UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) | | |
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| For the quarterly period ended | March 31, 20202021 |
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or | | |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| For the transition period from to | |
Commission File Number: 001-37820
Cardtronics plc
(Exact name of registrant as specified in its charter)
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England and Wales | 98-1304627 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
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2050 West Sam Houston Parkway South, Suite 1300 | | 77042 |
Houston | Texas | (Zip Code) |
(Address of principal executive offices) | | |
Registrant’s telephone number, including area code: (832) 308-4000
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Ordinary Shares, nominal value $0.01 per share | CATM | NASDAQ Stock Market |
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 ☑ 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 ☑ 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.
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Large accelerated filer | ☑ | | 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 ☑
Shares outstanding as of May 6, 2020: 44,463,0345, 2021: 45,265,702 Ordinary shares, nominal value $0.01 per share.
CARDTRONICS PLC
TABLE OF CONTENTS
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.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CARDTRONICS PLC
CONSOLIDATED BALANCE SHEETS
(In thousands, excluding share and per share amounts)
| | | March 31, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
| | (Unaudited) | | | | (Unaudited) | | |
ASSETS | ASSETS | | ASSETS | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 613,728 | | | $ | 30,115 | | Cash and cash equivalents | $ | 197,363 | | | $ | 174,242 | |
Accounts and notes receivable | Accounts and notes receivable | 94,951 | | | 101,046 | | Accounts and notes receivable | 94,775 | | | 96,902 | |
Less: Allowance for credit losses | Less: Allowance for credit losses | (8,051) | | | (5,251) | | Less: Allowance for credit losses | (7,005) | | | (7,035) | |
Accounts and notes receivable, net | Accounts and notes receivable, net | 86,900 | | | 95,795 | | Accounts and notes receivable, net | 87,770 | | | 89,867 | |
Inventory, net | Inventory, net | 11,394 | | | 10,618 | | Inventory, net | 6,210 | | | 6,598 | |
Restricted Cash | 44,796 | | | 87,354 | | |
Restricted cash | | Restricted cash | 141,859 | | | 137,353 | |
Prepaid expenses, deferred costs, and other current assets | Prepaid expenses, deferred costs, and other current assets | 93,162 | | | 84,639 | | Prepaid expenses, deferred costs, and other current assets | 50,338 | | | 53,953 | |
Total current assets | Total current assets | 849,980 | | | 308,521 | | Total current assets | 483,540 | | | 462,013 | |
Property and equipment, net of accumulated depreciation of $531,938 and $525,933 as of March 31, 2020 and December 31, 2019, respectively | 434,760 | | | 461,277 | | |
Property and equipment, net of accumulated depreciation of $657,069 and $637,835 as of March 31, 2021 and December 31, 2020, respectively | | Property and equipment, net of accumulated depreciation of $657,069 and $637,835 as of March 31, 2021 and December 31, 2020, respectively | 412,861 | | | 429,842 | |
Operating lease assets | Operating lease assets | 69,622 | | | 76,548 | | Operating lease assets | 56,434 | | | 60,368 | |
Intangible assets, net | 99,121 | | | 113,925 | | |
Intangible assets, net of accumulated amortization of $460,841 and $454,533 as of March 31, 2021 and December 31, 2020, respectively | | Intangible assets, net of accumulated amortization of $460,841 and $454,533 as of March 31, 2021 and December 31, 2020, respectively | 75,250 | | | 84,629 | |
Goodwill | Goodwill | 724,113 | | | 752,592 | | Goodwill | 760,811 | | | 759,102 | |
Deferred tax asset, net | 15,231 | | | 13,159 | | |
Deferred tax assets, net | | Deferred tax assets, net | 17,774 | | | 17,382 | |
Prepaid expenses, deferred costs, and other noncurrent assets | Prepaid expenses, deferred costs, and other noncurrent assets | 24,394 | | | 37,936 | | Prepaid expenses, deferred costs, and other noncurrent assets | 23,188 | | | 18,109 | |
| Total assets | Total assets | $ | 2,217,221 | | | $ | 1,763,958 | | Total assets | $ | 1,829,858 | | | $ | 1,831,445 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | | LIABILITIES AND SHAREHOLDERS’ EQUITY | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Current portion of long-term debt | Current portion of long-term debt | $ | 278,861 | | | $ | — | | Current portion of long-term debt | $ | 5,000 | | | $ | 5,000 | |
Current portion of other long-term liabilities | Current portion of other long-term liabilities | 64,333 | | | 53,144 | | Current portion of other long-term liabilities | 51,744 | | | 64,799 | |
Accounts payable | Accounts payable | 35,840 | | | 46,478 | | Accounts payable | 46,053 | | | 39,901 | |
Accrued liabilities | Accrued liabilities | 274,854 | | | 334,762 | | Accrued liabilities | 373,015 | | | 366,285 | |
Total current liabilities | Total current liabilities | 653,888 | | | 434,384 | | Total current liabilities | 475,812 | | | 475,985 | |
Long-term liabilities: | Long-term liabilities: | | | | | | Long-term liabilities: | |
Long-term debt | Long-term debt | 1,043,327 | | | 739,475 | | Long-term debt | 772,693 | | | 773,177 | |
Asset retirement obligations | Asset retirement obligations | 53,359 | | | 55,494 | | Asset retirement obligations | 56,859 | | | 56,973 | |
Deferred tax liability, net | 45,870�� | | | 46,878 | | |
Deferred tax liabilities, net | | Deferred tax liabilities, net | 55,471 | | | 51,484 | |
Operating lease liabilities | Operating lease liabilities | 63,827 | | | 69,531 | | Operating lease liabilities | 53,681 | | | 56,683 | |
| Other long-term liabilities | Other long-term liabilities | 49,091 | | | 37,870 | | Other long-term liabilities | 21,886 | | | 37,727 | |
Total liabilities | Total liabilities | 1,909,362 | | | 1,383,632 | | Total liabilities | 1,436,402 | | | 1,452,029 | |
| Commitments and contingencies (See Note 15) | | |
Commitments and contingencies (See Note 13) | | Commitments and contingencies (See Note 13) | 0 | | 0 |
| Shareholders' equity: | Shareholders' equity: | | Shareholders' equity: | |
Ordinary shares, $0.01 nominal value; 44,456,153 and 44,676,132 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively | 445 | | | 447 | | |
Ordinary shares, $0.01 nominal value; 45,255,680 and 44,539,433 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | | Ordinary shares, $0.01 nominal value; 45,255,680 and 44,539,433 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | 453 | | | 445 | |
Additional paid-in capital | Additional paid-in capital | 328,528 | | | 332,109 | | Additional paid-in capital | 333,596 | | | 343,042 | |
Accumulated other comprehensive loss, net | Accumulated other comprehensive loss, net | (137,349) | | | (77,887) | | Accumulated other comprehensive loss, net | (76,062) | | | (93,731) | |
Retained earnings | Retained earnings | 116,306 | | | 125,763 | | Retained earnings | 135,568 | | | 129,693 | |
Total parent shareholders' equity | Total parent shareholders' equity | 307,930 | | | 380,432 | | Total parent shareholders' equity | 393,555 | | | 379,449 | |
Noncontrolling interests | Noncontrolling interests | (71) | | | (106) | | Noncontrolling interests | (99) | | | (33) | |
Total shareholders’ equity | Total shareholders’ equity | 307,859 | | | 380,326 | | Total shareholders’ equity | 393,456 | | | 379,416 | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 2,217,221 | | | $ | 1,763,958 | | Total liabilities and shareholders’ equity | $ | 1,829,858 | | | $ | 1,831,445 | |
The accompanying notes are an integral part of these consolidated financial statements.
CARDTRONICS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, excluding share and per share amounts)
(Unaudited)
| | | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | | | 2020 | | 2019 | | 2021 | | 2020 | |
Revenues: | Revenues: | | | | | | | Revenues: | | | | |
ATM operating revenues | ATM operating revenues | | | | $ | 291,854 | | | $ | 302,602 | | ATM operating revenues | $ | 255,018 | | | $ | 291,799 | | |
ATM product sales and other revenues | ATM product sales and other revenues | | | | 14,748 | | | 15,668 | | ATM product sales and other revenues | 12,816 | | | 14,803 | | |
Total revenues | Total revenues | | | | 306,602 | | | 318,270 | | Total revenues | 267,834 | | | 306,602 | | |
Cost of revenues: | Cost of revenues: | | | | | Cost of revenues: | | |
Cost of ATM operating revenues (excludes depreciation, accretion, and amortization of intangible assets reported separately below. See Note 1(c)) | Cost of ATM operating revenues (excludes depreciation, accretion, and amortization of intangible assets reported separately below. See Note 1(c)) | | | | 193,665 | | | 206,158 | | Cost of ATM operating revenues (excludes depreciation, accretion, and amortization of intangible assets reported separately below. See Note 1(c)) | 150,803 | | | 193,630 | | |
Cost of ATM product sales and other revenues | Cost of ATM product sales and other revenues | | | | 12,057 | | | 11,925 | | Cost of ATM product sales and other revenues | 8,796 | | | 12,092 | | |
Total cost of revenues | Total cost of revenues | | | | 205,722 | | | 218,083 | | Total cost of revenues | 159,599 | | | 205,722 | | |
Operating expenses: | Operating expenses: | | | | | Operating expenses: | | |
Selling, general, and administrative expenses | Selling, general, and administrative expenses | | | | 42,378 | | | 43,660 | | Selling, general, and administrative expenses | 42,909 | | | 42,378 | | |
| Restructuring expenses | Restructuring expenses | | | | 1,209 | | | — | | Restructuring expenses | 1,692 | | | 1,209 | | |
| Acquisition related expenses | | Acquisition related expenses | 1,440 | | | 0 | | |
| Depreciation and accretion expense | Depreciation and accretion expense | | | | 32,211 | | | 32,973 | | Depreciation and accretion expense | 32,285 | | | 32,211 | | |
Amortization of intangible assets | Amortization of intangible assets | | | | 8,413 | | | 12,412 | | Amortization of intangible assets | 6,086 | | | 8,413 | | |
Loss on disposal and impairment of assets | Loss on disposal and impairment of assets | | | | 921 | | | 968 | | Loss on disposal and impairment of assets | 353 | | | 921 | | |
Total operating expenses | Total operating expenses | | | | 85,132 | | | 90,013 | | Total operating expenses | 84,765 | | | 85,132 | | |
Income from operations | Income from operations | | | | 15,748 | | | 10,174 | | Income from operations | 23,470 | | | 15,748 | | |
Other expenses: | Other expenses: | | | | | Other expenses: | | |
Interest expense, net | Interest expense, net | | | | 6,421 | | | 6,643 | | Interest expense, net | 10,761 | | | 6,421 | | |
Amortization of deferred financing costs and note discount | Amortization of deferred financing costs and note discount | | | | 3,486 | | | 3,292 | | Amortization of deferred financing costs and note discount | 1,043 | | | 3,486 | | |
Other expenses (income) | | | | 3,829 | | | (7,207) | | |
| Other expenses, net | | Other expenses, net | 2,842 | | | 3,829 | | |
Total other expenses | Total other expenses | | | | 13,736 | | | 2,728 | | Total other expenses | 14,646 | | | 13,736 | | |
Income before income taxes | Income before income taxes | | | | 2,012 | | | 7,446 | | Income before income taxes | 8,824 | | | 2,012 | | |
Income tax (benefit) expense | | | | (3,737) | | | 3,129 | | |
Income tax expense (benefit) | | Income tax expense (benefit) | 2,951 | | | (3,737) | | |
Net income | Net income | | | | 5,749 | | | 4,317 | | Net income | 5,873 | | | 5,749 | | |
Net loss attributable to noncontrolling interests | Net loss attributable to noncontrolling interests | | | | (6) | | | (2) | | Net loss attributable to noncontrolling interests | (3) | | | (6) | | |
Net income attributable to controlling interests and available to common shareholders | Net income attributable to controlling interests and available to common shareholders | | | | $ | 5,755 | | | $ | 4,319 | | Net income attributable to controlling interests and available to common shareholders | $ | 5,876 | | | $ | 5,755 | | |
| Net income per common share – basic | Net income per common share – basic | | | | $ | 0.13 | | | $ | 0.09 | | Net income per common share – basic | $ | 0.13 | | | $ | 0.13 | | |
Net income per common share – diluted | Net income per common share – diluted | | | | $ | 0.13 | | | $ | 0.09 | | Net income per common share – diluted | $ | 0.13 | | | $ | 0.13 | | |
| Weighted average shares outstanding – basic | Weighted average shares outstanding – basic | | | | 44,729,824 | | | 46,223,764 | | Weighted average shares outstanding – basic | 44,959,960 | | | 44,729,824 | | |
Weighted average shares outstanding – diluted | Weighted average shares outstanding – diluted | | | | 45,741,261 | | | 46,635,033 | | Weighted average shares outstanding – diluted | 45,609,764 | | | 45,741,261 | | |
The accompanying notes are an integral part of these consolidated financial statements.
CARDTRONICS PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | 2020 | | 2019 |
Net income | | | | | $ | 5,749 | | | $ | 4,317 | |
Unrealized loss on interest rate swap contracts, net of deferred income tax benefit of $12,103 and $3,196 for the three months ended March 31, 2020 and 2019 | | | | | (39,842) | | | (12,703) | |
Foreign currency translation adjustments, net of deferred income tax benefit of $561 and $80 for the three months ended March 31, 2020 and 2019, respectively | | | | | (19,620) | | | 5,102 | |
Other comprehensive loss | | | | | (59,462) | | | (7,601) | |
Total comprehensive loss | | | | | (53,713) | | | (3,284) | |
Less: Comprehensive income attributable to noncontrolling interests | | | | | 35 | | | — | |
Comprehensive loss attributable to controlling interests | | | | | $ | (53,748) | | | $ | (3,284) | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
Net income | $ | 5,873 | | | $ | 5,749 | | | | | |
Unrealized gain (loss) on interest rate derivative contracts, net of deferred income tax expense of $4,610 and benefit of $12,103 for the three months ended March 31, 2021 and 2020, respectively | 15,064 | | | (39,842) | | | | | |
Foreign currency translation adjustments, net of deferred income tax expense of $238 and benefit of $561 for the three months ended March 31, 2021 and 2020, respectively | 2,605 | | | (19,620) | | | | | |
Other comprehensive income (loss) | 17,669 | | | (59,462) | | | | | |
Total comprehensive income (loss) | 23,542 | | | (53,713) | | | | | |
Less: Comprehensive (loss) income attributable to noncontrolling interests | (66) | | | 35 | | | | | |
Comprehensive income (loss) attributable to controlling interests | $ | 23,608 | | | $ | (53,748) | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
CARDTRONICS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 | | | | | | | |
| Common Shares | | Additional Paid-In Capital | Accumulated Other Comprehensive Loss, Net | Retained Earnings | | Noncontrolling Interests | |
| Shares | Amount | | | | | | Total |
Balance as of December 31, 2019 | 44,676 | | $ | 447 | | $ | 332,109 | | $ | (77,887) | | $ | 125,763 | | | $ | (106) | | $ | 380,326 | |
Cumulative effect of change in accounting principle | — | | — | | — | | — | | (1,871) | | | — | | (1,871) | |
Issuance of common shares for share-based compensation, net of forfeitures | 286 | | 3 | | 271 | | — | | — | | | — | | 274 | |
Share-based compensation expense | — | | — | | 5,193 | | — | | — | | | — | | 5,193 | |
Tax payments related to share-based compensation | — | | — | | (5,515) | | — | | — | | | — | | (5,515) | |
Repurchase of common shares | (506) | | (5) | | (3,530) | | — | | (13,338) | | | — | | (16,873) | |
Unrealized loss on interest rate swap and foreign currency forward contracts, net of deferred income tax benefit of $12,103 | — | | — | | — | | (39,842) | | | | | — | | (39,842) | |
Net income attributable to controlling interests | — | | — | | — | | — | | 5,755 | | | — | | 5,755 | |
Net loss attributable to noncontrolling interests | — | | — | | — | | — | | — | | | (6) | | (6) | |
Foreign currency translation adjustments, net of deferred income tax benefit of $561 | — | | — | | — | | (19,620) | | (3) | | | 41 | | (19,582) | |
Balance as of March 31, 2020 | 44,456 | | $ | 445 | | $ | 328,528 | | $ | (137,349) | | $ | 116,306 | | | $ | (71) | | $ | 307,859 | |
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| Three Months Ended March 31, 2019 | | | | | | | |
| Common Shares | | Additional Paid-In Capital | Accumulated Other Comprehensive Loss, Net | Retained Earnings | | Noncontrolling Interests | |
| Shares | Amount | | | | | | Total |
Balance as of December 31, 2018 | 46,134 | | $ | 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 forfeitures | 174 | | 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, 2019 | 46,308 | | $ | 463 | | $ | 329,712 | | $ | (74,478) | | $ | 120,229 | | | $ | (97) | | $ | 375,829 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| Common Shares | Additional Paid-In Capital | Accumulated Other Comprehensive Loss, Net | Retained Earnings | | Noncontrolling Interests | |
| Shares | Amount | Total |
Balance as of December 31, 2020 | 44,539 | | $ | 445 | | $ | 343,042 | | $ | (93,731) | | $ | 129,693 | | | $ | (33) | | $ | 379,416 | |
| | | | | | | | |
Issuance of common shares for share-based compensation, net of forfeitures | 717 | | 8 | | 760 | | — | | — | | | — | | 768 | |
Share-based compensation expense | — | | — | | 4,258 | | — | | — | | | — | | 4,258 | |
Tax payments related to share-based compensation | — | | — | | (14,464) | | — | | — | | | — | | (14,464) | |
| | | | | | | | |
| | | | | | | | |
Unrealized gain on interest rate derivative contracts, net of deferred income tax expense of $4,610 | — | | — | | — | | 15,064 | | — | | | — | | 15,064 | |
Net income attributable to controlling interests | — | | — | | — | | — | | 5,876 | | | — | | 5,876 | |
Net loss attributable to noncontrolling interests | — | | — | | — | | — | | — | | | (3) | | (3) | |
Foreign currency translation adjustments, net of deferred income tax expense of $238 | — | | — | | — | | 2,605 | | (1) | | | (63) | | 2,541 | |
Balance as of March 31, 2021 | 45,256 | | $ | 453 | | $ | 333,596 | | $ | (76,062) | | $ | 135,568 | | | $ | (99) | | $ | 393,456 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
| Common Shares | Additional Paid-In Capital | Accumulated Other Comprehensive Loss, Net | Retained Earnings | | Noncontrolling Interests | |
| Shares | Amount | Total |
Balance as of December 31, 2019 | 44,676 | | $ | 447 | | $ | 332,109 | | $ | (77,887) | | $ | 125,763 | | | $ | (106) | | $ | 380,326 | |
Cumulative effect of change in accounting principle | — | | — | | — | | — | | (1,871) | | | — | | (1,871) | |
Issuance of common shares for share-based compensation, net of forfeitures | 286 | | 3 | | 271 | | — | | — | | | — | | 274 | |
Share-based compensation expense | — | | — | | 5,193 | | — | | — | | | — | | 5,193 | |
Tax payments related to share-based compensation | — | | — | | (5,515) | | — | | — | | | — | | (5,515) | |
Repurchase of common shares | (506) | | (5) | | (3,530) | | — | | (13,338) | | | — | | (16,873) | |
Unrealized loss on interest rate swap and foreign currency forward contracts, net of deferred income tax benefit of $12,103 | — | | — | | — | | (39,842) | | | | — | | (39,842) | |
Net income attributable to controlling interests | — | | — | | — | | — | | 5,755 | | | — | | 5,755 | |
Net loss attributable to noncontrolling interests | — | | — | | — | | — | | — | | | (6) | | (6) | |
Foreign currency translation adjustments, net of deferred income tax benefit of $561 | — | | — | | — | | (19,620) | | (3) | | | 41 | | (19,582) | |
Balance as of March 31, 2020 | 44,456 | | $ | 445 | | $ | 328,528 | | $ | (137,349) | | $ | 116,306 | | | $ | (71) | | $ | 307,859 | |
The accompanying notes are an integral part of these consolidated financial statements.
CARDTRONICS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | Three Months Ended March 31, | | | Three months ended March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income | Net income | $ | 5,749 | | | $ | 4,317 | | Net income | $ | 5,873 | | | $ | 5,749 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | |
Depreciation, accretion, and amortization of intangible assets | Depreciation, accretion, and amortization of intangible assets | 40,624 | | | 45,385 | | Depreciation, accretion, and amortization of intangible assets | 38,371 | | | 40,624 | |
Amortization of deferred financing costs and note discount | Amortization of deferred financing costs and note discount | 3,486 | | | 3,292 | | Amortization of deferred financing costs and note discount | 1,043 | | | 3,486 | |
Share-based compensation expense | Share-based compensation expense | 5,193 | | | 4,484 | | Share-based compensation expense | 4,258 | | | 5,193 | |
Deferred income tax expense | 9,602 | | | 354 | | |
Deferred income tax (benefit) expense | | Deferred income tax (benefit) expense | (780) | | | 9,602 | |
Loss on disposal and impairment of assets | Loss on disposal and impairment of assets | 921 | | | 968 | | Loss on disposal and impairment of assets | 353 | | | 921 | |
Other reserves and non-cash items | Other reserves and non-cash items | 4,361 | | | (7,497) | | Other reserves and non-cash items | 3,311 | | | 4,361 | |
| Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
Decrease (increase) in accounts and notes receivable, net | 3,171 | | | (3,851) | | |
Increase in prepaid expenses, deferred costs, and other current assets | (11,645) | | | (19,222) | | |
Increase in inventory, net | (1,454) | | | (2,741) | | |
Decrease in accounts and notes receivable, net | | Decrease in accounts and notes receivable, net | 2,129 | | | 3,171 | |
Decrease (increase) in prepaid expenses, deferred costs, and other current assets | | Decrease (increase) in prepaid expenses, deferred costs, and other current assets | 2,992 | | | (11,645) | |
Decrease (increase) in inventory, net | | Decrease (increase) in inventory, net | 177 | | | (1,454) | |
Decrease in other assets | Decrease in other assets | 3,866 | | | 1,740 | | Decrease in other assets | 2,946 | | | 3,866 | |
Decrease in accounts payable | (8,813) | | | (4,506) | | |
Decrease in restricted cash liabilities | (39,871) | | | (71,521) | | |
(Decrease) increase in accrued liabilities | (11,209) | | | 27,399 | | |
Increase (decrease) in accounts payable | | Increase (decrease) in accounts payable | 6,122 | | | (8,813) | |
Increase (decrease) in restricted cash liabilities | | Increase (decrease) in restricted cash liabilities | 4,346 | | | (39,871) | |
Increase (decrease) in accrued liabilities | | Increase (decrease) in accrued liabilities | 5,371 | | | (11,209) | |
Decrease in other liabilities | Decrease in other liabilities | (2,861) | | | (406) | | Decrease in other liabilities | (7,160) | | | (2,861) | |
Net cash provided by (used in) operating activities | 1,120 | | | (21,805) | | |
Net cash provided by operating activities | | Net cash provided by operating activities | 69,352 | | | 1,120 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | |
Additions to property and equipment | Additions to property and equipment | (18,429) | | | (29,307) | | Additions to property and equipment | (16,246) | | | (18,429) | |
| Net cash used in investing activities | Net cash used in investing activities | (18,429) | | | (29,307) | | Net cash used in investing activities | (16,246) | | | (18,429) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
Proceeds from borrowings under revolving credit facility | Proceeds from borrowings under revolving credit facility | 731,862 | | | 120,918 | | Proceeds from borrowings under revolving credit facility | 0 | | | 731,862 | |
Repayments of borrowings under revolving credit facility | Repayments of borrowings under revolving credit facility | (144,754) | | | (144,466) | | Repayments of borrowings under revolving credit facility | 0 | | | (144,754) | |
| Repayments of term loan facility | | Repayments of term loan facility | (1,250) | | | 0 | |
| | Tax payments related to share-based compensation | Tax payments related to share-based compensation | (5,515) | | | (1,781) | | Tax payments related to share-based compensation | (14,464) | | | (5,515) | |
Proceeds from exercises of stock options | Proceeds from exercises of stock options | 293 | | | 2 | | Proceeds from exercises of stock options | 760 | | | 293 | |
Repurchase of common shares | Repurchase of common shares | (16,873) | | | — | | Repurchase of common shares | 0 | | | (16,873) | |
Net cash provided by (used in) financing activities | 565,013 | | | (25,327) | | |
Payment of contingent consideration | | Payment of contingent consideration | (9,193) | | | 0 | |
Other financing activities | | Other financing activities | (36) | | | 0 | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (24,183) | | | 565,013 | |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (6,649) | | | 1,263 | | Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (1,296) | | | (6,649) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 541,055 | | | (75,176) | | |
Net increase in cash, cash equivalents, and restricted cash | | Net increase in cash, cash equivalents, and restricted cash | 27,627 | | | 541,055 | |
| Cash, cash equivalents, and restricted cash as of beginning of period | Cash, cash equivalents, and restricted cash as of beginning of period | 117,469 | | | 195,410 | | Cash, cash equivalents, and restricted cash as of beginning of period | 311,595 | | | 117,469 | |
Cash, cash equivalents, and restricted cash as of end of period | Cash, cash equivalents, and restricted cash as of end of period | $ | 658,524 | | | $ | 120,234 | | Cash, cash equivalents, and restricted cash as of end of period | $ | 339,222 | | | $ | 658,524 | |
| Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | Supplemental disclosure of cash flow information: | |
Cash paid for interest | Cash paid for interest | $ | 1,992 | | | $ | 1,860 | | Cash paid for interest | $ | 6,628 | | | $ | 1,992 | |
Cash paid for income taxes | $ | 2,666 | | | $ | 4,720 | | |
Cash paid for income taxes, net | | Cash paid for income taxes, net | $ | 5,881 | | | $ | 2,666 | |
The accompanying notes are an integral part of 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” or “Cardtronics”), 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 March 31, 2020, theThe Company wasis the world’s largest ATM owner/operator, providing services to over 285,000 ATMs globally, approximately 25% of which are Company-owned.
During the three months ended March 31, 2020, approximately 68% 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), approximately 27% 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 approximately 5% of the Company’s revenues were derived from the Company’s operations in Australia and New Zealand. As of March 31, 2020,The Company evaluates, oversees and manages the Company provided processing only services or various forms of managed services solutions to approximately 198,000 ATMs. Under a managed services arrangement, retailers, financial institutions, and ATM distributors rely on Cardtronics to handle some or allperformance of the operational aspects associated withbusiness through these 3 operating and maintaining ATMs, typicallysegments, further described 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, casinos, 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. These financial institutions include, but are not limited to, BBVA Compass Bancshares, Inc. (“BBVA”), Citibank, N.A. (“Citibank”), Citizens Financial Group, Inc. (“Citizens”), CullNote 15. Segment Information.en/Frost Bankers, Inc. (“Cullen/Frost”), Discover Bank (“Discover”), PNC Bank, N.A. (“PNC Bank”), Santander Bank, N.A. (“Santander”), TD Bank, N.A. (“TD Bank”), United Services Automobile Association ("USAA"), US Bank Corp ("US Bank") in the U.S.; BMO Bank of Montreal (“BMO”), the Bank of Nova Scotia (“Scotiabank”), Canadian Imperial Bank Commerce (“CIBC”), and TD Bank in Canada; the Bank of Queensland Limited (“BOQ”) and HSBC Holdings plc (“HSBC”) in Australia; and Capitec Bank ("Capitec"), Mercantile Bank ("Mercantile") and Old Mutual ("Old Mutual") in South Africa. In Mexico, the Company partners with Scotiabank and Banco Multiva by putting their brands on our ATMs in exchange for certain services provided by them. As of March 31, 2020, approximately 25,000 of the Company’s ATMs were under contract with approximately 500 financial institutions to place their logos on the ATMs and to provide convenient surcharge-free access for their banking customers. The Company also provides managed services offerings for financial institutions, which generally include full outsourcing of a portion or all of the financial institution's ATMs.
The Company owns and operates the Allpoint network (“Allpoint”), the largest retail based surcharge-free ATM network (based on the number of participating ATMs). Allpoint has over 55,000 participating ATMs and provides surcharge-free ATM access to approximately 1,200 participating credit unions, banks, 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. Allpoint includes a majority of the Company’s owned ATMs in the U.S. and certain ATMs in the U.K., Canada, Mexico, 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 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 primarily from convenience transaction fees (or "surcharge"), which are paid by cardholders, as well as other transaction-based fees, including interchange fees, which are paid by the cardholder’s financial institution for the use of the ATMs serving their customers and connectivity to the applicable EFTelectronic funds transfer ("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 Company's Allpoint network ("Allpoint"), the largest retail-based surcharge-free ATM network (based on the number of participating ATMs), (ii) fees for bank-branding ATMs and providing financial institution cardholders with surcharge-free access, (iii) revenues earned by providing managed services (includingsolutions and transaction processing services) solutionsservices to retailers and financial institutions, (iv) fees earned from foreign currency exchange transactions at the ATM, known as dynamic currency conversion ("DCC"), and (v) revenues from the sale of ATMs, and ATM-related equipment and other ancillary services.
On January 25, 2021, the Company entered into a definitive agreement to be acquired by NCR Corporation (“NCR”) for $39.00 per share in cash (the “NCR Transaction”). This followed the Company's delivery of a notice to terminate its previously announced definitive agreement with Catalyst Holdings Limited (“Catalyst”), an affiliate of Apollo Management, L.P., dated as of December 15, 2020, pursuant to which the Company would have been acquired by Catalyst for $35.00 per share in cash, in accordance with the terms of such agreement. The proposed transaction with NCR is subject to the satisfaction of customary closing conditions, including receipt of regulatory approvals. Cardtronics shareholders approved the transaction on May 7, 2021. It is expected that, subject to the satisfaction or waiver of all relevant conditions, the proposed transaction will be completed in mid-year 2021. During the three months ended March 31, 2021, the Company incurred $1.4 million of costs related to the proposed acquisition of the Company, including legal and professional fees, and certain other administrative expenses presented in the Acquisition related expenses line on the Consolidated Statements of Operations.
(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 United States ("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. This Form 10-Q should be read along with the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 (the “2019“2020 Form 10-K”), which includes a summary of the Company’s significant accounting policies and other disclosures.
In management’s opinion, allAll normal recurring adjustments necessary for a fair presentation of the Company’s interim and prior period results have been made. The results of operations for the three months ended March 31, 20202021 and 20192020 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 reflectsreconciles the amounts excluded from the Cost of ATM operating revenues line in the accompanying Consolidated Statements of Operations to total depreciation, accretion, and amortization of intangible assets included in the Consolidated Statement of Operations for the periods presented:
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | 2019 | | 2021 | | 2020 | |
| | | (In thousands) | | | (In thousands) |
Depreciation and accretion expenses related to ATMs and ATM-related assets | Depreciation and accretion expenses related to ATMs and ATM-related assets | | $ | 22,781 | | | $ | 24,607 | | Depreciation and accretion expenses related to ATMs and ATM-related assets | $ | 25,875 | | | $ | 22,781 | | |
Amortization of intangible assets | Amortization of intangible assets | | 8,413 | | | 12,412 | | Amortization of intangible assets | 6,086 | | | 8,413 | | |
Total depreciation, accretion, and amortization of intangible assets excluded from Cost of ATM operating revenues | Total depreciation, accretion, and amortization of intangible assets excluded from Cost of ATM operating revenues | | $ | 31,194 | | | $ | 37,019 | | Total depreciation, accretion, and amortization of intangible assets excluded from Cost of ATM operating revenues | 31,961 | | | 31,194 | | |
Depreciation and accretion expense included in Selling, general, and administrative expenses | | Depreciation and accretion expense included in Selling, general, and administrative expenses | 6,410 | | | 9,430 | | |
Total depreciation, accretion and amortization of intangible assets | | Total depreciation, accretion and amortization of intangible assets | $ | 38,371 | | | $ | 40,624 | | |
(d) Restructuring Expenses
During the three months ended March 31, 2020,2021, the Company continued certain corporate reorganization and cost reduction initiatives that began in 2019. The2020, partly in response to the impacts of the COVID-19 pandemic (the "Pandemic"). In the three months ended March 31, 2021 and 2020, the Company incurred approximately$1.7 million and $1.2 million, respectively, of pre-tax expenses related to this activitythese activities that primarily included facility closures, workforce reductions professional fees and other related charges.
The following table reflects the amounts recorded in the Restructuring expenses line in the accompanying Consolidated Statements of Operations for the periods presented:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | |
| | | | | | 2020 | | 2019 |
| | | | | (In thousands) | | | |
| Europe & Africa | | | | | $ | 1,000 | | | $ | — | |
| Corporate | | | | | $ | 209 | | | $ | — | |
| Total | | | | | $ | 1,209 | | | $ | — | |
| | | | | | | | | | | | | | |
| Three Months Ended March 31, | |
| 2021 | | 2020 | | | |
| (In thousands) |
Europe & Africa | $ | 1,549 | | | $ | 1,000 | | | | |
| | | | | | |
| | | | | | |
Corporate | 143 | | | 209 | | | | |
Total | $ | 1,692 | | | $ | 1,209 | | | | |
The costs incurred in Europe & Africa for the three months ended March 31, 2021 and 2020 included facility related costs consisting of non-cash asset write-offs and accelerated lease expenses presented as a reduction of the associated operating lease assets, and an insignificant amountwell as amounts pertaining to workforce reductions. reductions, primarily in the U.K. The costs incurred in Corporate for the three months ended March 31, 2021 included amounts pertaining to workforce reductions and the costs incurred in Corporate for the three months ended March 31, 2020 primarily consisted of professional fees. The restructuring liability balances as of March 31, 2021 and 2020 were $1.6 million and $0.6 million, respectively. The restructuring liability balance as of MarchDecember 31, 2020 was $0.6$2.2 million and there were 0 outstanding restructuring liabilities as.
