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Cardtronics (NASDAQ:CATM)
Q3 2019 Earnings Call
Oct 30, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by and welcome to the Cardtronics third-quarter 2019 earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Brad Conrad, executive vice president and treasurer. Thank you, and please go ahead, sir.

Brad Conrad -- Executive Vice President and Treasurer

Thank you. Good afternoon, and welcome to Cardtronics' third-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 31, 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The statements on this call are made as of the date of this call and are based on current information and may be outdated at the time of any replay of this call.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 have also posted supplemental investor materials regarding the third-quarter results on our website. And with that, I will turn the call over to Ed.

Ed West -- Chief Executive Officer

Thank you, Brad, and welcome, everyone. Building upon the momentum from earlier in the year, today we are reporting that our business delivered attractive top-line and double-digit earnings growth in the third quarter. This reflects strong execution by the team across all of our key initiatives. We are energized by these results and are also quite enthusiastic about our ability to continue to grow and leverage the world's leading ATM network.

My key messages for you today are as follows. First, bank branch transformation continues to gain momentum. FIs of all sizes are partnering with Cardtronics to deliver both an efficient cash solution and a physical brand presence by leveraging our unmatched network and platform. Second, our two-sided network continues to strengthen, with key partnership signings on both sides of the network.

Third, we are seeing growing demand from the fintech community for cash solutions on a national scale. Our on-demand and easy-to-integrate national surcharge-free network is proving to be a strong point of differentiation. Lastly, one of our top priorities as a team is driving durable organic revenue and profit growth, and we are delivering on that promise. We described our blueprint and targets for achieving top-line and bottom-line growth at our investor day earlier this year, and today I am pleased to report that our strategy is working, as evidenced by the third-quarter results and our recent execution with key customers.

Our confidence in our ability to deliver on our long-range targets that we outlined earlier this year continues to grow. Now let me start with a brief recap of our results for the quarter. Revenues for the quarter were up 6% on a constant-currency basis. Our organic revenue growth rate for the quarter was the highest we've seen in three years.

Adjusted EBITDA was up 15% for the quarter on a constant-currency basis, while the adjusted EBITDA margin was up 200 basis points, reflecting the initiatives the team has implemented to drive scale across the business. We also generated $48 million of adjusted free cash flow in the quarter, which was used to pay down debt and opportunistically repurchase shares when the stock sold off. We have now repurchased 1.7 million shares, or 4% of our outstanding shares, over the last six months. We had solid growth in both our North America and Europe and Africa segments, which account for over 93% of our revenues and profits across the enterprise.

On a constant-currency basis, North American revenues in the third quarter were up almost 8%, and adjusted EBITDA was up 14%. Meanwhile, in our Europe and Africa segment revenues were up 5%, and adjusted EBITDA was up 22% for this past quarter. These reflect solid execution on the overall strategy and key initiatives that we outlined over the last year and a half. We had a solid quarter beyond just the financial performance.

We also signed new agreements across both our FI and retail channels, positioning us nicely for future growth. Now let me start with a few comments on the bank branch transformation. I believe momentum is building, and this will be a key driver of growth for Cardtronics during the medium-term outlook. Bank branches continue to close in the U.S., with a record of almost 2,000 net branch closings during 2018 and over 5,700 net closings over the past three years, representing over 6% of all branches in the country.

These branch reductions are being driven by an increasingly competitive consumer banking environment and an evolving consumer behavior, and it represents a significant opportunity for us. As I outlined in March, our conveniently located U.S. network represents approximately 10% of the ATMs in the country, which is as large as the three largest banks combined. Yet we capture less than 3% of the transactions.

Today we believe over 90% of the supply of cash and deposits occur at a bank branch or a bank ATM. With branch transformation under way and the consequences of fewer tellers and bank branches, it is our goal to support the FIs and their customers and earn more of this transaction share. Now how will we do this? By delivering on our comprehensive suite of solutions for key FIs to help them increase brand presence, add more convenience for their customers and improve their operating costs and efficiency ratio. All of this will be achieved by leveraging our proprietary, convenient, surcharge-free network in the U.S., combined with our scale, security protocols and operating expertise.

Over the last couple of quarters, we announced significant branding relationships with large financial institutions, managed service agreement, Allpoint partnerships and an important new branding relationship with Visa. We started implementing many of these programs over the last several months. During the third quarter, we built upon the success with several additional new and expanded partnerships with a wide range of financial service-focused businesses. First, I'd like to highlight an expanded relationship with USAA Bank, one of the nation's largest banks.

We have enjoyed a long-term partnership with USAA, a tremendously successful organization with a loyal member base. USAA has been a part of our Allpoint Network for over 10 years and has also been a branding partner at a few hundred locations for several years. Our relationship with USAA has been extended to placing the bank's brand on 5,000 unbranded Allpoint Network ATMs in major retailers across the U.S. The USAA branding program will take it beyond providing surcharge-free convenience to creating a powerful brand visibility in high-profile retail locations, concentrating on markets where USAA's traditional membership of active, former and retired military reside.

These are mostly key military markets, like San Antonio, Colorado Springs and Biloxi, Mississippi, to name a few. This is a unique relationship and one that will be rolled out late in 2019 and into 2020. This tailored solution is transaction-focused and will deliver revenue growth over time, as we expect transactions to grow. This agreement reflects an alignment toward growth, convenience and customer satisfaction for USAA, their members, our retail partners and Cardtronics.

