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Cardtronics (NASDAQ:CATM)
Q4 2019 Earnings Call
Feb 20, 2020, 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 fourth-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, Mr. Brad Conrad, Cardtronics treasurer and head of investor relations.

Thank you. Please go ahead.

Brad Conrad -- Treasurer and Head of Investor Relations

Thank you. Good afternoon, and welcome to Cardtronics fourth-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The statements on this call are made as of the date of this call and are based on current information and may be outdated at the time of any replay of this call.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 could 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 fourth-quarter and full-year results on our website. With that, I will turn the call over to Ed.

Ed West -- Chief Executive Officer

Thank you, Brad. Welcome, everyone. I will start by highlighting three key messages I want to convey on the call today. First, the fourth quarter was a solid finish to a very good and transformational year.

We delivered on our financial commitments for the year and exited 2019 in a much better place than when we started. Second, driven by business performance and our powerful network, we are investing for the future with new products, technology and partnerships, which will strengthen our business and result in durable, long-term organic growth. And third, we are enthusiastic about the year ahead and beyond. We are providing a 2020 outlook that continues to show solid organic growth with margin expansion, in line with the medium-term targets we communicated last March.

Over the last year, we made good progress on our priorities and key initiatives. These include, first, we delivered on our financial commitments for the year. We returned to organic revenue and profit growth sooner than we initially expected, with significant margin expansion and resulting in record free cash flow of $150 million. As a result of this growth, we have gained market share in the U.S.

and are poised to continue building share. Second, we strengthened our network. During 2019, we added many new and important customer relationships and also renewed and expanded partnerships with long time customers on both sides of our two-sided network in the U.S. We added new business and expanded with 15 of the top 30 banks in the U.S.

We also now have Allpoint relationships with almost 30 premier FinTech businesses. And also quite noteworthy, we reached milestone agreements with Visa and USAA for ATM branding and surcharge-free access. Third, we also launched new products and technology, enabling new partnerships and future growth. We are rolling out a deposit and cash-in network.

We currently have nearly 1,000 and growing deposit and cash-in Allpoint+ ATMs in service. We continue to add FI partners to this convenient retail-based network. We also launched new mobile access at the ATM and an API to enable additional mobile use cases beyond our traditional services, and we invested in our infrastructure and improved our operations. We completed the second major phase of our ERP rollout, and we are now live across all of our major business units.

We also reduced operating costs in several areas, enabling additional margin expansion and investment in growth initiatives and additional security measures. Finally, we invested in our employees and talent, bringing on key new talent and software development, marketing, data analytics, sales, customer experience and key leadership positions as we prepare the company for our next phase of growth. The business success throughout 2019 produced a strong financial performance in the year, and we have solid momentum headed into 2020. Now let me turn to the highlights for the fourth quarter.

Consolidated revenues were up 4%, driven by growth in our North America segment. Adjusted EBITDA was up 15% from the prior year and adjusted EPS was up nearly 50%. Gary will get into more of the financial details on the fourth-quarter results, but it was a good finish to close out the year. On the customer front, during the fourth quarter, we reached a key renewal and expansion with Couche-Tard in the U.S.

Couche-Tard, which operates under several retail brands, including Circle K, Corner Store and the Pantry, is a leading operator of convenience stores and is one of our largest retail relationships. We will begin to operate additional ATMs and services later in 2020 and will operate approximately 5,500 ATMs as part of this expanded agreement with Couche-Tard. We also signed a new retail placement agreement with Golub Corporation, which owns and operates a leading grocery chain, Price Chopper, in the U.S. to place approximately 130 ATMs.

These new retail expansions further enhance our leading network of convenient ATM locations in the U.S. On the FI front, we reached agreement with Wells Fargo to place their ATMs at approximately 200 locations at Speedway convenience stores in Minnesota. We now have branding and/or Allpoint relationships with eight of the top 10 largest retail banks in the U.S. We also continued to grow our managed services business line.

Our comprehensive suite of ATM solutions, including branding, Allpoint and managed services is resonating with banks. During the fourth quarter, we reached an agreement with BankUnited, one of the top-ranked regional banks in Florida and the nation, to operate close to 80 of their ATMs at branch locations in Florida and New York. BankUnited has also joined our Allpoint Network, significantly enhancing their customers' convenient and fee-free access to cash. Additionally, we reached an agreement with SoFi to manage their ATMs at the new SoFi Stadium in Los Angeles.

We continue to see demand for our ATM Managed Services offering as financial institutions seek to lower their operating and capital costs and improve their customer experience and security. Our Allpoint Network continues to expand and is the premier ATM solutions for FinTechs, particularly in the digital and challenger banking space. Our value proposition is resonating with this customer group as they value our nationwide footprint, convenient locations, service and value proposition. We are an important element of their consumer offering.

Their customers frequently cite free ATM access is one of the key points of differentiation. We recently signed new Allpoint Network agreements with several leading FinTech companies and challenger banks, including Axos, Branch, Cogni, Current, Majority, Rellevate and Revolut. Online challenger bank innovator, Current, which recently surpassed 0.5 million customer accounts also joined our Allpoint+ deposit and cash-in network. Many of the FinTechs are early on but growing rapidly and are already driving volume to our ATMs.

For example, looking at a couple of our partners, who are driving volumes measured in the tens of thousands of transactions per month. One has grown volume by over 400% just within the year and another grew by 500% within the year. Also on the Allpoint front, we reached an agreement with FICANEX, owner of THE EXCHANGE Network in Canada, enabling surcharge-free access for approximately 5.5 million cardholders from 165 Canadian banks and credit unions to Allpoint ATMs when they travel in the United States. With new and expanded relationships with financial institutions, FinTechs and retailers during the quarter, we strengthened both sides of our network.