(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 accounts.accounts and physical cash. 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 recorded in Restricted cash line in the accompanying Consolidated Balance Sheets based on when the Company expects this cash to be paid. Current restricted cash primarily consists of amounts collected on behalf of, but not yet remitted to, certain of the Company’s merchant customers or third-party service providers. Restricted cash in current assets is offset by a corresponding liability balance in the Accrued liabilities line in the accompanying Consolidated Balance Sheets. The changes in the settlement liabilities corresponding to the changes in the balance of restricted cash during the three months ended March 31, 20202021 and 20192020 are presented in the Consolidated Statements of Cash Flows within the increaseIncrease (decrease) in restricted cash liabilities line.
The following table provides a reconciliation of the ending cash, cash equivalents, and restricted cash balances as of March 31, 20202021 and 2019,2020, corresponding with the balances in the accompanying Consolidated Statements of Cash Flows.
| | | March 31, | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| | (In thousands) | | | (In thousands) |
Cash and cash equivalents | Cash and cash equivalents | $ | 613,728 | | | $ | 35,444 | | Cash and cash equivalents | $ | 197,363 | | | $ | 613,728 | |
Restricted cash | Restricted cash | 44,796 | | | 84,790 | | Restricted cash | 141,859 | | | 44,796 | |
Total cash, cash equivalents, and restricted cash in the Consolidated Statements of Cash Flows | Total cash, cash equivalents, and restricted cash in the Consolidated Statements of Cash Flows | $ | 658,524 | | | $ | 120,234 | | Total cash, cash equivalents, and restricted cash in the Consolidated Statements of Cash Flows | $ | 339,222 | | | $ | 658,524 | |
(f) Accounts and Notes Receivable, net
Accounts and notes receivable are comprised of amounts due from the Company’s clearing and settlement banks for transaction revenues earned on transactions processed during the month ending on the balance sheet date, as well as receivables from surcharge-free network customers, bank-branding and network-branding customers, managed services customers and for ATMs and ATM-related equipment sales and service. Trade accounts receivable are recorded at the invoiced amount and do not bear interest.
The allowance for credit losses represents the Company’s best estimate of the future expected credit losses on the Company's existing accounts and notes receivable. Accounting Standards Codification Topic 326 ("Topic 326") requires recognition of credit losses when expected based on a broad range of information, including historical experience and current economic conditions. The Company applies an aging based methodology using historic loss experience and aging categories. Where necessary, the Company segregates receivables into pools with common characteristics. In addition, where appropriate and where the available information indicates that losses would be minimal, an estimated loss rate is applied. In all cases, losses are recognized when expected. The Company holds no material financing receivables and no other financial instruments measured at amortized cost.
See Note 9. CurrentFor the three months ended March 31, 2021 and Long-Term Debt for discussion2020, the Company assessed the likelihood of collection of its receivables utilizing historical loss rates and current market conditions that included the estimated impact of the borrowings made byglobal COVID-19 pandemic. The Company recorded an insignificant provision for estimated credit losses during the Company from its Credit Agreement in three months ending March 31, 2021 and a provision of $0.9 million during the three months ending March 31, 2020.
(g) Inventory
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:
| | | March 31, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
| | (In thousands) | | | (In thousands) |
ATMs | ATMs | $ | 3,554 | | | $ | 3,330 | | ATMs | $ | 1,563 | | | $ | 1,837 | |
ATM spare parts and supplies | ATM spare parts and supplies | 8,142 | | | 7,673 | | ATM spare parts and supplies | 6,320 | | | 6,525 | |
Total inventory | Total inventory | 11,696 | | | 11,003 | | Total inventory | 7,883 | | | 8,362 | |
Less: Inventory reserves | Less: Inventory reserves | (302) | | | (385) | | Less: Inventory reserves | (1,673) | | | (1,764) | |
Inventory, net | Inventory, net | $ | 11,394 | | | $ | 10,618 | | Inventory, net | $ | 6,210 | | | $ | 6,598 | |
(g) AccountsConcurrent with the issuance of the 1.00% Convertible Senior Notes due 2020 (the "Convertible Notes") in November 2013, Cardtronics, Inc. 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 Receivable-Credit Lossesto $73.29. The amounts allocated to both the note hedge and warrants were recorded in the Shareholders' equity section in the Consolidated Balance Sheets.
During
The note hedge terminated upon the three months endedmaturity of the Convertible Notes in 2020. The 2.2 million warrants that remain outstanding as of March 31, 2020,2021 have a strike price of $73.29 and expire incrementally on a series of expiration dates through August 30, 2021.
If the Company recognized additional estimated credit losses of approximately $0.9 million. As of March 31, 2020, 73%share price of the AccountsCompany's stock remains below the strike price of the warrants, Cardtronics plc’s shareholders will not experience any dilution; 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, at the Company’s election, (i) issue additional shares to the warrant holders or (ii) settle the difference between the price of the shares and Notes Receivable balance was current and not yet due and the Company held an allowance for estimated credit lossesthe strike price of $8.1 million.
the warrants in cash to the warrant holders.
(2) New Accounting Pronouncements
Adoption of New Accounting Pronouncements
Current Expected Credit Losses. The Company adopted Accounting Standards Codification 326 ("ASC 326") Financial Instruments - Credit Losses on January 1, 2020, via a cumulative-effect adjustment to opening retained earnings. ASC 326 replaced the incurred loss impairment model under which credit losses were recognized when probable. The new guidance requires recognition of credit losses when expected based on a broad range of information, including historical experience and current economic conditions. To implement the standard, the Company applied an aging based methodology using historic loss experience and aging categories. Where necessary, the Company segregated receivables into pools with common characteristics. In addition, where appropriate and where the available information indicated that losses would be minimal, an estimated loss rate was applied. In all cases, losses are recognized when expected. The Company holds no material financing receivables and no other financial instruments measured at amortized cost. The Company's adoption of the Credit Loss Standard had the following impact on the Company’s consolidated statement of financial position:
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | | | ASC 326 Adoption | | | January 1, 2020 | |
| As Reported | | | | | | | As Adjusted | |
| (In thousands) | | | | | | | | |
| | | | | | | | | |
Accounts and Notes Receivable | $ | 101,046 | | | | | $ | — | | | | $ | 101,046 | | |
Allowance for credit losses | (5,251) | | | | | (2,337) | | | | (7,588) | | |
Accounts and Notes Receivable, net | 95,795 | | | | | (2,337) | | | | 93,458 | | |
| | | | | | | | | |
Deferred tax asset, net | 13,159 | | | | | 466 | | | | 13,625 | | |
Retained earnings | $ | 125,763 | | | | | $ | (1,871) | | | | $ | 123,892 | | |
Fair Value Measurement. In January 2020, the Company adopted ASU 2018-13, Disclosure Framework (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement in January 2020. This guidance modified the disclosure requirements for fair value measurements. The Company's adoption of these disclosure requirements had no impact on the Company's consolidated financial statements.
Accounting Pronouncements Issued But Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, “SimplifyingIncome Taxes (Topic 740): Simplifying the Accounting for Income Taxes.”Taxes. The new standardASU simplifies the accounting for income taxes by removing certain exceptions for recognizing deferred taxes, performing intra-period allocations and calculating income taxes in interim periods. The new standardASU also adds guidance intended to reduce complexity in certain areas, including recognizing deferred taxes for certain changes in the tax basis of goodwill and allocating taxes to members of a consolidated group. The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. EarlyThe adoption of this ASU did not have a material impact on the Company's financial statements.
In October 2020, FASB issued ASU 2020-10, Codification Improvements, which clarifies application of guidance to a wide variety of topics in the Accounting Standard Codification. The guidance also includes amendments to improve the codification by ensuring that all guidance that requires or provides an option for an entity to disclose information in the notes to the financial statements is permitted, includingcodified in the disclosure section of the respective codification and to clarify guidance so that entities can apply guidance more consistently where the original guidance may have been unclear. The ASU is effective for fiscal years beginning after December 15, 2020 with early adoption in an interim period.permitted. The Company is currently evaluatingadoption of this ASU did not have a material impact on the Company's financial statements.
In January 2021, the Financial Accounting Standards Board ("FASB") issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which serves to clarify the scope of Topic 848 to explicitly include derivative instruments both directly and indirectly impacted by the market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate ("SOFR") (collectively, "reference rate reform") and to allow certain practical expedients to be applied to derivative instruments indirectly impacted by reference rate reform. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The adoption of this guidance has had no impact on the consolidated financial statements as the Company has not yet modified any of the existing contracts in response to determine the reference rate reform. The impact it mayof this ASU will ultimately depend on the terms of any future contract modifications related to a change in reference rate, including potential future modifications to the Company's debt facilities, vault cash agreements and cash flow hedges.
Accounting Pronouncements Issued But Not Yet Adopted
Although there are several other new accounting pronouncements issued by the FASB, the Company does not believe any of these accounting pronouncements had or will have a material impact on its consolidated financial statements.
(3) Revenue Recognition
Disaggregated Revenues
The following tables detail the revenues of the Company’s reportable segments disaggregated by financial statement line and component:component of revenue:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three Months Ended March 31, 2021 |
| (In thousands) |
| North America | | Europe & Africa | | Australia & New Zealand | | Eliminations | | Consolidated |
Surcharge revenues | $ | 61,452 | | | $ | 16,734 | | | $ | 15,203 | | | $ | 0 | | | $ | 93,389 | |
Interchange revenues | 32,160 | | | 34,135 | | | 0 | | | 0 | | | 66,295 | |
Bank-branding and surcharge-free network revenues | 61,309 | | | 280 | | | 0 | | | 0 | | | 61,589 | |
Managed services and processing revenues | 28,038 | | | 1,686 | | | 4,509 | | | (488) | | | 33,745 | |
Total ATM operating revenues | 182,959 | | | 52,835 | | | 19,712 | | | (488) | | | 255,018 | |
| | | | | | | | | |
ATM product sales and other revenues | 9,086 | | | 3,243 | | | 487 | | | 0 | | | 12,816 | |
Total revenues | $ | 192,045 | | | $ | 56,078 | | | $ | 20,199 | | | $ | (488) | | | $ | 267,834 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended March 31, 2020 | | |
| (In thousands) | | |
| North America | | Europe & Africa | | Australia & New Zealand | | Eliminations | | Consolidated | | |
Surcharge revenues | $ | 81,977 | | | $ | 32,596 | | | $ | 15,945 | | | $ | 0 | | | $ | 130,518 | | | |
Interchange revenues | 31,610 | | | 44,825 | | | 0 | | | 0 | | | 76,435 | | | |
Bank-branding and surcharge-free network revenues | 54,538 | | | 347 | | | 0 | | | 0 | | | 54,885 | | | |
Managed services and processing revenues | 25,116 | | | 2,190 | | | 4,307 | | | (1,652) | | | 29,961 | | | |
Total ATM operating revenues | 193,241 | | | 79,958 | | | 20,252 | | | (1,652) | | | 291,799 | | | |
| | | | | | | | | | | |
ATM product sales and other revenues | 12,756 | | | 1,942 | | | 105 | | | 0 | | | 14,803 | | | |
Total revenues | $ | 205,997 | | | $ | 81,900 | | | $ | 20,357 | | | $ | (1,652) | | | $ | 306,602 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 | | | | | | | | |
| (In thousands) | | | | | | | | |
| North America | | Europe & Africa | | Australia & New Zealand | | Eliminations | | Consolidated |
Surcharge revenues | $ | 80,235 | | | $ | 32,596 | | | $ | 15,945 | | | $ | — | | | $ | 128,776 | |
Interchange revenues | 31,610 | | | 44,997 | | | 873 | | | — | | | 77,480 | |
Bank-branding and surcharge-free network revenues | 53,768 | | | 347 | | | — | | | — | | | 54,115 | |
Managed services and processing revenues | 27,628 | | | 2,018 | | | 3,489 | | | (1,652) | | | 31,483 | |
Total ATM operating revenues | 193,241 | | | 79,958 | | | 20,307 | | | (1,652) | | | 291,854 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
ATM product sales and other revenues | 12,756 | | | 1,942 | | | 50 | | | — | | | 14,748 | |
Total revenues | $ | 205,997 | | | $ | 81,900 | | | $ | 20,357 | | | $ | (1,652) | | | $ | 306,602 | |
As presented, c
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 | | | | | | | | |
| (In thousands) | | | | | | | | |
| North America | | Europe & Africa | | Australia & New Zealand | | Eliminations | | Consolidated |
Surcharge revenues | $ | 85,110 | | | $ | 31,045 | | | $ | 20,668 | | | $ | — | | | $ | 136,823 | |
Interchange revenues | 34,379 | | | 55,308 | | | 1,303 | | | — | | | 90,990 | |
Bank-branding and surcharge-free network revenues | 45,873 | | | — | | | — | | | — | | | 45,873 | |
Managed services and processing revenues | 25,684 | | | 2,325 | | | 3,820 | | | (2,913) | | | 28,916 | |
Total ATM operating revenues | 191,046 | | | 88,678 | | | 25,791 | | | (2,913) | | | 302,602 | |
| | | | | | | | | |
ATM product sales and other revenues | 13,202 | | | 2,247 | | | 219 | | | — | | | 15,668 | |
Total revenues | $ | 204,248 | | | $ | 90,925 | | | $ | 26,010 | | | $ | (2,913) | | | $ | 318,270 | |
ertain prior year revenue amounts have been reclassified to ensure consistency with the current year presentation and management's current views concerning the classification of revenues related to managed services and processing arrangements. The reclassified amounts previously presented as Managed services and processing revenues were reclassified as Surcharge revenues and Bank-branding and surcharge-free network revenues, respectively, in the North America segment, and amounts previously presented as Interchange revenues were reclassified as Managed services and processing revenues in the Europe & Africa and Australia & New Zealand segments. The Company determined that these reclassifications are not material to the previously reported financial statements.Revenue is recognized when obligations under the terms of a contract with a customer are satisfied. Revenue is recorded in the ATM operating revenues and ATM product sales and other revenues line itemslines in the accompanying Consolidated Statements of Operations.
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 Consolidated Statements of Operations. ATM operating revenues are recognized daily(i) as the associated transactions are processed or (ii) on a monthly basis on a per ATM or per cardholder basis. When customer contracts provide for up-front fees that do not pertain to a distinct performance obligation, the 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 upon 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 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 (surcharge) 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. The Company earns both surcharge and interchange in Spain. 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, 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 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 fee paid by the financial institution, the financial institution’s customers gain access to use these bank-branded ATMs without paying a surcharge fee. Under the Company’s Allpoint surcharge-free network, financial institutions that participate pay a fixed monthly fee per cardholder and/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. Similarly, transaction-based fee arrangements are recognized monthly. Any up-front fees associated with these arrangements are recognized ratably over the life of the arrangement.
•Managed services and processing revenues. Under managed service agreements, the Company provides various forms of ATM-related services, including monitoring, maintenance, cash management, cash delivery, customer service, on-screen advertising, processing and other services to merchants, financial institutions, and third-party ATM operators. Under processing arrangements, the Company provides transaction processing services to merchants, financial institutions, and third-party operators. Under managed services and processing arrangements, surcharge and interchange fees are generally earned by the customer and the Company typically receives a fixed fee per transaction and/or a periodic management fee per ATM in return for providing the agreed-upon operating services. The managed services and processing fees are recognized as the related services are provided to the customers.
The Company’s bank-branding, surcharge-free network and managed services arrangements result in the Company providing a series of distinct services that have similar patterns of transfer to the customer. As a result, these arrangements create 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’sCompany’s performance completed to date. In conjunction with these arrangements, the Company recognizes revenue in the amount that 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.
ATM product sales and other revenues. The Company presents revenues from other product sales and services in the ATM product sales and other revenues 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 ownership of the equipment is transferred to the customer and the Company has completed all required installation and set-up procedures.customer. With respect to the sale of ATMs to Value-Added-Resellers (“VARs”), the Company recognizes revenues related to such sales when ownership of the equipment is transferred to the VAR.
Due to the transactional nature of the Company’s revenue, there are no significant judgments that affect the determination of the amount and timing of its revenues. See the 2020 Form 10-K for further information on the components of the Company's revenues.
Contract Balances
As of March 31, 2020,2021, the Company has recognized no significant contract assets. Contract liabilities totaled $8.2$7.6 million and $9.0$8.1 million at March 31, 20202021 and December 31, 2019,2020, respectively. These amounts represent deferred revenues for advance consideration received primarily in relation to bank-branding and surcharge-free network arrangements. The revenue recognized during the three months ended March 31, 20202021 and 20192020 on previously deferred revenues was not significant. The Company expects to recognize the revenue associated with its contract liabilities ratably over various periods generally extending over the next 36 months. During the three months ended March 31, 2020, the Company did not recognize any significant impairment losses related to its contract assets.
Contract Acquisition 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 $7.0 million and $7.5 million at March 31, 2020 and December 31, 2019, respectively. Sales commissions capitalized are generally amortized over a 4-5 year period corresponding with the related agreements. Similarly, the costs incurred to fulfill a contract, primarily 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. The Company does not capitalize the costs of obtaining a contract if the associated contract is one year or less.
(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.
The following table reflects the total share-based compensation expense amounts reported in the accompanying Consolidated Statements of Operations:
| | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | 2020 | | 2019 |
| | | | (In thousands) | | | |
Cost of ATM operating revenues | | | | | $ | 545 | | | $ | 261 | |
Selling, general, and administrative expenses | | | | | 4,648 | | | 4,223 | |
Total share-based compensation expense | | | | | $ | 5,193 | | | $ | 4,484 | |
For the three months ended March 31, 2020, total share-based compensation expense increased by $0.7 million compared to the same period of 2019, respectively. This increase is attributable to the amount, timing and terms of share-based payment awards granted during the periods, net of estimated forfeitures. | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
| (In thousands) |
Cost of ATM operating revenues | $ | 258 | | | $ | 545 | | | | | |
Selling, general, and administrative expenses | 4,000 | | | 4,648 | | | | | |
Total share-based compensation expense | $ | 4,258 | | | $ | 5,193 | | | | | |
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 Fourth 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, ("Board"), based on the Company’s achievement of previously specified performance levels at the end of the associated performance period. RSU grants are service-based (“Time-RSUs”), performance-based (“Performance-RSUs”), or market-based (“Market-Based-RSUs”). Each is recognized ratably over the associated service period. For Time-RSUs and Market-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.
Time-RSUs are convertible into the Company’s common shares upon passage of the annual graded vesting periods, which begin 1-2 years afteron the date of grant date and extend 3-4 years. Performance-RSUs and Market-Based RSUsMarket-Based-RSUs will be earned to the extent the Company achieves the associated performance-based or market-based vesting 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 RSUsPerformance-RSUs and Market-Based-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 may 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 March 31, 2021 and December 31, 2020, and changes during the three months ended March 31, 2020,2021, are presented below:
| | | Number of Shares | | Weighted Average Grant Date Fair Value | | Number of Shares | | Weighted Average Grant Date Fair Value |
Non-vested RSUs as of December 31, 2019 | 742,352 | | | $ | 29.44 | | |
Non-vested RSUs as of December 31, 2020 | | Non-vested RSUs as of December 31, 2020 | 1,075,359 | | | $ | 25.41 | |
Granted | Granted | 703,557 | | | 22.98 | | Granted | 408,336 | | | 29.17 | |
Vested | Vested | (393,094) | | | 29.47 | | Vested | (1,035,982) | | | 24.65 | |
Forfeited | Forfeited | (10,488) | | | 33.14 | | Forfeited | (3,282) | | | 29.19 | |
Non-vested RSUs as of March 31, 2020 | 1,042,327 | | | $ | 25.03 | | |
Non-vested RSUs as of March 31, 2021 | | Non-vested RSUs as of March 31, 2021 | 444,431 | | | $ | 30.61 | |
The above table only includes earned RSUs. Performance-RSUs and Market-Based RSUsMarket-Based-RSUs that are not yet earned are not included. The number of Market-Based RSUsunearned Performance-RSUs granted at the target threshold in 2018,2021, net of actual forfeitures, was 134,98958,013 units with a weighted average grant date fair value of $24.13.$38.79 per unit. The number of unearned Market-Based-RSUs granted in 2021, net of actual forfeitures, was 58,007 units with a grant date fair value of $38.79 per unit. The number of unearned Performance-RSUs granted in 2020, net of actual forfeitures, was 204,374 units with a grant date fair value of $23.45 per unit. The number of unearned Market-Based-RSUs granted at the target in 2020, net of actual forfeitures, was 187,809 units with a grant date fair value of $30.48 per unit. The number of unearned Performance-RSUs granted at the target in 2019, net of actual forfeitures, was 114,607108,498 units with a weighted average grant date fair value of $33.76$33.68 per unit. The number of Performance-RSUs granted at target in 2020, net of forfeitures, was 101,438 units with a weighted average grant date fair value of $20.92 per unit. The number of Market-Based RSUsunearned Market-Based-RSUs granted in 2019, net of actual forfeitures, was 114,529108,424 units with a weighted average grant date fair value of $49.23$49.06 per unit. The number of Market-Based RSUs granted in 2020, net of forfeitures, was 101,434 units with a weighted average grant date fair value of $25.85. Time-RSUs are included in the listing of earned and outstanding RSUs asRSUs when granted.
As of March 31, 2020,2021, the unrecognized compensation expense associated with earned RSUs was $10.4$12.2 million, which will be recognized using a graded vesting schedule for Performance-RSUs and a straight-line vesting schedule for Time-RSUs, over a remaining weighted average vesting period of approximately 2.082.07 years.
Options. The number of the Company’s outstanding stock options as of March 31, 2021 and December 31, 2020, and changes during the three months ended March 31, 2020,2021, are presented below:
| | | Number of Shares | | Weighted Average Exercise Price | | | Number of Shares | | Weighted Average Exercise Price | |
Options outstanding as of December 31, 2019 | 380,180 | | | $ | 26.01 | | | |
Options outstanding as of December 31, 2020 | | Options outstanding as of December 31, 2020 | 584,465 | | | $ | 23.96 | | |
Granted | Granted | 233,888 | | | 20.92 | | | Granted | 0 | | | 0 | | |
Exercised | Exercised | (13,020) | | | 22.31 | | | Exercised | (91,299) | | | 24.76 | | |
Forfeited | Forfeited | (2,855) | | | 31.99 | | | Forfeited | 0 | | | 0 | | |
Options outstanding as of March 31, 2020 | 598,193 | | | $ | 24.07 | | | |
Options outstanding as of March 31, 2021 | | Options outstanding as of March 31, 2021 | 493,166 | | | $ | 23.81 | | |
| | | | | | | | | | |
Options vested and exercisable as of March 31, 2020 | 199,223 | | | $ | 24.80 | | | |
Options vested and exercisable as of March 31, 2021 | | Options vested and exercisable as of March 31, 2021 | 292,744 | | | $ | 24.12 | | |
As of March 31, 2020,2021, the unrecognized compensation expense associated with outstanding options was approximately $6.5$1.8 million, which will be recognized over the remaining weighted average vesting period of approximately 2.631.52 years. The weighted average contractual term associated with outstanding options was 8.938.07 years as of March 31, 2020.2021.
(5) Earnings Per Share
The Company reports its earnings per share under the two-class method.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 months ended March 31, 2020, included all2021 include outstanding stock options, RSUs, and the potentially dilutive effect of outstanding warrants. Potentially dilutive securities for the three months ended March 31, 2020 include outstanding stock options, RSUs, which were included inand the calculationpotentially dilutive effect of diluted earnings per share for these periods. outstanding warrants and shares underlying the 1.00% Convertible Senior Notes and the associated note hedges. 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 2020 (the “Convertible Notes”)and the note hedges were excluded from diluted shares outstanding for the three months ended March 31, 2021 and 2020, as applicable, as the exercise price exceeded the average market price of the Company’s common shares. shares in both periods presented.
The effectdetails of the convertible note hedge, described in Note 9. Long-Term Debt was also excluded as the effect is anti-dilutive.
The allocated details of ourCompany's Earnings per Share calculation are as follows:
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | | |
| | | | | 2020 | | 2019 | | 2021 | | 2020 | | |
| | | (in thousands, excluding share and per share amounts) | | | (in thousands, excluding share and per share amounts) |
Net income available to common shareholders | Net income available to common shareholders | | | $ | 5,755 | | | $ | 4,319 | | Net income available to common shareholders | $ | 5,876 | | | $ | 5,755 | | | |
Weighted average common basic shares outstanding (for basic calculation) | Weighted average common basic shares outstanding (for basic calculation) | | | 44,729,824 | | | 46,223,764 | | Weighted average common basic shares outstanding (for basic calculation) | 44,959,960 | | | 44,729,824 | | | |
Dilutive effect of outstanding common stock options and RSUs | Dilutive effect of outstanding common stock options and RSUs | | | 1,011,437 | | | 411,269 | | Dilutive effect of outstanding common stock options and RSUs | 649,804 | | | 1,011,437 | | | |
Weighted average common dilutive shares outstanding (for diluted calculation) | Weighted average common dilutive shares outstanding (for diluted calculation) | | | 45,741,261 | | | 46,635,033 | | Weighted average common dilutive shares outstanding (for diluted calculation) | 45,609,764 | | | 45,741,261 | | | |
| Net income per common share - basic | Net income per common share - basic | | | $ | 0.13 | | | $ | 0.09 | | Net income per common share - basic | $ | 0.13 | | | $ | 0.13 | | | |
Net income per common share - diluted | Net income per common share - diluted | | | $ | 0.13 | | | $ | 0.09 | | Net income per common share - diluted | $ | 0.13 | | | $ | 0.13 | | | |
The computations of diluted earnings per share for the three months ended March 31, 20202021 and 2019,2020 exclude approximately 200,00018,000 and 60,000, respectively,200,000 potentially dilutive common shares, becauserespectively, due to the effect of including these shares in the computation would have been antidilutive. In addition, the computation
(6) Shareholders' Equity
Share Repurchases.On March 26, 2019, the Company announced that its Board had authorized a share repurchase program, enabling the repurchase of up to $50 million of its Class A ordinary shares through August 31, 2020. Share repurchases under the authorized plan could be effected on behalf of the Company through open market transactions, privately negotiated transactions, or otherwise, pursuant to SEC trading rules. The Company exhausted this authorization in September 2019. Subsequently, on November 21, 2019, the Company announced that its Board had authorized the repurchase of an additional $50 million of its Class A ordinary shares through December 31, 2020. Share repurchases under the authorized plans could be effected on behalf of the Company through open market transactions, privately negotiated transactions, or otherwise, pursuant to SEC trading rules.
During the three months ended March 31, 2020, the Company repurchased and canceled 505,699 of its outstanding Class A ordinary shares for an aggregate purchase price of $16.9 million inclusive of stamp taxes of $0.1 million. On April 1, 2020, the Company announced the suspension of its buyback program as part of its COVID-19 related business update.
Accumulated Other Comprehensive Loss, net. Accumulated other comprehensive loss, net, is a separate component of Shareholders’ equity in the accompanying Consolidated Balance Sheets. The following tables present the changes in the balances of each component of Accumulated other comprehensive loss, net, for the three months ended March 31, 2020:2021:
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| 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, 2019 | $ | (59,143) | | | (1) | | $ | (18,744) | | | (2) | | $ | (77,887) | |
Other comprehensive loss before reclassification | (19,620) | | | (3) | | (42,504) | | | (4) | | (62,124) | |
Amounts reclassified from accumulated other comprehensive loss, net | — | | | | | 2,662 | | | (4) | | 2,662 | |
Net current period other comprehensive loss | (19,620) | | | | | (39,842) | | | | | (59,462) | |
Total accumulated other comprehensive loss, net as of March 31, 2020 | $ | (78,763) | | | (1) | | $ | (58,586) | | | (2) | | $ | (137,349) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Foreign Currency Translation Adjustments | | | | Unrealized Losses on Interest Rate Derivative Contracts | | | | Total |
| (In thousands) |
Total accumulated other comprehensive loss, net as of December 31, 2020 | $ | (41,572) | | | (1) | | $ | (52,159) | | | (2) | | $ | (93,731) | |
Other comprehensive income before reclassification | 2,605 | | | (3) | | 6,162 | | | (4) | | 8,767 | |
Amounts reclassified from accumulated other comprehensive loss, net | 0 | | | | | 8,902 | | | (4) | | 8,902 | |
Net current period other comprehensive income | 2,605 | | | | | 15,064 | | | | | 17,669 | |
Total accumulated other comprehensive loss, net as of March 31, 2021 | $ | (38,967) | | | (1) | | $ | (37,095) | | | (2) | | $ | (76,062) | |
(1)Net of deferred income tax benefit of $6,035$2,845 and $5,474$3,083 as of March 31, 20202021 and December 31, 2019,2020, respectively.
(2)Net of deferred income tax expense of $2,171$8,433 and $14,273$3,823 as of March 31, 20202021 and December 31, 2019,2020, respectively.
(3)Net of deferred income tax benefitexpense of $561.$238.
(4)Net of deferred income tax benefitexpense of $11,390$1,886 and $713$2,724 for Other comprehensive income (loss) before reclassification and Amounts reclassified from accumulated other comprehensive loss, net, respectively, as offor the three months ended March 31, 2020.2021. For additional information, see Note 13.11. Derivative Financial Instruments.
The Company records unrealized gains and losses related to its interest rate swapderivative contracts, net of taxes, in the Accumulated other comprehensive loss, net line within the accompanying Consolidated Balance Sheets. The amounts reclassified from Accumulated other comprehensive loss, net are recognized in the Cost of ATM operating revenues, Interest expense, net, or Other expense (income)expenses, net 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 contracts in Accumulated other comprehensive loss, net within 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 within the accompanying Consolidated Balance Sheets and into continuing operations as a tax expense when the Company ceases to hold any interest rate swap contracts. As of March 31, 2020,2021, the disproportionate tax effect is $14.6was$14.7 million.
(7) Intangible Assets
Goodwill
For theThe Company tests goodwill for impairment evaluationannually as of December 31, 2019, the Company elected to perform the optional qualitative assessment allowed under the applicable guidance to determineits fiscal year end, or more frequently if it was necessary to perform a quantitative assessment for any reporting unit. Based on the results of the qualitative assessment, the Company determined that it was not more likely than not that the carrying value of its U.S., U.K., Australia & New Zealand, South Africa, Germany and Mexico reporting units exceeded their fair value. As such, the Company determined that a quantitative assessment was not necessary for these reporting units.events or circumstances indicate goodwill could be impaired. The Company did however,not identify any impairment indicators associated with the Canadaits reporting unit, which required the Company to complete a quantitative impairment assessment.
For the quantitative assessment prepared as of December 31, 2019, the Company prepared a 5-year cash flow forecast, which incorporated assumptions on operating efficiencies and increased resulting cash flows over time and a discount rate of 10%. Based on this estimation, the carrying value of the reporting unit exceeded its fair value by $7.3 million. Therefore, consistent with the early adoption of ASU 2017-4, the Company recognized a goodwill impairment of $7.3 million, the amount by which the carrying amount of the Canada reporting unit exceeded its fair value. This impairment was recognizedunits during the three months ended December 31, 2019, in the Loss on disposal and impairment of assets line of the Company's Consolidated Statements of Operations together with certain unrelated disposals in the ordinary course of business. After the impairment, the Canada reporting unit's goodwill was approximately $104 million at December 31, 2019.
During the three months ended March 31, 2020, and in response to the global economic impact of the COVID-19 pandemic, the Company performed an additional qualitative assessment and determined that it was not more likely than not that the carrying value of its U.S., U.K., Australia & New Zealand, South Africa, Germany and Mexico reporting units exceeded their fair value. As such, the Company determined that a quantitative assessment was not necessary for these reporting units. For the Canada reporting unit, considering the goodwill impairment recognized during the three months ended December 31, 2019, the Company bypassed the optional qualitative assessment and performed an updated quantitative assessment. For this quantitative assessment, the Company prepared a revised cash flow forecast that incorporated the estimated COVID-19 impact, assumptions on operating efficiencies and resulting cash flows over time, and a discount rate of 9.7%. Based on this quantitative test, the fair value of the reporting unit marginally exceeded its carrying value and no additional goodwill impairment was recognized. The Canada reporting unit's goodwill was approximately $95.6 million at March 31, 2020. To the extent that the Company is unable to meet its forecasts in the future, further impairment charges are possible.2021.