We also entered into our first customer relationship with U.S. Bank, the nation's fifth largest bank based on deposits, initiating our partnership by branding approximately 80 of our ATMs in the Charlotte, North Carolina, market. U.S. Bank was looking to expand into this market and saw the value of being able to quickly and cost effectively deliver both their brand and ATM access for customers.

We are excited about this new partnership with U.S. Bank and aspire to deliver additional value and services over time as they grow and optimize their platform and footprint. Beyond these relationships we also entered into numerous other branding arrangements this past quarter, with both new and existing partners, including Fifth Third Bank who is enhancing brand visibility in the Carolinas by placing their brand on over 100 of our ATMs in this important growth market. On the Allpoint front, we signed agreements with 24 new financial institutions this past quarter, providing surcharge-free access to their customers via our nationwide network.

We also expanded or signed new agreements with a number of growing and innovative fintech partners, including Vero, N26, and Oxygen, to name a few. Fintechs realize that to effectively compete for consumer accounts they need a physical ATM solution on a national scale that does not send their customers to competitor locations. We have the premier and preferred solution for these organizations to offer their customers convenient nationwide access to ATMs. The unprecedented change in consumer financial services that's being driven by technology innovation, changing consumer preferences and competition is a growing opportunity for Cardtronics.

Our value proposition is increasingly resonating with a wide variety of FIs, including national, regional and community issuers. The dialogues we are having now with senior leaders at retail banks of all sizes is different. Banks are looking to grow strategically but also optimize their costs and customer offerings. Our portfolio of solutions can help them with both their growth and cost optimization initiatives.

As we mentioned at our Investor Day, we are now investing in high-functioning, deposit-taking ATMs in the U.S. to grow our partnership with FIs, enabling more full-service solutions. We currently have about 700 of these full-function ATMs in service and will continue to deploy them as we see opportunities to grow revenues with attractive returns. While it's still early days, we are seeing signs of incremental interest in this additional service capability.

We also continue to invest in other technologies, such as our mobile API, which enables cardless transactions. These types of solutions will enhance our value proposition for current and future customers, especially fintech partners. Fintechs are realizing that while digital financial services are valuable and important, convenient, secure and free cash access remains very important to their customers and critical to their customer engagement and growth plans. On the retail side of our two-sided network in the U.S., we have recently renewed or expanded several relationships, including the renewal and expansion with our longtime partner, Rite Aid.

We will be deploying additional ATMs with Rite Aid during 2020. The renewal and expansion of these key relationships demonstrates the importance of our offering for retailers. They value our end-to-end services and ability to deliver incremental value through our network of FI relationships. Retailers benefit from our scale, best-in-class security, reliability and increased store traffic, which is increasingly important, with many of these retailers reporting same-store customer visit declines.

We once again delivered store traffic for our U.S. retail partners, as same-store transactions in the U.S. were up 2% for the quarter, which was driven by approximately 8% surcharge-free transaction growth. Same-store surcharge transactions were down, as expected, for the quarter and offset a portion of the surcharge-free growth.

Surcharge-free growth continues to be driven by new Allpoint participants, new branding customers added to the network and also more volume from our existing FI partners. Our growing branding solution and Allpoint Network are driving millions of incremental store visits for our retail partners. Our success with financial institutions is delivering growth in our branding and surcharge-free revenue category, which is up 15% in our North America segment for the quarter. Looking more closely at the Europe and Africa segment, we reported solid top-line and strong bottom-line growth on a constant-currency basis.

As many of you know, we have recently been facing some headwinds in our U.K. business, which is by far our largest operation within the segment. During the third quarter we partly cycled on one of these headwinds from the recent interchange rate reductions that adversely impacted our business. As a result of the first cycling and solid execution by our team to reposition our solutions and aggressively manage costs, we were able to achieve nearly flat revenue growth in the U.K.

for the quarter and double-digit adjusted EBITDA growth on a constant-currency basis. We like our position in the U.K. and see opportunities to leverage our platform and capabilities. Banks continue to reduce branches at a significant pace, and we are becoming an increasingly important part of the cash infrastructure in that country.

Last month The Guardian reported that over 3,300 bank branches have been closed since 2015, nearly one-third of all branches in the country. While ATM transactions are down in the U.K., it is worth noting that there is still over GBP 170 billion of cash dispensed through ATMs annually in this market at either bank or independent-operator ATMs. Our services and capabilities are important to the citizens of the country, and we currently account for about 16% of that cash dispensed volume, yet operate nearly 25% of the ATMs in the country. While cash usage may continue to decline in the market, it is still a substantial and important part of the payments ecosystem.

As banks continue to reevaluate their branch and ATM strategies, we see opportunities to gain share and deliver sustainable profits and cash flows in the market. We continue to see strong growth in our Germany, Spain and South Africa businesses, with each of those regions once again posting double-digit top and bottom-line growth for the quarter. The growth in these regions continue to be mostly about deploying new ATMs in quality locations, with traditional branding solutions, as well. We see good runway for continued growth, as we executed branding contracts for over 600 locations and new ATM placement contracts for over 300 new sites.

In summary, by all accounts it was a good quarter across our enterprise, highlighted by solid operational execution and commercial successes with both retailers and financial institutions, resulting in strong reported numbers. Now I would like to turn the call over to Gary for additional details on the quarter and an update on the outlook.