The value of the network continues to grow as we add not only partners and transactions but also new products and services. On the product front, we reached an exciting new agreement with Amazon to enable their customers to now add cash to their Amazon Balance with Amazon Cash at cash-accepting Cardtronics ATMs. This solution makes it easier for Amazon customers to shop online by allowing them to visit participating Allpoint+ ATMs to load between $5 and $500 in cash to their Amazon Balance, which they can then use to make future purchases on Amazon's online store. They can do this using only the phone number linked to their Amazon account.

The solution is available now in numerous locations and is expected to expand as we deploy more cash-accepting ATMs. We are excited about this new partnership and our ability to leverage our assets to provide new convenience solutions and be the physical touch point for consumers who prefer or need to use cash. We are quite enthusiastic about this new cash-in capability, and we believe there are numerous ways for us to enable both cash-in and cash-out services via a mobile phone for many different consumer transactions. The user experience is lightning fast and simple to use.

Customers can receive immediate spending credit and also receive tax and email confirmations for their transactions at our ATM. There's another announcement that I would like to make today. I'm equally enthusiastic about it, and this is an internal capability that we previously did not possess, and it will likely serve as an operational inflection point for the company. Over the past year, we have developed our own proprietary ATM software application that will enable us to quickly scale the mobile solution and other products.

This technology was developed in-house, and it is a major milestone achievement for the company. The software was purpose-built for us, by us and coupled with our mobile API. It lays the foundation for numerous potential services to be deployed at the ATM in the future. We have taken control over our future product flexibility with this leap forward.

Additionally, we expect that our proprietary software will bring enhanced operational and financial control over our state on a remote basis and should result in lower operating cost over time. We are rolling this out initially in the U.S. and plan to expand the rollout globally. The software is already in the field on a limited basis today, and we expect it to be deployed on a good portion of the U.S.

state during 2020. Now we're continuously looking for new and expanded use cases for our network in the U.S. As mentioned last March, we believe our market share of transactions was less than 3% in the country, while our company-owned footprint stands at approximately 10% of the ATMs in the United States, similar in size to the top three banks combined. Over the last year, we have been implementing strategies and deploying solutions to grow the share of both withdrawal and deposit transactions.

In addition to expanding our footprint, today, I see two key catalysts of growth, which include branch transformation and serving as the physical-to-digital gateway, enabling convenient and simple consumer-driven mobile cash applications. On the branch transformation front, we are a secure, convenient and low-cost solution, which will allow us to grow transaction share by partnering with FIs of all sizes to deliver surcharge-free access, as well as customer awareness and loyalty via branding an Allpoint. This on-demand solution assists FIs of all sizes as they are expanding into new markets or rationalizing their footprint in existing markets. Additionally, we support new entrants to the market, such as neobanks and serve as the capital-light, on-demand cash infrastructure for their customers as they rapidly grow.

Branch transformation is also driving managed services opportunities for us as FIs refocus on what is core to their business. Our managed services solution also allows an FI to simplify their business and drive direct or single point of accountability for their ATM operations and cash distribution needs. Separately, we see a whole new channel of growth on the mobile-enabled cash-in and cash-out front. I believe our network can be the digital-to-physical gateway, providing direct user-enabled access to the largest, most convenient cash network in the country via APIs and a closed-loop infrastructure.

The Amazon announcement serves as a leading example of what is ahead. Now moving to the international front. During 2019, we achieved our objectives to deliver constant currency year-over-year growth in our Europe and Africa segment. Aggressive changes to our operations in the U.K.

to offset the dramatic price reductions implemented by LINK, combined with strong growth in Spain, South Africa, and Germany resulted in year-over-year revenue growth for the segment. Separately, the team in Australia has done a great job restructuring the operations and delivered EBITDA growth for the year versus the prior year. Now coming back to what makes it all possible, our people. Our success is dependent on obtaining, retaining and developing the right talent, and that's why we continue to invest in our team.

We're committed to making Cardtronics a great place to work and always striving to do better. We are measuring and seeing progress across many of our key metrics. On the management front, this quarter, we made a change at the leadership level in North America. We recently brought in Carter Hunt, a seasoned commercial and product executive, with a proven track record of leading and growing businesses at both Western Union and PepsiCo.

Carter now leads our North American business unit as we seek to further enhance our network and accelerate our product-driven organic growth. I'm really excited to have Carter as a partner at the company. In my final comments today, I wanted to provide some color regarding our outlook for 2020. Gary will provide the financial details here in a few minutes, but I want to offer the following from my vantage point.

First, we are positioned to deliver financial performance consistent with the medium-term outlook that we outlined at our investor day last year. We aim to deliver and aspire to outperform, but we will continue to increase investments in product solutions, technology and people to drive durable top-line growth. Our strong performance in 2019 has built the foundation for us to be able to deliver the outlook we are communicating today. Looking outside of the U.S., we have the largest ATM network in the U.K.

We're a very important part of the country's payment infrastructure and believe we can leverage this network in ways similar to what we have already progressing in the United States. We expect to begin exporting some of our products that we have developed in the U.S. to leverage our platform in the U.K. Product enhancements, combined with the state rationalizations and transaction normalization in the market, will take some time to sort out.

In the interim, we will focus on EBITDA and free cash flow growth, as evidenced by our performance in the U.K. this past year. We continue to see strong growth in our Spain, Germany, and South Africa regions, driven by ATM deployments located at premier retailers, as well as additional FI partnerships. On the whole, we see solid profit growth coming out of Europe and Africa segment in 2020.