The following table presents the net carrying amounts of the Company’s Goodwillgoodwill as of March 31, 20202021 and December 31, 2019,2020, as well as the changes in the net carrying amounts for the three months ended March 31, 20202021, by segment. As of March 31 2020, 2021, the Company held no significantan immaterial amount of indefinite-lived intangible assets. For additional information related to the Company’s segments, see Note 17.15. Segment Information.
| | | | | | | | | | | | | | | | | | | | | | | |
| North America | | Europe & Africa | | Australia & New Zealand | | Total |
| (In thousands) | | | | | | |
Goodwill, gross as of December 31, 2019 | $ | 561,513 | | | $ | 236,992 | | | $ | 151,431 | | | $ | 949,936 | |
Accumulated impairment loss | (7,303) | | | (50,003) | | | (140,038) | | | (197,344) | |
Goodwill, net as of December 31, 2019 | $ | 554,210 | | | $ | 186,989 | | | $ | 11,393 | | | $ | 752,592 | |
| | | | | | | |
Foreign currency translation adjustments | (8,579) | | | (18,484) | | | (1,417) | | | (28,480) | |
| | | | | | | |
Goodwill, gross as of March 31, 2020 | 552,934 | | | 218,508 | | | 150,014 | | | 921,456 | |
Accumulated impairment loss | (7,302) | | | (50,003) | | | (140,038) | | | (197,343) | |
Goodwill, net as of March 31, 2020 | $ | 545,632 | | | $ | 168,505 | | | $ | 9,976 | | | $ | 724,113 | |
Intangible Assets with Definite Lives
The following table presents the Company’s intangible assets that were subject to amortization:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | | | | | December 31, 2019 | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| (In thousands) | | | | | | | | | | |
Merchant and bank-branding contracts/relationships | $ | 477,449 | | | $ | (390,519) | | | $ | 86,930 | | | $ | 489,363 | | | $ | (388,598) | | | $ | 100,765 | |
Trade names | 17,209 | | | (12,013) | | | 5,196 | | | 18,391 | | | (12,792) | | | 5,599 | |
Technology | 12,239 | | | (8,201) | | | 4,038 | | | 12,389 | | | (7,952) | | | 4,437 | |
Non-compete agreements | 4,334 | | | (4,334) | | | — | | | 4,408 | | | (4,408) | | | — | |
Revolving credit facility deferred financing costs | 5,256 | | | (2,299) | | | 2,957 | | | 5,256 | | | (2,132) | | | 3,124 | |
Total intangible assets with definite lives | $ | 516,487 | | | $ | (417,366) | | | $ | 99,121 | | | $ | 529,807 | | | $ | (415,882) | | | $ | 113,925 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| North America | | Europe & Africa | | Australia & New Zealand | | Total |
| (In thousands) |
Goodwill, gross as of December 31, 2020 | $ | 563,734 | | | $ | 240,151 | | | $ | 152,561 | | | $ | 956,446 | |
Accumulated impairment loss | (7,303) | | | (50,003) | | | (140,038) | | | (197,344) | |
Goodwill, net as of December 31, 2020 | 556,431 | | | 190,148 | | | 12,523 | | | 759,102 | |
| | | | | | | |
Foreign currency translation adjustments | 1,252 | | | 621 | | | (164) | | | 1,709 | |
| | | | | | | |
Goodwill, gross as of March 31, 2021 | 564,986 | | | 240,772 | | | 152,397 | | | 958,155 | |
Accumulated impairment loss | (7,303) | | | (50,003) | | | (140,038) | | | (197,344) | |
Goodwill, net as of March 31, 2021 | $ | 557,683 | | | $ | 190,769 | | | $ | 12,359 | | | $ | 760,811 | |
(8) Accrued Liabilities
The Company’s accrued liabilities consisted of the following:
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
| (In thousands) | | |
Accrued merchant settlement | $ | 103,525 | | | $ | 154,181 | |
Accrued taxes | 36,069 | | | 36,067 | |
Accrued merchant fees | 27,541 | | | 33,037 | |
Accrued purchases | 18,890 | | | 7,138 | |
Accrued processing costs | 11,889 | | | 12,159 | |
Accrued armored | 10,004 | | | 8,307 | |
Accrued maintenance | 8,243 | | | 6,463 | |
Accrued interest | 8,221 | | | 3,775 | |
Accrued compensation | 7,401 | | | 23,676 | |
Accrued cash management fees | 7,148 | | | 9,291 | |
Accrued telecommunications costs | 1,388 | | | 1,664 | |
| | | |
Other accrued expenses | 34,535 | | | 39,004 | |
Total accrued liabilities | $ | 274,854 | | | $ | 334,762 | |
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| (In thousands) |
Accrued merchant settlement | $ | 220,484 | | $ | $ | 213,067 | |
Accrued merchant fees | 28,503 | | | 24,869 | |
Accrued processing costs | 15,103 | | | 11,676 | |
Accrued taxes | 15,744 | | | 22,217 | |
Accrued cash-in-transit | 11,031 | | | 8,549 | |
Accrued interest | 9,172 | | | 5,537 | |
Accrued compensation | 9,156 | | | 17,849 | |
Accrued cash management fees | 8,647 | | | 7,742 | |
Accrued maintenance | 8,552 | | | 6,513 | |
Accrued purchases | 6,446 | | | 8,084 | |
Accrued telecommunications costs | 1,377 | | | 2,011 | |
Other accrued expenses | 38,800 | | | 38,171 | |
Total accrued liabilities | $ | 373,015 | | | $ | 366,285 | |
(9) Current and Long-Term Debt
The Company’s carrying value of current and long-term debt consisted of the following:
| | | March 31, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
| | (In thousands) | | | (In thousands) |
Revolving credit facility, including swingline credit facility (weighted average combined interest rate of 2.4% and 2.3% as of March 31, 2020 and December 31, 2019, respectively) | $ | 746,620 | | | $ | 167,227 | | |
5.50% Senior Notes due May 2025, net of capitalized debt issuance costs | 296,707 | | | 296,545 | | |
1.00% Convertible Senior Notes due December 2020, net of unamortized discount and capitalized debt issuance costs | 278,861 | | | 275,703 | | |
Revolving credit facility due September 2024, including swingline credit facility | | Revolving credit facility due September 2024, including swingline credit facility | $ | 0 | | | $ | 0 | |
Term loan facility due June 2027, net of unamortized discount and capitalized debt issuance costs | | Term loan facility due June 2027, net of unamortized discount and capitalized debt issuance costs | 480,339 | | | 480,985 | |
5.50% Senior notes due May 2025, net of unamortized capitalized debt issuance costs | | 5.50% Senior notes due May 2025, net of unamortized capitalized debt issuance costs | 297,354 | | | 297,192 | |
Total Debt | Total Debt | 1,322,188 | | | 739,475 | | Total Debt | 777,693 | | | 778,177 | |
Less: Current portion | Less: Current portion | (278,861) | | | — | | Less: Current portion | (5,000) | | | (5,000) | |
Total Long-Term Debt | Total Long-Term Debt | $ | 1,043,327 | | | $ | 739,475 | | Total Long-Term Debt | $ | 772,693 | | | $ | 773,177 | |
The Term Loan Facility (or "Term Loan") due June 2027 with a face value of $496.3 million and $497.5 million as of March 31, 2021 and December 31, 2020, respectively, is presented net of unamortized discount and capitalized debt issuance costs of $16.0 million and $16.5 million as of March 31, 2021 and December 31, 2020, respectively. Mandatory quarterly installments of principal repayments under the Term Loan, totaling $5.0 million in the next twelve months, are presented in the Current portion of long-term debt line of the Company's Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020. The 5.50% Senior Notes due 2025 (the “2025 Notes”) with a face value of $300.0 million are presented net of unamortized capitalized debt issuance cocosts osts of $3.3f $2.6 million and $3.5 and $2.8 million as of March 31, 20202021 and December 31, 2019,2020, respectively. The 1.00% Convertible Notes due December 2020 (the "2020 Notes") with a face value of $287.5 million are presented net of unamortized discount and capitalized debt issuance costs of $8.6 million and $11.8 million as of March 31, 2020 and December 31, 2019, respectively. The 2020 Notes are presented in the Current portion of long-term debt line of the Company's Consolidated Balance Sheet as of March 31, 2020.
Revolving Credit Facility
On September 19, 2019, theThe Company entered intois party to a first amendment to its second amended and restated credit agreement (the “Credit Agreement”). The Credit Agreement provides the Company with a $750$600 million revolving credit facility maturing onagreement with a maturity date of September 19, 2024 and accordion feature allowing(the "Amended Credit Agreement"). The covenant levels for the Company to (a) increase the available borrowings under the credit facility to $850 million and (b) incur incremental term loans under the facility. Any term loans will rank equal in right of payment with revolving loans under the credit facility and will not mature earlier than the revolving 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), or a combination thereof. 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)second amendment entered into on May 29, 2020 and discussed further below) provide for a Restricted Period, which will end on the earlier of (a) October 1, 2021; or (b) the date on which (i) the Company terminates the Restricted Period at its election and (ii) the Total Net Leverage ratio does not exceed 4.50 to 1.0 (the "Restricted Period"). The marginInterest rates for Alternative Base Rate loans and Canadian Prime Rate loans varies between 0% and 0.75%,borrowings and the margin for Adjusted LIBO Rate loans, Canadian Dealer Offered Rate loans, Bank Bill Swap Reference Rate loansissuance of letters of credit and Johannesburg Interbank Agreed Rate Loans varies between 1.00% and 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.
Eachfees payable on any unused amounts 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 and the obligations under the revolving credit facility are secured by substantially allsubject to certain upward adjustments, including applicable margins above base rates and commitment fee rates when the Total Net Leverage Ratio exceeds 4.00 to 1.0 and base rate floors during the Restricted Period. The Company is subject to some additional limitations under certain covenant baskets during the Restricted Period.
Financial covenants under the Amended Credit Agreement are determined as of the assetslast day of the Credit Facility Guarantors. In addition, Controlled Foreign Corporation (or "CFC"), CFC Borrowers and CFC Guarantors areeach fiscal quarter. The Company is required to maintain an Interest Coverage Ratio, as defined in the Amended Credit Agreement. Agreement, of no less than 3.00 to 1.00. During the Restricted Period, the Amended Credit Agreement provides for adjustments to the Total Net Leverage Ratio covenant as follows: (i) for the fiscal quarter ending March 31, 2021, the Total Net Leverage Ratio shall not exceed 5.50 to 1.0; (ii) for the fiscal quarter ending June 30, 2021, the Total Net Leverage Ratio shall not exceed 5.25 to 1.0; and (iii) for the fiscal quarter ending September 30, 2021, the Total Net Leverage Ratio shall not exceed 5.00 to 1.0. For each fiscal quarter ending on or after the end of the Restricted Period, the Company shall not permit the Total Net Leverage ratio to exceed 4.50 to 1.0.
The obligationsAmended Credit Agreement requires certain mandatory prepayments if (i) other than as a result of fluctuations in currency exchange rates, revolving credit exposures exceed the total commitments or, solely as a result of fluctuations in currency exchange rates, the revolving credit exposures exceed 105% of the CFC Borrowerstotal commitments and (ii) during the Restricted Period, Unencumbered Balance Sheet Cash (as defined in the Amended Credit Agreement) exceeds $100 million for 5 consecutive business days.
The Company is limited in its ability to make certain payments. Such restricted payments are guaranteed bygenerally not permitted in the CFC Guarantors and secured by substantially allRestricted Period; however, outside of the assetsRestricted Period the Company may generally make such restricted payments so long as no event of default exists at the CFC Guarantors.time of such payment and would not result therefrom and the Total Net Leverage Ratio is equal to or less than 3.75 to 1.00 at the time such restricted payment is made. As of March 31, 2021, the Company was in compliance with all applicable covenants and ratios under the Amended Credit Agreement.
The Amended 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, (iv) notification of certain events, and (v) limitations on the ability of the Company and certain covenants relatingof its subsidiaries to, among other things, the salesell or transfer of assets, fundamental changes,merge into or consolidate with any third-party or liquidate or dissolve, incurrence or guarantee of indebtedness, create liens, make investments, pay dividends or other distributions on or redeem or repurchase shares, make payments on subordinated indebtedness, enter into certain restrictive agreements or hedging transactions, engage in transactions with affiliates, enter into sale and leaseback transactions, amend their organizational documents, amend certain terms of existing indebtedness and change their fiscal year-end.
Each of the Guarantors (as defined in the Amended Credit Agreement) has guaranteed the full and punctual payment of the obligations under the revolving credit facility and the obligations under the revolving credit facility are secured by substantially all of the assets of the credit facility Guarantors, subject to permitted liens and other customary exceptions. Deferred financing costs associated with the Amended Credit Agreement are classified within the Prepaid expenses, deferred costs, and other noncurrent assets line on the Consolidated Balance Sheets.
As of March 31, 2021, the Company had 0 outstanding borrowings under its $600 million revolving credit facility and $10.0 million outstanding standby letters of credit under the facility.
investments, hedging transactions, 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 Total Net Leverage Ratio (as defined in the Credit Agreement) of no more than 4.25 to 1.00, and (ii) as of the last day of any fiscal quarter, an Interest Coverage Ratio (as defined in the Credit Agreement) of no less than 3.00 to 1.00. Additionally, the Company is limited in its ability to make restricted 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 3.75 to 1.00 at the time such restricted payment is made. As of March 31, 2020, the Company’s actual Total Net Leverage Ratio was 2.4 and its Interest Coverage Ratio was 11.7.Term Loan Facility
In March 2020, in anticipation of the maturity of the Convertible Notes due on December 1, 2020 and for additional liquidity as a precautionary measure given the economic uncertainty caused by the worldwide COVID-19 pandemic, the Company drew all of the borrowing capacity under our credit facility resulting in the Company holding $613.7 million in cash as of March 31, 2020. As of March 31,On June 29, 2020, the Company had $746.6entered into the Term Loan, by and among the Company, certain of its subsidiaries (including Cardtronics USA, Inc. as the “Borrower”), the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent. Pursuant to the Term Loan, the Company borrowed $500 million of outstanding borrowings under its $750 million revolving credit facilityaggregate principal and was in compliance with all applicable covenants and ratios under the Credit Agreement. The Company also had $10.0 million outstanding in letters of credit. The weighted average interest rates on the Company’s outstanding borrowings under the revolving credit facility were 2.4% and2.3%, as of March 31, 2020 and December 31, 2019, respectively.
$287.5 million 1.00% Convertible Senior Notes Due 2020 and Related Equity Instruments
On November 19, 2013, Cardtronics, Inc. issued the Convertible Notes at par value. Cardtronics, Inc. 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, Inc. used a portion of the net proceeds fromto repay outstanding borrowings under its revolving credit facility and retire the offering1.00% Convertible Senior Notes due December 2020. The Term Loan was issued with an original issue discount of 175 basis points and interest accrues at the rate of LIBOR plus 400 basis points, with a 1.00% LIBOR floor. Interest is payable quarterly, or in shorter intervals for LIBOR borrowings with a duration of less than three months.
The Term Loan matures on June 29, 2027 and requires installment principal repayments equal to fund1% of the initial aggregate principal per annum, paid quarterly, with the outstanding balance due on the maturity date. The Term Loan Agreement requires certain other mandatory prepayments, including mandatory prepayments based on (i) a specified percentage of Excess Cash Flow (as defined in the Term Loan Agreement) on an annual basis, commencing with the fiscal year ending December 31, 2021, (ii) the net costproceeds of certain asset sales and/or insurance/condemnation events above a threshold amount, subject to reinvestment rights and other exceptions and (iii) the net proceeds of any issuance or incurrence of debt that is not permitted by the Term Loan Agreement, subject to certain exceptions. Outstanding balances are fully prepayable on a voluntary basis at par, subject to premiums for certain repricing or refinancing transactions, but may not be borrowed again once prepaid.
Each of the convertible note hedge transaction, as described below. The convertible note hedge and warrant transactions were entered into concurrent with the pricingGuarantors of the Convertible Notes. Interest onTerm Loan (as defined in the Convertible Notes is payable semi-annually in cash in arrears on June 1stTerm Loan Agreement) have guaranteed the full 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) componentspunctual payment of the instrument in a manner that reflectsobligations under 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 millionTerm Loan Agreement and the fair value ofobligations under 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, 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 guaranteeTerm Loan Agreement are secured 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 shares of Cardtronics, Inc.
The Convertible Notes 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 10 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% 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 securities, 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.of such Guarantors, subject to permitted liens and other customary exceptions.
NaNobligations, (iii) compliance with applicable laws, (iv) notification of certain events, and (v) limitations on the ability of the Convertible Notes were deemed convertible asCompany and certain of March 31, 2020. The Convertible Notes are due December 1, 2020its subsidiaries to, among other things, sell or transfer assets, merge into or consolidate with any third-party or liquidate or dissolve, incur or guarantee indebtedness, create liens, make investments, pay dividends or other distributions on or redeem or repurchase shares, make payments on subordinated indebtedness, enter into certain restrictive agreements or hedging transactions, engage in transactions with affiliates, enter into sale and are classified as a current liability in the Company's Consolidated Balance Sheets at March 31, 2020, as the Company has drawn its revolver in anticipationleaseback transactions, amend their organizational documents, amend certain terms of the retirement of the Convertible Notes.
Upon conversion, holders of the Convertible Notes are entitled to receive cash, shares, or a combination of cashexisting indebtedness, 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 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 March 31, | | |
| | | | | 2020 | | 2019 |
| | | | (In thousands) | | | |
Cash interest per contractual coupon rate | | | | | $ | 719 | | | $ | 719 | |
Amortization of note discount | | | | | 2,929 | | | 2,780 | |
Amortization of debt issuance costs | | | | | 228 | | | 206 | |
Total interest expense related to Convertible Notes | | | | | $ | 3,876 | | | $ | 3,705 | |
The Company’s carrying value of the Convertible Notes consisted of the following:
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
| (In thousands) | | |
Principal balance | $ | 287,500 | | | $ | 287,500 | |
Unamortized discount and capitalized debt issuance costs | (8,639) | | | (11,797) | |
Net carrying amount of Convertible Notes | $ | 278,861 | | | $ | 275,703 | |
In connection with the issuance of the Convertible Notes, Cardtronics, Inc. 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, Inc. purchased call options granting Cardtronics Inc. the right to acquire up to approximately 5.5 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 Inc. also sold to the initial purchasers warrants to acquire up to approximately 5.5 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.fiscal year-end.
$300.0 million 5.50% Senior Notes Due 2025
On April 4, 2017, in a private placement offering, Cardtronics Inc. 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 Notesannum and is payable semi-annually in cash in arrears on May 1st and November 1st of each year with the initial payment having commenced on November 1, 2017.year.
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’ 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.facility and Term Loan. The 2025 Notes are structurally subordinated to all third-party 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.Guarantors (as defined in the indenture to the 2025 Notes). There are no significant restrictions on the ability of Cardtronics plc to obtain funds from Cardtronics 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.
(10) Asset Retirement Obligations
Asset retirement obligations (“ARO”) consist of costs to deinstall the Company’s ATMs and restore the ATM sites to their original condition. These costs to deinstall are estimated based on current market rates. In most cases, the Company is contractually required to perform the deinstallation of company-owned ATMs, and in some cases, site restoration work. For each group of similar ATM placements, the Company estimates the fair value of the future ARO based on the discounted estimated future cash flows and recognizes the amount as a liability in the accompanying Consolidated Balance Sheets. The Company capitalizes the initial estimated fair value of the future ARO as part of the cost basis of the related assets and depreciates the ARO assets on a straight-line basis over their estimated useful lives, which are based on the average time period that an ATM is installed in a location before being deinstalled. The ARO liabilities, which are recognized at discounted amounts, are accreted to their estimated future value over the same period of time.
The changes in the Company’s ARO liability consisted of the following:
| | | | | | | |
| March 31, 2020 | | |
| (In thousands) | | |
| | | |
Asset retirement obligations at December 31, 2019 | $ | 61,194 | | | |
Additional obligations | 442 | | | |
Accretion expense | 437 | | | |
| | | |
Payments | (660) | | | |
Foreign currency translation adjustments | (2,566) | | | |
Asset retirement obligations at March 31, 2020 | 58,847 | | | |
Less: current portion of asset retirement obligations (see Note 12. Other Liabilities)
| 5,488 | | | |
Asset retirement obligations, excluding current portion, at March 31, 2020 | $ | 53,359 | | | |
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. The Company's facility leases have2025 Notes contain various remaining terms extending up to 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 atcovenants restricting 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 vehicleinvestments, indebtedness, and office equipment leases currently have remaining lease terms extending up to 5 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.
In addition, certain ATM placement agreements are deemed to contain an operating lease of merchant space under the Lease Standard. These ATM placement agreements have remaining terms extending from less than 1 year to more than 5 years. These arrangements 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 the counterparty lacks the practical ability to substitute alternative space. The renewal provisions under ATM placement agreements vary.
The Company's ATM placement agreements that are deemed to contain an operating lease require fixed and may require 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 an index or based on external market rates. The Company's 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, 2020, 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.
Balance sheet information related to operating leases is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Classification | | March 31, 2020 | | December 31, 2019 |
Assets | | | | (In thousands) | | |
Operating lease assets | | Operating lease assets | | $ | 69,622 | | | $ | 76,548 | |
Total operating lease assets | | | | $ | 69,622 | | | $ | 76,548 | |
| | | | | | |
Liabilities | | | | | | |
Current | | | | | | |
Operating lease liabilities | | Current portion of other long-term liabilities | | 18,943 | | | $ | 20,345 | |
Noncurrent | | | | | | | | |
Noncurrent operating lease liabilities | | Noncurrent operating lease liabilities | | 63,827 | | | 69,531 | |
Total operating lease liabilities | | | | $ | 82,770 | | | $ | 89,876 | |
Operating lease costs during the three months ended March 31, 2020 and 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31 | | |
| | Classification | | | | 2020 | | 2019 |
| | | | | (In thousands) | | | |
Operating lease costs | | Cost of ATM operating revenues (1) | | | | $ | 5,973 | | | | $ | 7,390 | |
Operating lease costs | | Selling, general, and administrative expenses (2) | | | | 1,299 | | | 1,783 | |
Total operating lease cost | | | | | | $ | 7,272 | | | $ | 9,173 | |
(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. In addition, includes the fixed and variable cost associated with ATM placement agreements that are deemed to contain a lease. The variable cost associated with these placements was approximately $0.6 million in the three months ended March 31, 2020.
(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.
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, 2020 | | December 31, 2019 |
Weighted-average remaining lease term (years) | | | | | | |
Operating leases | | 7.0 | | 6.9 |
Weighted-average discount rate | | | | |
Operating leases | | 3.39% | | 3.47% |
| | | | | | | | | | | |
| | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 |
| | (In thousands) | |
Additional lease information is summarized below: | | | |
Operating cash outflows resulting from payments of operating lease liabilities | | $ | 5,006 | | $ | 5,297 | |
New operating lease assets recognized during the period | | $ | 524 | | $ | 1,857 | |
During the three months ended March 31, 2020, the Company paid $5.0 million to satisfy the recognized operating lease obligations. The Company also recognized $0.5 million in new operating lease assets, primarily consisting of equipment leases and ATM placement agreements that are deemed to contain an operating lease.
The following table presents the March 31, 2020 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) |
2020 | | $ | 18,749 | |
2021 | | 19,524 | |
2022 | | 12,256 | |
2023 | | 8,354 | |
2024 | | 6,548 | |
After 2024 | | 30,398 | |
Total lease payments | | 95,829 | |
Less: Interest (2) | | (13,059) | |
Present value of operating lease liabilities (3) | | $ | 82,770 | |
(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 $19.0 million and noncurrent operating lease liabilities of $63.8 million.
(12)(10) Other Liabilities
The Company’s other liabilities consisted of the following:
| | | March 31, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
| | (In thousands) | | | (In thousands) |
Current portion of other long-term liabilities | Current portion of other long-term liabilities | | | | Current portion of other long-term liabilities | | | |
Interest rate swap and cap contracts | Interest rate swap and cap contracts | $ | 24,417 | | | $ | 15,565 | | Interest rate swap and cap contracts | $ | 22,211 | | | $ | 23,916 | |
Operating lease liabilities | Operating lease liabilities | 18,943 | | | 20,345 | | Operating lease liabilities | 17,607 | | | 18,683 | |
| Acquisition related contingent consideration | Acquisition related contingent consideration | 9,522 | | | 4,963 | | Acquisition related contingent consideration | 0 | | | 9,490 | |
Asset retirement obligations | Asset retirement obligations | 5,488 | | | 5,701 | | Asset retirement obligations | 6,502 | | | 6,517 | |
Deferred revenue | Deferred revenue | 3,345 | | | 3,386 | | Deferred revenue | 4,182 | | | 4,295 | |
Other | Other | 2,618 | | | 3,184 | | Other | 1,242 | | | 1,898 | |
Total current portion of other long-term liabilities | Total current portion of other long-term liabilities | $ | 64,333 | | | $ | 53,144 | | Total current portion of other long-term liabilities | $ | 51,744 | | | $ | 64,799 | |
| Noncurrent portion of other long-term liabilities | Noncurrent portion of other long-term liabilities | | | | Noncurrent portion of other long-term liabilities | |
Interest rate swap and cap contracts | Interest rate swap and cap contracts | $ | 34,084 | | | $ | 9,723 | | Interest rate swap and cap contracts | $ | 12,935 | | | $ | 26,994 | |
Deferred revenue | Deferred revenue | 4,811 | | | 5,589 | | Deferred revenue | 3,447 | | | 3,850 | |
Acquisition related contingent consideration | — | | | 11,888 | | |
| Other | Other | 10,196 | | | 10,670 | | Other | 5,504 | | | 6,883 | |
Total noncurrent portion of other long-term liabilities | Total noncurrent portion of other long-term liabilities | $ | 49,091 | | | $ | 37,870 | | Total noncurrent portion of other long-term liabilities | $ | 21,886 | | | $ | 37,727 | |
As of MarchDecember 31, 2020, and December 31, 2019, the Acquisition related contingent consideration linesline consisted of the estimated fair value of the contingent consideration associated with the Spark ATM Systems Pty Ltd. (“Spark”) acquisition in that occurred in 2017.
(13)(11) Derivative Financial Instruments
Risk Management Objectives of Using Derivatives - Interest rate risk
The Company is exposed to interest rate risk associated with its vault cash rental obligations and borrowings under its revolving credit facility.floating-rate debt. The Company uses 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 also uses interest rate swap or cap contracts to mitigate its exposure to floating interest rates on its anticipated revolving credit facility borrowings.floating-rate debt.
The majority of the Company’s Interest 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 or to vault cash rental payments with a capped rate. Typically, the Company receives monthly floating-rate payments from its Interest Rate Derivative counterparties that correspond to, in all material respects, the monthly floating-rate payments requiredthat are paid by the Company 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 and revolving credit facility obligationsfrom time to time the interest on certain debt from floating-rate to a fixed 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 operatingoperating revenues line and on the interest payments on floating-rate debt recognized in the Interest expense, net line in the accompanying Consolidated StatementStatements of Operations has been reduced.
Risk Management Objectives of Using Derivatives - Foreign Currency Exchange Rate Risk
The Company is also exposed to foreign currency exchange rate risk with respect to its operations outside the U.S. The Company has at times used foreign currency forward contracts to mitigate its foreign exchange rate risk associated with certain anticipated transactions. The Company regularly designates its foreign currency derivatives as cash flow hedges, however, the Company is not presently party to any foreign currency derivatives designated as cash flow hedges. As noted below, the Company is party to certain foreign currency forward contracts that are not designated as hedges at March 31,2020.
None of the Company’s existing derivative contracts contain credit-risk-related contingent features.
Undesignated Foreign Currency Forward Contracts
On October 14, 2019, the Company entered into foreign currency forward contracts with an aggregate notional amount of $150 million and a fixed rate of 1.267 U.S. dollar to 1 U.K. pounds sterling. These forward contracts allow for settlement between November 2, 2020 and December 1, 2020. Although not designated as hedging instruments for accounting purposes, these forward contracts are associated with the anticipated conversion of U.K. pounds sterling to U.S. dollars to partially fund the repayment of the Company's 1.00% Convertible Notes and serve to mitigate currency fluctuation risk.
Derivative Accounting Policy
The Interest Rate Derivatives discussed above are used by the Company to hedge its exposure to variability in expected future cash flows attributable to a particular risk;risk and therefore theytypically qualify as and are designated and qualify as cash flow hedging instruments. The Company does not currently hold any interest rate derivative instruments not designated as cash flow hedges.
As discussed above, the Company generally utilizes fixed-for-floating Interest Rate Derivatives where the underlying pricing terms of the cash flow hedging instrument agree, in all material respects, with the pricing terms of the anticipated vault cash rental obligations, or anticipated Amended Credit Agreement borrowings or other floating-rate debt borrowings. Therefore, the amount of ineffectiveness associated with the Interest Rate Derivatives has historically been immaterial. If the Company concludes 1)(i) that the obligations that have been hedged are no longer probable or 2)(ii) that the underlying terms of the agreements have changed such that they do not sufficiently agree to the pricing 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 derivativeInterest Rate Derivative instruments prior to their expiration dates.
Accordingly, theThe Company recognizes its Interest Rate Derivative contracts as assets or liabilities in the accompanying Consolidated Balance Sheets at fair value and anythe accumulated changes in the fair values of the related Interest Rate Derivative contracts are reported in Accumulated other comprehensive loss, net within the accompanying Consolidated Balance Sheets. The unrealized gains and losses related to these interest rate swap and cap contracts have been reported net of taxes in Accumulated other comprehensive loss, net within the accompanying Consolidated Balance Sheets. For additional information related to the Company’s interest rate swap and cap contracts and the associated fair value measurements, see Note 14.12. Fair Value Measurements.Measurements.
In accordance with U.S. GAAP, the Company reports the gain or loss related to each highly effective cash flow hedging instrument, including any ineffectiveness, as a component of Accumulated other comprehensive loss, net within the accompanying Consolidated Balance Sheets and reclassifies the gain or loss into earnings within the Cost of ATM operating revenues, Interest expense, net, or Other incomeexpenses, net 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. The classification of the gain or loss is determined based on the associated hedge designation.
the Company’s existing derivative contracts contain credit-risk-related contingent features.
Summary of Outstanding Interest Rate Derivatives
The notional amounts, weighted average fixed rates, and remaining terms associated with the interest rate swap contracts and cap agreementagreements that are currently in place in the U.S., Canada, the U.K, and Australia (asas of the date of the issuance of this 2020 Form 10-Q)March 31, 2021 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 | | | Term |
(In millions) | | | | | |
$ | 1,500 | | | 1.69% | | | April 1, 2020 – December 31, 2020 |
$ | 1,200 | | | 1.46% | | | January 1, 2021 – December 31, 2021 |
$ | 1,000 | | | 1.17% | | | January 1, 2022 – December 31, 2022 |
$ | 600 | | | 0.98% | | | January 1, 2023 – December 31, 2024 |
| | | | | | | | | | | | | | |
Notional Amounts CAD $ | | Weighted Average Fixed Rate | | Term |
(In millions) | | | | |
$ | 125 | | | 2.46% | | April 1, 2020 – December 31, 2021 |
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 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Remaining Term of Hedging Instrument | | Segment | | Currency | | Weighted Average Fixed Rate/Cap Rate (1) | | Notional Value in Respective Currency |
| | | | | | | | (In millions) |
Interest Rate Swap Contract - Vault Cash | | | | | | | | |
April 1, 2021 – December 31, 2021 | | North America | | U.S. Dollar | | 1.46 | % | | $ | 1,200 | |
January 1, 2022 – December 31, 2022 | | North America | | U.S. Dollar | | 1.17 | % | | $ | 1,000 | |
January 1, 2023 – December 31, 2024 | | North America | | U.S. Dollar | | 0.98 | % | | $ | 600 | |
April 1, 2021 – December 31, 2021 | | North America | | Canadian Dollar | | 2.46 | % | | $ | 125 | |
April 1, 2021 – December 31, 2022 | | Europe & Africa | | Pound Sterling | | 0.94 | % | | $ | 500 | |
April 1, 2021 – December 31, 2021 | | Australia & New Zealand | | Australian Dollar | | 0.71 | % | | $ | 40 | |
Interest Rate Cap Contracts - Vault Cash | | | | | | | | |
April 1, 2021 – December 31, 2023 | | North America | | U.S. Dollar | | 3.25 | % | | $ | 200 | |
Interest Rate Cap Contracts - Variable Debt | | | | | | | | |
April 1, 2021 – December 31, 2025 | | North America | | U.S. Dollar | | 1.00 | % | | $ | 250 | |
(1)MaximumCap rate represents the maximum amount of interest to be paid each year as per terms of the cap. CostThe cost of the cap related to vault cash is amortized through vault cash rental expense over the term of the cap while the cost of the cap related to floating-rate debt is amortized through interest expense over the term of the cap.
