Cardtronics (CATM) Q2 2019 Earnings Call Transcript

Cardtronics (CATM)
Q2 2019 Earnings Call
Aug 01, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Cardtronics' second-quarter 2019 earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Brad Conrad, executive vice president and treasurer.

Sir, you may begin.

Brad Conrad -- Executive Vice President and Treasurer

Thank you. Good afternoon, and welcome to Cardtronics' second-quarter 2019 conference call. On the call today, we have Ed West, chief executive officer; and Gary Ferrera, chief financial officer. We will start with prepared remarks and then take questions.

Before we begin, a cautionary statement regarding forward-looking information. During the course of this call, we will make certain forward-looking statements regarding future events, results or performance. Any forward-looking statements made on this call are subject to risks and uncertainties, including, but not limited to, events, market conditions and other risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings release and our reports filed with the SEC, including our Form 10-K for the year ended December 31st, 2018, which describe forward-looking statements and risk factors and other events that could impact future results and other factors that could impact our business.

The statements on this call are made as of the date of this call and are based on current information and may be outdated at the time of any replay of this call. We assume no obligation to update any forward-looking statements made today to reflect events that occur or circumstances that exist after the date on which they are made. In addition, during the course of this call, we will reference certain non-GAAP financial performance measures. Our opinion regarding the usefulness of such measures, together with a reconciliation of such measures to the nearest GAAP measure, is included in the earnings release issued this afternoon and available on our website.

We've also posted supplemental investor materials regarding the second quarter results on our website. And with that, I will turn this call over to Ed.

Ed West -- Chief Executive Officer

Great. Thank you, Brad, and welcome, everyone. We have quite a few highlights to share with you today. The second-quarter results were driven by strong execution by the team, and we're all encouraged by the building momentum we see in our business.

My key messages for you today are as follows. First, we achieved an important milestone by returning to organic revenue and profit growth in the second quarter. Our outlook calls for robust second half of this year versus prior year and based on the recent performance in the outlook, we are raising our guidance for the fiscal year. Second, the Cardtronics business model continues to transform to a network business, leveraging our unique franchise position, serving retailers, FIs and consumers alike.

And third, market conditions and consumer financial services are evolving in a favorable way for Cardtronics. And as a result of our assets and model, these secular trends are serving as a potential catalyst to drive top-line growth and margin expansion. Now let me start with a brief recap of our results. On a consolidated basis, both revenues and adjusted EBITDA came in better than we expected.

On a constant currency basis, adjusted EBITDA was up approximately 8% for the quarter on revenues that were up 3%. Adjusted EBITDA margin was up 110 basis points. We generated over $50 million of adjusted free cash flow in the quarter, up from $33 million during the year-ago period. This is all reflective of the strength of our business and our focus on cash generation.

Now looking at our North America segment. We continue to drive more volume to our U.S. ATMs, and we expect that this growth lever will deliver about half of our revenue growth during the medium-term outlook. Same-store transactions in the U.S.

were up 3% for the quarter, driven by nearly 10% surcharge-free growth. We continue to add Allpoint participants and new branding customers to the network, but we're also driving more volume with our existing FI partners via targeted marketing efforts by promoting the Allpoint Network and branded locations. Initiatives include our FI partners updating their websites, mobile apps, and customer marketing collateral. During the first quarter, we mentioned signing agreements with a number of FI partners, totaling over 1,000 new branded locations.

During the second quarter, we started implementing some of these new agreements, including PNC branding as time-wise convenient stores in Houston. PNC is expanding their business into new geographies, rapidly branding over 200 ATMs in Houston. This on-demand solution is a very cost-effective way to get immediate traction on the retail side and build brand awareness. PNC's growth in Houston is reflective of what we're seeing with many banks as they look to grow into new markets, while also optimizing their footprints, brands and ATM access for their customers.

This past quarter, we also branded over 150 key retail locations for BMO as they look to expand in the Phoenix market. In addition, we expanded with TD Bank branding select retail locations in New York City. These are all good examples of the branch transformation which is currently happening in the U.S. and how Cardtronics is providing unique solutions to FIs of all sizes looking to entry into new markets or expand in existing markets quickly, efficiently, and effectively.

During the second quarter, we also added another significant managed services customer with a premier financial institution, First National Bank of Omaha. FNBO has a rich 160-year history and remains independent and family owned today and is recognized by J.D. Power and Money for their customer service levels. Going forward, we'll own and operate over 200 ATMs located both at their branches and all-premise locations through a multi-year managed services relationship.

Our partnership with FNBO is a great example of our multi-product solution for an FI's retail distribution strategy. Over the last two years, FNBO has branded over 200 of our units located at premier retailers and joined the Allpoint Network. FNBO is illustrative of a leading bank looking to not only grow and expand, but also cost-effectively manage cash and deposit services for their customers through our diverse solutions. We also continue to grow with innovative fintechs.

There are multiple categories that we target, including money management, P2P and wallet providers, neobank, and infrastructure, just to name a few. This past quarter, we added a couple of new fintech relationships to Allpoint, and we now have relationships with about half of the fintechs that we currently target. These digital disruptors are beginning to recognize that truly drive engagement with their customers they need convenient cash access on a national scale, and that Allpoint is the premier solution given our national presence located at leading retailers. They do not want to send their customers to the very FIs that they compete with.