Gary Ferrera -- Chief Financial Officer

Thank you, Ed. We had a very solid third quarter, with accelerating growth in both the top and bottom line, which yielded strong margin expansion. I will start my discussion this quarter with some additional details on the quarterly performance, starting with North America, where we reported constant-currency revenue growth of 8% and adjusted EBITDA growth of 14%. ATM operating revenue was up 4% for the quarter in North America, partially driven by U.S.

same-store transactions that were up 2%. Similar to recent quarterly results, surcharge-free transactions in the U.S. were up approximately 8% for the quarter. This surcharge-free transaction growth is attributable to the recent growth in branding relationships, increased participation in Allpoint and increased usage of the network by our FI partners' customers.

Bank branding and surcharge-free network revenues in our North America segment were up $7 million for the quarter, or 15%. This strong growth in our surcharge-free category was partially offset by a small decline of about $1.3 million in North America interchange revenues, similar to what we have seen earlier this year. The largest driver of this interchange revenue decrease is higher network fees associated primarily with surcharge transactions, resulting in lower net revenues received by us. We expect to cycle on the network fee increase in Q2 of next year.

We also experienced strong growth in managed services and processing revenues during the quarter, reflecting the ramp up of previously announced deals. The remainder of the lift in revenues came from higher equipment sales. These equipment sales provided a tailwind this quarter, but we do not expect these sales to be a key growth component of our medium-term outlook. Turning to our Europe and Africa segment, revenues and adjusted EBITDA were up 5% and 22%, respectively, on a constant-currency basis.

A few factors contributed to our strong financial results in this segment. As Ed mentioned in his comments, we were nearly flat on the top line in the U.K., as we were able to offset a large portion of the LINK interchange rate reduction with the conversion of some of our free-to-use ATMs to pay-to-use ATMs. This action, coupled with strong operational performance and incremental revenues from DCC enablement of over $5 million, offset the LINK interchange rate reduction and the slight decline in U.K. same-store transactions of 3% for the quarter.

Our growth countries in this segment, Germany, Spain and South Africa, once again delivered double-digit revenue growth, mostly driven by new ATM deployments. This revenue growth across the segment, coupled with strong operational improvements, drove EBITDA margin expansion of over 400 basis points. Our revenues in Australia, which accounts for less than 7% of our consolidated revenues, were down over 11%, and adjusted EBITDA was down 8%, both on a constant-currency basis. This market continues to be under pressure from the late 2017 ATM fee changes, but we are managing our business there aggressively and it continues to generate attractive cash flows.

We recently updated a majority of our ATM fleet in Australia to enable Visa DCC transactions in time for the peak holiday and summer season in that market and expect to realize some benefits from that effort, going forward. Turning now to our consolidated adjusted EBITDA margin for the quarter of 24.8%, which was up 200 basis points for the quarter, as we had good flow-through from increased revenues in North America and operational improvements across all three segments. More specifically, we experienced a year-over-year decline in the cost of ATM operating revenues of almost $8 million, while increasing ATM operating revenue by almost $4 million. Additionally, we held the cost of ATM operating revenue almost flat sequentially versus Q2 2019, while increasing ATM operating revenues by over $10 million.

These operational improvements were across most of our operating cost categories. We experienced slightly higher SG&A costs this quarter, driven mostly by increased licensing costs and other fees associated with the second phase of our new ERP system deployment and additional investment into information security and technology. Our adjusted EPS for the quarter was $0.79, up over 27% and up 31% constant currency. This increase was primarily due to the same factors that impacted adjusted EBITDA, as well as by a $2.8 million increase in depreciation expense that was mostly offset by $2.1 million in lower interest expense.

The adjusted EPS improvement was also impacted by the 1.7 million shares we purchased between May and September. We estimate that the share repurchases improved our reported adjusted EPS for the quarter by $0.02, or approximately 3 percentage points of the 27% increase. Moving to capital expenditures, our total spend for the quarter was $35 million, and it was $90 million for the nine-month period. This compares to $27 million and $73 million for the same periods last year.

Over half of the 2019 investment falls in the growth category. Due to timing of deployments, we anticipate some of this year's originally planned capital investment will roll into early 2020. Therefore, we now anticipate our full-year capital investment to approximate $130 million, versus our previous outlook of $135 million. Our adjusted free cash flow continues to be strong, and for the quarter it was $48 million, which is in line with the amount generated in the third quarter of 2018.

The growth in adjusted EBITDA in the quarter was offset by the previously mentioned increase in capital investment. For the nine-month period, we generated $119 million in adjusted free cash flow, which is slightly higher than the amount we generated for the full-year 2018 and significantly higher than the $74 million we generated in 2017. Turning to the balance sheet. In September we increased borrowing capacity of our revolving credit facility to $750 million, from $600 million, and extended the maturity another year, to September of 2024.

The increased facility provides us with significant liquidity and enhanced capacity to retire our convertible notes when they come due in December of 2020 and still have plenty of remaining capacity for strategic priorities. While we have not made any decisions on how we plan to repay the convertible notes next year, this certainly provides us a very attractive option. Our net leverage ratio for the quarter was 2.6 times adjusted EBITDA, down from 2.7 times last quarter. The reduction in net leverage was driven by a combination of growth in adjusted EBITDA and a reduction in our net debt.

We repaid over $23 million on our credit facility, even after our capex investments of $35 million and repurchasing $30 million in shares during the quarter. With these Q3 share repurchases, we now have completed the existing $50 million opportunistic share repurchase authorization, having cumulatively acquired 1.7 million shares, or 4% of our shares outstanding, at a weighted average price of just under $29 per share. As we've mentioned previously, after prioritizing high-return, organic growth investments we will continue to primarily focus our free cash flow usage on reducing debt until we enter our target leverage range of two to two and a half times adjusted EBITDA. We are fast approaching the high end of that range and anticipate providing further updates on longer-term capital allocation priorities when we are comfortably in our target leverage range.