Europe & Africa – Interest Rate Swap Contracts
| | | | | | | | | | | | | | |
Notional Amounts | | Weighted Average | | |
U.K. £ | | Fixed Rate | | Term |
(In millions) | | | | |
£ | 500 | | | 0.94% | | April 1, 2020 – December 31, 2022 |
Australia & New Zealand – Interest Rate Swap Contracts
| | | | | | | | | | | | | | |
Notional Amounts AUS $ | | Weighted Average Fixed Rate | | Term |
(In millions) | | | | |
$ | 140 | | | 1.59% | | April 1, 2020 – December 31, 2020 |
$ | 40 | | | 0.71% | | January 1, 2021 – December 31, 2021 |
Outstanding Interest Rate Derivatives Associated with Revolving Credit Facility Borrowingson the Consolidated Balance Sheets and Consolidated Statements of Operations
| | | | | | | | | | | | | | |
Notional Amounts U.K. £ | | Weighted Average Fixed Rate | | Term |
(In millions) | | | | |
£ | 50 | | | 0.95 | % | | April 1, 2020 – December 31, 2020 |
£ | 100 | | | 0.64 | % | | January 4, 2021 – December 31, 2021 |
`The following tables depict the effects of the use of the Company’s derivative interest rate swap contracts inInterest Rate Derivatives on the accompanying Consolidated Balance Sheets and Consolidated Statements of Operations.Operations:
Balance Sheet Data
| | | March 31, 2020 | | | December 31, 2019 | | | | | | | | | | | | | | | | | | |
Asset (Liability) Derivative Instruments | Asset (Liability) Derivative Instruments | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | Asset (Liability) Derivative Instruments | | Balance Sheet Location | | Fair Value |
| | | | | (In thousands) | | | | (In thousands) | | | | | March 31, 2021 | | December 31, 2020 |
| | | (In thousands) |
Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | Derivatives designated as hedging instruments: | |
Interest rate swap and cap contracts | | Prepaid expenses, deferred costs, and other current assets | | $ | — | | | Prepaid expenses, deferred costs, and other current assets | | $ | 1,872 | | |
| Interest rate swap and cap contracts | Interest rate swap and cap contracts | | Prepaid expenses, deferred costs, and other noncurrent assets | | — | | | Prepaid expenses, deferred costs, and other noncurrent assets | | 8,766 | | Interest rate swap and cap contracts | | Prepaid expenses, deferred costs, and other noncurrent assets | | $ | 3,897 | | | $ | 0 | |
Interest rate swap and cap contracts | Interest rate swap and cap contracts | | Current portion of other long-term liabilities | | (24,417) | | | Current portion of other long-term liabilities | | (7,697) | | Interest rate swap and cap contracts | | Current portion of other long-term liabilities | | (22,211) | | | (23,916) | |
Interest rate swap and cap contracts | Interest rate swap and cap contracts | | Other long-term liabilities | | (34,084) | | | Other long-term liabilities | | (9,723) | | Interest rate swap and cap contracts | | Other long-term liabilities | | (12,935) | | | (26,994) | |
Total derivatives designated as hedging instruments, net | Total derivatives designated as hedging instruments, net | | | | $ | (58,501) | | | | | $ | (6,782) | | Total derivatives designated as hedging instruments, net | | | | $ | (31,249) | | | $ | (50,910) | |
| Derivatives not designated as hedging instruments: | | | |
Foreign currency forward contracts | | Prepaid expenses, deferred costs, and other current assets | | 2,603 | | | — | | |
Foreign currency forward contracts | | Current portion of other long-term liabilities | | — | | | | Current portion of other long-term liabilities | | | | (7,868) | | |
| Total derivative instruments, net | Total derivative instruments, net | | | | $ | (55,898) | | | $ | (14,650) | | Total derivative instruments, net | | $ | (31,249) | | | $ | (50,910) | |
Statements of Operations Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | Three Months Ended March 31, |
Derivatives in Cash Flow Hedging Relationship | | Amount of Gain (Loss) on Derivative Instruments Recognized in Accumulated Other Comprehensive Loss, net | | Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income | | Amount of Loss Reclassified from Accumulated Other Comprehensive Loss, net into Income |
| | 2021 | | 2020 | | | | 2021 | | 2020 |
| | (In thousands) | | | | (In thousands) |
Interest rate swap and cap contracts | | $ | 6,530 | | | $ | (42,294) | | | Cost of ATM operating revenues | | $ | (8,809) | | | $ | (2,619) | |
Interest rate swap and cap contracts | | (368) | | | (210) | | | Interest expense, net | | (93) | | | (43) | |
Total | | $ | 6,162 | | | $ | (42,504) | | | | | $ | (8,902) | | | $ | (2,662) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | | | | | |
Derivatives in Cash Flow Hedging Relationship | | Amount of Loss Recognized in Accumulated Other Comprehensive Loss on Derivative Instruments | | | | Location of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Income | | Amount of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Income | | |
| | 2020 | | 2019 | | | | 2020 | | 2019 |
| | (In thousands) | | | | | | (In thousands) | | |
Interest rate swap contracts | | $ | (42,294) | | | $ | (12,109) | | | Cost of ATM operating revenues | | $ | (2,619) | | | $ | 338 | |
Interest rate swap contracts | | (210) | | | (312) | | | Interest expense, net | | (43) | | | (56) | |
Total | | $ | (42,504) | | | $ | (12,421) | | | | | $ | (2,662) | | | $ | 282 | |
As of March 31, 2020,2021, the Company expects to reclassify $21.8$22.2 million of net derivative-related losses contained in the Accumulated comprehensive loss, net line within its accompanying Consolidated Balance Sheets into earnings during the next twelve months concurrent with the recording of the related vault cash rental expense and Term Loan interest expense amounts.
The following tabletables show the impact of ourthe Company's cash flow hedge accounting relationships on the statementConsolidated Statement of operationsOperations for the three months ended March 31, 2020:2021 and 2020.
| | | | | | | | | | | | | | | | | | | | |
| | Location and Amount of Loss Recognized in Income on Cash Flow Hedging Relationships in the Three Months Ended | | | | |
| | March 31, 2020 | | | | March 31, 2019 |
| | (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 | | $ | 193,665 | | | $ | 6,421 | | | $ | 206,158 | |
| | | | | | |
Amount of (loss) gain reclassified from accumulated other comprehensive income into income | | (2,619) | | | (43) | | | 338 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Location and Amount of Loss Recognized in Income on Cash Flow Hedging Relationships in the Three Months Ended |
| | March 31, 2021 | | March 31, 2020 |
| | (In thousands) |
| | Cost of ATM Operating Revenues | | Interest Expense, net | | Cost of ATM Operating Revenues | | Interest Expense, net |
Total amount of expense presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded | | $ | 150,803 | | | $ | 10,761 | | | $ | 193,630 | | | $ | 6,421 | |
| | | | | | | | |
Amount of loss reclassified from Accumulated other comprehensive loss, net into expense | | $ | 8,809 | | | $ | 93 | | | $ | 2619 | | | $ | 43 | |
(14)(12) Fair Value Measurements
The following tables provide the financial assets and liabilities carried at fair value measured on a recurring basis as of March 31, 20202021 and December 31, 20192020 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 refers 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 March 31, 2020 | | | Fair Value Measurements at March 31, 2021 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| | (In thousands) | | | (In thousands) |
Assets | Assets | | | | | | | | Assets | | | | | | | |
Assets associated with foreign currency forward contracts | $ | 2,603 | | | $ | — | | | $ | 2,603 | | | $ | — | | |
Assets associated with interest rate swap and cap contracts | | Assets associated with interest rate swap and cap contracts | $ | 3,897 | | | $ | 0 | | | $ | 3,897 | | | $ | 0 | |
Liabilities | Liabilities | | Liabilities | |
Liabilities associated with interest rate swap and cap contracts | Liabilities associated with interest rate swap and cap contracts | $ | (58,501) | | | $ | — | | | $ | (58,501) | | | $ | — | | Liabilities associated with interest rate swap and cap contracts | $ | (35,146) | | | $ | 0 | | | $ | (35,146) | | | $ | 0 | |
Liabilities associated with acquisition related contingent consideration | $ | (9,522) | | | $ | — | | | $ | — | | | $ | (9,522) | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at December 31, 2019 | | | | | | |
| Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) | | | | | | |
Assets | | | | | | | |
Assets associated with interest rate swap and cap contracts | $ | 10,638 | | | | $ | — | | | | $ | 10,638 | | | | $ | — | |
Liabilities | | | | | | | | | | | | | | |
Liabilities associated with interest rate swap and cap contracts | $ | (17,420) | | | | $ | — | | | | $ | (17,420) | | | | $ | — | |
Liabilities associated with acquisition related contingent consideration | $ | (16,851) | | | | $ | — | | | | $ | — | | | | $ | (16,851) | |
Liabilities associated with foreign currency forward contracts | $ | (7,868) | | | | $ | — | | | | $ | (7,868) | | | | $ | — | |
As of December 31, 2019, liabilities associated with Level 2 interest rate swap contracts also include an insignificant amount related to foreign currency forward contracts. | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at December 31, 2020 |
| Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
| | | | | | | |
| | | | | | | |
Liabilities | | | | | | | |
Liabilities associated with interest rate swap and cap contracts | $ | (50,910) | | | $ | 0 | | | $ | (50,910) | | | $ | 0 | |
Liabilities associated with acquisition related contingent consideration | $ | (9,490) | | | $ | 0 | | | $ | 0 | | | $ | (9,490) | |
| | | | | | | |
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,credit losses, 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 related intangible assets. The estimated fair values of acquisition 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 related contingent consideration. Liabilities from acquisition-related contingent consideration arehave been estimated using market observable inputs and other significant non-observable inputs, as well as projections based on the Company’s best estimate of future operational results upon which the payment of these obligations are contingent. The
During the three months ended March 31, 2021, the Company paid $9.2 million to satisfy the 2020 portion of its obligation under the Spark acquisition contingent consideration payment amounts are based upon a formula and performance relativearrangement. Previously, in the three months ended June 30, 2020 the Company paid $5.2 million to certain agreed-upon earnings targets forsatisfy the 2019 and 2020portion of the obligation. As of March 31, 2021, the Company has no remaining obligations under the Spark acquisition contingent consideration arrangement.
to be paid in 2020 andDuring the three months ended March 31, 2021, respectively. Subsequent to the Spark acquisition, the Company has utilizedrecognized a Monte Carlo simulation foreign exchange gain of approximately $0.3 million to estimateremeasure the fair value and account for the interdependency between the 2019 and 2020 performance periods. However, effective December 31, 2019, at the end first measurement period, the Company revised its methodology and used a Black-Scholes based model to estimate the fair value of the payments. Future changes to the estimated contingentremaining South African Rand denominated 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 changes could result in a material change in the estimated contingent liability. The estimates and significant non-observable inputs may differ from actual results.
into U.S. Dollars. As of March 31, 2020, the estimated fair value of the Company’s acquisition related contingent consideration liability was approximately $9.5 million. During the three months ended March 31, 2020 the Company recognized mark-to-market gains of approximatelyapproximately $4.1 million to revise the estimated fair value of the contingent consideration liability and foreign exchange gains of approximately $3.3 million to remeasure the South African Rand denominated liability into U.S. Dollars. BothIn both periods presented, the revision toof the estimated fair valuevalues and the net foreign exchange gains and losses are included in the Other expenses, (income)net line in the Consolidated Statements of Operations.
Long-term debt. The carrying amountamounts of the long-term debt balancebalances related to borrowings under the Company’s revolvingRevolving credit facility approximatesand Term Loan approximate fair value due to the fact that any outstanding borrowings are subject to short-term floating interest rates. As of March 31, 2020,2021, the fair valuesvalue of the 2020 Notes and 2025 Notes werewas approximately $276.8$308.9 million, and $282.3 million respectively, based on the quoted prices in markets that are not active (Level 2). For additional information related to long-term debt, seesee Note 9. Current and Long-Term Debt.
Additions to asset retirement obligations liability. The Company estimates the fair value of additions to its ARO liability using expected discounted future cash flowflows discounted 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 three months ended March 31, 2020 and 2019 totaled $0.4 million and $1.1 million, respectively.
Interest rate derivatives. As of March 31, 2020,2021, the recognized fair value of the Company’s Interest Rate Derivatives resulted in an asset of $2.6$3.9 million and a liability of $58.5current and long-term liabilities totaling $35.1 million.These financial instruments are carried at fair value and are valued using pricing models based on significant other observable inputs (Level 2), 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 13.11. Derivative Financial Instruments.
(15)(13) 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 reservesaccruals where necessary for contingent liabilities, based on ASC 450, contingencies,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.
On March 1, 2019, the Company was named as a defendant in a purported class action lawsuit stylized as Kristen Schertzer, et al. v. Bank of America, N.A., et al., Case No. 3:19-cv-00264, in the United States District Court for the Southern District of California, which makes allegations of harm related to balance inquiry transactions. On September 28, 2020, the district court issued a denial of the Company’s motion to dismiss and the matter is proceeding to the discovery phase. Due to the early stages of this matter, including uncertainty related to class certification and potential amount claimed by the class, the Company is unable to determine if liability will arise from this matter or estimate the range of any potential liability. The Company will vigorously defend this matter.
Gain Contingency
In 2014, the Valuation Office Agency (or “VOA”), an executive agency of HM Revenue & Customs in England and Wales, took action to amend its business ratings list going back to 2010, to create separate entries on these lists for the sites of thousands of ATMs. Similar steps were taken by the equivalent agencies to the VOA in Scotland and Northern Ireland in their respective jurisdictions. Before 2014, the ATM sites in each location had not been distinguished from the host store. Therefore, the ATMs located in host stores such as supermarkets and convenience stores were not subject to business rates, a tax on commercial property. The effect of each of the amendments was to include the ATM sites in the business ratings lists as separate hereditaments with their own ratable value, subjecting the sites to business rates taxation. The Company and its merchant partners paid the business rate taxes, as required.
In 2018, various appellants, including a number of large supermarkets and the Company (together, the “Appellants”), appealed the matter to the England and Wales Court of Appeal (the “Court of Appeal”) after having lost appeals to the Valuation Tribunal for England (“VTE”) and Upper Tribunal (Lands Chamber) in 2016 and 2017, respectively. In late 2018, the Court of Appeal ruled in favor of the Appellants and found that the amendments to the ratings list for a large number of ATM location types should not have been affected by the VOA, or sustained by the VTE and Upper Tribunal. The VOA appealed to the U.K. Supreme Court, and on May 20, 2020, the Supreme Court dismissed the VOA appeal and upheld the decision of the Court of Appeal.
Following the Supreme Court ruling, the VOA is in process of amending the business rating lists for England and Wales and the Company has recovered a large portion of the amounts paid to the tax authorities in respect of the ATMs subject to the amended lists in numerous local tax jurisdictions for the periods spanning from 2010 to December 2020. During the three months ended March 31, 2021, the Company recorded cash recoveries of approximately $12.0 million, net of amounts due to merchant partners, which is reflected as a reduction to the Cost of ATM operating revenues line in the Consolidated Statements of Operations. The Company estimates that up to approximately 2 million U.K. pounds sterling, or up to approximately $3 million at the March 31, 2021 exchange rate, remains recoverable from the various tax authorities, net of amounts that have already been recovered or are estimated to be due to merchant partners of the Company, some of which had paid indirectly these business rate taxes. The Company seeks to ensure that all necessary amendments to the business ratings list are made and that all recoverable amounts paid to the tax authorities are collected. The Company's estimate of the total recoverable amount is subject to change as the Company continues its analysis of the business rate taxes paid during the 10 year period. Due to the complexity in administering and uncertainty of these collections, the Company will recognize the business rate tax recoveries only when received.
The Supreme Court ruling does not apply to Scotland or Northern Ireland and business rate taxes in those jurisdictions are still subject to valuation tribunal appeals and assessments. Accordingly, the Company continues to recognize business rate taxes in Scotland and Northern Ireland, net of any amounts recorded as receivables that are deemed recoverable under contracts with merchants.
Other Commitments
Asset retirement obligations. The Company’s ARO consist primarily of costs to deinstallremove 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 March 31, 2020,2021, the Company had $58.8$63.4 million accrued for these liabilities. For additional information, see Note 10. Asset Retirement Obligations .
(14) Income Taxes
Acquisition related contingent consideration. As of March 31, 2020, the Company had $9.5 million accrued for the Spark acquisition related contingent consideration.The Company’s income For additional information related to the Spark acquisition related contingent consideration, staxee Note 14. Fair Value Measurements .
(16) Income Taxes
The Company’s income tax expense (benefit) expense based on income before income taxes for the periods presented was as follows:
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, 2021 | |
| | | | 2020 | | 2019 | | 2021 | | 2020 | |
| | | (In thousands, excluding percentages) | | | (In thousands, excluding percentages) |
Income tax (benefit) expense | | | $ | (3,737) | | | $ | 3,129 | | |
Income tax expense (benefit) | | Income tax expense (benefit) | $ | 2,951 | | | $ | (3,737) | | |
Effective tax rate | Effective tax rate | | | (185.7) | % | | 42.0 | % | Effective tax rate | 33.4 | % | | (185.7) | % | |
The Company’s income tax benefit expense for the three months ended March 31, 20202021 totaled $3.7$3.0 million resulting in an effective tax rate of (185.7)%33.4%, compared to an expensea benefit of $3.1$3.7 million, and an effective tax rate of 42.0%(185.7)%, for the same period of 2019.2020.
The decreaseincrease in the tax expense for the three months ended March 31, 2020, compared2021 was primarily attributable to the higher pre-tax profits recognized in the current period, without an offset from any non-recurring tax benefits, as was recognized in the same period of 2019,2020. The benefit recognized for the three months ended March 31, 2020 was primarily attributable to a non-recurring benefit in the current period from the carry backcarryback of net operating losses to prior tax years at the higher 35% U.S. tax rate, compared to the current tax rate of 21%, as a result of recent changes in U.S. tax law. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law in the U.S., which provided for an elective five-year carryback of net operating losses (NOLs) generated in taxable years beginning after December 31, 2017, and before January 1, 2021. As a result of this change in law and because the Company incurred net operating losses in 2018, the Company plans to carry back these losses to prior periods and expects to receive refunds of taxes paid at higher rates in earlier periods. Additionally, lower pretax profits in the current period compared to the prior year period contributed to the lower tax expense, partly offset by other factors.March 2020.
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. The Company’s assessment concluded that maintaining valuation allowances on deferred tax assets in Australia, Canada, 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 accompanyingCompany's Consolidated Balance Sheets.
The Company currently believes that the unremitted earnings of certain of its subsidiaries 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.
(17)(15) Segment Information
As of March 31, 2020,2021, 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 ATM operations in the U.K., Ireland, Germany, Spain,Spain and SouthSouth 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’s Australia & New Zealand segment consists exclusively of its ATM operations in these two countries.Australia and New Zealand. The Corporate segment primarily includes the Company’s corporate general and administrative expenses.costs incurred by the corporate functions in the Company's geographical regions and also the technology center in India. 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. Intersegment revenues reflect each segment's total intercompany sales, including intercompany sales within a segment and between segments and are eliminated upon consolidation. Transactions within and between segments are generally made on a basis intended to reflect the market value of the service.
Management uses Adjusted EBITDA, together with U.S. GAAP measures, to manage and measure the performance of its segments. Management believes Adjusted EBITDA is a useful measure 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 excludesadds net interest expense, income tax expense, depreciation and accretion, amortization of deferred financing costs and note discounts, amortization of intangible assets, share-based compensation expense, certain other income and expense amounts, acquisition related expenses, gains or losses on disposal and impairment of assets, certain non-operating expenses (if applicable in a particular period), the obligation for the payment ofand certain costs not anticipated to occur in future periods to net income, taxes, interest expense, other obligations such as capital expenditures, and includes an adjustment for noncontrolling interests. Depreciation and accretion expense and amortization of intangible assets are excluded from Adjusted EBITDA as these amounts can vary substantially from company to company within the Company's industry depending upon accounting methods and book values of assets, capital structures, and the methods by which the assets were acquired.
Adjusted EBITDA, as defined by the Company, is a non-GAAP financial measure provided as a complement to the financial results prepared in accordance with U.S. GAAP. It may not be defined in the same manner by all companies and therefore may not be comparable to other similarly titled measures of other companies. In evaluating the Company’s performance as measured by Adjusted EBITDA, management recognizes and considers the limitations of this measurement. Therefore, Adjusted EBITDA 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 ourthe consolidated financial statements.
The following table is a reconciliation of Net income attributable to controlling interests and available to common shareholders to EBITDA and Adjusted EBITDA:
| | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | | |
| | | | | 2020 | | | 2019 |
| | | | (In thousands) | | | | |
Net income attributable to controlling interests and available to common shareholders | | | | | $ | 5,755 | | | | $ | 4,319 | |
Adjustments: | | | | | | | | |
Interest expense, net | | | | | 6,421 | | | | 6,643 | |
Amortization of deferred financing costs and note discount | | | | | 3,486 | | | | 3,292 | |
| | | | | | | | |
Income tax (benefit) expense | | | | | (3,737) | | | | 3,129 | |
Depreciation and accretion expense | | | | | 32,211 | | | | 32,973 | |
Amortization of intangible assets | | | | | 8,413 | | | | 12,412 | |
EBITDA | | | | | 52,549 | | | | 62,768 | |
Add back: | | | | | | | | |
Loss on disposal and impairment of assets | | | | | 921 | | | | 968 | |
Other expenses (income) (1) | | | | | 3,829 | | | | (7,207) | |
Noncontrolling interests (2) | | | | | 13 | | | | 15 | |
Share-based compensation expense | | | | | 5,193 | | | | 4,484 | |
Restructuring expenses (3) | | | | | 1,209 | | | | — | |
| | | | | | | | |
| | | | | | | | |
Adjusted EBITDA | | | | | $ | 63,714 | | | | $ | 61,028 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | | |
| (In thousands) |
Net income attributable to controlling interests and available to common shareholders | $ | 5,876 | | | $ | 5,755 | | | | | | |
Adjustments: | | | | | | | | |
Interest expense, net | 10,761 | | | 6,421 | | | | | | |
Amortization of deferred financing costs and note discount | 1,043 | | | 3,486 | | | | | | |
| | | | | | | | |
Income tax expense (benefit) | 2,951 | | | (3,737) | | | | | | |
Depreciation and accretion expense | 32,285 | | | 32,211 | | | | | | |
Amortization of intangible assets | 6,086 | | | 8,413 | | | | | | |
EBITDA | 59,002 | | | 52,549 | | | | | | |
Add back: | | | | | | | | |
Loss on disposal and impairment of assets | 353 | | | 921 | | | | | | |
Other expenses, net (1) | 2,842 | | | 3,829 | | | | | | |
Noncontrolling interests (2) | 15 | | | 13 | | | | | | |
Share-based compensation expense | 4,258 | | | 5,193 | | | | | | |
Restructuring expenses (3) | 1,692 | | | 1,209 | | | | | | |
Acquisition related expenses (4) | 1,440 | | | 0 | | | | | | |
| | | | | | | | |
Adjusted EBITDA (5) | $ | 69,602 | | | $ | 63,714 | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(1)Includes foreign currency translation gains/losses, the revaluation of the estimated acquisition related contingent consideration, and other non-operating costs.
(2)Noncontrolling interest adjustment made such that Adjusted EBITDA includes only the Company’s ownership interest in the Adjusted EBITDA of one of the Company's Mexican subsidiaries.
(3)For the three months ended March 31, 2020, the2021, restructuring activitiesexpenses included costs incurred in conjunction with facility closures, workforce reductions professional fees and other related charges. For the three months ended March 31, 2020, restructuring expenses included costs incurred in conjunction with facilities closures, professional fees and workforce reductions. The facility closures during the three months ended March 31, 2021 and 2020, respectively, primarily occurred in the U.K. related to reducing the number of facilities associated with cash delivery operations.
(4) For the three months ended March 31, 2021, acquisition related expenses includes legal and professional fees and certain administrative costs incurred in connection with the proposed acquisition of the Company, as further discussed in Note 1. Basis of Presentation - (a) Description of Business.
(5) The results for the three months ended March 31, 2021 include business rate tax recoveries of $12.0 million, classified as a cost reduction within Cost of ATM operating revenues.
The following tables reflect certain financial information for each of the Company’s reporting segments for the periods presented:
| | | Three Months Ended March 31, 2020 | | | Three Months Ended March 31, 2021 | |
| | North America | | Europe & Africa | | Australia & New Zealand | | Corporate | | Eliminations | | Total | | North America | | Europe & Africa | | Australia & New Zealand | | Corporate | | Eliminations | | Total | |
| | (In thousands) | | | (In thousands) | |
Revenue from external customers | Revenue from external customers | $ | 204,382 | | | $ | 81,863 | | | $ | 20,357 | | | $ | — | | | $ | — | | | $ | 306,602 | | Revenue from external customers | $ | 191,557 | | | $ | 56,078 | | | $ | 20,199 | | | $ | 0 | | | $ | — | | | $ | 267,834 | | |
Intersegment revenues | Intersegment revenues | 1,615 | | | 37 | | | — | | | — | | | (1,652) | | | — | | Intersegment revenues | 488 | | | 0 | | | 0 | | | — | | | (488) | | | — | | |
Cost of revenues | Cost of revenues | 139,904 | | | 52,634 | | | 14,275 | | | 561 | | | (1,652) | | | 205,722 | | Cost of revenues | 120,177 | | | 25,375 | | | 14,313 | | | 222 | | | (488) | | | 159,599 | | |
Selling, general, and administrative expenses | Selling, general, and administrative expenses | 17,049 | | | 9,061 | | | 1,947 | | | 14,321 | | | — | | | 42,378 | | Selling, general, and administrative expenses | 18,329 | | | 8,684 | | | 1,421 | | | 14,701 | | | (226) | | | 42,909 | | |
Restructuring expenses | Restructuring expenses | — | | | 1,000 | | | — | | | 209 | | | — | | | 1,209 | | Restructuring expenses | 0 | | | 1,549 | | | 0 | | | 143 | | | 0 | | | 1,692 | | |
| Loss (gain) on disposal and impairment of assets | 443 | | | 495 | | | (17) | | | — | | | — | | | 921 | | |
Acquisition related expenses | | Acquisition related expenses | 0 | | | 0 | | | 0 | | | 1,440 | | | 0 | | | 1,440 | | |
(Gain) loss on disposal and impairment of assets | | (Gain) loss on disposal and impairment of assets | (79) | | | 435 | | | (3) | | | 0 | | | 0 | | | 353 | | |
| Adjusted EBITDA | Adjusted EBITDA | 48,999 | | | 20,251 | | | 4,133 | | | (9,461) | | | (208) | | | 63,714 | | Adjusted EBITDA | 53,538 | | | 21,952 | | | 4,466 | | | (10,373) | | | 19 | | | 69,602 | | |
| | Capital expenditures (1) | Capital expenditures (1) | $ | 12,187 | | | $ | 5,867 | | | $ | 375 | | | $ | — | | | $ | — | | | $ | 18,429 | | Capital expenditures (1) | 12,032 | | | 3,891 | | | 323 | | | 0 | | | 0 | | | 16,246 | | |
| Total Assets | | Total Assets | $ | 1,259,570 | | | $ | 469,149 | | | $ | 57,778 | | | $ | 43,361 | | | $ | — | | | $ | 1,829,858 | | |
| | | Three Months Ended March 31, 2019 | | | Three Months Ended March 31, 2020 |
| | North America | | Europe & Africa | | Australia & New Zealand | | Corporate | | Eliminations | | Total | | North America | | Europe & Africa | | Australia & New Zealand | | Corporate | | Eliminations | | Total |
| | (In thousands) | | | (In thousands) |
Revenue from external customers | Revenue from external customers | $ | 201,664 | | | $ | 90,596 | | | $ | 26,010 | | | $ | — | | | $ | — | | | $ | 318,270 | | Revenue from external customers | $ | 204,382 | | | $ | 81,863 | | | $ | 20,357 | | | $ | 0 | | | $ | — | | | $ | 306,602 | |
Intersegment revenues | Intersegment revenues | 2,584 | | | 329 | | | — | | | — | | | (2,913) | | | — | | Intersegment revenues | 1,615 | | | 37 | | | 0 | | | — | | | (1,652) | | | — | |
Cost of revenues | Cost of revenues | 137,908 | | | 63,409 | | | 19,361 | | | 261 | | | (2,856) | | | 218,083 | | Cost of revenues | 139,904 | | | 52,634 | | | 14,275 | | | 561 | | | (1,652) | | | 205,722 | |
Selling, general, and administrative expenses | Selling, general, and administrative expenses | 17,266 | | | 10,746 | | | 2,241 | | | 13,407 | | | — | | | 43,660 | | Selling, general, and administrative expenses | 17,049 | | | 9,061 | | | 1,947 | | | 14,321 | | | 0 | | | 42,378 | |
| Restructuring expenses | | Restructuring expenses | 0 | | | 1,000 | | | 0 | | | 209 | | | 0 | | | 1,209 | |
| Loss (gain) on disposal and impairment of assets | Loss (gain) on disposal and impairment of assets | 324 | | | 671 | | | (27) | | | — | | | — | | | 968 | | Loss (gain) on disposal and impairment of assets | 443 | | | 495 | | | (17) | | | 0 | | | 0 | | | 921 | |
| Adjusted EBITDA | Adjusted EBITDA | 49,075 | | | 16,768 | | | 4,409 | | | (9,184) | | | (40) | | | 61,028 | | Adjusted EBITDA | 48,999 | | | 20,251 | | | 4,133 | | | (9,461) | | | (208) | | | 63,714 | |
| | Capital expenditures (1) | Capital expenditures (1) | $ | 17,575 | | | $ | 10,248 | | | $ | 1,484 | | | $ | — | | | $ | — | | | $ | 29,307 | | Capital expenditures (1) | 12,187 | | | 5,867 | | | 375 | | | 0 | | | 0 | | | 18,429 | |
| Total assets | | Total assets | $ | 1,149,376 | | | $ | 570,709 | | | $ | 50,464 | | | $ | 446,672 | | | $ | — | | | $ | 2,217,221 | |
(1)Capital expenditures include payments madeare primarily related to organic growth projects, including the purchase of ATMs for plant, property,both new and equipment, exclusive licenseexisting ATM management agreements, technology and site acquisition costs.product development, investments in infrastructure, ongoing refreshment of ATMs and operational assets and other related type activities in the normal course of business. Additionally, capital expenditure amounts for one of the Company’s Mexican subsidiaries, included in the North America segment, are reflected gross of any noncontrolling interest amounts.
Identifiable Assets
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
| (In thousands) | | |
North America | $ | 1,149,376 | | | $ | 1,141,084 | |
Europe & Africa | 570,709 | | | 511,037 | |
Australia & New Zealand | 50,464 | | | 60,416 | |
Corporate | 446,672 | | | 51,421 | |
Total | $ | 2,217,221 | | | $ | 1,763,958 | |
Property and equipment, net of accumulated depreciation, relating to operations in the Company's geographic segments are as follows:
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| (In thousands) |
North America | $ | 234,305 | | | $ | 238,601 | |
Europe & Africa | 135,684 | | | 145,824 | |
Australia & New Zealand | 17,709 | | | 19,232 | |
Corporate | 25,163 | | | 26,185 | |
Total | $ | 412,861 | | | $ | 429,842 | |
(18)(16) Supplemental Guarantor Financial Information
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 its CFC GuarantorsSubsidiaries (as defined in the Credit Agreement)2025 Notes Indenture). The guarantees of the 2025 Notes by any 2025 Notes Guarantor are subject to automatic and customary releases upon: (i) the sale or disposition of all or substantially all of the assets of the 2025 Notes Guarantor, (ii) the disposition of sufficient capital stock of the 2025 Notes Guarantor so that it no longer qualifies under the 2025 Notes Indenture as a restricted subsidiary of the Company, (iii) the designation of the 2025 Notes Guarantor as an unrestricted subsidiary in accordance with the 2025 Notes Indenture, (iv) the legal or covenant defeasance of the notes or the satisfaction and discharge of the 2025 Notes Indenture, (v) the liquidation or dissolution of the 2025 Notes Guarantor, or (vi) provided the 2025 Notes Guarantor is not wholly-owned by the Company, its ceasing to guarantee other debt of the Company or another 2025 Notes Guarantor. A 2025 Notes Guarantor may not sell or otherwise dispose of all or substantially all of its properties or assets to, or consolidate with or merge into another company (other than the Company or another 2025 Notes Guarantor) unless no default under the 2025 Notes Indenture exists and either the successor to the 2025 Notes Guarantor assumes its guarantee of the 2025 Notes or the disposition, consolidation, or merger complies with the “Asset Sales” covenant in the 2025 Notes Indenture.
On March 2, 2020, the SEC made significant changes to its disclosure requirements relating to registered securities that are guaranteed. The new rules, adopted by the Company in conjunction with its Form 10-Q for the period ended March 31, 2020, changed the form and content of the disclosures, requiring summarized financial information only as of and for the most recently completed fiscal year and subsequent year-to-date interim period. The following information reflects the Condensed Consolidating Statements of Comprehensive (Loss) Income for the three months ended March 31, 2020, the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020,2021, the Condensed Consolidated Balance Sheets as of March 31, 20202021, and the Summary Financial Information as of and for the year endingended December 31, 2019 presented2020 for: (i) Cardtronics plc, the parent Guarantor of the 2025 Notes (“Parent”), (ii) Cardtronics Inc. and Cardtronics USA, Inc. (“Issuer”Issuers”), (iii) the 2025 Notes Guarantors (the “Guarantors”), and (iv) the 2025 Notes Non-Guarantors.
