Table of Contents


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑


þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

March 31, 2019

or

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from    to

Commission File Number: 001-37820

Cardtronics plc

(Exact name of registrant as specified in its charter)

England and Wales 

98-1304627

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

3250 Briarpark Drive, Suite 400

77042

2050 West Sam Houston Parkway South, Suite 130077042
Houston, Texas 

(Zip Code)

(Address of principal executive offices)

Registrant’s telephone number, including area code: (832) 308-4000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑þ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑þ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,’’ “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer             ☑þ

Accelerated filer                     ☐

Non-accelerated filer               ☐

Smaller reporting company    ☐

Emerging growth company     ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ 

þ

Shares outstanding as of OctoberApril 30, 2018:  46,107,3122019: 46,316,418 Ordinary shares, nominal value $0.01 per share.

Table of Contents


CARDTRONICS PLC

TABLE OF CONTENTS

31

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

3
3

Consolidated Balance Sheets as of September 30, 2018March 31, 2019 (unaudited) and December 31, 20172018

3
3

Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September  30,March 31, 2019 and 2018 and 2017

4
4

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30,March 31, 2019 and 2018 and 2017

5
5

Unaudited Consolidated Statements of Shareholders' Equity for the Three Months Ended March 31, 2019 and 2018
6
Unaudited Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 2019 and 2018 and 2017

7
6

Notes to Unaudited Condensed Consolidated Financial Statements

8
7

Cautionary Statement Regarding Forward-Looking Statements

41
47

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

43
49

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

63
78

Item 4.

Controls and Procedures

67
80

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

68
82

Item 1A.

Risk Factors

68
82

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

68
82

Item 3.

Defaults Upon Senior Securities

68
82

Item 4.

Mine Safety Disclosures

68
82

Item 5.

Other Information

68
82

Item 6.

Exhibits

69
83

Signatures

70
84

When we refer to “us,” “we,” “our,” “ours,” “the Company,” or “Cardtronics” we are describing Cardtronics plc and/or our subsidiaries, unless the context indicates otherwise.

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CARDTRONICS PLC
CONSOLIDATED BALANCE SHEETS
(In thousands, excluding share and per share amounts)

 

 

 

 

 

 

 

 

    

September 30, 2018

    

December 31, 2017

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,428

 

$

51,370

Accounts and notes receivable, net of allowance for doubtful accounts of $3,128 and $2,001 as of September 30, 2018 and December 31, 2017, respectively

 

 

87,150

 

 

105,245

Inventory, net

 

 

15,317

 

 

14,283

Restricted cash

 

 

73,870

 

 

48,328

Prepaid expenses, deferred costs, and other current assets

 

 

106,497

 

 

96,106

Total current assets

 

 

323,262

 

 

315,332

Property and equipment, net of accumulated depreciation of $404,549 and $404,141 as of September 30, 2018 and December 31, 2017, respectively

 

 

457,350

 

 

497,902

Intangible assets, net

 

 

164,480

 

 

209,862

Goodwill

 

 

759,191

 

 

774,939

Deferred tax asset, net

 

 

7,412

 

 

6,925

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

72,386

 

 

57,756

Total assets

 

$

1,784,081

 

$

1,862,716

   

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of other long-term liabilities

 

$

19,690

 

$

31,370

Accounts payable

 

 

41,848

 

 

44,235

Accrued liabilities

 

 

310,754

 

 

306,945

Total current liabilities

 

 

372,292

 

 

382,550

Long-term liabilities:

 

 

 

 

 

 

Long-term debt

 

 

835,790

 

 

917,721

Asset retirement obligations

 

 

55,705

 

 

59,920

Deferred tax liability, net

 

 

48,812

 

 

37,130

Other long-term liabilities

 

 

59,744

 

 

75,002

Total liabilities

 

 

1,372,343

 

 

1,472,323

   

 

 

 

 

 

 

Commitments and contingencies (See Note 15)

 

 

 

 

 

 

   

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Ordinary shares, $0.01 nominal value; 46,105,014 and 45,696,338 issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

 

461

 

 

457

Additional paid-in capital

 

 

322,323

 

 

316,940

Accumulated other comprehensive loss, net

 

 

(33,336)

 

 

(33,595)

Retained earnings

 

 

122,383

 

 

106,670

Total parent shareholders' equity

 

 

411,831

 

 

390,472

Noncontrolling interests

 

 

(93)

 

 

(79)

Total shareholders’ equity

 

 

411,738

 

 

390,393

Total liabilities and shareholders’ equity

 

$

1,784,081

 

$

1,862,716

 March 31, 2019 December 31, 2018
 (Unaudited)  
ASSETS   
Current assets:   
Cash and cash equivalents$35,444
 $39,940
Accounts and notes receivable, net of allowance for doubtful accounts of $3,208 and $3,005 as of March 31, 2019 and December 31, 2018, respectively80,277
 75,643
Inventory, net12,773
 11,392
Restricted cash84,790
 155,470
Prepaid expenses, deferred costs, and other current assets102,884
 84,386
Total current assets316,168
 366,831
Property and equipment, net of accumulated depreciation of $445,272 and $417,151 as of March 31, 2019 and December 31, 2018, respectively458,067
 460,187
Intangible assets, net140,091
 150,847
Goodwill754,084
 749,144
Operating lease assets81,973
 —
Deferred tax asset, net10,311
 8,658
Prepaid expenses, deferred costs, and other noncurrent assets41,516
 51,677
Total assets$1,802,210
 $1,787,344
    
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Current liabilities:   
Current portion of other long-term liabilities$50,492
 $20,266
Accounts payable35,440
 39,310
Accrued liabilities322,297
 369,160
Total current liabilities408,229
 428,736
    
Long-term debt802,719
 818,485
Asset retirement obligations54,946
 54,413
Noncurrent operating lease liabilities72,482
 —
Deferred tax liability, net39,630
 41,198
Other long-term liabilities48,375
 67,740
Total liabilities1,426,381
 1,410,572
    
Commitments and contingencies (See Note 15)

 
    
Shareholders' equity:   
Ordinary shares, $0.01 nominal value; 46,308,277 and 46,134,381 issued and outstanding as of March 31, 2019 and December 31, 2018, respectively463
 461
Additional paid-in capital329,712
 327,009
Accumulated other comprehensive loss, net(74,478) (66,877)
Retained earnings120,229
 116,276
Total parent shareholders' equity375,926
 376,869
Noncontrolling interests(97) (97)
Total shareholders’ equity375,829
 376,772
Total liabilities and shareholders’ equity$1,802,210
 $1,787,344
The accompanying notes are an integral part of these consolidated financial statements.

3


Table of Contents

CARDTRONICS PLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, excluding share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

2018

    

2017

    

2018

    

2017

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

$

329,837

 

$

390,143

 

$

978,789

 

$

1,105,191

ATM product sales and other revenues

 

 

10,338

 

 

11,807

 

 

38,557

 

 

39,443

Total revenues

 

 

340,175

 

 

401,950

 

 

1,017,346

 

 

1,144,634

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of ATM operating revenues (excludes depreciation, accretion, and amortization of intangible assets reported separately below. See Note 1(c))  

 

 

216,849

 

 

251,136

 

 

647,692

 

 

729,547

Cost of ATM product sales and other revenues

 

 

8,680

 

 

8,920

 

 

31,528

 

 

34,671

Total cost of revenues

 

 

225,529

 

 

260,056

 

 

679,220

 

 

764,218

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

 

41,896

 

 

46,132

 

 

124,564

 

 

131,551

Redomicile-related expenses

 

 

 —

 

 

22

 

 

 —

 

 

782

Restructuring expenses

 

 

1,058

 

 

 —

 

 

5,534

 

 

8,243

Acquisition and divestiture-related expenses

 

 

 —

 

 

2,889

 

 

2,633

 

 

15,338

Goodwill and intangible asset impairment

 

 

 —

 

 

194,521

 

 

 —

 

 

194,521

Depreciation and accretion expense

 

 

30,647

 

 

29,807

 

 

93,453

 

 

88,683

Amortization of intangible assets

 

 

12,994

 

 

14,996

 

 

40,263

 

 

45,423

Loss on disposal and impairment of assets

 

 

466

 

 

22,307

 

 

15,583

 

 

26,170

Total operating expenses

 

 

87,061

 

 

310,674

 

 

282,030

 

 

510,711

Income (loss) from operations

 

 

27,585

 

 

(168,780)

 

 

56,096

 

 

(130,295)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

8,852

 

 

9,743

 

 

27,185

 

 

25,760

Amortization of deferred financing costs and note discount

 

 

3,397

 

 

3,195

 

 

10,060

 

 

9,317

Other income

 

 

(1,297)

 

 

(2,095)

 

 

(1,324)

 

 

(1,730)

Total other expense

 

 

10,952

 

 

10,843

 

 

35,921

 

 

33,347

Income (loss) before income taxes

 

 

16,633

 

 

(179,623)

 

 

20,175

 

 

(163,642)

Income tax expense (benefit)

 

 

7,854

 

 

(4,053)

 

 

10,409

 

 

(2,335)

Net income (loss) 

 

 

8,779

 

 

(175,570)

 

 

9,766

 

 

(161,307)

Net loss attributable to noncontrolling interests

 

 

(2)

 

 

(9)

 

 

(14)

 

 

(3)

Net income (loss) attributable to controlling interests and available to common shareholders

 

$

8,781

 

$

(175,561)

 

$

9,780

 

$

(161,304)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share – basic

 

$

0.19

 

$

(3.84)

 

$

0.21

 

$

(3.54)

Net income (loss) per common share – diluted

 

$

0.19

 

$

(3.84)

 

$

0.21

 

$

(3.54)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

46,073,739

 

 

45,662,543

 

 

45,945,728

 

 

45,597,558

Weighted average shares outstanding – diluted

 

 

46,476,787

 

 

45,662,543

 

 

46,386,523

 

 

45,597,558

  Three Months Ended
March 31,
  2019 2018
Revenues:    
ATM operating revenues $302,602
 $319,731
ATM product sales and other revenues 15,668
 16,453
Total revenues 318,270
 336,184
Cost of revenues:    
Cost of ATM operating revenues (excludes depreciation, accretion, and amortization of intangible assets reported separately below. See Note 1(c))
 206,158
 215,490
Cost of ATM product sales and other revenues 11,925
 12,762
Total cost of revenues 218,083
 228,252
Operating expenses:    
Selling, general, and administrative expenses 43,660
 41,740
Restructuring expenses —
 2,413
Acquisition related expenses —
 1,720
Depreciation and accretion expense 32,973
 31,042
Amortization of intangible assets 12,412
 13,771
Loss on disposal and impairment of assets 968
 5,420
Total operating expenses 90,013
 96,106
Income from operations 10,174
 11,826
Other expenses:    
Interest expense, net 6,643
 9,174
Amortization of deferred financing costs and note discount 3,292
 3,308
Other (income) expense (7,207) 2,160
Total other expenses 2,728
 14,642
 Income (loss) before income taxes 7,446
 (2,816)
Income tax expense (benefit) 3,129
 (31)
Net income (loss) 4,317
 (2,785)
Net loss attributable to noncontrolling interests (2) (17)
Net income (loss) attributable to controlling interests and available to common shareholders $4,319
 $(2,768)
     
Net income (loss) per common share – basic $0.09
 $(0.06)
Net income (loss) per common share – diluted $0.09
 $(0.06)
     
Weighted average shares outstanding – basic 46,223,764
 45,833,070
Weighted average shares outstanding – diluted 46,635,033
 45,833,070
The accompanying notes are an integral part of these consolidated financial statements.

4


Table of Contents

CARDTRONICS PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

    

Net income (loss) 

 

$

8,779

 

$

(175,570)

 

$

9,766

 

$

(161,307)

 

Unrealized gain on interest rate swap contracts, net of deferred income tax expense of $1,370 and $1,744 for the three months ended September 30, 2018 and 2017, respectively, and $7,346 and $3,639 for the nine months ended September 30, 2018 and 2017, respectively

 

 

5,192

 

 

5,190

 

 

24,583

 

 

10,779

 

Foreign currency translation adjustments, net of deferred income tax expense of $(164) and $55 for the three months ended September 30, 2018 and 2017, respectively, and $85 and ($1,256) for the nine months ended September 30, 2018 and 2017, respectively

 

 

(1,144)

 

 

17,871

 

 

(24,324)

 

 

51,142

 

Other comprehensive income

 

 

4,048

 

 

23,061

 

 

259

 

 

61,921

 

Total comprehensive income (loss)

 

 

12,827

 

 

(152,509)

 

 

10,025

 

 

(99,386)

 

Less: Comprehensive loss attributable to noncontrolling interests

 

 

(5)

 

 

(9)

 

 

(14)

 

 

(4)

 

Comprehensive income (loss) attributable to controlling interests

 

$

12,832

 

$

(152,500)

 

$

10,039

 

$

(99,382)

 

 Three Months Ended
March 31,
 2019 2018
Net income (loss)$4,317
 $(2,785)
Unrealized (loss) gain on interest rate swap contracts, net of deferred income tax (benefit) expense of $(3,196) and $5,143 for the three months ended March 31, 2019 and 2018, respectively.(12,703) 17,361
Foreign currency translation adjustments, net of deferred income tax (benefit) expense of $(80) and $24 for the three months ended March 31, 2019 and 2018, respectively.5,102
 7,624
Other comprehensive (loss) income(7,601) 24,985
Total comprehensive (loss) income(3,284) 22,200
Less: Comprehensive loss attributable to noncontrolling interests—
 (19)
Comprehensive (loss) income attributable to controlling interests$(3,284) $22,219
The accompanying notes are an integral part of these consolidated financial statements.

5


Table of Contents

CARDTRONICS PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS 

SHAREHOLDERS’ EQUITY 

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

   

    

2018

    

2017

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss) 

 

$

9,766

 

$

(161,307)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation, accretion, and amortization of intangible assets

 

 

133,716

 

 

134,106

Amortization of deferred financing costs and note discount

 

 

10,060

 

 

9,317

Share-based compensation expense

 

 

10,627

 

 

9,971

Deferred income tax (benefit)

 

 

1,895

 

 

(6,198)

Loss on disposal and impairment of assets

 

 

15,583

 

 

26,170

Other reserves and non-cash items

 

 

(753)

 

 

(1,182)

Goodwill and intangible asset impairment

 

 

 —

 

 

194,521

Changes in assets and liabilities:

 

 

 

 

 

 

Decrease (increase) in accounts and notes receivable, net

 

 

17,477

 

 

(122)

Increase in prepaid expenses, deferred costs, and other current assets

 

 

(5,210)

 

 

(23,567)

Increase in inventory, net

 

 

(3,321)

 

 

(3,619)

Decrease (increase) in other assets

 

 

4,987

 

 

(4,338)

Increase (decrease) in accounts payable

 

 

2,397

 

 

(20,951)

Increase in accrued liabilities

 

 

2,973

 

 

21,364

Decrease in other liabilities

 

 

(15,615)

 

 

(1,731)

Net cash provided by operating activities

 

 

184,582

 

 

172,434

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to property and equipment

 

 

(73,357)

 

 

(111,424)

Acquisitions, net of cash acquired

 

 

 —

 

 

(484,602)

Net cash used in investing activities

 

 

(73,357)

 

 

(596,026)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings under revolving credit facility

 

 

478,023

 

 

968,365

Repayments of borrowings under revolving credit facility

 

 

(569,017)

 

 

(827,351)

Proceeds from borrowings of long-term debt

 

 

 —

 

 

300,000

Debt issuance costs

 

 

 —

 

 

(5,476)

Tax payments related to share-based compensation

 

 

(5,245)

 

 

(8,359)

Proceeds from exercises of stock options

 

 

14

 

 

105

Net cash (used in) provided by financing activities

 

 

(96,225)

 

 

427,284

   

 

 

 

 

 

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(404)

 

 

(4,178)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

14,596

 

 

(486)

   

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash as of beginning of period

 

 

99,817

 

 

105,747

Cash, cash equivalents, and restricted cash as of end of period

 

$

114,413

 

$

105,261

   

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

25,754

 

$

19,284

Cash (refund) paid for income taxes

 

$

(1,240)

 

$

3,567


 Common Shares
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss, Net
Retained
Earnings
Noncontrolling
Interests
 
 SharesAmountTotal
Balance as of December 31, 201745,696
$457
$316,940
$(33,595)$106,670
$(79)$390,393
Issuance of common shares for share-based compensation, net of forfeitures225
2
—
—
—
—
2
Share-based compensation expense—
—
2,445
—
—
—
2,445
Tax payments related to share-based compensation—
—
(2,379)—
—
—
(2,379)
Unrealized gain on interest rate swap and foreign currency forward contracts, net of deferred income tax expense of $5,143—
—
—
17,361
—
—
17,361
Net loss attributable to controlling interests—
—
—
—
(2,768)—
(2,768)
Net loss attributable to noncontrolling interests—
—
—
—
—
(17)(17)
Deferred sales commission—
—
—
—
5,933
—
5,933
Foreign currency translation adjustments, net of deferred income tax expense of $24—
—
(10)7,624
—
(1)7,613
Balance as of March 31, 201845,921
$459
$316,996
$(8,610)$109,835
$(97)$418,583

 Common Shares
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss, Net
Retained
Earnings
Noncontrolling
Interests
 
 SharesAmountTotal
Balance as of December 31, 201846,134
$461
$327,009
$(66,877)$116,276
$(97)$376,772
Cumulative effect of change in accounting principle—
—
—
366
(366)—
—
Issuance of common shares for share-based compensation, net of forfeitures174
2
—
—
—
—
2
Share-based compensation expense—
—
4,484
—
—
—
4,484
Tax payments related to share-based compensation—
—
(1,781)—
—
—
(1,781)
Unrealized loss on interest rate swap and foreign currency forward contracts, net of deferred income tax (benefit) of $(3,196)—
—
—
(13,069)—
—
(13,069)
Net income attributable to controlling interests—
—
—
—
4,319
—
4,319
Net loss attributable to noncontrolling interests—
—
—
—
—
(2)(2)
Foreign currency translation adjustments, net of deferred income tax (benefit) of $(80)—
—
—
5,102
—
2
5,104
Balance as of March 31, 201946,308
$463
$329,712
$(74,478)$120,229
$(97)$375,829
The accompanying notes are an integral part of these consolidated financial statements.


6



CARDTRONICS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(In thousands)
(Unaudited)

 Three Months Ended
March 31,
 2019 2018
Cash flows from operating activities:   
Net income (loss)$4,317
 $(2,785)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

  
Depreciation, accretion, and amortization of intangible assets45,385
 44,813
Amortization of deferred financing costs and note discount3,292
 3,308
Share-based compensation expense4,484
 2,445
Deferred income tax (benefit)354
 (281)
Loss on disposal and impairment of assets968
 5,420
Other reserves and non-cash items(7,497) 2,368
Changes in assets and liabilities:   
(Increase) decrease in accounts and notes receivable, net(3,851) 12,633
Increase in prepaid expenses, deferred costs, and other current assets(19,222) (17,995)
Increase in inventory, net(2,741) (1,424)
Decrease (increase) in other assets1,740
 (118)
Decrease in accounts payable(4,506) (11,581)
(Decrease) increase in restricted cash liabilities(71,521) 24,238
Increase (decrease) in accrued liabilities27,399
 (5,577)
Decrease in other liabilities(406) (6,031)
Net cash (used in) provided by operating activities(21,805) 49,433
    
Cash flows from investing activities:   
Additions to property and equipment(29,307) (20,739)
Net cash used in investing activities(29,307) (20,739)
    
Cash flows from financing activities:   
Proceeds from borrowings under revolving credit facility120,918
 143,502
Repayments of borrowings under revolving credit facility(144,466) (150,518)
Tax payments related to share-based compensation(1,781) (2,379)
Proceeds from exercises of stock options2
 —
Net cash used in financing activities(25,327) (9,395)
    
Effect of exchange rate changes on cash, cash equivalents, and restricted cash1,263
 684
Net (decrease) increase in cash, cash equivalents, and restricted cash(75,176) 19,983
    
Cash, cash equivalents, and restricted cash as of beginning of period195,410
 99,817
Cash, cash equivalents, and restricted cash as of end of period$120,234
 $119,800
    
Supplemental disclosure of cash flow information:   
Cash paid for interest$1,860
 $7,553
Cash paid (refund) for income taxes$4,720
 $(7,138)

TableThe accompanying notes are an integral part of Contents

these consolidated financial statements.



CARDTRONICS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) General and Basis of Presentation

(a) General

Cardtronics plc, together with its wholly and majority-owned subsidiaries (collectively, the “Company”), provides convenient automated financial related services to consumers through its global network of automated teller machines and multi-function financial services kiosks (collectively referred to as “ATMs”). As of September 30, 2018, the CompanyMarch 31, 2019, Cardtronics was the world’s largest ATM owner/operator, providing services to approximately 230,000 ATMs.

229,000 ATMs globally,  33% of which are Company - owned.  

During the three months ended September 30, 2018, 61%March 31, 2019, approximately 64% of the Company’s revenues were derived from operations in North America (including its ATM operations in the United States ("U.S."), Canada, and Mexico), 30%approximately 28% of the Company’s revenues were derived from operations in Europe and Africa (including its ATM operations in the United Kingdom ("U.K."), Ireland, Germany, Spain, and South Africa), and 9%approximately 8% of the Company’s revenues were derived from the Company’s operations in Australia and New Zealand. As of September 30, 2018,March 31, 2019, the Company provided processing only services or various forms of managed services solutions to approximately 140,000139,000 ATMs. Under a managed services arrangement, retailers, financial institutions, and ATM distributors rely on Cardtronics 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 fee per service provided.

Through its network, the Company delivers financial related services to cardholders and provides 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, airports, and train stations. In doing so, the Company provides its retail partners with a compelling automated solution that helps attract and retain customers, and in turn, increases the likelihood that the ATMs placed at their facilities will be utilized. The Company also owns and operates electronic funds transfer (“EFT”) transaction processing platforms that provide transaction processing services to its network of ATMs, as well as to other ATMs under managed services arrangements. Additionally, the Company provides processing services for issuers of debit cards.

In addition to its retail merchant relationships, the Company also partners with leading financial institutions to brand selected ATMs within its network, includingnetwork. These financial institutions include BBVA Compass Bancshares, Inc. (“BBVA”), Citibank, N.A. (“Citibank”), Citizens Financial Group, Inc. (“Citizens”), Cullen/Frost Bankers, Inc. (“Cullen/Frost”), Discover Bank, (“Discover”), PNC Bank, N.A. (“PNC Bank”), Santander Bank, N.A. (“Santander”), and TD Bank, N.A. (“TD Bank”) in the U.S.; BMO Bank of Montreal, (“BMO”), the Bank of Nova Scotia, (“Scotiabank”), Canadian Imperial Bank Commerce, (“CIBC”), DirectCash Bank, and TD Bank in Canada; and the Bank of Queensland Limited (“BOQ”) and HSBC Holdings plc (“HSBC”) in Australia. In Mexico, the Company partners with Scotiabank and Banco Multiva. As of September 30, 2018,March 31, 2019, approximately 20,000 of the Company’s ATMs were under contract with approximately 500 financialfinancial institutions to place their logos on the ATMs and to provide convenient surcharge-free access for their banking customers.

The Company owns and operates the Allpoint network (“Allpoint”), the largest surcharge-free ATM network (based on the number of participating ATMs). Allpoint, which has approximately 55,000 participating ATMs, provides surcharge-free ATM access to over 1,100approximately 1,200 participating credit unions, banks, and stored-value debit card issuers. For participants, Allpoint provides scale, density, and convenience of surcharge-free ATMs that surpasses the largest banks in the U.S. Allpoint earns either a fixed monthly fee per cardholder or a fixed fee per transaction that is paid by the participants. Theparticipants. Allpoint network includes a majority of the Company’s ATMs in the U.S. and certain ATMs in the U.K., Canada, Mexico, Puerto Rico, and Australia. 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 per transaction in return for allowing the users of those cards surcharge-free access to Allpoint’s participating ATM network.

The Company’s revenues are generally recurring in nature, and historically have been derived largely from convenience transaction fees, which are paid by cardholders, as well as other transaction-based fees, including interchange fees, which

7

Table of Contents

are paid by the cardholder’s financial institution for the use of the ATMs serving their customers and connectivity to the applicable EFT network that transmits data between the ATM and the cardholder’s financial institution. Other revenue sources include: (i) fees from financial institutions that participate in the Allpoint, surcharge-free network, (ii) fees for brandingbank-branding ATMs with the logos of financial institutions and providing financial institution cardholders with surcharge-free access, (iii) revenues earned by providing managed services (including transaction processing services) solutions to retailers and financial institutions, (iv) fees earned from foreign currency exchange transactions at the ATM, known as dynamic currency conversion, and (v) revenues from the sale of ATMs and ATM-related equipment and other ancillary services.


(b) Basis of Presentation

This Quarterly Report on Form 10-Q (this “Form 10-Q”) has been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) applicable to interim financial information. As this is an interim period filing presented using a condensed format, it does not include all of the disclosures required by accounting principles generally accepted in the U.S. (“U.S. GAAP” or “GAAP”), although the Company believes that the disclosures are adequate to make the information not misleading. You should read this Form 10-Q along with the Company’s Annual Report on Form 10-K for the year ended December 31, 20172018 (the “2017“2018 Form 10-K”), which includes a summary of the Company’s significant accounting policies and other disclosures.

In management’s opinion, all normal recurring adjustments necessary for a fair presentation of the Company’s interim and prior period results have been made. A change to the prior year cash flow was made to conform to the Company's current year cash flow disclosure within the (Decrease) increase restricted cash liabilities line. This change was made to consistently present the changes in settlement liabilities corresponding to the changes in the balance of restricted cash. The results of operations for the three and nine months ended September 30,March 31, 2019 and 2018 and 2017 are not necessarily indicative of results of operations that may be expected for any other interim period or for the full fiscal year.

The unaudited interim financial statements include the accounts of the Company. All material intercompany accounts and transactions have been eliminated in consolidation. The Company owns a majority (95.7%) interest in, and realizes a majority of the earnings and/or losses of, Cardtronics Mexico, S.A. de C.V., thus this entity is reflected as a consolidated subsidiary in the financial statements, with the remaining ownership interests not held by the Company being reflected as noncontrolling interests.

The preparation of the unaudited interim financial statements to conform with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of this Form 10-Q and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and these differences could be material to the financial statements.

(c) Cost of ATM Operating Revenues Presentation 

The Company presents the Cost of ATM operating revenues in the accompanying Consolidated Statements of Operations exclusive of depreciation, accretion, and amortization of intangible assets related to ATMs and ATM-related assets.

The following table reflects the amounts excluded from the Cost of ATM operating revenues line in the accompanying Consolidated Statements of Operations for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

 

 

(In thousands)

Depreciation and accretion expenses related to ATMs and ATM-related assets

 

$

22,462

 

$

22,180

 

$

68,874

 

$

66,488

Amortization of intangible assets

 

 

12,994

 

 

14,996

 

 

40,263

 

 

45,423

Total depreciation, accretion, and amortization of intangible assets excluded from Cost of ATM operating revenues

 

$

35,456

 

$

37,176

 

$

109,137

 

$

111,911

8

 Three Months Ended
March 31,
 2019 2018
 (In thousands)
Depreciation and accretion expenses related to ATMs and ATM-related assets$24,607
 $23,375
Amortization of intangible assets12,412
 13,771
Total depreciation, accretion, and amortization of intangible assets excluded from Cost of ATM operating revenues$37,019
 $37,146

Table of Contents

(d) Redomicile to the U.K. 

On July 1, 2016, the Cardtronics group of companies changed the location of incorporation of the parent company from Delaware to the U.K. Cardtronics plc, a public limited company organized under English law (“Cardtronics plc”), became the new publicly traded corporate parent of the Cardtronics group of companies following the completion of the merger between Cardtronics, Inc., a Delaware corporation (“Cardtronics Delaware”), and one of its subsidiaries.

Any references to “the Company” (as defined above) or any similar references relating to periods before the redomicile to the U.K. (“Redomicile Transaction”), completed pursuant to the Agreement and Plan of Merger, dated April 27, 2016, the adoption of which was approved by Cardtronics Delaware’s Shareholders on June 28, 2016, shall be construed as references to Cardtronics Delaware being the previous parent company of the Cardtronics group of companies, and/or its subsidiaries depending on the context. The Redomicile Transaction was accounted for as an internal reorganization of entities under common control and, therefore, the Cardtronics Delaware assets and liabilities have been accounted for at their historical cost basis and not revalued in the transaction.

(e) Restructuring Expenses

During 2017, the Company initiated a global corporate reorganization and cost reduction initiative (the “Restructuring Plan”), intended to improve its cost structure and operating efficiency. The Restructuring Plan included workforce reductions, facilities closures, contract terminations, and other cost reduction measures. The Company incurred $8.2 million and $10.4 million of pre-tax expenses related to its Restructuring Plan during the nine and twelve months ended September 30, 2017 and December 31, 2017, respectively.During the three and nine months ended September 30,March 31, 2018, the Company implemented additional workforce reductions in an effort to continue its cost reduction initiative and incurred $1.1charges of $2.4 million, and $5.5 millionlargely consisting of pre-tax expenses, respectively. During the remainder of 2018, its Restructuring Plan activities may include additional workforce reductions and other cost reduction measures.  

employee severance.


The following tables reflecttable reflects the amounts recorded in the Restructuring expenses line in the accompanying Consolidated Statements of Operations for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30, 

 

 

September 30, 

Three Months Ended
March 31,

    

2018

    

2017

    

2018

    

2017

2019 2018

 

(In thousands)

 

(In thousands)

(In thousands)

North America

 

$

942

 

$

 —

 

$

3,072

 

$

3,668

$—
 $1,057

Europe & Africa

 

 

116

 

 

 —

 

 

1,292

 

 

831

—
 681

Corporate

 

 

 —

 

 

 —

 

 

1,170

 

 

3,744

—
 675

Total restructuring expenses

 

 

1,058

 

 

 —

 

 

5,534

 

 

8,243

$—
 $2,413

As of September 30, 2018, $2.6 millionMarch 31, 2019, a minimal amount of unpaid employee severance and lease termination costs wereremain unpaid and are presented within the Accrued liabilities and Other long-term liabilities lines in the accompanying Consolidated Balance Sheets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2018

 

    

North America

    

Europe & Africa

    

Corporate

    

Total

 

 

(In thousands)

Accrued liabilities

 

 

 —

 

 

806

 

 

1,663

 

 

2,469

Other long-term liabilities

 

 

 —

 

 

124

 

 

 —

 

 

124

Total restructuring liabilities

 

$

 —

 

$

930

 

$

1,663

 

$

2,593

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The changes in the Company’s restructuring liabilities consisted of the following:

 

 

 

 

 

 

(In thousands)

Restructuring liabilities as of December 31, 2017

   

$

5,383

Restructuring expenses

 

 

5,534

Payments

 

 

(8,324)

Restructuring liabilities as of September 30, 2018

 

$

2,593

(f) Goodwill and Intangible Assets

Included within the Company’s assets are goodwill balances that have been recognized in conjunction with its purchase accounting for completed business combinations. Under U.S. GAAP, goodwill is not amortized but is evaluated periodically for impairment. The Company performs this evaluation annually as of December 31 or more frequently if there are indicators that suggest the fair value of a reporting unit may be below its carrying value. The Company initially assesses qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment analysis. The qualitative and quantitative evaluations are performed at a reporting unit level, which have been determined based on a number of factors, including: (i) whether or not the group has any recorded goodwill, (ii) the availability of discrete financial information, and (iii) how business unit performance is measured and reported. The Company has identified seven separate reporting units for its goodwill assessments: (i) the U.S. operations, (ii) the U.K. operations, (iii) the Australia & New Zealand operations, (iv) the Canada operations, (v) the South African operations, (vi) the German operations, and (vii) the Mexico operations. Based on a qualitative assessment, if it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative goodwill impairment analysis, and uses the two-step approach to test goodwill for potential impairment. Step One of the quantitative approach compares the estimated fair value of a reporting unit to its carrying value. If the carrying value exceeds the estimated fair value, then a Step Two impairment calculation is performed. Step Two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit, as if the reporting unit was newly acquired in a business combination. If the carrying value of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized. In connection with the determination of potential impairment triggering events, the long-lived assets held by the reporting units may, on the basis of a qualitative and quantitative analysis, be determined to have carrying values that are not recoverable and in excess of their associated fair values, in which case an impairment would also be recognized related to these intangible and fixed assets.

During the three and nine months ended September 30, 2017, the Company performed a qualitative and quantitative analysis on the Australia and New Zealand reporting unit in response to its impairment indicators and determined the goodwill intangible assets recognized were impaired by approximately $194.5 million.  No impairment indicators were noted during the three and nine months ended September 30, 2018 based on the Company’s assessment of qualitative factors.   For additional information on its Goodwill and intangible asset impairments recognized in 2017, see Note 1. Basis of Presentation and Summary of Significant Accounting Policies in its 2017 Form 10-K.

(g) Loss on Disposal and Impairment of Assets

During the three and nine months ended September 30, 2018, the Company recognized losses of $0.5 million and $15.6 million, respectively, related to the disposal and impairment of assets. The losses on disposal and impairment of assets were largely recognized during the six months ended June 30, 2018 upon the decision of the Company to not redeploy certain ATM models. Although many ATMs in the Company’s U.S. operations that were impaired were deployable, a combination of many factors, including the size, functionality, estimated upgrade costs, and availability of suitable placements resulted in a change of plans relative to certain models such that the units not currently in service were deemed not likely to be deployed. These ATM assets, with a net book value of approximately $7 million, were written down to their estimated net realizable value during the three months ended June 30, 2018. The remaining losses during the nine months ended September 30, 2018 resulted from other ATM asset disposals in the ordinary course of business and disposals related to the exit from a leased facility in the U.K.

During the three and nine months ended September 30, 2017, the Company recognized losses of $22.3 million  and $26.2 million, respectively, related to the disposal and impairment of assets. The Company recognized approximately $19 

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million of long-lived asset impairment losses during the three months ended September 30, 2017, responsive to the impairment indicators associated with its Australia & New Zealand reporting unit. The remaining losses were a result of other ATM asset disposals in the ordinary course of business.  For additional information on the long-lived asset impairments recognized in 2017, see Note 1. Basis of Presentation and Summary of Significant Accounting Policies in its 2017 Form 10-K.

(h)(e) Cash, Cash Equivalents, and Restricted Cash

For purposes of reporting financial condition, cash and cash equivalents include cash in bank and short-term deposit sweep accounts. Additionally, the Company maintains cash on deposit with banks that is pledged for a particular use or restricted to support a liability. These balances are classified as Restricted cash in the Current assets or Noncurrent assets linesline in the accompanying Consolidated Balance Sheets based on when the Company expects this cash to be paid. Current restricted cash largely consists of amounts collected on behalf of, but not yet remitted to, certain of the Company’s merchant customers or third-party service providers. TheseRestricted cash in current and noncurrent assets are offset by corresponding liability balances in the Accrued liabilities line in the accompanying Consolidated Balance Sheets.  For purposeSheets. The changes in the settlement liabilities corresponding to the changes in the balance of reportingrestricted cash flows,during the three month periods ended March 31, 2019 and 2018 are presented in our Statements of Cash Flows within the (Decrease) increase in restricted cash liabilities line.
The following table provides a reconciliation of the ending cash, cash equivalents, and restricted cash balances as of September 30,March 31, 2019 and 2018, and 2017.

corresponding with the balances reflected on its Consolidated Statements of Cash Flows.

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

 

(in thousands)

Cash and cash equivalents

 

$

40,428

 

$

61,498

Current and long-term restricted cash

 

 

73,985

 

 

43,763

Total cash, cash equivalents, and restricted cash in the Consolidated Statements of Cash Flows

 

$

114,413

 

$

105,261

(i)

 March 31,
 2019 2018
 (in thousands)
Cash and cash equivalents$35,444
 $46,673
Current and long-term restricted cash84,790
 73,127
Total cash, cash equivalents, and restricted cash in the Consolidated Statements of Cash Flows$120,234
 $119,800

The March 31, 2018 balance includes approximately $0.1 million classified in Other noncurrent assets.
(f) Inventory, net

The Company’s inventory is determined using the average cost method. The Company periodically assesses its inventory, and as necessary, adjusts the carrying values to the lower of cost or net realizable value.

The following table reflects the Company’s primary inventory components:

 

 

 

 

 

 

 

 

   

September 30, 2018

 

December 31, 2017

 

 

(In thousands)

ATMs

 

$

2,245

 

$

3,181

ATM spare parts and supplies

 

 

13,245

 

 

12,935

Total inventory

 

 

15,490

 

 

16,116

Less: Inventory reserves

 

 

(173)

 

 

(1,833)

Inventory, net

 

$

15,317

 

$

14,283

.

 March 31, 2019 December 31, 2018
 (In thousands)
ATMs$2,746
 $1,990
ATM spare parts and supplies10,212
 9,572
Total inventory12,958
 11,562
Less: Inventory reserves(185) (170)
Inventory, net$12,773
 $11,392


(2) New Accounting Pronouncements


Adoption of New Accounting Pronouncements

Revenue from Contracts with Customers. On January 1, 2018, the


Lease Accounting. The Company adopted Accounting Standards Codification (“ASC”Topic 842, Leases (the “Lease Standard”) 606, Revenue from Contracts with Customers,as of January 1, 2019, using the modified retrospective adoption method,approach and using the effective date as the date of initial application. Consequently, financial information for contracts that were not completed as ofdates and periods before January 1, 2018. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening retained earnings. The comparative information in prior periods has2019 have not been restated and continues to be reportedupdated or recasted. In addition, the Company elected the practical expedients permitted under the accounting standards in effect for those periods. The Company expectstransition guidance within the impact of the adoption of the new revenue standard to be immaterial to net income on an ongoing basis.

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On January 1, 2018,Lease Standard, which allowed the Company recorded a net credit to opening retained earnings of approximately $5.9 million, representing the cumulative impact of adopting the new revenue standard. This adjustment was entirely related to the deferral of contract acquisition costs, consisting of sales commissionscarry forward prior conclusions about lease identification, lease classification, and other directly related costs totaling approximately $7.5 million, net of the related tax impact of approximately $1.6 million. During the three and nine months ended September 30, 2018, the Company recognized sales commission expense and other directly related costs as a result of amortizing the amounts deferred. The incremental expenses recognized during the periods were not material.

The cumulative effect of the changes made to the January 1, 2018 Consolidated Balance Sheet for the adoption were as follows:

 

 

 

 

 

 

 

 

 

December 31, 2017 as Reported

 

Adjustments Due to Topic 606

 

January 1, 2018 Upon Adoption

 

 

(In thousands)

Assets

 

 

 

 

 

 

Prepaid expenses, deferred costs, and other current assets

$

96,106

$

2,919

$

99,025

Prepaid expenses, deferred costs, and other noncurrent assets

 

57,756

 

4,593

 

62,349

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Deferred tax liability, net

$

37,130

$

1,579

$

38,709

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Retained earnings

$

106,670

$

5,933

$

112,603

Statement of Cash Flows. On January 1, 2018, the Company adopted Accounting Standards Updates (“ASU”) No. 2016-18, Statement of Cash Flows pertaining to the presentation of restricted cash (Topic 230) and the classification of certain cash receipts and cash payments (the “classification guidance”).initial direct costs. In accordance with this guidance,the Company's accounting policy, the Company now presents restricted cash togetherelected not to exclude short-term leases for any of its vehicle and equipment leases, as the lease terms associated with cash and cash equivalents when presenting the Consolidated Statements of Cash Flows and has applied the changes retrospectively. Also related to the classification guidance, when they occur,our operating leases are routinely longer than 12 months. In addition, the Company will recognize contingent consideration payments upelected not to the amount of the acquisition date liability in financing activitiesseparate lease and any excess payments in operating activities.

Other Guidance Adopted in 2018. Effective January 1, 2018, the Company adopted  ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This guidance clarifies what constitutes a modification of a share-based payments award. Upon adoption, this guidance had no impact on the Company’s consolidated financial statements.

Effective January 1, 2018, the Company adopted ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This guidance clarifies the definition of a business applicable to the recognition and reporting of an acquisition, divestiture, or disposal. It also clarifies the definition of a business applicable when assessing goodwillnon-lease components for impairment and when assessing if certain entities should be consolidated. Upon adoption, this guidance had no impact on the Company’s consolidated financial statements.

In February 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI”), which was intended to eliminate the stranded tax effects within AOCI resulting from the Tax Cuts and Jobs Act (“the “Tax Act”) that was enacted on December 22, 2017. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. Cardtronics elected to early adopt this guidance effective January 1, 2018. The impact of adoption on the Company’s consolidated financial statements was not material.

In March 2018, the FASB issued ASU No. 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, to add various SEC paragraphs to ASC 740 Income Taxes. This guidance was issued by the SEC in December 2017 to provide immediate guidance for accounting implications of U.S. tax reform under the Tax Act.

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The Company has applied this guidance to its consolidated financial statements and related disclosures for the period ended September 30, 2018.

