BELLEVUE, Wash., July 31, 2014 /PRNewswire/ -- Outerwall Inc.
(Nasdaq: OUTR) today reported financial results for the second
quarter ended June 30, 2014.
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"Our 2014 second quarter results reflect our ability to leverage
our core capabilities of operating and scaling automated retail
businesses profitably despite the impact of a weak content release
schedule on our Redbox business," said J.
Scott Di Valerio, Outerwall's chief executive officer. "June
represented the lowest monthly theatrical box office in Redbox
history. Box office in June was down 83 percent from June 2013 as only four titles were released
during the month. While the release schedule was not compelling for
consumers during the quarter, consumer engagement with Redbox
remained strong as demonstrated by a significant year-over-year
increase in e-mail open rates, e-mail subscribers and Redbox
app downloads.
"Coinstar produced solid results in the quarter, with revenue,
segment operating income and segment operating margin increasing
year-over-year," Di Valerio added.
"We also continued to scale ecoATM. We finalized kiosk installation
agreements with retail partners in the mass merchant and grocery
channels. Overall, we delivered solid results during the quarter
despite external challenges and believe we are well-positioned to
deliver value to our consumers, retail partners and
shareholders."
|
2014
|
|
2013
|
Change
|
|
Second
Quarter
|
|
Second
Quarter
|
%
|
GAAP
Results
|
|
|
|
|
|
|
|
• Consolidated
revenue
|
$
|
549.2
|
million
|
|
$
|
553.1
|
million
|
(0.7)%
|
|
• Income from
continuing operations
|
$
|
21.8
|
million
|
|
$
|
50.4
|
million
|
(56.7)%
|
|
• Net
income
|
$
|
21.8
|
million
|
|
$
|
46.9
|
million
|
(53.6)%
|
|
• Diluted EPS from
continuing operations
|
$
|
1.08
|
|
|
$
|
1.77
|
|
(39.0)%
|
|
• Net cash provided
by operating activities
|
$
|
62.8
|
million
|
|
$
|
30.2
|
million
|
108.2%
|
|
|
|
|
|
|
|
|
|
Core
Results*
|
|
|
|
|
|
|
|
• Core adjusted
EBITDA from continuing operations
|
$
|
110.3
|
million
|
|
$
|
129.9
|
million
|
(15.1)%
|
|
• Core diluted EPS
from continuing operations
|
$
|
1.42
|
|
|
$
|
2.04
|
|
(30.4)%
|
|
• Free cash
flow
|
$
|
36.8
|
million
|
|
$
|
(5.9)
|
million
|
719.1%
|
|
*Refer to Appendix A for a discussion of Use of Non-GAAP
Financial Measures and Core and Non-Core Results.
Highlights from the second quarter of 2014 include:
- Managed business for profitability and operating cash flow
despite a weak release schedule that impacted Redbox revenue
- Generated $36.8 million in free
cash flow in the quarter, bringing the year-to-date total to
$104.4 million
- Repurchased approximately $50.0
million or approximately 712,000 shares of common stock
during the quarter
- Completed a $300 million debt
offering and amended and extended the company's credit facility,
effectively locking in attractive interest rates, extending debt
maturities and maintaining financial flexibility
"We produced solid results in the second quarter of 2014 with
consolidated revenues and profitability in-line with our
expectations despite weaker than expected performance from our
Redbox business. In addition, we generated strong cash flow in the
quarter and repurchased $50 million
of our common stock, reflecting our commitment to returning cash to
shareholders," said Galen C. Smith,
chief financial officer of Outerwall.
For year-over-year comparison purposes, the company noted the
following:
- In the second quarter of 2013, the company implemented a new
accounting methodology for amortizing its content library that was
prospectively applied. Had this new methodology been applied
retrospectively, Redbox content costs, which are included in direct
operating expenses, would have been $29.4
million higher on a pretax basis in the second quarter of
2013 as content costs would have shifted from prior periods to the
second quarter of 2013.
- In the second quarter of 2013, the company recognized a
$17.8 million tax benefit as a result
of selling several thousand NCR kiosks through a wholly owned
subsidiary.
CONSOLIDATED RESULTS
Consolidated revenue for the second quarter of 2014 decreased
$3.9 million, or 0.7% to $549.2 million compared with $553.1 million for the second quarter of 2013.