We're excited about the growth potential that fintechs represent as their business models mature. In addition to our growing stable of fintech partners, we also expanded our relationship to other strategic partners in the financial payment ecosystem. We're looking to take advantage of both access to our platform, as well as our branding capabilities. Today, we are announcing that Visa and Cardtronics have entered into a strategic agreement that will provide an exciting new cardholder benefit to anyone with a Visa or plus-branded debit, credit, prepaid or ATM card.

Cardholders can now access cash surcharge-free at one of the nation's top 10 retailers. Additionally, over 250 ATMs at these retail locations will display prominent Visa and plus branding. Now let me talk now a little bit about another growth lever, traditional ATM unit growth. We had a terrific Q2 in terms of contract execution for new ATM placements.

Across our enterprise, we closed arrangements to place approximately 1,500 units. And the installation of these ATMs will mostly take place in the latter part of 2019. These new events were about evenly split between our North America, Europe, and Africa segments. We have a lot of runway in our high-growth markets in Germany, Spain, and South Africa and expect to continue to see solid unit growth from these international markets for the foreseeable future.

The results in the second quarter and year to date are reflective of the disciplined execution and overall transformation of our business. When you combine the execution with the momentum we see in the underlying business, we are raising our outlook for the year. Gary will get into the specifics of our updated 2019 outlook in a few minutes. I would now like to take a minute to discuss how we're transforming our business in an effort to capitalize on the secular shift that is emerging in financial services.

We're evolving the business from its legacy as a retail ATM deployer to a network-based purpose-driven solutions provider for our FI and retail partners. At our core, Cardtronics is a network company. In the U.S., we provide end-to-end connectivity between leading retailers and FIs of all sizes through our proprietary surcharge-free network consisting of the Allpoint and FI branding solutions. This business-to-business consumer network will scale and is quite unique and differentiated, given the sheer number of physical-to-digital access points we own and operate at leading retailers.

This uniqueness is compounded with the fact that we have end-to-end connectivity and process most of the transactions, providing an added element of competitive advantage. Our scale, systems, capabilities, and security protocols are not limited to the U.S. market. We are either the No.

1 or No. 2 platform in multiple countries and have the ability to deploy product in many of these markets where we see the opportunity. The transformation plan is guided by our Top 5 priorities. These are deliver durable product-driven organic growth, execute with operational excellence at the lowest possible cost, earn a raving fan status with our customers, engender employee pride, and deliver on our financial commitments in strong free cash flow.

Over the last couple of years, we have invested in new skills and talent to focus on the network and business opportunity that we see emerging. Having the right people in the right roles with a common purpose and vision is an imperative. We have added new capabilities in our commercial groups to focus on partnering with a broader set of FIs and retail management. We have invested in and enhanced bank rate security protocols and systems.

We have increased operational and technology skills in an effort to integrate the numerous platforms and systems that have been acquired over the years. We have added product, technology, and engineering talent to develop the new product and software that will deliver future organic growth. And more recently, we are adding marketing talent to focus on the data and analytics that can pinpoint actions and assist in driving growth. Most of these has been achieved while we have lowered our overall cost structure.

We are beginning to see the results of all the efforts by the team and the strength of our network. We have returned to organic growth, developed new products that were announced last quarter, and we are delivering margin expansion as a result of the focus on operational excellence and the scalability of our network. Now let me step back now and speak to the overall market for a few minutes. What we highlighted at our investor day in March is that we estimate that the value of the U.S.

cash withdrawal and deposit market will be about a $15 billion market in the next few years. Today, we account for about 2% of the transactions in this market, yet our ATM footprint in the U.S. is similar in size to the three largest banks combined. Gaining share in this market is our biggest opportunity.

A little bit of growth in share in this large market goes a long way for us. Now you may ask, why do you believe we can gain share here? We believe the FIs are nearing an inflection point, given the shifting dynamics in the marketplace and the growing unrelenting pressure on cost. FIs need to grow and expand effectively and efficiently in order to compete in the market. At the same time, they have threats on many fronts, including digital and big-tech competitors in addition to stagnant to declining interest rates.

To achieve their growth objectives and improve their efficiency ratio, they must focus on what is core and what is not while highlighting where they can truly differentiate. The growth of digital banking and contactless payment, interaction could very well be a catalyst for Cardtronics and serve as the tipping point to truly transform the branch and cash infrastructure at traditional FIs in the U.S. It is this very infrastructure that supplies approximately 90% of the cash -- the U.S. cash transactions.

Our network platform of capabilities and scale provide the perfect solution to assist in the conversion to a more efficient delivery platform. At the same time, fintechs are beginning to recognize as an order to drive true customer engagement in the U.S., they need to provide their customers with cost-effective cash access and national presence commensurate with their digital footprints. Our network is uniquely designed to deliver a tailored customer experience in order to support growth and customer engagement strategies. Importantly, 85% of the U.S.

population lives within five miles of a Cardtronics-owned ATM. Now on the other side of our two-sided network, the retail environment is experiencing a significant shift. We provide very valuable foot traffic into premier retail locations attached to everyday spend. We see an opportunity to employee proprietary data, analytics, and transaction types to support our retail partners' customer engagement strategies and further demonstrate our value add.

And to the most important part of the network, the consumer, who wants to have convenient low cost or free access to their funds. We provide this convenience via our proprietary surcharge-free network, consisting of Allpoint and FI branding located at leading U.S. retailers. Cash is not going away.

Today, cash represents 26% of the transactions in the U.S. and interestingly cash used is highest among those 18 to 25 years old. And just like many things today, consumers want it anytime and anywhere that they wish due to the many attributes of cash, which include: it's reliable, meaning it works; it's secure, it cannot be hacked; and it is private and an increasingly important attribute in today's world, consumers want choice. Now going back to the topic of contactless transactions or tap and pay, we believe that this could be a catalyst based on our experience in the United Kingdom, a data point that you may not be aware of.