Let me complete my discussion of the quarter with an update on the ERP implementation and some comments on restructuring charges. We went live on the new ERP system in North America during the third quarter. While we will continue to make system enhancements and roll out additional functionality over time, our largest operations are now live on the platform. This is a significant achievement, and we are pleased with the teamwork and execution that allowed us to bring a majority of our global operations onto a common back office platform.

Regarding the restructuring charges, we continue to strive for operational improvement in our business, and you are seeing the impact of these initiatives on our bottom line. We recorded over $3 million in restructuring charges this quarter, which in part related to the operational enhancements in the U.K., as well as systems and process consolidation associated with the ERP rollout. These costs primarily relate to lease termination payments and severance charges in both of our North America and Europe and Africa segments. Based on what we know now we will likely have a lower charge in the fourth quarter related to these activities and a small amount in the first quarter of 2020.

Now let me turn to our outlook for the rest of the year. The third quarter was strong and was generally in line with our expectations. With that in mind, we are expecting similar year-over-year as-reported performance in Q4. Therefore, with just a quarter remaining we are mostly tightening our outlook for the year.

Our adjusted outlook is detailed in our earnings release, but some of the key metrics are as follows. Revenues of $1.34 billion to $1.36 billion for the year. This is up $10 million on the bottom end of the range. Adjusted EBITDA of $302 million to $310 million for the year, up $2 million on the bottom end of the range.

And we have increased our adjusted EPS at both ends of the range, and it is now $2.35 to $2.44. As implied by the midpoint of this range, for the fourth quarter on an as-reported basis we are expecting revenue growth in the low- to mid-single-digit range and adjusted EBITDA growth in the low-double-digit range, which is consistent with the results of Q3. Of course foreign exchange rate movements could impact our future results, and we have detailed our assumed FX rates in our earnings release. Let me conclude by saying that we feel that our recent customer wins, renewals and extensions, coupled with our continued strong operational execution, have set us up well for 2020 so that we can deliver on the medium-term growth targets we communicated at our investor day in March.

As a reminder, the targets we previously communicated were an organic revenue growth range of 3% to 5% and an adjusted EBITDA growth range of 7% to 9%. Obviously, there's a lot of work yet to be done, and we are still working through our operating plan for next year. That said, we've had a good nine months in 2019 and have taken the appropriate measures to position ourselves to deliver on these financial targets. We look forward to updating you again on our fourth-quarter performance and outlook in late February.

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

Ed West -- Chief Executive Officer

Thank you, Gary. And let me wrap up today by saying we are invigorated by the recent execution and success. And to recap, there were several key messages that we covered today. First, bank branch transformation continues to gain momentum, and this is a positive trend for Cardtronics as we aspire to gain more share of the cash supply.

Second, our two-sided network continues to strengthen, with key partnership growth on both sides of the network. Our convenient network, comprehensive solutions, products, security protocols and capabilities are quite unique, and we are gaining market share with retailers and FIs as a result of our compelling value proposition. Third, we are seeing growing demand from the fintech community for cash solutions on a national scale. Regardless of FI size or strategy, we are a natural partner and we see increasing avenues for growth as we continue to invest in technology solutions.

And lastly, one of our top priorities as a team is driving durable organic revenue profit growth, and we are delivering on that promise. Based on the results over the past year and a half, we are increasingly more confident in our ability to deliver on the strategic objectives and financial targets we communicated at our Investor Day earlier this year. With that, operator, we'd like to now turn the call back over to you for Q&A.

Questions & Answers:


Operator

[Operator instructions] And our first question comes from the line of Andrew Jeffrey with SunTrust. Your line is now open.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Hey, good afternoon, guys. Appreciate you taking the question. I wonder if we could dig in a little bit on the USAA deal. It's obviously a nice expansion of that relationship.

Ed, I just wanted to understand what you were saying about that. Is this more of a transaction-oriented deal than branding agreements you've had in the past?

Ed West -- Chief Executive Officer

Good afternoon. Thanks for the question. So USAA obviously has been a terrific long-term partner of ours and for almost a decade with Allpoint and a few years from brandings. We have had tremendous experience with them and working with them and, as I think we all know, have a very loyal membership customer base and membership.

The relationship is quite unique, where they're branding 5,000 locations that are currently unbranded today, Allpoint locations around the country. That's volume-based, transaction-based. So it provides the convenience, awareness with a very strong brand going into those locations, mostly in military markets where they have strong membership profile from current, retired and former military personnel. So we expect this to grow over time because of more volume-oriented and driving more awareness and convenience for their members at these great retail locations.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Will those revenue be reported in the same category as other branding deals?

Ed West -- Chief Executive Officer

As other surcharge-free. So think of it, over all, as surcharge-free, which has both interchange, as well as in the bank branding.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

OK, but in that category. All right. Thank you. And the fintech wins you've announced are pretty encouraging.

And obviously, that's a growth segment of the market. Is there any way you can dimensionalize those in terms of how you think they might drive growth? Are they meaningful yet? Then I guess the other question that would arise just as a corollary is, how durable do you see those? These are obviously some newer customers, newer entities that are growing fast but are maybe not as proven as traditional banks. Just a little color on your thoughts around that segment of the market would be great.