Condensed Consolidated Statements of Comprehensive (Loss) Income
| | | Three Months Ended March 31, 2020 | | | Three Months Ended March 31, 2021 |
| | Parent | | Issuer | | Guarantors | | Non-Guarantors | | Eliminations | | Total | | Parent | | Issuers | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| | (In thousands) | | | (In thousands) |
Revenues | Revenues | $ | — | | | $ | 161,390 | | | $ | 78,136 | | | $ | 84,545 | | | $ | (17,469) | | | $ | 306,602 | | Revenues | $ | 0 | | | $ | 156,803 | | | $ | 73,740 | | | $ | 55,270 | | | $ | (17,979) | | | $ | 267,834 | |
Operating costs and expenses | Operating costs and expenses | 5,797 | | | 154,918 | | | 61,126 | | | 86,001 | | | (17,909) | | | 289,933 | | Operating costs and expenses | 6,079 | | | 147,786 | | | 52,478 | | | 55,659 | | | (17,991) | | | 244,011 | |
Loss on disposal and impairment of assets | Loss on disposal and impairment of assets | | | 417 | | | 104 | | | 400 | | | 921 | | Loss on disposal and impairment of assets | 0 | | | (98) | | | 57 | | | 394 | | | 0 | | | 353 | |
(Loss) income from operations | (Loss) income from operations | (5,797) | | | 6,055 | | | 16,906 | | | (1,856) | | | 440 | | | 15,748 | | (Loss) income from operations | (6,079) | | | 9,115 | | | 21,205 | | | (783) | | | 12 | | | 23,470 | |
Interest expense, net, including amortization of deferred financing costs and note discount | Interest expense, net, including amortization of deferred financing costs and note discount | — | | | 8,602 | | | 1,201 | | | 42 | | | 62 | | | 9,907 | | Interest expense, net, including amortization of deferred financing costs and note discount | 90 | | | 10,766 | | | 734 | | | 154 | | | 60 | | | 11,804 | |
| Equity in earnings of subsidiaries | Equity in earnings of subsidiaries | (12,653) | | | (17,589) | | | 2,786 | | | 241 | | | 27,215 | | | — | | Equity in earnings of subsidiaries | (12,419) | | | (13,592) | | | 11,625 | | | (1,353) | | | 15,739 | | | 0 | |
Other expenses (income) | 2,728 | | | 7,696 | | | 6,543 | | | (5,538) | | | (7,600) | | | 3,829 | | |
Income before income taxes | 4,128 | | | 7,346 | | | 6,376 | | | 3,399 | | | (19,237) | | | 2,012 | | |
Other expenses, net | | Other expenses, net | 1,912 | | | 2,504 | | | 2,950 | | | 1,850 | | | (6,374) | | | 2,842 | |
Income (loss) before income taxes | | Income (loss) before income taxes | 4,338 | | | 9,437 | | | 5,896 | | | (1,434) | | | (9,413) | | | 8,824 | |
Income tax (benefit) expense | Income tax (benefit) expense | (1,621) | | | (2,289) | | | (415) | | | 588 | | | — | | | (3,737) | | Income tax (benefit) expense | (1,535) | | | 1,616 | | | 1,768 | | | 1,102 | | | 0 | | | 2,951 | |
Net income | 5,749 | | | 9,635 | | | 6,791 | | | 2,811 | | | (19,237) | | | 5,749 | | |
Net income (loss) | | Net income (loss) | 5,873 | | | 7,821 | | | 4,128 | | | (2,536) | | | (9,413) | | | 5,873 | |
Net loss attributable to noncontrolling interests | Net loss attributable to noncontrolling interests | — | | | — | | | — | | | — | | | (6) | | | (6) | | Net loss attributable to noncontrolling interests | 0 | | | 0 | | | 0 | | | 0 | | | (3) | | | (3) | |
Net income attributable to controlling interests and available to common shareholders | 5,749 | | | 9,635 | | | 6,791 | | | 2,811 | | | (19,231) | | | 5,755 | | |
Other comprehensive (loss) income attributable to controlling interest | (59,503) | | | (32,506) | | | 4,287 | | | (36,737) | | | 64,956 | | | (59,503) | | |
Comprehensive (loss) income attributable to controlling interests | $ | (53,754) | | | $ | (22,871) | | | $ | 11,078 | | | $ | (33,926) | | | $ | 45,725 | | | $ | (53,748) | | |
Net income (loss) attributable to controlling interests and available to common shareholders | | Net income (loss) attributable to controlling interests and available to common shareholders | 5,873 | | | 7,821 | | | 4,128 | | | (2,536) | | | (9,410) | | | 5,876 | |
Other comprehensive income (loss) attributable to controlling interest | | Other comprehensive income (loss) attributable to controlling interest | 17,732 | | | (37,160) | | | (2,169) | | | (4,633) | | | 43,962 | | | 17,732 | |
Comprehensive income (loss) attributable to controlling interests | | Comprehensive income (loss) attributable to controlling interests | $ | 23,605 | | | $ | (29,339) | | | $ | 1,959 | | | $ | (7,169) | | | $ | 34,552 | | | $ | 23,608 | |
Condensed Consolidated Balance Sheets
| | | As of March 31, 2020 | | | As of March 31, 2021 |
| | Parent | | Issuer | | Guarantors | | Non-Guarantors | | Eliminations | | Total | | Parent | | Issuers | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| | (In thousands) | | | (In thousands) |
Assets | Assets | | | | | | | | | | | | Assets | | | | | | | | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 46 | | | $ | 50,174 | | | $ | 548,621 | | | $ | 14,887 | | | $ | — | | | $ | 613,728 | | Cash and cash equivalents | $ | 72 | | | $ | 137,449 | | | $ | 39,534 | | | $ | 20,308 | | | $ | 0 | | | $ | 197,363 | |
Accounts and notes receivable, net | | Accounts and notes receivable, net | 0 | | | 46,387 | | | 22,016 | | | 19,367 | | | 0 | | | 87,770 | |
Restricted cash | Restricted cash | — | | | 22,816 | | | 1,927 | | | 20,053 | | | — | | | 44,796 | | Restricted cash | 0 | | | 106,913 | | | 2,477 | | | 32,469 | | | 0 | | | 141,859 | |
Accounts and notes receivable, net | — | | | 51,358 | | | 16,908 | | | 18,634 | | | — | | | 86,900 | | |
| Other current assets | Other current assets | — | | | 51,660 | | | 6,148 | | | 46,748 | | | — | | | 104,556 | | Other current assets | 0 | | | 30,061 | | | 2,281 | | | 24,206 | | | 0 | | | 56,548 | |
Total current assets | Total current assets | 46 | | | 176,008 | | | 573,604 | | | 100,322 | | | — | | | 849,980 | | Total current assets | 72 | | | 320,810 | | | 66,308 | | | 96,350 | | | 0 | | | 483,540 | |
Property and equipment, net | Property and equipment, net | — | | | 258,839 | | | 49,812 | | | 126,109 | | | — | | | 434,760 | | Property and equipment, net | 0 | | | 245,575 | | | 50,613 | | | 116,673 | | | 0 | | | 412,861 | |
Operating lease assets | | Operating lease assets | 0 | | | 31,608 | | | 2,330 | | | 22,496 | | | 0 | | | 56,434 | |
Intangible assets, net | Intangible assets, net | — | | | 33,339 | | | 44,189 | | | 21,593 | | | — | | | 99,121 | | Intangible assets, net | 0 | | | 17,467 | | | 37,400 | | | 20,383 | | | 0 | | | 75,250 | |
Goodwill | Goodwill | — | | | 445,046 | | | 133,424 | | | 145,643 | | | — | | | 724,113 | | Goodwill | 0 | | | 445,046 | | | 152,505 | | | 163,260 | | | 0 | | | 760,811 | |
Operating lease assets | — | | | 32,827 | | | 3,892 | | | 32,903 | | | — | | | 69,622 | | |
Investments in and advances to subsidiaries | Investments in and advances to subsidiaries | 374,910 | | | 265,842 | | | 222,176 | | | 40,952 | | | (903,880) | | | — | | Investments in and advances to subsidiaries | 460,376 | | | 324,975 | | | 179,526 | | | 53,387 | | | (1,018,264) | | | 0 | |
Intercompany receivable | Intercompany receivable | 29,442 | | | 171,179 | | | 215,778 | | | 229,307 | | | (645,706) | | | — | | Intercompany receivable | 11,759 | | | 510,398 | | | 625,003 | | | 265,162 | | | (1,412,322) | | | 0 | |
Deferred tax asset, net | 395 | | | — | | | — | | | 14,836 | | | — | | | 15,231 | | |
Deferred tax assets, net | | Deferred tax assets, net | 1,112 | | | 0 | | | (1,014) | | | 17,676 | | | 0 | | | 17,774 | |
Prepaid expenses, deferred costs, and other noncurrent assets | Prepaid expenses, deferred costs, and other noncurrent assets | — | | | 15,001 | | | 1,293 | | | 8,100 | | | — | | | 24,394 | | Prepaid expenses, deferred costs, and other noncurrent assets | 0 | | | 16,509 | | | 1,583 | | | 5,096 | | | 0 | | | 23,188 | |
Total assets | Total assets | $ | 404,793 | | | $ | 1,398,081 | | | $ | 1,244,168 | | | $ | 719,765 | | | $ | (1,549,586) | | | $ | 2,217,221 | | Total assets | $ | 473,319 | | | $ | 1,912,388 | | | $ | 1,114,254 | | | $ | 760,483 | | | $ | (2,430,586) | | | $ | 1,829,858 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Shareholders' Equity | Liabilities and Shareholders' Equity | | Liabilities and Shareholders' Equity | |
Current portion of other long-term liabilities | $ | — | | | $ | 305,569 | | | $ | 5,514 | | | $ | 32,111 | | | $ | — | | | $ | 343,194 | | |
Current portion of long-term liabilities | | Current portion of long-term liabilities | $ | 0 | | | $ | 5,000 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 5,000 | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | 1,497 | | | 184,614 | | | 37,479 | | | 87,104 | | | — | | | 310,694 | | Accounts payable and accrued liabilities | 2,584 | | | 328,772 | | | 70,254 | | | 97,104 | | | (27,902) | | | 470,812 | |
Total current liabilities | Total current liabilities | 1,497 | | | 490,183 | | | 42,993 | | | 119,215 | | | — | | | 653,888 | | Total current liabilities | 2,584 | | | 333,772 | | | 70,254 | | | 97,104 | | | (27,902) | | | 475,812 | |
Long-term debt | Long-term debt | — | | | 768,636 | | | 145,802 | | | 128,889 | | | — | | | 1,043,327 | | Long-term debt | 0 | | | 772,693 | | | 0 | | | 0 | | | 0 | | | 772,693 | |
Intercompany payable | Intercompany payable | 95,437 | | | 107,520 | | | 244,403 | | | 198,337 | | | (645,697) | | | — | | Intercompany payable | 77,279 | | | 316,948 | | | 634,751 | | | 383,338 | | | (1,412,316) | | | 0 | |
Asset retirement obligations | Asset retirement obligations | — | | | 22,761 | | | 1,728 | | | 28,870 | | | — | | | 53,359 | | Asset retirement obligations | 0 | | | 23,853 | | | 1,966 | | | 31,040 | | | 0 | | | 56,859 | |
Deferred tax liabilities, net | | Deferred tax liabilities, net | 0 | | | 53,611 | | | 1,490 | | | 370 | | | 0 | | | 55,471 | |
Operating lease liabilities | Operating lease liabilities | — | | | 39,975 | | | 2,286 | | | 21,566 | | | — | | | 63,827 | | Operating lease liabilities | 0 | | | 37,325 | | | 1,584 | | | 14,772 | | | 0 | | | 53,681 | |
Deferred tax liability, net | — | | | 43,189 | | | 2,681 | | | — | | | — | | | 45,870 | | |
Other long-term liabilities | Other long-term liabilities | — | | | 39,125 | | | 2,957 | | | 7,009 | | | — | | | 49,091 | | Other long-term liabilities | 0 | | | 16,719 | | | 1,911 | | | 3,256 | | | 0 | | | 21,886 | |
Total liabilities | Total liabilities | 96,934 | | | 1,511,389 | | | 442,850 | | | 503,886 | | | (645,697) | | | 1,909,362 | | Total liabilities | 79,863 | | | 1,554,921 | | | 711,956 | | | 529,880 | | | (1,440,218) | | | 1,436,402 | |
Shareholders' equity | Shareholders' equity | 307,859 | | | (113,308) | | | 801,318 | | | 215,879 | | | (903,889) | | | 307,859 | | Shareholders' equity | 393,456 | | | 357,467 | | | 402,298 | | | 230,603 | | | (990,368) | | | 393,456 | |
Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | $ | 404,793 | | | $ | 1,398,081 | | | $ | 1,244,168 | | | $ | 719,765 | | | $ | (1,549,586) | | | $ | 2,217,221 | | Total liabilities and shareholders' equity | $ | 473,319 | | | $ | 1,912,388 | | | $ | 1,114,254 | | | $ | 760,483 | | | $ | (2,430,586) | | | $ | 1,829,858 | |
Condensed Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 | | | | | | | | | | |
| Parent | | Issuer | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| (In thousands) | | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | 22,095 | | | $ | (21,014) | | | $ | (6,975) | | | $ | 7,014 | | | $ | — | | | $ | 1,120 | |
Additions to property and equipment | | | (11,585) | | | (2,696) | | | (4,148) | | | | | (18,429) | |
| | | | | | | | | | | |
Net cash used in investing activities | — | | | (11,585) | | | (2,696) | | | (4,148) | | | — | | | (18,429) | |
Proceeds from borrowings under revolving credit facility | — | | | 547,129 | | | 148,583 | | | 36,150 | | | — | | | 731,862 | |
Repayments of borrowings under revolving credit facility | — | | | (100,600) | | | (5,666) | | | (38,488) | | | — | | | (144,754) | |
Intercompany financing | — | | | (401,209) | | | 401,209 | | | — | | | — | | | — | |
Tax payments related to share-based compensation | (5,515) | | | — | | | — | | | — | | | — | | | (5,515) | |
Proceeds from exercises of stock options | 293 | | | — | | | — | | | — | | | — | | | 293 | |
| | | | | | | | | | | |
Repurchase of common shares | (16,873) | | | — | | | — | | | — | | | — | | | (16,873) | |
Net cash (used in) provided by financing activities | (22,095) | | | 45,320 | | | 544,126 | | | (2,338) | | | — | | | 565,013 | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | — | | | — | | | (4,227) | | | (2,422) | | | — | | | (6,649) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | — | | | 12,721 | | | 530,228 | | | (1,894) | | | — | | | 541,055 | |
Cash, cash equivalents, and restricted cash as of beginning of period | 46 | | | 60,269 | | | 20,321 | | | 36,833 | | | — | | | 117,469 | |
Cash, cash equivalents, and restricted cash as of end of period | $ | 46 | | | $ | 72,990 | | | $ | 550,549 | | | $ | 34,939 | | | $ | — | | | $ | 658,524 | |
| | | | | | | | | | | |
Summary Prior Year Financial Information
| | | As of and for the Year Ended December 31, 2019 | | | As of and for the Year Ended December 31, 2020 |
| | Parent | | Issuer | | Guarantors | | Non-Guarantors | | Eliminations | | Total | | Parent | | Issuers | | Guarantors | | Non-Guarantors | | Eliminations | | Total |
| | (In thousands) | | | (In thousands) |
Revenues | Revenues | $ | — | | | | $ | 668,527 | | | | $ | 351,330 | | | | $ | 402,079 | | | | $ | (72,531) | | | | $ | 1,349,405 | | Revenues | $ | 0 | | | $ | 614,090 | | | $ | 281,752 | | | $ | 268,948 | | | $ | (70,791) | | | $ | 1,093,999 | |
(Loss) income from operations | (Loss) income from operations | $ | (35,637) | | | | $ | 40,733 | | | | $ | 70,835 | | | | $ | 10,203 | | | | $ | 300 | | | | $ | 86,434 | | (Loss) income from operations | (34,392) | | | 14,968 | | | 76,556 | | | (4,215) | | | 871 | | | 53,788 | |
Net income | Net income | $ | 48,265 | | | | $ | 20,546 | | | | $ | 63,952 | | | | $ | 27,036 | | | | $ | (111,534) | | | | $ | 48,265 | | Net income | 19,137 | | | 12,467 | | | 14,897 | | | 4,191 | | | (31,555) | | | 19,137 | |
Net income attributable to controlling interests and available to common shareholders | Net income attributable to controlling interests and available to common shareholders | $ | 48,265 | | | | $ | 20,546 | | | | $ | 63,952 | | | | $ | 27,036 | | | | $ | (111,525) | | | | $ | 48,274 | | Net income attributable to controlling interests and available to common shareholders | 19,137 | | | 12,467 | | | 14,897 | | | 4,191 | | | (31,548) | | | 19,144 | |
Total current assets | Total current assets | $ | 46 | | | | $ | 146,768 | | | | $ | 41,788 | | | | $ | 119,919 | | | | $ | — | | | | $ | 308,521 | | Total current assets | 87 | | | 299,489 | | | 72,391 | | | 90,046 | | | 0 | | | 462,013 | |
Total noncurrent assets | Total noncurrent assets | $ | 452,342 | | | | $ | 1,225,786 | | | | $ | 1,488,531 | | | | $ | 196,625 | | | | $ | (1,907,847) | | | | $ | 1,455,437 | | Total noncurrent assets | 444,012 | | | 1,531,788 | | | 1,060,252 | | | 693,038 | | | (2,359,658) | | | 1,369,432 | |
Total current liabilities | Total current liabilities | $ | 814 | | | $ | 242,735 | | | $ | 66,766 | | | $ | 124,069 | | | $ | — | | | $ | 434,384 | | Total current liabilities | 4,295 | | | 310,477 | | | 68,326 | | | 110,592 | | | (17,705) | | | 475,985 | |
Total noncurrent liabilities | Total noncurrent liabilities | $ | 71,248 | | | $ | 805,812 | | | $ | 984,556 | | | $ | (24,244) | | | $ | (888,125) | | | $ | 949,247 | | Total noncurrent liabilities | 60,388 | | | 1,211,466 | | | 645,420 | | | 445,586 | | | (1,386,816) | | | 976,044 | |
(19)(17) Concentration Risk
Significant merchant customers.customers. During the trailing twelve months ended March 31, 2020,2021, the Company derived approximately 21%23% of its total revenues from ATMs placed at the locations of its top five merchant customers. The Company’s top five merchant customers, none accounting for more than 6% of total revenue for the trailing twelve months ended March 31, 2020,2021, were Alimentation Couche-Tard Inc., Co-operative Food, CVS Caremark Corporation, Speedway LLC, and 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 relationships with these merchants. As of March 31, 2020,2021, the contracts we havethe Company has with ourits five largest merchant customers have a weighted average remaining life of approximately 3.252.4 years.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, 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 Company. 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 will 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:
•the Company'sCompany’s ability to respond to business cycles, seasonality, and other outside factors such as extreme weather, natural disasters, or health emergencies, such asincluding the COVID-19 outbreak, that have adversely affected its business, and may negatively affect our business.in the future have a material adverse impact on its business;
•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;
•the impact of macroeconomic conditions, including the future impacts of the COVID-19 outbreak on global economic conditions, which is highly uncertain and difficult to predict;
•the Company’s ability to respond to recent and future network and regulatory changes;
•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;
•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;
•the Company’s ability to renew its existing merchant relationships on comparable or improved economic terms and add new merchants;
•changes in interest rates and foreign currency rates;
•the Company’s ability to successfully manage its existing international operations and to continue to expand internationally;
•the Company’s ability to manage concentration risks with and changes in the mix of key customers, merchants, vendors, and service providers;
•the Company'sCompany’s ability to maintain appropriate liquidityliquidity;
•the Company’s ability to prevent thefts of cash and maintain adequate insurance;
•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;
•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;
•the Company’s ability to manage the risks associated with its third-party service providers failing to perform their contractual obligations;
•the Company’s ability to renew its existing third-party service provider relationships on comparable or improved economic terms;
•the Company’s ability to successfully implement and evolve its corporate strategy;
•the Company’s ability to compete successfully with new and existing competitors;
•the Company’s ability to meet the service levels required by its service level agreements with its customers;
•the additional risks the Company is exposed to in its United Kingdom (“U.K.”) armored transportcash-in-transit business;
•the Company’s ability to pursue, complete, and successfully integrate acquisitions, strategic alliances, or joint ventures;
•the impact of changes in laws, including tax laws that could adversely affect the Company’s business and profitability;
•the impact of, or uncertainty related to, the U.K.’s 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;
•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
•the Company’s ability to manage the fluctuation of its operating results, including as a result of the foregoing and other risk factors included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.2020.
In addition, actual results may vary materially from those expressed or implied by forward-looking statements based on a number of factors related to the proposed acquisition of the Company by NCR Corporation, including, without limitation:
•statements regarding the Company’s plans to manage its business through the COVID-19 pandemic and the health and safety of its customers and employees;
•the expected impact of the COVID-19 pandemic on the Company’s operating goals and actions to manage these goals;
•expectations regarding cost and revenue synergies; expectations regarding the Company’s cash flow generation, cash reserve, liquidity, financial flexibility and impact of the COVID-19 pandemic on the Company’s employee base;
•expectations regarding the Company’s ability to capitalize on market opportunities;
•the Company’s financial outlook;
•the effect of the announcement of the proposed transaction on the ability of the Company to retain and hire key personnel and maintain relationships with customers, suppliers and others with whom the Company does business, or on the Company's operating results and business generally;
•risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the proposed transaction;
•the outcome of any legal proceedings related to the proposed transaction;
•the occurrence of any event, change or other circumstances that could give rise to the termination of the acquisition agreement;
•the ability of the parties to consummate the proposed transaction on a timely basis or at all;
•the satisfaction of the conditions precedent to consummation of the proposed transaction, including the ability to secure regulatory approvals on the terms expected, at all or in a timely manner;
•the ability of the Company to implement its plans, forecasts and other expectations with respect to its business after the completion of the proposed transaction and realize expected benefits;
•business disruption following the proposed transaction; and
•the potential benefits of an acquisition of the Company.
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's Annual Report on Form 10-K for the year ended December 31, 2019, as updated by Part II, Item 1A. Risk Factors of this Form 10-Q.2020. 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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto included under Item 1. Financial Statements of this Form 10-Q and our Consolidated Financial Statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).
Overview
Cardtronics plc, provides convenient automated consumertogether with its wholly and majority-owned subsidiaries (collectively, “us,” “we,” “our,” “ours,” the “Company” or “Cardtronics”) is the trusted leader in financial services through its network ofself-service, enabling cash transactions at over 285,000 automated teller machines and multi-function financial services kiosks (collectively referred to as “ATMs”). As across 10 countries in North America, Europe, Asia-Pacific, and Africa. The total number of ATMs that we service includes our estimate of ATMs that were temporarily closed as a result of the coronavirus pandemic ("COVID-19" or the "Pandemic") as further described in Results of Operations - Key Operating Metrics, below. The total number of transacting ATMs we serviced as of March 31, 2020, we were the world’s largest ATM owner/operator, providing services to over 285,000 ATMs. 2021 was approximately 279,000.
During the three months ended March 31, 2020, 68%2021, approximately 72% of our total revenues were derived from operations in North America (including our ATM operations in the United States ("U.S."), Canada, and Mexico), 27%approximately 21% 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 5%approximately 8% of our total revenues were derived from operations in Australia and New Zealand.
We deliver financial-related services to cardholders through our networks. We also provide ATM management and ATM equipment-related services (typically under multi-year contracts) to large retail merchants, smaller retailers, and operators of facilities such as shopping malls, casinos, airports, and train stations. In doing so, we provide our retail partners with a compelling automated solution that helps attract and retain customers. In turn, it increases the likelihood that customers will utilize the ATMs placed at their facilities. We also partner with financial institutions and other consumer financial services providers to enable convenient and fee-free access to our ATMs via our surcharge-free solutions for their customers. Included in our network are approximately 200,000 ATMs (including our estimate of ATMs that were temporarily closed as a result of March 31, 2020, were approximately 198,000 ATMsthe Pandemic) to which we provided processing only services or various forms of managed services solutions. Under a managed services arrangement, retailers, financial institutions, and ATM distributors rely on us to handle some or all of the operational aspects associated with operating and maintaining ATMs, typically in exchange for a monthly service fee, fee per transaction, or a fee per service provided.
Through our network, we deliver various ATM-based financial 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, casinos, 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 provide processing services for issuers of debit cards.
We also own and operate the Allpoint network (“Allpoint”), the world’s largest retail-based surcharge-free ATM network (based on the number of participating ATMs). Allpoint has over 55,000 participating ATMs and provides surcharge-free ATM access to nearlyapproximately 1,200 participating credit unions, banks, digital banks, financial technology companies with a primary focus on the retail consumer finance business (or "FinTechs"), and stored-value debit card issuers that are principally located in North America.issuers. For participants, Allpoint providesdelivers the scale, density, and convenience of surcharge-free ATMs that surpasses the largest banks in the U.S. In exchange,Under Allpoint, earnswe typically earn either a fixed monthly fee per cardholder and/or a fixed fee per transaction that is paid by participants.the consumer's financial institution or the card/benefit issuer. We also earn interchange revenues on each transaction performed at one of our participating Allpoint ATMs. Allpoint includes a majority of our Company ownedCompany-owned ATMs in the U.S., and certain ATMs in the U.K., Canada, Mexico, 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 usAllpoint a fee per issued stored-value debit card or per transaction in return for allowing the users of those cards surcharge-free access to the AllpointAllpoint’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, 2019 (the “2019 Form 10-K”).2020.
COVID-19 UpdRecent Trends and Events ate
Proposed Transaction with NCR. On January 25, 2021, we entered into a definitive agreement to be acquired by NCR Corporation (“NCR”) for $39.00 per share in cash. This followed our delivery of a notice to terminate our previously announced definitive agreement with Catalyst Holdings Limited (“Catalyst”), an affiliate of Apollo Management, L.P. and Hudson Executive Capital, LP, dated as of December 15, 2020, pursuant to which we would have been acquired by Catalyst for $35.00 per share, in accordance with the terms of such agreement. In connection with such termination, NCR paid on our behalf a termination fee of approximately $32.6 million, which we must reimburse if our agreement with NCR is terminated under certain specified circumstances. The proposed transaction with NCR is subject to the satisfaction of customary closing conditions, including the receipt of regulatory approvals. Cardtronics shareholders approved the transaction on May 7, 2021.
It is expected that, subject to the satisfaction or waiver of all relevant conditions, the proposed transaction will be completed in mid-year 2021. For a discussion of certain risks related to the proposed transaction with NCR, including related to certain covenants with which we must comply during the pendency of the proposed transaction, see Part I. Item 1A. Risk Factors – Risks Associated with the Proposed Transaction with NCR Corporation in the 2020 Form 10-K. For more information, see our definitive proxy statement filed with the SEC on March 30, 2021 and the supplement to the definitive proxy statement filed with the SEC on April 27, 2021.
COVID-19 Update. On March 11, 2020, the respiratory virus commonly known as COVID-19 (the “Pandemic”) was declared a pandemic by the World Health Organization, and byOrganization. By late March 2020, there were confirmed cases and deaths from COVID-19the Pandemic in each of the countries in which we operate. Our primary focus has beenIn response, throughout 2020 and will remain on protecting the health and wellbeing of our employees and the communities in which we operate. We have implemented business continuity plans, with most of our employees working from home since March 16, without issue. Certain of our employees continue to perform cash delivery, maintenance and other technical services on site and at certain of our office and warehouse locations to ensure the continued operations of our ATMs.
National2021, national and local governments haveinstituted various degrees of travel restrictions and shelter-in-place orders while generally deemeddeeming financial institutions, grocery stores, pharmacies and convenience stores as “critically essential” in providing their services to citizens during this global emergency. As a partnerAlthough our primary focus has been and remains on protecting the health and safety of our employees and the communities in which we operate, we continue to these businesses in providing cash access to consumers, we have coordinatedcoordinate with our partners, where possible, to ensure continued and seamless operations of our ATMs. Certain
Specific locations, such as casinos, theme parks, malls, tourist-focused ATMs, education facilities and other ATM sites have been closed.were closed for all or parts of the second, third and fourth quarters of 2020. Some of these locations remain closed or continue to be negatively impacted as a result of the Pandemic. At the end of April 2020,March 2021, closed ATMs, including but not limited to ATMs at casinos, theme parks, malls, tourist-focused ATMs, and education locations, represented approximately 10%6% of our total Company ownedCompany-owned ATM fleet.
After Due to the announcement of the pandemic,Pandemic, we have experienced decreases indecreased transaction volumes of varying degrees across our network, depending on the location, and have seen and expect to continue to see transaction volume declines in the second quarter of 2020.location. The majority of our revenues are variable and are transaction volume dependent. These transactiondependent; therefore, continued declines are
expecteddue to resultPandemic-related restrictions resulted in lower secondfirst quarter 20202021 revenues compared to the same period in 20192020 and may continue to adversely impact our results in future periods during 2020 and beyond.periods.
In response to COVID-19,the Pandemic, we haveimplemented business continuity plans, with most of our employees working from home since March 2020, without issue. Some of our employees continue to perform cash delivery, maintenance and other technical services on site and at certain office and warehouse locations to ensure the continued operations of our ATMs. During 2020, we also implemented cost reductionsreduction plans and have takentook action to manage expenses, reducetemporarily deferred capital spending plans and have suspended our opportunistic share repurchase program to optimize cash flow during the current environment.flow. We continue to actively monitor the situation actively and may take further actions that could alter our business operations as may be required by national, federal, state, and/or local authorities or that we determine are in the best interests of our employees, customers, partners and shareholders. In spite ofDespite the transaction declines which we expectimpacted by the Pandemic that may continue for several additional months during 2020,in the remainder of 2021, we anticipate generating positive adjusted free cash flows in 2021 after considering our required capital expenditures. While we are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our business, we believe we have sufficient liquidity to manage our business operations through extended periods of transaction and revenue declines caused by the pandemic. See Part II,I, Item 1A1A. Risk Factors - “Risk Factors” - “We are subject to business cycles, seasonality, and other outside factors such as extreme weather, natural disasters or health emergencies, including the recentongoing outbreak of the coronavirus pandemic (“COVID-19” or the "Pandemic") pandemic that has adversely impactedaffected our business, and that may in the future have a material adverse impact on our business.business ”in the 2020 Form10-K.
Other Recent Trends and Events
Withdrawal transaction and revenue trends. We present cash withdrawal transaction trends -on a comparable ATM, or “same-store,” basis as supplemental information for investors. Our same-store cash withdrawal transactions include withdrawal transactions on Company-owned transacting ATMs registering withdrawals for 12 consecutive months preceding and including each quarter of the fiscal year. Withdrawal transactions on ATMs deployed under managed services arrangements are not included. In addition, we also may make adjustments to exclude ATMs that change formats (e.g., change between pay-to-use and free-to-use). We present same-store cash withdrawal transactions to help us and our investors evaluate the ongoing performance of our comparable ATMs, including the impact of the Pandemic on our operations. Our method of calculating same store cash withdrawal transactions is not necessarily comparable to similarly titled measures reported by other companies.
Our two largest markets are the U.S. and U.K., and on a combined basis, these markets represent nearlyapproximately 80% of our revenues. Our U.S. same-store cash withdrawal transactions decreasedtransactions increased by approximately 0.3%6% during the three months ended March 31, 20202021 when compared to same period in 2019.2020, and were up 5% compared to the same period in 2019 (non-pandemic impacted). Our U.S. transactions were up compared to both periods as we continue to see strong growth in our surcharge-free transactions. Our U.K. same-store cash withdrawal transactions decreased by approximately 11%39% during the three months ended March 31, 20202021 when compared to same period in 2019.2020 and were down 46% compared to the same period in 2019 (non-pandemic impacted). In both cases, and in each of our other jurisdictions, same-store transaction results have been adversely impacted by the COVID-19 pandemicPandemic beginning in mid-March 2020.
Following the momentum we experienced in the latter part
With varying measures implemented by governments, including travel and social gathering limitations and their corresponding impacts to the beginningconsumer activity, our business remained impacted throughout most of 2020. In the U.S., our same-store withdrawal transactions were up 6% through mid-March. The impact of COVID-19, and the subsequent shelter in place orders, began to impact transaction volumes starting in the second week of March, with same-store transaction volumes decreasing approximately 30-35% year-over-year. These transaction declines appear to have stabilized,2020 and during the monthfirst quarter of April,2021 by the consequential impacts of the Pandemic. Further social gathering restrictions or the introduction of additional restrictions in any or all of our markets would likely adversely impact our transaction volumes. Conversely, we have seen withdrawalwould expect to recover more transaction volumes improving, correlated with higher unemployment benefitsvolume as social gathering and travel restrictions are reduced or removed in each of the government stimulus programs. U.S. same-store transaction volumesmarkets in the last two weeks in April were down approximately 20% year-over-year. In the U.K., during the last week of March through the first week of April,which we saw same-store withdrawal transaction volumes decrease approximately 60-65% year-over-year, consistent with overall market volume. These withdrawal transaction declines also appear to have stabilized to a degree, with same-store, year-over-year decreases of approximately 55% experienced during the last three weeks of April. We expect these overall trends to continue to improve as governments begin to ease shelter in place restrictions.operate.