Accounting Pronouncements Issued But Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. In addition, in July 2018, the FASB issued ASU No. 2018-10 and ASU No. 2018-11 to correct, clarify and provide targeted improvements to Topic 842 (the “Lease Standard”). The Lease Standard requires that a lessee recognize a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to use the underlying asset for the lease term on the balance sheet. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, using a modified retrospective approach and early adoption is permitted. The Company is working to complete its evaluation of the transition practical expedients available under the Lease Standard and calculate the impact that this guidance will ultimately have on its consolidated financial statements. The Company currently plans to apply the Lease Standard retrospectively at the beginning of the period of adoption and anticipates that its adoption of the Lease Standard will result in the recognition of significant right-to-use assets and lease liabilities related to its operating leases as well as certain of its ATM placement agreements that contain fixed payments and are deemed to contain an operating lease under the Lease Standard.


The Company’s adoption of ASC 842 resulted in the recognition of operating lease assets and liabilities of approximately $85 million and $95 million, respectively, as well as the the derecognition of certain prepaid and deferred lease balances upon adoption. Upon adoption, this guidance had no impact on the Company's consolidated income from operations, net income, or cash flows.

Hedge Accounting. The Company does not believeadoptedASU No. 2017-12, Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12” or the “Hedging Standard”) as of January 1, 2019, using the modified retrospective transition approach, which requires the Company to account for ASU 2017-12 as of the date of adoption will havewith any materialretrospective adjustments applicable to prior periods included as a cumulative-effect adjustment to accumulated other comprehensive loss and retained earnings. ASU 2017-12 amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. Upon adoption, this guidance had no impact on its currently outstanding indebtednessthe Company's consolidated income from operations, net income, or its ability to continue borrowing under its revolving credit facility.

In October 2016,cash flows.


Upon adoption, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory. This guidance requires an entity to recognizeLease Standard and the income tax consequences of an intra-entity transfer of an asset other than inventory whenHedging Standard had the transfer occurs. The amendments eliminate the exception for an intra-entity transfer of an asset other than inventory. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, and early adoption is permitted. The adoption of this guidance is not expected to have a materialfollowing impact on the Company’s consolidated statement of financial statements.

position:



Effect of Accounting Standards Adoption on Consolidated Statement of Financial Position
 December 31, 2018 As Reported ASC Topic 842 (Leases) ASU 2017-12 (Hedging) December 31, 2018 As Adjusted
        
ASSETS       
Current assets:       
Cash and cash equivalents$39,940
 $—
��$—
 $39,940
Accounts and notes receivable, net75,643
 —
 —
 75,643
Inventory, net11,392
 —
 —
 11,392
Restricted cash155,470
 —
 —
 155,470
Prepaid expenses, deferred costs, and other current assets84,386
 3,483
 —
 87,869
Total current assets366,831
 3,483
 —
 370,314
Property and equipment, net of accumulated depreciation460,187
 —
 —
 460,187
Intangible assets, net150,847
 —
 —
 150,847
Goodwill749,144
 —
 —
 749,144
Operating lease assets—
 85,068
 —
 85,068
Deferred tax asset, net8,658
 —
 —
 8,658
Prepaid expenses, deferred costs, and other noncurrent assets51,677
 —
 —
 51,677
Total assets$1,787,344
 $88,551
 $—
 $1,875,895
       
LIABILITIES AND SHAREHOLDERS’ EQUITY       
Current liabilities:       
Current portion of other long-term liabilities$20,266
 $20,602
 $—
 $40,868
Accounts payable39,310
 —
 —
 39,310
Accrued liabilities369,160
 (447) —
 368,713
Total current liabilities428,736
 20,155
 —
 448,891
        
Long-term debt818,485
 —
 —
 818,485
Asset retirement obligations54,413
 —
 —
 54,413
Noncurrent operating lease liabilities—
 74,746
 —
 74,746
Deferred tax liability, net41,198
 —
 —
 41,198
Other long-term liabilities67,740
 (6,350) —
 61,390
Total liabilities1,410,572
 88,551
 —
 1,499,123
        
Shareholders' equity:       
Ordinary shares461
 —
 —
 461
Additional paid-in capital327,009
 —
 —
 327,009
Accumulated other comprehensive loss, net(66,877) —
 366
 (66,511)
Retained earnings116,276
 —
 (366) 115,910
Total parent shareholders' equity376,869
 —
 —
 376,869
Noncontrolling interests(97) —
 —
 (97)
Total shareholders’ equity376,772
 —
 —
 376,772
Total liabilities and shareholders’ equity$1,787,344
 $88,551
 $—
 $1,875,895




Accounting Pronouncements Issued But Not Yet Adopted

In January 2017, the FASB issued ASU No. 2017-04, Intangibles –- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance eliminates Step 2 from the goodwill impairment test and the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment, and if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, and early adoption is permitted. The Company is currently evaluatingCardtronics expects to adopt this guidance and has not yet concluded whether it will early adopt in the remainder of 2018 or in 2019.effective January 1, 2020. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This guidance is intended to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. This guidance is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating this guidance and has not yet concluded whether it will early adopt in the remainder of 2018.


In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. This guidance is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluatingplans to adopt this guidance and haseffective January 1, 2020. The adoption of this guidance is not concluded whether it will early adopt in the remainder of 2018 or in 2019 or determined the expected to have a material impact on the Company’s consolidated financial statements.


In August 2018, the FASB issued ASU No. 2018-15, Intangibles—GoodwillIntangibles-Goodwill and Other— Internal-UseOther-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting

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arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). This guidance is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. The Company has not yet concluded whether it will earlyplans to adopt this guidance when effective in the remainder of 2018 or in 2019.2020. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

(3)(3) Revenue Recognition

Disaggregated Revenues

The following tables detail the revenuerevenues of the Company’s reportable segments disaggregated by financial statement line and component:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

(In thousands)

 

 

North America

 

Europe & Africa

 

Australia & New Zealand

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

$

92,572

 

$

34,134

 

$

22,358

 

$

–

 

$

149,064

Interchange revenues

 

 

36,620

 

 

66,039

 

 

1,650

 

 

–

 

 

104,309

Bank-branding and surcharge-free network revenues

 

 

45,128

 

 

–

 

 

–

 

 

–

 

 

45,128

Managed services revenues

 

 

12,240

 

 

–

 

 

4,108

 

 

–

 

 

16,348

Other revenues

 

 

13,921

 

 

2,646

 

 

1,301

 

 

(2,880)

 

 

14,988

Total ATM operating revenues

 

$

200,481

 

$

102,819

 

$

29,417

 

$

(2,880)

 

$

329,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM product sales

 

$

7,587

 

$

557

 

$

20

 

$

–

 

$

8,164

Other revenues

 

 

680

 

 

1,462

 

 

32

 

 

–

 

 

2,174

ATM product sales and other revenues

 

 

8,267

 

 

2,019

 

 

52

 

 

–

 

 

10,338

Total revenues

 

$

208,748

 

$

104,838

 

$

29,469

 

$

(2,880)

 

$

340,175

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

(In thousands)

Three Months Ended March 31, 2019

 

 

North America

 

Europe & Africa

 

Australia & New Zealand

 

Eliminations

 

Consolidated

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

North America Europe & Africa Australia & New Zealand Eliminations Consolidated

Surcharge revenues

 

$

272,372

 

$

91,191

 

$

69,107

 

$

–

 

$

432,670

$85,110
 $31,045
 $20,668
 $

 $136,823

Interchange revenues

 

108,259

 

 

205,910

 

3,839

 

–

 

318,008

34,379
 55,308
 1,303
 —
 90,990

Bank-branding and surcharge-free network revenues

 

133,565

 

 

–

 

–

 

–

 

133,565

45,873
 —
 —
 —
 45,873

Managed services revenues

 

38,331

 

 

–

 

12,318

 

–

 

50,649

12,396
 —
 2,711
 —
 15,107

Other revenues

 

 

40,873

 

 

7,708

 

 

3,814

 

 

(8,498)

 

 

43,897

13,288
 2,325
 1,109
 (2,913) 13,809

Total ATM operating revenues

 

$

593,400

 

$

304,809

 

$

89,078

 

$

(8,498)

 

$

978,789

$191,046
 $88,678
 $25,791
 $(2,913) $302,602

 

 

 

 

 

 

 

 

 

 

 

         

ATM product sales

 

$

30,163

 

$

1,741

 

$

85

 

$

–

 

$

31,989

$11,819
 $431
 $15
 $—
 $12,265

Other revenues

 

 

1,863

 

 

4,582

 

 

123

 

 

–

 

 

6,568

1,383
 1,816
 204
 —
 3,403

ATM product sales and other revenues

 

 

32,026

 

 

6,323

 

 

208

 

 

–

 

 

38,557

13,202
 2,247
 219
 —
 15,668

Total revenues

 

$

625,426

 

$

311,132

 

$

89,286

 

$

(8,498)

 

$

1,017,346

$204,248
 $90,925
 $26,010
 $(2,913) $318,270



 Three Months Ended March 31, 2018
 (In thousands)
 North America Europe & Africa Australia & New Zealand Eliminations Consolidated
Surcharge revenues$89,115
 $26,169
 $24,070
 $—
 $139,354
Interchange revenues35,819
 67,458
 1,126
 —
 104,403
Bank-branding and surcharge-free network revenues44,447
 —
 —
 —
 44,447
Managed services revenues12,553
 —
 4,179
 —
 16,732
Other revenues13,813
 2,555
 1,263
 (2,836) 14,795
Total ATM operating revenues$195,747
 $96,182
 $30,638
 $(2,836) $319,731
          
ATM product sales$12,786
 $6
 $16
 $—
 $12,808
Other revenues1,346
 2,257
 42
 —
 3,645
ATM product sales and other revenues14,132
 2,263
 58
 —
 16,453
Total revenues$209,879
 $98,445
 $30,696
 $(2,836) $336,184

Revenue is recognized when obligations under the terms of a contract with a customer are satisfied. Revenue is recorded in ATM operating revenues and ATM product sales and other revenues line items in the accompanying Consolidated Statements of Operations.

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ATM operating revenues are recognized daily as the associated transactions are processed or monthly on a per ATM or per cardholder basis. For customer contracts that provide for up-front fees that do not pertain to a distinct performance obligation, such fees are recognized over the term of the underlying agreement on a straight-line basis. ATM product sales and other revenues are recognized when the related performance obligations are fulfilled largely via aupon transfer of control of goods or services to the customer.

ATM operating revenues.The Company presents revenues from automated consumer financial services, bank-branding and surcharge-free network offerings, managed services and other services in the ATM operating revenues line in the accompanying Consolidated Statements of Operations. The Company’s ATM operating revenues consist of the following:

·

Surcharge revenue. Surcharge revenues are received in the form of a fee paid by a cardholder who has made a cash withdrawal from an ATM. Surcharge fees can vary widely based on the location of the ATM and the nature of the contracts negotiated with our merchants. In the U.S. and Canada, the Company does not receive surcharge fees from cardholders whose financial institutions participate in a surcharge-free network or have branded a location; instead, the Company receives interchange and bank-branding or surcharge-free network-branding revenues, which are discussed below. For certain ATMs, primarily those owned and operated by merchants, the Company does not receive any portion of the surcharge but rather the entire surcharge fee is earned by the merchant. In the U.K., ATM deployers operate their ATMs on either a free-to-use (surcharge-free) or a pay-to-use (surcharging) basis. On free-to-use ATMs in the U.K., the Company earns interchange revenue on withdrawal and certain other transactions. These fees are paid by the cardholder’s financial institution. On pay-to-use ATMs in the U.K., the Company only earns a surcharge fee paid by the cardholder on withdrawal transactions, and interchange is only paid by the cardholder’s financial institution on other non-withdrawal transaction types. In Germany, Australia, and Mexico, the Company collects surcharge fees on withdrawal transactions but generally does not receive interchange revenue. In South Africa, the Company generally earns interchange revenues only, the amount of which varies by transaction type and customer arrangement. Surcharge revenues, as described above, are recognized daily as the associated transactions are processed.

·

Interchange revenue. An interchange fee is a fee paid by the cardholder’s financial institution for its customer’s use of an ATM that is owned by another operator and for the fee the EFT network charges to transmit data between the ATM and the cardholder’s financial institution. The Company typically receives a majority of the interchange fee paid by the cardholder’s financial institution, net of the amount retained by the EFT network and the Company recognizes the net amount received from the network as revenue. In some markets in which the Company operates, interchange fees are earned not only on cash withdrawal transactions but also on other ATM transactions, including balance inquiries and balance transfers. Interchange revenues are subject to variable terms and are recognized daily as the associated transactions are processed.

·

Bank-branding and surcharge-free network revenues. Under a bank-branding arrangement, ATMs that are Company-owned and operated are branded with the logo of the branding financial institution. In exchange for a monthly per ATM fee, the financial institution’s customers gain access to use these bank-branded ATMs without paying a surcharge. Under the Company’s surcharge-free network arrangements, financial institutions that participate pay either a fixed monthly fee per cardholder or a fixed fee per transaction so that cardholders gain surcharge-free access to our large network of ATMs. Bank-branding and surcharge-free network revenues are generally recognized monthly on a per ATM or per cardholder basis, except for transaction-based fee arrangements which are recognized daily as they occur. Any up-front fees associated with these arrangements are recognized ratably over the life of the arrangement.

·

Managed services revenue. Under a managed service arrangement, the Company offers ATM-related services depending on the needs of our customers, including monitoring, maintenance, cash management, cash delivery, customer service, transaction processing, and other services. Under a managed services arrangement, all of the surcharge and interchange fees are generally earned by the customer, whereas the Company typically receives a fixed management fee per ATM and/or a fixed fee per transaction in return for providing the agreed-upon operating services. The managed services fees are recognized as the related services are provided.  

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·

Other revenue. Other revenues include ATM operating revenues from transaction processing for third-party ATM operators. The Company also earns ATM operating revenues related to advertising and other services. The Company typically recognizes these revenues as the related services are provided.

ATM product sales and services. The Company presents revenues from other product sales and services in the ATM product sales and services line in the accompanying Consolidated Statements of Operations. 

The Company earns revenues from the sale of ATMs and ATM-related equipment as well as the delivery of other non-transaction-based services. Revenues related to these activities are recognized when the equipment is delivered to the customer and the Company has completed all required installation and set-up procedures. With respect to the sale of ATMs to Value-Added-Resellers (“VARs”), the Company recognizes revenues related to such sales when the equipment is delivered to the VAR.

Contract Balances

As of September 30, 2018, the Company has recognized no significant contract assets apart from accounts receivables that relate to completed performance obligations. Contract liabilities totaled $5.9 million and $5.7 million at September 30, 2018 and December 31, 2017, respectively. These amounts represent deferred revenues for advance consideration received largely in relation to bank-branding and surcharge-free network arrangements. The revenue recognized during the three and nine months ended September 30, 2018 on previously recognized deferred revenues was not material.  The Company expects to recognize the revenue associated with its contract liabilities ratably over various periods extending over the next 36 months.

Contract Cost

The Company expects that the incremental commissions paid to sales personnel, together with other associated costs, are recoverable, and therefore, the Company capitalizes these amounts as deferred contract acquisition costs. Upon adoption of the new revenue standard on January 1, 2018, the Company recognized deferred sales commissions of $7.5 million, and as of September 30, 2018, the deferred sales commissions totaled $7.2 million. Sales commissions capitalized are generally amortized over a 4  -  5 year period corresponding with the related placement agreements. Similarly, and consistent with past practice, the costs incurred to fulfill a contract, largely consisting of prepaid merchant commissions and other consideration paid or provided to merchant partners, are capitalized and recognized over the duration of the related contract.

Practical Expedients and Other Disclosures

In order to adopt and subsequently apply the new revenue standard, the Company utilized various practical expedients. The Company elected not to re-examine contracts modified prior to its adoption using the modified retrospective adoption method and elected to utilize a portfolio approach to assess and apply the impact of the new revenue standard.  Furthermore, the Company has elected not to disclose information about remaining performance obligations that have original expected durations of one year or less. Similarly, the Company does not deferreceive surcharge fees from cardholders whose financial institutions participate in a surcharge-free network or have branded a location; instead, the costsCompany receives interchange and bank-branding or surcharge-free network-branding revenues, which are discussed below. For certain ATMs, primarily those owned and operated by merchants, the Company does not receive any portion of obtainingthe surcharge but rather the entire surcharge fee is earned by the merchant. In the U.K., ATM deployers operate their ATMs on either a contract iffree-to-use (surcharge-free) or a pay-to-use (surcharging) basis. On free-to-use ATMs in the U.K., the Company earns interchange revenue on withdrawal and certain other transactions. These fees are paid by the cardholder’s financial institution. On pay-to-use ATMs in the U.K., the Company only earns a surcharge fee paid by the cardholder on withdrawal transactions, and interchange is only paid by the cardholder’s financial institution on other non-withdrawal transaction types. In Germany, Australia, and Mexico, the Company collects surcharge fees on withdrawal transactions but generally does not receive interchange revenue. In South Africa, the Company generally earns interchange revenues only, the amount of which varies by transaction type and customer arrangement. Surcharge revenues, as described above, are recognized daily as the associated contracttransactions are processed.

Interchange revenue. An interchange fee is one yeara fee paid by the cardholder’s financial institution for its customer’s use of an ATM that is owned by another operator and for the fee the EFT network charges to transmit data between the ATM and the cardholder’s financial institution. The Company typically receives a majority of the interchange fee paid by the cardholder’s financial institution, net of the amount retained by the EFT network and the Company recognizes the net amount received from the network as revenue. In some markets in which the Company operates, interchange fees are earned not only on cash withdrawal transactions but also on other ATM transactions, including balance inquiries and balance transfers. Interchange revenues are subject to various arrangements and are recognized daily as the associated transactions are processed.

Bank-branding and surcharge-free network revenues. Under a bank-branding arrangement, ATMs that are Company-owned and operated are branded with the logo of the branding financial institution. In exchange for a monthly per ATM fee, the financial institution’s customers gain access to use these bank-branded ATMs without paying a surcharge. Under the Company’s Allpoint surcharge-free network arrangements financial institutions that participate pay either a fixed monthly fee per cardholder or less.

a fixed fee per transaction so that cardholders gain surcharge-free access to our large network of ATMs. Bank-branding and surcharge-free network revenues are generally recognized monthly on a per ATM or per cardholder basis, except for transaction-based fee arrangements which are recognized daily as they occur. Any up-front fees associated with these arrangements are recognized ratably over the life of the arrangement.

Managed services revenue. Under a managed service arrangement, the Company offers ATM-related services depending on the needs of our customers, including monitoring, maintenance, cash management, cash delivery, customer service, transaction processing, and other services. Under a managed services arrangement, all of the surcharge and interchange fees are generally earned by the customer, whereas the Company typically receives a fixed management fee per ATM and/or a fixed fee per transaction in return for providing the agreed-upon operating services. The managed services fees are recognized as the related services are provided to the customers, who include both retailers and financial institutions.
Other revenue. Other revenues include ATM operating revenues from transaction processing for third-party ATM operators. The Company also earns ATM operating revenues related to advertising and other services. The Company typically recognizes these revenues as the related services are provided.
Other disclosures. The Company’s bank-branding, surcharge-free network, and managed services arrangements result in the Company providing a series of distinct services that have the same pattern of transfer to the customer. As a result, these arrangements create singular performance obligations that are satisfied over-time (generally 3 - 5 years) for which the Company has a right to consideration that corresponds directly with the value of the entity’s performance completed to date. In conjunction with these arrangements, the Company recognizes revenue in the amount it has a right to receive. Variable consideration may exist in these arrangements and is recognized only to the extent a significant reversal is not probable.

16

TableATM product sales and services. The Company presents revenues from other product sales and services in the ATM product sales and services line in the accompanying Consolidated Statements of Contents

(4) Acquisitions

DirectCash Payments Inc. Acquisition

On January 6, 2017,Operations. The Company earns revenues from the sale of ATMs and ATM-related equipment as well as the delivery of other non-transaction-based services. Revenues related to these activities are recognized when the equipment is delivered to the customer and the Company has completed all required installation and set-up procedures. With respect to the acquisitionsale of DirectCash Payments Inc.ATMs to Value-Added-Resellers (“DCPayments”VARs”), whereby DCPayments became a wholly-owned indirect subsidiarythe Company recognizes revenues related to such sales when the equipment is delivered to the VAR.

Due to the transactional nature of the Company. In connectionCompany’s revenue, there are no significant judgments that affect the determination of the amount and timing of its revenues.
Contract Balances
As of March 31, 2019, the Company has recognized no significant contract assets. Accounts receivables that relate to completed performance obligations are recognized on the Company's consolidated balance sheets. Contract liabilities totaled $8.0 million and $8.4 million at March 31, 2019 and December 31, 2018, respectively. These amounts represent deferred revenues for advance consideration received largely in relation to bank-branding and surcharge-free network arrangements. The revenue recognized during the three months ended March 31, 2019 and 2018 on previously deferred revenues was not material.  The Company expects to recognize the revenue associated with its contract liabilities ratably over various periods extending over the next 36 months. During March 31, 2019, the Company did not recognize any significant impairment losses related to its accounts receivable or contract assets.
Contract Cost
The Company expects that the incremental commissions paid to sales personnel, together with other associated costs, are recoverable, and therefore, the Company capitalizes these amounts as deferred contract acquisition costs. Deferred contract acquisition costs totaled $8.1 million and $7.9 million at March 31, 2019 and December 31, 2018, respectively. Sales commissions capitalized are generally amortized over a 4  -  5 years period corresponding with the closingrelated agreements. Similarly, and consistent with past practice, the costs incurred to fulfill a contract, largely consisting of prepaid merchant commissions and other consideration paid or provided to merchant partners, are capitalized and recognized over the duration of the acquisition,related contract. The Company does not capitalize the Company acquired each DCPayments common share for $19.00 Canadian Dollars in cash and repaid DCPayments outstanding third-party indebtedness. The combined aggregatecosts of consideration totaled approximately $658 million Canadian Dollars (approximately $495 million U.S. dollars atobtaining a contract if the acquisition date foreign exchange rate). The total amount paid for the acquisition at closing was financed with cash-on-hand and borrowings under the Company’s revolving credit facility.

As a result of the DCPayments acquisition, the Company significantly increased the size of its Canada, Mexico, and U.K. operations and entered into the Australia and New Zealand markets. With this acquisition, the Company added approximately 25,000 ATMs to its global ATM count.

associated contract is one year or less.



The DCPayments acquisition was accounted for as a business combination using the purchase method of accounting under the provisions of ASC Topic 805, Business Combinations. In accordance with this guidance, all assets acquired and liabilities assumed have been recorded at their estimated fair value as of the acquisition date and any excess of the purchase consideration over the fair value of the identifiable assets acquired and liabilities assumed has been recognized as goodwill.In conjunction with the transaction, the Company recognized current and other noncurrent assets of $50.4 million, property and equipment of $68.8 million, goodwill of $300.3 million, intangible assets of $182.1 million, current and other long-term liabilities of $74.0 million, Asset Retirement Obligations (“ARO”) of $8.9 million, and a deferred tax liability of $23.2 million.

Spark ATM Systems Pty Ltd Acquisition

On January 31, 2017, the Company completed the acquisition of Spark ATM Systems Pty Ltd. (“Spark”), an independent ATM operator in South Africa, with a  network of approximately 2,300 ATMs. The initial purchase consideration of approximately $19.5 million was paid in cash. In addition to the initial consideration, the total purchase price also includes potential additional contingent consideration up to $56.7 million at the September 30, 2018 foreign currency exchange rate. The contingent consideration will vary based upon performance relative to certain agreed upon earnings targets in 2019 and 2020 and would be payable to the previous investors in 2020 and 2021, respectively. The recognized acquisition date fair value of the contingent consideration was $34.8 million, at the January 31, 2017 foreign currency exchange rate, as determined with the assistance of an independent appraisal firm using forecasted future financial projections and other Level 3 inputs (for additional information related to the Company’s fair value estimates, see Note 14. Fair Value Measurements).  In conjunction with the transaction, the Company also recognized property and equipment of $5.3 million, goodwill of $48.2 million, intangible assets of $2.8 million, ARO of $0.4 million, and other net liabilities of $1.5 million.

(5)(4) Share-based Compensation 

The Company accounts for its share-based compensation by recognizing the grant date fair value of share-based awards, net of estimated forfeitures, as share-based compensation expense over the underlying requisite service periods of the related awards.

The grant date fair value is based upon the Company's share price on the date of the grant.

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The following table reflects the total share-based compensation expense amounts reported in the accompanying Consolidated Statements of Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

 

 

(In thousands)

 

(In thousands)

Cost of ATM operating revenues

 

$

229

 

$

196

 

$

404

 

$

336

Selling, general, and administrative expenses

 

 

4,440

 

 

3,955

 

 

10,223

 

 

9,635

Total share-based compensation expense

 

$

4,669

 

$

4,151

 

$

10,627

 

$

9,971

The change in

 Three Months Ended
March 31,
 2019 2018
 (In thousands)
Cost of ATM operating revenues$261
 $83
Selling, general, and administrative expenses4,223
 2,362
Total share-based compensation expense$4,484
 $2,445
For the three months ended March 31, 2019, total share-based compensation expense for the three and nine months ended September 30, 2018,increased by $2.0 million compared to the same periodsperiod of 2017 are2018. This increase is attributable to the amount and timing of share-based payment awards, net of forfeitures.

Restricted Stock Units. The Company grants restricted stock units (“RSUs”) under its Long-Term Incentive Plan (“LTIP”), which is an annual equity award program under the ThirdFourth Amended and Restated 2007 Stock Incentive Plan. The ultimate number of RSUs, that are determined to be earned under the LTIP are approved by the Compensation Committee of the Company’s Board of Directors, on an annual basis, based on the Company’s achievement of certainpreviously specified performance levels duringat the calendar yearend of its grant or the associated performance period, if longer than one year. The majority of theseperiod. RSU grants have both aare service-based (“Time-RSUs”) and a, performance-based vesting schedule (“Performance-RSUs”), or market-based (“Market-Based-RSUs”). Each is recognized ratably over the associated service period. For Time-RSUs and for theseMarket-Based-RSUs, the Company recognizes the related compensation expense based on the grant date fair value. The grant date fair value of the Time-Based RSUs is the Company's closing stock price on the date of grant while the grant date fair value of the Market-Based-RSUs is derived from a Monte Carlo simulation. For Performance-RSUs, the Company recognizes the related compensation expense based on the estimated performance levels that management believes will ultimately be met. In addition, a portion of the awards are Time-RSUs and the associated expense is recognized ratably over four years. Finally, a limited number of RSUs have a market-based and service based vesting schedule (“Market-Based-RSUs”). For these grants, the Company recognizes the estimated grant date fair value over a 24 month period. Performance-RSUs and Time-RSUs are convertible into the Company’s common shares after theupon passage of the annual graded vesting periods, which are generally 24,  36, and 48 months from January 31 ofbegin 1-2 years after the grant year, at the rate of 50%,  25%,date and 25%, respectively.extend 3-4 years. Performance-RSUs and Market-Based RSUs will be earned to the extent the Company achieves the associated performance-based or market-based vesting conditions.conditions and these awards are convertible into the Company’s common shares after the passage of the vesting periods which extend 3-4 years from the grant date. Although these RSUs are not considered to be earned and outstanding until the vesting conditions are met, the Company recognizes the related compensation expense over the requisite service period (or to an employee’s qualified retirement date, if earlier) using a graded vesting methodology. RSUs aremay also be granted outside of LTIPs, with or without performance-based vesting requirements.

The number of the Company’s earned non-vested RSUs as of September 30, 2018,March 31, 2019, and changes during the ninethree months ended September 30, 2018,March 31, 2019, are presented below:

 

 

 

 

 

 

 

    

Number of Shares

    

Weighted Average Grant Date Fair Value

Non-vested RSUs as of December 31, 2017

 

1,006,009

 

$

37.88

Granted

 

722,937

 

$

26.96

Vested

 

(616,826)

 

$

39.19

Forfeited

 

(147,000)

 

$

37.82

Non-vested RSUs as of September 30, 2018

 

965,120

 

$

28.87

 Number of Shares Weighted Average Grant Date Fair Value
Non-vested RSUs as of December 31, 2018911,165
 $28.74
Granted112,364
 31.81
Vested(241,779) 34.06
Forfeited(2,957) 30.91
Non-vested RSUs as of March 31, 2019778,793
 $27.52
The above table only includes earned RSUs; therefore, the Performance-RSUs and Market-Based RSUs granted in 2018 butand 2019 that are not yet earned are not included. The number of Performance-RSUs granted at target in 2018, net of estimated forfeitures, was 291,821302,906 units with a grant date fair value of $23.14$22.84 per unit. The number of Performance-RSUs granted at target in 2019, net of estimated forfeitures, was 62,611 units with a grant date fair value of $31.99 per unit. The number of Market-Based RSUs granted in 2018 , net of estimated forfeitures, was 134,989 units with a grant date fair value $24.13. The number of $24.13Market-Based RSUs granted in 2019, net of estimated forfeitures, was 62,605 units with a grant date fair value of $45.82 per unit. Time-RSUs are included as granted.


As of September 30, 2018,March 31, 2019, the unrecognized compensation expense associated with earned RSUs was $16.9$14.0 million, which will be recognized using a graded vesting schedule for Performance-RSUs and a straight-line vesting schedule for

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Time-RSUs, over a remaining weighted average vesting period of approximately 1.911.9 weighted average remaining life years. 

Options. The number of the Company’s outstanding stock options as of September 30, 2018,March 31, 2019, and changes during the ninethree months ended September 30, 2018,March 31, 2019, are presented below:

 

 

 

 

 

 

 

    

Number of Shares

    

Weighted Average Exercise Price

Options outstanding as of December 31, 2017

 

1,250

 

$

9.69

Granted

 

234,959

 

 

22.31

Exercised

 

(1,250)

 

 

9.69

Options outstanding as of September 30, 2018

 

234,959

 

$

22.31

 

 

 

 

 

 

Options vested and exercisable as of September 30, 2018

 

 —

 

$

 —

 Number of Shares Weighted Average Exercise Price
Options outstanding as of December 31, 2018234,959
 $22.31
Granted145,221
 31.99
Exercised—
 —
Options outstanding as of March 31, 2019380,180
 $26.01
    
Options vested and exercisable as of March 31, 201978,326
 $22.31
As of September 30, 2018,March 31, 2019, the unrecognized compensation expense associated with outstanding options was approximately $1.5 million.

Restricted Stock Awards. As$3.1 million, which will be recognized over the remaining weighted average vesting period of September 30, 2018, all Restricted Stock Awards (“RSAs”) have fully vested and the Company has no unrecognized compensation expense.  The Company ceased granting RSAs in 2013.

(6)approximately 2.5 years.

(5) Earnings (Loss) Per Share

The Company reports its earnings per share under the two-class method. Under this method, potentially dilutive securities are excluded from the calculation of diluted earnings per share (as well as their related impact on the net income available to common shareholders) when their impact on net income available to common shareholders is anti-dilutive.

Potentially dilutive securities for the three and nine months ended September 30, 2018 and 2017March 31, 2019 included all outstanding stock options RSA, and RSUs, which were included in the calculation of diluted earnings per share for these periods. The potentially dilutive effect of outstanding warrants and the underlying shares exercisable under the Company’s $287.5 million of 1.00% Convertible Senior Notes due 20202021 (the “Convertible Notes”) were excluded from diluted shares outstanding as the exercise price exceeded the average market price of the Company’s common shares. The effect of the note hedge, described in Note 10.9. Long-Term Debt, was also excluded as the effect is anti-dilutive. Additionally, the restricted shares issued by the Company underAs of March 31, 2019 and 2018, all RSAs havewith a non-forfeitable right to cash dividends if and when declared bywere fully vested as the Company. Accordingly, restricted shares issued underCompany ceased granting RSAs in 2013. Therefore, there are considered to beno outstanding participating securities. The undistributed losses for the three and nine months ended September 30, 2017 have not been allocated to the unvested restricted shares as they do not carry an obligation to share in losses. For the three and nine months ended September 30, 2018, there were no unvested RSAs.
The allocated details of our Earnings (loss) per Share are as follows:

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Earnings (loss) per Share (in thousands, excluding share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

 

September 30, 2018

 

September 30, 2017

 

    

Income

    

Weighted Average Shares Outstanding

    

Income per Share

    

Loss

    

Weighted Average Shares Outstanding

    

Loss per Share

Basic:

 

 

 

    

 

    

 

 

    

 

 

    

 

    

 

 

Net income (loss) attributable to controlling interests and available to common shareholders

 

$

8,781

 

 

 

 

 

 

$

(175,561)

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs

 

 

 —

 

 

 

 

 

 

 

 —

 

 

 

 

 

Net income (loss) available to common shareholders

 

$

8,781

 

46,073,739

 

$

0.19

 

$

(175,561)

 

45,662,543

 

$

(3.84)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares

 

$

 —

 

 

 

 

 

 

$

 —

 

 

 

 

 

Stock options added to the denominator under the treasury stock method

 

 

 

 

9,894

 

 

 

 

 

 

 

 —

 

 

 

RSUs added to the denominator under the treasury stock method

 

 

 

 

393,154

 

 

 

 

 

 

 

 —

 

 

 

Less: Undistributed earnings reallocated to RSAs

 

 

 —

 

 

 

 

 

 

 

 —

 

 

 

 

 

Net income (loss) available to common shareholders and assumed conversions

 

$

8,781

 

46,476,787

 

$

0.19

 

$

(175,561)

 

45,662,543

 

$

(3.84)

 Three Months Ended
March 31, 2019
 Income Weighted Average Shares Outstanding Income per Share
Basic:     
Net income available to common shareholders$4,319
 46,223,764
 $0.09
      
Diluted:     
Effect of dilutive securities:     
Stock options added to the denominator under the treasury stock method  16,390
  
RSUs added to the denominator under the treasury stock method  394,879
  
Net income available to common shareholders and assumed conversions$4,319
 46,635,033
 $0.09

20


For the three months ended March 31, 2019, there were 145,222 stock options excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive.



 Three Months Ended
March 31, 2018
 Loss Weighted Average Shares Outstanding Loss per Share
Basic and Diluted:     
Net loss available to common shareholders$(2,768) 45,833,070
 $(0.06)

Table of Contents


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Nine Months Ended

 

 

September 30, 2018

 

September 30, 2017

 

 

Income

    

Weighted Average Shares Outstanding

    

Income per Share

    

Loss

    

Weighted Average Shares Outstanding

    

Loss per Share

Basic:

    

  

    

    

 

    

 

 

    

 

 

    

 

    

 

 

Net income (loss) attributable to controlling interests and available to common shareholders

 

$

9,780

 

 

 

 

 

 

$

(161,304)

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs

 

 

 —

 

 

 

 

 

 

 

 —

 

 

 

 

 

Net income (loss) available to common shareholders

 

$

9,780

 

45,945,728

 

$

0.21

 

$

(161,304)

 

45,597,558

 

$

(3.54)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares

 

$

 —

 

 

 

 

 

 

$

 —

 

 

 

 

 

Stock options added to the denominator under the treasury stock method

 

 

 

 

664

 

 

 

 

 

 

 

 —

 

 

 

RSUs added to the denominator under the treasury stock method

 

 

 

 

440,131

 

 

 

 

 

 

 

 —

 

 

 

Less: Undistributed earnings reallocated to RSAs

 

 

 —

 

 

 

 

 

 

 

 —

 

 

 

 

 

Net income (loss) available to common shareholders and assumed conversions

 

$

9,780

 

46,386,523

 

$

0.21

 

$

(161,304)

 

45,597,558

 

$

(3.54)

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Table of Contents

(7)(6) Accumulated Other Comprehensive Loss, net

Accumulated other comprehensive loss, net, is a separate component of the Shareholders’ equity in the accompanying Consolidated Balance Sheets. The following tables presenttable presents the changes in the balances of each component of Accumulated other comprehensive loss, net, for the three and nine months ended September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Foreign Currency Translation Adjustments

    

Unrealized Gains on Interest Rate Swap and Foreign Currency Forward Contracts

    

Total

 

 

(In thousands)

Total accumulated other comprehensive (loss) income, net as of June 30, 2018

 

$

(47,554)

(1)

$

10,170

(2)

$

(37,384)

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income before reclassification

 

 

(1,144)

(3)

 

4,587

(4)

 

3,443

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 —

 

 

605

(4)

 

605

Net current period other comprehensive (loss) income

 

 

(1,144)

 

 

5,192

 

 

4,048

Total accumulated other comprehensive (loss) income, net as of September 30, 2018

 

$

(48,698)

(1)

$

15,362

(2)

$

(33,336)

(1)

Net of deferred income tax (benefit) of $(5,254) and $(5,090) as of September 30, 2018 and June 30, 2018, respectively.

March 31, 2019:

(2)

Net of deferred income tax expense of $23,663 and $22,293 as of September 30, 2018 and June 30, 2018, respectively.

(3)

Net of deferred income tax benefit of $(164).

 Foreign Currency Translation Adjustments      Unrealized Losses on Interest Rate Swap and Foreign Currency Forward Contracts      Total
 (In thousands)
Total accumulated other comprehensive loss,
net as of December 31, 2018
$(66,312) 
(1) 
 $(565) 
(2) 
 $(66,877)
Other comprehensive income (loss) before reclassification5,102
 
(3) 
 (12,421) 
(4) 
 (7,319)
Amounts reclassified from accumulated other comprehensive loss, net—
   (282) 
(4) 
 (282)
Net current period other comprehensive income (loss)5,102
   (12,703)   (7,601)
Total accumulated other comprehensive loss,
net as of March 31, 2019
$(61,210) 
(1) 
 $(13,268) 
(2) 
 $(74,478)

(4)

Net of deferred income tax expense of $1,210 and $160 for Other comprehensive income before reclassification and Amounts reclassified from accumulated other comprehensive loss, net, respectively, as of September 30, 2018. For additional information, see (1)Net of deferred income tax (benefit) of $(5,312) and $(5,232) as of March 31, 2019 and December 31, 2018, respectively.Note 13. Derivative Financial Instruments.

 

 

 

 

 

 

 

 

 

 

 

    

Foreign Currency Translation Adjustments

    

Unrealized (Losses) Gains on Interest Rate Swap and Foreign Currency Forward Contracts

    

Total

 

 

(In thousands)

Total accumulated other comprehensive loss, net as of December 31, 2017

 

$

(24,374)

(1)

$

(9,221)

(2)

$

(33,595)

Other comprehensive (loss) income before reclassification

 

 

(24,324)

(3)

 

20,106

(4)

 

(4,218)

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 —

 

 

4,477

(4)

 

4,477

Net current period other comprehensive (loss) income

 

 

(24,324)

 

 

24,583

 

 

259

Total accumulated other comprehensive (loss) income, net as of September 30, 2018

 

$

(48,698)

(1)

$

15,362

(2)  

$

(33,336)

(1)

Net of deferred income tax (benefit) of $(5,254) and $(5,339) as of September 30, 2018 and December 31, 2017, respectively.

(2)

Net of deferred income tax expense of $23,663 and $16,317 as of September 30, 2018 and December 31, 2017, respectively.

(2)Net of deferred income tax expense of $15,917 and $19,112 as of March 31, 2019 and December 31, 2018, respectively.

(3)

Net of deferred income tax expense of $85.

(3)Net of deferred income tax (benefit) of $(80)

(4)

Net of deferred income tax expense of $6,008 and $1,338 for Other comprehensive income before reclassification and Amounts reclassified from accumulated other comprehensive loss, net, respectively, as of September 30, 2018.(4)Net of deferred income tax (benefit) of $(3,111) and $(85) for Other comprehensive income before reclassification and Amounts reclassified from accumulated other comprehensive loss, net, respectively, as of March 31, 2019. For additional information, see Note 13. Derivative Financial Instruments.

The Company records unrealized gains and losses related to its interest rate swap and foreign currency forward contracts net of estimated taxes, in the Accumulated other comprehensive loss, net line inwithin the accompanying Consolidated

22

Table of Contents

Balance Sheets since it is more likely than not that the Company will be able to realize the benefits associated with its net deferred tax asset positions in the future.Sheets. The amounts reclassified from Accumulated other comprehensive loss, net are recognized in the Cost of ATM operating revenues, lineInterest expense, net, or Other (income) expense lines in the accompanying Consolidated Statements of Operations.

The Company has elected the portfolio approach for the deferred tax asset of the unrealized gains and losses related to the interest rate swap and foreign currency forward contracts in the Accumulated other comprehensive loss, net line inwithin the accompanying Consolidated Balance Sheets. Under the portfolio approach, the disproportionate tax effect created when the valuation allowance was appropriately released as a tax benefit into continuing operations in 2010, will reverse out of the Accumulated other comprehensive loss, net line inwithin the accompanying Consolidated Balance Sheets and into continuing operations as a tax expense when the Company ceases to hold any interest rate swap contracts.contracts. As of September 30, 2018,March 31, 2019, the disproportionate tax effect is $14.6 million.

The Company currently believes that the unremitted earnings of certain of its foreign subsidiaries under its former U.S. parent company will be reinvested for an indefinite period of time. Accordingly, no deferred taxes have been provided for the differences between the Company’s book basis and underlying tax basis in these subsidiaries or on the foreign currency translation adjustment amounts.