In Australia, in the face of our continued difficult market and a top-line pressure, we grew adjusted EBITDA last year with an intense operational focus. We continue to work to leverage our network and capabilities in Australia, while we optimize our operations. We will continue to focus on and generate solid cash flows from this operation, while we test and pilot new growth strategies. In our largest market, North America, principally driven by the U.S., our business and market share is growing, and we are increasingly the partner of choice for both retailers and FIs of all sizes.

We have end-to-end capabilities at our two-sided network, a strong value proposition, and we are well-positioned to continue to grow over multiple years with favorable market dynamics as bank branch transformation continues to accelerate and we serve as the physical-to-digital gateway for the ever-growing mobile solutions market. Again, Amazon serves as a leading example on this front. In summary, we are pleased with the recent execution across our priorities and are enthusiastic about the opportunities ahead for Cardtronics. I'll now turn the call over to Gary for some additional comments on the quarter and the outlook.

Gary Ferrera -- Chief Financial Officer

Thank you, Ed. I'll start my remarks today with some additional detail on the full-year and fourth-quarter results before moving on to our 2020 outlook. We started 2019 staring into a significant number of headwinds and guided to approximately flat year-over-year revenue and adjusted EBITDA growth but with a strong belief in our team and our strategy as outlined at our investor day last March. I'm pleased to say that for the full-year 2019, on a constant-currency basis, we actually returned to growth with revenue up almost 3% and adjusted EBITDA increasing almost 8%.

I just want to take a moment to thank our team members across all of our regions for helping us deliver beyond our initial expectations and putting us in a position to continue to drive our medium-term strategy. As Ed highlighted in his remarks, the fourth quarter was a good finish to a solid year. Revenues were up 3% compared to the fourth quarter of 2018, and adjusted EBITDA was up 14%. On a constant-currency basis, these results were slightly higher at 4% and 15%, respectively.

Our adjusted net income per diluted share was $0.70 for the quarter, up 49% from Q4 2018. Looking into the drivers of the performance for the quarter by segment, as expected, our North America business led the way with total revenues up 7% and adjusted EBITDA up 10%, both constant currency. The currency impact was minimal this quarter, especially in North America. Excluding our equipment sales, which can be a little lumpy from quarter to quarter, our North America ATM operating revenues were up solidly at 6%.

This was driven primarily by bank branding, Allpoint and managed services, with these revenue categories producing double-digit growth. Transactions were steady and fairly consistent with what we have seen over the last several quarters. On an unadjusted basis, same-store withdrawal transactions in the U.S. were up 1% in the fourth quarter.

We had a tough comp this quarter due to their being a major multi-state lottery jackpot of $1.6 billion during the early part of Q4 2018 that carried over several weeks and boosted transactions mostly at our convenient store locations. We estimate the impact could be worth around one percentage point of headwind. So normalizing for this event, we believe that the adjusted same-store transaction growth rate would have approximated 2% for the quarter. Also consistent with recent trends, our surcharge-free withdrawal transactions continued to perform well and were up 7%.

Moving to our Europe and Africa segment, our ATM operating revenues were about flat for the quarter and adjusted EBITDA was up 4% for the quarter, both measured on a constant-currency basis. As a reminder, we still have the impact of the second LINK, 5% interchange rate cut in the U.K. that we did not cycle on until January 1, 2020. Our same-store withdrawal transactions were down 3% for the quarter.

We're able to offset much of the impact of the interchange rate cut and transaction declines in the U.K. by switching some of our ATMs to pay-to-use early this year and by generating slightly higher revenues from DCC. But revenues in our U.K. business, which is the largest component of our Europe and Africa segment, were still down in the quarter.

However, we did continue to see double-digit top-line growth across Germany, Spain, and South Africa in the quarter, which almost completely offset the slight decline in the U.K. In our Australia segment, revenues were down 8%, while adjusted EBITDA was up 19%, both on a constant-currency basis for the quarter. We continue to optimize our operations and rolled out DCC in a number of our ATMs during the quarter. At the corporate level, we had a slight decline in expenses, which assist in driving our strong consolidated quarterly results.

Switching over to our key profit measures, adjusted EBITDA for the quarter was up 14% as reported and up 15% constant currency. As we had strong flow-through of our revenue growth and continued focus on operational efficiencies, each of our segments provided EBITDA growth for the quarter, a strong testament to the team's focus on operations and process improvement. We continue to consolidate and simplify our business operations, enabling operational and cost efficiencies. We have a team dedicated to process improvement and have in-year and multiyear targets across the business.

Excluding stock comp, SG&A costs for the quarter were down 2%, mostly attributable to lower professional fees. These lower costs were achieved while continuing to invest in information security, technology and marketing. The net result of the revenue growth, coupled with solid operations and cost management was a 220-basis point improvement in our adjusted EBITDA margin for the quarter, with each of our operating segments contributing to the improvement. Our adjusted net income per diluted share for the quarter was $0.70, up $0.23 or 49% from Q4 2018.

Growth in adjusted EBITDA accounted for almost $0.17 of the growth. Lower interest, depreciation and share count accounted for the other $0.06 of the growth. Depreciation expense was a little lower than forecast due to a combination of timing and cost estimates of some of the new asset deployments. Capex for the year came in at $125 million, slightly below our most recent capex outlook and $10 million below our outlook at the beginning of 2019.