Results of Operations
The following table reflects line items from the accompanying 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 March 31, | | | Three months ended March 31, | |
| | | | | 2020 | | | 2019 | | | 2021 | | 2020 | |
| | | (In thousands, excluding percentages) | | | (In thousands, excluding percentages) |
Revenues: | Revenues: | | | Revenues: | | |
ATM operating revenues | ATM operating revenues | | | $ | 291,854 | | | 95.2 | % | | $ | 302,602 | | | 95.1 | % | ATM operating revenues | $ | 255,018 | | | 95.2 | % | | $ | 291,799 | | | 95.2 | % | |
ATM product sales and other revenues | ATM product sales and other revenues | | | 14,748 | | | 4.8 | | | 15,668 | | | 4.9 | | ATM product sales and other revenues | 12,816 | | | 4.8 | | | 14,803 | | | 4.8 | | |
Total revenues | Total revenues | | | 306,602 | | | 100.0 | | | 318,270 | | | 100.0 | | Total revenues | 267,834 | | | 100.0 | | | 306,602 | | | 100.0 | | |
Cost of revenues: | Cost of revenues: | | | | | | | | Cost of revenues: | | | | | | | | |
Cost of ATM operating revenues (1) | Cost of ATM operating revenues (1) | | | 193,665 | | | 63.2 | | | 206,158 | | | 64.8 | | Cost of ATM operating revenues (1) | 150,803 | | | 56.3 | | | 193,630 | | | 63.2 | | |
Cost of ATM product sales and other revenues | Cost of ATM product sales and other revenues | | | 12,057 | | | 3.9 | | | 11,925 | | | 3.7 | | Cost of ATM product sales and other revenues | 8,796 | | | 3.3 | | | 12,092 | | | 3.9 | | |
Total cost of revenues | Total cost of revenues | | | 205,722 | | | 67.1 | | | 218,083 | | | 68.5 | | Total cost of revenues | 159,599 | | | 59.6 | | | 205,722 | | | 67.1 | | |
Operating expenses: | Operating expenses: | | | | | | | | | | | | | | Operating expenses: | | | | | | | | |
Selling, general, and administrative expenses (2) | Selling, general, and administrative expenses (2) | | | 42,378 | | | 13.8 | | | 43,660 | | | 13.7 | | Selling, general, and administrative expenses (2) | 42,909 | | | 16.0 | | | 42,378 | | | 13.8 | | |
| Restructuring expenses | Restructuring expenses | | | 1,209 | | | 0.4 | | | — | | | — | | Restructuring expenses | 1,692 | | | 0.6 | | | 1,209 | | | 0.4 | | |
| Acquisition related expenses | | Acquisition related expenses | 1,440 | | | 0.5 | | | — | | | — | | |
| Depreciation and accretion expense | Depreciation and accretion expense | | | 32,211 | | | 10.5 | | | 32,973 | | | 10.4 | | Depreciation and accretion expense | 32,285 | | | 12.1 | | | 32,211 | | | 10.5 | | |
Amortization of intangible assets | Amortization of intangible assets | | | 8,413 | | | 2.7 | | | 12,412 | | | 3.9 | | Amortization of intangible assets | 6,086 | | | 2.3 | | | 8,413 | | | 2.7 | | |
Loss on disposal and impairment of assets | Loss on disposal and impairment of assets | | | 921 | | | 0.3 | | | 968 | | | 0.3 | | Loss on disposal and impairment of assets | 353 | | | 0.1 | | | 921 | | | 0.3 | | |
Total operating expenses | Total operating expenses | | | 85,132 | | | 27.8 | | | 90,013 | | | 28.3 | | Total operating expenses | 84,765 | | | 31.6 | | | 85,132 | | | 27.8 | | |
Income from operations | Income from operations | | | 15,748 | | | 5.1 | | | 10,174 | | | 3.2 | | Income from operations | 23,470 | | | 8.8 | | | 15,748 | | | 5.1 | | |
Other expenses: | Other expenses: | | | | | | | | Other expenses: | | | | | |
Interest expense, net | Interest expense, net | | | 6,421 | | | 2.1 | | | 6,643 | | | 2.1 | | Interest expense, net | 10,761 | | | 4.0 | | | 6,421 | | | 2.1 | | |
Amortization of deferred financing costs and note discount | Amortization of deferred financing costs and note discount | | | 3,486 | | | 1.1 | | | 3,292 | | | 1.0 | | Amortization of deferred financing costs and note discount | 1,043 | | | 0.4 | | | 3,486 | | | 1.1 | | |
Other expenses (income) | | | 3,829 | | | 1.2 | | | (7,207) | | | (2.3) | | |
| Other expense, net | | Other expense, net | 2,842 | | | 1.1 | | | 3,829 | | | 1.2 | | |
Total other expenses | Total other expenses | | | 13,736 | | | 4.5 | | | 2,728 | | | 0.9 | | Total other expenses | 14,646 | | | 5.5 | | | 13,736 | | | 4.5 | | |
Income before income taxes | Income before income taxes | | | 2,012 | | | 0.7 | | | 7,446 | | | 2.3 | | Income before income taxes | 8,824 | | | 3.3 | | | 2,012 | | | 0.7 | | |
Income tax (benefit) expense | | | (3,737) | | | (1.2) | | | 3,129 | | | 1.0 | | |
Income tax expense (benefit) | | Income tax expense (benefit) | 2,951 | | | 1.1 | | | (3,737) | | | (1.2) | | |
Net income | Net income | | | 5,749 | | | 1.9 | | | 4,317 | | | 1.4 | | Net income | 5,873 | | | 2.2 | | | 5,749 | | | 1.9 | | |
Net loss attributable to noncontrolling interests | Net loss attributable to noncontrolling interests | | | (6) | | | — | | | (2) | | | — | | Net loss attributable to noncontrolling interests | (3) | | | — | | | (6) | | | — | | |
Net income attributable to controlling interests and available to common shareholders | Net income attributable to controlling interests and available to common shareholders | | | $ | 5,755 | | | 1.9 | % | | $ | 4,319 | | | 1.4 | % | Net income attributable to controlling interests and available to common shareholders | $ | 5,876 | | | 2.2 | % | | $ | 5,755 | | | 1.9 | % | |
(1)Excludes effects of depreciation, accretion, and amortizationamortization of intangible assets $31.2of $32.0 million and $37.0$31.2 million for the three months ended March 31, 20202021 and 2019,2020, respectively. See Item 1. Financial Statements, Note 1. General and Basis of Presentation – (c) Cost of ATM Operating Revenues Presentation. The inclusion of this depreciation, accretion, and amortization of intangible assets in Cost of ATM operating revenues would have increased our Cost of ATMATM operating revenues as a percentage of total revenues 10.2%by 11.9% and 11.6%10.2% for the three months ended March 31, 20202021 and 2019,2020, respectively.
(2)IncludesIncludes share-based compensation expense of $4.6$4.0 million and $4.2$4.6 million for the three months ended March 31, 20202021 and 2019,2020, respectively.
Key Operating Metrics
The following tables reflect certain key measures that gauge our operating performance for the periods indicated:
| | | Three Months Ended March 31, | | | As of March 31, |
| | 2020 | | % Change | | 2019 | | 2021 | | % Change | | 2020 |
Ending number of transacting ATMs: | | | | | | |
Ending number of transacting ATMs(1): | | Ending number of transacting ATMs(1): | | | | | |
North America | North America | 43,792 | | | 1.8 | % | | 43,018 | | North America | 44,021 | | | 0.5 | % | | 43,792 | |
Europe & Africa | Europe & Africa | 23,586 | | | (0.8) | % | | 23,784 | | Europe & Africa | 20,736 | | | (9.7) | % | | 22,971 | |
Australia & New Zealand | Australia & New Zealand | 6,703 | | | (13.8) | % | | 7,779 | | Australia & New Zealand | 5,946 | | | (11.3) | % | | 6,703 | |
Total Company-owned(1)(2) | Total Company-owned(1)(2) | 74,081 | | | (0.7) | % | | 74,581 | | Total Company-owned(1)(2) | 70,703 | | | (3.8) | % | | 73,466 | |
| | | | | |
North America | North America | 13,351 | | | (6.5) | % | | 14,273 | | North America | 11,664 | | | (12.6) | % | | 13,351 | |
Europe & Africa | Europe & Africa | 228 | | | 2.2 | % | | 223 | | Europe & Africa | 126 | | | (44.7) | % | | 228 | |
| Total Merchant-owned | Total Merchant-owned | 13,579 | | | (6.3) | % | | 14,496 | | Total Merchant-owned | 11,790 | | | (13.2) | % | | 13,579 | |
| | | |
Managed Services and Processing: | Managed Services and Processing: | | Managed Services and Processing: | |
North America (2) | North America (2) | 196,390 | | | 42.4 | % | | 137,936 | | North America (2) | 194,772 | | | (0.7) | % | | 196,196 | |
Europe & Africa | | Europe & Africa | 151 | | | 4.1 | % | | 145 | |
Australia & New Zealand | Australia & New Zealand | 1,687 | | | 2.9 | % | | 1,639 | | Australia & New Zealand | 1,321 | | | (21.7) | % | | 1,687 | |
Ending number of transacting ATMs – Managed services and processing (1) | 198,077 | | | 41.9 | % | | 139,575 | | |
Total Managed services and processing(2) | | Total Managed services and processing(2) | 196,244 | | | (0.9) | % | | 198,028 | |
| | | | | |
Total ending number of transacting ATMs | Total ending number of transacting ATMs | 285,737 | | | 25.0 | % | | 228,652 | | Total ending number of transacting ATMs | 278,737 | | | (2.2) | % | | 285,073 | |
(1)The ending number of transacting ATMs presented in the table above includes only those ATMs transacting during the months of March 2021 and 2020. The 2021 and 2020 counts do not include ATMs at casinos, theme parks, malls, education facilities, tourist-focused sites and other ATM sites that were temporarily closed and not transacting as a result of the Pandemic. The Company estimates, that during the month of March 2021, approximately 10,400 ATMs were not transacting due to the Pandemic including approximately 4,600 ATMs, 2,400 ATMs, and 3,400 ATMs in the Company-owned, Merchant-owned, and Managed services and processing arrangement types, respectively. In total, we estimate that the number of ATMs we service exceeds 285,000.
(2)Company-owned ATMs that are deployed under managed services agreements are classified under Managed Servicesservices and Processing.
(2)proceIn May 2019, the Company completed the acquisition of ATM processing contracts to provide transaction processing services for approximately 62,000 ATMs.ssing.
The following table reflects certain key measures that gauge our operating performance for the periods indicated:
| | | | | Three Months Ended March 31, | | | Three months ended March 31, | |
| | | | 2020 | | % Change | | 2019 | | 2021 | | % Change | | 2020 | |
Average number of transacting ATMs: | | | | | | | | |
Average number of transacting ATMs(1): | | Average number of transacting ATMs(1): | | | | | | |
North America | North America | | | 43,702 | | | 1.8 | % | | 42,934 | | North America | 43,456 | | | (0.6) | % | | 43,702 | | |
Europe & Africa | Europe & Africa | | | 23,778 | | | 0.1 | | | 23,755 | | Europe & Africa | 20,979 | | | (10.3) | | | 23,376 | | |
Australia & New Zealand | Australia & New Zealand | | | 6,809 | | | (12.4) | | | 7,771 | | Australia & New Zealand | 5,982 | | | (11.0) | | | 6,725 | | |
Total Company-owned (1)(2) | Total Company-owned (1)(2) | | | 74,289 | | | (0.2) | | | 74,460 | | Total Company-owned (1)(2) | 70,417 | | | (4.6) | | | 73,803 | | |
| North America | North America | | | 13,480 | | | (3.8) | | | 14,018 | | North America | 11,285 | | | (16.3) | | | 13,480 | | |
Europe & Africa | Europe & Africa | | | 231 | | | 2.7 | | | 225 | | Europe & Africa | 145 | | | (37.2) | | | 231 | | |
| Total Merchant-owned | Total Merchant-owned | | | 13,711 | | | (3.7) | | | 14,243 | | Total Merchant-owned | 11,430 | | | (16.6) | | | 13,711 | | |
| Managed Services and Processing: | Managed Services and Processing: | | | | | | Managed Services and Processing: | | | | |
North America(2) | | | 196,561 | | | 43.8 | | | 136,730 | | |
North America | | North America | 189,813 | | | (3.4) | | | 196,561 | | |
Europe and Africa | | Europe and Africa | 151 | | | 145 | | |
Australia & New Zealand | Australia & New Zealand | | | 1,274 | | | (27.2) | | | 1,751 | | Australia & New Zealand | 1,397 | | | (19.2) | | | 1,728 | | |
Average number of transacting ATMs – Managed services and processing | | | 197,835 | | | 42.9 | | | 138,481 | | |
Total Managed services and processing (2) | | Total Managed services and processing (2) | 191,361 | | | (3.6) | | | 198,434 | | |
| Total average number of transacting ATMs | Total average number of transacting ATMs | | | 285,835 | | | 25.8 | | | 227,184 | | Total average number of transacting ATMs | 273,208 | | | (4.5) | | | 285,948 | | |
| Total transactions (in thousands): | Total transactions (in thousands): | | | | | | Total transactions (in thousands): | | | | |
ATM operations (3) | | | 263,048 | | | (13.6) | | | 304,528 | | |
ATM operations | | ATM operations | 211,639 | | | (19.5) | | | 263,048 | | |
Managed services and processing, net | Managed services and processing, net | | | 323,544 | | | 16.2 | | | 278,388 | | Managed services and processing, net | 341,993 | | | 5.7 | | | 323,544 | | |
Total transactions | | | 586,592 | | | 0.6 | | | 582,916 | | |
Total transactions (3) | | Total transactions (3) | 553,632 | | | (5.6) | | | 586,592 | | |
| Total cash withdrawal transactions (in thousands): | Total cash withdrawal transactions (in thousands): | | | Total cash withdrawal transactions (in thousands): | | |
ATM operations (3) | ATM operations (3) | | | 173,413 | | | (13.6) | | | 200,688 | | ATM operations (3) | 135,215 | | | (22.0) | | | 173,413 | | |
| Per ATM per month amounts (excludes managed services and processing): | Per ATM per month amounts (excludes managed services and processing): | | | Per ATM per month amounts (excludes managed services and processing): | | |
Cash withdrawal transactions (3) | Cash withdrawal transactions (3) | | | 657 | | | (12.7) | | | 753 | | Cash withdrawal transactions (3) | 551 | | | (16.6) | | | 661 | | |
| ATM operating revenues (4) | ATM operating revenues (4) | | | $ | 1,006 | | | (4.1) | | | $ | 1,049 | | ATM operating revenues (4) | $ | 935 | | | (8.1) | | | $ | 1,017 | | |
Cost of ATM operating revenues (4) (5) | Cost of ATM operating revenues (4) (5) | | | 693 | | | (5.3) | | | 732 | | Cost of ATM operating revenues (4) (5) | 565 | | | (18.9) | | | 697 | | |
ATM adjusted operating gross profit (4) (5) | | | $ | 313 | | | (1.3) | % | | $ | 317 | | |
ATM adjusted operating gross profit (4)(5) | | ATM adjusted operating gross profit (4)(5) | $ | 370 | | | 15.6 | % | | $ | 320 | | |
| ATM adjusted operating gross profit margin | ATM adjusted operating gross profit margin | | | 31.1 | % | | 30.2 | % | ATM adjusted operating gross profit margin | 39.6 | % | | 31.5 | % | |
(1)The average number of transacting ATMs presented above represents an average of the ATMs transacting in the respective months of 2021 and 2020. The 2021 and 2020 counts do not include ATMs at casinos, theme parks, malls, education facilities, tourist-focused sites and other ATM sites that were temporarily closed and not transacting as a result of the Pandemic.
(2)Company-owned ATMs that are deployed under managed services agreements are classified under Managed Servicesservices and Processing.
(2)In May 2019, the Company completed the acquisition of ATM processing contracts that will provide transaction processing services for approximately 62,000 ATMs. .processing.
(3)Total transactions, total cash withdrawal transactions, and total cash withdrawal transactions per ATM per month were adversely impacted by the transition of high-volume free-to-use ATMsPandemic, particularly in the U.K. to pay-to-use. As a result of this transition, the ratio of free-to-use ATMs to pay-to-use ATMs in the U.K. during the three months ended March 31, 2020 was lower than during the three months ended March 31, 2019.where average transactions per ATM exceed our Company average.
(4)ATM operating revenues and Cost of ATM operating revenues relating to managed services, processing, ATM equipment sales, and other ATM-related services are not included in this calculation. The Cost of ATM operating revenues in the three months ended March 31, 2021 includes business rate tax recoveries totaling $12.0 million.
(5)Amounts presented exclude the effect of depreciation, accretion, and amortization of intangible assets, which is reported separately in the accompanying Consolidated Statements of Operations. For additional information, see Item 1. Financial Statements, Note 1. General and Basis of Presentation – (c) Cost of ATM Operating Revenues Presentation.
Revenues
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | | 2020 | | 2019 | | % Change | | 2021 | | 2020 | | % Change | |
| | | (In thousands, excluding percentages) | | | (In thousands, excluding percentages) | |
North America | North America | | | North America | | |
ATM operating revenues | ATM operating revenues | | | $ | 193,241 | | | $ | 191,046 | | | 1.1 | % | ATM operating revenues | $ | 182,959 | | | $ | 193,241 | | | (5.3) | % | |
ATM product sales and other revenues | ATM product sales and other revenues | | | 12,756 | | | 13,202 | | | (3.4) | | ATM product sales and other revenues | 9,086 | | | 12,756 | | | (28.8) | | |
North America total revenues | North America total revenues | | | 205,997 | | | 204,248 | | | 0.9 | | North America total revenues | 192,045 | | | 205,997 | | | (6.8) | | |
Europe & Africa | Europe & Africa | | | | | Europe & Africa | | | | |
ATM operating revenues | ATM operating revenues | | | 79,958 | | | 88,678 | | | (9.8) | | ATM operating revenues | 52,835 | | | 79,958 | | | (33.9) | | |
ATM product sales and other revenues | ATM product sales and other revenues | | | 1,942 | | | 2,247 | | | (13.6) | | ATM product sales and other revenues | 3,243 | | | 1,942 | | | 67.0 | | |
Europe & Africa total revenues | Europe & Africa total revenues | | | 81,900 | | | 90,925 | | | (9.9) | | Europe & Africa total revenues | 56,078 | | | 81,900 | | | (31.5) | | |
Australia & New Zealand | Australia & New Zealand | | | | | Australia & New Zealand | | | | |
ATM operating revenues | ATM operating revenues | | | 20,307 | | | 25,791 | | | (21.3) | | ATM operating revenues | 19,712 | | | 20,252 | | | (2.7) | | |
ATM product sales and other revenues | ATM product sales and other revenues | | | 50 | | | 219 | | | (77.2) | | ATM product sales and other revenues | 487 | | | 105 | | | 363.8 | | |
Australia & New Zealand total revenues | Australia & New Zealand total revenues | | | 20,357 | | | 26,010 | | | (21.7) | | Australia & New Zealand total revenues | 20,199 | | | 20,357 | | | (0.8) | | |
| Eliminations | Eliminations | | | (1,652) | | | (2,913) | | | (43.3) | | Eliminations | (488) | | | (1,652) | | | (70.5) | | |
| Total ATM operating revenues | Total ATM operating revenues | | | 291,854 | | | 302,602 | | | (3.6) | | Total ATM operating revenues | 255,018 | | | 291,799 | | | (12.6) | | |
Total ATM product sales and other revenues | Total ATM product sales and other revenues | | | 14,748 | | | 15,668 | | | (5.9) | | Total ATM product sales and other revenues | 12,816 | | | 14,803 | | | (13.4) | | |
Total revenues | Total revenues | | | $ | 306,602 | | | $ | 318,270 | | | (3.7) | % | Total revenues | $ | 267,834 | | | $ | 306,602 | | | (12.6) | % | |
Three Months Ended March 31, 20202021 Compared to Three Months Ended March 31, 2019
2020
ATM operating revenues. ATM operating revenues, during the three months ended March 31, 2020,2021, decreased $10.7$36.8 million, or 3.6%12.6%, compared to the same period of 2019. The decrease was in part due to foreign currency exchange rate movements impacting the results of our Europe & Africa and Australia & New Zealand segments.2020. Absent the foreign currency exchange rate movements, ATM operating revenues would have decreased $7.2 $44.1 million or 2.4% primarily as a result of lower transaction volumes related 15.1% due to the impacts caused byof the COVID-19 pandemic.Pandemic that resulted in lower transaction volumes. The decrease in revenue was partially offset by growth in the interchange, bank-branding and surcharge-free network, revenues and higher managed services and transaction processing revenues in North America.
The following table details, by segment, the changes in the various components of ATM operating revenues:
revenues for the periods indicated.
As presented, certain prior year amounts have been reclassified to ensure consistency with the current year presentation and management's current views concerning the classification of revenues related to managed services and processing arrangements. The reclassified amounts previously presented as Managed services and processing revenues were reclassified as Surcharge revenues and Bank-branding and surcharge-free network revenues, respectively, in the North America segment, and amounts previously presented as Interchange revenues were reclassified as Managed services and processing revenues in the Europe & Africa and Australia & New Zealand segments. We determined that these reclassifications are not material to the previously reported financial statements.
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | 2020 | | 2019 | | Change | | % Change | | 2021 | | 2020 | | Change | | % Change | |
| | (In thousands, excluding percentages) | | | (In thousands, excluding percentages) | |
North America | North America | | North America | | |
Surcharge revenues | Surcharge revenues | $ | 80,235 | | | $ | 85,110 | | | $ | (4,875) | | | (5.7) | % | Surcharge revenues | $ | 61,452 | | | $ | 81,977 | | | $ | (20,525) | | | (25.0) | % | |
Interchange revenues | Interchange revenues | 31,610 | | | 34,379 | | | (2,769) | | | (8.1) | | Interchange revenues | 32,160 | | | 31,610 | | | 550 | | | 1.7 | | |
Bank-branding and surcharge-free network revenues | Bank-branding and surcharge-free network revenues | 53,768 | | | 45,873 | | | 7,895 | | | 17.2 | | Bank-branding and surcharge-free network revenues | 61,309 | | | 54,538 | | | 6,771 | | | 12.4 | | |
Managed services and transaction processing revenues | 27,628 | | | 25,684 | | | 1,944 | | | 7.6 | | |
Managed services and processing revenues | | Managed services and processing revenues | 28,038 | | | 25,116 | | | 2,922 | | | 11.6 | | |
| North America total ATM operating revenues | North America total ATM operating revenues | 193,241 | | | 191,046 | | | 2,195 | | | 1.1 | | North America total ATM operating revenues | 182,959 | | | 193,241 | | | (10,282) | | | (5.3) | | |
Europe & Africa | Europe & Africa | | Europe & Africa | | | | |
Surcharge revenues | Surcharge revenues | 32,596 | | | 31,045 | | | 1,551 | | | 5.0 | | Surcharge revenues | 16,734 | | | 32,596 | | | (15,862) | | | (48.7) | | |
Interchange revenues | Interchange revenues | 44,997 | | | 55,308 | | | (10,311) | | | (18.6) | | Interchange revenues | 34,135 | | | 44,825 | | | (10,690) | | | (23.8) | | |
Bank-branding and surcharge-free network revenues | Bank-branding and surcharge-free network revenues | 347 | | | — | | | 347 | | | — | | Bank-branding and surcharge-free network revenues | 280 | | | 347 | | | (67) | | | (19.3) | | |
Managed services and processing revenues | Managed services and processing revenues | 2,018 | | | 2,325 | | | (307) | | | (13.2) | | Managed services and processing revenues | 1,686 | | | 2,190 | | | (504) | | | (23.0) | | |
Europe & Africa total ATM operating revenues | Europe & Africa total ATM operating revenues | 79,958 | | | 88,678 | | | (8,720) | | | (9.8) | | Europe & Africa total ATM operating revenues | 52,835 | | | 79,958 | | | (27,123) | | | (33.9) | | |
Australia & New Zealand | Australia & New Zealand | | Australia & New Zealand | | | | |
Surcharge revenues | Surcharge revenues | 15,945 | | | 20,668 | | | (4,723) | | | (22.9) | | Surcharge revenues | 15,203 | | | 15,945 | | | (742) | | | (4.7) | | |
Interchange revenues | 873 | | | 1,303 | | | (430) | | | (33.0) | | |
| Managed services and transaction processing revenues | 3,489 | | | 3,820 | | | (331) | | | (8.7) | | |
| Managed services and processing revenues | | Managed services and processing revenues | 4,509 | | | 4,307 | | | 202 | | | 4.7 | | |
| Australia & New Zealand total ATM operating revenues | Australia & New Zealand total ATM operating revenues | 20,307 | | | 25,791 | | | (5,484) | | | (21.3) | | Australia & New Zealand total ATM operating revenues | 19,712 | | | 20,252 | | | (540) | | | (2.7) | | |
Eliminations | Eliminations | (1,652) | | | (2,913) | | | 1,261 | | | (43.3) | | Eliminations | (488) | | | (1,652) | | | 1,164 | | | (70.5) | | |
Total ATM operating revenues | Total ATM operating revenues | $ | 291,854 | | | $ | 302,602 | | | $ | (10,748) | | | (3.6) | % | Total ATM operating revenues | $ | 255,018 | | | $ | 291,799 | | | $ | (36,781) | | | (12.6) | % | |
North America. For the three months ended March 31, 2020,2021, ATM operating revenues in our North America segment increased $2.2decreased $10.3 million, or 1.1%5.3%, compared to the same period of 2019. This increase was attributable2020 due to growththe impacts of the Pandemicthat resulted in bank-branding and surcharge-free networklower transaction volumes driving lower surcharge revenues. The decrease in total revenues and higher managed services and transaction processing revenues. The increase was partially offset by lowergrowth in bank-branding and surcharge free network revenues in the U.S., driven by growth from our Allpoint Network. The additional volume on our Allpoint Network also drove an increase in interchange revenue. The decrease in total revenue was also partially offset by an increase in our managed services and interchangeprocessing revenues resulting from fewer transactions due toin the COVID-19 pandemic.U.S., driven by new outsourcing arrangements with both financial institution and retail customers.
Europe & Africa. For the three months ended March 31, 2020,2021, ATM operating revenues in our Europe & Africa segment decreased $8.7$27.1 million, or 9.8%,33.9% compared to the same period of 2019. 2020. Absent the foreign currency exchange rate movements, our ATM operating revenues would havehave decreased by $7.0$30.7 million, or 7.9%38.4%, primarily as a resultdue to the impacts of lower ATM operating revenuesthe Pandemic that resulted in the U.K. resulting from lower transaction volumes due todriving lower surcharge and interchange revenues as well as lower managed services and processing revenues. The lower surcharge revenues were also impacted by travel restrictions associated with the COVID-19 impact and the removal of ATMsPandemic, which resulted in response to the two 5% decreasesa decrease in the LINK interchange rate in the U.K. that came into effect on July 1, 2018 and January 1, 2019.dynamic currency conversion revenues (recognized within surcharge revenues). The decreasedecline was partially offset by an increase in revenues in South Africa attributable to an increase in the number of transacting ATMs and the associated transaction activity in South Africa.additional transactions per ATM.
Australia & New Zealand. For the three months ended March 31, 2020,2021, ATM operating revenues in our Australia & New Zealand segment decreased $5.5$0.5 million, or 21.3%2.7%, compared to the same period of 2019. Approximately $1.6 million, or 28%, of this decline was a result of2020. Absent the foreign currency exchange rate movements, with the remainderour ATM operating revenues would have decreased by $3.4 million, or 17.0%, primarily due to a reduction in the number of transacting ATMs and fewer transactions per ATM due to the impact impacts of the COVID-19 pandemic.Pandemic that resulted in lower transaction volumes driving lower surcharge revenues as well as lower managed services and processing revenues on a constant currency basis.
ATM product sales and other revenues. For the three months ended March 31, 2020,2021, ATM product sales and other revenues decreased 5.9%$2.0 million, or 13.4%, compared to the same period of 2019.2020. The decrease was primarily related to lower equipment sales in the U.S. and lower ATM servicing fees inas a result of the U.S. and U.K.Pandemic.
For additional information related to our constant-currency calculations, see Non-GAAP Financial Measures, below. In addition, see Factors Impacting Comparability Between Periods, below.
Cost of Revenues (exclusive of depreciation, accretion, and amortization of intangible assets)
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | | 2020 | | 2019 | | % Change | | 2021 | | 2020 | | % Change | |
| | | | | | | | | | (In thousands, excluding percentages) | |
North America | North America | | | North America | | |
Cost of ATM operating revenues | Cost of ATM operating revenues | | | $ | 128,838 | | | $ | 127,150 | | | 1.3 | % | Cost of ATM operating revenues | $ | 113,368 | | | $ | 128,838 | | | (12.0) | % | |
Cost of ATM product sales and other revenues | Cost of ATM product sales and other revenues | | | 11,066 | | | 10,758 | | | 2.9 | | Cost of ATM product sales and other revenues | 6,809 | | | 11,065 | | | (38.5) | | |
North America total cost of revenue | North America total cost of revenue | | | 139,904 | | | 137,908 | | | 1.4 | | North America total cost of revenue | 120,177 | | | 139,903 | | | (14.1) | | |
Europe & Africa | Europe & Africa | | | | | Europe & Africa | | | | |
Cost of ATM operating revenues | Cost of ATM operating revenues | | | 51,790 | | | 62,553 | | | (17.2) | | Cost of ATM operating revenues | 23,869 | | | 51,790 | | | (53.9) | | |
Cost of ATM product sales and other revenues | Cost of ATM product sales and other revenues | | | 844 | | | 856 | | | (1.4) | | Cost of ATM product sales and other revenues | 1,506 | | | 844 | | | 78.4 | | |
Europe & Africa total cost of revenues | Europe & Africa total cost of revenues | | | 52,634 | | | 63,409 | | | (17.0) | | Europe & Africa total cost of revenues | 25,375 | | | 52,634 | | | (51.8) | | |
Australia & New Zealand | Australia & New Zealand | | | | | Australia & New Zealand | | | | |
Cost of ATM operating revenues | Cost of ATM operating revenues | | | 14,128 | | | 19,050 | | | (25.8) | | Cost of ATM operating revenues | 13,832 | | | 14,093 | | | (1.9) | | |
Cost of ATM product sales and other revenues | Cost of ATM product sales and other revenues | | | 147 | | | 311 | | | (52.7) | | Cost of ATM product sales and other revenues | 481 | | | 183 | | | 162.8 | | |
Australia & New Zealand total cost of revenues | Australia & New Zealand total cost of revenues | | | 14,275 | | | 19,361 | | | (26.3) | | Australia & New Zealand total cost of revenues | 14,313 | | | 14,276 | | | 0.3 | | |
Corporate total cost of revenues | Corporate total cost of revenues | | | 561 | | | 261 | | | 114.9 | | Corporate total cost of revenues | 222 | | | 561 | | | (60.4) | | |
| Eliminations | Eliminations | | | (1,652) | | | (2,856) | | | n/m | | Eliminations | (488) | | | (1,652) | | | (70.5) | | |
| Cost of ATM operating revenues | Cost of ATM operating revenues | | | 193,665 | | | 206,158 | | | (6.1) | | Cost of ATM operating revenues | 150,803 | | | 193,630 | | | (22.1) | | |
Cost of ATM product sales and other revenues | Cost of ATM product sales and other revenues | | | 12,057 | | | 11,925 | | | 1.1 | | Cost of ATM product sales and other revenues | 8,796 | | | 12,092 | | | (27.3) | | |
Total cost of revenues | Total cost of revenues | | | $ | 205,722 | | | $ | 218,083 | | | (5.7) | % | Total cost of revenues | $ | 159,599 | | | $ | 205,722 | | | (22.4) | % | |
Three Months Ended March 31, 20202021 Compared to Three Months Ended March 31, 20192020
Cost of ATM operating revenues (exclusive of depreciation,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 March 31, 20202021 decreased $12.5$42.8 million, or 6.1%22.1%, compared to the same period of 2019. Absent the2020. These results include unfavorable foreign currency exchange rate movements our Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) decreased $10.1$4.4 million or 4.9%. This decrease is generally consistent with the decline in revenues due to the Pandemic that resulted in lower transaction volumes and the reduced cost of operations relatedthat primarily resulted in lower merchant commissions, vault cash rental fees, transaction processing, and other operating costs across all of our segments. In addition, in response to ourthe Pandemic, cost reduction initiatives were implemented that included workforce reductions and restructuring activities.
The decrease in Cost of ATM operating revenues is also attributable to the recovery of previously paid business rate taxes in the U.K., discussed below.