(8)(7) Intangible Assets 

Intangible Assets with Indefinite Lives

Goodwill
The following tables presenttable presents the net carrying amounts of the Company’s intangible assets with indefinite lives as of December 31, 20172018 and September 30, 2018,March 31, 2019, as well as the changes in the net carrying amounts for the ninethree months ended September 30, 2018March 31, 2019 by segment (forsegment. For additional information related to the Company’s segments, see Note 17. Segment Information).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

North America

    

Europe & Africa

    

Australia & New Zealand

    

Total

 

 

(In thousands) 

Goodwill, gross as of December 31, 2017

 

$

565,717

 

$

246,549

 

$

152,714

 

$

964,980

Accumulated impairment loss

 

 

 —

 

 

(50,003)

 

 

(140,038)

 

 

(190,041)

Goodwill, net as of December 31, 2017

 

$

565,717

 

$

196,546

 

$

12,676

 

$

774,939

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(3,159)

 

 

(11,637)

 

 

(952)

 

 

(15,748)

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill, gross as of September 30, 2018

 

$

562,558

 

$

234,912

 

$

151,762

 

$

949,232

Accumulated impairment loss

 

 

 —

 

 

(50,003)

 

 

(140,038)

 

 

(190,041)

Goodwill, net as of September 30, 2018

 

$

562,558

 

$

184,909

 

$

11,724

 

$

759,191

 

 

 

 

 

 

 

 

 

 

 

 

Trade Name: Indefinite-lived

 

    

North America

    

Europe & Africa

    

Total

 

 

(In thousands)

Trade names: indefinite-lived as of December 31, 2017

 

$

200

 

$

459

 

$

659

Foreign currency translation adjustments

 

 

 —

 

 

(15)

 

 

(15)

Trade names: indefinite-lived as of September 30, 2018

 

$

200

 

$

444

 

$

644

23

 North America Europe & Africa 
Australia & New
Zealand
 Total
 
(In thousands) 
Goodwill, gross as of December 31, 2018$556,570
 $231,121
 $151,494
 $939,185
Accumulated impairment loss—
 (50,003) (140,038) (190,041)
Goodwill, net as of December 31, 2018$556,570
 $181,118
 $11,456
 $749,144
        
Foreign currency translation adjustments2,227
 2,640
 73
 4,940
        
Goodwill, gross as of March 31, 2019$558,797
 $233,761
 $151,567
 $944,125
Accumulated impairment loss—
 (50,003) (140,038) (190,041)
Goodwill, net as of March 31, 2019$558,797
 $183,758
 $11,529
 $754,084

Table of Contents

Intangible Assets with Definite Lives 

The following table presents the Company’s intangible assets that were subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

December 31, 2017

 

   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Carrying Amount

   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Carrying Amount

 

 

(In thousands)

Merchant and bank-branding contracts/relationships

 

$

481,986

 

$

(332,097)

 

$

149,889

 

$

490,332

 

$

(299,801)

 

$

190,531

Trade names: definite-lived

 

 

17,253

 

 

(8,961)

 

 

8,292

 

 

18,480

 

 

(7,091)

 

 

11,389

Technology

 

 

10,894

 

 

(6,140)

 

 

4,754

 

 

10,901

 

 

(5,230)

 

 

5,671

Non-compete agreements

 

 

4,409

 

 

(4,401)

 

 

 8

 

 

4,438

 

 

(4,308)

 

 

130

Revolving credit facility deferred financing costs

 

 

2,603

 

 

(1,710)

 

 

893

 

 

2,730

 

 

(1,248)

 

 

1,482

Total intangible assets with definite lives

 

$

517,145

 

$

(353,309)

 

$

163,836

 

$

526,881

 

$

(317,678)

 

$

209,203

 March 31, 2019 December 31, 2018
 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
 (In thousands)
Merchant and bank-branding contracts/relationships$479,630
 $(353,438) $126,192
 $476,429
 $(340,899) $135,530
Trade names18,257
 (11,202) 7,055
 18,010
 (9,804) 8,206
Technology10,975
 (6,751) 4,224
 10,963
 (6,490) 4,473
Non-compete agreements4,261
 (4,261) —
 4,247
 (4,244) 3
Revolving credit facility deferred financing costs4,300
 (1,680) 2,620
 4,170
 (1,535) 2,635
Total intangible assets with definite lives$517,423
 $(377,332) $140,091
 $513,819
 $(362,972) $150,847

(9)(8) Accrued Liabilities 

The Company’s accrued liabilities consisted of the following:

 

 

 

 

 

 

 

 

   

September 30, 2018

   

December 31, 2017

 

 

(In thousands)

Accrued merchant settlement

 

$

138,525

 

$

101,366

Other accrued expenses

 

 

36,767

 

 

37,889

Accrued merchant fees

 

 

36,595

 

 

57,079

Accrued taxes

 

 

29,280

 

 

35,759

Accrued compensation

 

 

23,153

 

 

24,044

Accrued interest

 

 

10,175

 

 

8,679

Accrued cash management fees

 

 

9,598

 

 

16,604

Accrued processing costs

 

 

9,579

 

 

7,830

Accrued armored

 

 

6,646

 

 

6,654

Accrued purchases

 

 

5,657

 

 

4,631

Accrued maintenance

 

 

2,953

 

 

3,927

Accrued telecommunications costs

 

 

1,624

 

 

1,413

Accrued interest on interest rate swap contracts

 

 

202

 

 

1,070

Total accrued liabilities

 

$

310,754

 

$

306,945

24

 March 31, 2019 December 31, 2018
 (In thousands)
Accrued merchant settlement$150,222
 $198,512
Accrued merchant fees36,943
 33,551
Accrued taxes33,432
 32,899
Accrued compensation11,149
 26,147
Accrued interest8,479
 3,343
Accrued cash management fees8,227
 8,882
Accrued purchases8,203
 6,654
Accrued armored6,962
 7,984
Accrued maintenance5,835
 3,911
Accrued processing costs5,559
 7,365
Accrued telecommunications costs1,786
 2,187
Accrued interest on interest rate swaps143
 114
Other accrued expenses45,357
 37,611
Total accrued liabilities$322,297
 $369,160

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(10)(9) Long-Term Debt 

The Company’s carrying value of long-term debt consisted of the following:

 

 

 

 

 

 

 

 

    

September 30, 2018

    

December 31, 2017

 

 

(In thousands)

Revolving credit facility, including swingline credit facility (weighted average combined interest rate of 3.0% and 3.2% as of September 30, 2018 and December 31, 2017, respectively)

 

$

30,930

 

$

122,461

1.00% Convertible Senior Notes due 2020, net of unamortized discount and capitalized debt issuance costs

 

 

260,563

 

 

251,973

5.125% Senior Notes due 2022, net of capitalized debt issuance costs

 

 

248,562

 

 

248,038

5.50% Senior Notes due 2025, net of capitalized debt issuance costs

 

 

295,735

 

 

295,249

Total long-term debt

 

$

835,790

 

$

917,721

 March 31, 2019 December 31, 2018
    
 (In thousands)
Revolving credit facility, including swingline credit facility (weighted average combined interest rate of 2.5% and 2.8% as of March 31, 2019 and December 31, 2018, respectively)$240,167
 $259,081
1.00% Convertible Senior Notes due 2020, net of unamortized discount and capitalized debt issuance costs266,492
 263,507
5.50% Senior Notes due 2025, net of capitalized debt issuance costs296,060
 295,897
Total long-term debt$802,719
 $818,485
The Convertible Notes with a face value of $287.5 million are presented net of unamortized discount and capitalized debt issuance costs of $26.9$21.0 million and $35.5$24.0 million as of September 30, 2018March 31, 2019 and December 31, 2017, respectively. The 5.125% Senior Notes due 2022 (the “2022 Notes”) with a face value of $250.0 million are presented net of capitalized debt issuance costs of $1.4 million and $2.0 million as of September 30, 2018, and December 31, 2017, respectively. The 5.50% Senior Notes due 2025 (the “2025 Notes”) with a face value of $300.0 million are presented net of capitalized debt issuance costs of $4.3$3.9 million and $4.8$4.1 million as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.

Revolving Credit Facility 

As of September 30,

On November 19, 2018, the Company hadentered into a $400.0 million revolving credit facility, which matures on July 1, 2021, led by a syndicate of banks with JPMorgan Chase, N.A. serving as the administrative agent. The revolving credit facility provides the Company with $400.0 million in available borrowings and letters of credit (subject to the covenants contained within thesecond amended and restated credit agreement (the “Credit Agreement”) governing. The Credit Agreement provides the Company with a $600.0 million revolving credit facility) and can be increased by the exercise offacility maturing on November 19, 2023, which includes an accordion feature that allows the Company to $500.0increase the available borrowings under the credit facility to $700.0 million under certain conditions.

by obtaining increased commitments from one or more existing lenders or one or more additional lenders that become party to the Credit Agreement and who consent at such time to providing additional commitments. In addition, the credit facility includes a sub-limit of up to $150.0 million for letters of credit and a sub-limit of up to $50.0 million for swingline loans.

The total commitments under the credit facility can be borrowed in U.S. dollars, alternative currencies (including Euros, U.K. pounds sterling, Canadian dollars, Australian dollars and South African Rand)rand), or a combination thereof. The Credit Agreement provides for sub-limits under the commitment of $50.0 million for swingline loans and $30.0 million for letters of credit. Borrowings (not including swingline loans) accrue interest, at the Company’s option and based on the type of currency borrowed, at the Alternate Base Rate, the Canadian Prime Rate, the Adjusted LIBO Rate, the Canadian Dealer Offered Rate, the Bank Bill Swap Reference Rate or the Johannesburg Interbank Agreed Rate (each, as defined in the Credit Agreement) plus a margin depending on the Company’s most

recent Total Net Leverage Ratio (as defined in the Credit Agreement). The margin for Alternative Base Rate loans and Canadian Prime Rate loans varies between 0% and 1.25%0.75%, and the margin for Adjusted LIBO Rate loans, Canadian Dealer Offered Rate loans, and Bank Bill Swap Reference Rate loans and Johannesburg Interbank Agreed Rate Loans varies between 1.00% and 2.25% and the margin for Johannesburg Interbank Agreed Rate loans varies between 1.25% and 2.50%1.75%. Swingline loans denominated in U.S. dollars bear interest at the Alternate Base Rate plus a margin as described above, swingline loans denominated in Canadian dollars bear interest at the Canadian Prime Rate plus a margin as described above and swingline loans denominated in other alternative currencies bear interest at the Overnight Foreign Currency Rate (as defined in the Credit Agreement) plus the applicable margin for the Adjusted LIBO Rate, the Bank Bill Swap Reference Rate or the Johannesburg Interbank Agreed Rate, as applicable.

Substantially all of the Company’s U.S. assets, including the stock of certain of its subsidiaries are pledged as collateral to secure borrowings made under the revolving credit facility. Furthermore, each

Each of the Credit Facility Guarantors (as defined in the Credit Agreement) has guaranteed the full and punctual payment of the obligations under the revolving credit facility. Thefacility and the obligations under the revolving credit facility are secured by substantially all of the assets of the Credit Facility Guarantors. In addition, the obligations of the CFC Borrowers (as defined in the Credit Agreement) are guaranteed by the CFC Guarantors and secured by substantially all of the assets of the CFC Guarantors (as defined in the Credit Agreement), which do not guarantee the obligations of the Credit Facility Guarantors.

.

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The Credit Agreement contains representations, warranties and covenants that are customary for similar credit arrangements, including, among other things, covenants relating to: (i) financial reporting and notification, (ii) payment of obligations, (iii) compliance with applicable laws, and (iv) notification of certain events.events, and (v) certain covenants relating to, among other things, the sale or transfer of assets, fundamental changes, incurrence or guarantee of indebtedness, liens, investments, hedging transactions with affiliates and sale and leaseback transactions. Financial covenants in the Credit Agreement require the Company to maintain: (i) as of the last day of any fiscal quarter, a Senior SecuredTotal Net Leverage Ratio (as defined in the Credit Agreement) of no more than 2.254.25 to 1.00, and (ii) as of the last day of any fiscal quarter, a Total Net Leverage Ratio of no more than 4.00 to 1.00, and (iii) as of the last day of any fiscal quarter, a Fixed Chargean Interest Coverage Ratio (as defined in the Credit Agreement) of no less than 1.503.00 to 1.00. Additionally, the Company is limited on the amount of restricted payments, including dividends, which it can make pursuant to the terms of the Credit Agreement;payments; however, the Company may generally make restricted payments so long as no event of default exists at the time of such payment and the Total Net Leverage Ratio is less than 3.003.75 to 1.00 at the time such restricted payment is made.

As of September 30, 2018,March 31, 2019, the Company had $30.9$240.2 million of outstanding borrowings under its $400.0$600.0 million revolving credit facility and was in compliance with all applicable covenants and ratios under the Credit Agreement. The Company also had $7.2$10.8 million outstanding in letters of credit. The weighted average interest rates on the Company’s outstanding borrowings under the revolving credit facility were 3.0%2.5% and 3.2%2.8%, as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.

$287.5 Millionmillion 1.00% Convertible Senior Notes Due 2020 and Related Equity Instruments

On November 19, 2013, Cardtronics, DelawareInc. issued the Convertible Notes at par value. Cardtronics, DelawareInc. received $254.2 million in net proceeds from the offering after deducting underwriting fees paid to the initial purchasers and a repurchase of 665,994 of its outstanding common shares concurrent with the offering. Cardtronics, DelawareInc. used a portion of the net proceeds from the offering to fund the net cost of the convertible note hedge transaction, as described below. The convertible note hedge and warrant transactions were entered into concurrent with the pricing of the Convertible Notes. Interest on the Convertible Notes is payable semi-annually in cash in arrears on June 1st and December 1st of each year. Under U.S. GAAP, certain convertible debt instruments that may be settled in cash (or other assets) upon conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. The Company, with assistance from a valuation professional, determined that the fair value of the debt component was $215.8 million and the fair value of the embedded option was $71.7 million as of the issuance date. The Company recognizes effective interest expense on the debt component and that interest expense effectively accretes the debt component to the total principal amount due at maturity of $287.5 million. The effective rate of interest to accrete the debt balance is approximately 5.26%, which corresponded to the Company’s estimated conventional debt instrument borrowing rate at the date of issuance.

On July 1, 2016, Cardtronics plc, Cardtronics, Delaware,Inc., and Wells Fargo Bank, National Association, as trustee, entered into a supplemental indenture (the “Convertible Notes Supplemental Indenture”) with respect to the Convertible Notes. The Convertible Notes Supplemental Indenture provides for the unconditional and irrevocable guarantee by Cardtronics plc of the prompt payment, when due, of any amount owed to the holders of the Convertible Notes. The Convertible Notes Supplemental Indenture also provides that, from and after July 1, 2016, the Convertible Notes will be convertible into shares of Cardtronics plc in lieu of common share of Cardtronics, Delaware.

Inc.

The Convertible Notes currently have a conversion price of $52.35 per share, which equals a conversion rate of 19.1022 shares per $1,000 principal amount of Convertible Notes, for a total of approximately 5.5 million shares underlying the debt. The conversion rate, however, is subject to adjustment under certain circumstances. Conversion can occur: (i) any time on or after September 1, 2020, (ii) after March 31, 2014, during any calendar quarter that follows a calendar quarter in which the price of the shares exceeds 135% of the conversion price for at least 20 days during the 30 consecutive trading-day period ending on the last trading day of

the quarter, (iii) during the ten consecutive trading-day period following any five consecutive trading-day period in which the trading price of the Convertible Notes is less than 98% of the closing price of the shares multiplied by the applicable conversion rate on each such trading day, (iv) upon specified distributions to Cardtronics plc’s shareholders upon recapitalizations, reclassifications, or changes in shares, and (v) upon a make-whole fundamental change. A fundamental change is defined as any one of the following: (i) any person or group that acquires 50.0%50% or more of the total voting power of all classes of common equity that is entitled to vote generally in the election of Cardtronics plc’s directors, (ii) Cardtronics plc engages in any recapitalization, reclassification, or changes of common shares as a result of which the shares would be converted into or exchanged for, shares, other

26

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securities, or other assets, or property, (iii) Cardtronics plc engages in any share exchange, consolidation, or merger where the shares converted into cash, securities, or other property, (iv) the Company engages in certain sales, leases, or other transfers of all or substantially all of the consolidated assets, or (v) Cardtronics plc’s shares are not listed for trading on any U.S. national securities exchange.

None of the Convertible Notes were deemed convertible as of September 30, 2018March 31, 2019, and therefore, remain classified in the Long-term debt line in the accompanying Consolidated Balance Sheets at September 30, 2018.March 31, 2019. In future financial reporting periods, the classification of the Convertible Notes may change depending on whether any of the above contingent criteria have been subsequently satisfied.

Upon conversion, holders of the Convertible Notes are entitled to receive cash, shares, or a combination of cash and shares, at the Company’s election. In the event of a change in control, as defined in the indenture under which the Convertible Notes have been issued, holders can require Cardtronics, DelawareInc. to purchase all or a portion of their Convertible Notes for 100% of the notes’ par value plus any accrued and unpaid interest.

The Company’s interest expense related to the Convertible Notes consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

2018

    

2017

    

2018

    

2017

 

 

(In thousands)

 

(In thousands)

Cash interest per contractual coupon rate

 

$

719

 

$

719

 

$

2,157

 

$

2,157

Amortization of note discount

 

 

2,708

 

 

2,569

 

 

8,018

 

 

7,608

Amortization of debt issuance costs

 

 

196

 

 

176

 

 

572

 

 

513

Total interest expense related to Convertible Notes

 

$

3,623

 

$

3,464

 

$

10,747

 

$

10,278

 Three Months Ended
March 31,
 2019 2018
 (In thousands)
Cash interest per contractual coupon rate$719
 $719
Amortization of note discount2,780
 2,638
Amortization of debt issuance costs206
 186
Total interest expense related to Convertible Notes$3,705
 $3,543
The Company’s carrying value of the Convertible Notes consisted of the following:

 

 

 

 

 

 

 

 

   

September 30, 2018

   

December 31, 2017

 

 

(In thousands)

Principal balance

 

$

287,500

 

$

287,500

Unamortized discount and capitalized debt issuance costs

 

 

(26,937)

 

 

(35,527)

Net carrying amount of Convertible Notes

 

$

260,563

 

$

251,973

 March 31, 2019 December 31, 2018
 (In thousands)
Principal balance$287,500
 $287,500
Unamortized discount and capitalized debt issuance costs(21,008) (23,993)
Net carrying amount of Convertible Notes$266,492
 $263,507
In connection with the issuance of the Convertible Notes, Cardtronics, DelawareInc. entered into separate convertible note hedge and warrant transactions to reduce the potential dilutive impact upon the conversion of the Convertible Notes. The net effect of these transactions effectively raised the price at which dilution would occur from the $52.35 initial conversion price of the Convertible Notes to $73.29. Pursuant to the convertible note hedge, Cardtronics, DelawareInc. purchased call options granting Cardtronics DelawareInc. the right to acquire up to approximately 5.55.50 million common shares with an initial strike price of $52.35. The call options automatically become exercisable upon conversion of the Convertible Notes, and will terminate on the second scheduled trading day immediately preceding December 1, 2020. Cardtronics DelawareInc. also sold to the initial purchasers warrants to acquire up to approximately 5.55.50 million common shares with a strike price of $73.29. The warrants will expire incrementally on a series of expiration dates subsequent to the maturity date of the Convertible Notes through August 30, 2021. If the conversion price of the Convertible Notes remains between the strike prices of the call options and warrants, Cardtronics plc’s shareholders will not experience any dilution in connection with the conversion of the Convertible Notes; however, to the extent that the price of the shares exceeds the strike price of the warrants on any or all of the series of related expiration dates of the warrants, Cardtronics plc would be required to issue additional shares to the warrant holders. The amounts allocated to both the note hedge and warrants were recorded in the Shareholders’ equity section in the accompanying Consolidated Balance Sheets.

$250.0 Million 5.125% Senior Notes Due 2022

On July 28, 2014, in a private placement offering, Cardtronics Delaware issued $250.0 million in aggregate principal amount of the 2022 Notes pursuant to an indenture dated July 28, 2014 (the “2022 Notes Indenture”) among Cardtronics

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Delaware, certain subsidiary guarantors (each, a “2022 Notes Guarantor”), and Wells Fargo Bank, National Association, as trustee. Interest on the 2022 Notes is payable semi-annually in cash in arrears on February 1st and August 1st of each year.

On July 1, 2016, Cardtronics plc, Cardtronics Delaware, certain 2022 Notes Guarantors, and Wells Fargo Bank, National Association, as trustee, entered into a supplemental indenture (the “2022 Notes Supplemental Indenture”) with respect to the 2022 Notes. The 2022 Notes Supplemental Indenture provides for the unconditional and irrevocable guarantee by Cardtronics plc of the prompt payment, when due, of any amount owed to the holders of the 2022 Notes. Furthermore, certain additional subsidiary guarantors were also added as 2022 Notes Guarantors to the 2022 Notes. On April 28, 2017, additional subsidiaries of Cardtronics plc were added as 2022 Notes Guarantors pursuant to a second supplemental indenture to the 2022 Notes Indenture (the “2022 Notes Second Supplemental Indenture”).

The 2022 Notes and the related guarantees (the “2022 Notes Guarantees”) rank: (i) equally in right of payment with all of Cardtronics Delaware’s and the 2022 Notes Guarantors (including Cardtronics plc) existing and future senior indebtedness, (ii) effectively junior to secured debt to the extent of the collateral securing such debt, including borrowings under the Company’s revolving credit facility, and (iii) structurally junior to existing and future indebtedness of Cardtronics plc’s non-guarantor subsidiaries. The 2022 Notes and 2022 Notes Guarantees rank senior in right of payment to any of Cardtronics Delaware’s and the 2022 Notes Guarantors’ (including Cardtronics plc) existing and future subordinated indebtedness.

The 2022 Notes contain covenants that, among other things, limit Cardtronics plc’s ability and the ability of certain of its restricted subsidiaries (including Cardtronics Delaware) to incur or guarantee additional indebtedness, make certain investments, or pay dividends or distributions on Cardtronics plc’s common shares or repurchase common shares or make certain other restricted payments, consolidate or merge with or into other companies, conduct asset sales, restrict dividends or other payments by restricted subsidiaries, engage in transactions with affiliates or related persons, and create liens.

Obligations under its 2022 Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by Cardtronics plc and certain of its subsidiaries and certain of its future subsidiaries, with the exception of Cardtronics plc’s immaterial subsidiaries and CFC Guarantors (as defined in the Credit Agreement). There are no significant restrictions on the ability of Cardtronics plc to obtain funds from Cardtronics Delaware or the other 2022 Notes Guarantors by dividend or loan. None of the 2022 Notes Guarantors’ assets represent restricted assets pursuant to Rule 4-08(e)(3) of Regulation S-X. The 2022 Notes include registration rights, and as required under the terms of the 2022 Notes, Cardtronics Delaware completed an exchange offer for these 2022 Notes in June 2015 whereby participating holders received registered notes.

The 2022 Notes are subject to certain automatic customary releases with respect to the 2022 Notes Guarantors (other than Cardtronics plc), including the sale, disposition, or transfer of the common shares or substantially all of the assets of such 2022 Notes Guarantor, designation of such 2022 Notes Guarantor as unrestricted in accordance with the 2022 Notes Indenture, exercise of the legal defeasance option or the covenant defeasance option, liquidation, or dissolution of such 2022 Notes Guarantor and, in the case of a 2022 Notes Guarantor that is not wholly-owned by Cardtronics plc, such 2022 Notes Guarantor ceasing to guarantee other indebtedness of Cardtronics plc, Cardtronics Delaware, or another 2022 Notes Guarantor. The 2022 Notes Guarantors, including Cardtronics plc, may not sell or otherwise dispose of all or substantially all of their properties or assets to, or consolidate with or merge into, another company if such a sale would cause a default under the 2022 Notes Indenture and certain other specified requirements under the 2022 Notes Indenture are not satisfied.

$300.0 Millionmillion 5.50% Senior Notes Due 2025

On April 4, 2017, in a private placement offering, Cardtronics DelawareInc. and Cardtronics USA, Inc. (the “2025 Notes Issuers”) issued $300.0 million in aggregate principal amount of the 2025 Notes pursuant to an indenture dated April 4, 2017 (the “2025 Notes Indenture”) among the 2025 Notes Issuers, Cardtronics plc, and certain of its subsidiaries, as guarantors (each, a “2025 Notes Guarantor”), and Wells Fargo Bank, National Association, as trustee.

Interest on the 2025 Notes accrues from April 4, 2017, the date of issuance, at the rate of 5.50% per annum. Interest on the 2025 Notes is payable semi-annually in cash in arrears on May 1st and November 1st of each year commencingwith the initial payment having commenced on November 1, 2017. 

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The 2025 Notes and the related guarantees (the “2025 Guarantees”) are the general unsecured senior obligations of each of the 2025 Notes Issuers and the 2025 Notes Guarantors, respectively, and rank: (i) equally in right of payment with all of the 2025 Notes Issuers’Issuers��� and the 2025 Notes Guarantors’ existing and future senior indebtedness and (ii) senior in right of payment to all of the 2025 Notes Issuers’ and the 2025 Notes Guarantors’ future subordinated indebtedness. The 2025 Notes and the 2025 Guarantees are effectively subordinated to any of the 2025 Notes Issuers’ and the 2025 Notes Guarantors’ existing and future secured debt to the extent of the collateral securing such debt, including all borrowings under the Company’s revolving credit facility. The 2025 Notes are structurally subordinated to all liabilities of any of Cardtronics plc’s subsidiaries (excluding the 2025 Notes Issuers) that do not guarantee the 2025 Notes.

The 2025 Notes contain covenants that, among other things, limit the 2025 Notes Issuers’ ability and the ability of Cardtronics plc and certain of its restricted subsidiaries to incur or guarantee additional indebtedness, make certain investments, or pay dividends or distributions on Cardtronics plc’s common shares or repurchase common shares or make certain other restricted payments, consolidate or merge with or into other companies, conduct asset sales, restrict dividends or other payments by restricted subsidiaries, engage in transactions with affiliates or related persons, and create liens.

Obligations under the 2025 Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by Cardtronics plc and certain of its subsidiaries and certain of its future subsidiaries, with the exception of Cardtronics plc’s immaterial subsidiaries and CFC Guarantors (as defined in the Credit Agreement). There are no significant restrictions on the ability of Cardtronics plc to obtain funds from Cardtronics Delaware,Inc., Cardtronics USA, Inc., or the other 2025 Notes Guarantors by dividend or loan. None of the 2025 Notes Guarantors’ assets represent restricted assets pursuant to Rule 4-08(e)(3) of Regulation S-X.

The 2025 Notes are subject to certain automatic customary releases with respect to the 2025 Notes Guarantors (other than Cardtronics plc, Cardtronics Holdings Limited, and CATM Holdings LLC), including the sale, disposition, or transfer of the common shares or substantially all of the assets of such 2025 Notes Guarantor, designation of such 2025 Notes Guarantor as unrestricted in accordance with the 2025 Notes Indenture, exercise of the legal defeasance option or the covenant defeasance option, liquidation, or dissolution of such 2025 Notes Guarantor. The 2025 Notes Guarantors, including Cardtronics plc, may not sell or otherwise dispose of all or substantially all of their properties or assets to, or consolidate with or merge into, another company if such a sale would cause a default under the 2025 Notes Indenture and certain other specified requirements under the 2025 Notes Indenture are not satisfied.

(11)(10) Asset Retirement Obligations 

Asset retirement obligations (“ARO”) consist primarily of costs to deinstall the Company’s ATMs and, in some cases, restore the ATM sites to their original condition, which are estimated based on current market rates. In most cases, the Company is contractually required to perform this deinstallation of its owned ATMs, and in some cases, site restoration work. For each group of similar ATM type,types, the Company has recognized the estimated fair value of the ARO as a liability in the accompanying Consolidated Balance Sheets and capitalized that cost as part of the cost basis of the related asset. The related assets are depreciated on a straight-line basis over five years,the assets estimated useful life, which is the estimated average time period that an ATM is installed in a location before being deinstalled, and the related liabilities are accreted to their full value over the same period of time.

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The changes in the Company’s ARO liability consisted of the following (in thousands):

 

 

 

 

Asset retirement obligations at December 31, 2017

    

$

69,757

Additional obligations

 

 

6,054

Accretion expense

 

 

1,407

Change in estimates

 

 

462

Payments

 

 

(12,358)

Foreign currency translation adjustments

 

 

(2,663)

Asset retirement obligations at September 30, 2018

 

 

62,659

Less: current portion of asset retirement obligations

 

 

6,954

Asset retirement obligations, excluding current portion, September 30, 2018

 

$

55,705

  
Asset retirement obligations at December 31, 2018$61,223
Additional obligations1,126
Accretion expense458
Payments(1,451)
Foreign currency translation adjustments456
Asset retirement obligations at March 31, 201961,812
Less: current portion of asset retirement obligations6,866
Asset retirement obligations, excluding current portion, at March 31, 2019$54,946
For additional information related to the Company’s ARO with respect to its fair value measurements, see Note 14. Fair Value Measurements.

(11) Leases

The Company leases facilities consisting of office and warehouse space as well as vehicles and office equipment. In addition, certain ATM placement agreements are deemed to contain an operating lease of merchant space under the Lease Standard. The Company's facility leases have remaining lease terms extending up to more than 12 years, some of which may include one or more options to extend the associated lease term by up to 5-10 years, and some may include options for the Company or the lessor to terminate the leases prior to the end of the lease term. The exercise of lease renewal options is at the Company's discretion. From time to time, the Company may sublease office or warehouse space. This sublease activity is currently not significant. The Company's vehicle and office equipment leases currently have remaining lease terms extending up to 4 years and these leases typically have original terms of approximately 4-6 years. The Company has not historically extended its vehicle and office equipment leases beyond their original term. Similarly, the Company has not historically subleased these assets. The Company's ATM placement agreements that are deemed to contain an operating lease of merchant space under the Lease Standard have remaining terms extending from less than 1 year to more than 5 years. These consist of semi-permanent or through-the-wall placements of company-owned ATMs at merchant or financial institution locations. These arrangements are deemed to contain a lease as our counterparty lacks the practical ability to substitute alternative space. The renewal provisions under our ATM placement agreements vary.

The Company's ATM placement agreements that are deemed to contain an operating lease generally require fixed and/or variable merchant commissions. The variable payments are based on the type and volume of transactions conducted on the ATMs at each respective location. In addition, the merchant commissions may also change, in accordance with the terms of these agreements, responsive to changes in interchange fees or interest rates. Certain Company facility leases require variable payments based on a index or based on external market rates whereas our vehicle and office equipment leases do not generally include variable payments.

The Company recognizes the accounting impact of lease extension options when reasonably certain that a right to extend a lease will be exercised. The Company does not provide residual value guarantees within or in conjunction with any of its leases. As of March 31, 2019, all material leases of facilities, vehicles, office equipment, and merchant space had commenced.

The Company is not currently party to any significant finance leases. As a result, the net assets recorded under finance leases and the associated liabilities are not material.

See Note 2. New Accounting Pronouncements for the accounting impact of the Company's adoption of ASC 842- Leases on January 1, 2019.

Balance sheet information related to operating leases is as follows:
  Classification March 31, 2019 January 1, 2019 (Upon Adoption)
Assets   (In thousands)
Operating lease assets Operating lease assets $81,973
 $85,068
Total operating lease assets   $81,973
 $85,068
       
Liabilities      
Current      
Operating lease liabilities Current portion of other long-term liabilities $20,362
 $20,602
Noncurrent    
  
Noncurrent operating lease liabilities Noncurrent operating lease liabilities $72,482
 $74,746
Total operating lease liabilities   $92,844
 $95,348

Operating lease costs during the three months ended March 31, 2019 were as follows:
    Three Months Ended
  Classification March 31, 2019
    (In thousands)
Operating lease costs 
Cost of ATM operating revenues (1)
 $1,254
Operating lease costs 
Selling, general, and administrative expenses (2)
 1,783
Total operating lease cost   $3,037
(1) Includes the fixed and variable cost of facilities, vehicles, and equipment that are deemed direct operating lease costs. The variable lease cost associated
with these leases was not significant.
(2) Includes the fixed and variable cost of facilities, vehicles, and equipment that are deemed general and administrative operating lease costs. The variable
lease cost associated with these leases was not significant.

In addition to the operating lease costs above, the Company recognized the cost of its ATM placement agreements that are deemed to contain an operating lease. These costs are recognized as a component of merchant commission expense that resides within the Company's Cost of ATM operating revenues.

The following table presents the undiscounted cash flows associated with the Company's recognized operating lease liabilities in the next five years and thereafter.
Maturity of Recognized Operating Lease Liabilities

 
Operating 
Lease Payments(1)
  (In thousands)
2019 $17,544
2020 19,924
2021 17,149
2022 10,488
2023 7,607
After 2023 34,843
Total lease payments $107,555
Less: Interest (2)
 (14,711)
Present value of operating lease liabilities (3)
 $92,844

(1) Operating lease payments reflect the Company's current fixed obligations under the operating lease agreements. The Company has identified no extensions that are reasonably certain of being exercised and there are no significant lease agreements that have been signed and not yet commenced.
(2) Calculated using the estimated incremental borrowing rate for each lease.
(3) Includes current operating lease liabilities of $20.4 million and noncurrent operating lease liabilities of $72.5 million.

The following table presents the weighted-average remaining term and weighted-average discount rate associated with the Company's operating leases.
Lease Term and Discount Rate March 31, 2019 January 1, 2019 (Upon Adoption)
Weighted-average remaining lease term (years)    
   Operating leases 7.0
 7.1
Weighted-average discount rate  
  
   Operating leases 3.48% 3.45%

Additional lease information is summarized below:
  Three Months Ended March 31, 2019
  (In thousands)
Cash paid for amounts included in the measurement of lease liabilities:  
   Operating cash outflows resulting from payments of operating lease liabilities $5,297
   
New operating lease assets recognized during the period $1,857
During the three months ended March 31, 2019, the Company made $5.3 million in payments to satisfy the recognized operating lease obligations and recognized $1.9 million in new operating lease assets pertaining to new ATM placement agreements that are deemed to contain an operating lease. Comparative prior period information is not presented above as we adopted the Lease Standard on January 1, 2019 using this effective date as the date of initial application.
(12) Other Liabilities 

The Company’s other liabilities consisted of the following:

 

 

 

 

 

 

 

 

    

September 30, 2018

    

December 31, 2017

 

 

(In thousands)

Current portion of other long-term liabilities

 

 

 

 

 

 

Interest rate swap contracts

 

$

407

 

$

7,314

Asset retirement obligations

 

 

6,954

 

 

9,837

Deferred revenue

 

 

2,966

 

 

3,590

Other

 

 

9,363

 

 

10,629

Total current portion of other long-term liabilities

 

$

19,690

 

$

31,370

 

 

 

 

 

 

 

Noncurrent portion of other long-term liabilities

 

 

 

 

 

 

Acquisition-related contingent consideration

 

$

38,369

 

$

42,614

Interest rate swap contracts

 

 

 —

 

 

3,547

Deferred revenue

 

 

2,905

 

 

2,063

Other

 

 

18,470

 

 

26,778

Total noncurrent portion of other long-term liabilities

 

$

59,744

 

$

75,002

 March 31, 2019 December 31, 2018
 (In thousands)
Current portion of other long-term liabilities   
Operating lease liabilities$20,362
 $—
Acquisition related contingent consideration8,214
 —
Asset retirement obligations6,866
 6,810
Deferred revenue4,029
 4,109
Interest rate swap and cap contracts2,461
 396
Other8,560
 8,951
Total current portion of other long-term liabilities$50,492
 $20,266
    
Noncurrent portion of other long-term liabilities

  
Acquisition related contingent consideration$21,804
 $38,266
Interest rate swap and cap contracts7,456
 2,894
Deferred revenue3,987
 4,319
Other15,128
 22,261
Total noncurrent portion of other long-term liabilities$48,375
 $67,740
    
As of September 30,March 31, 2019 and 2018, the Acquisition-relatedAcquisition related contingent consideration line consisted of the estimated fair value of the contingent consideration associated with the Spark acquisition.

(13) Derivative Financial Instruments 

Risk Management Objectives of Using Derivatives

The Company is exposed to interest rate risk associated with its vault cash rental obligations and, to a lesser extent, borrowings under its revolving credit facility. The Company utilizes varying notional amount interest rate swap contracts and interest rate cap agreements (“Interest Rate Derivatives”) to manage the interest rate risk associated with its vault cash rental obligations in the U.S., Canada, the U.K., and Australia. The Company does not currently utilize derivative instruments to manage thehas also entered into an interest rate risk associated withswap to mitigate its borrowings.exposure to floating interest rates on its revolving credit facility borrowings outstanding. The Company is also exposed to foreign currency exchange rate risk with respect to its operations outside the U.S. The Company also uses foreign currency forward contracts to hedge its foreign exchange rate risk associated with certain anticipated transactions. Currently, the Company has outstanding foreign currency forward contracts for the purchase of approximately $5$1.4 million Canadian dollars with durations that extend through June 28, 2019.


The Company’s interest rate swap contractsInterest Rate Derivatives serve to mitigate interest rate risk exposure by converting a portion of the Company’s monthly floating-rate vault cash rental payments to either monthly fixed-rate vault cash rental payments.payments or to  vault cash rental payments with a capped rate. Typically, the Company receives monthly floating-rate payments from its interest rate swap contractInterest Rate Derivative counterparties that correspond

30

Table of Contents

to, in all material respects, the monthly floating-rate payments required by the Company to make to its vault cash rental providers for the portion of the average outstanding vault cash balances that have been hedged. The floating-rate payments may or may not be capped or limited. In return, the Company pays its counterparties a monthly fixed-rate amount based on the same notional amounts outstanding. By converting the vault cash rental obligation interest rate from a floating-rate to a fixed-rate or a capped rate, the impact of favorable and unfavorable changes in future interest rates on the monthly vault cash rental payments recognized in the Cost of ATM operating revenues line in the accompanying Consolidated StatementsStatement of Operations, has been reduced.

There is never an exchange of the underlying principal or notional amounts associated with the interest rate swap contracts described above. Additionally, none of the Company’s existing interest rate swap contracts contain credit-risk-related contingent features.


Accounting Policy 

The interest rate swap contractsInterest Rate Derivatives discussed above are derivative instruments used by the Company to hedge exposure to variability in expected future cash flows attributable to a particular risk; therefore, they are designated and qualify as cash flow hedging instruments. The Company does not currently hold any derivative instruments not designated as hedging instruments,cash flow hedges, fair value hedges, or hedges of a net investment in a foreign operation.

The

In accordance with the new Hedging Standard the Company reports the effective portion of a gain or loss related to theeach highly effective cash flow hedging instrument, including any ineffectiveness, as a component of the Accumulated other comprehensive loss, net line inwithin the accompanying Consolidated Balance Sheets and reclassifies the gain or loss into earnings inwithin the Vault cash rentalCost of ATM operating revenues, Interest expense, line innet, or Other (income) expense lines of the accompanying Consolidated Statements of Operations in the same period or periods during which the hedged transaction affects and has been forecasted in earnings.

Gains and losses related to The classification of the cash flow hedging instrument that represent eithergain or loss is determined based on the associated hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in the Other income line in the accompanying Consolidated Statements of Operations. designation.

As discussed above, the Company generally utilizes fixed-for-floating interest rate swap contracts in whichInterest Rate Derivatives where the underlying pricing terms of the cash flow hedging instrument agree, in all material respects, with the pricing terms of the vault cash rental obligations to the Company’s vault cash providers. Therefore, the amount of ineffectiveness associated with the interest rate swap contractsInterest Rate Derivatives has historically been immaterial. If the Company concludes that it is no longer probable1) the expected vault cash obligations that have been hedged will occur,are no longer probable or if changes are made to the2) that underlying contract terms of the vault cash rental agreements have changed such that they do not sufficiently agree to the interest rate swap contractpricing terms of the Interest Rate Derivatives, the Interest Rate Derivative contracts would be deemed ineffective. The Company does not currently anticipate terminating or modifying terms of its existing derivative instruments prior to their expiration dates.

Accordingly, the Company recognizes all of its interest rate swapInterest Rate Derivative contracts derivative instruments as assets or liabilities in the accompanying Consolidated Balance Sheets at fair value and any changes in the fair values of the related interest rate swapInterest Rate Derivative contracts have been reported in the Accumulated other comprehensive loss, net line inwithin the accompanying Consolidated Balance Sheets. The Company believes that it is more likely than not that it will be able to realize the benefits associated with its net deferred tax asset positions in the future, therefore, the unrealized gains and losses to the fair value related to the interest rate swap contracts have been reported net of estimated taxes in the Accumulated other comprehensive loss, net line inwithin the accompanying Consolidated Balance Sheets. For additional information related to the Company’s interest rate swap contracts with respect to its fair value measurements, see Note 14. Fair Value Measurements.

31


Table of Contents

Cash Flow Hedges

Summary of outstanding interest rate swaps in the U.S. and U.K.

The Company is party to varying notional amount interest rate swap contracts in the U.S. and the U.K. Outstanding Interest Rate Derivatives

The notional amounts, weighted average fixed rates, and terms associated with the Company’sour interest rate swap contracts accounted for as cash flow hedgesand cap agreement that are currently in place forin the U.S., Canada, the U.K, and U.K. (as of the date of the issuance of this Form 10-Q) are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional Amounts

 

Weighted Average Fixed Rate

 

Notional Amounts

    

Weighted Average Fixed Rate

 

 

U.S. $

 

U.S.