While there are many differences between the U.K. and U.S. markets given the relative size and the market fragmentation, we do believe that the shift in cash access from traditional banks to our ATM network that we experienced in the U.K. could serve as a guidepost to the U.S.

transformation. In the U.K., contactless has grown considerably over the last six years as the point-of-sale infrastructure has matured and consumer behavior has shifted. In 2014, there were fewer than 500 million contactless transactions. By 2018, there were more than seven billion contactless transactions in the U.K.

Over that same time period, total cash withdrawal transactions declined at a rate of about 4% per year coming off of a fairly high base. Bank ATM transactions declined by over 10% per year during that same timeframe. Meanwhile, we grew withdrawal transactions on our business in the U.K. by on average of 14% per year, and we expanded our margin, while free cash flow was up over 8 times.

We were able to deliver a convenient low-cost solution for the consumer and allow banks to pull back on their infrastructure and focus on digital strategies. This worked well for all parties, including retailers, banks and the citizens of the United Kingdom until LINK recently made the arbitrary changes to the pricing mechanism. While the recent rate changes implemented by LINK have further complicated the story, the potential for the underlying shift from the bank teller and ATM transactions to remote ATMs or the Cardtronics still holds true. Now while the adoption of the contactless in the U.S.

has been slower than other countries for numerous reasons, we do expect contactless adoption over time, which will have an impact on the number of and the year-over-year volatility of cash transactions. That said, we have tried to factor that impact into the previously referenced $15 billion target market in the U.S. This adoption may very well be a catalyst for the brands' transformation and conversion opportunity for Cardtronics, as banks are forced to look for more efficient cash access alternatives for their customers. Now my last topic today, capital allocation.

During the quarter, we completed a $9 million acquisition to acquire ATM processing arrangements. This small transaction is instantly accretive, leverages our platform and scale and requires minimal integration effort. As I have said on previous calls, we will evaluate transactions that meet a high hurdle rate while leveraging our fixed cost infrastructure and have a minimal impact on business operations. We expect to deploy capital first into areas where we see quantifiable and tangible growth, and we will continue to delever and drive toward our targeted net leverage level of 2 times to 2.5 times.

Once we are within this range, we will come back to you with longer-term plans for return of capital to shareholders. Last quarter, we announced an authorization to opportunistically repurchase shares should the occasion arise, while we worked to reach our targeted net leverage range. I'm pleased to report that we repurchased over 1 million shares since May, representing over 2% of our shares outstanding. With our strong cash flows, growth trajectory, execution, sales pipeline, and team, we are pleased with this ability to offer additional value enhancement opportunity for our shareholders.

In summary, this was a strong and important quarter marked by returning back to growth, and we are excited about the rest of the year and our ability to continue to drive growth and value for our shareholders. This management team was attracted to the many attribute that our business possess. Today, since our time together and working in the business, we're more excited about where we are going, not only as a powerful network, but as a purpose-driven solutions provider for our FI and retail partners. Traditional FIs are at an inflection point given changes in their landscape, and we are a powerful partner to aid in their growth and customer engagement ambitions.

We're also expanding our TAM by adding additional product and transaction types and targeting the pool of emerging fintechs whose customers enjoy the delivery of financial services through these new channels, but also still desire convenient access to cash. We are a natural partner. Now I'd like to turn the call over to Gary to give some more color on the results and outlook.

Gary Ferrera -- Chief Financial Officer

Thank you, Ed. We had a really solid all-around second quarter and one that certainly exceeded our expectations as we began the quarter. As a result, we've increased our outlook for the full-year 2019. I'd like to point out that on a constant currency basis for the first time since 2017, we're reporting consolidated top and bottom-line growth.

This is the quarter earlier than we had originally planned. Before diving into the details, let me begin with a quick recap of our results. Consolidated revenues for the quarter were $341 million, basically flat to the second quarter of 2018 on an as-reported basis, but up 3% on a constant currency basis. Consolidated adjusted EBITDA was $81.7 million for the quarter, up 5% as reported or 8% on a constant currency basis.

Adjusted EPS was $0.69 for the quarter, up 13% from the prior year as reported and 16% on a constant currency basis. Free cash flow for the quarter was $50.1 million compared to $33.3 million in the prior year, driven by strong business performance and continued focus on cash flow. We are quite pleased with these quarterly results, especially given the headwinds we experienced. I'll start my commentary today with our Europe and Africa segment which is where we face majority of these headwinds related to the prior-year results.

Our U.K. business was impacted by two 5% LINK interchange rate reductions compared to the second quarter a year ago, when we had none. We also had a $2 million nonrecurring property tax benefit in Q2 of 2018. In spite of these headwinds on a constant currency basis, our Europe and Africa business actually grew on the top line by 2%.

And excluding the nonrecurring property tax benefit we had last year, we also would have been up on an adjusted EBITDA in this segment. In the U.K., same-store transactions for the quarter were down 3%. This result was a little better than we expected as we knew we had a tough compare to the prior year due to good weather and the World Cup lifting results in Q2 2018. During the quarter, we continue to convert ATMs to pay-to-use in the U.K.

and are now substantially complete with our conversion plans, but we'll continue to monitor the performance of these ATMs. What I can tell you so far is that the revenues and profits on the ATMs we have converted are performing better than we expected. The better-than-expected transactions are reflected in the results for our Europe and Africa segment this quarter and was a key reason for our outperformance relative to previous expectations. Our high growth markets in Germany, Spain, and South Africa continue to grow with double-digit growth on the top and bottom line.