Ed West -- Chief Executive Officer

It's a segment, obviously, we're all very excited about. We've seen a lot of growth from an interest level, and let's step back on why is that. I think many are learning just the value of having the engaged customer who value access to a surcharge-free national network of ATMs. And I think many are recognizing that, learning that.

We have some terrific partnerships, as I mentioned, adding more on this quarter and are in discussions with others of all sizes. And we also believe over time this is an avenue for additional products and solutions, particular as we and they roll out other solutions on a mobile-enabled basis and through our API or directly with theirs. Andrew, I think we're early on. We're all very early on, on this.

Many of those businesses are relatively new and young, and they're building their customer profiles, but they tend to grow quickly. Now having this access I think is very positive, and we look forward and aspire to grow with them. And frankly, many of these are also bringing in new customers to the network as well.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

OK. Thanks, appreciate it.

Operator

Thank you. And our next question comes from the line of Bob Napoli, with William Blair. Your line is now open.

Bob Napoli -- William Blair and Company -- Analyst

Thank you, and good afternoon. Some nice partnership announcements there. Good to see that. Just on the 2% organic growth in -- same-store sales, sorry, in North America, was the transaction growth any different than that?

Ed West -- Chief Executive Officer

Well, over all, if you look at -- ATM operating revenues was higher, and that's just because there you have multiple sources and types of revenues versus just the same store.

Bob Napoli -- William Blair and Company -- Analyst

OK. So what is -- can you give the transaction trends?

Ed West -- Chief Executive Officer

Overall, I don't have the number of total transactions right here with me right now.

Bob Napoli -- William Blair and Company -- Analyst

OK. And then your targets for next year, the long-term targets that you're saying you're comfortable with as you're looking into next year from what you see today, the 3% to 5% top line, 7% to 9% EBITDA, is that higher in the -- in which regions? Or is North America in that range? Maybe just a little bit of discussion by region.

Ed West -- Chief Executive Officer

Sure. And Bob, on the point on the same-store, if you recall, that's withdrawals; so the same-store withdrawals. And then obviously, we have other transaction types, as well, that are occurring. And that number on the 2% is specific to withdrawals.

And by the way, as we've talked about before, that number can be quite volatile for a lot of different reasons and different things that are going on in particular regions, particular markets. And it can be sometimes a little bit higher, it can be lower. It's going to move around. And candidly, we're actually more focused on looking at overall different revenue streams, different solutions, having different revenue types, adding new revenue types, adding both fixed and variable revenue types.

Like, a lot of the branding and Allpoint membership have more fixed elements into it, as well. Managed Services has more fixed. So we have both fixed and variable. And one of our key priorities as a company has been driving more durable revenue streams where we have more of an influence over, and I think you're seeing some of that coming on as well.

Going into next year, obviously, as Gary said, we'll provide guidance later. But I would say over the last couple of quarters, as you pointed out at the beginning here, we have announced some really terrific partnerships, both extensions and expansions and new ones, over the last several quarters. Many of these take multiple quarters to really kind of get up, enable and really seeing the customer engagement. So that bodes well for the midpoint of next year, and that's why I think in both of our comments we feel good about delivering on those targets that we outlined.

Bob Napoli -- William Blair and Company -- Analyst

Great. And just last question. One of your competitors, generally different markets, benefits quite substantially off of DCC. And I think that's been a focus, and I know you're in different types of markets, but are you seeing opportunities to benefit more from DCC given that that's such a high-margin revenue stream over the next few years?

Ed West -- Chief Executive Officer

Yes. And as we talked about before, because our platform is so domestically oriented, where we are really in the fabric of society in the countries where we operate and such a large position in the United States, the United Kingdom, Australia, Canada, just has such a high domestic orientation, it's less applicable, DCC. But that doesn't mean we don't have it. And we do.

And historically our DCC revenues as a percentage of our total revenue is roughly 2% to 3%. And based on what we saw this past quarter, I think Gary talked about some of the growth we saw; in particular, our Europe and Africa segment growth there. That was -- now we see that going more toward up a couple of percentage points, probably in the 5% neighborhood. And we see ongoing upside opportunity.

Bob Napoli -- William Blair and Company -- Analyst

Great. Thank you. Appreciate it.

Operator

Thank you. And our next question comes from the line of Ramsey El-Assal with Barclays. Your line is now open.

Ben Budish -- Barclays -- Analyst

Hey, guys. This is Ben Budish on for Ramsey. I wanted to follow up on the earlier conversation on fintech and just kind of ask about the pipeline. And I guess the same with your Allpoint clients.

It's been nice to see some kind of big bank wins, as well as a number of fintech deal wins coming in through the quarter. Should we kind of expect more of the same, going forward? More larger banks in Allpoint and more fintechs? I guess, how would you describe the pipeline there?

Ed West -- Chief Executive Officer

I wouldn't give specific guidance to closings and new business on a quarterly basis. I would just say over time, what we've been talking about over the last 1.5 years, this area and the focus on product, broadening our solutions, this branch transformation and our comprehensive solution set has been leading to our growing FI pipeline because of our multiple solutions. And I would say it's -- our conversations are different now. We work with the leadership of some of the largest financial institutions in the country, fintechs.

And candidly, also big technology seeing an interest in this. So we see this continuing to evolve. Now you'll some quarters you'll have more than others. It goes up and down.

But over all, long term, we feel quite good about being the solution for our platform and network and our long-term growth objectives.