 

U.K. £

 

U.K.

 

Term 

(In millions)

 

 

 

 

(In millions)

 

 

 

 

 

$

1,450

 

2.11

%  

 

£

550

 

0.82

%  

 

October 1, 2018 – December 31, 2018

$

1,000

 

2.06

%  

 

£

550

 

0.90

%  

 

January 1, 2019 – December 31, 2019

$

1,000

 

2.06

%  

 

£

500

 

0.94

%  

 

January 1, 2020 – December 31, 2020

$

400

 

1.46

%  

 

£

500

 

0.94

%  

 

January 1, 2021 – December 31, 2021

$

400

 

1.46

%  

 

£

500

 

0.94

%  

 

January 1, 2022 – December 31, 2022

Summary of outstanding interest rate swaps in Australia

The notional amounts, weighted average fixed rates, and terms associated with the Company’s interest rate swap contracts accounted for as cash flow hedges that are currently in place for Australia (as of the date of the issuance of this 2019 Form 10-Q) are as follows:

 

 

 

 

 

 

 

Notional Amounts
AUS $

 

Weighted Average
Fixed Rate

 

Term 

(In millions)

 

 

 

 

 

$

35

 

2.98

%  

 

October 1, 2018 – February 28, 2019

Outstanding Interest Rate Derivatives Associated with Vault Cash Rental Obligations

North America – Interest Rate Swap Contracts
Notional Amounts
U.S. $
 
Weighted Average Fixed Rate 
 
Notional Amounts
CAD$
 
Weighted Average Fixed Rate 
 
Term 
(In millions)   (In millions)    
$1,000
 2.06% CAD $125
 2.46% April 1, 2019 – December 31, 2019
$1,000
 2.06% CAD $125
 2.46% January 1, 2020 – December 31, 2020
$600
 1.95% CAD $125
 2.46% January 1, 2021 – December 31, 2021
$400
 1.46%       January 1, 2022 – December 31, 2022

North America – Interest Rate Cap Contracts
Notional Amounts
U.S. $
 
Cap Rate (1)
 Term
(In millions)    
$ 200
 3.25% January 1, 2021 – December 31, 2023
(1)Maximum amount of interest to be paid each year as per terms of cap. Cost of cap is amortized through vault cash rental expense over term of cap.
Europe & Africa – Interest Rate Swap Contracts
Notional Amounts Weighted Average  
U.K. £ Fixed Rate 
Term 
(In millions)    
£550
 0.90% April 1, 2019 – December 31, 2019
£500
 0.94% January 1, 2020 – December 31, 2020
£500
 0.94% January 1, 2021 – December 31, 2021
£500
 0.94% January 1, 2022 – December 31, 2022
Australia & New Zealand – Interest Rate Swap Contracts
Notional Amounts
AUS $
 
Weighted Average
Fixed Rate
 
Term 
(In millions)    
$150
 1.95% April 1, 2019 - December 31, 2019
$100
 1.95% January 1, 2020 – December 31, 2020


Outstanding Interest Rate Derivatives Associated with Revolving Credit Facility Borrowings
Notional Amounts
U.K. £
 
Weighted Average Fixed Rate 
 
Term 
(In millions)    
£80
 0.95% April 1, 2019 – January 1, 2020
£50
 0.95% January 2, 2020 – January 1, 2021
The following tables depict the effects of the use of the Company’s derivative interest rate swap contracts in the accompanying Consolidated Balance Sheets and Consolidated Statements of Operations.

Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

December 31, 2017

Asset (Liability) Derivative Instruments

     

Balance Sheet Location

   

Fair Value

   

Balance Sheet Location

   

Fair Value

 

 

 

 

(In thousands) 

 

 

 

(In thousands) 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

Prepaid expenses, deferred costs, and other current assets

 

$

5,826

 

Prepaid expenses, deferred costs, and other current assets

 

$

1,154

Interest rate swap contracts

 

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

31,523

 

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

14,467

Interest rate swap contracts

 

Current portion of other long-term liabilities

 

 

(407)

 

Current portion of other long-term liabilities

 

 

(7,314)

Interest rate swap contracts

 

Other long-term liabilities

 

 

 —

 

Other long-term liabilities

 

 

(3,547)

Total derivative instruments, net

 

 

 

$

36,942

 

 

 

$

4,760

32

  March 31, 2019 December 31, 2018
Asset (Liability) Derivative Instruments Balance Sheet Location Fair Value Balance Sheet Location Fair Value
    
(In thousands) 
   
(In thousands) 
Derivatives designated as hedging instruments:        
Interest rate swap contracts Prepaid expenses, deferred costs, and other current assets $3,319
 Prepaid expenses, deferred costs, and other current assets $4,489
Interest rate swap contracts Prepaid expenses, deferred costs, and other noncurrent assets 6,911
 Prepaid expenses, deferred costs, and other noncurrent assets 15,316
Interest rate swap contracts Current portion of other long-term liabilities (2,461) Current portion of other long-term liabilities (396)
Interest rate swap and cap contracts Other long-term liabilities (7,456) Other long-term liabilities (2,894)
Total derivative instruments, net   $313
   $16,515

Table of Contents

Statements of Operations Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Derivatives in Cash Flow Hedging Relationship

 

Amount of Gain Recognized in Accumulated Other Comprehensive Loss on Derivative Instruments (Effective Portion)

 

Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

 

Amount of (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

 

 

    

2018

    

2017

    

 

    

2018

    

2017

 

 

 

(In thousands)

 

 

 

(In thousands)

 

Interest rate swap contracts

 

$

4,587

 

$

588

 

Cost of ATM operating revenues

 

$

(605)

 

$

(4,602)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 Three Months Ended March 31,

Derivatives in Cash Flow Hedging Relationship

 

Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss on Derivative Instruments (Effective Portion)

 

Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

 

Amount of (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

 
Amount of Gain (Loss) Recognized in
Accumulated Other Comprehensive Loss on
Derivative Instruments
 Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) 
Amount of Gain (Loss) Reclassified from
Accumulated Other Comprehensive Loss
into Income

    

2018 (1)

 

2017

    

 

    

2018

    

2017

 2019 2018   2019 2018

 

(In thousands)

 

 

 

(In thousands)

 (In thousands)   (In thousands)

Interest rate swap contracts

 

$

20,106

 

$

(3,966)

 

Cost of ATM operating revenues

 

$

(4,477)

 

$

(14,745)

 $(12,109) $14,772
 Cost of ATM operating revenues $338
 $(2,589)
Interest rate swap contracts (312) —
 Interest expense, net (56) —
Total $(12,421) $14,772
 $282
 $(2,589)

(1)

Also includes an insignificant loss related to foreign currency forward contracts as of the three and nine months ended September 30,2018.

As of September 30, 2018,March 31, 2019, the Company expects to reclassify $5.4$0.9 million of net derivative-related gains contained withinin the Accumulated other comprehensive loss, net line in thewithin its accompanying Consolidated Balance Sheets into earnings during the next twelve months concurrent with the recording of the related vault cash rental expense amounts.

amounts.






The following table shows the impact of our cash flow hedge accounting relationships on the statement of coperations for the three months ended March 31, 2019 and 2018:
  Location and Amount of Gain (Loss) Recognized in Income on Cash Flow Hedging Relationships in the Three Months Ended March 31,
  2019 2018
  (In thousands)
  Cost of ATM Operating Revenues Interest Expense, net Cost of ATM Operating Revenues
Total amount of expense presented in the statements of operations in which the effects of cash flow hedges are recorded $206,158
 $6,643
 $215,490
       
Amount of gain (loss) reclassified from accumulated other comprehensive income into income $338
 $(56) $(2,589)
(14) Fair Value Measurements 

The following table providestables provide the financial assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2018March 31, 2019 and December 31, 20172018 using the fair value hierarchy prescribed by U.S. GAAP. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includesrefers to fair values estimated using significant non-observable inputs. An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at September 30, 2018

 

   

Total

   

Level 1

   

Level 2

   

Level 3

 

 

(In thousands)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Assets associated with interest rate swap contracts

 

$

37,349

 

$

 —

 

$

37,349

 

$

 —

Liabilities 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities associated with interest rate swap contracts

 

$

(407)

 

$

 —

 

$

(407)

 

$

 —

Liabilities associated with acquisition-related contingent consideration

 

$

(38,369)

 

$

 —

 

$

 —

 

$

(38,369)

 Fair Value Measurements at March 31, 2019
 Total Level 1 Level 2 Level 3
 (In thousands)
Assets 
  
  
  
Assets associated with interest rate swap contracts$10,230
 $—
 $10,230
 $—
Liabilities       
Liabilities associated with interest rate swap contracts$(9,917) $—
 $(9,917) $—
Liabilities associated with acquisition related contingent consideration$(30,018) $—
 $—
 $(30,018)

33

 Fair Value Measurements at December 31, 2018
 Total Level 1 Level 2 Level 3
 (In thousands)
Assets 
  
  
  
Assets associated with interest rate swap contracts$19,805
 $—
 $19,805
 $—
Liabilities       
Liabilities associated with interest rate swap contracts$(3,290) $—
 $(3,290) $—
Liabilities associated with acquisition related contingent consideration$(38,266) $—
 $—
 $(38,266)

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2017

 

    

Total

    

Level 1

    

Level 2

    

Level 3

 

 

(In thousands)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Assets associated with interest rate swap contracts

 

$

15,621

 

$

 —

 

$

15,621

 

$

 —

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities associated with interest rate swap contracts

 

$

(10,861)

 

$

 —

 

$

(10,861)

 

$

 —

Liabilities associated with acquisition-related contingent consideration

 

$

(42,614)

 

$

 —

 

$

 —

 

$

(42,614)

As of September 30, 2018March 31, 2019 and December 31, 2017, our2018, liabilities associated with Level 2 interest rate swap contracts also includeincludes an insignificant amount related to foreign currency forward contracts.

contracts.

Below are descriptions of the Company’s valuation methodologies for assets and liabilities measured at fair value. The methods described below may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.


Cash and cash equivalents, accounts and notes receivable, net of allowance for doubtful accounts, prepaid expenses, deferred costs, and other current assets, accounts payable, accrued liabilities, and other current liabilities.These financial instruments are not carried at fair value, but are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk.

Acquisition-relatedAcquisition related intangible assets.The estimated fair values of acquisition-relatedacquisition related intangible assets are valued based on a discounted cash flows analysis using significant non-observable (Level 3) inputs. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. An assessment of non-amortized intangible assets is performed on an annual basis or more frequently based on the occurrence of events that might indicate a potential impairment.

Acquisition-relatedAcquisition related contingent consideration.Liabilities from acquisition-relatedacquisition related contingent consideration are estimated by using a Monte Carlo simulation and market observable, as well as internal projections, and other significant non-observable inputs (Level 3) inputs based on the Company’s best estimate of future operational results upon which the payment of these obligations are contingent. Future changes to the estimated contingent liability either higher or lower may occur as the estimated internal projections and other significant non-observable inputs for the calculation become available and are updated as deemed necessary. These future changesupdates could result in a material change in the estimated contingent liability. The estimates and significant non-observable inputs may differ from actual results. As the estimated contingent liability is based upon performance relative to certain agreed upon earnings targets in 2019 and 2020, the performance based payments wouldare expected to occur in 2020 and 2021, respectively. As of September 30, 2018,March 31, 2019, the estimated fair value of the Company’s acquisition-relatedacquisition related contingent consideration liability was $38.4approximately $30.0 million. Based on current forecasts, the Company estimates that approximately $8.2 million of the total aggregate estimated liability will be made in the first quarter of 2020 with the remaining amount being paid in the first quarter of 2021. During the three and nine months ended September 30, 2018,March 31, 2019, the Company recognized aan $8.2 million gain of approximately $0.5 million and a loss of $1.4 million, respectively,in Other (income) expense to revise the estimated fair value of the contingent consideration liability. SeparatelyThe foreign exchange gains of $1.2 million and $5.6 million, weregains/losses recognized during the three months ended March 31, 2019, to remeasure the South African Rand denominated liability in the three and nine months ended September 30, 2018, respectively.to U.S. Dollars were not significant. Both the revision to the estimated fair value and the foreign exchange gainsadjustments are included in the Other income line in the Consolidated Statements of Operations. For additional information related to the Spark acquisition contingent consideration, see Note 4. Acquisitions.

Long-term debt. The carrying amount of the long-term debt balance related to borrowings under the Company’s revolving credit facility approximates fair value due to the fact that any outstanding borrowings are subject to short-term floating interest rates. As of September 30, 2018,March 31, 2019, the fair value of the Convertible Notes, the 2022our 2020 Notes and the 2025 Notes (see Note 10. Long-Term Debt) totaled $278.5 million, $246.9$286.1 million and $287.8$293.0 million, respectively, based on the quoted prices in markets that are not active inputs (Level 2) inputs for these notes as of that date. For additional information related to long-term debt, see

Note 9. Long-Term Debt.

34

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Additions to asset retirement obligations liability.The Company estimates the fair value of additions to its ARO liability using expected discounted future cash outflows discountedflow at the Company’s credit-adjusted risk-free interest rate. Liabilities added to the ARO are measured at fair value at the time of the asset installations using significant non-observable (Level 3) inputs. These liabilities are evaluated periodically based on estimated current fair value. Amounts added to the ARO liability during the ninethree months ended September 30, 2018 and 2017March 31, 2019 totaled $6.0 million and $16.8 million, respectively. The additions during the nine months ended September 30, 2017 largely related to the ATM placements acquired in the DCPayments and Spark acquisitions.$1.1 million.

Interest rate swapderivatives and foreign currency forward contracts.As of September 30, 2018,March 31, 2019, the recognized fair value of the Company’s interest rate swap contracts consisted ofInterest Rate Derivatives resulted in an asset of $37.3$10.2 million and a liability of $0.4$(9.9) million (including an insignificant amount related to foreign currency forward contracts). These financial instruments are carried at fair value and calculated as the present value of amounts estimated to be received or paid to a marketplace participant in a selling transaction. These derivatives are valued using pricing models based on significant other observable inputs (Level 2) inputs,, while taking into account the creditworthiness of the party that is in the liability position with respect to each trade. For additional information related to the valuation process of this asset or liability, see Note 13. Derivative Financial Instruments.

(15) Commitments and Contingencies

Legal Matters

The Company is subject to various legal proceedings and claims arising in the ordinary course of its business. The Company has provided reserves where necessary for contingent liabilities, based on ASC 450, contingencies, when it has determined that a liability is probable and reasonably estimable. The Company’s management does not expect the outcome in any legal proceedings or claims, individually or collectively, to have a material adverse financial or operational impact on the Company. Additionally, the Company currently expenses all legal costs as they are incurred.

incurred.


Other Commitments and Contingencies

Asset retirement obligations.The Company’s ARO consist primarily of costs to deinstall the Company’s ATMs and to restore the ATM sites to their original condition. In most cases, the Company is contractually required to perform this deinstallation of its owned ATMs, and in some cases, site restoration work. As of September 30, 2018,March 31, 2019, the Company had $62.7$61.8 million accrued for these liabilities. For additional information, see Note 11.10. Asset Retirement Obligations.

Acquisition-relatedAcquisition related contingent consideration. As of September 30, 2018,March 31, 2019, the Company had $38.4$30.0 million accrued for the Spark acquisition-relatedacquisition related contingent consideration.For additional information related to the Spark acquisition related contingent consideration, see see Note 4. Acquisitions14. Fair Value Measurements..

(16) Income Taxes

The Company’s income tax expense based on income before income taxes for the periods presented was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

 

2017

 

2018

 

2017

 

 

(In thousands, excluding percentages)

Income tax expense (benefit)

 

$

7,854

 

 

$

(4,053)

 

 

$

10,409

 

 

$

(2,335)

 

Effective tax rate

 

 

47.2

%

 

 

2.3

%

 

 

51.6

%

 

 

1.4

%     

 Three Months Ended March 31,
 2019 2018
 (In thousands, excluding percentages)
Income tax expense (benefit)$3,129
 $(31)
Effective tax rate42.0% 1.1%

The Company’s income tax expense for the three months ended September 30, 2018March 31, 2019 totaled $7.9$3.1 million, resulting in an effective tax rate of 47.2%42%, compared to a benefit of $4.1$0.03 million, and an effective tax rate of 2.3%1.1%, for the same period of 2017.2018. The Company’s incomeincrease in the tax expense for the ninethree months ended September 30, 2018 totaled $10.4 million, or an effective tax rate of 51.6%,March 31, 2019, compared to a benefit of $2.3 million, or an effective tax rate of 1.4%, for the same period of 2017. The increase in the effective tax rate for the three and nine months ended September 30, 2018, compared to the same periods of 2017, was primarily attributable to (i) the limitation of interest expense the Company could deductprofits in the U.S.

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as a result of U.S. Tax Reform, (ii) the additional tax expense related to share-based compensation in 2018,current period compared to an excess tax benefitlosses in the same period of 2017, (iii) and the goodwill impairment recognized during the three and nine months ended September 30, 2017, resulting in a loss in earnings that was not deductible. 

As of September 30, 2018, the Company had not completed its accounting for the tax effects of the U.S. Tax Reform, due to additional guidance anticipated from standard-setting bodies and the need to obtain additional information to complete calculations. During the three months ended December 31, 2017, the Company provisionally recognized an estimated one-time tax expense of $7.8 million on its accumulated undistributed foreign earnings and during the three months ended September 30, 2018, the Company decreased its estimate of the one-time tax by $1.2 million upon its completion of the earnings and profits calculations of its foreign subsidiaries.  Offsetting this benefit, the Company recognized a charge of $1.0 million for deferred tax assets that will not be realized, determined after the release of IRS Notice 2018-68, clarifying deduction limitations for remunerations of covered persons. As a result,  the Company realized a net benefit of $0.2 million in thisprior period. The Company expects to complete its accounting for income tax effects of the U.S. Tax Reform in the three months ending December 31, 2018.


The Company assesses the need for any deferred tax asset valuation allowances at the end of each reporting period. The determination of whether a valuation allowance for deferred tax assets is needed is subject to considerable judgment and requires an evaluation of all available positive and negative evidence. Due to a history of losses and an increase in deferred tax assets in Canada in the current period, the Company concluded it is more likely than not that the net deferred tax asset will not be realized and therefore a valuation allowance was recorded against these assets as of March 31, 2019. The Company’s assessment concluded that maintaining valuation allowances on deferred tax assets in Australia, Mexico, and Spain was appropriate, as the Company currently believes that it is more likely than not that the related deferred tax assets will not be realized.

The deferred tax expenses and benefits associated with the Company’s net unrealized gains and losses on derivative instruments and foreign currency translation adjustments have been recorded in the Accumulated other comprehensive loss, net line in the accompanying Consolidated Balance Sheets.

(17) Segment Information

As of September 30, 2018,March 31, 2019, the Company’s operations consisted of its North America, Europe & Africa, and Australia & New Zealand segments. The Company’s ATM operations in the U.S., Canada, Mexico, and Puerto Rico are included in its North America segment. The North America segment also includes the Company’s transaction processing operations, which service its internal ATM operations, along with external customers. The Company’s operations in the U.K., Ireland, Germany, Spain, and South Africa are included in its Europe & Africa segment, along with i-design (the Company’s ATM advertising business based in the U.K.). The Company exited its operations in Poland at the end of 2017, which had previously been included in the Europe & Africa segment in the three and nine months ended September 30, 2017. The Company’s Australia & New Zealand segment consists exclusively of its operations in Australia and New Zealand. The Corporate segment solely includes the Company’s corporate general and administrative expenses. While each of the reporting segments provides similar kiosk-based and/or ATM-related services, each segment is managed separately and requires different marketing and business strategies. Segment information presented for prior periods have been revised to reflect the changes in the Company’s segments.

Management uses Adjusted EBITDA and Adjusted EBITA, together with U.S. GAAP measures, to manage and measure the performance of its segments. Management believes Adjusted EBITDA and Adjusted EBITA are useful measures as they allow management to more effectively evaluate the performance of the business and compare its results of operations from period to period without regard to financing methods, capital structure, or non-recurring costs as defined by the Company. Adjusted EBITDA and Adjusted EBITA exclude amortization of intangible assets, share-based compensation expense, acquisition and divestiture-related expenses, certain non-operating expenses, (if applicable in a particular period), certain costs not anticipated to occur in future periods, gains or losses on disposal and impairment of assets, the Company’s obligations for the payment of income taxes, interest expense, and other obligations such as capital expenditures, and includes an adjustment for noncontrolling interests. Additionally, Adjusted EBITDA excludes depreciation and accretion expense. Depreciation and accretion expense and amortization of intangible assets are excluded

as these amounts can vary substantially from company to company within the Company’s industry depending upon accounting methods and book values of assets, capital structures, and the methods by which the assets were acquired.

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Table of Contents

Adjusted EBITDA and Adjusted EBITA, as defined by the Company, are non-GAAP financial measures provided as a complement to financial results prepared in accordance with U.S. GAAP and may not be comparable to similarly-titled measures reported by other companies. In evaluating the Company’s performance as measured by Adjusted EBITDA and Adjusted EBITA, management recognizes and considers the limitations of these measurements. Accordingly, Adjusted EBITDA and Adjusted EBITA are only two of the measurements that management utilizes. Therefore, Adjusted EBITDA and Adjusted EBITA 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 prepared in accordance with U.S. GAAP.

The following table is a reconciliation of Net income (loss) attributable to controlling interests and available to common shareholders to EBITDA, Adjusted EBITDA, and Adjusted EBITA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

2018

    

2017

    

2018

    

2017

 

 

(In thousands)

Net income (loss) attributable to controlling interests and available to common shareholders

 

$

8,781

 

$

(175,561)

 

$

9,780

 

$

(161,304)

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

8,852

 

 

9,743

 

 

27,185

 

 

25,760

Amortization of deferred financing costs and note discount

 

 

3,397

 

 

3,195

 

 

10,060

 

 

9,317

Income tax expense (benefit)

 

 

7,854

 

 

(4,053)

 

 

10,409

 

 

(2,335)

Depreciation and accretion expense

 

 

30,647

 

 

29,807

 

 

93,453

 

 

88,683

Amortization of intangible assets

 

 

12,994

 

 

14,996

 

 

40,263

 

 

45,423

EBITDA

 

$

72,525

 

$

(121,873)

 

$

191,150

 

$

5,544

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

Loss on disposal and impairment of assets

 

 

466

 

 

22,307

 

 

15,583

 

 

26,170

Other income (1)

 

 

(1,297)

 

 

(2,095)

 

 

(1,324)

 

 

(1,730)

Noncontrolling interests (2)

 

 

12

 

 

(9)

 

 

31

 

 

(19)

Share-based compensation expense

 

 

4,669

 

 

4,151

 

 

10,627

 

 

9,971

Restructuring expenses (3)

 

 

1,058

 

 

22

 

 

5,534

 

 

9,025

Acquisition and divestiture-related expenses (4)

 

 

 —

 

 

2,889

 

 

2,633

 

 

15,338

Goodwill and intangible asset impairment (5)

 

 

 —

 

 

194,521

 

 

 —

 

 

194,521

Adjusted EBITDA

 

$

77,433

 

$

99,913

 

$

224,234

 

$

258,820

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense (6)

 

 

30,646

 

 

29,805

 

 

93,451

 

 

88,677

Adjusted EBITA

 

$

46,787

 

$

70,108

 

$

130,783

 

$

170,143

  Three Months Ended
March 31,
  2019 2018
 (In thousands)
Net income (loss) attributable to controlling interests and available to common shareholders $4,319
 $(2,768)
Adjustments:    
Interest expense, net 6,643
 9,174
Amortization of deferred financing costs and note discount 3,292
 3,308
Income tax expense (benefit) 3,129
 (31)
Depreciation and accretion expense 32,973
 31,042
Amortization of intangible assets 12,412
 13,771
EBITDA $62,768
 $54,496
Add back:    
Loss on disposal and impairment of assets 968
 5,420
Other (income) expense (1)
 (7,207) 2,160
Noncontrolling interests (2)
 15
 1
Share-based compensation expense 4,484
 2,445
Restructuring expenses (3)
 —
 2,413
Acquisition related expenses (4)
 —
 1,720
Adjusted EBITDA $61,028
 $68,655
Less:    
Depreciation and accretion expense (5)
 32,973
 31,041
Adjusted EBITA $28,055
 $37,614

(1)

Includes foreign currency translation gains/losses, the revaluation of the estimated acquisition-relatedacquisition related contingent consideration, and other non-operating costs.

(2)

Noncontrolling interestsinterest adjustment made such that Adjusted EBITDA includes only the Company’s ownership interest in the Adjusted EBITDA of one of its Mexican subsidiaries.

(3)

For the three and nine months ended September 30, 2018 and 2017, expensesExpenses include employee severance and other costs incurred in conjunction with a corporate reorganization and cost reduction initiative. For the three and nine months ended September 30, 2017, expenses also include amounts associated with the Company’s redomicile of its parent company to the U.K., that occurred on July 1, 2016.  

(4)

Acquisition and divestiture-related expenses include costs incurred for professional and legal fees and certain other transition and integration-related costs. Expenses primarily include employee severance costscost and lease termination costs related to DCPayments acquisition integration in the nine months ended September 30, 2018.

DCPayments.

(5)

Goodwill and intangible asset impairments related to the Company’s Australia and New Zealand segment.

(6)

Amounts exclude a portion of the expenses incurred by one of the Company’sits Mexican subsidiaries to account for the amounts allocable to the noncontrolling interest shareholders.


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Table of Contents

The following tables reflect certain financial information for each of the Company’s reporting segments for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

    

North America

    

Europe & Africa

    

Australia & New Zealand

    

Corporate

    

Eliminations

    

Total

 

 

(In thousands)

Revenue from external customers

 

$

206,465

 

$

104,241

 

$

29,469

 

$

 —

 

$

 —

 

$

340,175

Intersegment revenues

 

 

2,283

 

 

597

 

 

 —

 

 

 —

 

 

(2,880)

 

 

 —

Cost of revenues

 

 

141,169

 

 

64,603

 

 

21,227

 

 

229

 

 

(1,699)

 

 

225,529

Selling, general, and administrative expenses

 

 

16,762

 

 

9,079

 

 

2,362

 

 

13,693

 

 

 —

 

 

41,896

Restructuring expenses

 

 

942

 

 

116

 

 

 —

 

 

 —

 

 

 —

 

 

1,058

Acquisition and divestiture-related expenses

 

 

 —

 

 

 —

 

 

285

 

 

(285)

 

 

 —

 

 

 —

Loss (gain) on disposal and impairment of assets

 

 

246

 

 

232

 

 

(12)

 

 

 —

 

 

 —

 

 

466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

50,825

 

 

31,157

 

 

5,880

 

 

(9,265)

 

 

(1,164)

 

 

77,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense

 

 

17,405

 

 

11,788

 

 

1,265

 

 

203

 

 

(15)

 

 

30,646

Adjusted EBITA

 

 

33,412

 

 

19,369

 

 

4,615

 

 

(9,456)

 

 

(1,153)

 

 

46,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures (1)

 

$

14,149

 

$

10,931

 

$

1,595

 

$

 —

 

$

 —

 

$

26,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2017

 

    

North America

    

Europe & Africa

    

Australia & New Zealand

    

Corporate

    

Eliminations

    

Total

 

 

(In thousands)

Revenue from external customers

 

$

257,258

 

$

109,259

 

$

35,433

 

 

 —

 

 

 —

 

$

401,950

Intersegment revenues

 

 

2,360

 

 

326

 

 

 —

 

 

 —

 

 

(2,686)

 

 

 —

Cost of revenues

 

 

170,948

 

 

65,189

 

 

24,907

 

 

797

 

 

(1,785)

 

 

260,056

Selling, general, and administrative expenses

 

 

17,273

 

 

9,799

 

 

2,282

 

 

16,778

 

 

 —

 

 

46,132

Redomicile-related expenses

 

 

 —

 

 

13

 

 

 —

 

 

 9

 

 

 —

 

 

22

Acquisition and divestiture-related expenses

 

 

95

 

 

(245)

 

 

442

 

 

2,597

 

 

 —

 

 

2,889

Goodwill and intangible asset impairment

 

 

 —

 

 

 —

 

 

194,521

 

 

 —

 

 

 —

 

 

194,521

Loss on disposal and impairment of assets

 

 

479

 

 

160

 

 

21,668

 

 

 —

 

 

 —

 

 

22,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

71,397

 

 

34,596

 

 

8,237

 

 

(13,423)

 

 

(894)

 

 

99,913

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense

 

 

16,413

 

 

11,476

 

 

1,916

 

 

 —

 

 

 —

 

 

29,805

Adjusted EBITA

 

 

54,984

 

 

23,120

 

 

6,321

 

 

(13,423)

 

 

(894)

 

 

70,108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures (1)

 

$

20,658

 

$

19,604

 

$

1,294

 

 

 —

 

 

 —

 

$

41,556

 Three Months Ended March 31, 2019
 North America Europe & Africa Australia & New Zealand Corporate Eliminations Total
 (In thousands)
Revenue from external customers$201,664
 $90,596
 $26,010
 $—
 $—
 $318,270
Intersegment revenues2,584
 329
 —
 —
 (2,913) —
Cost of revenues137,908
 63,409
 19,361
 261
 (2,856) 218,083
Selling, general, and administrative expenses17,266
 10,746
 2,241
 13,407
 —
 43,660
Loss (gain) on disposal and impairment of assets324
 671
 (27) —
 —
 968
            
Adjusted EBITDA49,075
 16,768
 4,409
 (9,184) (40) 61,028
            
Depreciation and accretion expense19,486
 12,021
 1,220
 267
 (21) 32,973
Adjusted EBITA29,589
 4,746
 3,189
 (9,450) (19) 28,055
            
Capital expenditures (1)
$17,575
 $10,248
 $1,484
 $—
 $—
 $29,307

38

 
Three Months Ended March 31, 2018 (2)
 North America Europe & Africa Australia & New Zealand Corporate Eliminations Total
 (In thousands)
Revenue from external customers$207,533
 $97,955
 $30,696
 $—
 $—
 $336,184
Intersegment revenues2,346
 490
 —
 —
 (2,836) —
Cost of revenues145,389
 62,531
 22,941
 84
 (2,693) 228,252
Selling, general, and administrative expenses15,934
 9,859
 2,726
 13,331
 (110) 41,740
Restructuring expenses1,057
 681
 —
 675
 —
 2,413
Acquisition related expenses(38) 1,348
 203
 207
 —
 1,720
Loss (gain) on disposal and impairment of assets2,022
 3,410
 (12) —
 —
 5,420
            
Adjusted EBITDA48,555
 26,054
 5,030
 (10,971) (13) 68,655
            
Depreciation and accretion expense16,543
 13,236
 1,263
 —
 —
 31,042
Adjusted EBITA32,012
 12,818
 3,767
 (10,971) (12) 37,614
            
Capital expenditures (1)
$5,533
 $9,400
 $1,866
 $3,940
 $—
 $20,739

Table of Contents


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

    

North America

    

Europe & Africa

    

Australia & New Zealand

    

Corporate

    

Eliminations

    

Total

 

 

 

(In thousands)

 

Revenue from external customers

 

$

618,538

 

$

309,522

 

$

89,286

 

$

 —

 

$

 —

 

$

1,017,346

 

Intersegment revenues

 

 

6,888

 

 

1,610

 

 

 —

 

 

 —

 

 

(8,498)

 

 

 —

 

Cost of revenues

 

 

426,742

 

 

191,049

 

 

66,198

 

 

404

 

 

(5,173)

 

 

679,220

 

Selling, general, and administrative expenses

 

 

49,239

 

 

27,682

 

 

7,409

 

 

40,248

 

 

(14)

 

 

124,564

 

Restructuring expenses

 

 

3,072

 

 

1,292

 

 

 —

 

 

1,170

 

 

 —

 

 

5,534

 

Acquisition and divestiture-related expenses

 

 

(348)

 

 

1,516

 

 

920

 

 

545

 

 

 —

 

 

2,633

 

Loss on disposal and impairment of assets

 

 

10,880

 

 

4,613

 

 

90

 

 

 —

 

 

 —

 

 

15,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

149,445

 

 

92,403

 

 

15,678

 

 

(30,024)

 

 

(3,268)

 

 

224,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense

 

 

51,257

 

 

38,286

 

 

3,774

 

 

203

 

 

(69)

 

 

93,451

 

Adjusted EBITA

 

 

98,186

 

 

54,117

 

 

11,905

 

 

(30,227)

 

 

(3,198)

 

 

130,783

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures (1)

 

$

24,672

 

$

29,475

 

$

5,017

 

$

14,193

 

$

 —

 

$

73,357

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2017

 

 

    

North America

    

Europe & Africa

    

Australia & New Zealand

    

Corporate

    

Eliminations

    

Total

 

 

 

(In thousands)

 

Revenue from external customers

 

$

745,801

 

 

298,857

 

 

99,976

 

 

 —

 

 

 —

 

$

1,144,634

 

Intersegment revenues

 

 

6,731

 

 

1,129

 

 

 —

 

 

 —

 

 

(7,860)

 

 

 —

 

Cost of revenues

 

 

506,956

 

 

188,889

 

 

72,400

 

 

937

 

 

(4,964)

 

 

764,218

 

Selling, general, and administrative expenses

 

 

53,300

 

 

29,516

 

 

6,633

 

 

42,102

 

 

 —

 

 

131,551

 

Redomicile-related expenses

 

 

 —

 

 

36

 

 

 —

 

 

746

 

 

 —

 

 

782

 

Restructuring expenses

 

 

3,668

 

 

831

 

 

 —

 

 

3,744

 

 

 —

 

 

8,243

 

Acquisition and divestiture-related expenses

 

 

2,243

 

 

1,748

 

 

2,153

 

 

9,194

 

 

 —

 

 

15,338

 

Goodwill and intangible asset impairment

 

 

 —

 

 

 —

 

 

194,521

 

 

 —

 

 

 —

 

 

194,521

 

Loss on disposal and impairment of assets

 

 

4,275

 

 

369

 

 

21,478

 

 

48

 

 

 —

 

 

26,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

192,273

 

 

81,581

 

 

20,924

 

 

(33,069)

 

 

(2,889)

 

 

258,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense

 

 

50,967

 

 

32,093

 

 

5,617

 

 

 —

 

 

 —

 

 

88,677

 

Adjusted EBITA

 

 

141,300

 

 

49,489

 

 

15,312

 

 

(33,069)

 

 

(2,889)

 

 

170,143

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures (1)

 

$

60,161

 

 

45,814

 

 

5,449

 

 

 —

 

 

 —

 

$

111,424

 

(1)

Capital expenditures include payments made for plant, property, and equipment, exclusive license agreements, and site acquisition costs. Additionally, capital expenditure amounts for one of the Company’s Mexican subsidiaries, included in the North America segment, are reflected gross of any noncontrolling interest amounts.

(2)The segment information presented for the Three months ended March 31, 2018 has been revised to ensure consistency with the current allocation of certain intercompany revenues and expenses.

Identifiable Assets

39

 March 31, 2019 December 31, 2018
 
(In thousands) 
North America$1,139,119
 $1,195,693
Europe & Africa562,203
 494,457
Australia & New Zealand71,426
 63,613
Corporate29,462
 33,581
Total$1,802,210
 $1,787,344

Table of Contents

Identifiable Assets

 

 

 

 

 

 

 

 

    

September 30, 2018

    

December 31, 2017

 

 

(In thousands) 

North America

 

$

1,135,065

 

$

1,175,154

Europe & Africa

 

 

535,665

 

 

579,879

Australia & New Zealand

 

 

66,086

 

 

75,095

Corporate

 

 

47,265

 

 

32,588

Total

 

$

1,784,081

 

$

1,862,716

(18) Supplemental Guarantor Financial Information 

Prior to the Redomicile Transaction, the 2022

The 2025 Notes wereare fully and unconditionally and jointly and severally guaranteed subject to certain customary release provisions, on a joint and severalsenior unsecured basis by certain wholly-owned subsidiaries of Cardtronics Delaware. On July 1, 2016, Cardtronics plc and certain of its subsidiaries became 2022 Notes Guarantors pursuant to the 2022 Notes Supplemental Indenture entered into in conjunctionand certain of its future subsidiaries, with the Redomicile Transaction. As of September 30, 2018, the 2022 Notes were fully and unconditionally guaranteed, subject to certain customary release provisions, on a joint and several basis by Cardtronics plc and these subsidiaries (including the original Cardtronics Delaware subsidiary 2022 Notes Guarantors). Cardtronics Delaware, the subsidiary issuer of the 2022 Notes is 100% owned by Cardtronics plc, the parent 2022 Notes Guarantor. In addition, on April 28, 2017, additional subsidiariesexception of Cardtronics plc were added as 2022 Notesplc’s immaterial subsidiaries and CFC Guarantors pursuant to(as defined in the 2022 Notes Second Supplemental Indenture.

Credit Agreement). The guarantees of the 20222025 Notes by any 2022 Notes Guarantor (other than Cardtronics plc) are subject to automatic and customary releases upon: (i) the sale or disposition of all or substantially all of the assets of the 2022 Notes Guarantor, (ii) the disposition of sufficient common sharescapital stock of the 2022 Notes Guarantor so that it no longer qualifies under the 2022 Notes Indenture as a restricted subsidiary of Cardtronics plc,the Company, (iii) the designation of the 2022 Notes Guarantor as an unrestricted subsidiary in accordance with the 2022 Notes Indenture, (iv) the legal or covenant defeasance of the 2022 Notesnotes or the satisfaction and discharge of the 2022 Notes Indenture, (v) the liquidation or dissolution of the 2022 Notes Guarantor, or (vi) provided the 2022 Notes Guarantor is not wholly-owned by Cardtronics plc,the Company, its ceasing to guarantee other indebtednessdebt of the Cardtronics plc, Cardtronics Delaware,Company or another 2022 Notes Guarantor. A 2022 Notes Guarantor (other than Cardtronics plc) may not sell or otherwise dispose of all or substantially all of its properties or assets to, or consolidate with or merge with or into, another company (other than Cardtronics plc, Cardtronics Delaware,the Company or another 2022 Notes Guarantor), unless no default under the 2022 Notes Indenture exists and either the successor to the 2022 Notes Guarantor assumes its guarantee of the 20222025 Notes or the disposition, consolidation, or merger complies with the “Asset Sales” covenant in the 2022 Notes Indenture. In addition, Cardtronics plc may not sell or otherwise dispose of all or substantially all of its properties or assets to, or consolidate with or merge with or into, another company (other than Cardtronics Delaware or another 2022 Notes Guarantor), unless, among other things, no default under the 2022 Notes Indenture exists, the successor to Cardtronics plc is a domestic entity and assumes Cardtronics plc’s guarantee of the 2022 Notes and transaction (on a pro forma basis) satisfies certain criteria related to the Fixed Charge Coverage Ratio (as defined in the 2022 Notes Indenture).

The following tables reflectinformation reflects the Condensed ConsolidatedConsolidating Statements of Comprehensive (Loss) Income (Loss) for the three and nine months ended September 30, 2018 and 2017, the Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30,March 31, 2019 and 2018 and 2017, and the Condensed ConsolidatedConsolidating Balance Sheets as of September 30,March 31, 2019 and 2018 and December 31, 2017 for: (i) Cardtronics plc, the parent 2022Guarantor of the 2025 Notes Guarantor (“Parent”), (ii) Cardtronics DelawareInc. (“Issuer”), (iii) the 20222025 Notes Guarantors (including those 2022 Notes Guarantors added pursuant to the 2022 Notes Second Supplemental Indenture) (the “Guarantors”), and (iv) the 20222025 Notes Non-Guarantors.

