Swap Rates ("BBSY"), inSouth Africa , the rate is based on the South African Prime Lending rate and the Johannesburg Interbank Agreed Rate, inCanada , the rate is based on theBank of Canada's Bankers' Acceptance Rate and the Canadian Prime Rate, and inMexico , the rate is based on theInterbank Equilibrium Interest Rate (commonly referred to as the "TIIE"). As a result of the significant sensitivity to interest rates related to our vault cash rental expense, we have entered into a number of interest rate swap contracts and caps with varying notional amounts and fixed interest rates in theU.S. ,Canada , theU.K. , andAustralia to manage the rate we pay on the amounts of our current and anticipated outstanding vault cash balances. The notional amounts, weighted average fixed rates, and remaining terms associated with our interest rate swap contracts and cap agreements that are currently in place in theU.S. ,Canada , theU.K. , andAustralia as ofMarch 31, 2021 are as follows: 55
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Table of Contents Outstanding Interest Rate Derivatives Associated with Vault Cash Rental Obligations
Weighted Average Notional Value in
Remaining Term of Hedging Fixed Rate/Cap Rate Respective
Instrument Segment Currency (1) Currency
(In millions)
Interest Rate Swap Contract - Vault
Cash
April 1, 2021 - December 31, 2021 North America U.S. Dollar 1.46 % $ 1,200
January 1, 2022 - December 31, 2022 North America U.S. Dollar 1.17 % $ 1,000
January 1, 2023 - December 31, 2024 North America U.S. Dollar 0.98 % $ 600
April 1, 2021 - December 31, 2021 North America Canadian Dollar 2.46 % $ 125
April 1, 2021 - December 31, 2022 Europe & Africa Pound Sterling 0.94 % $ 500
Zealand Australian Dollar 0.71 % $ 40
Interest Rate Cap Contracts - Vault
Cash
April 1, 2021 - December 31, 2023 North America U.S. Dollar 3.25 % $ 200
(1) Cap rate represents the maximum amount of interest to be paid each year as
per terms of the cap. The cost of the cap is amortized through vault cash rental
expense over the term of cap.
Summary of Interest Rate Exposure on Average Outstanding Vault Cash
The following table presents a hypothetical sensitivity analysis of our annual
vault cash rental expense in our North America , Europe & Africa and Australia &
New Zealand segments based on our average outstanding vault cash balance and
interest rate derivatives for the quarter ended March 31, 2021 and assuming a
100 basis point increase in interest rates (in millions):
Australia & New
North America Europe & Africa Zealand
Average outstanding vault cash balance $ 2,774 $ 1,187 $ 259
Interest rate swap contracts fixed notional amount (1,499) (689) (31)
Residual unhedged outstanding vault cash balance
498 $ 228
Additional annual interest incurred on 100 basis
$ 4.98 $ 2.28
We also have terms in certain of ourNorth America contracts with merchants and financial institution partners where we can decrease fees paid to merchants or effectively increase the fees paid to us by financial institutions if vault cash rental costs increase. Such protection will serve to reduce but not eliminate the exposure calculated above. Furthermore, we have the ability inNorth America to partially mitigate our interest rate exposure through our operations. We believe we can reduce the average outstanding vault cash balances as interest rates rise by visiting ATMs more frequently with lower cash amounts. This ability to reduce the average outstanding vault cash balances is partially constrained by the incremental cost of more frequent ATM visits. Our contractual protections with merchants and financial institution partners and our ability to reduce the average outstanding vault cash balances will serve to reduce but not eliminate interest rate exposure. 56 -------------------------------------------------------------------------------- Table of Contents Interest Rate Derivatives and Outlook. As ofMarch 31, 2021 , we had an asset of$0.3 million and a liability of$34.8 million recorded in the accompanying Consolidated Balance Sheets, which represented the fair value of our interest rate swap and cap contracts associated with our vault cash rental obligations. The fair value estimate for these instruments was calculated as the present value of amounts estimated to be paid to a marketplace participant. These derivative contracts are valued using pricing models based on significant other observable inputs (Level 2 inputs under the fair value hierarchy prescribed byU.S. GAAP). For each highly effective hedging relationship, the gain or loss on the derivative instrument is reported as a component of the Accumulated other comprehensive loss, net line in the Consolidated Balance Sheets. The gain or loss is reclassified into earnings in the Vault cash rental expense line within the Cost of ATM operating revenues line in the Consolidated Statements of Operations in the same period or periods during which the hedged transaction affects and has been forecasted in earnings. Although we currently hedge a substantial portion of our vault cash interest rate risk in theU.S. ,Canada , theU.K. , andAustralia , we may not be able to enter into similar arrangements for similar amounts in the future, and any significant increase in interest rates in the future could have an adverse impact on our business, financial condition, and results of operations by increasing our operating expenses. However, we expect that the impact on our consolidated financial statements from a significant increase in interest rates would be partially mitigated by the derivative instruments that we currently have in place associated with our vault cash balances in theU.S. ,Canada , theU.K. , andAustralia and other protective measures we have put in place to mitigate such risk. Interest expense. Our interest expense is also sensitive to changes in interest rates as borrowings under our revolving credit and term loan facilities accrue interest at floating rates. As ofMarch 31, 2021 , we had no outstanding borrowings under our revolving credit facility and$496.3 million of outstanding borrowings under our floating rate term loan facility. To mitigate the interest rate risk associated with the borrowings on our floating rate term loan facility, onJuly 30, 2020 , we executed$250.0 million aggregate notional amount interest rate cap contracts that terminateDecember 31, 2025 . These interest rate cap contracts have a cap rate of 1% and have been designated as cash flow hedges of the floating rate interest associated with our term loan facility. See Item 1. Financial Statements, Note 9. Current and Long-Term Debt.