These adjustments are due to a few deployments being pushed into 2020, and they drive a portion of the slightly higher capex in our 2020 outlook. Of the $125 million in 2019 capex, almost 65% related to growth and new product investments, with the balance related to maintenance and infrastructure, including our new ERP system. We had another strong quarter of adjusted free cash flow reporting $31 million for the quarter, and our adjusted free cash flow for the full year was $150 million, a new company record. Moving to the balance sheet.

Our net leverage ratio at the end of the year was 2.4 times adjusted EBITDA. We paid down $27 million on the revolving credit facility in the fourth quarter and $96 million for the full year. We also used $50 million of adjusted free cash flow to opportunistically repurchase 1.7 million shares during the second and third quarters of the year. With $160 million drawn on our revolver at year-end, we have plenty of liquidity and available borrowing capacity on our $750 million revolving credit facility.

As many of you know, we have a $208 million convertible instrument that measures -- I'm sorry, that matures in December of this year. We continue to evaluate all options, but our current plan is to repay these notes with borrowings on our revolver. As a result, we are continuing to report these convertible notes as long-term debt on our balance sheet since we have the ability and intent to refinance the notes with our committed revolver, which runs through 2024. With the current net leverage ratio of 2.4 times adjusted EBITDA, we are now within our target leverage ratio of two to 2.5 times.

In the near term, we plan to continue to pay down debt, while having the ability to opportunistically repurchase shares. As we currently plan on continuing to generate strong cash flows and drive toward the lower end of our target leverage range, we would expect to communicate a longer-term capital allocation plan during the year. Now let me turn to the outlook for 2020. For revenues, we're expecting a range of $1.37 billion to $1.4 billion.

Once again, we expect that of our three segments, our largest segment, North America, will have the strongest revenue growth, and that will be driven by a combination of continued growth in Allpoint, bank branding, managed services and some new ATM deployments. A couple of quick notes on our revenue outlook. First, we expect same-store withdrawal transaction trends to be similar to what we experienced during 2019. Secondly, we have a few retail locations, such as casinos in North America with contractual changes that will create a gross-to-net revenue adjustment on certain revenue streams in 2020 and carrying into 2021.

These changes will not impact our bottom line and will slightly benefit our margin going forward, but it results in about one percentage point of total revenue growth headwind in 2020. We're also expecting another percentage point of headwind from lower equipment sales in 2020 as we had a strong 2019 in this category. This is a lower-margin product, so will have minimal impact on the bottom line. Adjusting for these factors, our outlook range is consistent with the medium-term outlook that we provided at our investor day of 3% to 5%.

On adjusted EBITDA, we're expecting a range of $325 million to $335 million. This will be driven by good conversion of our top-line growth to the bottom line, while continuing to focus on operational improvements across the company. And as our outlook implies, we expect to deliver margin expansion again in 2020. Adjusted net income per diluted share is expected to be in the range of $2.58 to $2.70.

This is driven by a few moving parts. We have a slightly higher expected tax rate in 2020, primarily as a result of a 2019 tax rate benefit related to some disallowed interest deductions in 2018 that we were able to recapture and benefit from during 2019. We are also expecting slightly higher depreciation expense as we deploy more deposit taking ATMs and continue to invest in new products. Interest expense is expected to decline due to our continued debt reduction.

Finally, we're expecting a slightly higher share count. We're expecting capital expenditures next year of approximately $140 million. The increase over our actual 2019 capex of $125 million is partly due to some carryover of the originally planned 2019 capex into 2020. Approximately 70% of the expected capex for 2020 is growth-related as we continue to deploy new machines, including deposit-taking ATMs and invest in new products and technology.

We anticipate spending the remaining 30% on maintaining and refreshing a portion of our ATM estate, while continuing to invest in our infrastructure. While we do not provide specific quarterly guidance, we think it is useful to provide some color regarding the anticipated quarterly distribution of our 2020 outlook. Starting with revenue, we anticipate a distribution across the quarters that should look very similar to 2019 as a percentage of total revenue. We also anticipate adjusted EBITDA will have a very similar percentage distribution to that of 2019 but with slightly higher variability across quarters, primarily in Q1 and Q4 due to operating leverage and other factors.

This would result in Q1 and Q4 having the strongest growth comparisons with low double-digit adjusted EBITDA growth, while Q2 and Q3 are anticipated to be in the mid-single digits. I would like to conclude my remarks today by reiterating our comfort with the medium-term financial outlook we provided at last year's investor day. As you can see, our 2020 outlook is in line with what we had communicated, which was revenue growth of approximately 3% to 5%, adjusted EBITDA growth of 7% to 9% and capex at 8% to 10% of revenue. With that, let me turn the call back over to Ed.

Ed West -- Chief Executive Officer

Thank you, Gary. I'd like to finish our comments today with a special thank you to the global Cardtronics team. You have made a real difference. Our customers believe in this company because of you.

You helped us deepen relationships across both our retail and financial partners. You are part of a transforming and growing company that has a purpose-driven mission. To our shareholders, thank you for your confidence in this team. We recognize that trust is not given but earned over time.

We are committed to delivering long-term value creation through durable and increasingly diversified growth in cash flows. In addition to the business results, we returned some value to you in the form of an opportunistic share repurchase in 2019. With our strengthening balance sheet and forecasted growth, we expect to announce further plans for longer-term capital allocation this year. We have spoken to many of you on this subject and value your input on the topic.

Lastly, to both our shareholders and employees. Cardtronics has a purpose-driven mission. We are champions of cash not because cash is far superior to all other forms of payment but because citizens in the communities we serve deserve payment choice. Cash is freedom, and freedom is choice.