We see this growth trend continuing in these markets. In Australia, on a constant currency basis, our revenues were down about 8%, while adjusted EBITDA was up almost 14%. The large percentage increase in adjusted EBITDA was partially due to some onetime items in the prior year, which benefited the year-over-year comparison. And we would not expect this to be the new norm.

We continue to focus on optimizing the Australia business segment and have made significant operational adjustments. We remain confident that there are longer-term opportunities for revenue growth in this market. But in the near term, we will remain intensely focused on managing the business for profitability and cash flows. Moving to North America.

We had top-line constant currency revenue growth of 4% for the quarter and adjusted EBITDA growth of 8%. These results are a product of core execution across many fronts. Starting with the top line, results were driven by same-store transaction growth of approximately 3% for the quarter, up slightly from the previous quarter's results. This same-store transaction growth rate continues to be driven by strong surcharge-free transactions that are company-owned locations in the U.S., which were up nearly 10% for the quarter.

This growth rate continues to be driven by increases in participating financial institutions within Allpoint and bank branding that continue to drive consumers to our locations. We also had strong equipment sales during the quarter. The North America revenue growth in the quarter was achieved in spite of a company-owned unit count that was down about 1% from the prior year, mostly the result of ATMs removed from Sunoco locations that were acquired by 7-Eleven. I'll come back to this in a few minutes when I go through our outlook for the remainder of 2019.

We're expecting to see continued and accelerating revenue growth in North America in the back six months of the year and into 2020. Let me now transition to profitability metrics and margins. Our consolidated adjusted gross margin for the quarter was 34.8%, which was up about 90 basis points compared to Q2 2018. Adjusted for the nonrecurring U.K.

property tax benefit in Q2 2018, our adjusted gross margin would have been up 150 basis points for the quarter. This result was driven by strong operational execution across the enterprise and the organic revenue growth in our North America segment. Our gross margin this quarter is the highest we reported for the second quarter since achieving 35.1% in 2016. As I mentioned earlier, adjusted EBITDA for the quarter was up 5% to $81.7 million.

On a constant currency basis, it was up about 8%. When we had our last quarterly earnings call, we thought this metric could be down this quarter, primarily due to the previously mentioned headwinds in the U.K. During the quarter, each of our segments performed better than we had anticipated with the main factors driving the outperformance being better-than-forecasted transaction volumes in the U.K. and continued strong cost management across the business.

Our adjusted EBIT margin -- EBITDA margin for Q2 was 24% and was up 110 basis points from the prior year, driven primarily by the same factor that impacted gross margin. Our adjusted EPS for the quarter was $0.69, up 16% on a constant currency basis. It was mainly impacted by the same factors that impacted adjusted EBITDA. But in addition, we also had $2.3 million of lower interest expense as a result of our late 2018 refinancing efforts that more than offset $1.4 million increase in depreciation expense.

The impact of the reduced share count as a result of our $30 million in share repurchases had a minimal impact to reported EPS in the second quarter as most of the share repurchases occurred late in the quarter and into Q3. Moving to capital expenditures. Our total spend for the quarter was $25.7 million, almost half of which falls into the growth bucket and was about flat compared to Q2 of 2018. We are still expecting approximately $135 million of capex this year.

Our adjusted free cash flow for the quarter was $50 million, up almost $17 million from the prior year. The year-over-year improvement in adjusted free cash flow was the result of the adjusted EBITDA growth and positive changes in working capital. Moving to the balance sheet. Our net leverage ratio for the quarter was 2.7 times adjusted EBITDA, down from 2.8 times last quarter, even after the $20 million in share repurchases we made during the second quarter.

This reduction in our net leverage ratio was a direct result of a very strong free cash flow for this quarter. We continue to use free cash flow to reduce debt outstanding. And with our anticipated year-over-year EBITDA growth in the second half of 2019, we anticipate entering our target net leverage range of 2 times to 2.5 times adjusted EBITDA later this year. In the quarter, we reduced the outstanding balance on our revolving credit facility by just over $27 million.

Approximately $5 million of this reduction was due to a currency benefit as much of a revolver balance is in British pounds. We continue to have plenty of borrowing capacity and headroom on all of our covenants. Coming back to the share repurchases, as a reminder, in late March, we announced a $50 million share repurchase authorization. This authorization was put into place as an opportunistic tool available to the company.

We saw some significant share price dislocation during the last couple of months relative to a number of key metrics we evaluate and bought back $20 million in shares during the quarter and another $10 million in the month of July. In total, since announcing the plan in March, we have invested $30 million in share repurchases, resulting in over 1 million shares being acquired, which is just over 2% of our total shares outstanding. Whether we continue to repurchase shares in the near term will depend on the number of factors, including valuation, business opportunities, leverage, and other considerations. Now let me cover some key points regarding our focus on operational excellence.

We recently accomplished a major internal milestone as we went live on the second phase of our ERP project on July 1st. This phase included our North American business. As a reminder, our U.K. and some of our corporate functions -- our U.K.

business and some of our corporate functions transitioned to our new Oracle cloud system a year ago. Next, let me contact -- comment on the restructuring charges this quarter. Our team is very focused on operational excellence, and you saw that in the performance this quarter. We anticipate taking additional charges in the second half of the year as we continue to optimize processes and our physical locations.