40

Table of Contents

Condensed Consolidated Statements of Comprehensive (Loss) Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

Revenues

 

$

 —

 

$

 —

 

$

232,239

 

$

110,961

 

$

(3,025)

 

$

340,175

Operating costs and expenses

 

 

7,739

 

 

 7

 

 

202,478

 

 

104,321

 

 

(1,955)

 

 

312,590

(Loss) income from operations

 

 

(7,739)

 

 

(7)

 

 

29,761

 

 

6,640

 

 

(1,070)

 

 

27,585

Interest expense (income), net, including amortization of deferred financing costs and note discount

 

 

 —

 

 

6,691

 

 

9,900

 

 

(4,411)

 

 

69

 

 

12,249

Equity in (earnings) of subsidiaries

 

 

(15,024)

 

 

(4,241)

 

 

(1,718)

 

 

 —

 

 

20,983

 

 

 —

Other (income) expense

 

 

(29)

 

 

(8)

 

 

2,886

 

 

2,213

 

 

(6,359)

 

 

(1,297)

Income (loss) before income taxes

 

 

7,314

 

 

(2,449)

 

 

18,693

 

 

8,838

 

 

(15,763)

 

 

16,633

Income tax (benefit) expense

 

 

(1,465)

 

 

(1,657)

 

 

8,385

 

 

2,591

 

 

 —

 

 

7,854

Net income (loss)

 

 

8,779

 

 

(792)

 

 

10,308

 

 

6,247

 

 

(15,763)

 

 

8,779

Net loss attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2)

 

 

(2)

Net income (loss) attributable to controlling interests and available to common stockholders

 

 

8,779

 

 

(792)

 

 

10,308

 

 

6,247

 

 

(15,761)

 

 

8,781

Comprehensive income (loss)  attributable to controlling interests

 

$

12,829

 

$

(793)

 

$

19,451

 

$

1,152

 

$

(19,807)

 

$

12,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2017

 

 

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

Revenues

 

$

 —

 

$

 —

 

$

278,863

 

$

125,679

 

$

(2,592)

 

$

401,950

Operating costs and expenses

 

 

8,547

 

 

12,844

 

 

244,123

 

 

112,384

 

 

(1,689)

 

 

376,209

Goodwill and Intangible Impairment

 

 

 —

 

 

 —

 

 

194,521

 

 

 —

 

 

 —

 

 

194,521

(Loss) income from operations

 

 

(8,547)

 

 

(12,844)

 

 

(159,781)

 

 

13,295

 

 

(903)

 

 

(168,780)

Interest expense (income), net, including amortization of deferred financing costs and note discount

 

 

 —

 

 

6,410

 

 

10,468

 

 

(3,940)

 

 

 —

 

 

12,938

Equity in losses (earnings) of subsidiaries

 

 

166,944

 

 

(32,956)

 

 

(4,094)

 

 

 —

 

 

(129,894)

 

 

 —

Other expense (income)

 

 

95

 

 

(236)

 

 

5,804

 

 

(2,714)

 

 

(5,044)

 

 

(2,095)

(Loss) income before income taxes

 

 

(175,586)

 

 

13,938

 

 

(171,959)

 

 

19,949

 

 

134,035

 

 

(179,623)

Income tax (benefit) expense 

 

 

(16)

 

 

(7,417)

 

 

(873)

 

 

4,253

 

 

 —

 

 

(4,053)

Net (loss) income

 

 

(175,570)

 

 

21,355

 

 

(171,086)

 

 

15,696

 

 

134,035

 

 

(175,570)

Net loss attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(9)

 

 

(9)

Net (loss) income attributable to controlling interests and available to common stockholders

 

 

(175,570)

 

 

21,355

 

 

(171,086)

 

 

15,696

 

 

134,044

 

 

(175,561)

Comprehensive (loss) income attributable to controlling interests

 

$

(152,509)

 

$

22,599

 

$

(169,367)

 

$

37,104

 

$

109,673

 

$

(152,500)

41

 Three Months Ended March 31, 2019
 Parent Issuer Guarantors Non-Guarantors Eliminations Total
 (In thousands)
Revenues$—
 $—
 $231,325
 $89,802
 $(2,857) $318,270
Operating costs and expenses7,848
 —
 207,105
 96,000
 (2,857) 308,096
(Loss) income from operations(7,848) —
 24,220
 (6,198) —
 10,174
Interest expense (income), net, including amortization of deferred financing costs and note discount—
 3,139
 9,197
 (2,452) 51
 9,935
Equity in (earnings) loss of subsidiaries(10,747) (8,180) (88) —
 19,015
 —
Other (income) expense89
 (28) 3,049
 (7,036) (3,281) (7,207)
Income (loss) before income taxes2,810
 5,069
 12,062
 3,290
 (15,785) 7,446
Income tax (benefit) expense(1,508) (716) 3,819
 1,534
 —
 3,129
Net income (loss)4,318
 5,785
 8,243
 1,756
 (15,785) 4,317
Net loss attributable to noncontrolling interests—
 —
 —
 —
 (2) (2)
Net income attributable to controlling interests and available to common shareholders4,318
 5,785
 8,243
 1,756
 (15,783) 4,319
Comprehensive (loss) income attributable to controlling interests$(3,284) $5,788
 $(2,575) $5,079
 $(8,292) $(3,284)

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

Revenues

 

$

 —

 

$

 —

 

$

695,990

 

$

330,240

 

$

(8,884)

 

$

1,017,346

Operating costs and expenses

 

 

19,649

 

 

16

 

 

626,284

 

 

321,158

 

 

(5,857)

 

 

961,250

(Loss) income from operations

 

 

(19,649)

 

 

(16)

 

 

69,706

 

 

9,082

 

 

(3,027)

 

 

56,096

Interest expense (income), net, including amortization of deferred financing costs and note discount

 

 

 —

 

 

19,850

 

 

30,782

 

 

(13,517)

 

 

130

 

 

37,245

Equity in (earnings) loss of subsidiaries

 

 

(25,667)

 

 

5,415

 

 

31,610

 

 

 —

 

 

(11,358)

 

 

 —

Other (income) expense

 

 

(18)

 

 

176

 

 

(1,185)

 

 

(3,484)

 

 

3,187

 

 

(1,324)

Income (loss)  before income taxes

 

 

6,036

 

 

(25,457)

 

 

8,499

 

 

26,083

 

 

5,014

 

 

20,175

Income tax (benefit) expense

 

 

(3,730)

 

 

(4,965)

 

 

11,636

 

 

7,468

 

 

 —

 

 

10,409

Net income (loss) 

 

 

9,766

 

 

(20,492)

 

 

(3,137)

 

 

18,615

 

 

5,014

 

 

9,766

Net loss attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(14)

 

 

(14)

Net income (loss) attributable to controlling interests and available to common shareholders

 

 

9,766

 

 

(20,492)

 

 

(3,137)

 

 

18,615

 

 

5,028

 

 

9,780

Comprehensive income (loss) attributable to controlling interests

 

$

10,025

 

$

(20,493)

 

$

26,378

 

$

(10,642)

 

$

4,771

 

$

10,039

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2017

 

 

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

Revenues

 

$

 —

 

$

 —

 

$

805,467

 

$

347,683

 

$

(8,516)

 

$

1,144,634

Operating costs and expenses

 

 

21,244

 

 

25,295

 

 

711,231

 

 

328,263

 

 

(5,625)

 

 

1,080,408

Goodwill and Intangible Impairment

 

 

 —

 

 

 —

 

 

194,521

 

 

 —

 

 

 —

 

 

194,521

(Loss) income from operations

 

 

(21,244)

 

 

(25,295)

 

 

(100,285)

 

 

19,420

 

 

(2,891)

 

 

(130,295)

Interest expense (income), net, including amortization of deferred financing costs and note discount

 

 

 —

 

 

18,821

 

 

29,029

 

 

(12,773)

 

 

 —

 

 

35,077

Equity in loss (earnings) of subsidiaries

 

 

140,268

 

 

(58,284)

 

 

(8,774)

 

 

 —

 

 

(73,210)

 

 

 —

Other (income) expense

 

 

(138)

 

 

(416)

 

 

27,064

 

 

(7,805)

 

 

(20,435)

 

 

(1,730)

(Loss) income before income taxes

 

 

(161,374)

 

 

14,584

 

 

(147,604)

 

 

39,998

 

 

90,754

 

 

(163,642)

Income tax (benefit) expense

 

 

(67)

 

 

(17,043)

 

 

10,207

 

 

4,568

 

 

 —

 

 

(2,335)

Net (loss) income

 

 

(161,307)

 

 

31,627

 

 

(157,811)

 

 

35,430

 

 

90,754

 

 

(161,307)

Net loss attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3)

 

 

(3)

Net (loss) income attributable to controlling interests and available to common shareholders

 

 

(161,307)

 

 

31,627

 

 

(157,811)

 

 

35,430

 

 

90,757

 

 

(161,304)

Comprehensive (loss) income attributable to controlling interests

 

$

(99,384)

 

$

34,315

 

$

(154,547)

 

$

92,711

 

$

27,523

 

$

(99,382)

 Three Months Ended March 31, 2018
 Parent Issuer Guarantors Non-Guarantors Eliminations Total
 (In thousands)
Revenues$—
 $—
 $241,469
 $97,710
 $(2,995) $336,184
Operating costs and expenses5,535
 (1) 217,755
 104,064
 (2,995) 324,358
(Loss) income from operations(5,535) 1
 23,714
 (6,354) —
 11,826
Interest expense (income), net, including amortization of deferred financing costs and note discount—
 6,542
 10,493
 (4,553) —
 12,482
Equity in (earnings) losses of subsidiaries(1,780) 8,078
 14,315
 —
 (20,613) —
Other expense (income)101
 135
 (3,733) (7,251) 12,908
 2,160
(Loss) income before income taxes(3,856) (14,754) 2,639
 5,450
 7,705
 (2,816)
Income tax (benefit) expense(1,071) (1,653) 170
 2,523
 —
 (31)
Net (loss) income(2,785) (13,101) 2,469
 2,927
 7,705
 (2,785)
Net loss attributable to noncontrolling interests—
 —
 —
 —
 (17) (17)
Net (loss) income attributable to controlling interests and available to common shareholders(2,785) (13,100) 2,468
 2,927
 7,722
 (2,768)
Comprehensive income (loss) attributable to controlling interests$22,200
 $(13,100) $9,249
 $21,116
 $(17,246) $22,219

42


Table of Contents

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2018

 

 

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations

    

Total

 

 

(In thousands)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

89

 

$

 6

 

$

20,598

 

$

19,735

 

$

 —

 

$

40,428

Accounts and notes receivable, net

 

 

 —

 

 

 —

 

 

56,523

 

 

30,627

 

 

 —

 

 

87,150

Other current assets

 

 

24

 

 

5,762

 

 

91,515

 

 

98,383

 

 

 —

 

 

195,684

Total current assets

 

 

113

 

 

5,768

 

 

168,636

 

 

148,745

 

 

 —

 

 

323,262

Property and equipment, net

 

 

 —

 

 

 —

 

 

299,744

 

 

158,011

 

 

(405)

 

 

457,350

Intangible assets, net

 

 

 —

 

 

 —

 

 

128,673

 

 

36,724

 

 

(917)

 

 

164,480

Goodwill

 

 

 —

 

 

 —

 

 

570,421

 

 

189,295

 

 

(525)

 

 

759,191

Investments in and advances to subsidiaries

 

 

408,015

 

 

754,791

 

 

337,630

 

 

 —

 

 

(1,500,436)

 

 

 —

Intercompany receivable

 

 

16,328

 

 

170,221

 

 

86,571

 

 

475,625

 

 

(748,745)

 

 

 —

Deferred tax asset, net

 

 

598

 

 

 —

 

 

(1,987)

 

 

8,801

 

 

 —

 

 

7,412

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

 —

 

 

22,963

 

 

27,601

 

 

21,822

 

 

 —

 

 

72,386

Total assets

 

$

425,054

 

$

953,743

 

$

1,617,289

 

$

1,039,023

 

$

(2,251,028)

 

$

1,784,081

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of other long-term liabilities

 

 

 —

 

 

250

 

 

15,307

 

 

4,145

 

 

(12)

 

 

19,690

Accounts payable and accrued liabilities

 

 

587

 

 

3,084

 

 

221,556

 

 

127,375

 

 

 —

 

 

352,602

Total current liabilities

 

 

587

 

 

3,334

 

 

236,863

 

 

131,520

 

 

(12)

 

 

372,292

Long-term debt

 

 

 —

 

 

509,624

 

 

321,998

 

 

4,168

 

 

 —

 

 

835,790

Intercompany payable

 

 

12,729

 

 

19,449

 

 

638,808

 

 

81,042

 

 

(752,028)

 

 

 —

Asset retirement obligations

 

 

 —

 

 

 —

 

 

25,336

 

 

30,369

 

 

 —

 

 

55,705

Deferred tax liability, net

 

 

 —

 

 

 —

 

 

46,284

 

 

2,528

 

 

 —

 

 

48,812

Other long-term liabilities

 

 

 —

 

 

267

 

 

20,168

 

 

39,309

 

 

 —

 

 

59,744

Total liabilities

 

 

13,316

 

 

532,674

 

 

1,289,457

 

 

288,936

 

 

(752,040)

 

 

1,372,343

Shareholders' equity

 

 

411,738

 

 

421,069

 

 

327,832

 

 

750,087

 

 

(1,498,988)

 

 

411,738

Total liabilities and shareholders' equity

 

$

425,054

 

$

953,743

 

$

1,617,289

 

$

1,039,023

 

$

(2,251,028)

 

$

1,784,081

 As of March 31, 2019
 Parent Issuer Guarantors Non-Guarantors Eliminations Total
 (In thousands)
Assets 
  
  
  
  
  
Cash and cash equivalents$89
 $6
 $17,844
 $17,505
 $—
 $35,444
Restricted cash—
 —
 55,186
 29,604
 —
 84,790
Accounts and notes receivable, net—
 —
 52,288
 27,989
 —
 80,277
Other current assets—
 3,311
 43,225
 69,121
 —
 115,657
Total current assets89
 3,317
 168,543
 144,219
 —
 316,168
Property and equipment, net—
 —
 318,069
 139,998
 —
 458,067
Intangible assets, net—
 —
 115,317
 24,774
 —
 140,091
Goodwill—
 —
 568,840
 185,244
 —
 754,084
Operating lease assets—
 —
 36,655
 45,318
 —
 81,973
Investments in and advances to subsidiaries375,771
 212,660
 217,776
 —
 (806,207) —
Intercompany receivable10,324
 218,177
 185,961
 366,915
 (781,377) —
Deferred tax asset, net377
 —
 (1,743) 11,677
 —
 10,311
Prepaid expenses, deferred costs, and other noncurrent assets—
 7,039
 23,099
 11,378
 —
 41,516
Total assets$386,561
 $441,193
 $1,632,517
 $929,523
 $(1,587,584) $1,802,210
Liabilities and Shareholders' Equity           
Current portion of other long-term liabilities$—
 $490
 $20,395
 $29,607
 $—
 $50,492
Accounts payable and accrued liabilities317
 958
 239,863
 116,599
 —
 357,737
Total current liabilities317
 1,448
 260,258
 146,206
 —
 408,229
Long-term debt—
 266,492
 333,908
 202,319
 —
 802,719
Intercompany payable10,415
 69,651
 587,042
 117,443
 (784,551) —
Asset retirement obligations—
 —
 27,928
 27,018
 —
 54,946
Operating lease liabilities—
 —
 43,436
 29,046
 —
 72,482
Deferred tax liability, net—
 —
 38,269
 1,361
 —
 39,630
Other long-term liabilities—
 5,403
 20,100
 22,872
 —
 48,375
Total liabilities10,732
 342,994
 1,310,941
 546,265
 (784,551) 1,426,381
Shareholders' equity375,829
 98,199
 321,576
 383,258
 (803,033) 375,829
Total liabilities and shareholders' equity$386,561
 $441,193
 $1,632,517
 $929,523
 $(1,587,584) $1,802,210

43


 As of December 31, 2018
 Parent Issuer Guarantors Non-Guarantors Eliminations Total
 (In thousands)
Assets 
  
  
  
  
  
Cash and cash equivalents$89
 $6
 $25,200
 $14,645
 $—
 $39,940
Accounts and notes receivable, net—
 —
 47,032
 28,611
 —
 75,643
Restricted Cash—
 —
 139,890
 15,580
 —
 155,470
Other current assets1
 4,374
 38,227
 53,186
 (10) 95,778
Total current assets90
 4,380
 250,349
 112,022
 (10) 366,831
Property and equipment, net—
 —
 318,937
 141,250
 —
 460,187
Intangible assets, net—
 —
 122,596
 28,251
 —
 150,847
Goodwill—
 —
 566,655
 182,489
 —
 749,144
Investments in and advances to subsidiaries375,535
 410,955
 228,286
 19,226
 (1,034,002) —
Intercompany receivable7,412
 211,359
 149,537
 358,610
 (726,918) —
Deferred tax asset, net342
 —
 (1,688) 10,004
 —
 8,658
Prepaid expenses, deferred costs, and other noncurrent assets—
 10,957
 24,314
 16,406
 —
 51,677
Total assets$383,379
 $637,651
 $1,658,986
 $868,258
 $(1,760,930) $1,787,344
Liabilities and Shareholders' Equity           
Current portion of other long-term liabilities$—
 $—
 $16,654
 $3,624
 $(12) $20,266
Accounts payable and accrued liabilities642
 240
 315,508
 92,147
 (67) 408,470
Total current liabilities642
 240
 332,162
 95,771
 (79) 428,736
Long-term debt—
 263,507
 351,292
 203,686
 —
 818,485
Intercompany payable5,964
 69,711
 557,201
 97,285
 (730,161) —
Asset retirement obligations—
 —
 27,577
 26,836
 —
 54,413
Deferred tax liability, net—
 —
 39,522
 1,676
 —
 41,198
Other long-term liabilities—
 2,620
 25,998
 39,122
 —
 67,740
Total liabilities6,606
 336,078
 1,333,752
 464,376
 (730,240) 1,410,572
Shareholders' equity376,773
 301,573
 325,234
 403,882
 (1,030,690) 376,772
Total liabilities and shareholders' equity$383,379
 $637,651
 $1,658,986
 $868,258
 $(1,760,930) $1,787,344

Table of Contents


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017

 

 

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations

    

Total

 

 

(In thousands)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

89

 

$

 7

 

$

15,807

 

$

35,467

 

$

 —

 

$

51,370

Accounts and notes receivable, net

 

 

 —

 

 

 —

 

 

55,912

 

 

49,333

 

 

 —

 

 

105,245

Deferred tax asset, net

 

 

 —

 

 

 —

 

 

(3,466)

 

 

3,466

 

 

 —

 

 

 —

Other current assets

 

 

400

 

 

1,585

 

 

73,847

 

 

82,885

 

 

 —

 

 

158,717

Total current assets

 

 

489

 

 

1,592

 

 

142,100

 

 

171,151

 

 

 —

 

 

315,332

Property and equipment, net

 

 

 —

 

 

 —

 

 

312,591

 

 

185,479

 

 

(168)

 

 

497,902

Intangible assets, net

 

 

 —

 

 

 —

 

 

159,248

 

 

51,337

 

 

(723)

 

 

209,862

Goodwill

 

 

 —

 

 

 —

 

 

572,275

 

 

202,664

 

 

 —

 

 

774,939

Investments in and advances to subsidiaries

 

 

385,729

 

 

465,347

 

 

392,327

 

 

 —

 

 

(1,243,403)

 

 

 —

Intercompany receivable

 

 

10,231

 

 

211,540

 

 

71,477

 

 

486,408

 

 

(779,656)

 

 

 —

Deferred tax asset, net

 

 

332

 

 

 —

 

 

1,343

 

 

5,250

 

 

 —

 

 

6,925

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

 —

 

 

12,172

 

 

28,763

 

 

16,821

 

 

 —

 

 

57,756

Total assets

 

$

396,781

 

$

690,651

 

$

1,680,124

 

$

1,119,110

 

$

(2,023,950)

 

$

1,862,716

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of other long-term liabilities

 

 

 —

 

 

4,892

 

 

21,746

 

 

4,744

 

 

(12)

 

 

31,370

Accounts payable and accrued liabilities

 

 

979

 

 

10,070

 

 

205,199

 

 

134,932

 

 

 —

 

 

351,180

Total current liabilities

 

 

979

 

 

14,962

 

 

226,945

 

 

139,676

 

 

(12)

 

 

382,550

Long-term debt

 

 

 —

 

 

504,912

 

 

394,596

 

 

18,213

 

 

 —

 

 

917,721

Intercompany payable

 

 

5,409

 

 

4,272

 

 

673,053

 

 

100,410

 

 

(783,144)

 

 

 —

Asset retirement obligations

 

 

 —

 

 

 —

 

 

25,424

 

 

34,496

 

 

 —

 

 

59,920

Deferred tax liability, net

 

 

 —

 

 

 —

 

 

34,926

 

 

2,204

 

 

 —

 

 

37,130

Other long-term liabilities

 

 

 —

 

 

3,997

 

 

25,402

 

 

45,603

 

 

 —

 

 

75,002

Total liabilities

 

 

6,388

 

 

528,143

 

 

1,380,346

 

 

340,602

 

 

(783,156)

 

 

1,472,323

Shareholders' equity

 

 

390,393

 

 

162,508

 

 

299,778

 

 

778,508

 

 

(1,240,794)

 

 

390,393

Total liabilities and shareholders' equity

 

$

396,781

 

$

690,651

 

$

1,680,124

 

$

1,119,110

 

$

(2,023,950)

 

$

1,862,716

44

Table of Contents

Condensed Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations

    

Total

 

 

(In thousands)

Net cash provided by operating activities

 

$

5,230

 

$

4,400

 

$

142,552

 

$

32,400

 

$

 —

 

$

184,582

Additions to property and equipment

 

 

 —

 

 

 —

 

 

(45,335)

 

 

(28,022)

 

 

 —

 

 

(73,357)

Net cash used in investing activities

 

 

 —

 

 

 —

 

 

(45,335)

 

 

(28,022)

 

 

 —

 

 

(73,357)

Proceeds from borrowings under revolving credit facility

 

 

 —

 

 

273,700

 

 

37,445

 

 

166,878

 

 

 —

 

 

478,023

Repayments of borrowings under revolving credit facility

 

 

 —

 

 

(278,100)

 

 

(110,333)

 

 

(180,584)

 

 

 —

 

 

(569,017)

Intercompany financing

 

 

 —

 

 

 —

 

 

(4,241)

 

 

4,241

 

 

 —

 

 

 —

Tax payments related to share-based compensation

 

 

(5,245)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5,245)

Proceeds from exercises of stock options

 

 

14

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

14

Net cash used in financing activities

 

 

(5,231)

 

 

(4,400)

 

 

(77,129)

 

 

(9,465)

 

 

 —

 

 

(96,225)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

 —

 

 

 —

 

 

(227)

 

 

(177)

 

 

 —

 

 

(404)

Net (decrease) increase in cash, cash equivalents, and restricted cash

 

 

(1)

 

 

 —

 

 

19,861

 

 

(5,264)

 

 

 —

 

 

14,596

Cash, cash equivalents, and restricted cash as of beginning of period

 

 

88

 

 

 7

 

 

50,433

 

 

49,289

 

 

 —

 

 

99,817

Cash, cash equivalents, and restricted cash as of end of period

 

$

87

 

$

 7

 

$

70,294

 

$

44,025

 

$

 —

 

$

114,413

 Three Months Ended March 31, 2019
 Parent Issuer Guarantors Non-Guarantors Eliminations Total
 (In thousands)
Net cash provided by (used in) operating activities$1,041
 $6,265
 $(62,336) $33,225
 $—
 $(21,805)
Additions to property and equipment—
 —
 (21,431) (7,876) —
 (29,307)
Net cash used in investing activities—
 —
 (21,431) (7,876) —
 (29,307)
Proceeds from borrowings under revolving credit facility—
 70,700
 5,531
 44,687
 —
 120,918
Repayments of borrowings under revolving credit facility—
 (70,700) (23,000) (50,766) —
 (144,466)
Intercompany financing739
 (6,265) 8,526
 (3,000) —
 —
Tax payments related to share-based compensation(1,781) —
 —
 —
 —
 (1,781)
Proceeds from exercises of stock options2
 —
 —
 —
 —
 2
Net cash (used in) provided by financing activities(1,040) (6,265) (8,943) (9,079) —
 (25,327)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash—
 —
 651
 612
 —
 1,263
Net increase (decrease) in cash, cash equivalents, and restricted cash—
 —
 (92,059) 16,883
 —
 (75,176)
Cash, cash equivalents, and restricted cash as of beginning of period89
 7
 165,088
 30,226
 —
 195,410
Cash, cash equivalents, and restricted cash as of end of period$89
 $7
 $73,029
 $47,109
 $—
 $120,234

45


 Three Months Ended March 31, 2018
 Parent Issuer Guarantors Non-Guarantors Eliminations Total
 (In thousands)
Net cash provided by operating activities$2,379
 $301
 $56,682
 $(9,929) $—
 $49,433
Additions to property and equipment—
 —
 (13,203) (7,536) —
 (20,739)
Net cash used in investing activities—
 —
 (13,203) (7,536) —
 (20,739)
Proceeds from borrowing under revolving credit facility—
 87,100
 7,370
 49,032
 —
 143,502
Repayments of borrowings under revolving credit facility—
 (87,400) (10,327) (52,791) —
 (150,518)
Intercompany financing—
 —
 (2,676) 2,676
 —
 —
Tax payments related to share-based compensation(2,379) —
 —
 —
 —
 (2,379)
Net cash (used in) provided by financing activities(2,379) (300) (5,633) (1,083) —
 (9,395)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash—
 —
 (461) 1,145
 —
 684
Net increase (decrease) in cash, cash equivalents, and restricted cash—
 1
 37,385
 (17,403) —
 19,983
Cash, cash equivalents, and restricted cash as of beginning of period89
 6
 51,498
 48,224
 —
 99,817
Cash, cash equivalents, and restricted cash as of end of period$89
 $7
 $88,883
 $30,821
 $—
 $119,800

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2017

 

 

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations

    

Total

 

 

(In thousands)

Net cash provided by operating activities

 

$

8,534

 

$

20,602

 

$

120,702

 

$

22,596

 

$

 —

 

$

172,434

Additions to property and equipment

 

 

 —

 

 

 —

 

 

(66,200)

 

 

(45,224)

 

 

 —

 

 

(111,424)

Acquisitions, net of cash acquired

 

 

 —

 

 

 —

 

 

(465,123)

 

 

(19,479)

 

 

 —

 

 

(484,602)

Net cash used in investing activities

 

 

 —

 

 

 —

 

 

(531,323)

 

 

(64,703)

 

 

 —

 

 

(596,026)

Proceeds from borrowing under revolving credit facility

 

 

 —

 

 

295,400

 

 

601,672

 

 

71,293

 

 

 —

 

 

968,365

Repayments of borrowings under revolving credit facility

 

 

 —

 

 

(319,200)

 

 

(446,533)

 

 

(61,618)

 

 

 —

 

 

(827,351)

Proceeds from borrowings of long-term debt

 

 

 —

 

 

 —

 

 

300,000

 

 

 —

 

 

 —

 

 

300,000

Debt issuance costs

 

 

 —

 

 

 —

 

 

(5,476)

 

 

 —

 

 

 —

 

 

(5,476)

Intercompany financing

 

 

 —

 

 

 —

 

 

(7,642)

 

 

7,642

 

 

 —

 

 

 —

Tax payments related to share-based compensation

 

 

(8,359)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8,359)

Proceeds from exercise of stock options

 

 

105

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

105

Net cash (used in) provided by financing activities

 

 

(8,254)

 

 

(23,800)

 

 

442,021

 

 

17,317

 

 

 —

 

 

427,284

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

 —

 

 

 —

 

 

(15,974)

 

 

11,796

 

 

 —

 

 

(4,178)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

280

 

 

(3,198)

 

 

15,426

 

 

(12,994)

 

 

 —

 

 

(486)

Cash, cash equivalents, and restricted cash as of beginning of period

 

 

101

 

 

3,205

 

 

34,722

 

 

67,719

 

 

 —

 

 

105,747

Cash, cash equivalents, and restricted cash as of end of period

 

$

381

 

$

 7

 

$

50,148

 

$

54,725

 

$

 —

 

$

105,261

(19) Concentration Risk

Significant merchant customers.For During the three and ninetwelve months ended September 30, 2018,March 31, 2019, the Company derived approximately 23.3% and 23.8%24% of its total revenues from ATMs placed at the locations of its top five merchant customers, respectively.customers. The Company’s top five merchant customers, none accounting for more than 7% of total revenue for the three and nine months ended September 30, 2018March 31, 2019, were Walgreens Boots Alliance, Inc., Co-operative Food (in the U.K.), CVS Caremark Corporation, Alimentation Couche-Tard Inc.(in (in the U.S. and Canada), Speedway LLC, and Speedway LLC. For the nine months ended September 30, 2018, no individual customer accounted for more than 6% of the Company’s total revenue.

Walgreens Boots Alliance, Inc. Accordingly, a significant percentage of the Company’s future revenues and operating income will be dependent upon the successful continuation of its relationshipsrelationship with these merchants.

46



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements”certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended and are intended to be covered by the safe harbor provisions thereof. Forward-looking statements can be identified by words such as “project,” “believe,” “estimate,” “expect,” “future,” “anticipate,” “intend,” “contemplate,” “foresee,” “would,” “could,” “plan,” and similar expressions that are intended to identify forward-looking statements, which are generally not historical in nature. These forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effect on the CompanyCompany. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting the Company couldwill be those that are anticipated. All comments concerning the Company’s expectations for future revenues and operating results are based on its estimates for its existing operations and do not include the potential impact of any future acquisitions. The Company’s forward-looking statements involve significant risks and uncertainties (some of which are beyond its control) and assumptions that could cause actual results to differ materially from its historical experience and present expectations or projections. Known material factors that could cause actual results to differ materially from those in the forward-looking statements include:

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the Company’s financial outlook and the financial outlook of the automated teller machines and multi-function financial services kiosks (collectively, “ATMs”) industry and the continued usage of cash by consumers at rates near historical patterns;

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the Company’s ability to respond to recent and future network and regulatory changes;

the Company’s financial outlook and the financial outlook of the automated teller machines and multi-function financial services kiosks (collectively, “ATMs”) industry and the continued usage of cash by consumers at rates near historical patterns;

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the Company’s ability to renew its existing merchant relationships on comparable economic terms and add new merchants;

the Company’s ability to respond to recent and future network and regulatory changes;

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changes in interest rates and foreign currency rates;

the Company’s ability to renew its existing merchant relationships on comparable or improved economic terms and add new merchants;

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the Company’s ability to successfully manage its existing international operations and to continue to expand internationally;

changes in interest rates and foreign currency rates;

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the Company’s ability to manage concentration risks with key customers, merchants, vendors, and service providers;

the Company’s ability to successfully manage its existing international operations and to continue to expand internationally;

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the Company’s ability to prevent thefts of cash and maintain adequate insurance;

the Company’s ability to manage concentration risks with and changes in the mix of key customers, merchants, vendors, and service providers;

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the Company’s ability to manage cybersecurity risks, protect against cyber-attacks, prevent data breaches and respond to any such attacks or breaches were they to occur;

the Company’s ability to prevent thefts of cash and maintain adequate insurance;

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the Company’s ability to respond to potential and planned reductions in the amount of net interchange fees that it receives from global and regional debit networks for transactions conducted on its ATMs due to pricing changes implemented by those networks as well as changes in how issuers route their ATM transactions over those networks, including recently enacted changes to the LINK interchange rate in the United Kingdom (“U.K.”);

the Company’s ability to manage cybersecurity risks and protect against cyber-attacks and manage and prevent cyber incidents, data breaches or losses, or other business disruptions;

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the Company’s ability to provide new ATM solutions to retailers and financial institutions including placing additional banks’ brands on ATMs currently deployed;

the Company’s ability to respond to changes implemented by networks and how they determine interchange, scheduled and potential reductions in the amount of net interchange that it receives from global and regional debit networks due to pricing changes implemented by those networks as well as changes in how issuers route their ATM transactions over those networks;

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the Company’s ATM vault cash rental needs, including potential liquidity issues with its vault cash providers and its ability to continue to secure vault cash rental agreements in the future on reasonable economic terms;

the Company’s ability to provide new ATM solutions to retailers and financial institutions including the demand for any such new ATM solutions as well as its ability to place additional banks’ brands on ATMs currently deployed;

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the Company’s ability to manage the risks associated with its third-party service providers failing to perform their contractual obligations;

the Company’s ATM vault cash rental needs, including potential liquidity issues with its vault cash providers and its ability to continue to secure vault cash rental agreements in the future and once secured, on reasonable economic terms;

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the Company’s ability to renew its existing third-party service provider relationships on comparable economic terms;

the Company’s ability to manage the risks associated with its third-party service providers failing to perform their contractual obligations;

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the Company’s ability to successfully implement and evolve its corporate strategy;

the Company’s ability to renew its existing third-party service provider relationships on comparable or improved economic terms;

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the Company’s ability to compete successfully with new and existing competitors;

the Company’s ability to successfully implement and evolve its corporate strategy;

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the Company’s ability to meet the service levels required by its service level agreements with its customers;

the Company’s ability to compete successfully with new and existing competitors;

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the additional risks the Company is exposed to in its U.K. armored transport business;

the Company’s ability to meet the service levels required by its service level agreements with its customers;

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the impact of changes in laws, including tax laws, that could adversely affect the Company’s business and profitability;

the additional risks the Company is exposed to in its United Kingdom (“U.K.”) armored transport business;

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the Company’s ability to successfully integrate acquisitions;

the Company’s ability to pursue, complete, and successfully integrate acquisitions, strategic alliances, or joint ventures;

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the impact of, or uncertainty related to, the U.K.’s planned exit from the European Union, including any material adverse effect on the tax, tax treaty, currency, operational, legal, and regulatory regime and macro-economic environment to which it will be subject to as a U.K. company; and

the impact of changes in laws, including tax laws, that could adversely affect the Company’s business and profitability;

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the Company’s ability to retain its key employees and maintain good relations with its employees.

the impact of, or uncertainty related to, the U.K.’s planned exit from the European Union, including any material adverse effect on the tax, tax treaty, currency, operational, legal, human, and regulatory regime and macro-economic environment to which it will be subject to as a U.K. company;

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the Company’s ability to adequately maintain and upgrade its ATM fleet to address changes in industry standards, regulations and consumer behavior patterns;

the Company’s ability to retain its key employees and maintain good relations with its employees; and

Tablethe Company’s ability to manage the fluctuation of Contents

its operating results, including as a result of the foregoing and other risk factors included in the 2018 Form 10-K.

For additional information regarding known material factors that could cause the Company’s actual results to differ from its projected results, see: Part I. Item 1A. Risk Factors in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 2017.2018. Readers are cautioned not to place undue reliance on forward-looking statements contained in this document, which


speak only as of the date of this Form 10-Q. Except as required by applicable law, the Company undertakes no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events, or otherwise.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Cardtronics plc provides convenient automated consumer financial services through its network of automated teller machines and multi-function financial services kiosks (collectively referred to as “ATMs”). As of September 30, 2018,March 31, 2019, we were the world’s largest ATM owner/operator, providing services to approximately 230,000229,000 ATMs. During the three months ended September 30, 2018,  61%March 31, 2019,  64% of our total revenues were derived from operations in North America (including our ATM operations in the United States ("U.S."), Canada, and Mexico), 30%28% of our total revenues were derived from operations in Europe and Africa (including our ATM operations in the United Kingdom ("U.K."), Ireland, Germany, Spain, and South Africa), and 9%8% of our total revenues were derived from operations in Australia and New Zealand. Included in our network as of September 30, 2018March 31, 2019 were approximately 140,000 139,000ATMs 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 fee per service provided.

Through our network, we deliver various ATM-based financial related services to cardholders and provide ATM management and ATM equipment-related services (typically under multi-year contracts) to large retail merchants, smaller retailers, financial institutions, and operators of facilities such as shopping malls, airports, and train stations. In doing so, we provide our retail and financial institution partners with a compelling automated financial services solution that helps attract and retain customers, and in turn, increases the likelihood that our ATMs will be utilized. We also own and operate electronic funds transfer (“EFT”) transaction processing platforms that provide transaction processing services to our network of ATMs, as well as to other ATMs operated under managed services arrangements. Additionally, we also provide processing services for issuers of debit cards.

We also own and operate the Allpoint network (“Allpoint”), the largest surcharge-free ATM network (based on the number of participating ATMs). Allpoint, with approximately 55,000 participating ATMs, provides surcharge-free ATM access to over 1,100approximately 1,200 participating credit unions, banks, and stored-value debit card issuers.issuers that are principally located in North America. For participants, Allpoint provides scale, density, and convenience of surcharge-free ATMs that surpasses the largest banks in the U.S. In exchange, Allpoint earns either a fixed monthly fee per cardholder or a fixed fee per transaction that is paid by the participants. The Allpoint network includes a majority of our Company-ownedCompany's ATMs in the U.S. and certain ATMs in the U.K., Canada, Mexico, Puerto Rico, and Australia. 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 Allpointus a fee per issued stored-value debit card or per 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 ended December 31, 20172018 (the “2017“2018 Form 10-K”).

Strategic Outlook

Over the past several years, we have expanded our operations and the capabilities and service offerings of our ATMs through strategic acquisitions and investments, continued to deploy ATMs deployed in high-traffic locations under contracts with well-known retailers, and expanded our relationships with leading financial institutions through the growth of Allpoint, our surcharge-free ATM network and our bank-branding programs. More recently, weWe have increasingly focusedalso expanded our growth efforts to providing ATM-relatedATM capabilities and service offerings to financial institutions, as we are seeing increasing interest from financial institutions for outsourcing of ATM-related services due to our cost efficiency advantages and higher service levels, as well as the role that our ATMs can play in maintaining financial institutions physical presence for their customers as they reduce their physical branches.

We have also expanded our capabilities and are in the process of deploying deposit-taking ATMs in certain locations within the U.S. Additionally, we have enabled 11,000 of our ATMs in the U.S. with cardless cash access and plan to enable additional ATMs with these capabilities in the future.

We have completed several acquisitions in the last sixseven years, including, but not limited to: (i) eight U.S. and Canada based ATM operators, expanding our ATMs in both multi-unit regional retail chains and individual merchant ATM locations in the North America, (ii) Cardpoint Limited (“Cardpoint”) in August 2013, which further expanded our U.K. ATM operations and allowed us to enter into the German market, (iii) Sunwin Services Group in November 2014, which

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further expanded our cash-in-transit and maintenance servicing capabilities in the U.K. and allowed us to acquire and operate ATMs located at Co-op Food stores, (iv) DirectCash Payments Inc. (“DCPayments”)DCPayments in January 2017, a leading ATM operator with operations in Australia, New Zealand, Canada, the U.K., and Mexico,, (v) Spark ATM Systems Pty Ltd. (“Spark”) in January 2017, an independent ATM operatordeployer operating in South Africa, and (vi) various other smallerless significant ATM asset and contract acquisitions. In addition to these ATM acquisitions, we have also made strategic acquisitions including: (i) i-design in March 2013, a Scotland-based provider and developer of marketing and advertising software and services for ATM operators, and


(ii) CDS in July 2015, a leading independent transaction processor for ATM deployers and payment card issuers in the U.S., providing solutions to ATM sales and service organizations and financial institutions.

While we may

We will continue to explore potential acquisition opportunities in the future as a way to grow our business, we expect to continue expandingexpand our ATM footprint organically and launchinglaunch new products and services that will allow us to further leverage our existing ATM network. We may also explore acquisitions that are deemed strategic opportunities. We see opportunities to expand our operations through the following efforts:

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increasing the number of deployed ATMs with existing and new merchant relationships;

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expanding our relationships with leading financial institutions;

increasing the number of deployed ATMs with existing and new merchant relationships;

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working with non-traditional financial institutions and card issuers to further leverage our extensive ATM network;

expanding our relationships with leading financial institutions;

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increasing transaction levels at our existing locations;

working with non-traditional financial institutions and card issuers to further leverage our extensive ATM network;

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developing and providing additional services at our existing ATMs;

increasing transaction levels at our existing locations;

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pursuing additional managed services opportunities; and

developing and providing additional services at our existing ATMs;

·

pursuing opportunities to expand into new international markets over time.

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 Item1.Part I. Item 1. Business –- Our Strategy in our 20172018 Form 10-K.

Developing Trends and Recent Events

Reduction of physical branches by financial institutions in the U.S., the U.K., and other geographies. Due primarily to the expansion of services available through digital channels, such as online and mobile, and financial institution customers’ preferences towards these digital channels, many financial institutions have been de-emphasizing traditional physical branches. This trend oftoward shifting more customer transactions to online and to ATMs has helped financial institutions lower their operating costs. As a result, many banks have been reducing the number of physical branches they operate. However, financial institution customers still consider convenient access to ATMs to be an important factorcriteria for choosing and maintaining an account with a particular financial institution. The closing of physical branches generally results in a removal of the ATMs that were at the closed branch locations and may create a void in physical presence for that financial institution. This creates an opportunity for us to provide the financial institution’s customers with convenient access to ATMs and to work with the financial institutions to preserve branded or unbranded physical points of presence through our ATM network.

Increase in surcharge-free offerings in the U.S.Many U.S. national and regional financial institutions aggressively compete for market share, and part of their competitive strategy is to increase their number of customer touch points, including the establishment of an ATM network to provide convenient, surcharge-free access to cash for their cardholders. Bank-branding of ATMs and participation in surcharge-free networks allow financial institutions to rapidly increase surcharge-free ATM access for their customers at a lower cost than owning and operating ATM networks. Additionally, many financial institutions find that providing convenient and free access to ATMs is an important factor in customers establishing or maintaining an account with a particular institution. These factors have led to an increase in bank-branding and participation in surcharge-free ATM networks and we believe that there will be continued growth in such arrangements.

Managed servicesservices.. While many financial institutions (and some retailers) own and operate significant ATM networks that serve as extensions of their physical branchbranches and increase the level of service offered to their customers, large ATM networks are costly to own and operate and typically do not provide significant revenue for financial institutions or retailers. Owning and operating an ATM network is not a core competency for the majority of financial institutions and retailers; therefore, we believe there is an opportunity for a large non-bank ATM owner/operator, such as ourselves, with lower costs and an established operating history, to contract with financial institutions and retailers to manage their ATM networks. Such an arrangement could reduce a financial institution or retailer’s operating costs while extending their

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customer service. Additionally, we believe there are opportunities to provide selected ATM-related services on an outsourced basis, such as transaction processing services, to other independent owners and operators of ATMs.