People should not be mandated on how they pay for their goods and services. They should have the freedom of privacy of their transactions. It should be secure, not able to be hacked, and it should be reliable, meaning it always works irrespective of the environmental conditions. Increasingly, consumers and now elected officials are recognizing the importance of protecting choice in consumer payments.

Many jurisdictions across the U.S. have recently passed laws, including states and major cities, requiring cash to be accepted at the physical point of sale. And now we are pleased that it's being recognized at the federal level in the United States with a bill in the house called the Payment Choice Act. This bill has strong bipartisan support, and we encourage everyone to support the Payment Choice Act.

With that, operator, we will now turn it back to you and open up for questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] Our first question comes from Peter Heckmann with D.A. Davidson. Your line is now open.

Alexis Huseby -- D.A. Davidson -- Analyst

Good afternoon, gentlemen. This is Alexis on for Pete. Congratulations on a strong end to 2019.

Ed West -- Chief Executive Officer

Great. Thank you, Alexis.

Alexis Huseby -- D.A. Davidson -- Analyst

So just a couple of questions on the guidance expectations for 2020. With the expected slightly higher share count, can we assume that there are no buybacks included in the guidance?

Gary Ferrera -- Chief Financial Officer

That's correct.

Alexis Huseby -- D.A. Davidson -- Analyst

OK. Great. And then are there any FX headwinds or tailwinds built in?

Gary Ferrera -- Chief Financial Officer

There is probably a slight tailwind. When you look at our numbers on the earnings release and you add them all together, there's probably just a slight tailwind. But it's pretty close if you think about it as a year over year.

Alexis Huseby -- D.A. Davidson -- Analyst

OK. Great. And then could you just walk us through some of the biggest drivers that you're seeing for the margin expansion in the 2020 guidance?

Gary Ferrera -- Chief Financial Officer

Yes. I mean, as I mentioned on the call, it's pretty much flowing through the revenue we have. I mean very high-margin stuff we're doing and then, obviously, just consistently focusing on operational efficiency here and driving margin. It's a big focus for us.

I don't know, Ed, if you have any.

Ed West -- Chief Executive Officer

Yes, I would just say the other thing. As we talked about, really, last March, going back to the two-sided network in the U.S. of driving more and more transactions at our key locations in our network scale and offers more and more scale, so they come in on an effective way to grow margin and scale with that additional transaction volume. And then ongoing like what we've done around other parts around the world, just driving a relentless focus on efficiencies, effectiveness and operational performance, and the team has just done a super job on that.

And we'll continue on.

Alexis Huseby -- D.A. Davidson -- Analyst

That's great. Thanks. And then if I could just squeeze one more. And so the new mobile API software program that you developed in-house, how is that -- if you could, I suppose, explain how that will fit into the existing operating software programs and whether or not that will require any rollout expenses or what you're looking at in terms of rolling it out.

Ed West -- Chief Executive Officer

Well, so two different things. So one, we developed an API for cash out and coming into our network. So that then allows you to an entity to come in directly to us into our API and then, through a mobile transaction, either a code or a QR code to take cash out at the ATM. Separately, also we developed a software application that really sits on top of the operating system at the ATM, which allows different business layer transactions to occur that we can drive from here centrally.

It's agnostic to the different operating systems. As you know, we have a very diverse fleet. But now having this controlled, where we've developed it in-house, we manage it, will allow for a lot more scalability, but we're going to roll that out on a measured basis. It's in the market now, and we'll continue to do that through this year.

Alexis Huseby -- D.A. Davidson -- Analyst

Perfect. Thank you.

Ed West -- Chief Executive Officer

Thank you.

Operator

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

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Hi, guys. Good afternoon. It's certainly nice to have an uneventful call like it.

Ed West -- Chief Executive Officer

Well, we'll keep it that way, but thank you.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

So I'd like to dig in a little bit on the neobank opportunity. And I wonder, Ed, if you can opine a little bit or shed some light on, perhaps, the ongoing opportunity for growth there. I mean, you signed a number -- there are a couple maybe bigger ones that are missing from the roster, do you anticipate? Or do you think there's opportunity there?

Ed West -- Chief Executive Officer

There is ongoing, so -- or you know, for many different ones that are still out there. Clearly, as I talked about before, Allpoint being recognized as the network of choice there because of the convenience, the experience and just the value proposition for many of the neobanks and FinTechs and also, obviously, the national footprint that we have and the convenience that that really brings forward to their customers that they have. Separately, we're continuing to -- I think this last quarter, we announced several who are up and running and several who are actually coming into the market as well and then spoke to the growth that several have experienced. As you can imagine, many of these are earlier on, but as they get launched and they begin to scale very rapidly -- for example, a couple of them that the transactions are at the tens of thousands per month grew within the year 400% and 500%, so it's an important aspect here.

What we see is more future growth. I think also, the final point, Andrew, I'd make on this is it goes back to the importance of the software as well. And what we see building here is that physical-to-digital gateway and allowing for both cash-in and cash-out capabilities and drive a tailored experience for their customers. As you can imagine, meaning these FinTechs, they know their customers.

They know their segment very well. We can tailor that experience at the ATM for them because we are an end-to-end solution and having all parts of that network and now having the software with the key capabilities. And so as they grow, so can we, and we'd both evolve and win together.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

OK. And I look forward to hearing more about that. And I guess the other thing that has come up, I guess, in the last week or two is -- and I know it's hard for you to comment directly on it. But I guess there's been some conjecture in the market that, perhaps, one of your competitors would be coming for Speedway from a take-out perspective.