However, this is still a work in progress, and we will provide more information on our Q3 results call. Now let me turn to our 2019 outlook. Our second-quarter results, especially on the bottom line, were better than we anticipated. On our previous call, we communicated that adjusted EBITDA could decline in the mid-single-digit percentage point range.

As it turns out, we ended up with strong EBITDA growth for the second quarter. So with six months behind us and better visibilty into the second half of the year, we are raising our outlook for the year. Our adjusted outlook is updated in our earnings release and some of the key metrics are as follows: revenues of $1.33 billion to $1.36 billion for the year, this is up $10 million on bottom end of the range and due to FX headwinds in the second half of the year, we are maintaining the top end of the range; adjusted EBITDA on a range of $300 million to $310 million for the year, up $10 million on each end of the range; and adjusted EPS in a range of $2.24 to $2.36, up over $0.20 on each end of the range. Let me now give some additional color on the back half of the year.

As a reminder, we cycled in the first 5% LINK interchange rate cut on July 1st. So for comparative purposes, we just have one incremental cut for the rest of the year compared to the prior year. We also have now completely cycled in the nonrecurring property tax benefit we had during the first part of 2018. Therefore, as implied by the midpoint of our outlook, we are forecasting in the second half top-line growth in the low single-digit range and adjusted EBITDA growth in the low double digits.

Please note that this is on an as-reported basis, and when compared to the outlook provided last quarter, we currently estimate that currency headwinds will impact us by as much as a couple of percentage points in the second half. As we mentioned on prior calls, due to business seasonality and absolute numbers, we expect revenue and adjusted EBITDA to be slightly higher in Q3 than in Q4. Let me now take a moment to bridge the top-line growth expectations implied in our outlook for the second half of the year back to our Q2 reported results. To avoid noise in the numbers, due to the previously mentioned FX headwinds, I will do this on a constant-currency basis.

To begin with, our ATM operating revenues on a constant-currency basis were up about 1% in Q2. Second, cycling through in the first LINK interchange cut, as well as cycling through on some ATM removals at Sunoco locations in the U.S. is worth about 2 percentage points. So stopping there with everything else remaining about the same, we would get to approximately 3% constant currency revenue growth.

In addition, we expect to see incremental growth in the back half of the year from our branding in Allpoint efforts and the significant key wins we announced over the past few months, as well as from continued unit growth across our North America and our Europe and Africa segments. In the aggregate, we expect these growth levers to deliver a couple of percentage points of growth. Therefore, in aggregate, on a constant-currency basis, we're expecting to be in the mid-single digit range through revenue growth during the second half of the year. This puts us very much in line with and sets us up nicely to deliver on the medium term revenue guidance of 3% of 5% that we provided during our March investor day.

With that, let me turn the call back over to the operator.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Ramsey El-Assal with Barclays. Your line is now open.

Ben Budish -- Barclays -- Analyst

Hey, guys. This is Ben Budish on for Ramsey. Actually want to ask about the growth in product sales, which seems pretty impressive versus the prior quarters. Can you kind of give any color around that?

Ed West -- Chief Executive Officer

When you're referring to product or you're referring to the equipment sales or product in the ATM operating?

Ben Budish -- Barclays -- Analyst

The equipment sales.

Ed West -- Chief Executive Officer

OK. It's below the ATM operating. These are -- those tend to bounce around from quarter to quarter, mostly our sales -- equipment sales to either value-added resellers, merchants or some smaller financial institutions, where we will sell equipment to them directly. And some quarters are higher than lower, and those are all below ATM operating.

Ben Budish -- Barclays -- Analyst

OK. And if I can ask one more, I noticed your surcharge revenues had a nice increase versus interchange, and you guys kind of called that out a little bit in the slide deck. I'm just wondering how much of that is mix shift in the U.K.? How much is maybe performance in the U.S.? Or is it kind of entirely based on the switch in the U.K.?

Ed West -- Chief Executive Officer

It's mostly weighted toward the U.K.

Gary Ferrera -- Chief Financial Officer

The transition that we had in United Kingdom where we moved from free-to-use to pay-to-use as a result of the changes in the marketplace and the pricing with LINK. We had a total conversion of a little over about 3,000 ATMs, where we converted. And you're seeing that now showing up in that mix shift.

Ben Budish -- Barclays -- Analyst

OK. Great. Thanks a lot, guys.

Gary Ferrera -- Chief Financial Officer

Thank you.

Ed West -- Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from Andrew Jeffrey with SunTrust. Your line is now open.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Hey, guys. Good afternoon. Appreciate you taking the question.

Gary Ferrera -- Chief Financial Officer

Good afternoon.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

And receiving the ever present death-of-cash argument seems to be out there. But I wanted to ask about a couple of deals that, I think, one, we first heard about on the call today and one you announced the other day. Maybe you can elaborate, Ed, if you would, on the Visa deal and sort of -- there is a little bit of a dichotomy there. It seems to me on one hand, you have Visa promoting contactless pretty aggressively through its issuing banks.

And then on the other, it seems like they want to preserve, in fact, enhance affordable cash access. I wonder if you could just give us a little color on that? And also how the economics of that deal is going to work for Cardtronics?

Ed West -- Chief Executive Officer

Sure. Thanks, Andrew. Very important relationship there and strategic relationship with Visa. And I think that is a great statement.

It's a great statement around the business, around cash and the interest level and frankly the value of the branding value, but also the value of surcharge-free access. They are partnering with us and branding some of our locations at one of the nation's largest retailers and then providing direct surcharge-free access to all Visa and plus branded cards and for those consumers that go to those stores. So which is a terrific value for their customers. And very similar to other financial institutions, as you pointed out, as I mentioned on the call here, some other very large financial institutions, whether that be PNC, BMO and TD just as I said this past quarter, branding additional locations.