Growth in other automated consumer financial servicesservices.. The majority of all ATM transactions in our geographies are cash withdrawals, with the remainder representing other banking functions such as balance inquiries and balance transfers. We believe that there are opportunities for a large non-bank ATM owner/operator, such as ourselves, to provide additional financial services to customers, such as bill payments, deposit taking, money transfers, and stored-value debit card reload services. These additional automated consumer financial services could result in additional revenue streams for us and could ultimately result in increased profitability. However, they generally would require additional capital expenditures on our part to offer these services more broadly and would increase regulatory compliance activities. We recently commenced a plan to deploy nearly 1,000 deposit-taking ATMs in certain locations in the U.S. and may deploy additional deposit-taking ATMs in the future.


Increase in usage of stored-value debit cards. In the U.S., we have seen a proliferation in the issuance and acceptance of stored-value debit cards as a means for consumers to access their cash and make routine retail purchases over the past ten years. Based on published studies, the value loaded on stored-value debit cards such as open loop network-branded money and financial services cards, payroll and benefit cards, and social security cards is expected to continue to increase in the next few years.

We believe that our ATM network of ATMs, located in well-known retail establishments throughout the U.S., provides a convenient and cost-effective way for stored-value debit card cardholders to access their cash and potentially conduct other financial services transactions. Furthermore, through our Allpoint, network, we partner with organizationsfinancial institutions that manage stored-value debit card programs on behalf of corporate entities and governmental agencies, and we are able to provide the users of those cards convenient, surcharge-free access to their cash. We believe that the number of stored-value debit cards being issued and in circulation has increased significantly over the last several years and represents a growing portion of our total withdrawal transactions at our ATMs in the U.S. ATMs.

Growth in other markets. In most regions of the world, ATMs are less common than in the U.S. and the U.K. (our two largest markets). We believe the ATM industry will grow faster in certain international markets, as the number of ATMs per capita in those markets increases and begins to approach the levels in the U.S. and the U.K. We believe there is further growth potential for non-branch ATMs in the other geographic markets in which we operate.

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United Kingdom.Kingdom. The U.K. is the largest ATM market in Europe. According to LINK (which connects the ATM networks of all the U.K. ATM operators), thereapproximately 63,000 ATMs were approximately 71,000 ATMs deployed in the U.K. as of December 2017,2018, of which approximately 40,00060% were operated by non-banks (inclusive of our approximately 20,000nearly 18,000 ATMs). Electronic payment alternatives have gained popularity in the U.K. and we have seen both the number of ATM deployments and withdrawals slow in recent years. However, according to the Bank of England, cash is still the primary payment method preferred by consumers, representing over 50% of spontaneous payments. In January 2017, we further expanded our operations in the U.K. through our acquisition of DCPayments. In light of recent changes to the LINK interchange rate that includes thea 5% decrease that came into effect on July 1, 2018 and a second additional 5% decrease in the LINK interchange rate that came into effect on January 1, 2019, we have changed certain of our ATMs to pay-to-use, whereby we no longer receive interchange from customers' banks, but instead, the customer now pays us a convenience fee. We have also removed certain ATMs from service and have taken other measures such as slowing our ATM expansion.to mitigate the impact of the LINK interchange reduction. For additional information, see Decrease in interchange ratesbelow.   below. We believe there are growingemerging opportunities with financial institutions in this market to outsource certain components of their ATM operations and we are actively working to grow our offerings for such services.

•GermanyGermany. We.  There are approximately 58,000 ATMs in Germany that are largely deployed in bank branch locations. The top four independent ATM deployers account for less than 10% of the market as of December 31, 2018. Cardtronics entered the German market in August 2013 through ourthe acquisition of Cardpoint. Cardtronics is presently the largest independent ATM deployer in Germany with approximately 1,600 ATMs. The German ATM market is highly fragmented and may be under-deployed, based on its population’s high use of cash relative to other markets in which we operate, such as the U.S. and the U.K. There are approximately 58,000 ATMs in Germany that are largely deployed in bank branch locations. ThisAs a result, this fragmented and potentially under-deployed ATM market is attractive to us and as a result, we believe there are a number of opportunities for growth in this market. We have recently expanded our ATM count in this market by adding new ATMs with new retail partners. Additionally, we have now partnered with Postbank to provide free-to-use access to their customers at our ATMs.

•CanadaCanada..  We entered the Canadian market in October 2011, through a small acquisition, and further expanded our presence in the country through another small acquisition in December 2012. In January 2017, we significantly expanded our operations in Canada through our acquisition of DCPayments. We expect to continue to grow our number of ATM locations in this market. We currently operate approximately 12,00011,000 ATMs in this market and estimate that there are currently approximately 62,00070,000 ATMs in total in the Canadian market. Our recent organic

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growth in this market has been primarily through a combination of new merchant and financial institution partners. As we continue to expand our footprint in Canada, we plan to seek additional partnerships with financial institutions to implement bank-branding and other financial services, similar to our bank-branding and surcharge-free strategy in the U.S.

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Mexico. There are approximately 48,00050,000 ATMs operating in Mexico, most of which are owned by national and regional financial institutions. We increased our operationscurrently operate approximately 1,000 ATMs in Mexico through the DCPayments acquisition in January 2017 and remain poised and ableplan to selectively pursue growth opportunities with retailers and financial institutions in the region, and believe there are currently opportunities to grow this business profitability.region.

•Ireland and Spain. In April 2016, we entered the Ireland market, and in October 2016, we launched our business in Spain, joining a top Spain ATM network and signing agreements to provide ATMs at multiple retail chains. On a combined basis these markets haveSpain’s market has approximately 55,00051,000 ATMs, of which we currently operate a very small portion. We plan to continue to grow in these marketsthis market through additional merchant and financial institution relationships.

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Australia and New Zealand.Zealand. In January 2017, in connection with our acquisition of DCPayments, we obtainedexpanded operations ininto Australia and New Zealand. The Australia and New Zealand ATM market has contracted recently responsive to the

removal of surcharge fees by the major banks to non-customers at their ATMs. The Australian and nowNew Zealand ATM market is comprised of approximately 35,000 ATMs and we are the largest independent ATM operatordeployer in Australia. We currently operatethis region with approximately 10,000 ATMs in Australia and New Zealand and estimate the total market is comprised of approximately 36,0009,000 ATMs. Recently, we have seen same-store transaction declines consistent with market trends. In the future, these declines may be amplified by recent actions taken by major banks in Australia. For further information regarding these actions,the removal of surcharge fees, see Australia market changes and asset impairment below. Responsive to recent trends we have removed certain ATMs from service and slowed expansion; however, weWe believe there are opportunities for longer-term growth in Australia, which would likely include expansion of services to financial institutions in this market.

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South Africa.Africa.  In January 2017, in connection with our acquisition of Spark, we obtained operations in South Africa. Spark is a leading independent ATM operator in South Africa, and we have recently grown in this market by expanding the number of ATMs we operate. We expect to expandcontinue to grow in this market with retailers and financial institutions. We operate over 3,400approximately 3,600 ATMs in South Africa and estimate that this market has approximately 32,000 ATMs.  34,000 ATMs in total.

Increase in surcharge rates. As financial institutions increase the surcharge rates charged to non-customers for the use of their ATMs, it enables us to increase the surcharge rates charged on our ATMs in selected markets and with certain merchant customers as well.markets. We also believe that higher surcharge rates in the market make our surcharge-free offerings more attractive to consumers and other financial institutions.

Decrease in interchange rates. The interchange rates paid to independent ATM deployers, such as ourselves, are in some cases set by the various EFT networks and major interbank networks through which the transactions conducted on our ATMs are routed. In past years, certain networks have reduced the net interchange rates paid to ATM deployers for ATM transactions in the U.S. by reducing the transaction rates charged to financial institutions and increasing per transaction fees charged by the networks to ATM operators. In addition to the impact of the net interchange rate decrease, we saw certain financial institutions migrate their volume away from some networks to take advantage of the lower pricing offered by other networks, resulting in lower net interchange rates per transaction realized by us. If financial institutions move to take further advantage of lower interchange rates, or if networks reduce the interchange rates they currently pay to ATM deployers or increase their network fees, our future revenues and gross profits could be negatively impacted. We have taken measures to mitigate our exposure to interchange rate reductions by networks, including, but not limited to: (i) where possible, routing transactions through a preferred network such as the Allpoint, network, where we have influence over the per transaction rate, (ii) negotiating directly with our financial institution partners for contractual interchange rates on transactions involving their customers, (iii) developing contractual protection from such rate changes in our agreements with merchants and financial institution partners, and (iv) negotiating pricing directly with certain networks. As of DecemberDuring the three months ended March 31, 2017, approximately 4%2019, 18.3%, 11.4%, and 0.4% of our total ATM operating revenues were derived from interchange fees in Europe & Africa, North America, and Australia & New Zealand, respectively. A portion of these revenues are subject to pricing changes by U.S. networks over whichthat we currently have limited influence or where we have no abilitymay be unable to offset pricing changes through lower payments to merchants.

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Interchange rates in the U.K. are primarily set by LINK, the U.K.’s major interbank ATM network. LINK has historically set these rates annually using a cost-based methodology that incorporates ATM service costs from two years prior (i.e., operating costs from 20162017 are considered for determining the 20182019 interchange rate). In addition to LINK transactions, certain card issuers in the U.K. have issued cards that are not affiliated with the LINK network, and instead carry the Visa or MasterCard network brands. In recent years, transactions conducted on our ATMs from these cards have totaled approximately 2%3% of our annual withdrawal transactions in the U.K. For these transactions, we receive interchange revenues based on rates that are set by Visa or MasterCard, respectively. The interchange rates set by Visa and MasterCard have historically been less than the rates that have been established by LINK. Throughout 2016 and 2017, some of the major financial institutions that participate in LINK expressed concern aboutIn July 2018, the LINK interchange rate was reduced by 5% and an additional 5% rate reduction commenced efforts to significantly lower the interchange rate. During 2017, a group of LINK members (the “Working Group”) developed a new interchange rate setting mechanism. After several months of analysis and discussion, the Working Group was unable to reach a recommended amended approach that was satisfactory to its participants, and as a result of this outcome, along with governance recommendations by the Bank of England in October 2017, it was decided that an independent board of LINK (“LINK Board”) would recommend interchange rates going forward. On November 1, 2017, the LINK Board announced that it had reached some tentative recommendations, subject to further comment by the LINK members. The LINK Board proposal sought to reduce interchange rates by approximately 5% per year, and in the aggregate, by approximately 20% over a four year period. Accordingly, on January 31, 2018, the LINK Board formalized a new process for setting interchange rates and confirmed its plans for the annual 5% phased rate reductions, with the first rate decrease commencing on July 1, 2018 and the second scheduled interchange rate decrease set for January 1, 2019. On July 1, 2018,There are no further scheduled rate reductions at this time, but the first reduction came into effect. However, on July 16, 2018,impact of the LINK Board announced that it canceledrecent rate reductions has recently adversely impacted our revenues and profits in the planned third interchange rate decrease, previously scheduled to occur in January 2020, and suspended the fourth interchange rate decrease, pending further review in 2019.U.K. We continue to evaluate and assess the impact of interchange rate decreases on our U.K. business and have taken certain actions and may continue to take additional actions to mitigate the impact of the current and potential future price reductions. Mitigating measures include orhave included, and in the future may include additional, removal of lower profitability sites, contract renegotiations with certain merchants, conversion of certain ATMs to a direct-charge to the consumer model, and other strategies. The first 5% rate reduction occurred on July 1, 2018 and it adversely impacted our U.K. profits by approximately $8 million, when taken together with other rate reductions in 2018. The second 5% decrease in the LINK interchange rate occurred January 1, 2019. On an unmitigated basis, we expect the first 5%that these rate reduction toreductions will adversely impact our U.K. profitsoperating income by approximately $6 - $7$19 million in 2018, compared to 2017, all of which will occur2019. Should there be any additional significant change in the second half of 2018.  

LINK scheme or its membership, our U.K. revenues and profits could be more adversely impacted.

Withdrawal transaction and revenue trends –- U.S.Many financial institutions are shifting traditional teller based transactions to online activities and ATMs to reduce their operating costs. Additionally, many financial institutions are reducing the number of branches they own and operate in order to lower their operating costs. As a result of these current trends, we believe there has been increasing demand for automated banking solutions, such as ATMs. Bank-branding of our ATMs and participation in our surcharge-free ATM network allow financial institutions to rapidly increase and maintain surcharge-free ATM access for their customers at a substantially lower cost than owning and operating an ATM network themselves. We believe there is continued opportunity for a large non-bank ATM owner/operator, such as ourselves, with lower costs and an established operating history,

to contract with financial institutions and retailers to manage their ATM networks. Such an arrangement could reduce a financial institution’s operating costs while extending its customer service. Furthermore, we believe there are opportunities to provide selected services on an outsourced basis, such as transaction processing services, to other independent owners and operators of ATMs. Over the last several years, we have seen increased participation in Allpoint, our surcharge-free network, and growth in bank-branding and managed services. We believe that there will be continued growth in all three areas.

Excluding 7-Eleven locations (For additional information, see 7-Eleven U.S. relationship below), total

U.S. same-store cash withdrawal transactions during the three monthsquarter ended September 30, 2018March 31, 2019 increased approximately 6%2% from the same period in 2017.2018. These same-store results were impacted by a number of factors and the discrete impact of each factor is difficult to precisely estimate. Growth in Allpoint and bank-branding transactions has positively impacted the same-store growth rate, driven by the expansion in the number of ATMs in the Allpoint, network, growth in the number of financial institutions participating in Allpoint and branding our ATMs, and increased marketing efforts to existing Allpoint participants. We estimate that the growth rate for the three months ended September 30, 2018 was also positively impacted by increased transactions related to customers continuing to utilize our fee-free access to their cash via our Allpoint network as a result of the removal of our Allpoint enabled ATMs from 7-Eleven stores and normalizing for other program changes. We estimate that this resulted in approximately 2% growth in the period. Finally, we believe the growth rate during the three and nine months ended

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September 30, 2018 was positively impacted by higher ATM availability relative to the prior year as a result of the software upgrades and outages in 2017 that negatively impacted transaction volumes. 

7-Eleven U.S. relationship.relationship.  The Company had a long standing relationship with 7-Eleven in the U.S. that ended during the quarter ended March 31, 2018. In previous periods, this relationship accounted for a material portion of the Company’s consolidated revenues and profits. The Company began a transition to 7-Eleven’s new service provider during the third quarter of 2017 that was completed in February 2018. We estimate that 7-Eleven in the U.S. accounted for approximately 13% and 14% of the Company’s total revenues during the three and nine months ended September 30, 2017, respectively. 7-Eleven in the U.S. accounted for approximately 12.5% of the Company’s total revenues for the year ended 2017 and had an incremental gross margin of approximately 40%. The Company expects that 7-Eleven in the U.S. will account for less than 1% of total revenues in 2018, all of which was earned in the first quarter of 2018.

Withdrawal transaction and revenue trends –- U.K.The Historically, the majority of our ATMs in the U.K. arehave been free-to-use ATMs, meaning the transaction is free to the consumer and we earn an interchange rate paid by the customer’s bank. We also operate surcharging or pay-to-use ATMs. Although we earn less revenue per cash withdrawal transaction on a free-to-use ATMs, higher volume of transactions conducted on free-to-use ATMs can generally translate into higher overall revenues. However, duringwhich are now increasing in the market and in our ATM estate due to the LINK interchange rate reduction discussed above. During the three months ended September 30, 2018,March 31, 2019, same-store cash withdrawal transactions at our ATMs in the U.K decreasedwere approximately 4%flat compared to the same period in 2017.2018. We believe the growth rate was adversely impacted by changes in consumer payments behavior, where consumers are conducting more tap and pay transactions for small payments at retailers.retailers, offset by a decreased number of ATMs in the market.

Australia market changes and asset impairment.  In late September 2017, Australia’s four largest banks, Commonwealth Bank of Australia (“CBA”), Australia and New Zealand Banking Group Limited (“ANZ”), Westpac Banking Corporation (“Westpac”), and National Australia Bank (“NAB”), each separately announced decisions to remove all direct charges (or "surcharges") to all users on domestic ATM transactions completed at their respective ATM networks, effectively creating a free-to-use network of ATMs that did not exist previously. Collectively, these four banks account for approximately one third of the total ATMs in Australia. CBA removed the direct charges in late September 2017, and Westpac, ANZ, and NAB removed the direct charges during the first part ofsoon thereafter in October 2017. During the three months ended September 30, 2017, we performed qualitative and quantitative analysis and recognized an impairment of our Australia and New Zealand reporting unit in response to expected revenue and profit declines in this market following the banks’ removal of the direct charges.

Australia has historically been a direct charge ATM market, where cardholders have paid a fee (or “direct charge”"surcharge") to the operator of an ATM for each transaction, unless the ATM where the transaction was completed was part of the cardholder’s issuing bank ATM network. There is no broad interchange arrangement in Australia between card issuers and ATM operators to compensate the ATM operator for its service to a financial institution’s cardholder in absence of the direct charge being levied to the cardholders. During the three and nine months ended September 30, 2018,March 31, 2019, approximately 77%79% of the Company’s revenues in Australia were sourced from direct charges paid by cardholders. Consequently, the actions taken by the largest banks in Australia in 2017 have resulted in a significant increase in the availability of free-to-use ATMs and could, in the future, result in a significant decrease in our revenues. We are developing strategies to react to this market shift. While the direct impact we have experienced has been limited to date, the ultimate impact of this action could increase over time as consumers’ behavior patterns change as a result of the introduction of a free-to-use network in Australia that did not previously exist. 

Poland operations.  During the fourth quarter of 2017, we ceased operating in Poland and recognized costs to close the operations, largely consisting of contract termination costs related to our merchant, bank sponsorship, lease and other agreements, as well as employee severance costs and charges for asset disposals. During the year ended December 31, 2017, Poland contributed less than 1% of our consolidated ATM operating revenues.

Alternative payment options. options. We face indirect competition from alternative payment options, including card-based and mobile phone-based contactless payment technology in all of our markets. Australia and the U.K. have reported higherincreasing rates of contactless payment use compared to other markets.use. Prior to our acquisition of DCPayments and since our ownership of the Australian component of the business, we have observed declines in transactions at Australian ATMs, as

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cash-based payments have declined as a percentage of total payments in recent years. Contactlessyears, with growth in contactless payments appearappearing to be a significantthe primary driver of the decline.

Europay, MasterCard, Visa (“EMV”) security standard and software upgrades Several banks in the U.S. The EMV security standard provides for the security and processing of information contained on microchips embedded in certain debit and credithave recently issued contactless cards known as “chip cards.” In October 2016, MasterCard commenced a liability shiftto their customers, enabling an additional payment choice for U.S. ATMconsumers. U.S. consumer adoption of this new payment choice could impact our transactions on EMV-issued cards used at non-EMV compliant ATMs in the U.S. Similarly, in October 2017, Visa commenced a liability shift for all transaction types on all EMV issued cardsfuture in the U.S. In order to comply with the EMV standard, in the U.S., we upgraded or replaced nearly all of our U.S. Company-owned ATMs to deploy additional software to enable additional functionality, enhance security features, and enable the EMV security standard. Due to the significant operational challenges of enabling EMV and other hardware and software enhancements across the majority of our U.S. ATMs, which comprises many types and models of ATMs, together with potential compatibility issues with various processing platforms, we experienced increased downtime at our U.S. ATMs during the first half of 2017. As a result of this downtime, we suffered lost revenues and incurred penalties with certain of our contracts during the first half of 2017. Also during 2017, we incurred increased charges from networks associated with actual or potentially fraudulent transactions, as we are liable for fraudulent transactions on the MasterCard network and other networks that have adopted the EMV security standard if our ATM was not EMV compliant at the time a fraudulent transaction was processed. In 2017, nearly all of our U.S. Company-owned ATMs became EMV-compliant.

Capital investments. Our capital spendinginvestments in 2017 and 2016 included significant expenditures to achieve our EMV upgrade requirements and replace unitsATMs at certain locations. Therefore, we have seenlocations in response to certain changes in network operating rules.  In 2018, a decrease in our capital spending in 2018limited number of ATMs were purchased due to the availability of ATMs removed from what we spent in 2016 and 2017.7-Eleven locations. Our capital spending in 2018 has been2019 will be driven by the following: (i) our strategic initiatives to enhance the consumer experience at our ATMs and drive transaction growth, (ii) long-term renewals of existing merchant contracts, (iii) certain software

and hardware enhancements required to facilitate our strategic initiatives, enhance security, and maintainretain the necessary support, (iv)(iii) other compliance related matters including terminal upgrades required due to polymer note introductions, (iv) long-term renewals of existing merchant contracts, (v) growth opportunities across our enterprise, and (vi) investments in the infrastructure of our business, including the implementation of an enterprise resource planning (“ERP”) system.

U.K. planned exit from the European Union (“Brexit”).On March 29, 2017, the U.K. government officially triggered Article 50 of the Treaty on the European Union ("EU"), which commenced the process for the U.K. to exit the EU. The U.K. was originally scheduled to exit the European Union on March 29, 2019, subject to a transition period extending through December 2020. However, as of March 29, 2019, the British Parliament had not approved the withdrawal agreement that had been negotiated by representatives of the British government and the European Union. On April 10, 2019, prior to the end of an initial two week extension, the EU extended the deadline for the U.K. to approve the negotiated withdrawl agreement to October 31, 2019. Given the delay, there remains considerable uncertainty associated with the timing and terms of the withdrawal. Failure to obtain parliamentary approval of the negotiated withdrawal agreement would mean that the U.K. would leave the European Union with no agreement (a so-called “hard Brexit”). Although the ultimate impact of Brexit on our business is unknown, we continue to monitor the negotiation of a withdrawal agreement and of a future relationship between the European Union and the U.K. The U.K. is scheduled to exit the European Union on March 29, 2019 subject to a transition period presently extending through December 2020. 

Dynamic Currency Conversion.Conversion ("DCC"). On September 27, 2018, Visa notified its members that it will allow dynamic currency conversion (“DCC”)DCC on international ATM transactions globally effective April 13, 2019. We expect that this rule change will allow us to expand our DCC offering with a positive impact on revenues.offerings and enable additional revenue opportunities in certain of our markets. On March 28, 2018,19, 2019, the European Commission published a proposal to amend European Union regulationsParliament adopted Regulation 2019/518 applicable to (“DCC”)DCC charges. The European Commission has proposed additional transparency and price comparability requirements on DCC transactions that, if enacted by the European Parliament, would be developed by the European Banking Authority.are effective from April 2020. Our DCC revenues currently account for approximatelyless than 3% of our consolidatedtotal revenues, the majority of which relate tois derived from our U.K. operations. With the timing of Brexit scheduled to precede the proposed effective date of regulation,delayed, we are uncertain, at this time, if this new proposed regulation will have any significant impact on our results.revenues. Regardless of the outcome of Brexit and whether the U.K. adopts the European Unions proposed regulations, we do not believe this regulation will have a material impact on our revenues based on our current operations and the intended purpose of the proposed regulations.

Restructuring expensesExpenses.  .During 2017, we initiated a global corporate reorganization and cost reduction initiative (the “Restructuring Plan”), intended to improve our cost structure and operating efficiency. The Restructuring Plan included workforce reductions, facilities closures, contract terminations, and other cost reduction measures. WeDuring the year ended December 31, 2018, we incurred $8.2 million and $10.4$6.6 million of pre-tax expenses related to our Restructuring Plan during the nine and twelve months ended September 30, 2017 and December 31, 2017, respectively. During the three and nine months ended September 30, 2018, we implemented additional workforce reductions in an effort to continue our cost reduction initiativeinitiative. These costs consisted of employee severance, and incurred $1.1 million and $5.5 million of pre-tax expenses, respectively. During the remainder of 2018, our Restructuring Plan activities may include additional workforce reductions and other cost reduction measures.to a lesser extent exit costs related to certain facilities. 

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Next generation bank note upgrade in Australia. Next generation bank notes are in the process of being introduced by the Reserve Bank of Australia. The new $5 note was introduced on September 1, 2016, and the new $50 note, the most widely disseminated note in Australia, was introduced on October 18, 2018, with the2018. The new $20 note to follow on a dateand $100 note are expected to be determined.issued in October 2019 and 2020, respectively . The introduction of these next generation bank notes has required upgrades to software and physical ATM components on our ATMs in Australia.

U.S. Tax Reform.Reform.  On December 22, 2017, House of Representatives 1 (“H.R. 1”), originally known as the Tax Cuts and Jobs Act (“U.S. Tax Reform”) was enacted and signed into legislation. In accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP” or “GAAP”), the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. As a result of this legislation, during the three months ended December 31, 2017, we provisionally recognized one-time net tax benefits totaling $11.6 million. This amount included an estimated one-time tax benefit of $19.4 million due to the re-measurement of our net deferred tax liabilities, primarily related to the change in the U.S. federal corporate income tax rate from 35% to 21%. Partially offsetting this non-cash book tax benefit, we recognizedIn accordance with SEC Accounting Bulletin No.118 during the three month ended December 31, 2017, an estimated one-time tax expense of $7.8 million on our accumulated undistributed foreign earnings pertaining to foreign operations under our U.S. business. During the three months ended September 30, 2018, we decreasedreduced the estimated one-time tax on our accumulated undistributed foreign earnings by $1.2 million. Offsetting this benefit, we recognized a charge of $1.0 million for deferred tax assets that will not be realized that was determined after the release of IRS Notice 2018-68, clarifying the deduction limitations for remunerations of covered persons. As a result, we realized a net tax benefit of $0.2 million in the three months ended September 30, 2018 related to U.S. Tax Reform by $0.4 million and completed our accounting for the income tax effects of the U.S. Tax Reform. We continue to evaluate the U.S. Tax Reform and there are many elements of the U.S. Tax Reform that will impact our business. In the near term, due primarily to limitations on the amount of interest expense a U.S. company can deduct, we expect the net impact of this reform to increase our consolidated reported effective tax rate as compared to previous recent periods.change in law.

Acquisitions. On January 6, 2017, we completed the acquisition of DCPayments, a leading operator of approximately 25,000 ATMs with operations in Australia, New Zealand, Canada, the U.K., and Mexico and onMexico. On January 31, 2017, we completed the acquisition of Spark, an independent ATM operator in South Africa, with a growing network of approximately 2,300 ATMs. The agreed purchase consideration for Spark included initial cash consideration, paid at closing, and potential additional contingent consideration. The additional purchase consideration is contingent upon Spark achieving certain agreed upon earnings targets in 2019 and 2020 to be paid in 2020 and 2021, respectively.  For additional information related to the acquisitions above, see Item 1. Financial Statements, Note 4. Acquisitions.

Cybersecurity trends. We electronically process and transmit cardholder information as part of our transaction processing services. Companies that process and transmit cardholder information, such as ours, have been specifically and increasingly targeted in recent years by sophisticated criminal organizations in an effort to obtain information and utilize it for fraudulent transactions. Additionally, the risk of unauthorized circumvention of system controls has been heightened by advances in computer capabilities and increasing sophistication of hackers. We take a risk-based approach to cybersecurity, and in recognition of the growing threat within our industry and the general marketplace, we proactively make strategic investments in our security

infrastructure, technical and procedural controls, and regulatory compliance activities. We also apply the knowledge gained through industry and government organizations to continuously improve our technology, processes and services to detect, mitigate and protect our information. Cybersecurity and the effectiveness of our cybersecurity strategy are regular topics of discussion at Board meetings. We expect to continue to focus attention and resources on our security protection protocols, including repairing any system damage and deploying additional personnel, as well as protecting against any potential reputational harm. The cost to remediate any damages to our information technology systems suffered as a result of a cyber-attack could be significant. For further discussion of the risks we face in connection with growing cybersecurity trends, see Part 1. Item 1A. Risk Factors in our 2017 Form 10-K. 

Factors Impacting Comparability Between Periods

·

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 $4.9 million during the three months ended September 30, 2018 and higher by $17.5 million the nine months ended September 30, 2018. 

56

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 $11.2 million or 3.5% during the three months ended March 31, 2019. 

Table7-Eleven ATM removal. The 7-Eleven ATM placement agreement in the U.S. expired in July 2017, and all ATM operations in the U.S. were transitioned to the new service provider by the end of Contents

February 2018. 7-Eleven in the U.S accounted for $5.4 million, or less than 2% of total revenues during the three months ended March 31, 2018.

·

Acquisitions and divestitures. The results of operations for any acquired entities during a particular period have been included in our consolidated financial statements for the periods since the respective dates of acquisition. Similarly, the results of operations for any divested operations have been excluded from our consolidated financial statements since the dates of divestiture.

·

7-Eleven ATM removal. As discussed above, the 7-Eleven ATM placement agreement in the U.S. expired in July 2017, and all ATM operations in the U.S. were transitioned to the new service provider by March 31, 2018. We estimate that 7-Eleven in the U.S. accounted for approximately 12.5% of consolidated total revenues for the year ended 2017. We expect that 7-Eleven in the U.S will account for less than 1% of consolidated total revenues in 2018.


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Results of Operations

The following Consolidated Statements of Operations reflects each line as a percentage of total revenues for the periods indicated. Percentages may not add due to rounding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

September 30, 

 

 

September 30, 

 

 

 

 

2018

 

 

2017

 

 

2018

 

    

2017

 

 

 

 

(In thousands, excluding percentages)

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

$

329,837

97.0

%

 

$

390,143

97.1

%

 

$

978,789

96.2

%

 

$

1,105,191

96.6

%

 

ATM product sales and other revenues

 

 

10,338

3.0

 

 

 

11,807

2.9

 

 

 

38,557

3.8

 

 

 

39,443

3.4

 

 

Total revenues (1)

 

 

340,175

100.0

 

 

 

401,950

100.0

 

 

 

1,017,346

100.0

 

 

 

1,144,634

100.0

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of ATM operating revenues (excludes depreciation, accretion, and amortization of intangible assets reported separately below. See Note 1(c)) (2)

 

 

216,849

63.7

 

 

 

251,136

62.5

 

 

 

647,692

63.7

 

 

 

729,547

63.7

 

 

Cost of ATM product sales and other revenues

 

 

8,680

2.6

 

 

 

8,920

2.2

 

 

 

31,528

3.1

 

 

 

34,671

3.0

 

 

Total cost of revenues

 

 

225,529

66.3

 

 

 

260,056

64.7

 

 

 

679,220

66.8

 

 

 

764,218

66.8

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses (3)

 

 

41,896

12.3

 

 

 

46,132

11.5

 

 

 

124,564

12.2

 

 

 

131,551

11.5

 

 

Redomicile-related expenses

 

 

 —

 —

 

 

 

22

 —

 

 

 

 —

 —

 

 

 

782

0.1

 

 

Restructuring expenses

 

 

1,058

0.3

 

 

 

 —

 —

 

 

 

5,534

0.5

 

 

 

8,243

0.7

 

 

Acquisition and divestiture-related expenses

 

 

 —

 —

 

 

 

2,889

0.7

 

 

 

2,633

0.3

 

 

 

15,338

1.3

 

 

Goodwill and intangible asset impairment

 

 

 —

 —

 

 

 

194,521

48.4

 

 

 

 —

 —

 

 

 

194,521

17.0

 

 

Depreciation and accretion expense

 

 

30,647

9.0

 

 

 

29,807

7.4

 

 

 

93,453

9.2

 

 

 

88,683

7.7

 

 

Amortization of intangible assets

 

 

12,994

3.8

 

 

 

14,996

3.7

 

 

 

40,263

4.0

 

 

 

45,423

4.0

 

 

Loss on disposal and impairment of assets

 

 

466

0.1

 

 

 

22,307

5.5

 

 

 

15,583

1.5

 

 

 

26,170

2.3

 

 

Total operating expenses

 

 

87,061

25.6

 

 

 

310,674

77.3

 

 

 

282,030

27.7

 

 

 

510,711

44.6

 

 

Income (loss) from operations

 

 

27,585

8.1

 

 

 

(168,780)

(42.0)

 

 

 

56,096

5.5

 

 

 

(130,295)

(11.4)

 

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

8,852

2.6

 

 

 

9,743

2.4

 

 

 

27,185

2.7

 

 

 

25,760

2.3

 

 

Amortization of deferred financing costs and note discount

 

 

3,397

1.0

 

 

 

3,195

0.8

 

 

 

10,060

1.0

 

 

 

9,317

0.8

 

 

Other income

 

 

(1,297)

(0.4)

 

 

 

(2,095)

(0.5)

 

 

 

(1,324)

(0.1)

 

 

 

(1,730)

(0.2)

 

 

Total other expense

 

 

10,952

3.2

 

 

 

10,843

2.7

 

 

 

35,921

3.5

 

 

 

33,347

2.9

 

 

Income (loss) before income taxes

 

 

16,633

4.9

 

 

 

(179,623)

(44.7)

 

 

 

20,175

2.0

 

 

 

(163,642)

(14.3)

 

 

Income tax expense (benefit)

 

 

7,854

2.3

 

 

 

(4,053)

(1.0)

 

 

 

10,409

1.0

 

 

 

(2,335)

(0.2)

 

 

Net income (loss) 

 

 

8,779

2.6

 

 

 

(175,570)

(43.7)

 

 

 

9,766

1.0

 

 

 

(161,307)

(14.1)

 

 

Net loss attributable to noncontrolling interests

 

 

(2)

 —

 

 

 

(9)

 —

 

 

 

(14)

 —

 

 

 

(3)

 —

 

 

Net income (loss) attributable to controlling interests and available to common shareholders

 

$

8,781

2.6

%

 

$

(175,561)

(43.7)

%

 

$

9,780

1.0

%

 

$

(161,304)

(14.1)

%

 

rounding.

58

 Three months ended March 31,
 2019 2018
 (In thousands, excluding percentages)
Revenues:       
ATM operating revenues$302,602
 95.1 % $319,731
 95.1 %
ATM product sales and other revenues15,668
 4.9
 16,453
 4.9
Total revenues318,270
 100.0
 336,184
 100.0
Cost of revenues:       
Cost of ATM operating revenues (1)
206,158
 64.8
 215,490
 64.1
Cost of ATM product sales and other revenues11,925
 3.7
 12,762
 3.8
Total cost of revenues218,083
 68.5
 228,252
 67.9
Operating expenses:       
Selling, general, and administrative expenses (2)
43,660
 13.7
 41,740
 12.4
Restructuring expenses—
 —
 2,413
 0.7
Acquisition related expenses—
 —
 1,720
 0.5
Depreciation and accretion expense32,973
 10.4
 31,042
 9.2
Amortization of intangible assets12,412
 3.9
 13,771
 4.1
Loss on disposal and impairment of assets968
 0.3
 5,420
 1.6
Total operating expenses90,013
 28.3
 96,106
 28.6
Income from operations10,174
 3.2
 11,826
 3.5
Other expenses:       
Interest expense, net6,643
 2.1
 9,174
 2.7
Amortization of deferred financing costs and note discount3,292
 1.0
 3,308
 1.0
Other (income) expense(7,207) (2.3) 2,160
 0.6
Total other expenses2,728
 0.9
 14,642
 4.4
   Income (loss) before income taxes7,446
 2.3
 (2,816) (0.8)
Income tax expense (benefit)3,129
 1.0
 (31) —
Net income (loss)4,317
 1.4
 (2,785) (0.8)
Net loss attributable to noncontrolling interests(2) —
 (17) —
Net income (loss) attributable to controlling interests and available to common shareholders$4,319
 1.4 % $(2,768) (0.8)%

Table of Contents


(1)

Effective January 1, 2018, we adopted ASC 606 using the modified retrospective approach. Historical revenue reflects amounts previously reported and have not been restated here and the tables that follow.

(2)

Excludes effects of depreciation, accretion, and amortization of intangible assets of $35.5$37.0 million and $37.2$37.1 million for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively, and $109.1 and $111.9 million for the nine months ended September 30, 2018 and 2017, respectively. SeeItem 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 10.4%11.6% and 9.2%11.0% for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively, and 10.7% and 9.8% for the nine months ended September 30, 2018 and 2017, respectively.

(3)

(2)

Includes share-based compensation expense of $4.4$4.2 million and $4.0$2.4 million for the three months ended September 30,March 31, 2019 and 2018, and 2017, and $10.2 million and $9.6 million for the nine months ended September 30, 2018 and 2017, respectively.


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Key Operating Metrics

The following table reflects certain key measures that gauge our operating performance for the periods indicated, including the effect of the acquisitions.

indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

2018

 

% Change

 

2017

    

2018

 

% Change

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of transacting ATMs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

44,183

 

 

(15.5)

%

 

 

52,267

 

 

 

44,829

 

 

(14.4)

%

 

 

52,385

 

Europe & Africa

 

 

24,406

 

 

(5.8)

 

 

 

25,921

 

 

 

24,769

 

 

(2.8)

 

 

 

25,484

 

Australia & New Zealand

 

 

7,909

 

 

(9.3)

 

 

 

8,717

 

 

 

8,077

 

 

(8.7)

 

 

 

8,848

 

Total Company-owned

 

 

76,498

 

 

(12.0)

 

 

 

86,905

 

 

 

77,675

 

 

(10.4)

 

 

 

86,717

 

North America

 

 

14,064

 

 

(7.2)

 

 

 

15,149

 

 

 

14,172

 

 

(7.5)

 

 

 

15,324

 

Europe & Africa

 

 

55

 

 

(91.9)

 

 

 

682

 

 

 

175

 

 

(72.3)

 

 

 

632

 

Australia & New Zealand

 

 

103

 

 

 -

 

 

 

103

 

 

 

103

 

 

 -

 

 

 

103

 

Total Merchant-owned

 

 

14,222

 

 

(10.7)

 

 

 

15,934

 

 

 

14,450

 

 

(10.0)

 

 

 

16,059

 

Average number of transacting ATMs – ATM operations

 

 

90,720

 

 

(11.8)

 

 

 

102,839

 

 

 

92,125

 

 

(10.4)

 

 

 

102,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Managed Services and Processing:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

137,789

 

 

4.0

 

 

 

132,487

 

 

 

135,406

 

 

4.2

 

 

 

130,003

 

Australia & New Zealand

 

 

1,993

 

 

(0.4)

 

 

 

2,000

 

 

 

2,005

 

 

8.7

 

 

 

1,844

 

Average number of transacting ATMs – Managed services and processing

 

 

139,782

 

 

3.9

 

 

 

134,487

 

 

 

137,411

 

 

4.2

 

 

 

131,847

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Total average number of transacting ATMs

 

 

230,502

 

 

(2.9)

 

 

 

237,326

 

 

 

229,536

 

 

(2.2)

 

 

 

234,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total transactions (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operations

 

 

340,870

 

 

(12.3)

 

 

 

388,736

 

 

 

1,001,737

 

 

(12.2)

 

 

 

1,141,144

 

Managed services and processing, net

 

 

290,213

 

 

3.3

 

 

 

281,054

 

 

 

851,495

 

 

7.9

 

 

 

788,928

 

Total transactions

 

 

631,083

 

 

(5.8)

 

 

 

669,790

 

 

 

1,853,232

 

 

(4.0)

 

 

 

1,930,072

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash withdrawal transactions (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operations

 

 

222,864

 

 

(10.1)

 

 

 

247,903

 

 

 

649,674

 

 

(11.0)

 

 

 

730,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per ATM per month amounts (excludes managed services and processing):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash withdrawal transactions

 

 

819

 

 

1.9

 

 

 

804

 

 

 

784

 

 

(0.8)

 

 

 

790

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues (1)

 

$

1,119

 

 

(5.2)

 

 

$

1,180

 

 

$

1,088

 

 

(2.5)

 

 

$

1,116

 

Cost of ATM operating revenues (1) (2)

 

 

760

 

 

(1.8)

 

 

 

774

 

 

 

744

 

 

(0.7)

 

 

 

749

 

ATM adjusted operating gross profit (1) (2)

 

$

359

 

 

(11.6)

%

 

$

406

 

 

$

344

 

 

(6.3)

%

 

$

367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM adjusted operating gross profit margin

 

 

32.1

%

 

 

 

 

 

34.4

%

 

 

31.6

%

 

 

 

 

 

32.9

%

  Three Months Ended March 31,
  2019 % Change 2018
Average number of transacting ATMs:      
North America 43,240
 (5.4)% 45,726
Europe & Africa 23,755
 (6.1) 25,291
Australia & New Zealand 7,936
 (3.8) 8,249
Total Company-owned 74,931
 (5.5) 79,266
North America 13,718
 (3.7) 14,238
Europe & Africa 225
 (25.0) 300
Australia & New Zealand 103
 —
 103
Total Merchant-owned 14,046
 (4.1) 14,641
Average number of transacting ATMs – ATM operations 88,977
 (5.2) 93,907
       
Managed Services and Processing:  
 

  
North America 136,725
 3.1
 132,571
Australia & New Zealand 1,483
 (26.4) 2,014
Average number of transacting ATMs – Managed services and processing 138,208
 2.7
 134,585
       
  Total average number of transacting ATMs 227,185
 (0.6) 228,492
       
Total transactions (in thousands):  
 

  
ATM operations 304,860
 (5.0) 320,956
Managed services and processing, net 278,056
 2.1
 272,470
Total transactions 582,916
 (1.8) 593,426
       
Total cash withdrawal transactions (in thousands):   

  
ATM operations 201,012
 (2.3) 205,833
       
Per ATM per month amounts (excludes managed services and processing):   

  
Cash withdrawal transactions 753
 3.0
 731
       
ATM operating revenues (1)
 $1,056
 1.0 % $1,046
Cost of ATM operating revenues (1) (2) 
 732
 0.8
 726
ATM adjusted operating gross profit (1) (2) 
 $324
 1.3 % $320
       
ATM adjusted operating gross profit margin 30.7%   30.6%

(1)

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.