Can you maybe frame up, especially since you have a newer announced -- recently announced deal, could you frame up what that might mean or how you think about that in terms of long-term planning? That might be the better way to approach the question.

Ed West -- Chief Executive Officer

Sure. Yes. So obviously, as you're speaking about Speedway, Speedway is just a terrific partner. We have a longtime relationship with them, which gone through multiple renewals.

We operate both branding and Allpoint on the network, and so about -- I would say it's about 3,300, approximately 3,300 units on that. And obviously, we've read the same thing you have about the speculation. We know as much as you do on that. I think what's really important, though, as we think about this, they are one of our top five retailers in the world.

And as you'll see in our 10-K that we'll file here soon, if you combine the top five retail locations, our total of about 22% of revenue, and no single retailer has more than 6%. Obviously, they are one of those top five and in that period. The other thing that we've put in our 10-K is that the average remaining duration of the contracts of those top five is approximately three and a half years, and as is the relationship with Speedway is in line with that average.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

OK. And if I can just squeeze in a last one quickly. Gary, any commentary on free cash flow for '20?

Gary Ferrera -- Chief Financial Officer

Yes, we haven't provided any guidance on it, but we have slightly higher capex. We got lower interest expense. So I mean, you could do the math. There's not a whole lot of hopes that we haven't told you other than working capital.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

OK. Fair enough. Thank you.

Ed West -- Chief Executive Officer

Thank you.

Operator

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

Ramsey El-Assal -- Barclays -- Analyst

Hi, guys. Thanks for taking my question. I wanted to ask about the evolution of the kind of competitive landscape in both the U.K. and Australia, where we've seen a lot of dislocation from different types of developments in those markets.

Are you seeing a winnowing down of the sort of independent ATM deployer competition in those markets as the economics have sort of changed and maybe don't support the business models the way they used to? Have you seen competition kind of get cleared out in those markets in a certain sense, or is that too optimistic of a statement?

Ed West -- Chief Executive Officer

I wouldn't say cleared out. Clearly, there are changes in the market. Those markets have been more challenged. Those who have lower-scale products and solutions and probably weaker balance sheets, we would see issues over time.

And obviously, some of that is out there. Where we've actually seen more is in the reduction of capacity in the markets in terms of pulling out the number of ATMs. For example, you mentioned the U.K. U.K., just a couple of years ago, a few years ago, was roughly about 70,000 ATMs.

As of 12/31, it was around 60,000 ATMs. So as I mentioned in my comments earlier, we think that these markets will continue to rationalize over time. It does take time to do that. A lot of those reductions have been both independent and on the bank side with ongoing bank closures, branch closures, pulling ATMs, but also the independents are rationalizing their footprints as well.

Same thing has happened in Australia as well, where the market is now approximately 26,000 ATMs and continuing to decline with a lot of that, again, on both sides, the bank, as well as independent.

Ramsey El-Assal -- Barclays -- Analyst

OK. And you've addressed a little bit of this in your prepared remarks, but can you give us a little more commentary on the accelerating ATM operating revenues in North America sort of parse out the drivers in that market?

Ed West -- Chief Executive Officer

So in North America, now let's just focus right now on the United States, which is obviously the largest component, an element on that. Going forward, specifically into 2020, I think as Gary had in his comments, we would see, again, ongoing strong growth in the bank branding and surcharge-free networks line. Really, we've seen a lot of Allpoint, ongoing expansions with Allpoint, the signings there. We'll continue to see branding.

Those would be big drivers. Managed services, continuing to bring in additional managed services relationships as well. Those three key areas, we think, would be the biggest driver. But obviously, you will have additional solutions that would be coming on as well, but those were early on, on the market.

Ramsey El-Assal -- Barclays -- Analyst

So despite the -- you called out some really high-growth rates for some of the challenger bank and FinTech-type business, but that's really too early to have made a kind of a contribution here to the P&L. So that's really a potential future source of growth as that stuff ramps, I would think.

Ed West -- Chief Executive Officer

Exactly. And actually, the other thing in the U.S., I think you'll probably see, and I think Gary kind of touched a little bit on the capital side, additional placements where we had not had as much over the last couple of years to see more placements, just, for example, like the expansion with Couche-Tard and see additional placements coming on board.

Ramsey El-Assal -- Barclays -- Analyst

Great. Thanks so much.

Ed West -- Chief Executive Officer

Thank you.

Operator

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

Tim Willi -- Wells Fargo Securities -- Analyst

Hi, thank you and good afternoon. I had a few questions. The first one, I apologize, I missed sort of the first 10 minutes of the call. But relative to the revenue declines in the U.K., is there any difference in the trajectory? I guess sort of the same question for Australia and then I have a follow-up.

Gary Ferrera -- Chief Financial Officer

So I think, Tim, you have a background noise where you are. I think your question is around the revenue implications in both the U.K. and Australia.

Tim Willi -- Wells Fargo Securities -- Analyst

Yes, that's correct. If the rate of decline has changed any great degree.

Gary Ferrera -- Chief Financial Officer

Yes. I mean, obviously, in the U.K., you had the big change. The year-over-year change, it's kind of -- it's really kind of hard to compare. There's been such a dramatic shift in terms of our network, the move from free-to-use to pay-to-use, rollout pay-to-use light.

We pulled ATMs out of the market. I think now you're really kind of looking at what's the ongoing headwind in terms of transaction, which were all declines in that market and also, frankly, in Australia as well. As we talked about in our guidance with the U.K., as we talked about last year, from a revenue standpoint, offset by growth, where we have strong growth in our growth markets of South Africa, Spain, and Germany, those continue to do well to mitigate and offset that in our Europe and Africa segment. And in Australia, the team has just done a super job in terms of rationalizing the space, operational excellence and resulting in strong EBITDA and free cash flow growth.

