TRM Reports Improvements & Losses in Q207 But Is It Enough?

Implications: TRM is the second largest non-bank ATM owner behind Cardtronics and owns approximately 10,600 ATMs in the U.S., which is down from 11,511 in Q406 and 17,588 in Q306. TRM has seen a 14% decline in its ATM portfolio since 2005 and has been forced to sell off its ATM operations in the U.K., Germany and Canada to pay down debt as a result of a net loss of $120 million in 2006. The sales has helped TRM substantially reduce its debt and interest expense, however, TRM received negative news from an audit when they bought in PricewaterhouseCoopers LLP to assess its operations and PWC's take is "certain loan covenants could be callable in 2007 and if creditors decide to call in the loans TRM could default on provisions of its loan-servicing agreement." TRM has opted to get a second opinion and hired a new auditor, McGladrey & Pullen LLP, who is currently reviewing TRM's operations. To help streamline costs TRM has inked a three year service contract with NCR to service all of TRM's ATMs.

Analysis: Comments/Perspective:

TRM's plan to restructure its operations, reduce expenses, streamline costs and make its ATM portfolio more profitable again is paying off and helping the troubled ISO (Independent Sales Organization) turnaround, who has seen a decline in its ATM portfolio and net losses as a result of growing too fast through acquisitions and paying too much for some ATM portfolios they acquired in the last three years, which were low transacting ATMs, merchant owned contracts that was lost due to attrition and some of the machines were old and TRM incurred the expense of upgrading the ATMs. If TRM can make good on their loan covenants and continue to drive down expenses they may be able to  make a turnaround  with its ATM  operations.

1.  TRM has also outsourced the service and maintenance of its ATMs to  NCR for all of its machine, rather than utilizing several service providers and  since 2007, TRM has added  more than  1,100 new ATMs into their fleet, which typically generate a higher gross margin per unit than merchant  owned ATMs

2.  TRM will also have to make a sizeable investment this year in Triple DES upgrades of its ATM fleet to comply with Visa and MasterCard's  requirements for encrypting PIN pads at the ATM

The cost of cash will also have a positive or negative impact on TRM's bottom line as interest rates go up or down the cost to replenish its ATMs machines may drain revenues or could reduce the spread to current interest rates.  However, the verdict is still out as to whether TRM can make a comeback and continue its ATM operations through 2007 and beyond.  TRM's new auditor may play a pivotal role in the 2nd half of the year in TRM's decision to either sell off its remaining U.S. ATM portfolio or continue to implement its restructuring plan.