Outstanding Interest Rate Derivatives Associated with Variable Rate Debt
Weighted Average Notional Value
Remaining Term of Hedging Fixed Rate/Cap Rate in Respective
Instrument Segment Currency (1) Currency
Interest rate cap contracts - (In millions)
Variable Debt
April 1, 2021 - December 31, 2025 North America U.S. Dollar 1.00 % $ 250
(1) Cap rate represents the maximum amount of interest to be paid each year as
per terms of the cap. The cost of the cap will be amortized through interest
expense over the term of the cap.
As of March 31, 2021 , we had an asset of $3.6 million and a liability of $0.4
million recorded in the accompanying Consolidated Balance Sheets, which
represented the fair value of our interest rate cap contracts associated with
our term loan facility. The fair value estimate for these instruments was
calculated as the present value of amounts estimated to be paid to a marketplace
participant. These derivative contracts are valued using pricing models based on
significant other observable inputs (Level 2 inputs under the fair value
hierarchy prescribed by U.S. GAAP). For each highly effective hedging
relationship, the gain or loss on the derivative instrument is reported as a
component of the Accumulated other comprehensive loss, net line in the
Consolidated Balance Sheets. The gain or loss is reclassified into earnings in
the Interest expense, net line in the Consolidated Statements of Operations in
the same period or periods during which the hedged transaction affects and has
been forecasted in earnings.
57
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Transition from LIBOR. We are currently evaluating the impact of the transition
from LIBOR as an interest rate benchmark to other potential alternative
reference rates. Currently, we have several debt, derivative and commercial
contracts that reference LIBOR-based rates. The transition from LIBOR in the
U.S. for tenors that the Company currently utilizes is expected to take place
sometime after 2021. The LIBOR transition in the U.K. is expected to take place
at the end of 2021, and we do not expect this change to have a significant
impact on our operations or results. We will continue to assess the impact of
this transition. For additional information related to the transition from
LIBOR, see Part 1, Item 1A. Risk Factors - Changes in interest rates could
increase our operating costs by increasing interest expense under our credit
facilities and our vault cash rental costs in our Annual Report on Form 10-K for
the year ended December 31, 2020 .
Foreign Currency Exchange Rate Risk
As a result of our global operations, we are exposed to market risk from changes
in foreign currency exchange rates. The functional currencies of our
international subsidiaries are their respective local currencies. The results of
operations of our international subsidiaries are translated into U.S. dollars
using average foreign currency exchange rates in effect during the periods in
which those results are recorded and the assets and liabilities are translated
using the foreign currency exchange rate in effect as of each balance sheet
reporting date. These resulting translation adjustments to assets and
liabilities have been reported in Accumulated other comprehensive loss, net
within the accompanying Consolidated Balance Sheets. As of March 31, 2021 , this
accumulated translation loss totaled $39.0 million compared to $41.6 million as
of December 31, 2020 .
Our consolidated financial results were impacted by changes in foreign currency
exchange rates during the three months ended March 31, 2021 compared to the
prior year. Our total revenues during the three months ended March 31, 2021
would have been lower by approximately $7.7 million had the foreign currency
exchange rates from the three months ended March 31, 2021 remained unchanged
from the prior year. A sensitivity analysis indicates that, if the U.S. dollar
uniformly strengthened or weakened 10% against the U.K. pound sterling, Euro,
Mexican peso, Canadian dollar, Australian dollar, and South African Rand, the
effect upon our operating income would have been approximately $0.6 million for
the three months ended March 31, 2021 , respectively.
Certain intercompany balances are designated as short-term in nature. The
changes in these balances related to foreign currency exchange rates have been
recorded in the Consolidated Statements of Operations and we are exposed to
foreign currency exchange rate risk as it relates to these intercompany
balances.
We do not hold derivative commodity instruments and all of our cash and cash
equivalents are held in money market and checking funds or in physical cash
form.
Item 4. Controls and Procedures
Management's Quarterly Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), we have evaluated, under the supervision and with
the participation of management, including our principal executive officer and
principal financial officer, the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the period covered by this
Form 10-Q. Our disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is accumulated and communicated to
our management, including our principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required
disclosure and is recorded, processed, summarized, and reported within the time
periods specified in the rules and forms of the U.S. Securities and Exchange
Commission . Based upon that evaluation, our principal executive officer and
principal financial officer have concluded that our disclosure controls and
procedures were effective as of March 31, 2021 at the reasonable assurance
level.
Changes in Internal Control over Financial Reporting
In the ordinary course of business, the Company reviews its internal control
over financial reporting and makes changes to its control procedures, processes
and systems that are intended to enhance such controls and increase efficiency
while maintaining an effective internal control environment.
In conjunction with the evaluation described above, there have been no changes
in our system of internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
quarter ended March 31, 2021 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
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