(2)

Amounts presented exclude the effect of depreciation, accretion, and amortization of intangible assets, which is reported separatelyin the accompanyingConsolidated Statements of Operations. For additional information, seeItem 1. Financial Statements, Note 1. General and Basis of Presentation – (c) Cost of ATM Operating Revenues Presentation.



60

Revenues

 Three Months Ended March 31,
 2019 2018 % Change
 (In thousands, excluding percentages)
North America     
ATM operating revenues$191,046
 $195,747
 (2.4)%
ATM product sales and other revenues13,202
 14,132
 (6.6)
North America total revenues204,248
 209,879
 (2.7)
Europe & Africa     
ATM operating revenues88,678
 96,182
 (7.8)
ATM product sales and other revenues2,247
 2,263
 (0.7)
Europe & Africa total revenues90,925
 98,445
 (7.6)
Australia & New Zealand     
ATM operating revenues25,791
 30,638
 (15.8)
ATM product sales and other revenues219
 58
 277.6
Australia & New Zealand total revenues26,010
 30,696
 (15.3)
      
Eliminations(2,913) (2,836) 2.7
      
Total ATM operating revenues302,602
 319,731
 (5.4)
Total ATM product sales and other revenues15,668
 16,453
 (4.8)
Total revenues$318,270
 $336,184
 (5.3)%

Table of Contents

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

  

2017

  

% Change

    

2018

  

2017

  

% Change

 

 

(In thousands, excluding percentages)

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

$

200,481

 

$

249,964

 

(19.8)

%

 

$

593,400

 

$

719,341

 

(17.5)

%

ATM product sales and other revenues

 

 

8,267

 

 

9,654

 

(14.4)

 

 

 

32,026

 

 

33,191

 

(3.5)

 

North America total revenues

 

 

208,748

 

 

259,618

 

(19.6)

 

 

 

625,426

 

 

752,532

 

(16.9)

 

Europe & Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

 

102,819

 

 

107,497

 

(4.4)

 

 

 

304,809

 

 

293,827

 

3.7

 

ATM product sales and other revenues

 

 

2,019

 

 

2,088

 

(3.3)

 

 

 

6,323

 

 

6,159

 

2.7

 

Europe & Africa total revenues

 

 

104,838

 

 

109,585

 

(4.3)

 

 

 

311,132

 

 

299,986

 

3.7

 

Australia & New Zealand

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

 

29,417

 

 

35,368

 

(16.8)

 

 

 

89,078

 

 

99,752

 

(10.7)

 

ATM product sales and other revenues

 

 

52

 

 

65

 

(20.0)

 

 

 

208

 

 

224

 

(7.1)

 

Australia & New Zealand total revenues

 

 

29,469

 

 

35,433

 

(16.8)

 

 

 

89,286

 

 

99,976

 

(10.7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations

 

 

(2,880)

 

 

(2,686)

 

7.2

 

 

 

(8,498)

 

 

(7,860)

 

8.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ATM operating revenues

 

 

329,837

 

 

390,143

 

(15.5)

 

 

 

978,789

 

 

1,105,191

 

(11.4)

 

Total ATM product sales and other revenues

 

 

10,338

 

 

11,807

 

(12.4)

 

 

 

38,557

 

 

39,443

 

(2.2)

 

Total revenues

 

$

340,175

 

$

401,950

 

(15.4)

%

 

$

1,017,346

 

$

1,144,634

 

(11.1)

%

Three Months Ended September 30, 2018March 31, 2019 Compared to Three Months Ended September 30, 2017

March 31, 2018

ATM operating revenues. ATM operating revenues during the three months ended September 30, 2018March 31, 2019 decreased  $60.3$17.1 million, or 15.5%5.4%, compared to the same period of 2017.2018. The decrease in ATM operating revenues was  primarily attributable to the removal of ATMs at 7-Eleven locations in the U.S., lower ATM counts and transaction volumes in Australia and the U.K., and the 5% decreasetwo decreases in the LINK interchange rate in the U.K. effectivethat came into effect on July 1, 2018 and January 1, 2019 as well as termination of the 7-Eleven contract in the U.S. and the removal of ATM's at 7-Eleven locations that contributed approximately $5.4 million in ATM operating revenues in the first two months of 2018. The decrease in ATM operating revenues was also attributable to foreign currency exchange rate movements impacting the results of our Europe & Africa and Australia & New Zealand segments.

61


Table of Contents

The following table details, by segment, the changes in the various components of ATM operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

September 30, 

 

    

2018

    

2017

    

Change

    

% Change

 

 

(In thousands, excluding percentages)

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

$

92,572

 

$

123,406

 

$

(30,834)

 

 

(25.0)

%

Interchange revenues

 

 

36,620

 

 

51,155

 

 

(14,535)

 

 

(28.4)

 

Bank-branding and surcharge-free network revenues

 

 

45,128

 

 

48,910

 

 

(3,782)

 

 

(7.7)

 

Managed services revenues

 

 

12,240

 

 

12,905

 

 

(665)

 

 

(5.2)

 

Other revenues

 

 

13,921

 

 

13,588

 

 

333

 

 

2.5

 

North America total ATM operating revenues

 

 

200,481

 

 

249,964

 

 

(49,483)

 

 

(19.8)

 

Europe & Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

 

34,134

 

 

33,410

 

 

724

 

 

2.2

 

Interchange revenues

 

 

66,039

 

 

71,858

 

 

(5,819)

 

 

(8.1)

 

Other revenues

 

 

2,646

 

 

2,229

 

 

417

 

 

18.7

 

Europe & Africa total ATM operating revenues

 

 

102,819

 

 

107,497

 

 

(4,678)

 

 

(4.4)

 

Australia & New Zealand

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

 

22,358

 

 

28,579

 

 

(6,221)

 

 

(21.8)

 

Interchange revenues

 

 

1,650

 

 

1,246

 

 

404

 

 

32.4

 

Bank-branding and surcharge-free network revenues

 

 

 —

 

 

 6

 

 

(6)

 

 

n/m

 

Managed services revenues

 

 

4,108

 

 

4,191

 

 

(83)

 

 

(2.0)

 

Other revenues

 

 

1,301

 

 

1,346

 

 

(45)

 

 

(3.3)

 

Australia & New Zealand total ATM operating revenues

 

 

29,417

 

 

35,368

 

 

(5,951)

 

 

(16.8)

 

Eliminations

 

 

(2,880)

 

 

(2,686)

 

 

(194)

 

 

7.2

 

Total ATM operating revenues

 

$

329,837

 

$

390,143

 

$

(60,306)

 

 

(15.5)

%

 Three Months Ended March 31,
 2019 2018 Change % Change
 (In thousands, excluding percentages)
North America       
Surcharge revenues$85,110
 $89,115
 $(4,005) (4.5)%
Interchange revenues34,379
 35,819
 (1,440) (4.0)
Bank-branding and surcharge-free network revenues45,873
 44,447
 1,426
 3.2
Managed services revenues12,396
 12,553
 (157) (1.3)
Other revenues13,288
 13,813
 (525) (3.8)
North America total ATM operating revenues191,046
 195,747
 (4,701) (2.4)
Europe & Africa       
Surcharge revenues31,045
 26,169
 4,876
 18.6
Interchange revenues55,308
 67,458
 (12,150) (18.0)
Other revenues2,325
 2,555
 (230) (9.0)
Europe & Africa total ATM operating revenues88,678
 96,182
 (7,504) (7.8)
Australia & New Zealand       
Surcharge revenues20,668
 24,070
 (3,402) (14.1)
Interchange revenues1,303
 1,126
 177
 15.7
Managed services revenues2,711
 4,179
 (1,468) (35.1)
Other revenues1,109
 1,263
 (154) (12.2)
Australia & New Zealand total ATM operating revenues25,791
 30,638
 (4,847) (15.8)
Eliminations(2,913) (2,836) (77) 2.7
Total ATM operating revenues$302,602
 $319,731
 $(17,129) (5.4)%
North America. For the three months ended September 30, 2018,March 31, 2019, our ATM operating revenues in our North America segment decreased $49.5$4.7 million, or 19.8%2.4%, compared to the same period of 2017.2018. The decrease was primarily attributable to the termination of the 7-Eleven contract in the U.S. and the removal of ATMsATM's at 7-Eleven locations during the second half of 2017 andthat contributed approximately $5.4 million in ATM operating revenues in the first two months of 2018. 7-Eleven locations in the U.S. accounted for approximately 22% of North America revenues in the three months ended September 30, 2017. The decrease attributable to the loss of the 7-Eleven relationship was partially offset by revenue growth in the rest of the U.S. as a result of growth in same-store transactions, bank-branding, and surcharge-free network and bank-branding revenues.

Europe & Africa. For the three months ended September 30, 2018,March 31, 2019, our ATM operating revenues in our Europe & Africa segment decreased $4.7$7.5 million, or 4.4%7.8%, compared to the same period of 2017.2018. Our ATM operating revenues would have been higher by approximately $0.8$6.6 million for the three months ended September 30, 2018,March 31, 2019, absent the foreign currency exchange rate movements. Adjusted for foreign currency movements, ATM operating revenues decreased 3.6% driven0.9% impacted by the two 5% decreasedecreases in the LINK interchange rate in the U.K. that became effectivecame into effect on July 1, 2018 and January 1, 2019, as well as fewer transacting ATMs, and aATMs. The revenue decline in same-store transactions in the U.K. The decline in U.K. revenue was partiallylargely offset by an increase in the number of transacting ATMs from new ATM placement agreements in South Africa, Germany, Spain, and Ireland. For additional information related to our constant-currency calculations, see Non-GAAP Financial Measures below.

Australia & New Zealand. For the three months ended September 30, 2018,March 31, 2019, our ATM operating revenues in our Australia & New Zealand segment decreased $6.0$4.8 million, or 16.8%15.8%, compared to the same period of 2017.2018. Our ATM operating revenues would have been higher by $2.4$2.7 million for the three months ended September 30, 2018,March 31, 2019, absent the foreign currency exchange rate movements. Adjusted for foreign currency movements, ATM operating revenues decreased 10.2%7.1% primarily due to a decline in the number of transacting ATMs and fewer transactions per ATM.

62

Table of Contents

ATM product sales and other revenues. For the three months ended September 30, 2018,March 31, 2019, our ATM product sales and other revenues decreased $1.5 million4.8% compared to the same period of 2017.2018. The decrease was primarily related to lower equipment sales in our North America segment.

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

ATM operating revenues. ATM operating revenues during the nine months ended September 30, 2018 decreased $126.4 million, or 11.4%, compared to the same period of 2017.  The decrease in ATM operating revenues was primarily attributable to the removal of ATMs at 7-Eleven locations in the U.S.

The following table details, by segment, the changes in the various components of ATM operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2018

    

2017

    

Change

    

% Change

 

 

(In thousands, excluding percentages)

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

$

272,372

 

$

343,613

 

$

(71,241)

 

 

(20.7)

%

Interchange revenues

 

 

108,259

 

 

155,558

 

 

(47,299)

 

 

(30.4)

 

Bank-branding and surcharge-free network revenues

 

 

133,565

 

 

143,169

 

 

(9,604)

 

 

(6.7)

 

Managed services revenues

 

 

38,331

 

 

37,224

 

 

1,107

 

 

3.0

 

Other revenues

 

 

40,873

 

 

39,777

 

 

1,096

 

 

2.8

 

North America total ATM operating revenues

 

 

593,400

 

 

719,341

 

 

(125,941)

 

 

(17.5)

 

Europe & Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

 

91,191

 

 

84,043

 

 

7,148

 

 

8.5

 

Interchange revenues

 

 

205,910

 

 

202,178

 

 

3,732

 

 

1.8

 

Other revenues

 

 

7,708

 

 

7,606

 

 

102

 

 

1.3

 

Europe & Africa total ATM operating revenues

 

 

304,809

 

 

293,827

 

 

10,982

 

 

3.7

 

Australia & New Zealand

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

 

69,107

 

 

81,788

 

 

(12,681)

 

 

(15.5)

 

Interchange revenues

 

 

3,839

 

 

3,422

 

 

417

 

 

12.2

 

Bank-branding and surcharge-free network revenues

��

 

 —

 

 

87

 

 

(87)

 

 

n/m

 

Managed services revenues

 

 

12,318

 

 

10,922

 

 

1,396

 

 

12.8

 

Other revenues

 

 

3,814

 

 

3,533

 

 

281

 

 

8.0

 

Australia & New Zealand total ATM operating revenues

 

 

89,078

 

 

99,752

 

 

(10,674)

 

 

(10.7)

 

Eliminations

 

 

(8,498)

 

 

(7,729)

 

 

(769)

 

 

9.9

 

Total ATM operating revenues

 

$

978,789

 

$

1,105,191

 

$

(126,402)

 

 

(11.4)

%

North America. For  the nine months ended September 30, 2018,  our ATM operating revenues in our North America segment decreased $125.9 million, or 17.5%, compared to the same period of 2017. The decrease was primarily attributable to lower revenue in the U.S. attributable to the removal of ATMs at 7-Eleven locations during the second half of 2017 and the first two months of 2018. Revenues attributable to 7-Eleven locations in the U.S. were approximately 22% of North America revenues in the nine months ended September 30, 2017. 7-Eleven did not contribute to the Company’s revenues in the three and six months ended September 30, 2018. The decline attributable to the loss of the 7-Eleven relationship was partially offset by the rest of the U.S. as a result of the growth in same-store transactions contributing to surcharge and interchange as well as bank-branding and surcharge-free network revenues. In addition, during the first half of 2017, we experienced software related issues in conjunction with our ATM upgrades and EMV compliance effort, as well as a service disruption at a number of ATMs caused by a third-party software issue, which caused some downtime at a significant number of our ATMs. During the first nine months of 2018, the Company experienced high levels of availability across its U.S. ATMs.

Europe & Africa. For the nine months ended September 30, 2018,  our ATM operating revenues in our Europe & Africa segment increased $11.0 million, or 3.7%, compared to the same period of 2017. Our ATM operating revenues would have been lower by $16.8 million for the nine months ended September 30, 2018, absent the foreign currency

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exchange rate movements. Adjusted for foreign currency movements, ATM operating revenues decreased 2% driven by a decline in same-store transactions in the U.K., fewer transacting ATMs in the U.K., and the 5% decrease in the LINK interchange rate in the U.K. that became effective July 1, 2018. The decline in U.K. revenue was partially offset by an increase in the number of transacting ATMs from new ATM placement agreements in South Africa, Germany, Spain, and Ireland. For additional information related to our constant-currency calculations, see Non-GAAP Financial Measures below. 

Australia & New Zealand. For the nine months ended September 30, 2018, our ATM operating revenues in our Australia & New Zealand segment decreased $10.7 million, or 10.7%, compared to the same period of 2017. Our ATM operating revenues would have been higher by approximately $1 million for the nine months ended September 30, 2018, absent the foreign currency exchange rate movements. Adjusted for foreign currency movements, ATM operating revenues decreased 9.7% primarily due to a decline in the number of transacting ATMs and fewer transactions per ATM.

ATM product sales and other revenues. For the nine months ended September 30, 2018, our ATM product sales and other revenues decreased $0.9 million compared to the same period of 2017. The decrease was primarily related to lower equipment sales in our North America segment.

Cost of Revenues (exclusive of depreciation, accretion, and amortization of intangible assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2018

    

2017

    

% Change

    

2018

    

2017

    

% Change

 

 

(In thousands, excluding percentages)

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of ATM operating revenues

 

$

133,496

 

$

163,604

 

(18.4)

%

 

$

398,479

 

$

478,591

 

(16.7)

%

Cost of ATM product sales and other revenues

 

 

7,673

 

 

7,344

 

4.5

 

 

 

28,263

 

 

28,365

 

(0.4)

 

North America total cost of revenue

 

 

141,169

 

 

170,948

 

(17.4)

 

 

 

426,742

 

 

506,956

 

(15.8)

 

Europe & Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of ATM operating revenues

 

 

63,825

 

 

64,350

 

(0.8)

 

 

 

188,595

 

 

184,450

 

2.2

 

Cost of ATM product sales and other revenues

 

 

778

 

 

839

 

(7.3)

 

 

 

2,454

 

 

4,439

 

(44.7)

 

Europe & Africa total cost of revenues

 

 

64,603

 

 

65,189

 

(0.9)

 

 

 

191,049

 

 

188,889

 

1.1

 

Australia & New Zealand

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of ATM operating revenues

 

 

20,998

 

 

24,170

 

(13.1)

 

 

 

65,387

 

 

70,410

 

(7.1)

 

Cost of ATM product sales and other revenues

 

 

229

 

 

737

 

(68.9)

 

 

 

811

 

 

1,990

 

(59.2)

 

Australia & New Zealand total cost of revenues

 

 

21,227

 

 

24,907

 

(14.8)

 

 

 

66,198

 

 

72,400

 

(8.6)

 

Corporate

 

 

229

 

 

797

 

(71.3)

 

 

 

404

 

 

937

 

(56.9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations

 

 

(1,699)

 

 

(1,785)

 

(4.8)

 

 

 

(5,173)

 

 

(4,964)

 

4.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of ATM operating revenues

 

 

216,849

 

 

251,136

 

(13.7)

 

 

 

647,692

 

 

729,547

 

(11.2)

 

Cost of ATM product sales and other revenues

 

 

8,680

 

 

8,920

 

(2.7)

 

 

 

31,528

 

 

34,671

 

(9.1)

 

Total cost of revenues

 

$

225,529

 

$

260,056

 

(13.3)

%

 

$

679,220

 

$

764,218

 

(11.1)

%

64

  Three Months Ended March 31,
  2019 2018 % Change
 (In thousands, excluding percentages)
North America      
Cost of ATM operating revenues $127,150
 $133,867
 (5.0)%
Cost of ATM product sales and other revenues 10,758
 11,522
 (6.6)
North America total cost of revenue 137,908
 145,389
 (5.1)
Europe & Africa      
Cost of ATM operating revenues 62,553
 61,635
 1.5
Cost of ATM product sales and other revenues 856
 896
 (4.6)
Europe & Africa total cost of revenues 63,409
 62,531
 1.4
Australia & New Zealand      
Cost of ATM operating revenues 19,050
 22,597
 (15.7)
Cost of ATM product sales and other revenues 311
 344
 (9.6)
Australia & New Zealand total cost of revenues 19,361
 22,941
 (15.6)
Corporate total cost of revenues 261
 84
 210.7
       
Eliminations (2,856) (2,693) 6.1
       
Cost of ATM operating revenues 206,158
 215,490
 (4.3)
Cost of ATM product sales and other revenues 11,925
 12,762
 (6.6)
Total cost of revenues $218,083
 $228,252
 (4.5)%

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Three Months Ended September 30, 2018March 31, 2019 Compared to Three Months Ended September 30, 2017

March 31, 2018

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 ended September 30, 2018March 31, 2019 decreased $34.3$9.3 million, or 13.7%4.3%, compared to the same period of 2017.2018. The decrease was attributable to removal of ATMs in the 7-Eleven locations in the U.S. and improved operational efficiency, in part as a result of our restructuring activities. Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) was primarily attributable toalso declined as a result of foreign currency exchange rate movements impacting the results of our Europe & Africa and Australia & New Zealand segments and the decrease in ATM operating revenue largelyassociated with the two 5% decreases in the LINK interchange rate in the U.K. that came into effect on July 1, 2018 and on January 1, 2019 and resulted in lower merchant commissions, offset by an increase in other costs due to a $3.9 million reduction in our U.K. business rates (property taxes) on ATMs during the removal of ATMs at 7-Eleven locations in the U.S.three months ended March 31, 2018.


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

 

 

September 30, 

 

    

2018

    

2017

    

Change

    

% Change

 

 

(In thousands, excluding percentages)

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant commissions

 

$

67,931

 

$

87,828

 

$

(19,897)

 

 

(22.7)

%

Vault cash rental

 

 

11,567

 

 

13,513

 

 

(1,946)

 

 

(14.4)

 

Other costs of cash

 

 

14,540

 

 

16,813

 

 

(2,273)

 

 

(13.5)

 

Repairs and maintenance

 

 

11,530

 

 

15,206

 

 

(3,676)

 

 

(24.2)

 

Communications

 

 

3,846

 

 

5,587

 

 

(1,741)

 

 

(31.2)

 

Transaction processing

 

 

1,637

 

 

1,901

 

 

(264)

 

 

(13.9)

 

Employee costs

 

 

9,174

 

 

8,516

 

 

658

 

 

7.7

 

Other expenses

 

 

13,271

 

 

14,240

 

 

(969)

 

 

(6.8)

 

North America total cost of ATM operating revenues

 

 

133,496

 

 

163,604

 

 

(30,108)

 

 

(18.4)

 

Europe & Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant commissions

 

 

25,754

 

 

28,311

 

 

(2,557)

 

 

(9.0)

 

Vault cash rental

 

 

3,668

 

 

3,401

 

 

267

 

 

7.9

 

Other costs of cash

 

 

6,192

 

 

4,041

 

 

2,151

 

 

53.2

 

Repairs and maintenance

 

 

3,445

 

 

3,484

 

 

(39)

 

 

(1.1)

 

Communications

 

 

3,020

 

 

3,168

 

 

(148)

 

 

(4.7)

 

Transaction processing

 

 

4,710

 

 

4,562

 

 

148

 

 

3.2

 

Employee costs

 

 

11,089

 

 

10,535

 

 

554

 

 

5.3

 

Other expenses

 

 

5,947

 

 

6,848

 

 

(901)

 

 

(13.2)

 

Europe & Africa total cost of ATM operating revenues

 

 

63,825

 

 

64,350

 

 

(525)

 

 

(0.8)

 

Australia & New Zealand

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant commissions

 

 

11,574

 

 

14,120

 

 

(2,546)

 

 

(18.0)

 

Vault cash rental

 

 

2,392

 

 

2,080

 

 

312

 

 

15.0

 

Other costs of cash

 

 

2,083

 

 

2,687

 

 

(604)

 

 

(22.5)

 

Repairs and maintenance

 

 

2,018

 

 

2,043

 

 

(25)

 

 

(1.2)

 

Communications

 

 

824

 

 

1,078

 

 

(254)

 

 

(23.6)

 

Transaction processing

 

 

520

 

 

665

 

 

(145)

 

 

(21.8)

 

Employee costs

 

 

1,315

 

 

1,412

 

 

(97)

 

 

(6.9)

 

Other expenses

 

 

272

 

 

85

 

 

187

 

 

220.0

 

Australia & New Zealand total cost of ATM operating revenues

 

 

20,998

 

 

24,170

 

 

(3,172)

 

 

(13.1)

 

Corporate

 

 

229

 

 

797

 

 

(568)

 

 

(71.3)

 

Eliminations

 

 

(1,699)

 

 

(1,785)

 

 

86

 

 

(4.8)

 

Total cost of ATM operating revenues

 

$

216,849

 

$

251,136

 

$

(34,287)

 

 

(13.7)

%

 Three Months Ended March 31,
 2019 2018 Change % Change
 (In thousands, excluding percentages)
North America       
Merchant commissions$62,250
 $66,583
 $(4,333) (6.5)%
Vault cash rental12,239
 12,482
 (243) (1.9)
Other costs of cash15,616
 16,098
 (482) (3.0)
Repairs and maintenance12,453
 10,758
 1,695
 15.8
Communications3,718
 4,158
 (440) (10.6)
Transaction processing1,410
 1,599
 (189) (11.8)
Employee costs7,574
 8,870
 (1,296) (14.6)
Other expenses11,890
 13,319
 (1,429) (10.7)
North America total cost of ATM operating revenues127,150
 133,867
 (6,717) (5.0)
Europe & Africa      

Merchant commissions23,428
 25,767
 (2,339) (9.1)
Vault cash rental3,599
 3,418
 181
 5.3
Other costs of cash5,881
 6,613
 (732) (11.1)
Repairs and maintenance4,106
 4,020
 86
 2.1
Communications2,975
 3,396
 (421) (12.4)
Transaction processing5,452
 5,128
 324
 6.3
Employee costs10,990
 11,132
 (142) (1.3)
Other expenses6,122
 2,161
 3,961
 183.3
Europe & Africa total cost of ATM operating revenues62,553
 61,635
 918
 1.5
Australia & New Zealand      

Merchant commissions10,242
 12,628
 (2,386) (18.9)
Vault cash rental2,029
 2,268
 (239) (10.5)
Other costs of cash1,812
 1,940
 (128) (6.6)
Repairs and maintenance1,991
 2,500
 (509) (20.4)
Communications752
 997
 (245) (24.6)
Transaction processing514
 677
 (163) (24.1)
Employee costs1,209
 1,333
 (124) (9.3)
Other expenses501
 254
 247
 97.2
Australia & New Zealand total cost of ATM operating revenues19,050
 22,597
 (3,547) (15.7)
Corporate261
 84
 177
 210.7
Eliminations(2,856) (2,693) (163) 6.1
Total cost of ATM operating revenues$206,158
 $215,490
 $(9,332) (4.3)%
North America. For the three months ended September 30, 2018,March 31, 2019, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) in our North America segment decreased $30.1$6.7 million, or 18.4%5.0%, compared to the same period of 2017.2018. The decrease was primarily attributable to the following: (i) the decline in costs across most categoriesATM operating revenues associated with the removal of ATMs in the 7-Eleven locations in the U.S and improved operational efficiency, in part as a result of the removal of ATMs at 7-Eleven locationsour restructuring activities reflected in the U.S., (ii) improved operational efficiency, 

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(iii) lower other cost of cashemployee costs offset by an increase in 2018 primarily due to lower charges from networks for suspected fraudulent transactions following the EMV liability shift on the MasterCard network, and (iv) lower repairrepairs and maintenance costs in 2018 compared to 2017 related primarily to the software upgrades at certain Company-owned ATMs during 2017.

costs.

Europe & Africa. For the three months ended September 30, 2018,March 31, 2019, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) in our Europe & Africa segment remained constantincreased by $0.9 million, or 1.5%, compared to the same period of 2017.2018. Excluding foreign currency exchange rate movements, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) decreased less than 1%. This decrease was directionally consistent withincreased 9% due to higher transaction processing costs compared

to the constant-currency declinesame period of 2018 and a $3.9 million reduction in ATM operating revenues that resulted in lower merchant commissions, offset by higher costs to maintain cash at our U.K. business rates (property taxes) on ATMs induring the U.K. For additional information related to our constant-currency calculations, see Non-GAAP Financial Measures below.  

three months ended March 31, 2018.

Australia & New Zealand. For the three months ended September 30, 2018,March 31, 2019, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) in our Australia & New Zealand segment decreased $3.2$3.5 million, or 13.1%15.7%, compared to the same period of 2017. This change is consistent with2018 primarily due to the decrease in ATM operating revenues.revenues and the impact of currency translation. For additional information related to our constant-currency calculations, see

Non-GAAP Financial Measures below.

Cost of ATM product sales and other revenues. For the three months ended September 30, 2018,March 31, 2019, our cost of ATM product sales and other revenues decreased by 2.7%6.6% from the same period of 20172018 which is directionally consistent with the decrease in revenue from ATM product sales.

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

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 nine months ended September 30, 2018 decreased $81.9 million, or 11.2%, compared to the same periodsales primarily in 2017. The decrease in the Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) was primarily attributable to the decrease in ATM operating revenue, largely due to the removal of ATMs at 7-Eleven locations in the U.S.

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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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2018

    

2017

    

Change

    

% Change

 

 

(In thousands, excluding percentages)

Cost of ATM operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant commissions

 

$

200,630

 

$

246,406

 

$

(45,776)

 

 

(18.6)

%

Vault cash rental

 

 

36,083

 

 

40,556

 

 

(4,473)

 

 

(11.0)

 

Other costs of cash

 

 

44,610

 

 

56,137

 

 

(11,527)

 

 

(20.5)

 

Repairs and maintenance

 

 

33,503

 

 

47,798

 

 

(14,295)

 

 

(29.9)

 

Communications

 

 

12,031

 

 

16,489

 

 

(4,458)

 

 

(27.0)

 

Transaction processing

 

 

4,663

 

 

6,721

 

 

(2,058)

 

 

(30.6)

 

Employee costs

 

 

27,098

 

 

25,194

 

 

1,904

 

 

7.6

 

Other expenses

 

 

39,861

 

 

39,290

 

 

571

 

 

1.5

 

North America total cost of ATM operating revenues

 

 

398,479

 

 

478,591

 

 

(80,112)

 

 

(16.7)

 

Europe & Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant commissions

 

 

78,930

 

 

80,453

 

 

(1,523)

 

 

(1.9)

 

Vault cash rental

 

 

10,630

 

 

9,925

 

 

705

 

 

7.1

 

Other costs of cash

 

 

18,897

 

 

14,990

 

 

3,907

 

 

26.1

 

Repairs and maintenance

 

 

10,991

 

 

10,452

 

 

539

 

 

5.2

 

Communications

 

 

9,671

 

 

8,826

 

 

845

 

 

9.6

 

Transaction processing

 

 

13,500

 

 

12,570

 

 

930

 

 

7.4

 

Employee costs

 

 

33,850

 

 

29,817

 

 

4,033

 

 

13.5

 

Other expenses

 

 

12,126

 

 

17,417

 

 

(5,291)

 

 

(30.4)

 

Europe & Africa total cost of ATM operating revenues

 

 

188,595

 

 

184,450

 

 

4,145

 

 

2.2

 

Australia & New Zealand

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant commissions

 

 

36,575

 

 

40,976

 

 

(4,401)

 

 

(10.7)

 

Vault cash rental

 

 

6,771

 

 

5,591

 

 

1,180

 

 

21.1

 

Other costs of cash

 

 

5,898

 

 

7,937

 

 

(2,039)

 

 

(25.7)

 

Repairs and maintenance

 

 

6,948

 

 

5,888

 

 

1,060

 

 

18.0

 

Communications

 

 

2,674

 

 

3,345

 

 

(671)

 

 

(20.1)

 

Transaction processing

 

 

1,796

 

 

1,763

 

 

33

 

 

1.9

 

Employee costs

 

 

4,004

 

 

4,260

 

 

(256)

 

 

(6.0)

 

Other expenses

 

 

721

 

 

650

 

 

71

 

 

10.9

 

Australia & New Zealand total cost of ATM operating revenues

 

 

65,387

 

 

70,410

 

 

(5,023)

 

 

(7.1)

 

Corporate

 

 

404

 

 

937

 

 

(533)

 

 

(56.9)

 

Eliminations

 

 

(5,173)

 

 

(4,841)

 

 

(332)

 

 

6.9

 

Total cost of ATM operating revenues

 

$

647,692

 

$

729,547

 

$

(81,855)

 

 

(11.2)

%

North America. For  the nine months ended September 30, 2018, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) in our North America segment decreased $80.1 million, or 16.7%, compared to the same period of 2017.  The decrease was attributable to the following: (i) the decline in costs across most categories as a result of the removal of ATMs at 7-Eleven locations in the U.S., (ii) improved operational efficiency, (iii) lower other cost of cash in 2018 primarily due to lower charges from networks for suspected fraudulent transactions following the EMV liability shift on the MasterCard network, and (iv) lower repair and maintenance costs in 2018 compared to 2017 related primarily to the software upgrades at certain Company-owned ATMs during 2017. 

Europe & Africa. For the nine months ended September 30, 2018, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) in our Europe & Africa segment increased $4.1 million, or 2.2%, compared to the same period of 2017.  Excluding foreign currency exchange rate movements, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) decreased $6.3 million.

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This constant-currency decline in operating costs is primarily due to the revisions of our estimated liability for business rates (property taxes) on ATMs  recognized during the six months ended June 30, 2018. This decrease was also directionally consistent with the constant-currency decline in ATM operating revenues, due to lower merchant commissions, but was partially offset by higher costs to maintain cash at our ATMs in the U.K. For additional information related to our constant-currency calculations, see Non-GAAP Financial Measures below. 

Australia & New Zealand. For the nine months ended September 30, 2018, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) in our Australia & New Zealand segment decreased $5.0 million, or 7.1%, compared to the same period of 2017. This change is consistent with the decline in ATM operating revenues.

Cost of ATM product sales and other revenues. For the nine months ended September 30, 2018, our cost of ATM product sales and other revenues decreased $3.1 million compared to the same period of 2017stent with the decline in revenues.

Selling, General, and Administrative Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2018

    

2017

    

% Change

    

2018

    

2017

    

% Change

 

 

(In thousands, excluding percentages)

Selling, general, and administrative expenses

 

$

37,456

 

$

42,177

 

(11.2)

%

    

$

114,341

   

$

121,916

 

(6.2)

%

Share-based compensation expense

 

 

4,440

 

 

3,955

 

12.3

 

 

 

10,223

 

 

9,635

 

6.1

 

Total selling, general, and administrative expenses

 

$

41,896

 

$

46,132

 

(9.2)

%

 

$

124,564

 

$

131,551

 

(5.3)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

 

11.0

%

 

10.5

%

 

 

 

 

11.2

%

 

10.7

%

 

 

Share-based compensation expense

 

 

1.3

%

 

1.0

%

 

 

 

 

1.0

%

 

0.8

%

 

 

Total selling, general, and administrative expenses

 

 

12.3

%

 

11.5

%

 

 

 

 

12.2

%

 

11.5

%

 

 

 Three Months Ended March 31,
 2019 2018 % Change
 (In thousands, excluding percentages)
Selling, general, and administrative expenses$39,437
 $39,378
 0.1%
Share-based compensation expense4,223
 2,362
 78.8
Total selling, general, and administrative expenses$43,660
 $41,740
 4.6%
      
Percentage of total revenues:     
Selling, general, and administrative expenses12.4% 11.7%  
Share-based compensation expense1.3
 0.7
  
Total selling, general, and administrative expenses13.7% 12.4%  
Selling, general, and administrative expenses (“SG&A expenses”), excluding share-based compensation expense. For the three and nine months ended September 30, 2018,March 31, 2019, SG&A expenses, excluding share-based compensation expense, decreased  $4.7 million, or 11.2%, and $7.6 million, or 6.2%, respectively,remained relatively flat compared to the same periodsperiod of 2017. The decrease was primarily due to our restructuring efforts, discussed further below, which commenced in 2017, partially offset by the impact of currency rate movements.2018.

Share-based compensation expense. For the three and nine months ended September 30, 2018,March 31, 2019, our share-based compensation expense increase wasincreased $1.9 million compared to the same period of 2018 attributable to the amount and timing of share-based payment awards, net of forfeitures, compared to the same periodsperiod of 2017.2018.  For additional information related to share-based compensation expense, see Item 1. Financial Statements, Note 5.4. Share-based Compensation.

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Restructuring Expenses

During 2017, we initiated a global corporate reorganization and cost reduction initiative (the “Restructuring Plan”), intended to improve our cost structure and operating efficiency. The Restructuring Plan included workforce reductions, facilities closures, contract terminations, and other cost reduction measures. We incurred $8.2 million and $10.4 million of pre-tax expenses related to our Restructuring Plan during the nine and twelve months ended September 30, 2017 and December 31, 2017, respectively. During the three and nine months ended September 30,March 31, 2018, we implemented additional workforce reductions in an effort to continue our cost reduction initiative and incurred $1.1 millionthereby improve our cost structure and $5.5 million of pre-tax expenses, respectively. During the remainder of 2018, our Restructuring Plan activities may include additional workforce reductions and other cost reduction measures.

operating efficiency. For additional information, see Item 1. Financial Statements, Note 1. General and Basis of Presentation – (e)(d) Restructuring Expenses.

Acquisition and Divestiture-relatedrelated Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2018

    

2017

    

% Change

    

2018

    

2017

    

% Change

 

 

(In thousands, excluding percentages)

Acquisition and divestiture-related expenses

 

$

 —

 

$

2,889

 

(100.0)

%

 

$

2,633

 

$

15,338

 

(82.8)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues

 

 

 —

%

 

0.7

%

 

 

 

 

0.3

%

 

1.3

%

 

 

Acquisition and divestiture-relatedrelated expenses. For the ninethree months ended September 30,March 31, 2018, acquisition related expenses totaled $1.7 million and divestiture-related expenses included acquisition related professional fees, employee severance costs and lease termination costs related to certain DCPayments operations. For the three and nine months ended September 30, 2017, acquisition and divestiture-related expenses include professional services and other costs associated with the completion and integration of the DCPayments and Spark acquisitions in January 2017.

Goodwill and Intangible Asset Impairment

Goodwill and intangible asset impairment.During the three months ended September 30, 2017, as a result of an unexpected market shift in Australia caused by the announcement by its four largest banks to remove direct charges to all users at their ATMs, we recognized $140.0 million and $54.5 million in impairment charges to reduce the carrying values of goodwill and intangible assets, respectively, associated with our Australia & New Zealand segment. No impairment indicators were noted during the three and nine months ended September 30, 2018 based on the Company’s assessment of qualitative factors. For additional information related to this unexpected market shift in Australia, see Item 1. Financial Statements, Note 1. General and Basis of Presentation – (f) Goodwill and Intangible Assets.


Depreciation and Accretion Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2018

    

2017

    

% Change

    

2018

    

2017

    

% Change

 

 

(In thousands, excluding percentages)

Depreciation and accretion expense

 

$

30,647

 

$

29,807

 

2.8

%

 

$

93,453

 

$

88,683

 

5.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues

 

 

9.0

%

 

7.4

%

 

 

 

 

9.2

%

 

7.7

%

 

 

 Three Months Ended March 31,
 2019 2018 % Change
 (In thousands, excluding percentages)
Depreciation and accretion expense$32,973
 $31,042
 6.2%
      
Percentage of total revenues10.4% 9.2%  
Depreciation and accretion expense. For the three and nine months ended September 30, 2018,March 31, 2019, depreciation and accretion expense increased $0.8$1.9 million, or 2.8%6.2%, and $4.8 million, or 5.4%, respectively, compared to the same periods

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of 2017.2018. This increase was primarily due to the timing of capital additions during 2017, 2018, and foreign currency exchange rate movement.additions.

Amortization of Intangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2018

    

2017

    

% Change

    

2018

    

2017

    

% Change

 

 

(In thousands, excluding percentages)

Amortization of intangible assets

 

$

12,994

 

$

14,996

 

(13.4)

%

 

$

40,263

 

$

45,423

 

(11.4)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues

 

 

3.8

%

 

3.7

%

 

 

 

 

4.0

%

 

4.0

%

 

 

 Three Months Ended March 31,
 2019 2018 % Change
 (In thousands, excluding percentages)
Amortization of intangible assets$12,412
 $13,771
 (9.9)%
      
Percentage of total revenues3.9% 4.1%  
Amortization of intangible assets.For the three and nine months ended September 30, 2018,March 31, 2019, amortization of intangible assets decreased by $2.0$1.4 million, or 13.4%9.9%, and $5.2 million, or 11.4%, respectively, compared to the same periodsperiod of 2017.2018. This decrease was primarilyis due to the $54.5 million intangible asset impairment charge taken intiming of the third quarter of 2017 related to our Australia & New Zealand segment, which reduced the overall value of our intangible assets subject to amortization.becoming fully amortized.

Loss on Disposal and Impairment of Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2018

    

2017

    

% Change

    

2018

    

2017

    

% Change

 

 

(In thousands, excluding percentages)

Loss on disposal and impairment of assets

 

$

466

 

$

22,307

 

n/m

%

 

$

15,583

 

$

26,170

 

n/m

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues

 

 

0.1

%

 

5.5

%

 

 

 

 

1.5

%

 

2.3

%

 

 

 Three Months Ended March 31,
 2019 2018 % Change
 (In thousands, excluding percentages)
Loss on disposal and impairment of assets$968
 $5,420
 (82.1)%
      
Percentage of total revenues0.3% 1.6%  
Loss on disposal and impairment of assets.During the three and nine months ended September 30, 2018,March 31, 2019, we recognized losses of $0.5approximately $1 million and $15.6 million, respectively, related to the disposal and impairment of assets. The losses on disposal and impairment of assets were primarily recognized during the six months ended June 30, 2018 upon our decision to not redeploy certain ATM models. Although many ATMs in our U.S. operations that were impaired remain deployable, a combination of many factors including the size, functionality, estimated upgrade costs, and availability of suitable placements resulted in a change of plans relative to certain models such that the units not currently in service were deemed not likely to be deployed. These ATM assets, with a net book value of approximately $7 million, were written down to their estimated net realizable value. The remaining loss was a result of other ATM asset disposals in the ordinarynormal course of business and disposals related to the exit from a leased facility in the U.K. that occurred inbusiness. During the three months ended March 31, 2018.

During the three and nine months ended September 30, 2017, we recognized losses of $22.3 million and $26.1 million, respectively, related to the disposal and impairment of assets. We recognized approximately $19 million of long-lived asset impairment losses during the three months ended September 30, 2017, responsive to the impairment indicators associated with our Australia & New Zealand reporting unit. The remaining2018, losses were a result of otherdriven by ATM asset disposals in the ordinary courseU.S. and the exit from one of business.  For additional information onour facilities in the long-lived asset impairments recognized in 2017, see Note 1. U.K.Basis of Presentation and Summary of Significant Accounting Policies in our 2017 Form 10-K.