In the U.K., as I put in my comments earlier, we're going to -- over time, some of the products that we've been developing and incubating on the U.S. side, over time, we'll export that to the U.K. I do believe, over time, that market will continue to rationalize as we've been seeing, and the transactions will normalize, too. So I just think some of that takes time.

In the interim, we'll continue to optimize our network and really generate a lot of free cash flow that we drive there.

Tim Willi -- Wells Fargo Securities -- Analyst

Great. And my follow-up sort of is around, I guess, Allpoint and the branding and the managed services side of banks. Through this first quarter and, I guess, first-quarter earnings season, a lot of the bank technology providers have actually been shining various types of technology contracts with, I think, banks that were larger than we typically would have thought would be making outsourcing decisions for their core or for their online. It definitely seems like the bigger banks are coming to that conclusion.

So I'm just sort of curious, as we think back through the last year or so with you all and you think about small to mid versus large banks, is there any of that same type of dynamic where you're sort of seeing the responsiveness or the interest levels from larger than sort of the sweet spot is emerging?

Ed West -- Chief Executive Officer

Absolutely. I would say that's probably been one of the biggest changes since I've been at the company and then over the last two years that our solutions and suite of solutions, whether it's bank branding, Allpoint, managed services are really resonating at all levels, at all size of institutions. And it really goes back to that theme and a central theme of one of our key areas and, for us, for growth and the catalyst behind that is branch transformation. You mentioned some of the big banks, but just over the last few quarters, we've announced expansions with P&C, USAA, surcharge-free branding with Visa at a leading retailer, Cap One, expansions with Citi and a new relationship with U.S.

bank. So yes, it's with FIs at all levels, and frankly, that's what drives some of that enthusiasm as we look forward.

Tim Willi -- Wells Fargo Securities -- Analyst

Great. That's all I had. Thanks very much.

Ed West -- Chief Executive Officer

Thank you.

Operator

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

Kartik Mehta -- Northcoast Research -- Analyst

Good evening. Ed, I wanted to ask a little bit about the U.K. market. As you said, it's changing.

And I know you've converted some of your machines over to surcharge. And I'm wondering what you're seeing in terms of pricing power, how consumers are adapting to the new marketplace and if you have pricing power there.

Ed West -- Chief Executive Officer

Well, obviously, we're not going to talk about pricing power. But as I step back, thinking about the U.K., obviously, the big part in the culture and society is the free-to-use. And more than half of our estate continues today being a free-to-use environment, which is a fixed interchange. And with that, obviously, it's very important from a societal standpoint, the communities, where now citizens recognize much more on the importance of having that ATM, particularly as branches have pulled back, ATMs have pulled back in that capacity.

And obviously, we would continue with more and more free-to-use ATMs, but obviously, it has to be in a rational basis because of the pricing changes that LINK put forth, which drove that conversion to many more pay-to-use because they just would -- just to make it economical. Otherwise, it wouldn't be economical based on the various needs and we would hold the machine. We have multiple different levels. Some machines are out there at kind of around GBP 2 or less and others are less than GBP 1 on charge, and it just depends on that.

We're constantly looking at various locations, see where there's supply demand opportunities. We'll move machines. We can switch on different things based on if we see others changing and which has implications on demand in a particular area. So we would try to stay fairly dynamic on that.

Kartik Mehta -- Northcoast Research -- Analyst

So just in that regard, do you see much of a mix shift in your portfolio in the U.K. or kind of where you are from a free-to-use and surcharge mix? Do you think that that's going to stay where it is, or do you see that changing in 2020?

Ed West -- Chief Executive Officer

Yes. We look at it every day in terms of where it needs to be and constantly trying to optimize. Today, the majority of our machines are free-to-use, and we will continue to evaluate and look at those, again, based on supply and demand. The great news is we have a terrific network there.

We have the locations. We're the largest footprint in the country. We have our own operations teams, our own CIT teams. We can be very flexible.

The team there has done a great job this past year, making our platform and operations much more variable, where it used to be more fixed than more variable, which allows for more flexibility. So we'll change that, optimize it. I wouldn't want to forecast what is out there, what that's going to look like by the end of the year, but I do believe the market will continue to rationalize in terms of capacity in the space.

Kartik Mehta -- Northcoast Research -- Analyst

And then just one last question. Gary, you talked a little bit about DCC, and you said you added some markets this quarter. I think you started off with London. And are there other opportunities? Do you see opportunities where your ATMs are in these other countries where there's enough tourist traffic, which would benefit you?

Gary Ferrera -- Chief Financial Officer

Well, I mean, we've been talking about it during the year that we've rolled it out in quite a few places. I think what I was trying to get across is that in some of these more touristic areas, you saw a spike up because we had it pretty much deployed in Q3, and it started last spring. So as you get to Q4 when the tourists obviously trail off a little bit, that's why you would have seen a little bit of weakness in the U.K., for example. But I mean, we're always looking to optimize it.

And so we'll continue to monitor, but it's not like we just need to go to a major country that we haven't thought about yet.

Ed West -- Chief Executive Officer

Yes. Kartik, if I can add on that, I think that's actually an example also of why I'm pretty excited about what we announced today around our new proprietary ATM operating application. This just goes back to the company's history. We'd a lot of growth, a lot of acquisitions.