And we're -- this solution, and it goes steps back to the value of the network that I talked about on the call. And where financial institutions are looking for that access and looking at the network for the value of providing rapid access solution for branding, for exposure for their customers into new markets to support existing market, in the presence in existing market. And it's a very kind of smart on-demand solution. So it's a trend that we see with financial services, and I believe it also is a trend, I think, longer term that moves to our favorability.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

OK. So it's a branding deal similar to what you signed with other?

Ed West -- Chief Executive Officer

Yes. Very similar. That's right where the Visa cardholders, Visa and the plus brand would have surcharge-free access since branded on those, but also adding access to our machines at that retailer across the country. So it's branding plus surcharge-free.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

OK, got you. It's a nice win. And then the Synapse announcement from the other day, again, I appreciate you highlighting the FinTech opportunity. Does this -- do you think that is a recognition of the progress you've made? Is it potential -- does it have the potential to accelerate penetration of FinTechs? Just a little color around that would be helpful.

Ed West -- Chief Executive Officer

Yeah, I think it's both, as you just said. As I mentioned in my opening comments, we have really looked at this market and put it into the various buckets that they have, whether it's money management, P2P, wallet providers, neobanks, infrastructure to name a few there. And approaching each of those, we've targeted those faces and Allpoint truly is the premier solution for them that are looking for a nationwide access. And frankly, many of them -- a lot of this starts off with cash access withdrawals, but there is just as much interest in that front also on deposits.

It goes both ways. They see a lot of value in this platform because of the premier retail solution, locations, and national access. So I'd just really step back and just come back to, as I talked about earlier, where our platform and what we're trying to build out here on the network side and having the solutions of both Allpoint, as well as bank branding having surcharge-free access, we feel like has a lot ahead of it.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

OK, appreciate it . Thanks.

Ed West -- Chief Executive Officer

And I guess one last thing I'd step into on that, and frankly the Visa point, as well, which comes back to just the value of the surcharge-free and where consumers really do value cash. They want choice. They want payment choice. Obviously, card is very large, digital continue to grow, but cash is very important, which is why we feel like and others feel like it's going to be around a long time.

What we have is that infrastructure, that natural infrastructure to be able to leverage that infrastructure to play into that $15 billion market, which today 90% of those transactions are taking place at the traditional institutions. And we're a very minor part of it and just see that this is a platform for us to grow and leverage our physical-to-digital access points.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Helpful. Appreciate that.

Operator

Thank you. And your next question comes from Peter Heckmann with Davidson. Your line is now open.

Peter Heckmann -- D.A. Davidson -- Analyst

Hey, good afternoon. Thanks for taking my question. Still kind of going through some of the information, but can you comment on the Australian market and not a real clear bright line when you anniversary the market changes there? But how would you rate the impact versus your original expectation? And how would you view Australia trending over the next, let's say, two to four quarters?

Ed West -- Chief Executive Officer

Sure. Obviously, Australia took an impact over a year ago when the four largest banks announced going free access to their ATMs, removing any revenue model and that had an impact for all of the independent, because it was a direct charge and is a direct charge market. So that has an impact there and impacted our platform, as well. Stepping back though, I think it's important to recognize that in terms of the ATM footprint there, we're about a third of the market.

We have a very valuable network there, just under 30,000 ATMs or approximately a third of those, terrific locations. The good news is, as we talked about our priorities was to stabilize the business for an EBITDA standpoint. We saw that stabilize and, frankly, expect it to be slightly positive for the year. So that's a good first step now working on product, having a multiple conversations with multiple financial institutions to see how we can partner and be a solution for the market, because this trend is the same there of looking for a low-cost effective and efficient platform to help serve their customer needs.

So longer term, I believe, there is a benefit opportunity over the next several quarters, though our focus is on EBITDA and maximizing cash flow.

Peter Heckmann -- D.A. Davidson -- Analyst

Got it. And forgive me if I missed it, but an update on your progress on the deposit taking unit?

Ed West -- Chief Executive Officer

Sure. We announced that last quarter. So announcing Allpoint+ and a unit that we helped design tip to tail and are rolling that out. We mentioned we have about 1,000 of those out this year.

We're about half way through on that rolling it out very methodically, city-by-city. And obviously, it's a little bit of the chicken or the egg the first year getting the network out there and getting the interest into the market. We had a lot of very good conversations. I would say one thing that's unique about that product, it's institutions of all sizes who are very interested in that because it can also be seen as a real solution to help take more than just withdrawals traffic of branch locations and also for deposits.

And deposits are located at very convenient, highly regarded retail locations. So we're pretty excited about it. A very good discussions going in, I would say, the early customers have come on there. The volume we're seeing is nice and we're seeing some of the things that we talked about at the investor day.

Frankly there are some locations that actually have more deposits than they do withdrawals in terms of volumes. So lot more to go there. It's early on, and we'll update that over time.

Peter Heckmann -- D.A. Davidson -- Analyst

Great. Thank you.

Operator

Thank you. And your next question comes from Kartik Mehta from Northcoast Research. Your line is now open.

Kartik Mehta -- Northcoast Research -- Analyst

Hey, good afternoon, gentlemen. Ed, the U.S. cash withdrawals of 3% is a very good number. You said, I think, in your presentation was really driven by surcharge-free transactions.