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Interest Expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2018

    

2017

    

% Change

    

2018

    

2017

    

% Change

 

 

(In thousands, excluding percentages)

Interest expense, net

 

$

8,852

 

$

9,743

 

(9.1)

%

 

$

27,185

 

$

25,760

 

5.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues

 

 

2.6

%

 

2.4

%

 

 

 

 

2.7

%

 

2.3

%

 

 

 Three Months Ended March 31,
 2019 2018 % Change
 (In thousands, excluding percentages)
Interest expense, net$6,643
 $9,174
 (27.6)%
      
Percentage of total revenues2.1% 2.7%  
Interest expense, net.For the three and nine months ended September 30, 2018,March 31, 2019, interest expense, net, decreased $0.9$2.5 million, or 9.1%27.6%, and for the nine months ended September 30, 2018 increased $1.4 million, or 5.5%. The increase for the nine months ended September 30, 2018 was attributablecompared to the issuancesame period of our 5.5% senior notes due 2025 during the second quarter of 2017, which had a higher interest rate than the rate under our revolving credit facility, which was partially repaid with the proceeds from the issuances of these notes.2018. The decrease for the three months ended September 30, 2018March 31, 2019 was attributable to a comparatively lower outstanding balances onlong-term debt balance and a lower weighted average interest rate following the Company’sDecember 2018 redemption of our $250.0 million 5.125% Senior notes, as these borrowings were refinanced under our revolving credit facility. facility with a lower

interest rate. For additional information related to our outstanding borrowings, see Item 1. Financial Statements, Note 10.9. Long-Term Debt.

Other (Income) Expense
During the three-months ended March 31, 2019, the Company recognized an $8.2 million gain in Other (income) expense to revise the estimated fair value of the acquisition related contingent consideration liability, partly offset by foreign currency translation gains/losses, and other non-operating costs. For additional information on the acquisition related contingent consideration, see Item 1. Financial Statements, Note 14. Fair Value Measurements.
Income Tax Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2018

    

2017

    

% Change

    

2018

    

2017

    

% Change

 

 

(In thousands, excluding percentages)

Income tax expense (benefit)

 

$

7,854

 

$

(4,053)

 

n/m

%

 

$

10,409

 

$

(2,335)

 

n/m

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

 

47.2

%

 

2.3

%

 

 

 

 

51.6

%

 

1.4

%

 

 

 Three Months Ended March 31,
 2019 2018 % Change
 (In thousands, excluding percentages)
Income tax expense (benefit)$3,129
 $(31) n/m
      
Effective tax rate42.0% 1.1%  
Income tax expenseexpense. . OurThe Company’s income tax expense for the three months ended September 30, 2018March 31, 2019 totaled $7.9$3.1 million, resulting in an effective tax rate of 47.2%42%, compared to an income taxa benefit of approximately $4.1$0.03 million and an effective tax rate of 2.3%,1.1% for the same period of 2017.2018. The increase in the effective tax rateexpense for the three and nine months ended September 30, 2018, was largely attributable to (i) the limitation of interest expense the Company could deduct in the U.S. as a result of U.S. Tax Reform, (ii) the additional tax expense related to share-based compensation in 2018,March 31, 2019, compared to an excess tax benefit in the same period of 2017, (iii)2018 was primarily attributable to profits in the current period compared to losses in the prior period and the goodwill impairment recognized during the three and nine months ended September 30, 2017, resulting in a loss in earnings that was not deductibleimpact of non-deductible expenses..

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 EBITA, Adjusted Net Income, Adjusted Net Income per diluted share, Adjusted Free Cash Flow, and certain other results prepared in accordance U.S. GAAP, as well as non-GAAP measurespresented on a constant-currency basis represent non-GAAP financial measures provided as a complement to financial results prepared in accordance with U.S. GAAP and may not be comparable to similarly-titled measures reported by other companies. 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.basis. We believe that the presentation of these measures and the identification of notable, non-cash, 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. 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 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. 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.
EBITDA, Adjusted EBITDA, and EBITA
EBITDA adds interest, income tax expense, depreciation and amortization to net income. Adjusted EBITDA and Adjusted EBITA excludeexcludes amortization of intangible assets, share-based compensation expense, acquisition and divestiture-relatedrelated expenses, certain non-operating expenses, (if applicable in a particular period) certain costs not anticipated to occur in future periods, gains or losses on disposal and impairment of assets, our obligation for the payment of income taxes, interest expense, and other obligations such as capital expenditures, and includes an adjustment for noncontrolling interests. Additionally, Adjusted EBITDA excludes depreciation and accretion expense. Depreciation and accretion expense and amortization of intangible assets are

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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, gains or losses on disposal and impairment of assets, share-based compensation expense, certain other expense amounts, acquisition and divestiture-relatedrelated 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 24.6%24.2% and 24.9%25.8% for the three and nine months ended September 30,March 31, 2019 and 2018, respectively,  and 26.8% and 27.4%respectively. The non-GAAP tax rates represent the GAAP tax rate for the three and nine months ended September 30, 2017, respectively.period as adjusted by the estimated tax impact of the items adjusted from the measure. Adjusted Net Income per diluted share is calculated by dividing Adjusted Net Income by weighted average diluted shares outstanding.
Adjusted Free Cash Flow
Adjusted Free Cash Flow is defined as cash provided by operating activities less the impact of changes in restricted cash due to the timing of settlements and 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 other non-discretionary cash requirements such as mandatory principal payments on portions of our long-term debt.
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. Management uses U.S. GAAP as well as non-GAAP measures on a constant-currency basisperiod to assess performance and eliminate the effect foreign currency exchange rates have on comparability between periods.

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 prepared in accordance with U.S. GAAP.

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:

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Reconciliation of Net Income (Loss) Attributable to Controlling Interests and Available to Common Shareholders to EBITDA, Adjusted EBITDA, Adjusted EBITA, and Adjusted Net Income (in thousands, excluding share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

Net income (loss) attributable to controlling interests and available to common shareholders

 

$

8,781

 

$

(175,561)

 

$

9,780

 

$

(161,304)

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

8,852

 

 

9,743

 

 

27,185

 

 

25,760

Amortization of deferred financing costs and note discount

 

 

3,397

 

 

3,195

 

 

10,060

 

 

9,317

Income tax expense (benefit)

 

 

7,854

 

 

(4,053)

 

 

10,409

 

 

(2,335)

Depreciation and accretion expense

 

 

30,647

 

 

29,807

 

 

93,453

 

 

88,683

Amortization of intangible assets

 

 

12,994

 

 

14,996

 

 

40,263

 

 

45,423

EBITDA 

 

$

72,525

 

$

(121,873)

 

$

191,150

 

$

5,544

 

 

 

 

 

 

 

 

 

 

 

 

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

Loss on disposal and impairment of assets

 

 

466

 

 

22,307

 

 

15,583

 

 

26,170

Other income (1)

 

 

(1,297)

 

 

(2,095)

 

 

(1,324)

 

 

(1,730)

Noncontrolling interests (2)

 

 

12

 

 

(9)

 

 

31

 

 

(19)

Share-based compensation expense

 

 

4,669

 

 

4,151

 

 

10,627

 

 

9,971

Restructuring expenses (3)

 

 

1,058

 

 

22

 

 

5,534

 

 

9,025

Acquisition and divestiture-related expenses (4)

 

 

 —

 

 

2,889

 

 

2,633

 

 

15,338

Goodwill and intangible asset impairment (5)

 

 

 —

 

 

194,521

 

 

 —

 

 

194,521

Adjusted EBITDA

 

$

77,433

 

$

99,913

 

$

224,234

 

$

258,820

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense (6)

 

 

30,646

 

 

29,805

 

 

93,451

 

 

88,677

Adjusted EBITA

 

$

46,787

 

$

70,108

 

$

130,783

 

$

170,143

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

8,852

 

 

9,743

 

 

27,185

 

 

25,760

Adjusted pre-tax income

 

 

37,935

 

 

60,365

 

 

103,598

 

 

144,383

Income tax expense (7)

 

 

9,332

 

 

16,178

 

 

25,789

 

 

39,595

Adjusted Net Income

 

$

28,603

 

$

44,187

 

$

77,809

 

$

104,788

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income per share – basic

 

$

0.62

 

$

0.97

 

$

1.69

 

$

2.30

Adjusted Net Income per share – diluted

 

$

0.62

 

$

0.96

 

$

1.68

 

$

2.27

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

46,073,739

 

 

45,662,543

 

 

45,945,728

 

 

45,597,558

Weighted average shares outstanding – diluted

 

 

46,476,787

 

 

46,197,178

 

 

46,386,523

 

 

46,238,070

  Three Months Ended March 31,
  2019 2018
Net income (loss) attributable to controlling interests and available to common shareholders $4,319
 $(2,768)
Adjustments:    
Interest expense, net 6,643
 9,174
Amortization of deferred financing costs and note discount 3,292
 3,308
Income tax expense (benefit) 3,129
 (31)
Depreciation and accretion expense 32,973
 31,042
Amortization of intangible assets 12,412
 13,771
EBITDA  $62,768
 $54,496
     
Add back:  
  
Loss on disposal and impairment of assets 968
 5,420
Other (income) expense (1)
 (7,207) 2,160
Noncontrolling interests (2)
 15
 1
Share-based compensation expense 4,484
 2,445
Restructuring expenses (3)
 —
 2,413
Acquisition related expenses (4)
 —
 1,720
Adjusted EBITDA $61,028
 $68,655
Less:  
  
Depreciation and accretion expense (5)
 32,973
 31,041
Adjusted EBITA $28,055
 $37,614
Less:    
Interest expense, net 6,643
 9,174
Adjusted pre-tax income 21,412
 28,440
Income tax expense (6)
 5,181
 7,338
Adjusted Net Income $16,231
 $21,102
     
Adjusted Net Income per share – basic $0.35
 $0.46
Adjusted Net Income per share – diluted $0.35
 $0.46
     
Weighted average shares outstanding – basic 46,223,764
 45,833,070
Weighted average shares outstanding – diluted (7)
 46,635,033
 46,332,629

(1)

Includes foreign currency translation gains/losses, the revaluation of the estimated acquisition-relatedacquisition related contingent consideration, payable, and other non-operating costs.

(2)

Noncontrolling interestsinterest adjustment made such that Adjusted EBITDA includes only ourthe Company’s ownership interest in the Adjusted EBITDA of one of ourits Mexican subsidiaries.

(3)

For the three and nine months ended September 30, 2018 and 2017, expensesExpenses include employee severance and other costs incurred in conjunction with a corporate reorganization and cost reduction initiative. For the three and nine months ended September 30, 2017, expenses also include amounts associated with the Company’s redomicile of its parent company to the U.K., that occurred on July 1, 2016.

(4)

Acquisition and divestiture-related expenses include costs incurred for professional and legal fees and certain other transition and integration-related costs. Expenses primarily include employee severance cost and lease termination costs related to DCPayments acquisition integration in the nine months ended September 30, 2018.

DCPayments.

(5)

Goodwill and intangible asset impairments related to the Company’s Australia & New Zealand segment.

(6)

Amounts exclude a portion of the expenses incurred by one of ourits Mexican subsidiaries to account for the amounts allocable to the noncontrolling interest shareholders.

(7)

(6)

For the three and nine months ended September 30,March 31, 2019 and 2018, the non-GAAP tax rate used to calculate Adjusted Net Income was approximately 24.6%24.2% and 24.9%25.8%, respectively, and 26.8% and 27.4%, for the three and nine months ended September 30, 2017, which represents the Company’s GAAP tax rate as adjusted for the net tax effects related to the items excluded from Adjusted Net Income.

(7)Consistent with the positive Adjusted Net Income, the Adjusted Net Income per diluted share amounts have been calculated using the diluted shares outstanding that would have resulted from positive GAAP Net Income.

73


Table of Contents

Reconciliation of U.S. GAAP Revenue to Constant-Currency Revenue

(Inin thousands, excluding percentages)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated revenue:

 

Three Months Ended

 

 

September 30, 

 

    

2018

    

2017

    

% Change

 

 

U.S.
GAAP

 

Foreign Currency Impact

 

Constant - Currency

 

U.S.
GAAP

 

U.S.
GAAP

 

Constant - Currency

ATM operating revenues

 

$

329,837

 

$

4,836

 

$

334,673

 

$

390,143

 

(15.5)

%

 

(14.2)

%

ATM product sales and other revenues

 

 

10,338

 

 

56

 

 

10,394

 

 

11,807

 

(12.4)

 

 

(12.0)

 

Total revenues

 

$

340,175

 

$

4,892

 

$

345,067

 

$

401,950

 

(15.4)

%

 

(14.2)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2018

    

2017

    

% Change

 

 

U.S.
GAAP

 

Foreign Currency Impact

 

Constant - Currency

 

U.S.
GAAP

 

U.S.
GAAP

 

Constant - Currency

ATM operating revenues

 

$

978,789

 

$

(17,120)

 

$

961,669

 

$

1,105,191

 

(11.4)

%

 

(13.0)

%

ATM product sales and other revenues

 

 

38,557

 

 

(409)

 

 

38,148

 

 

39,443

 

(2.2)

 

 

(3.3)

 

Total revenues

 

$

1,017,346

 

$

(17,529)

 

$

999,817

 

$

1,144,634

 

(11.1)

%

 

(12.7)

%

North America revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

September 30, 

 

    

2018

    

2017

    

% Change

 

 

U.S.
GAAP

 

Foreign Currency Impact

 

Constant - Currency

 

U.S.
GAAP

 

U.S.
GAAP

 

Constant - Currency

ATM operating revenues

 

$

200,481

 

$

1,687

 

$

202,168

 

$

249,964

 

(19.8)

%

 

(19.1)

%

ATM product sales and other revenues

 

 

8,267

 

 

35

 

 

8,302

 

 

9,654

 

(14.4)

 

 

(14.0)

 

Total revenues

 

$

208,748

 

$

1,722

 

$

210,470

 

$

259,618

 

(19.6)

%

 

(18.9)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2018

    

2017

    

% Change

 

 

U.S.
GAAP

 

Foreign Currency Impact

 

Constant - Currency

 

U.S.
GAAP

 

U.S.
GAAP

 

Constant - Currency

ATM operating revenues

 

$

593,400

 

$

(1,293)

 

$

592,107

 

$

719,341

 

(17.5)

%

 

(17.7)

%

ATM product sales and other revenues

 

 

32,026

 

 

(68)

 

 

31,958

 

 

33,191

 

(3.5)

 

 

(3.7)

 

Total revenues

 

$

625,426

 

$

(1,361)

 

$

624,065

 

$

752,532

 

(16.9)

%

 

(17.1)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Europe & Africa revenue:

 

Three Months Ended

 

 

September 30, 

 

    

2018

    

2017

    

% Change

 

 

U.S.
GAAP

 

Foreign Currency Impact

 

Constant - Currency

 

U.S.
GAAP

 

U.S.
GAAP

 

Constant - Currency

ATM operating revenues

 

$

102,819

 

$

797

 

$

103,616

 

$

107,497

 

(4.4)

%

 

(3.6)

%

ATM product sales and other revenues

 

 

2,019

 

 

17

 

 

2,036

 

 

2,088

 

(3.3)

 

 

(2.5)

 

Total revenues

 

$

104,838

 

$

814

 

$

105,652

 

$

109,585

 

(4.3)

%

 

(3.6)

%

74

Consolidated revenue:Three Months Ended March 31,
 2019 2018 % Change
 
U.S.
GAAP
 
Foreign Currency
Impact
 Constant - Currency 
U.S.
GAAP
 
U.S.
GAAP
 Constant - Currency
ATM operating revenues$302,602
 $10,914
 $313,516
 $319,731
 (5.4)% (1.9)%
ATM product sales and other revenues15,668
 289
 15,957
 16,453
 (4.8) (3.0)
Total revenues$318,270
 $11,203
 $329,473
 $336,184
 (5.3)% (2.0)%

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2018

    

2017

    

% Change

 

 

U.S.
GAAP

 

Foreign Currency Impact

 

Constant - Currency

 

U.S.
GAAP

 

U.S.
GAAP

 

Constant - Currency

ATM operating revenues

 

$

304,809

 

$

(16,817)

 

$

287,992

 

$

293,827

 

3.7

%

 

(2.0)

%

ATM product sales and other revenues

 

 

6,323

 

 

(343)

 

 

5,980

 

 

6,159

 

2.7

 

 

(2.9)

 

Total revenues

 

$

311,132

 

$

(17,160)

 

$

293,972

 

$

299,986

 

3.7

%

 

(2.0)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Australia & New Zealand revenue:

 

Three Months Ended

 

 

September 30, 

 

    

2018

    

2017

    

% Change

 

 

U.S.

GAAP

 

Foreign Currency Impact

 

Constant - Currency

 

U.S.

GAAP

 

U.S.

GAAP

 

Constant - Currency

ATM operating revenues

 

$

29,417

 

$

2,352

 

$

31,769

 

$

35,368

 

(16.8)

%

 

(10.2)

%

ATM product sales and other revenues

 

 

52

 

 

 5

 

 

57

 

 

65

 

(20.0)

 

 

(12.3)

 

Total revenues

 

$

29,469

 

$

2,357

 

$

31,826

 

$

35,433

 

(16.8)

%

 

(10.2)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2018

    

2017

    

% Change

 

 

U.S.
GAAP

 

Foreign Currency Impact

 

Constant - Currency

 

U.S.
GAAP

 

U.S.
GAAP

 

Constant - Currency

ATM operating revenues

 

$

89,078

 

$

990

 

$

90,068

 

$

99,752

 

(10.7)

%

 

(9.7)

%

ATM product sales and other revenues

 

 

208

 

 

 2

 

 

210

 

 

224

 

(7.1)

 

 

(6.3)

 

Total revenues

 

$

89,286

 

$

992

 

$

90,278

 

$

99,976

 

(10.7)

%

 

(9.7)

%

North America revenue:Three Months Ended March 31,
 2019 2018 % Change
 
U.S.
GAAP
 Foreign Currency Impact Constant - Currency 
U.S.
GAAP
 
U.S.
GAAP
 Constant - Currency
ATM operating revenues$191,046
 $1,648
 $192,694
 $195,747
 (2.4)% (1.6)%
ATM product sales and other revenues13,202
 52
 13,254
 14,132
 (6.6) (6.2)
Total revenues$204,248
 $1,700
 $205,948
 $209,879
 (2.7)% (1.9)%

75

Europe & Africa revenue:Three Months Ended March 31,
 2019 2018 % Change
 
U.S.
GAAP
 
Foreign Currency
Impact
 Constant - Currency 
U.S.
GAAP
 
U.S.
GAAP
 Constant - Currency
ATM operating revenues$88,678
 $6,597
 $95,275
 $96,182
 (7.8)% (0.9)%
ATM product sales and other revenues2,247
 215
 2,462
 2,263
 (0.7) 8.8
Total revenues$90,925
 $6,812
 $97,737
 $98,445
 (7.6)% (0.7)%

Table of Contents

Australia & New Zealand revenue:Three Months Ended March 31,
 2019 2018 % Change
 
U.S.
GAAP
 Foreign Currency Impact Constant - Currency 
U.S.
GAAP
 
U.S.
GAAP
 Constant - Currency
ATM operating revenues$25,791
 $2,668
 $28,459
 $30,638
 (15.8)% (7.1)%
ATM product sales and other revenues219
 23
 242
 58
 277.6
 317.2
Total revenues$26,010
 $2,691
 $28,701
 $30,696
 (15.3)% (6.5)%


Reconciliation of Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per diluted share on a Non-GAAP basis to Constant-Currency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

September 30, 

 

    

2018

    

2017

    

% Change

 

 

Non -  
GAAP (1)

 

Foreign Currency Impact

 

Constant - Currency

  

Non -  
GAAP (1)

 

Non -  
GAAP (1)

 

Constant - Currency

Adjusted EBITDA

 

$

77,433

 

$

994

 

$

78,427

 

$

99,913

 

(22.5)

%

 

(21.5)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income

 

$

28,603

 

$

429

 

$

29,032

 

$

44,187

 

(35.3)

%

 

(34.3)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income per share – diluted (2)

 

$

0.62

 

$

 —

 

$

0.62

 

$

0.96

 

(35.4)

%

 

(35.4)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2018

    

2017

    

% Change

 

 

Non -
GAAP (1)

 

Foreign Currency Impact

 

Constant - Currency

  

Non -
GAAP (1)

 

Non -
GAAP (1)

 

Constant - Currency

Adjusted EBITDA

 

$

224,234

 

$

(5,059)

 

$

219,175

 

$

258,820

 

(13.4)

%

 

(15.3)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income

 

$

77,809

 

$

(2,042)

 

$

75,767

 

$

104,788

 

(25.7)

%

 

(27.7)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income per share – diluted (2)

 

$

1.68

 

$

(0.05)

 

$

1.63

 

$

2.27

 

(26.0)

%

 

(28.2)

%

(1)As reported on the Reconciliation of Net Income (Loss) Attributable to Controlling Interests (in thousands, excluding percentages and Available to Common Shareholders to EBITDA, Adjusted EBITDA, Adjusted EBITA, 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 46,476,787 and 46,197,178 for the three months ended September 30, 2018 and 2017, respectively, and 46,386,523 and 46,238,070 for the nine months ended September 30, 2018 and 2017 respectively.

amounts)

 Three Months Ended March 31,
 2019 2018 % Change
 
Non -
GAAP (1)
 Foreign Currency Impact Constant - Currency 
Non -
GAAP (1)
 
Non -
GAAP (1)
 Constant - Currency
Adjusted EBITDA$61,028
 $1,876
 $62,905
 $68,655
 (11.1)% (8.4)%
Adjusted Net Income$16,231
 $373
 $16,603
 $21,102
 (23.1) (21.3)
Adjusted Net Income per share – diluted (2)
$0.35
 $0.01
 $0.36
 $0.46
 (23.9)% (21.7)%
            

(1)
As reported on the Reconciliation of Net Income (Loss) Attributable to Controlling Interests and Available to Common Shareholders to EBITDA, Adjusted EBITDA, Adjusted EBITA, 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 46,635,033 and 46,332,629 for the three months ended March 31, 2019 and 2018, respectively. Consistent with the positive Adjusted Net Income, the Adjusted Net Income per diluted share amounts have been calculated using the diluted shares outstanding that would have resulted from positive GAAP Net Income.
Reconciliation of Adjusted Free Cash Flow

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

 

 

(In thousands)

Net cash provided by operating activities

 

$

74,807

 

$

76,105

 

$

184,582

 

$

172,434

Restricted cash settlement activity (1)

 

 

(361)

 

 

3,598

 

 

(25,709)

 

 

(8,151)

   Adjusted cash provided by operating activities

 

 

74,446

 

 

79,703

 

 

158,873

 

 

164,283

Cash used in investing activities, excluding acquisitions and divestitures (2)

 

 

(26,675)

 

 

(41,556)

 

 

(73,357)

 

 

(111,424)

Adjusted free cash flow

 

$

47,771

 

$

38,147

 

$

85,516

 

$

52,859

  Three Months Ended March 31,
  2019 2018
  (In thousands)
Net cash (used in) provided by operating activities $(21,805) $49,433
Restricted cash settlement activity (1)
 71,521
 (24,238)
    Adjusted net cash provided by operating activities 49,716
 25,195
Net cash used in investing activities, excluding acquisitions (2)
 (29,307) (20,739)
Adjusted free cash flow $20,409
 $4,456

(1)

Restricted cash settlement activity represents the change in the Company’sour 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 accompanying Consolidated Statements of Cash Flows.

Restricted cash largely 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.

(2)

Capital expenditure amounts include payments made for exclusive license agreements, site acquisition costs, and other assets. Additionally, capital expenditure amounts for one of our Mexican subsidiaries are reflected gross of any noncontrolling interest amounts.

76

Table of Contents

Liquidity and Capital Resources

Overview

As of September 30, 2018,March 31, 2019, we had $40.4$ 35.4 million in cash and cash equivalents, and $835.8$802.7 million in outstanding long-term debt.

We have historically funded our operations primarily through 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 cash from sales on a daily basis but generally pay our vendors on 30 day terms and are not required to pay certain of our merchants until 20 days after the end of each calendar month, we are able to utilize the excess available cash flow to reduce borrowings made under our revolving credit facility and to fund capital expenditures. Accordingly, it is not uncommon for us to reflect a working capital deficit position in the accompanying Consolidated Balance Sheets.


We believe that our cash on hand and our current revolving credit facility will be sufficient to meet our working capital requirements and contractual commitments for the next twelve months. We expect to fund our working capital needs from cash flows from our operations and borrowings under our revolving credit facility, to the extent needed.

Operating Activities

Net cash used in operating activities totaled $21.8 million during the three months ended March 31, 2019, compared to cash provided by operating activities totaled $184.6 million during the nine months ended September 30, 2018, compared to $172.4of $49.4 million during the same period of 2017. On January 1, 2018, we adopted the guidance in ASU 2016-18, Statement of Cash Flows Restricted Cash (Topic 230). In accordance with guidance, we have included the balance of restricted cash together with cash and cash equivalents in presenting the Consolidated Statements of Cash Flows and have applied the changes retrospectively. Also as a result of the new cash flow guidance, we will recognize contingent consideration payments up to the amount of the liability recognized at the acquisition date in financing activities, and any excess in operating activities. We do not anticipate that the classification guidance will result in any other significant changes to the operating, investing, or financing cash flows that would otherwise be reported.2018. The increasedecrease in net cash provided by operating activities during the first ninethree months relative to the prior year is primarily attributable to an increasethe changes in restricted cash during the periods due to the timing of settlements. Excluding changes in restricted cash, our cash flows from operating activities were up $24.5 million as a result of lower interest payments and year-over-year improvements infavorable working capital.

capital changes. See Reconciliation of Adjusted Free Cash Flow within our discussion of Non-GAAP Financial Measures above.

Investing Activities

Net cash used in investing activities totaled $73.4$29.3 million during the ninethree months ended September 30, 2018,March 31, 2019, compared to $596.0$20.7 million during the same period of 2017.2018. The decreasechange in net cash used in investing activities is primarily attributablerelated to the DCPayments and Spark acquisitions completed during January 2017. Additionally, oura higher level of capital expenditures were lower during the nine months ended September 30, 2018, compared to the same period in 2017 primarily due to fewer ATM upgrades.

of 2018.

Anticipated future capital expenditures.We currently anticipate that the majority of our capital expenditures for the foreseeable future will be attributable to the following: i) organic growth projects, including the purchase of ATMs for both new and existing ATM management agreements;agreements, ii) various compliance requirements as discussed in Recent Eventstechnology and Trends – Capital investments above; andproduct development, iii) investments in our infrastructure. Through September 30, 2018,infrastructure, and iv) ongoing refreshment of our capital expenditures were $73.4 million.ATMs and operational assets. We expectcurrently anticipate that our capital expenditures for the twelve months ended December 31, 2018year will total approximately $115$135 million, andwhich is primarily expected to be utilized to support new business growth. We expect such capital expenditures to be funded primarily through our cash flows from operations.

Financing Activities and Facilities

Net cash used in financing activities totaled $96.2$25.3 million during the ninethree months ended September 30, 2018,March 31, 2019, compared to cash provided byused in financing activities of $427.3$9.4 million during the same period of 2017.2018. During 2018,both periods, we have used excess available cash to pay down borrowings under our revolving credit facility; whereas in 2017,facility.
On March 26, 2019, we entered into new long-term debtannounced authorization to repurchase up to $50 million of our Class A ordinary shares outstanding through August 31, 2020. Share repurchases under the authorized plan may be effected on behalf of the Company through open market transactions, privately negotiated transactions or otherwise, pursuant to SEC trading rules. There is no guarantee as to the exact number of shares, if any, that we may repurchase. The timing and borrowed under our revolving credit facility to fund the DCPaymentsextent of repurchases will depend upon several factors, including market and Spark acquisitions.

business conditions, valuation of shares, regulatory requirements and other corporate considerations, and repurchases may be suspended or discontinued at any time.   

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For information related to our financing facilities, seesee Item 1. Financial Statements, Note 10.9. Long-term Debt. 

New Accounting Pronouncements

For information related to recent accounting pronouncements not yet adopted during 2018, see2019, 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 20172018 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, to a lesser extent, borrowings under our revolving credit facility. The following quantitative and qualitative information is provided about financial instruments to which we were a party at September 30, 2018,March 31, 2019, and from which we may incur future gains or losses from 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 the U.S., the U.K., Germany, and Spain. In Australia, the formula is based on the Bank Bill Swap Rates (“BBSY”), in South Africa, the rate is based on the South African Prime Lending rate and the Johannesburg Interbank Agreed Rate, in Canada, the rate is based on the Bank of Canada’s Bankers Acceptance Rate and the Canadian Prime Rate, and in Mexico, the rate is based on the Interbank Equilibrium Interest Rate (commonly referred to as the “TIIE”).

As a result of the significant sensitivity surroundingto 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 the U.S., Canada, the U.K., and Australia to effectively fixmanage the rate we pay on the amounts of our current and anticipated outstanding vault cash balances.

The notional amounts, weighted average fixed rates, and terms associated with our interest rate swap contracts and cap agreements that are currently in place in the U.S. and, Canada, the U.K. (as of the date of the issuance of this Form 10-Q) are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional Amounts

 

Weighted Average Fixed Rate

 

Notional Amounts

    

Weighted Average Fixed Rate

 

 

U.S. $

 

U.S.

 

U.K. £

 

U.K.

 

Term 

(In millions)

 

 

 

 

(In millions)

 

 

 

 

 

$

1,450

 

2.11

%  

 

£

550

 

0.82

%  

 

October 1, 2018 – December 31, 2018

$

1,000

 

2.06

%  

 

£

550

 

0.90

%  

 

January 1, 2019 – December 31, 2019

$

1,000

 

2.06

%  

 

£

500

 

0.94

%  

 

January 1, 2020 – December 31, 2020

$

400

 

1.46

%  

 

£

500

 

0.94

%  

 

January 1, 2021 – December 31, 2021

$

400

 

1.46

%  

 

£

500

 

0.94

%  

 

January 1, 2022 – December 31, 2022

The notional amounts, weighted average fixed rates,, and terms associated with our interest rate swap contracts that are currently in place in Australia (as of the date of the issuance of this Form 10-Q) are as follows:

Outstanding Interest Rate Derivatives Associated with Vault Cash Rental Obligations
North America – Interest Rate Swap Contracts

Notional Amounts U.S. $ Weighted Average Fixed Rate Notional Amounts CAD$ Weighted Average Fixed Rate 
Term 
(In millions)   (In millions)    
$1,000
 2.06% CAD $125
 2.46% April 1, 2019 – December 31, 2019
$1,000
 2.06% CAD $125
 2.46% January 1, 2020 – December 31, 2020
$600
 1.95% CAD $125
 2.46% January 1, 2021 – December 31, 2021
$400
 1.46%       January 1, 2022 – December 31, 2022

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North America - Interest Rate Cap Contracts

Notional Amounts
U.S. $
 
Cap Rate (1)
 Term
(In millions)    
$ 200
 3.25% January 1, 2021 – December 31, 2023
(1)Maximum amount of interest to be paid each year as per terms of cap. Cost of cap is amortized through vault cash rental expense over term of cap.
Europe & Africa – Interest Rate Swap Contracts

Table of Contents

Notional Amounts
U.K. £
 
Weighted Average
Fixed Rate
 
Term 
(In millions)   
£550
 0.90% April 1, 2019 – December 31, 2019
£500
 0.94% January 1, 2020 – December 31, 2020
£500
 0.94% January 1, 2021 – December 31, 2021
£500
 0.94% January 1, 2022 – December 31, 2022

 

 

 

 

 

 

 

Notional Amounts
AUS $

 

Weighted Average
Fixed Rate

 

Term 

(In millions)

 

 

 

 

 

$

35

 

2.98

%  

 

October 1, 2018 – February 28, 2019


Australia & New Zealand – Interest Rate Swap Contracts
Notional Amounts
AUS $
 
Weighted Average
Fixed Rate
 Term
(In millions)    
$150
 1.95% April 1, 2019 - December 31, 2019
$100
 1.95% January 1, 2020 – December 31, 2020

Summary of Interest Rate Exposure on Average Outstanding Vault Cash Balances

The following table presents a hypothetical sensitivity analysis of our annual vault cash rental expense in North America based on our average outstanding vault cash balance and interest rate derivatives for the quarter ended September 30, 2018March 31, 2019 and assuming a 100 basis point increase in interest rates (in millions):

 

 

 

 

North America

 

 

 

Average outstanding vault cash balance

    

$

1,702

Interest rate swap contracts fixed notional amount

 

 

(1,450)

Residual unhedged outstanding vault cash balance

 

$

252

 

 

 

 

Additional annual interest incurred on 100 basis point increase

 

$

2.52

North America 
Average outstanding vault cash balance$1,518
Interest rate swap contracts fixed notional amount(1,094)
Residual unhedged outstanding vault cash balance$424
  
Additional annual interest incurred on 100 basis point increase$4.24
We also have terms in certain of our North 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 in North 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.

The following table presents a hypothetical sensitivity analysis of our annual vault cash rental expense in Europe & Africa based on our average outstanding vault cash balance for the quarter ended September 30, 2018March 31, 2019 and assuming a 100 basis point increase in interest rates (in millions):

 

 

 

 

Europe & Africa

 

 

 

Average outstanding vault cash balance

    

$

1,182

Interest rate swap contracts fixed notional amount

 

 

(716)

Residual unhedged outstanding vault cash balance

 

$

466

 

 

 

 

Additional annual interest incurred on 100 basis point increase

 

$

4.66

Europe & Africa 
Average outstanding vault cash balance$1,077
Interest rate swap contracts fixed notional amount(716)
Residual unhedged outstanding vault cash balance$361
  
Additional annual interest incurred on 100 basis point increase$3.61
The following table presents a hypothetical sensitivity analysis of our annual vault cash rental expense in Australia based on our average outstanding vault cash balance for the quarter ended September 30, 2018March 31, 2019 and assuming a 100 basis point increase in interest rates (in millions):

 

 

 

 

Australia

 

 

 

Average outstanding vault cash balance

    

$

151

Interest rate swap contracts fixed notional amount

 

 

(25)

Residual unhedged outstanding vault cash balance

 

$

126

 

 

 

 

Additional annual interest incurred on 100 basis point increase

 

$

1.26

Australia 
Average outstanding vault cash balance$221
Interest rate swap contracts fixed notional amount(107)
Residual unhedged outstanding vault cash balance$114
  
Additional annual interest incurred on 100 basis point increase$1.14
As of September 30, 2018,March 31, 2019, we had an asset of $37.3$10.2 million and a liability of $0.4$(9.9) million recorded in the accompanying Consolidated Balance Sheets related to our interest rate swap and foreign currency forward contracts, which represented the fair

value asset or liability of the interest rate swap and foreign currency forward contracts, as derivative instruments are required to be carried at fair value. The fair value estimate was calculated as the present value of amounts estimated to be received or paid to a marketplace participant in a selling transaction. These interest rate swap and foreign

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currency forward 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). The effective portion of the gain or loss on the derivative instrument is reported as a component of the Accumulated other comprehensive loss, net line in the accompanying Consolidated Balance Sheets. The effective portion is reclassified into earnings in the Vault cash rental expense line in the accompanying Consolidated Statements of Operations in the same period or periods during which the hedged transaction affects earnings and has been forecasted into earnings.

Interest expense. Our interest expense is also sensitive to changes in interest rates as borrowings under our revolving credit facility accrue interest at floating rates. As of September 30, 2018, our outstanding borrowings under our revolving credit facility, which carries a floating interest rate, were $30.9 million.

Outlook. Although we currently hedge a substantial portion of our vault cash interest rate risk in the U.S., Canada, the U.K., and Australia, 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 interest rate swap contractsderivative instruments that we currently have in place associated with our vault cash balances in the U.S., Canada, the U.K., and Australia 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 facility accrue interest at floating rates. In November 2018, we entered into a second amended and restated credit agreement (the “Credit Agreement”) increasing the available borrowings under our revolving credit facility to $600 million.  Subsequently, on December 19, 2018, we redeemed our outstanding 2022 Notes, drawing the necessary proceeds to fund the redemption from our revolving credit facility.  As of March 31, 2019, our outstanding borrowings under our revolving credit facility, which carries a floating interest rate, were $240.2 million, the majority of which is denominated in U.K. pounds sterling. To mitigate the interest rate risk associated with these borrowings, we entered into interest rate swap contracts to effectively fix the interest rate on a portion of the expected outstanding borrowings.
Outstanding Interest Rate Derivatives Associated with Revolving Credit Facility Borrowings
Notional Amounts
U.K. £
 
Weighted Average
Fixed Rate
 
Term 
(In millions)    
£80
 0.95% April 1, 2019 – January 1, 2020
£50
 0.95% January 2, 2020 – January 1, 2021
Foreign Currency Exchange Rate Risk

As a result of our operations in the U.K., Australia, Canada, Germany, South Africa, Mexico, Spain, Ireland, Germany, Spain, Mexico, Canada, Australia,and New Zealand, and South Africa, 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 resultsresults 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 the Accumulated other comprehensive loss, net line inwithin the accompanying Consolidated Balance Sheets. As of September 30, 2018,March 31, 2019, this accumulated translation loss totaled $48.7$61.2 million compared to $24.4$66.3 million as of December 31, 2017.

2018.

Our consolidated financial results were significantly impacted by changes in foreign currency exchange rates during the ninethree months ended September 30, 2018March 31, 2019 compared to the same periods of 2017.prior year. Our total revenues during the three and the nine months ended September 30, 2018March 31, 2019 would have been higher by $4.9approximately $11.2 million and lower by $17.5 million, respectively, had the foreign currency exchange rates from the same periods of 2017,three months ended March 31, 2018 remained unchanged.unchanged from the prior year. A sensitivity analysis indicates that, if the U.S. dollar uniformly strengthened or weakened 10.0%10% against the British pound, Euro, Mexican peso, Canadian dollar, Australian dollar, or South African Rand, or Canadian dollar,rand, the effect upon our operating income would have been approximately $2.0$.2 million and $4.5 million, respectively, for the three and nine months ended September 30, 2018.March 31, 2019. We have entered into foreignforward currency forward contracts to mitigate a portion our exposure to changes in foreign currency exchange rates related to expected cash flows generated in currencies other than the U.S. dollar that are expected to be converted in U.Sinto U.S. dollars within the next twelve months.


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 accompanying 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.
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

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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 September 30, 2018March 31, 2019 at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

In conjunction with


Effective January 1, 2019, we adopted Accounting Standards Codification Topic 842, Leases (the “Lease Standard”). Changes were made to our business processes and systems, to capture the evaluation described above, thereadditional recording and reporting obligations required by the Lease Standard. To maintain adequate controls over these processes and systems, we evaluated, updated and added new internal controls over financial reporting. There have been no other changes in our system of internal control over financial reporting, (as such term isas defined in RulesRule 13a-15(f) and 15d-15(f) underof the Exchange Act)Act, during the quarterthe quarterly period ended September 30, 2018March 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The disclosure responsive to this Item related to our material pending legal and regulatory proceedings and settlements,, is incorporated by reference herein from Part I. Financial Information, Item 1. Financial Statements, Note 15. Commitments and Contingencies – Legal Matters.

Item 1A. Risk Factors

You should carefully consider the risks discussed in Part I. Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 20172018 (“20172018 Form 10-K”) and other information included and incorporated by reference in this report. These risks could materially affect our business, financial condition, or future results. There have been no material changes in our assessment of our risk factors from those set forth in our 20172018 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Table of Contents

Item 6. Exhibits

Exhibit
Number

Description

Exhibit
Number

Description

10.1*

Employment agreement by and between Cardtronics USA, IncInc. and Dan Antilley,Paul Wilmore dated effective as of October 9, 2018.March 22, 2019

10.2*

EmploymentForm equity award agreement by and between Cardtronics USA, Inc and Brian Bailey, dated effective as of October 10, 2018.(options)

10.3*

EmploymentForm equity award agreement by and between Cardtronics USA, Inc and Stuart Mackinnon, dated effective as of October 9, 2018.(time based)

31.1*

10.4*

Form equity award agreement (performance based)
10.5*
Form equity award agreement (market based)
10.6*
Form equity award agreement (special)
10.7*
Form equity award agreement (non-employee director)
31.1*
Certification of the Chief Executive Officer of Cardtronics plc pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of the Chief Financial Officer of Cardtronics plc pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**

Certification of the Chief Executive Officer and Chief Financial Officer of Cardtronics plc pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

* Filed herewith.

** Furnished herewith.

83

Management contract or compensatory plan or arrangement.


Table of Contents

SIGNATURES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CARDTRONICS PLC

CARDTRONICS PLC

November 1, 2018

May 2, 2019/s/ Gary W. Ferrera

Gary W. Ferrera

Chief Financial Officer

(Duly Authorized Officer and

Principal Financial Officer)

November 1, 2018

May 2, 2019

/s/ Paul A. Gullo

Paul A. Gullo

Chief Accounting Officer

(Duly Authorized Officer and

Principal Accounting Officer)


84

70