Ben Budish -- Barclays -- Analyst

OK. And then if I could get one in on modeling. You mentioned for the fourth quarter you expect it to be similar on an as-reported basis. And I know you've previously commented that the product sales tend to be lumpy.

So can we expect maybe, like, a lessening FX impact, some kind of constant currency acceleration and lower product sales? Does that kind of smell right? It kind of feels like that might be what you're getting at.

Gary Ferrera -- Chief Financial Officer

We didn't get that specific, but we're not expecting, as I mentioned, product sales to be a big driver of our medium-term outlook. It's lumpy. It depends on what quarter it is. And it's not something we spend a lot of time modeling.

And the bottom-line impact is different. But we could have some fluctuation in currencies. It could be either/or. But we expect to kind of perform in line with what we did this quarter.

Ben Budish -- Barclays -- Analyst

OK. And I guess just to follow up on that, as it stands today do you expect FX to be a lesser headwind in the fourth quarter than the third?

Gary Ferrera -- Chief Financial Officer

Don't know at the moment, but we're hoping so.

Ben Budish -- Barclays -- Analyst

OK. All right. Thanks so much.

Gary Ferrera -- Chief Financial Officer

Thank you.

Operator

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

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

Good afternoon, gentlemen. Could you talk a little bit about -- you've done a good part of the work on your ERP transformation. In terms of the back office consolidation of the infrastructure that was kind of built up over the years through how the company was built through M&A, can you talk about how you're tackling that, what type of timeline you see there, and maybe, if you would, what kind of potential savings you expect as you whittle that down to maybe one or two primary systems?

Gary Ferrera -- Chief Financial Officer

Yeah. I mean it's been a journey so far, and we're going to continue. I think we're in very good shape right now. This makes a big difference, having one ERP system.

It doesn't mean in every country we're on the same system. We do roll up different ways. But the majority of the operations are under the main system. But there's still, I'd say, a lot of work to be done over the next couple of years.

I'm not expecting that we'll have everything integrated by six months' time. So we still have work to do and the team is very focused on it.

Ed West -- Chief Executive Officer

I would just elaborate on our longer-term outlook implies margin expansion, and this would be one of those drivers. It's just an ongoing mindset of efficiencies, effectiveness in the business.

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

Got it. Got it. And you noted that the USAA agreement includes branding some unbranded units. Could you update us on the approximate percentage of your owned ATMs that currently carry no third-party branding?

Ed West -- Chief Executive Officer

Well, if you just kind of step back, looking at our overall portfolio, there roughly -- we tend to think about what are units that are, over all, kind of available for branding. Today there are over 36,000 that are available for that and just shy of about 21,000 when you include this new arrangement with USAA. And by the way, as I mentioned earlier, it takes a while to roll all this out; so over time. But just assuming all these now will be branded, that leaves just shy, just under 16,000 that would be available out there.

And we've been talking about these last couple of quarters increased interest and demand and feel good about this particular area and the product solution, because it's very valuable for the financial institutions.

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

Great. Appreciate it. I'll get back in the queue.

Ed West -- Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Gary Prestopino with Barrington Research. Your line is now open.

Gary Prestopino -- Barrington Research -- Analyst

Hey, good afternoon, everyone. These new relationships that you're signing up with fintechs, particularly for Allpoint, are those exclusive relationships with Allpoint? Or can these fintechs put other networks on their cards?

Ed West -- Chief Executive Officer

It depends on the relationship. Obviously, we can't speak to specific ones. But it has both.

Gary Prestopino -- Barrington Research -- Analyst

OK. Can you give us a count of with these fintechs that you've signed how many additional cards you've added?

Ed West -- Chief Executive Officer

I don't have a count for these most recent ones, but obviously our card count continues to grow and expand, but don't have the ones specific to these most recent signings.

Gary Prestopino -- Barrington Research -- Analyst

OK. Thanks.

Operator

Thank you. And our next question comes from the line of Kartik Mehta with Northcoast Research. Your line is now open.

Kartik Mehta -- Northcoast Research -- Analyst

Hey, good afternoon. Ed, you had really good results out of the U.K., considering what's going on there. And I'm wondering if you look at your fleet compared to what the market is doing, from a transaction standpoint, growth standpoint or a decrease standpoint, how does the Cardtronics fleet compare to the market?

Ed West -- Chief Executive Officer

When you say to a "transaction standpoint," you mean in terms of the number of transactions?

Kartik Mehta -- Northcoast Research -- Analyst

Yes, total number of transactions. It seems like LINK data would suggest that transactions are declining somewhere between 10% and 12%. And so I'm wondering how that compares to Cardtronics' fleet.

Ed West -- Chief Executive Officer

What I would tell you is, just kind of stepping back, look at what is -- you see the data from LINK in the overall contraction. If you look at our same-store, obviously, I think Gary mentioned on this call we were down roughly 3% on a same-store basis which, frankly, was pretty decent and also relative to the overall market. I think the bigger story there is when you look at the shift that's been occurring over time and is this reduction in overall bank ATMs, bank branches. We've had a disproportionate reduction, and obviously we've picked up share over that.

And we would expect that over time to continue and also have other solutions for the market and for the financial institutions to help support their goals and objectives there in that market.

Kartik Mehta -- Northcoast Research -- Analyst

Ed, any thoughts maybe on when you convert an ATM in the U.K. from free to pay, obviously is paying dividends. But is there the average number of transactions you're able to maintain? Or still the number of ATMs you believe more ATMs you can convert from free to use? So just on the existing ones, the amount of transactions you're able to maintain? And then how many more do you think you can convert?