The following table details, by segment, the changes in the various components of Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets):
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | 2020 | | 2019 | | Change | | % Change | | 2021 | | 2020 | | Change | | % Change | |
| | (In thousands, excluding percentages) | | | (In thousands, excluding percentages) | |
North America | North America | | North America | | |
Merchant commissions | Merchant commissions | $ | 60,811 | | | $ | 62,250 | | | $ | (1,439) | | | (2.3) | % | Merchant commissions | $ | 46,216 | | | $ | 60,811 | | | $ | (14,595) | | | (24.0) | % | |
Vault cash rental | Vault cash rental | 11,314 | | | 12,239 | | | (925) | | | (7.6) | | Vault cash rental | 11,006 | | | 11,314 | | | (308) | | | (2.7) | | |
Other costs of cash | Other costs of cash | 16,054 | | | 15,616 | | | 438 | | | 2.8 | | Other costs of cash | 17,522 | | | 16,054 | | | 1,468 | | | 9.1 | | |
Repairs and maintenance | Repairs and maintenance | 13,473 | | | 12,453 | | | 1,020 | | | 8.2 | | Repairs and maintenance | 14,606 | | | 13,473 | | | 1,133 | | | 8.4 | | |
Communications | Communications | 3,424 | | | 3,718 | | | (294) | | | (7.9) | | Communications | 3,318 | | | 3,424 | | | (106) | | | (3.1) | | |
Transaction processing | Transaction processing | 1,731 | | | 1,410 | | | 321 | | | 22.8 | | Transaction processing | 1,250 | | | 1,731 | | | (481) | | | (27.8) | | |
Employee costs | Employee costs | 8,730 | | | 7,702 | | | 1,028 | | | 13.3 | | Employee costs | 8,775 | | | 8,730 | | | 45 | | | 0.5 | | |
Other expenses | Other expenses | 13,301 | | | 11,762 | | | 1,539 | | | 13.1 | | Other expenses | 10,675 | | | 13,301 | | | (2,626) | | | (19.7) | | |
North America total cost of ATM operating revenues | North America total cost of ATM operating revenues | 128,838 | | | 127,150 | | | 1,688 | | | 1.3 | | North America total cost of ATM operating revenues | 113,368 | | | 128,838 | | | (15,470) | | | (12.0) | | |
Europe & Africa | Europe & Africa | | | | Europe & Africa | | | | |
Merchant commissions | Merchant commissions | 19,311 | | | 23,428 | | | (4,117) | | | (17.6) | | Merchant commissions | 11,790 | | | 19,311 | | | (7,521) | | | (38.9) | | |
Vault cash rental | Vault cash rental | 3,525 | | | 3,599 | | | (74) | | | (2.1) | | Vault cash rental | 2,989 | | | 3,525 | | | (536) | | | (15.2) | | |
Other costs of cash | Other costs of cash | 4,724 | | | 5,881 | | | (1,157) | | | (19.7) | | Other costs of cash | 2,905 | | | 4,724 | | | (1,819) | | | (38.5) | | |
Repairs and maintenance | Repairs and maintenance | 3,178 | | | 4,100 | | | (922) | | | (22.5) | | Repairs and maintenance | 2,413 | | | 3,178 | | | (765) | | | (24.1) | | |
Communications | Communications | 2,613 | | | 2,975 | | | (362) | | | (12.2) | | Communications | 2,716 | | | 2,613 | | | 103 | | | 3.9 | | |
Transaction processing | Transaction processing | 3,945 | | | 5,452 | | | (1,507) | | | (27.6) | | Transaction processing | 1,452 | | | 3,945 | | | (2,493) | | | (63.2) | | |
Employee costs | Employee costs | 9,217 | | | 10,990 | | | (1,773) | | | (16.1) | | Employee costs | 8,130 | | | 9,217 | | | (1,087) | | | (11.8) | | |
Other expenses | Other expenses | 5,277 | | | 6,128 | | | (851) | | | (13.9) | | Other expenses | (8,526) | | | 5,277 | | | (13,803) | | | (261.6) | | |
Europe & Africa total cost of ATM operating revenues | Europe & Africa total cost of ATM operating revenues | 51,790 | | | 62,553 | | | (10,763) | | | (17.2) | | Europe & Africa total cost of ATM operating revenues | 23,869 | | | 51,790 | | | (27,921) | | | (53.9) | | |
Australia & New Zealand | Australia & New Zealand | | | | Australia & New Zealand | | | | |
Merchant commissions | Merchant commissions | 7,512 | | | 10,242 | | | (2,730) | | | (26.7) | | Merchant commissions | 7,505 | | | 7,512 | | | (7) | | | (0.1) | | |
Vault cash rental | Vault cash rental | 1,306 | | | 2,029 | | | (723) | | | (35.6) | | Vault cash rental | 848 | | | 1,306 | | | (458) | | | (35.1) | | |
Other costs of cash | Other costs of cash | 1,240 | | | 1,784 | | | (544) | | | (30.5) | | Other costs of cash | 1,316 | | | 1,240 | | | 76 | | | 6.1 | | |
Repairs and maintenance | Repairs and maintenance | 1,659 | | | 1,988 | | | (329) | | | (16.5) | | Repairs and maintenance | 1,829 | | | 1,631 | | | 198 | | | 12.1 | | |
Communications | Communications | 418 | | | 752 | | | (334) | | | (44.4) | | Communications | 475 | | | 418 | | | 57 | | | 13.6 | | |
Transaction processing | Transaction processing | 612 | | | 514 | | | 98 | | | 19.1 | | Transaction processing | 242 | | | 612 | | | (370) | | | (60.5) | | |
Employee costs | Employee costs | 923 | | | 1,209 | | | (286) | | | (23.7) | | Employee costs | 1,189 | | | 923 | | | 266 | | | 28.8 | | |
Other expenses | Other expenses | 458 | | | 532 | | | (74) | | | (13.9) | | Other expenses | 428 | | | 451 | | | (23) | | | (5.1) | | |
Australia & New Zealand total cost of ATM operating revenues | Australia & New Zealand total cost of ATM operating revenues | 14,128 | | | 19,050 | | | (4,922) | | | (25.8) | | Australia & New Zealand total cost of ATM operating revenues | 13,832 | | | 14,093 | | | (261) | | | (1.9) | | |
Corporate | Corporate | 561 | | | 261 | | | 300 | | | 114.9 | | Corporate | 222 | | | 561 | | | (339) | | | (60.4) | | |
Eliminations | Eliminations | (1,652) | | | (2,856) | | | 1,204 | | | n/m | | Eliminations | (488) | | | (1,652) | | | 1,164 | | | (70.5) | | |
Total cost of ATM operating revenues | Total cost of ATM operating revenues | $ | 193,665 | | | $ | 206,158 | | | $ | (12,493) | | | (6.1) | % | Total cost of ATM operating revenues | $ | 150,803 | | | $ | 193,630 | | | $ | (42,827) | | | (22.1) | % | |
North America. For the three months ended March 31, 2020,2021, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) in our North America segment increased $1.7segment decreased $15.5 million, or 1.3%12.0%, compared to the same period of 2019. The increase2020. This decline was primarily as a result of higher employee costs, higher repairs and maintenancedue to the Pandemic that resulted in lower transaction volumes driving lower merchant commissions, vault cash rental fees, transaction processing costs and higher costs with the growth in bank branding revenues. other operating costs. The increasedecrease was partially offset by lower vaultan increase in Other costs of cash rental feesprimarily related to higher cash-in-transit costs to ensure cash availability in the U.S. Also offsetting the decline were higher repair and lower merchant commissions as a resultmaintenance costs driven by an increase in Company-owned ATMs utilizing third-party maintenance, including an increase in the number of lower transaction volumes.full function ATMs.
Europe & Africa. For the three months ended March 31, 2020,2021, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) in our Europe & Africa segment decreased by $10.8$27.9 million, or 17.2%53.9%, compared to the same period of 2019. Excluding2020, including a $1.7 million unfavorable impact of foreign currency exchange rate movements, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) decreased $9.7 million or 15.5%. This decline is directionally consistent withmovements. This decrease was primarily due to the declinePandemic that resulted in ATM operating revenue with reducedlower transaction volumes impacted by the COVID-19 pandemicdriving lower merchant commissions,transaction processing costs, vault cash rental fees and the reducedother operating costs that resulted from. The decrease was also due to the closure of certain cash management and office facilities as part of our restructuring activities.activities, primarily in the U.K., and lower employee costs due to workforce reductions partially in response to the Pandemic. In addition, in May 2020, the U.K. Supreme Court eliminated our obligation to pay business rate taxes to certain local authorities that resulted in net cash recoveries of $12.0 million related to previous periods, which is reflected as a cost reduction in the Other expenses line within the Cost of ATM operating revenues, as well as the ongoing reduction in business rate tax expense during the three months ended March 31, 2021, compared to the same period of 2020.
Australia & New Zealand. For the three months ended March 31, 2020,2021, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) in our Australia & New Zealand segment decreased $4.9$0.3 million, or 25.8%1.9%, compared to the same period of 2019. Excluding2020, including a $2.0 million unfavorable impact of foreign currency exchange rate movements, our costmovements. The decline was primarily due to the effects of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) decreathe Pandsed $3.8 million or 20.0%. This decline is directionally consistent with the decline in ATM operating revenue with fewer ATMs andemic including lower transaction volumes.volumes driving lower merchant commissions, vault cash rental fees, cash-in-transit services and other operating costs.
Cost of ATM product sales and other revenues. For the three months ended March 31, 2020,2021, our cost of ATM product sales and other revenues increased 1.1%decreased 27.3% from the same period of 2019 due to the mix of products and services sold during the periods.
For additional information2020. The decrease was primarily related to our constant-currency calculations, see Non-GAAP Financial Measureslower equipment sales in the U.S below.as a result of the Pandemic.
Selling, General, and Administrative Expenses
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | | | 2020 | | 2019 | | % Change | | 2021 | | 2020 | | % Change | |
| | | (In thousands, excluding percentages) | | | (In thousands, excluding percentages) |
Selling, general, and administrative expenses | Selling, general, and administrative expenses | | | $ | 37,730 | | | $ | 39,437 | | | (4.3) | % | Selling, general, and administrative expenses | $ | 38,909 | | | $ | 37,730 | | | 3.1 | % | |
Share-based compensation expense | Share-based compensation expense | | | 4,648 | | | 4,223 | | | 10.1 | | Share-based compensation expense | 4,000 | | | 4,648 | | | (13.9) | | |
Total selling, general, and administrative expenses | Total selling, general, and administrative expenses | | | $ | 42,378 | | | $ | 43,660 | | | (2.9) | % | Total selling, general, and administrative expenses | $ | 42,909 | | | $ | 42,378 | | | 1.3 | % | |
| | | | | | | | | | | | | |
Percentage of total revenues: | Percentage of total revenues: | | | Percentage of total revenues: | | |
Selling, general, and administrative expenses | Selling, general, and administrative expenses | | | 12.3 | % | | 12.4 | % | | Selling, general, and administrative expenses | 14.5 | % | | 12.3 | % | | |
Share-based compensation expense | Share-based compensation expense | | | 1.5 | % | | 1.3 | % | | Share-based compensation expense | 1.5 | | | 1.5 | | | |
Total selling, general, and administrative expenses | Total selling, general, and administrative expenses | | | 13.8 | % | | 13.7 | % | | Total selling, general, and administrative expenses | 16.0 | % | | 13.8 | % | | |
Selling, general, and administrative expenses (“SG&A expenses”), excluding share-based compensation expense. For the three months ended March 31, 2020,2021, SG&A expenses, excluding share-based compensation expense, decreased $1.7 increased $1.2 million, or 4.3%3.1%, compared to the same period of 2019. 2020. This decrease isincrease was primarily a result of lower employeepandemic impacted compensation costs drivenin the prior year partially offset by restructuring activities as well as lower incentive compensation,professional fees and lower facilities related costs.other cost reductions implemented as a result of the Pandemic.
Share-based compensation expense. For the three months ended March 31, 2020,2021, share-based compensation expense increased $0.4decreased $0.6 million, or 13.9%, compared to the same period of 2019. This increase is2020 as a result of the amount, timing and terms of share-based payment awards granted during the respective periods, net of estimated forfeitures. For additional information related to share-based compensation expense, see Item 1. Financial Statements, Note 4. Share-based Compensation.
Restructuring Expenses
During 2020, we implemented certain cost reduction initiatives intended to improve the Company's cost structure and operating efficiency partly in response to the Pandemic. During the three months ended March 31, 2021 and 2020, we continued certain corporate reorganizationincurred $1.7 million and cost reduction initiatives that began in 2019. We incurred $1.2 million, respectively, of pre-tax expenses related to this activitythese restructuring activities that primarily included facility closures, workforce reductions, professional fees and other related charges. The facility closures and related workforce reductions during the three months ended March 31, 2021 and 2020, respectively, primarily occurred in the U.K. related to reducing the number of facilities associated with cash delivery operations.
For additional information, see Item 1. Financial Statements, Note 1. General and Basis of Presentation – (d) Restructuring Expenses.
Acquisition RelatedExpenses
Recent Trends and Events - Proposed Transaction with NCR, above.
Depreciation and Accretion Expense
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | | | 2020 | | 2019 | | % Change | | 2021 | | 2020 | | % Change | |
| | | (In thousands, excluding percentages) | | | (In thousands, excluding percentages) |
Depreciation and accretion expense | Depreciation and accretion expense | | | $ | 32,211 | | | $ | 32,973 | | | (2.3) | % | Depreciation and accretion expense | $ | 32,285 | | | $ | 32,211 | | | 0.2 | % | |
| Percentage of total revenues | Percentage of total revenues | | | 10.5 | % | | 10.4 | % | | | Percentage of total revenues | 12.1 | % | | 10.5 | % | | | |
Depreciation and accretion expense. For the three months ended March 31, 2020,2021, depreciation and accretion expense decreased $0.8increased $0.1 million or 2.3%0.2%, compared to the same periodperiods of 2019. This decrease was primarily2020 due to the amount and timing of capital additions in the ordinary course of business and the fluctuation in foreign currency movements.
exchange rates.
Amortization of Intangible Assets
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | | | 2020 | | 2019 | | % Change | | 2021 | | 2020 | | % Change | |
| | | (In thousands, excluding percentages) | | | (In thousands, excluding percentages) |
Amortization of intangible assets | Amortization of intangible assets | | | $ | 8,413 | | | $ | 12,412 | | | (32.2) | % | Amortization of intangible assets | $ | 6,086 | | | $ | 8,413 | | | (27.7) | % | |
| Percentage of total revenues | Percentage of total revenues | | | 2.7 | % | | 3.9 | % | | | Percentage of total revenues | 2.3 | % | | 2.7 | % | | | |
Amortization of intangible assets. For the three months ended March 31, 2020,2021, amortization of intangible assets decreased by $4.0$2.3 million, or 32.2%27.7%, compared to the same period in 2019. This decrease wasof 2020 primarily due to the timing of the relatedcertain intangible assets becoming fully amortized.
Loss on Disposal and Impairment of Assets
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | | | 2020 | | 2019 | | % Change | | 2021 | | 2020 | | % Change | |
| | | (In thousands, excluding percentages) | | | (In thousands, excluding percentages) |
Loss on disposal and impairment of assets | Loss on disposal and impairment of assets | | | $ | 921 | | | $ | 968 | | | (4.9) | % | Loss on disposal and impairment of assets | $ | 353 | | | $ | 921 | | | (61.7) | % | |
| Percentage of total revenues | Percentage of total revenues | | | 0.3 | % | | 0.3 | % | | | Percentage of total revenues | 0.1 | % | | 0.3 | % | | | |
Loss on disposal and impairment of assets. DuringThe losses recognized during the three months ended March 31, 2021 and 2020 we recognized losses of approximately $0.9 million primarily related to the disposal of ATM assets and related ATM parts in the normal course of business.
Interest Expense, net
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | | | 2020 | | 2019 | | % Change | | 2021 | | 2020 | | % Change | |
| | | (In thousands, excluding percentages) | | | (In thousands, excluding percentages) |
Interest expense, net | Interest expense, net | | | $ | 6,421 | | | $ | 6,643 | | | (3.3) | % | Interest expense, net | $ | 10,761 | | | $ | 6,421 | | | 67.6 | % | |
| Percentage of total revenues | Percentage of total revenues | | | 2.1 | % | | 2.1 | % | | | Percentage of total revenues | 4.0 | % | | 2.1 | % | | | |
Interest expense, net. For the three months ended March 31, 2020, interest2021, Interest expense, net, decreased $0.2increased $4.3 million, or 3.3%67.6%, respectively, compared to the same period of 2019.2020. This decrease increase was primarily attributable to a comparativelyinterest on the $500 million term loan facility entered into in June 2020 ("Term Loan"), partially offset by the repurchase and repayment of our 1% convertible senior notes ("Convertible Notes") in the second half of 2020. The increase was also partially offset by lower average outstanding debt balance and a comparatively lower weighted average interest rate underexpense on the Credit Agreement. revolving credit facility, which was fully repaid in June 2020.
For additional information related to our outstanding borrowings, see Item 1. Financial Statements, Note 9. Current and Long-Term Debt.
During the
three months ended March 31, 2021, our Other expenses, (income)
net of $2.8 million were primarily attributable to foreign currency remeasurement adjustments and other non-operating costs.During the three months ended March 31, 2020, we recognized a gain of $4.1 million in Other expenses, (income)net to revise the estimated fair value of the acquisition related contingent consideration liability. This gain was entirely offset by foreign currency translation losses and other non-operating costs totalingtotaling $7.9 million. For additional information on the acquisition related contingent consideration, see Item 1. Financial Statements, Note 14. Fair Value Measurements.
Income Tax Expense (Benefit) Expense
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | | | 2020 | | 2019 | | % Change | | 2021 | | 2020 | | % Change | |
| | | (In thousands, excluding percentages) | | | (In thousands, excluding percentages) |
Income tax expense | | | $ | (3,737) | | | $ | 3,129 | | | (219.4) | % | |
Income tax expense (benefit) | | Income tax expense (benefit) | $ | 2,951 | | | $ | (3,737) | | | (179.0) | % | |
| Effective tax rate | Effective tax rate | | | (185.7) | % | | 42.0 | % | | | Effective tax rate | 33.4 | % | | (185.7) | % | | | |
Income tax expense.expense (benefit). Our income tax benefit for the three months ended March 31, 2020, totaled $3.7 million, resulting in an effective tax rate of (185.7)%, compared to an expense of $3.1 million, and an effective tax rate of 42.0%, for the same period of 2019. The decrease in the tax expense for the three months ended March 31, 2020,2021 totaled $3.0 million resulting in an effective tax rate of 33.4%, compared to a benefit of $3.7 million, and an effective tax rate of (185.7)%, for the same period of 2019,2020.
The increase in tax expense for the three months ended March 31, 2021 was primarily attributable to the higher pre-tax profits recognized in the current period, without an offset from any non-recurring tax benefits, as was recognized in the same period of 2020. The benefit recognized for the three months ended March 31, 2020 was primarily attributable to a non-recurring benefit in the current period from the carry backcarryback of net operating losses to prior tax years at the higher 35% U.S. tax rate, compared to the current tax rate of 21%, as a result of recent changes in U.S. tax law. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law in the U.S., which provided for an elective five-year carryback of net operating losses (NOLs) generated in taxable years beginning after December 31, 2017, and before January 1, 2021. As a result of this change in law and because the Company incurred net operating losses in 2018, the Company plans to carry back these losses to prior periods and expects to receive refunds of taxes paid at higher rates in earlier periods. Additionally, lower pretax profits in the current period compared to the prior year period contributed to the lower tax expense, partly offset by other factors.March 2020.
Factors Impacting Comparability Between Periods
COVID-19 pandemic. As discussed in our Recent Trends and Events and our Results of Operations above, the Pandemic has had a significant impact on our operating results during the three months ended March 31, 2021, and continues to have an impact on our operating results.
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 $3.7approximately $7.7 million duringduring the three months ended March 31, 2020.2021.
Please see the Form 10-K for the year ended December 31, 2019,2020, for discussion of developing trends and recent events with relevance to the business.
Long-Term Strategic Outlook
Over the past several years, we have expanded our operations and theour ATMs’ capabilities and service offerings of our ATMs through strategic acquisitions and investments,investments. We have continued to deploy ATMs in high-traffic locations under contracts with well-known retailers, andretailers. We have expanded through the growth of Allpoint, our retail-based surcharge-free ATM network, and our bank-branding programs. We have recently seen increased demand from financial institutions of all sizes as theyto evaluate their physical banking services and branch strategies. We have also expanded our ATM capabilities and service offerings to financial institutions as we are seeingdue to increasing interest from financial institutions for the outsourcing ofto outsource ATM-related services due to our cost efficiency advantages and higher service levels.
We willaim to continue to expand our ATM footprint organically and launch new products and services that will allow us to further leverage our existing ATM network. We believe our network can serve as the digital to physical gateway for financial institutions, digital-based businesses, and consumers that need a way to enablefor cash-based transactions. We see opportunities to expand our operations through the following efforts:by:
•expandingbroadening our relationships with leading financial institutions;
•working with financial technology companies with a primary focus on the retail consumer finance business (or “Fintechs”“FinTechs”) and card issuers to further leverage our extensive ATM network;
•increasing transaction levels at our existing locations;
•broadening transaction types at our physical access points enabled by mobile technology;
•increasingexpanding the number of deployed ATMs with existing and new merchant relationships;
•developing and providing additional services at our existing ATMs;
•pursuing additional managed services opportunities; and
•pursuing opportunities to expand into new international markets over time.
For additional information related to each of our strategic points above, see Part I. Item 1. Business - Our Strategy in our 20192020 Form 10-K.
Non-GAAP Financial Measures
DISCLOSURE OF NON-GAAP FINANCIAL INFORMATION
In order to assist readers of our consolidated financial statements in understanding the operating results that management uses to evaluate the business and for financial planning purposes, we present the following non-GAAP measures as a complement to financial results prepared in accordance with U.S. GAAP: EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin,Net Income, Adjusted Net Income,Tax Rate, Adjusted Net Income per diluted share, Adjusted Net Cash Provided by Operating Activities, Adjusted Free Cash Flow, and certain other results presented on a constant-currency basis. We believe that the presentation of these measures and the identification of notable, non-cash, non-operating costs and/or (if applicable in a particular period), certain costs not anticipated to occur in future periods enhance an investor’s understanding of the underlying trends in our business and provide for better comparability between periods in different years. In addition, we present Net Debt as a measure of our financial condition. We also believe that these measures are relevant and provide useful information widely used by analysts, investors and other interested parties in our industry to provide a baseline for evaluating and comparing our operating performance, financial condition and, in the case of free cash flow, our liquidity results. We use these non-GAAP financial measures in managing and measuring the performance of our business, including setting and measuring incentive basedincentive-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.statements prepared in accordance with U.S. GAAP. The non-GAAP measures that we use are not defined in the same manner by all companies and therefore may not be comparable to other similarly titled measures of other companies.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin
EBITDA adds net interest expense, income tax expense, (benefit), depreciation and accretion, amortization of deferred financing costs and note discounts, and amortization of intangible assets, and certain costs not anticipated to occur in future periods to net income. Adjusted EBITDA and Adjusted EBITDA Margin excludeexcludes the items excluded from EBITDA as well as share-based compensation expense, certain other income and expense amounts, acquisition related expenses, gains or losses on disposal and impairment of assets, certain non-operating expenses (if applicable in a particular period), our obligation for the payment of income taxes, interest expense and other obligations such as capital expenditures, and includes an adjustment for noncontrolling interests. Depreciation and accretion expense and amortization of intangible assets are excluded from Adjusted EBITDA and Adjusted EBITDA margins 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 EBITDA margin is calculated as Adjusted EBITDA divided by total revenues.
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, and deferred financing costs and note discounts, gains or losses on disposal and impairment of assets, share-based compensation expense, certain other income and expense amounts, acquisition related expenses, certain non-operating expenses, and (if applicable in a particular period) certain costs not anticipated to occur in future periods (together, the “Adjustments”). The non-GAAP tax rate used to calculate Adjusted Net Income was approximatelyapproximately 27.1% for the three months ended March 31, 2021 and 23.6% for the three months ended March 31, 2020, and 24.2% for the three months ended March 31, 2019 respectively. The non-GAAP tax rates represent the U.S. GAAP tax rate for the period as adjusted by the estimated tax impact of the items adjusted from the measure.measure and excluding non-recurring impacts of tax rate changes and valuation allowances. Adjusted Net Income per diluted share is calculated by dividing Adjusted Net Income by weighted average diluted shares outstanding.
Adjusted Net Cash Provided by Operating Activities and Adjusted Free Cash Flow
Adjusted FreeNet Cash FlowProvided by Operating Activities is defined as net cash provided by operating activities less the impact of changes in restricted cash due to the timing of payments of restricted cash liabilities andliabilities.
Adjusted Free Cash Flow is defined as Adjusted Net Cash Provided by Operating Activities less payments for capital expenditures, including those financed through direct debt, but excluding acquisitions. The Adjusted Free Cash Flow measure does not take into consideration certain financing activities and other non-discretionary cash requirements such as mandatory principal payments on portions of our long-term debt.
Net Debt
Net Debt represents the principal amount of current and long-term debt outstanding less cash and cash equivalents. The carrying value of current and long-term debt is reconciled to the principal amount by adding the unamortized debt issuance costs and discounts.
Constant Currency
Management calculates certain U.S. GAAP as well as non-GAAP measures on a constant-currency basis using the average foreign currency exchange rates applicable in the corresponding period of the previous year and applying these rates to the measures in the current reporting period to assess performance and eliminate the effect foreign currency exchange rates have on comparability between periods.
Reconciliation of Non-GAAP Financial Statements
Reconciliations of the non-GAAP financial measures used herein to the most directly comparable U.S. GAAP financial measures are presented as follows:
Reconciliation of Net Income Attributable to Controlling Interests and Available to Common Shareholders to EBITDA, Adjusted EBITDA, and Adjusted Net Income (in thousands, excluding share and per share amounts)
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | | 2020 | | 2019 | | 2021 | | 2020 | |
Net income attributable to controlling interests and available to common shareholders | Net income attributable to controlling interests and available to common shareholders | | | $ | 5,755 | | | $ | 4,319 | | Net income attributable to controlling interests and available to common shareholders | $ | 5,876 | | | $ | 5,755 | | |
Adjustments: | Adjustments: | | | Adjustments: | | |
Interest expense, net | Interest expense, net | | | 6,421 | | | 6,643 | | Interest expense, net | 10,761 | | | 6,421 | | |
Amortization of deferred financing costs and note discount | Amortization of deferred financing costs and note discount | | | 3,486 | | | 3,292 | | Amortization of deferred financing costs and note discount | 1,043 | | | 3,486 | | |
Income tax (benefit) expense | | | (3,737) | | | 3,129 | | |
| Income tax expense (benefit) | | Income tax expense (benefit) | 2,951 | | | (3,737) | | |
Depreciation and accretion expense | Depreciation and accretion expense | | | 32,211 | | | 32,973 | | Depreciation and accretion expense | 32,285 | | | 32,211 | | |
Amortization of intangible assets | Amortization of intangible assets | | | 8,413 | | | 12,412 | | Amortization of intangible assets | 6,086 | | | 8,413 | | |
EBITDA | EBITDA | | | 52,549 | | | 62,768 | | EBITDA | 59,002 | | | 52,549 | | |
| Add back: | Add back: | | | | | | Add back: | | | | |
Loss on disposal and impairment of assets | Loss on disposal and impairment of assets | | | 921 | | | 968 | | Loss on disposal and impairment of assets | 353 | | | 921 | | |
Other expenses (income) (1) | | | 3,829 | | | (7,207) | | |
Other expenses (1) | | Other expenses (1) | 2,842 | | | 3,829 | | |
Noncontrolling interests (2) | Noncontrolling interests (2) | | | 13 | | | 15 | | Noncontrolling interests (2) | 15 | | | 13 | | |
Share-based compensation expense | Share-based compensation expense | | | 5,193 | | | 4,484 | | Share-based compensation expense | 4,258 | | | 5,193 | | |
Restructuring expenses (3) | Restructuring expenses (3) | | | 1,209 | | | — | | Restructuring expenses (3) | 1,692 | | | 1,209 | | |
Acquisition related expenses (4) | | Acquisition related expenses (4) | 1,440 | | | — | | |
| Adjusted EBITDA (5) | | Adjusted EBITDA (5) | 69,602 | | | 63,714 | | |
| Adjusted EBITDA | | | 63,714 | | | 61,028 | | |
Less: | Less: | | | | | | Less: | | | | |
Depreciation and accretion expense (4) | | | 32,210 | | | 32,973 | | |
Depreciation and accretion expense (6) | | Depreciation and accretion expense (6) | 32,285 | | | 32,210 | | |
| Interest expense, net | Interest expense, net | | | 6,421 | | | 6,643 | | Interest expense, net | 10,761 | | | 6,421 | | |
Adjusted pre-tax income | Adjusted pre-tax income | | | 25,083 | | | 21,412 | | Adjusted pre-tax income | 26,556 | | | 25,083 | | |
Income tax expense (5) | | | 5,920 | | | 5,181 | | |
Income tax expense (7) | | Income tax expense (7) | 7,197 | | | 5,920 | | |
Adjusted Net Income | Adjusted Net Income | | | $ | 19,163 | | | $ | 16,231 | | Adjusted Net Income | $ | 19,359 | | | $ | 19,163 | | |
| Adjusted Net Income per share – basic | Adjusted Net Income per share – basic | | | $ | 0.43 | | | $ | 0.35 | | Adjusted Net Income per share – basic | $ | 0.43 | | | $ | 0.43 | | |
Adjusted Net Income per share – diluted | Adjusted Net Income per share – diluted | | | $ | 0.42 | | | $ | 0.35 | | Adjusted Net Income per share – diluted | $ | 0.42 | | | $ | 0.42 | | |
| Weighted average shares outstanding – basic | Weighted average shares outstanding – basic | | | 44,729,824 | | | 46,223,764 | | Weighted average shares outstanding – basic | 44,959,960 | | 44,729,824 | | |
Weighted average shares outstanding – diluted | Weighted average shares outstanding – diluted | | | 45,741,261 | | | 46,635,033 | | Weighted average shares outstanding – diluted | 45,609,764 | | | 45,741,261 | | |
(1)Includes foreign currency translation gains/losses, the revaluation of the estimated acquisition related contingent consideration, and other non-operating costs.
(2)Noncontrolling interest adjustment made such that Adjusted EBITDA includes only the Company’s ownership interest in the Adjusted EBITDA of one of the Company's Mexican subsidiaries.
(3)For the three months ended March 31, 2020, our2021, restructuring activitiesexpenses included costs incurred in conjunction with facility closures, workforce reductions professional fees and other related charges. For the three months ended March 31, 2020, restructuring expenses included professional fees and costs incurred in conjunction with facility closures and workforce reductions. The facility closures during the three months ended March 31, 2021 and 2020, respectively, primarily occurred in the U.K. related to reducing the number of facilities associated with cash delivery operations.
(4)For the three months ended March 31, 2021, acquisition related expenses includes legal and professional fees and certain administrative costs incurred in connection with the proposed acquisition of the Company, as further discussed in Note 1. Basis of Presentation - (a) Description of Business.
(5)The results for the three months ended March 31, 2021 include business rate tax recoveries of $12.0 million, classified as a cost reduction within Cost of ATM operating revenues.
(6)Amounts exclude a portion of the expenses incurred by one of the Company's Mexican subsidiaries to account for the amounts allocable to the noncontrolling interest shareholders.
(7)For the three month periods ended March 31, 20202021 and 2019,2020, the non-GAAP tax rates used to calculate Adjusted Net Income were 23.6%27.1% and 24.2%, respectively. This represents23.6%. The non-GAAP tax rates represent the Company’s U.S. GAAP tax rate asrates adjusted for the net tax effects related to the items excluded from Adjusted Net Income.