I'm wondering as the business evolves to more surcharge-free transactions, the number you need to replace surcharge transactions, is there a way to look at that or quantify that or an average, something you could talk about that would help?

Ed West -- Chief Executive Officer

Good afternoon, Kartik. So as I mentioned, this past quarter was a nice quarter coming in just under 10% in terms of surcharge-free growth. All in same-store was around 3%, and surcharge was down obviously single digit, but it's been down, we expect that to decline over time. Interestingly, what we see honestly in the value of our network and working with our partners on both Allpoint and surcharge-free and also branding on the surcharge-free aspect of the network is where we see more and more value being driven, more and more store traffic going in and we would expect that over the medium-term outlook to be in kind of fame mid to high single-digit type growth, because the interest level, the consumer level of interest, as well as working with the financial institutions as they come into our surcharge-free network, which is a great solution.

Interestingly, some retailers, like when we roll out and bring surcharge-free into it, we can actually see surcharge traffic go up and transactions go up over a period of time because maybe there is a better brand awareness. When they see that ATM, it has better recognition and better use. So I wouldn't put out any kind of rule of thumb on that other than to say we would expect that in our outlook. I think what we talked about back in March was kind of a low single-digit same-store type growth.

I think the last thing I would say on that, we're not as caught up so much on the just this quarter versus next quarter versus last quarter in terms. It's going to go up and down by several points, just given different factors. But in general, over time, we would expect a low single-digit type same-store growth rate.

Kartik Mehta -- Northcoast Research -- Analyst

And then maybe just the impact on the EBITDA from acquiring the 62,000 managed ATMs. If I read that right, it sounds like this quarter, you were able to acquire some managed ATMs?

Ed West -- Chief Executive Officer

Yes. Yes. So we did those contracts and taking that on, and we can rapidly accretive on, as I mentioned in my comments, but it's not a material number. Small number, and that just closed out.

Kartik Mehta -- Northcoast Research -- Analyst

And then just lastly, Gary, looking at the U.S. operating revenue or North America operating revenue growth on a constant-currency basis, I think, it's up 1.6%. Would that imply that the U.S. operating revenue is somewhere around 1% or a little bit less than 1%?

Gary Ferrera -- Chief Financial Officer

For the full year?

Kartik Mehta -- Northcoast Research -- Analyst

No, no. Just, I think, for the quarter, right. If I read this right for the quarter wasn't the U.S. -- North America operating revenue on a constant-currency basis up 1.6%.

Gary Ferrera -- Chief Financial Officer

OK. Yes, yes.

Kartik Mehta -- Northcoast Research -- Analyst

So I'm just trying to understand maybe -- I'm assuming that because the Canadian business is in there, and that negative impact from FX on a Canadian business?

Gary Ferrera -- Chief Financial Officer

Canada and Mexico are both in there.

Kartik Mehta -- Northcoast Research -- Analyst

Yes. So if you just look at U.S. operating business, which is the largest part of it, is that about a little less than 1%?

Gary Ferrera -- Chief Financial Officer

No. It's right around there.

Kartik Mehta -- Northcoast Research -- Analyst

Right around 1%?

Gary Ferrera -- Chief Financial Officer

Yeah. Those other markets didn't have that big of an impact. So it's right around...

Kartik Mehta -- Northcoast Research -- Analyst

Thank you very much. I really appreciate it.

Gary Ferrera -- Chief Financial Officer

Thanks.

Operator

Thank you. And the next question comes from Tim Willi with Wells Fargo. Your line is now open.

Tim Willi -- Wells Fargo Securities -- Analyst

Yeah, Hi. Thanks and good afternoon. A couple of questions. First, going back to sort of the surcharge-free and you referenced marketing and awareness.

I think you talked about it in March, gave some examples. Could you maybe sort of refresh our memory, sort of business cases around the kinds of productivity, ramps that you're seeing with institution that really embrace driving the awareness really trying to steer customers to those surcharge-free ATMs? Like what's the magnitude of the lift that you see or however you sort of think about it?

Ed West -- Chief Executive Officer

Yeah. Good afternoon, Tim. So we did talk about that in terms of the awareness, the focus. I mean, frankly, if you step back and look at our platform, we work with over 1,200 financial institutions in The United States.

There are almost 60 million cardholders who have Allpoint in their wallet. And frankly most of them don't even know it. We have a huge installed base right there with our issuers and cardholders of opportunity to bring awareness and engagement. So it's one of the most important things that we can be doing, which is why investment, as I mentioned here, from a marketing standpoint is working very closely with our FI partners to bring in more and more awareness.

That is rolling notifications out on maps and awareness around ATM, having the locator search built into their websites and onto their apps of having that awareness. Frankly, in signage -- advertising and promotion within branches. Same thing, we do awareness days at retailers of making sure some of the banks or financial institutions will have a fair at a retailer. It's all just hand-to-hand combat of bringing awareness both from a direct, as well as the technology basis of bringing that awareness over time.

And I would also say that just the change on that, it's a long tail of awareness. Takes time for that to build, but that building over time and then having the financial institutions seeing the benefit of maybe some of that traffic coming off of the branch. The savings that they see and then going to the retailer and then the consumer sees the benefit in their day-to-day life, it starts to build on itself and the momentum. I think the last thing I would say is really just comes back to the value of the surcharge-free network where consumers -- we do have the case studies.

On one of the case studies we showed at the investor day, where retailer, which was surcharge-only, converted over surcharge-free with both Allpoint, as well as branding relationship on there. We've seen a significant shift, significant growth, double-digit growth, the volume going into those locations and transactions are up over 30%, and the volume is continuing to grow. They are still seeing strong growth on that over a year later. And candidly, they're also seeing decent volume on surcharge level, as well, because of the awareness and brand recognition.