Ed West -- Chief Executive Officer

Well, first of all, so stepping back, as you know, we announced we pulled a few thousand ATMs out and also we converted about 3,000 from free-to-use to pay-to-use. And we are big fans of free-to-use and support that, but it has to be supported in an economic sense for how it makes sense. And we did have to convert some to pay-to-use. And when that happens, yes, there is a fairly considerable reduction in volume on that.

Now I think what was very strong, as we reported this past quarter, is that, frankly, our revenues in the U.K. were about flat on a year-over-year basis, even though we had the LINK reductions and have seen some of the same-store decline. But that's just because of how we've had to manage and fine tune that transition from free-to-use to pay-to-use, the number of those locations, what the pricing is on that, and obviously is very active by the team there in that market. So we will continue to refine, work with the parties and also the communities for the best solutions in the country.

Kartik Mehta -- Northcoast Research -- Analyst

Thank you very much. I appreciate it.

Ed West -- Chief Executive Officer

Thank you.

Operator

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

Tim Willi -- Wells Fargo Securities -- Analyst

Thanks. Good afternoon. A couple of questions. Going back I think from the earlier question around the fintechs that you've been signing, do you have any insight around, like those fintechs might have shared with you, around cash access and card activity, generally speaking? I know you said you don't have card numbers off the top of your head, I thought.

But is there any color that you have around how those customers are acting around ATM usage and cash usage?

Ed West -- Chief Executive Officer

Well, it's growing, and so as is the engagement with the platform with these customers. So as they grow, obviously, we will grow with them. But also the awareness and the usage and the promotion. Tim, this is all quite still early on.

I think we're on the early innings of an opportunity here and, as I mentioned earlier, not just in terms of the usage for cash. A lot of this today is just carded. What will move out over time is more mobile-enabled and also different transaction types on the mobile as this broadens out in the market. I think getting the awareness, understanding that with Allpoint on their app will lead to growth.

One of the things that we've learned over the last couple of years is really working very closely with the issuers in terms of the awareness. And so partnering with them closely, driving that. And they're learning the value of having surcharge-free cash access to a nationwide network helps drive engagement for them, as well. And they see the value of that and how we can partner together to help their solution even be more successful.

Tim Willi -- Wells Fargo Securities -- Analyst

And just two more questions. Another one on fintechs. So you talked a lot about and I think the contracts you've signed have been U.S. But U.K.

and Germany are pretty robust fintech and digital bank markets in terms of start-ups. In fact, I think some are coming to the U.S. that originally launched over in Europe. So I'm just curious, like, is that something on your road map? Do you have discussions? Are you -- is it an opportunity you're sort of trying to figure out how do we export what we're doing here with the fintechs over into Europe? Just any thoughts there.

Ed West -- Chief Executive Officer

Absolutely. That's one of the great things in terms of a lot of the work that we've been doing in the business is making sure as we're developing these products and solutions that we can utilize those where we see the market opportunities in various markets. You mentioned there in the U.K. One of those, N26, who is coming here to the U.S.

and announcing that here recently for this quarter. So we are doing exactly that, as you point out, Tim, and see future opportunity in those different markets. Our products and solutions are at a different stage in the U.S. than in other countries.

We've invested on this heavily here to get it up and running, and then we will begin exporting that as we feel comfortable and on a measured basis.

Tim Willi -- Wells Fargo Securities -- Analyst

Great. And my last question just goes back to USAA a little bit and I guess maybe just Allpoint, overall. But as you think about 2020, whether it be tied into USAA or just the overall Allpoint marketing, and what you've seen and learned as you focused this year on driving that engagement and awareness, is there anything we should think about quarterly for next year or the possibility of maybe a marketing budget or marketing and advertising being upsized or downsized? Or anything specific to the USAA launch that we should just think about in that SG&A line item as we do our quarterly modeling?

Ed West -- Chief Executive Officer

Yes, very good question. I think we'll give more guidance, as Gary said, after the first of the year in that. So at this stage we haven't finalized any plans around that, specifically. And we'll outline that later.

I will say, as I mentioned last quarter, this is an area where we are investing. We now have a Chief Marketing Officer. And we're enhancing and building that in our data analytics, our capabilities experience and engagement with direct with the consumers who are coming to the ATMs, working with our partners. So it is an area of acute focus.

Tim Willi -- Wells Fargo Securities -- Analyst

Thanks so much. That's all I have.

Ed West -- Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Reggie Smith with JP Morgan. Your line is now open.

Reggie Smith -- J.P. Morgan -- Analyst

Hey, gentlemen. Thanks for taking my question. Great quarter. I wanted to ask you, so I see it looks like withdrawal transactions were down, I guess, 9%.

And obviously, there are different pockets around the world. And I was hoping you could give us a little color on kind of what you're seeing there. It sounds like same-store was down low single in the U.K. But can you kind of just walk us around the world, general growth rates? And as you get to the U.S., I'm curious to know what surcharge versus kind of Allpoint the withdrawal transaction growth rates were within that bucket.

Ed West -- Chief Executive Officer

So the biggest driver of that, Reggie, and by the way, good afternoon and thank you, is the change from free-to-use to pay-to-use in the United Kingdom, is the biggest change on the withdrawals, and also when you look at that interchange line item on our P&L in revenues changing from free-to-use to pay-to-use and that being our biggest reduction. That's, by far, the largest. Obviously, you do have some underneath that same-store reduction in the U.K. In the U.S., we had same-store growth.

