Cardtronics To Lose Its Biggest Customer as 7-Eleven Shifts ATM Operations to Affiliate

By Jim Daly

Retail ATM network owner and manager Cardtronics Inc. reported Tuesday morning that its biggest merchant customer, Dallas-based 7-Eleven Inc., picked a corporate affiliate to run its U.S. ATM fleet when the leading convenience-store chain’s 10-year placement contract with Cardtronics expires in July 2017.

7-Eleven accounted for 17.5% of Houston-based Cardtronics’ pro-forma revenues in 2014. Although the company’s 2014 annual report doesn’t define pro-forma revenues, total revenues, including revenues from newly acquired companies, came in at just over $1 billion last year. Tuesday’s news triggered a 10.3% drop in Cardtronics’ share price Tuesday morning from Monday’s close of $36.80 to $33.

The new ATM provider will be Los Angeles-based Financial Consulting & Trading International Inc. of California (FCTI), a wholly owned subsidiary of Seven Bank Ltd. The bank, in turn, is 46%-owned by 7-Eleven’s parent company, Japan-based Seven & i Holdings Co. Ltd., which bought 7-Eleven in 2007.

In a filing, Seven Bank said it wants to expand FCTI’s U.S. business. Seven Bank bought the ATM independent sales organization in October 2012. As of March 31, it operated 6,377 ATMs. Sales for fiscal 2014 were $79.5 million.

“FCTI will basically be able to install and operate ATMs on an exclusive basis at the 7-Eleven stores located in the U.S. which are operated by 7-Eleven Inc.,” the filing says. “As regards the U.S. ATM business, we believe that the execution of this agreement will result in the expansion of business (in terms of scale) as well as better cost competitiveness and profitability, which will further accelerate the growth of the business.”

A Cardtronics spokesperson says the company will not comment beyond its statement, and a spokesperson for 7-Eleven did not respond to a Digital Transactions News email.

7-Eleven has 7,803 U.S. stores, most franchised, and 494 in Canada. Many of its U.S. ATMs carry the Citibank brand. Cardtronics manages ATMs for 7-Eleven in Canada, but it was unclear if the Canadian stores are part of the newly announced deal.

Cardtronics bought 7-Eleven’s ATM and kiosk fleet from the retailer in 2007 for $135 million, when it numbered 5,500 machines.

While the coming shift to FCTI is bad news for Cardtronics, the company has been actively buying ATM ISOs in the past few years and reducing its reliance on 7-Eleven, according to a research report issued Tuesday by investment firm William Blair & Co. In 2013, 7-Eleven accounted for 22% of Cardtronics’ pro-forma revenues.

“[The] stock will obviously get hit hard this morning, but we believe it should hit bottom quickly and will still be a good performer over the long term,” analyst Robert Napoli wrote.

In fact, Cardtronics announced Monday that it completed its $80 million acquisition of Columbus Data Services LLC, an independent ATM and payment card transaction processor that services more than 90,000 ATMs for bank and non-bank deployers.

Still, Cardtronics will be losing many profitable ATMs. Napoli estimates that the 7-Eleven ATMs have an average of 12,100 annual withdrawals compared with 4,850 for its core fleet.

Cardtronics, which now operates in the United States, Mexico, the United Kingdom, and Germany, owned or managed a total of 110,206 ATMs at the end of 2014.