We've spent a lot of time in the last two years integrating platform, systems, people, bringing in skills, talents, technology, capabilities, software development, where now we would have command and control over our network and our platforms to be able to roll out products, solutions and control it centrally. An example which we decided there with DCC, that's one of the reasons why it took longer for us to roll that out, should have been quicker, but it's because we had a fairly -- we have different systems all around the world as a result of a lot of different applications. And this is a key reason why we're also optimistic about our ability to drive margin expansion because the efficiency, the time to market and capabilities that we'll allow going forward is very different than historically.

Kartik Mehta -- Northcoast Research -- Analyst

That makes sense. Thank you very much. I really appreciate it.

Ed West -- Chief Executive Officer

Thanks, Kartik.

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. Nice job on the year. And I think just the bank branding and surcharge-free revenue growth actually accelerated for the last several quarters, and it was up 19% in the fourth quarter.

That's pretty impressive. And I would imagine that's relatively high-margin revenue stream. What is the outlook for the growth of that? And is it broad-based? What's growing faster, bank branding or surcharge-free? And any color on relative size would be really helpful.

Ed West -- Chief Executive Officer

Sure. I would say, first of all, it's really as a result of a lot of the different things we've been announcing over the last year, which is why we -- and we talked about at the beginning of the year the pipeline that we had. This is very broad-based, both branding and Allpoint Solutions. As you remember, it's one of the reasons why we always talk about on the calls.

We go in there talking to a financial institution with a broad suite of solutions, and we can tailor that based on what they need. They need more presence, branding awareness for their customers. They want surcharge-free access on a nationwide basis. They want to keep their platform that allow an operational expert to manage that.

We can tailor a lot of different solutions there. So we've announced throughout the year many relationships, expanded many relationships, had new ones on multiple fronts, and you see the compounding of that showing up into the fourth quarter. We haven't given -- Gary, do you want to speak to going forward?

Gary Ferrera -- Chief Financial Officer

Yes. No, just going forward, I mean, it continues the same track. But as we said on our investor day last year, I mean, if you remember the chart we showed, a good 40%, 45%, 50% of the growth we expected to come from surcharge-free. And we're in that range, a little high, a little low in 2019, but right on track from what we told everybody.

Ed West -- Chief Executive Officer

It just goes back to what we drew out there and talked about in March of that two-sided network in the United States. Having that, and we were in the middle of that network, it's an end-to-end solution working with customers and close partnerships with financial institutions and retailers and driving more and more volume there to those locations and getting that scale. And so I just think you'd see that coming together, where we see more and more interest in that, and it just goes along with that theme around branch transformation as a solution for the market. And now I think you combine that with the digital-to-physical gateway on a cash-in, cash-out solutions for that mobile enabled.

Bob Napoli -- William Blair and Company -- Analyst

And so you would expect that line item to be a double-digit grower then for the next few years? Is that...

Ed West -- Chief Executive Officer

We would just think it would be one of the lines that has the greater percentage of growth.

Bob Napoli -- William Blair and Company -- Analyst

OK. Can you give any feel for the size of the combination, I guess, of Spain, South Africa, and Germany and the combined growth rate?

Gary Ferrera -- Chief Financial Officer

We haven't gotten specific as to those. They're rather large but off a smaller base. But we have not broken down in anything.

Ed West -- Chief Executive Officer

But then we did recently announce that South Africa has now surpassed 4,000 ATMs in that market. The team there is doing a terrific job. We have key partnerships with many of the leading financial institutions in the country and believe we still see a long pathway of growth there, but frankly, also in Spain and Germany, and we're seeing actually more bank relationships in those markets building as well.

Bob Napoli -- William Blair and Company -- Analyst

And then last question. Your balance sheet, obviously, is in very good shape. Your leverage is where you want it to be. And I think, Ed and Gary, you guys had sworn off acquisitions, at least for a while.

Now that you have the ship really clicking, if you would, are there areas of interest on the M&A front that would improve the network significantly? So are you looking at M&A heading in any way, shape or form?

Gary Ferrera -- Chief Financial Officer

We're never not looking at M&A. I mean, we take all the inbounds. We look at things. But again, since Ed and I have worked together the last 2.5 years, it's been about focus, right? And that's all we want to do is focus.

And as time moves on, there'll be some transactions that will pop up. That will make sense, like the smaller one we did in 2019. But it's got to be the right one.

Ed West -- Chief Executive Officer

Yes. We just take a very disciplined approach to it. It has a very high hurdle rate and how we leverage our current platform, so we'll continue on that. But I think what's really important for all of us as a team is continuing to focus on that product-driven organic growth, rolling out more and more solutions, and yes, hitting singles and doubles every day and continuing to move forward on that front.

Bob Napoli -- William Blair and Company -- Analyst

All right. Thank you. Appreciate it.

Ed West -- Chief Executive Officer

Thank you, Bob.

Operator

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

Ed West -- Chief Executive Officer

That's great. Well, thank you all very much. Thank you for your support and interest in Cardtronics. And we look forward to talking to you again in about 90 days and have a terrific day.

Bye.

Operator

[Operator signoff]

Duration: 63 minutes

Call participants:

Brad Conrad -- Treasurer and Head of Investor Relations

Ed West -- Chief Executive Officer

Gary Ferrera -- Chief Financial Officer

Alexis Huseby -- D.A. Davidson -- Analyst

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Ramsey El-Assal -- Barclays -- Analyst

Tim Willi -- Wells Fargo Securities -- Analyst

Kartik Mehta -- Northcoast Research -- Analyst

Bob Napoli -- William Blair and Company -- Analyst

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