But that's the lion's share of that. Allpoint, quite strong. And as we pointed out, that line item on the revenue for both branding and surcharge-free networks was up I think 15% for the quarter. So, very strong, double digit, and coming from multiple factors, whether that's new branding relationships, new Allpoint relationships, expanding those and having better engagement with our partners and consumers.

Reggie Smith -- J.P. Morgan -- Analyst

Got it. And so it sounds like, going back to your Analyst Day earlier this year, one of the things you guys called out was that there was still a pretty big, I guess, awareness gap for a lot of the Allpoint cardholders. And just curious, I know it's only been a few quarters, is there anything you can provide there, any color, metrics, anecdotes you can provide there, as it relates to increased awareness and things like that? And how should we monitor and measure that over time?

Ed West -- Chief Executive Officer

Great question. I would say the opportunity since then is even getting bigger, because now we have over 60 million cardholders with Allpoint in their wallet. And again, a lot of them don't even know it. It is one of our chief activities, working with our key FI partners, with our retailers driving that awareness.

This goes back to Tim's question around marketing, why building out a marketing team. Getting that awareness and support, I would say, is probably one of the biggest upside opportunities in the business, is having more and more engagement, and, by the way, is also one of the biggest opportunities in the company. Because remember, over 90% of the transactions for cash withdrawals and deposits happen at a bank branch or bank ATM. That is declining.

Fewer tellers, fewer branches. That's consolidating. We are the perfect solution to serve that on a more convenient basis and in a more efficient way. And that's where as we drive that awareness and having that two-sided network everybody benefits by it.

And that's why our confidence is where it is as we think about the future.

Reggie Smith -- J.P. Morgan -- Analyst

And if I could sneak one last question in, and it's funny. You ended your last comment with the word "confidence." And hearing you talk I could hear the passion in your voice as you kind of described the trends that are going on. My question, with all of that said, does it feel like there's a, I guess, a shift in how banks are looking at this from a pricing perspective? And so is there an opportunity to kind of flex your muscle as these relationships come up for renewal or as you go out and pitch for these deals, where you're now able to maybe command a slight premium for bank branding relationships? Or is it too soon to think that way?

Ed West -- Chief Executive Officer

I'm certainly not going to talk about pricing. I would just say what is different, frankly, is, candidly, my travel schedule and a lot of our travel schedules, which is the number of meetings, the engagement and moving up higher in the institution because of how comprehensive our solution is, not just for customer growth; customer engagement, driving operating efficiencies and now with rolling out deposits. A solution for banks of all sizes and financial institutions of all sizes, for fintechs, of having both cash-in, cash-out now see that as a comprehensive solution. It's our goal getting the partners broadened on both sides of that network, deepening the relationships and getting more utilization.

And candidly, obviously, we've done a lot. The company has done a terrific job on that, building out the overall network. And where we see the momentum now is moving up the stack with everybody and having, building deeper partnerships with these great partners.

Reggie Smith -- J.P. Morgan -- Analyst

Perfect. Sounds good. Congrats on the quarter.

Ed West -- Chief Executive Officer

Thanks, Reggie.

Operator

Thank you. And our last question, as a follow-up, comes from Bob Napoli with William Blair. Your line is now open.

Bob Napoli -- William Blair and Company -- Analyst

Thank you. I just wanted to ask about interchange, the interchange revenues. Have there been other changes in interchange? Or are there risks to other changes in the interchange rates in any of your markets?

Ed West -- Chief Executive Officer

Well, obviously, the most substantive one was the changes with LINK.

Bob Napoli -- William Blair and Company -- Analyst

Right. Other than that, outside of that.

Ed West -- Chief Executive Officer

The two changes there on that. But I would say, just kind of stepping back on that, Bob, is one of our top priorities is driving the durable organic revenue growth and having more influence over our [Inaudible] and less of an impact by others. And frankly, with the growth in Allpoint, the growth in branding, the growth in managed services, you have both fixed and variable revenue streams, and also we're having more control over impacts from other parties. So we would hope to see event risks like that to decline over time.

Bob Napoli -- William Blair and Company -- Analyst

OK. And then just your stock has had a nice move over the last couple of weeks, and I just -- have you guys, were you buying back shares after, not saying that that's the only reason the stock went up, but were you buying back shares post quarter-end in October?

Gary Ferrera -- Chief Financial Officer

No. No, we went through the authorization that we had prior to the quarter-end.

Bob Napoli -- William Blair and Company -- Analyst

Great. Thank you. Appreciate it.

Gary Ferrera -- Chief Financial Officer

Thanks, Bob.

Operator

Thank you. And this concludes today's question-and-answer session. I would now like to turn the call back to Ed West, Cardtronics CEO, for any further remarks.

Ed West -- Chief Executive Officer

Well, we thank you all for your support and interest in Cardtronics, and we look forward to ongoing discussions going into the first of the year and outlining the details on the plan and objectives going into 2020. With that, thank you very much, and have a terrific day. Bye.

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

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Bob Napoli -- William Blair and Company -- Analyst

Ben Budish -- Barclays -- Analyst

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

Gary Prestopino -- Barrington Research -- Analyst

Kartik Mehta -- Northcoast Research -- Analyst

Tim Willi -- Wells Fargo Securities -- Analyst

Reggie Smith -- J.P. Morgan -- Analyst

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