Reconciliation of U.S. GAAP Revenue to Constant-Currency Revenue
(in thousands, excluding percentages)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
Consolidated revenue: | Three Months Ended March 31, |
| 2021 | | 2020 | | % Change |
| U.S. GAAP | | Foreign Currency Impact | | Constant - Currency | | U.S. GAAP | | U.S. GAAP | | Constant - Currency |
ATM operating revenues | $ | 255,018 | | | $ | (7,306) | | | $ | 247,712 | | | $ | 291,799 | | | (12.6) | % | | (15.1) | % |
ATM product sales and other revenues | 12,816 | | | (401) | | | 12,415 | | | 14,803 | | | (13.4) | | | (16.1) | |
Total revenues | $ | 267,834 | | | $ | (7,707) | | | $ | 260,127 | | | $ | 306,602 | | | (12.6) | % | | (15.2) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
North America revenue: | Three Months Ended March 31, |
| 2021 | | 2020 | | % Change |
| U.S. GAAP | | Foreign Currency Impact | | Constant - Currency | | U.S. GAAP | | U.S. GAAP | | Constant - Currency |
ATM operating revenues | $ | 182,959 | | | $ | (810) | | | $ | 182,149 | | | $ | 193,241 | | | (5.3) | % | | (5.7) | % |
ATM product sales and other revenues | 9,086 | | | (61) | | | 9,025 | | | 12,756 | | | (28.8) | | | (29.2) | |
Total revenues | $ | 192,045 | | | $ | (871) | | | $ | 191,174 | | | $ | 205,997 | | | (6.8) | % | | (7.2) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
Europe & Africa revenue: | Three Months Ended March 31, |
| 2021 | | 2020 | | % Change |
| U.S. GAAP | | Foreign Currency Impact | | Constant - Currency | | U.S. GAAP | | U.S. GAAP | | Constant - Currency |
ATM operating revenues | $ | 52,835 | | | $ | (3,599) | | | $ | 49,236 | | | $ | 79,958 | | | (33.9) | % | | (38.4) | % |
ATM product sales and other revenues | 3,243 | | | (258) | | | 2,985 | | | 1,942 | | | 67.0 | | | 53.7 | |
Total revenues | $ | 56,078 | | | $ | (3,857) | | | $ | 52,221 | | | $ | 81,900 | | | (31.5) | % | | (36.2) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
Australia & New Zealand revenue: | Three Months Ended March 31, |
| 2021 | | 2020 | | % Change |
| U.S. GAAP | | Foreign Currency Impact | | Constant - Currency | | U.S. GAAP | | U.S. GAAP | | Constant - Currency |
ATM operating revenues | $ | 19,712 | | | $ | (2,897) | | | $ | 16,815 | | | $ | 20,252 | | | (2.7) | % | | (17.0) | % |
ATM product sales and other revenues | 487 | | | (82) | | | 405 | | | 105 | | | 363.8 | | | 285.7 | |
Total revenues | $ | 20,199 | | | $ | (2,979) | | | $ | 17,220 | | | $ | 20,357 | | | (0.8) | % | | (15.4) | % |
Reconciliation of Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per diluted share on a Non-GAAP basis to Constant-Currency (in thousands, excluding percentages and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2021 | | 2020 | | % Change |
| Non - GAAP (1) | | Foreign Currency Impact | | Constant - Currency | | Non - GAAP (1) | | Non - GAAP (1) | | Constant - Currency |
| | | | | |
Adjusted EBITDA | $ | 69,602 | | | $ | (2,086) | | | $ | 67,516 | | | $ | 63,714 | | | 9.2 | % | | 6.0 | % |
Adjusted Net Income | $ | 19,359 | | | $ | (522) | | | $ | 18,837 | | | $ | 19,163 | | | 1.0 | % | | (1.7) | % |
Adjusted Net Income per share – diluted (2) | $ | 0.42 | | | $ | — | | | $ | 0.42 | | | $ | 0.42 | | | — | % | | — | % |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated revenue: | Three Months Ended March 31, | | | | | | | | | | |
| 2020 | | | | | | 2019 | | % Change | | |
| U.S. GAAP | | Foreign Currency Impact | | Constant - Currency | | U.S. GAAP | | U.S. GAAP | | Constant - Currency |
| | | | | | | | | | | |
ATM operating revenues | $ | 291,854 | | | $ | 3,570 | | | $ | 295,424 | | | $ | 302,602 | | | (3.6) | % | | (2.4) | % |
ATM product sales and other revenues | 14,748 | | | 135 | | | 14,883 | | | 15,668 | | | (5.9) | | | (5.0) | |
Total revenues | $ | 306,602 | | | $ | 3,705 | | | $ | 310,307 | | | $ | 318,270 | | | (3.7) | % | | (2.5) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
North America revenue: | Three Months Ended March 31, | | | | | | | | | | |
| 2020 | | | | | | 2019 | | % Change | | |
| U.S. GAAP | | Foreign Currency Impact | | Constant - Currency | | U.S. GAAP | | U.S. GAAP | | Constant - Currency |
| | | | | | | | | | | |
ATM operating revenues | $ | 193,241 | | | $ | 235 | | | $ | 193,476 | | | $ | 191,046 | | | 1.1 | % | | 1.3 | % |
ATM product sales and other revenues | 12,756 | | | 59 | | | 12,815 | | | 13,202 | | | (3.4) | | | (2.9) | |
Total revenues | $ | 205,997 | | | $ | 294 | | | $ | 206,291 | | | $ | 204,248 | | | 0.9 | % | | 1.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Europe & Africa revenue: | Three Months Ended March 31, | | | | | | | | | | |
| 2020 | | | | | | 2019 | | % Change | | |
| U.S. GAAP | | Foreign Currency Impact | | Constant - Currency | | U.S. GAAP | | U.S. GAAP | | Constant - Currency |
| | | | | | | | | | | |
ATM operating revenues | $ | 79,958 | | | $ | 1,745 | | | $ | 81,703 | | | $ | 88,678 | | | (9.8) | % | | (7.9) | % |
ATM product sales and other revenues | 1,942 | | | 74 | | | 2,016 | | | 2,247 | | | (13.6) | | | (10.3) | |
Total revenues | $ | 81,900 | | | $ | 1,819 | | | $ | 83,719 | | | $ | 90,925 | | | (9.9) | % | | (7.9) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Australia & New Zealand revenue: | Three Months Ended March 31, | | | | | | | | | | |
| 2020 | | | | | | 2019 | | % Change | | |
| U.S. GAAP | | Foreign Currency Impact | | Constant - Currency | | U.S. GAAP | | U.S. GAAP | | Constant - Currency |
| | | | | | | | | | | |
ATM operating revenues | $ | 20,307 | | | $ | 1,591 | | | $ | 21,898 | | | $ | 25,791 | | | (21.3) | % | | (15.1) | % |
ATM product sales and other revenues | 50 | | | 2 | | | 52 | | | 219 | | | (77.2) | | | (76.3) | |
Total revenues | $ | 20,357 | | | $ | 1,593 | | | $ | 21,950 | | | $ | 26,010 | | | (21.7) | % | | (15.6) | % |
Reconciliation of Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per diluted share on a Non-GAAP basis to Constant-Currency (in thousands, excluding percentages and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | | | | | |
| 2020 | | | | | | 2019 | | % Change | | |
| Non - GAAP (1) | | Foreign Currency Impact | | Constant - Currency | | Non - GAAP (1) | | Non - GAAP (1) | | Constant - Currency |
| | | | | | | | | | | |
Adjusted EBITDA | $ | 63,714 | | | $ | 814 | | | $ | 64,528 | | | $ | 61,028 | | | 4.4 | % | | 5.7 | % |
Adjusted Net Income | $ | 19,163 | | | $ | 249 | | | $ | 19,412 | | | $ | 16,231 | | | 18.1 | % | | 19.6 | % |
Adjusted Net Income per share – diluted (2) | $ | 0.42 | | | $ | — | | | $ | 0.42 | | | $ | 0.35 | | | 20.0 | % | | 20.0 | % |
| | | | | | | | | | | |
(1) As reported on the Reconciliation of Net Income Attributable to Controlling Interests and Available to Common Shareholders to EBITDA, Adjusted EBITDA, and Adjusted Net Income above.
(2) Adjusted Net Income per diluted share is calculated by dividing Adjusted Net Income by the weighted average diluted shares outstanding of 45,741,26145,609,764 and 46,635,03345,741,261 for the three months ended March 31, 20202021 and 2020.
Reconciliation of Current and Long-Term Debt to Net Debt
| | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
| | (In thousands) |
| | (Unaudited) | | |
Total Current and Long-term Debt | | $ | 777,693 | | | $ | 778,177 | |
Add: Unamortized discounts and capitalized debt issuance costs | | 18,557 | | | 19,323 | |
Less: Cash and cash equivalents | | (197,363) | | | (174,242) | |
Net Debt | | $ | 598,887 | | | $ | 623,258 | |
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Net Cash Provided by Operating Activities and Adjusted Free Cash Flow
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | | 2020 | | 2019 | | 2021 | | 2020 | |
| | | (In thousands) | | | (In thousands) |
Net cash provided by (used in) operating activities | | | $ | 1,120 | | | $ | (21,805) | | |
Net cash provided by operating activities | | Net cash provided by operating activities | $ | 69,352 | | | $ | 1,120 | | |
Restricted cash settlement activity (1) | Restricted cash settlement activity (1) | | | 39,871 | | | 71,521 | | Restricted cash settlement activity (1) | (4,346) | | | 39,871 | | |
Adjusted net cash provided by operating activities | Adjusted net cash provided by operating activities | | | 40,991 | | | 49,716 | | Adjusted net cash provided by operating activities | 65,006 | | | 40,991 | | |
Net cash used in investing activities, excluding acquisitions (2) | Net cash used in investing activities, excluding acquisitions (2) | | | (18,429) | | | (29,307) | | Net cash used in investing activities, excluding acquisitions (2) | (16,246) | | | (18,429) | | |
Adjusted free cash flow | Adjusted free cash flow | | | $ | 22,562 | | | $ | 20,409 | | Adjusted free cash flow | $ | 48,760 | | | $ | 22,562 | | |
(1)Restricted cash settlement activity represents the change in our restricted cash excluding the portion of the change that is attributable to foreign exchange and disclosed as part of the effect of exchange rate changes on cash, cash equivalents, and restricted cash in the accompanying Consolidated Statements of Cash Flows. Restricted cash primarily consists of amounts collected on behalf of, but not yet remitted to, certain of the Company’s merchant customers or third-party service providers that are pledged for a particular use or restricted to support these obligations. These amounts can fluctuate significantly period to period based on the number of days for which settlement to the merchant has not yet occurred or day of the week on which a quarter ends.
(2)Capital expenditure amounts include payments madeexpenditures are primarily related to organic growth projects, including the purchase of ATMs for exclusive licenseboth new and existing ATM management agreements, site acquisition costs,technology and product development, investments in infrastructure, ongoing refreshment of ATMs and operational assets and other assets.related type activities in the normal course of business. Additionally, capital expenditure amounts for one of our Mexican subsidiaries are reflected gross of any noncontrolling interest amounts.
Liquidity and Capital Resources
Overview
As of March 31, 2020,2021, we had $613.7$197.4 million in cash and cash equivalents and $1,322.2$777.7 million of current and long-term debt. Our convertible Notes with a face valuedebt (or $796.3 million, including $18.6 million of $287.5 million are due December 2020 and are presented net of unamortized discount and capitalized debt issuance costs and unamortized discounts). In addition, we currently have a $600 million revolving credit facility, with currently no borrowings outstanding and approximately $10.0 million in outstanding letters of $8.6 million in the Current portion of long-term debt line of the Company's Consolidated Balance Sheet as of March 31, 2020.credit.
We have historically funded our business with cash on hand, cash flows from operations, borrowings under our revolving credit facility, and the issuance of debt and equity securities.equity securities. We have generally used a portion of our cash flows to invest in additional ATMs, either through acquisitions or through organic growth. We have also used cash to pay interest and principal amounts outstanding under our borrowings. As we collect a sizable portion of our sales on a daily basis but generally pay our vendors on 30 day terms and are not required to pay certain of our merchants until 20 days after the end of each calendar month, we have historically utilized the excess available cash flow to reduce outstanding borrowings made under our revolving credit facility reported as long term debt and to fund investments and capital expenditures. Accordingly, it is not uncommon for us to reflect a working capital deficit position in ourConsolidated Balance Sheet.
To preserve our liquidity, as previously announced, we suspended our share buy back program. In anticipationTaking into consideration the foregoing and the expected effects of the maturity of our Convertible Notes due on December 1, 2020, as a precautionary measure given the economic uncertainty caused by the worldwide COVID-19 pandemic, in March 2020, we drew all of the borrowing capacity under our credit facility, resulting in our holding $613.7 million in cash as of March 31, 2020. In spite of recent decreases in transactions and revenues, along with expected further adverse impacts to our business caused by the pandemic,known trends, we believe we will be able to generate positive free cash flows (operating cash flows, adjusted for settlement activities, less capital expenditures) for the remainder of 2020. We believe that ourhave sufficient liquidity available from cash on hand, will be sufficient to meet our working capital requirementscash flow from operations and contractual commitments for the next twelve months and we expectpotential borrowings to fund our working capital needs with cash on hand and cash flows from our operations.
operations for the foreseeable future. See
Financing Activities below.
Operating Activities
Net cash provided by operating activities totaled $1.1totaled $69.4 million duringduring the three months ended March 31, 2020,2021 compared to net cash used inprovided by operating activities of $21.8$1.1 million during the same period of 2019.2020. Excluding changes in restricted cash liabilities during the periods due to the timing of settlements, our cash flows from operating activities were down $8.7increased $24.0 million. This decreaseincrease in operating cash flow (excluding settlement changes) is primarily due to paymentshigher operating profits and positive changes in the ordinary course of business and timing of payments relative to the same period of the prior year.working capital.
Investing Activities
Net cash used in investing activities totaled $18.4totaled $16.2 million during the three months ended March 31, 2020,2021 compared to net cash used in investing activities of $29.3$18.4 million duringduring the same period of 2019.2020. The change in net cash used in investing activities during the three months ended March 31, 20202021 relative to the prior year was primarily a result of lowerreduced capital expenditures, in thedriven by technology enhancements, strategic procurement initiatives and ordinary course of business.business requirement fluctuations.
Financing Activities
Net cash provided by cash used in financing activities totaled $565.0$24.2 million during the three months ended March 31, 2020,2021 compared to cash used inprovided by financing activities of $25.3$565.0 million during the same period of 2019. As discussed above, during2020. During the three months ended March 31, 2021, we paid $9.2 million to satisfy the 2020 portion of our obligation under the Spark acquisition contingent consideration arrangement, made $14.5 million in tax payments upon vesting of share-based compensation awards, and made the mandatory quarterly principal repayment on our Term Loan facility. During the first quarter of 2020, we borrowed $587.1 million under our revolving credit agreement in anticipation of the maturity of our Convertible Notes due on December 1, 2020 and for additional liquidity given the economic uncertainty caused by the worldwide COVID-19 pandemic. During the period,three months ended March 31, 2020 we also used $16.9 million to repurchase 505,699 Class A ordinary shares. We mayhave from time to time seeksought to repurchase our outstanding debt and / or equity securities in privately negotiated transactions and / or otherwise. See Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds below for additional detail on the Class A ordinary shares purchased and remaining authorization under our repurchase program.transactions.
For information related to our financing facilities, see Item 1. Financial Statements, Note 9. Current and Long-Term Debt.
Effects of Inflation
Our monetary assets, consisting primarily of cash and receivables, are not currently significantly affected by inflation. Similarly our non-monetary assets, consisting primarily of tangible and intangible assets, are not affected by inflation. However, inflation may in the future affect our expenses, such as those for employee compensation, operating costs and capital expenditures, which may not be readily recoverable in the price of services offered by us.
Critical Accounting Policies
Our consolidated financial statements included in this Form 10-Q have been prepared in accordance with U.S. GAAP, which requires management to make numerous estimates and assumptions. Actual results could differ from those estimates and assumptions, thus impacting our results of operations and financial position. For discussion of the critical accounting policies and estimates that are most important to the depiction of our financial condition and results of operations see Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates and Item 8. Financial Statements and Supplementary Data, Note 1. Basis of Presentation and Summary of Significant Accounting Policies within the Company’s Annual Report onour 2020 Form 10-K for10-K.
Goodwill Impairment
During the year ended December 31, 2019.
Goodwill
Following the goodwill impairment recognized by the Company in 2019, the Canada reporting unit continues to be at risk of failing a2020, we performed quantitative impairment test. In 2019, the Canada reporting unit’s carrying value was impairedtests and reduced to fair value. The fair value of the Canada reporting unit continues to approximate its carrying value. Furthermore, as indicated in Part I. Item 1. Financial Statements – Note 7. Intangible Assets, we identified the impacts of the COVID-19 pandemic as an impairment indicator and performed an additional quantitative impairment test of the Canada reporting unit as of March 31, 2020. Based on this quantitative test,determined that the fair value of theall reporting unit marginallyunits exceeded itsthe carrying value and, as such, no additional goodwill impairment was recognized. The Canada reporting unit's goodwill was approximately $95.6 million as ofimpairments were recorded. During the three months ended March 31, 2020.2021, we did not identify any impairment indicators. To the extent that we are unable to meetperform in accordance with our forecasts inprojections, including the future or to the extent that the impactsestimated impact of the COVID-19 pandemic are protracted,Pandemic, further goodwill impairment charges are possible relative to the Company’s Canada reporting unit. Additionally, based on our qualitative assessment, the fair value of the Company’s other reporting units exceeded their carrying value; however, protracted impacts of the COVID-19 pandemic could result in goodwill impairment charges to those reporting units.possible.
New Accounting Pronouncements
For information related to accounting pronouncements adopted and not yet adopted during 20202021 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 20192020 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.variable rate debt. The following quantitative and qualitative information is provided about financial instruments to which we were a party at March 31, 20202021 and from which we may incur future gains or losses as a result of changes in market interest rates or foreign currency exchange rates. We do not enter into derivative or other financial instruments for speculative or trading purposes.
Hypothetical changes in interest rates and foreign currency exchange rates chosen for the following estimated sensitivity analysis are considered to be reasonably possible near-term changes generally based on consideration of past fluctuations for each risk category. However, since it is not possible to accurately predict future changes in interest rates and foreign currency exchange rates, these hypothetical changes may not necessarily be an indicator of probable future fluctuations.
Interest Rate Risk
Vault cash rental expense. As our ATM vault cash rental expense is based on market rates of interest, it is sensitive to changes in the general level of interest rates in the respective countries in which we operate. We pay a monthly fee on the average outstanding vault cash balances in our ATMs under floating rate formulas based on a spread above various interbank offered rates in 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 to interest rates related to our vault cash rental expense, we have entered into a number of interest rate swap contracts and caps with varying notional amounts and fixed interest rates in the U.S., Canada, the U.K., and Australia to manage the rate we pay on the amounts of our current and anticipated outstanding vault cash balances.
The notional amounts, weighted average fixed rates, and remaining terms associated with our interest rate swap contracts and cap agreements that are currently in place in the U.S., Canada, the U.K., and Australia (asas of the date of the issuance of this Form 10-Q)March 31, 2021 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 | | | Term |
(In millions) | | | | | |
$ | 1,500 | | | 1.69 | % | | | April 1, 2020 – December 31, 2020 |
$ | 1,200 | | | 1.46 | % | | | January 1, 2021 – December 31, 2021 |
$ | 1,000 | | | 1.17 | % | | | January 1, 2022 – December 31, 2022 |
$ | 600 | | | 0.98 | % | | | January 1, 2023 – December 31, 2024 |
| | | | | | | | | | | | | | |
Notional Amounts CAD $ | | Weighted Average Fixed Rate | | Term |
(In millions) | | | | |
$ | 125 | | | 2.46 | % | | April 1, 2020 – December 31, 2021 |
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 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Remaining Term of Hedging Instrument | | Segment | | Currency | | Weighted Average Fixed Rate/Cap Rate (1) | | Notional Value in Respective Currency |
| | | | | | | | (In millions) |
Interest Rate Swap Contract - Vault Cash | | | | | | | | |
April 1, 2021 – December 31, 2021 | | North America | | U.S. Dollar | | 1.46 | % | | $ | 1,200 | |
January 1, 2022 – December 31, 2022 | | North America | | U.S. Dollar | | 1.17 | % | | $ | 1,000 | |
January 1, 2023 – December 31, 2024 | | North America | | U.S. Dollar | | 0.98 | % | | $ | 600 | |
April 1, 2021 – December 31, 2021 | | North America | | Canadian Dollar | | 2.46 | % | | $ | 125 | |
April 1, 2021 – December 31, 2022 | | Europe & Africa | | Pound Sterling | | 0.94 | % | | $ | 500 | |
April 1, 2021 – December 31, 2021 | | Australia & New Zealand | | Australian Dollar | | 0.71 | % | | $ | 40 | |
Interest Rate Cap Contracts - Vault Cash | | | | | | | | |
April 1, 2021 – December 31, 2023 | | North America | | U.S. Dollar | | 3.25 | % | | $ | 200 | |
(1)Maximum Cap rate represents the maximum amount of interest to be paid each year as per terms of the cap. CostThe cost of the cap is amortized through vault cash rental expense over the term of cap.
Europe & Africa – Interest Rate Swap Contracts
| | | | | | | | | | | | | | |
Notional Amounts U.K. £ | | Weighted Average Fixed Rate | | Term |
(In millions) | | | | |
£ | 500 | | | 0.94 | % | | April 1, 2020 – December 31, 2022 |
Australia & New Zealand – Interest Rate Swap Contracts
| | | | | | | | | | | | | | |
Notional Amounts AUS $ | | Weighted Average Fixed Rate | | Term |
(In millions) | | | | |
$ | 140 | | | 1.59 | % | | April 1, 2020 – December 31, 2020 |
$ | 40 | | | 0.71 | % | | January 1, 2021 – December 31, 2021 |
| | | | |
| | | | |
Summary of Interest Rate Exposure on Average Outstanding Vault Cash
The following table presents a hypothetical sensitivity analysis of our annual vault cash rental expense in our North America, Europe & Africa and Australia & New Zealand segments based on our average outstanding vault cash balance and interest rate derivatives for the quarter ended March 31, 20202021 and assuming a 100 basis point increase in interest rates (in millions):
| | | | | |
North America | |
Average outstanding vault cash balance | $ | 1,901 | |
Interest rate swap contracts fixed notional amount | (1,393) | |
Residual unhedged outstanding vault cash balance | $ | 508 | |
| |
Additional annual interest incurred on 100 basis point increase | $ | 5.08 | |
| | | | | | | | | | | |
| North America | Europe & Africa | Australia & New Zealand |
Average outstanding vault cash balance | $ | 2,774 | | $ | 1,187 | | $ | 259 | |
Interest rate swap contracts fixed notional amount | (1,499) | | (689) | | (31) | |
Residual unhedged outstanding vault cash balance | $ | 1,275 | | $ | 498 | | $ | 228 | |
| | | |
Additional annual interest incurred on 100 basis point increase | $ | 12.75 | | $ | 4.98 | | $ | 2.28 | |
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
Interest Rate Derivatives and assuming a 100 basis point increase in interest rates (in millions):
| | | | | |
Europe & AfricaOutlook. | |
Average outstanding vault cash balance | $ | 1,041 | |
Interest rate swap contracts fixed notional amount | (640) | |
Residual unhedged outstanding vault cash balance | $ | 401 | |
| |
Additional annual interest incurred on 100 basis point increase | $ | 4.01 | |
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 March 31, 2020 and assuming a 100 basis point increase in interest rates (in millions):
| | | | | |
Australia | |
Average outstanding vault cash balance | $ | 262 | |
Interest rate swap contracts fixed notional amount | (92) | |
Residual unhedged outstanding vault cash balance | $ | 170 | |
| |
Additional annual interest incurred on 100 basis point increase | $ | 1.70 | |
As of March 31, 2020,2021, we had an asset of $2.6$0.3 million and a liability of $58.5$34.8 million recorded in the accompanying Consolidated Balance Sheets, which represented the fair value asset or liability, respectively, of theour interest rate swap and cap and foreign currency forward contracts as derivative instruments are required to be carried at fair value.associated with our vault cash rental obligations. The fair value estimate for these instruments was calculated as the present value of amounts estimated to be received or paid to a marketplace participant in a selling transaction.participant. These derivative contracts are valued using pricing models based on significant other observable inputs (Level 2 inputs under the fair value hierarchy prescribed by U.S. GAAP). For each highly effective hedging relationship, the gain or loss on the derivative instrument is reported as a component of the Accumulated other comprehensive loss, net line in the accompanying Consolidated Balance Sheets. The gain or loss is reclassified into earnings in the Vault cash rental expense line within the Cost of ATM operating revenues line in the accompanying Consolidated Statements of Operations in the same period or periods during which the hedged transaction affects earnings and has been forecasted intoin earnings.
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 derivative 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 facilityand term loan facilities accrue interest at floating rates. In September 2019, we entered into a second amended and restated credit agreement (the “Credit Agreement”) increasing the available borrowings under our revolving credit facility to $750 million. As of March 31, 2020,2021, we had no outstanding borrowings under our revolving credit facility which carries aand $496.3 million of outstanding borrowings under our floating interest rate were $746.6 million, the majority of which is denominated in U.S dollars and U.K. pounds sterling. term loan facility.
To mitigate the interest rate risk associated with thesethe borrowings on our floating rate term loan facility, on July 30, 2020, we entered intoexecuted $250.0 million aggregate notional amount interest rate swapcap contracts to effectively fix thethat terminate December 31, 2025. These interest rate oncap contracts have a portioncap rate of 1% and have been designated as cash flow hedges of the expected outstanding borrowings in the U.K. For information related tofloating rate interest associated with our financing facilities, seeterm loan facility.See Item 1. Financial Statements, Note 9. Current and Long-Term Debt.
Outstanding Interest Rate Derivatives Associated with Revolving Credit Facility BorrowingsVariable Rate Debt
| | | | | | | | | | | | | | |
Notional Amounts U.K. £ | | Weighted Average Fixed Rate | | Term |
(In millions) | | | | |
£ | 50 | | | 0.95 | % | | April 1, 2020 – December 31, 2020 |
£ | 100 | | | 0.64 | % | | January 4, 2021 – December 31, 2021 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Remaining Term of Hedging Instrument | | Segment | | Currency | | Weighted Average Fixed Rate/Cap Rate (1) | | Notional Value in Respective Currency |
Interest rate cap contracts - Variable Debt | | | | | | | | (In millions) |
April 1, 2021 – December 31, 2025 | | North America | | U.S. Dollar | | 1.00 | % | | $ | 250 | |
(1) Cap rate represents the maximum amount of interest to be paid each year as per terms of the cap. The cost of the cap will be amortized through interest expense over the term of the cap.
As of March 31, 2021, we had an asset of $3.6 million and a liability of $0.4 million recorded in the accompanying Consolidated Balance Sheets, which represented the fair value of our interest rate cap contracts associated with our term loan facility. The fair value estimate for these instruments was calculated as the present value of amounts estimated to be paid to a marketplace participant. These derivative contracts are valued using pricing models based on significant other observable inputs (Level 2 inputs under the fair value hierarchy prescribed by U.S. GAAP). For each highly effective hedging relationship, the gain or loss on the derivative instrument is reported as a component of the Accumulated other comprehensive loss, net line in the Consolidated Balance Sheets. The gain or loss is reclassified into earnings in the Interest expense, net line in the Consolidated Statements of Operations in the same period or periods during which the hedged transaction affects and has been forecasted in earnings.
Transition from LIBOR. We are currently evaluating the impact of the transition from LIBOR as an interest rate benchmark to other potential alternative reference rates. Currently, we have severalseveral debt, derivative and derivative instrumentscommercial contracts that reference LIBOR-based rates. The transition from LIBOR in the U.S. for tenors that the Company currently utilizes is expected to take place sometime after 2021. The LIBOR transition in the U.K. is expected to take place at the end of 2021, and we do not expect this change to have a significant impact on our operations or results. We will continue to assess the impact of this transition. For additional information related to the transition from LIBOR, see Part 1, Item 1A. RiskRisk Factors - Changes in interest rates could increase our operating costs by increasing interest expense under our credit facilities and our vault cash rental costs - in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Foreign Currency Exchange Rate Risk
As a result of our global operations, in the U.K., Australia, Canada, Germany, South Africa, Mexico, Spain, Ireland, and New Zealand, we are exposed to market risk from changes in foreign currency exchange rates. The functional currencies of our international subsidiaries are their respective local currencies. The results of operations of our international subsidiaries are translated into U.S. dollars using average foreign currency exchange rates in effect during the periods in which those results are recorded and the assets and liabilities are translated using the foreign currency exchange rate in effect as of each balance sheet reporting date. These resulting translation adjustments to assets and liabilities have been reported in Accumulated other comprehensive loss, net within the accompanying Consolidated Balance Sheets. As of March 31, 2020,2021, this accumulated translation loss totaled $78.8 $39.0 million comparedcompared to $59.0$41.6 million as of December 31, 2019.2020.
Our consolidated financial results were impacted by changes in foreign currency exchange rates during the three months ended March 31, 20202021 compared to the prior year. Our total revenues during the three months ended March 31, 20202021 would have been higherlower by approximately $3.7approximately $7.7 million had the foreign currency exchange rates from the three months ended March 31, 20202021 remained unchanged from the prior year. A sensitivity analysis indicates that, if the U.S. dollar uniformly strengthened or weakened 10% against the BritishU.K. pound sterling, Euro, Mexican peso, Canadian dollar, Australian dollar, orand South African rand,Rand, the effect upon our operating income would have been approximately $0.3 millionapproximately $0.6 million for the three months ended March 31, 2020.2021, respectively.
Certain intercompany balances are designated as short-term in nature. The changes in these balances related to foreign currency exchange rates have been recorded in the 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.funds or in physical cash form.
Item 4. Controls and Procedures
Management’s Quarterly Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have evaluated, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 20202021 at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
In the ordinary course of business, the Company reviews its internal control over financial reporting and makes changes to its control procedures, processes and systems that are intended to enhance such controls and increase efficiency while maintaining an effective internal control environment.
In conjunction with the evaluation described above, there have been no changes in our system of internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2020,2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 15.13. 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, 20192020 (“20192020 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 20192020 Form 10-K, except with respect to the risk factor described below.
We are subject to business cycles, seasonality, and other outside factors such as extreme weather, natural disasters or health emergencies, including the recent outbreak of the coronavirus (“COVID-19”) pandemic that has adversely impacted our business, and that may in the future have a material adverse impact on our business.
Many of our ATMs are located in convenience stores, gas stations, malls, grocery stores, drug stores, airports, train stations, and other large retailers and are utilized by consumers that frequent them. As such, transaction volumes at our ATMs located in regions affected by strong winter weather patterns typically experience declines in volume during those months as a result of decreases in the amount of consumer traffic through such locations. With the majority of our ATMs located in the northern hemisphere, we expect to see slightly higher transactions in the warmer summer months from May through August, which are also aided by increased vacation and holiday travel. As a result of these seasonal variations, our quarterly operating results may fluctuate and could lead to volatility in the price of our shares. In addition, if a recessionary economic environment were to reduce traffic at our ATM locations, this could impact the level of transactions taking place on our networks and at our ATMs.
Natural or man-made disasters (including, hurricanes, flooding, tornadoes, fires, or acts of war or terror), uncharacteristic or significant weather conditions or real or potential health emergencies such as the widespread outbreak of contagious diseases, such as the COVID-19 could hinder travel, result in travel bans, government restrictions or quarantines. Any of these events could restrict or reduce traffic at our ATM locations, reduce the use or demand for cash or decrease demand for our services. In addition, any catastrophic events or significant business interruptions could reduce or impair our ability and that of our employees, to provide services and conduct operations and this may occur in a manner that cannot be mitigated by our disaster and business continuity planning or cause losses, which are not recoverable under our insurance policies. The impact of such events may have a range of lingering impacts on us, our employees, customers, our suppliers and the overall economy, adversely affecting our operations, financial condition, results of operations, cash flows and share price even after the initial incident resolves.
On March 11, 2020, the World Health Organization declared Coronavirus (or “COVID-19”) a global pandemic. In response, the national and local governments in which we operate have implemented various restrictions, including travel restrictions, border closings, restrictions on public gatherings, shelter-in-place restrictions, quarantines and limitations on business operations.
These events and the prevalence of the disease have adversely impacted the macroeconomic environment, consumer confidence, unemployment and other economic indicators that contribute to consumer spending behavior and demand for our services, as well as the Company and its employees, customers and suppliers. These events have also reduced foot traffic at our ATM locations and the usage of our ATMs across the regions in which we operate, resulting in fluctuations in our operating results, volatility in the price of our shares, reduction in transaction volumes and revenues associated with those volumes beginning at the end of March 2020. We expect that these impacts will continue through the second quarter of 2020, and may continue to impact our results in future periods during 2020 and beyond. We have implemented cost reductions and have taken action to manage expenses, reduce capital spending plans and have suspended our opportunistic share repurchase program to optimize cash flow during the current environment. We have also implemented business continuity plans, with most of our employees working from home since March 16, 2020 without issue. Certain of our employees continue to perform cash delivery, maintenance and other technical services on site and at certain of our office and warehouse locations to ensure the continued operations of our ATMs, and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, partners and customers. For more information, see “Management’s Discussion and Analysis of Financial Conditions and Results Operations.”
The situation surrounding COVID-19 remains fluid and the potential for a material adverse impact on the Company’s results of operations, financial condition, and liquidity increases the longer the virus impacts activity levels globally. For this reason, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity. The extent to which the COVID-19 pandemic may impact the Company’s business, operating results, financial condition, or liquidity will depend on future developments, including the duration of the outbreak, travel restrictions, business and workforce disruptions, and the effectiveness of actions taken to contain and treat the disease. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in “Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2019.
10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information with respect to our purchases of Class A ordinary shares during the three months ended March 31, 2020. All of the shares repurchased were canceled.
| | | | | | | | | | | | | | |
Period | Total number of shares purchased (1) | Average price paid per share | Total number of shares purchased as part of publicly announced program | Approximate dollar value of shares that may yet be purchased under the program |
March 1, 2020 - March 31, 2020 | 505,699 | | $ | 33.19 | | 505,699 | | $ | 33,215,850 | |
Total | 505,699 | | $ | 33.19 | | 505,699 | | |
(1)On November 21, 2019, the Company announced a stock repurchase program, under which it was authorized to repurchase up to $50 million of its Class A ordinary shares through December 31, 2020. The Company repurchased 505,699 shares for approximately $16.8 million during the three months ended March 31, 2020.Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
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Exhibit Number | | Description |
10.1* | | |
10.2* | |
10.3* | |
10.4* | |
10.5* | |
10.3*10.6* | |
10.7* | |
10.8* | |
10.6*10.9* | |
10.10* | |
10.11* | |
10.7*10.12* | | |
10.8*10.13* | | |
10.14* | |
31.1* | | |
31.2* | | |
32.1** | | |
104 | | The cover page from this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020,2021, formatted in Inline XBRL. |
101.INS* | | XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL 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.
Management contract or compensatory plan or arrangement.
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 |
| | |
May 8, 20207, 2021 | | /s/ Gary W. Ferrera |
| | Gary W. Ferrera |
| | Chief Financial Officer |
| | (Duly Authorized Officer and |
| | Principal Financial Officer) |
| | |
May 8, 20207, 2021 | | /s/ Paul A. Gullo |
| | Paul A. Gullo |
| | Chief Accounting Officer |
| | (Duly Authorized Officer and |
| | Principal Accounting Officer) |