So it's multifaceted.

Tim Willi -- Wells Fargo Securities -- Analyst

Great. I appreciate that color. And then my second question, I guess, as you sort of work through like the markets like the U.K. and Australia and different revenue models and different types of transaction levels.

I guess, whether it's Ed or Gary, could you talk about how you think about the measurements of unit growth and success? I think a lot of the market may be sort of then preconditioned to think about transaction count and maybe that was a lot more element in the past. I guess, do we think about it more differently in terms of gross profit per location, overall revenue per location as opposed to just sort of a static transaction or same transaction growth kind of metric on a go-forward basis?

Gary Ferrera -- Chief Financial Officer

You pointed it depends on the market, obviously. We get those international growth markets that are in the Europe and Africa segment, and obviously that is more the traditional unit growth model when you look at Spain, Germany and South America. They're intermixed with the U.K., which is a more mature market. But in those markets, the placement matters.

But then to your point, when you look at North America, it's less about putting more in the ground and more about how many transactions you're driving already have an installed base.

Ed West -- Chief Executive Officer

Which ultimately, it gets down to the more and more, as Gary talked about, more and more transactions at the same unit, obviously the productivity that we're seeing a return on capital driving more consumers to our existing locations is very valuable. And then it ultimately comes down to looking at the revenue and profit -- gross profit per ATM.

Gary Ferrera -- Chief Financial Officer

And that's what you're seeing flow through in the second half.

Tim Willi -- Wells Fargo Securities -- Analyst

Got you. Great. That's all I have for the time being. Thanks.

Operator

Thank you. [Operator instructions] Our next question comes from Bob Napoli with William Blair. Your line is now open.

Bob Napoli -- William Blair and Company -- Analyst

Thank you. Good afternoon. At your investor day, you guys had your medium-term outlook of 3% to 5% revenue growth through 2023. But then you broke out the piece of North America surcharge-free managed services globally, and it has -- as you sit here today, I mean, I know it's only a few months later.

But how do you feel about that level of guidance? And I think the EBITDA was you were looking at 7% to 9% EBITDA growth over that time frame?

Ed West -- Chief Executive Officer

Very comfortable. We're starting to see -- again that was 2020 and beyond, I think we're starting to see it a little bit earlier than anticipated, as I mentioned in my remarks. Probably a quarter earlier and we continue to ramp, but we're very comfortable with 3% to 5% and the 7% to 9% on the EBITDA line.

Bob Napoli -- William Blair and Company -- Analyst

Thank you. And then the U.K., we really want to see here obviously the market share grow in the U.S. and are you seeing signs that the U.S. will trend like the U.K.

did? I mean, you guys gave some good numbers on trends in the U.K.?

Gary Ferrera -- Chief Financial Officer

Yeah. Good afternoon, Bob. Obviously, the markets are very different between the U.K. and then the U.S.

So I wouldn't try to read too much there, but I would just say what we have in the United States, which is different than, frankly, any of the other markets, is the solution -- the product solutions and the surcharge-free network and the value now rolling out deposits. And it is a solution for financial institutions of all sizes, but also with the FinTechs and as we see other providers and partners out there, as well. So we believe in this solution, the opportunity. It marks well with that outlook that we gave.

And we're optimistic about the partnerships that we can build and be a solution for all of these institutions on this two-sided network.

Bob Napoli -- William Blair and Company -- Analyst

Thank you. And you had a few nice announcements the last couple of days and today. I mean, what does the pipeline look like for adding managed services for FIs for adding additional Allpoint partners?

Ed West -- Chief Executive Officer

Yeah, and as you just pointed out, like managed services, that's one solution. That's another thing where we really differentiate relative to others and have a broad suite of solutions for financial institutions, distribution and retail distribution. So whether that's Allpoint or bank branding or managed services, we've seen our overall FI pipeline continuing to build. It's up over the last year.

That continued to grow. And I think as you can see as evidenced by some of the names we've been mentioning, these are larger financial institutions with institutions of all sizes. And again, why I also highlighted focusing on FNBO is terrific. We're utilizing all of those products and truly looking at this as a solution for their cash infrastructure, but also customer engagement needs.

And I think it's that last point that we're just really resonating as we've moved up the house at financial institutions and the conversations that we have by being a true partner to really work on customer growth, customer engagement, as well as efficiency strategies.

Bob Napoli -- William Blair and Company -- Analyst

OK. Thank you. Appreciate it.

Ed West -- Chief Executive Officer

Thank you, Bob.

Gary Ferrera -- Chief Financial Officer

Thanks, Bob.

Operator

And I'm showing no further questions in the queue at this time. I'd like to turn the call back to Ed West, chief executive officer, for any closing remarks.

Ed West -- Chief Executive Officer

Great. Well, thank you very much for the support and the interest in Cardtronics. And we look forward to reviewing our progress with you going forward. Have a great day.

Thank you.

Operator

[Operator signoff]

Duration: 63 minutes

Call participants:

Brad Conrad -- Executive Vice President and Treasurer

Ed West -- Chief Executive Officer

Gary Ferrera -- Chief Financial Officer

Ben Budish -- Barclays -- Analyst

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Peter Heckmann -- D.A. Davidson -- Analyst

Kartik Mehta -- Northcoast Research -- Analyst

Tim Willi -- Wells Fargo Securities -- Analyst

Bob Napoli -- William Blair and Company -- Analyst

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