The year-over-year decline in consolidated revenue was primarily
due to the impact of a weak content release schedule on the Redbox
business, partially offset by an increase in revenue from the
Coinstar segment and the inclusion of the ecoATM business that was
acquired in late July 2013 and is included in the company's
New Ventures segment.
Operating income for the second quarter of 2014 was $47.9 million and operating margin was 8.7%
compared with operating income of $76.1
million and operating margin of 13.8% in the second quarter
of 2013. The year-over-year decrease in both the operating income
and margin was primarily due to the impact of a weak content
release schedule on Redbox revenue and the change in the content
amortization accounting methodology that occurred in the second
quarter of 2013 as noted above. Had the updated amortization
accounting methodology been in effect prior to the second quarter
of 2013, operating income and operating margin would have been
$46.7 million and 8.4%,
respectively, in the second quarter of 2013.
Income from continuing operations for the second quarter of 2014
was $21.8 million, or
$1.08 earnings per diluted share from
continuing operations, compared with $50.4 million, or $1.77 per diluted share, in the second quarter of
2013. The year-over-year decrease in income from continuing
operations was primarily due to lower revenues and the impact of
the change in the amortization accounting methodology that was
implemented in the second quarter of 2013. Had this methodology
been in effect prior to the second quarter of 2013, income from
continuing operations for the second quarter of 2013 would have
been $32.2 million.
Core adjusted EBITDA from continuing operations for the second
quarter of 2014 was $110.3 million, compared with $129.9 million in the second quarter of
2013. The year-over-year decline was primarily due to lower segment
operating income at Redbox and higher segment operating losses in
New Ventures as the company continued to invest as it scales its
ecoATM business. The declines were partially offset by increased
Coinstar segment operating income. Had the updated amortization
accounting methodology been in effect prior to the second quarter
of 2013, core adjusted EBITDA from continuing operations in the
second quarter of 2013 would have been $100.5 million.
Core diluted earnings per share from continuing operations in
the second quarter of 2014 were $1.42
compared with $2.04 per diluted share
in the second quarter of 2013. The company also noted that had the
updated amortization accounting methodology been in effect prior to
the second quarter of 2013, core diluted earnings per share from
continuing operations in the second quarter of 2013 would have been
lower by $0.64.
Net cash provided by operating activities in the second quarter
of 2014 was $62.8 million
compared with $30.2 million in
the second quarter of 2013. The increase was primarily due to an
increase in net operating cash inflows from changes in working
capital and lower deferred income taxes.
Cash capital expenditures for the second quarter of 2014 were
$26.1 million compared with
$36.1 million in the second
quarter of 2013.
Free cash flow for the second quarter of 2014 was $36.8 million, compared with negative
$5.9 million in the second
quarter of 2013, primarily driven by higher net operating cash flow
and lower capital expenditures.
SEGMENT RESULTS
Redbox
Redbox segment revenue in the second quarter of 2014 was
$445.5 million compared with
$478.5 million in the second
quarter of 2013. Redbox generated approximately 169.3 million
rentals in the quarter, a decrease of 9.3% compared with the second
quarter of 2013, on a considerably weaker release schedule than the
year ago period. A key driver of Redbox performance is the
availability of new release content, including the strength of
titles and the release schedule. Total box office[1] in the second
quarter 2014 was 37.5% lower than the second quarter of 2013. The
impact of overall weaker releases in the second quarter of 2014 was
further compounded by the scarcity of strong content available for
rent in June. Compared with June
2013, the box office in June
2014 was 83.0% lower, and there were only four titles
released during the month.
Redbox same store sales decreased 7.8% in the second quarter of
2014 compared with a decrease of 6.8% in the second quarter of
2013, primarily due to the impact of a weak content release slate
and the timing of releases throughout the quarter. The company
noted, however, that consumer engagement remained strong and grew
in the second quarter of 2014 compared with the second quarter of
2013, with e-mail subscribers and Redbox app downloads growing by
more than 20%. In addition, e-mail open rates, a measure of
consumer interest in the product offering, increased 30% from the
second quarter of 2013.
Net revenue per rental was $2.63,
an increase of $0.07, or 2.7%, from
the second quarter of 2013. The increase was primarily the result
of a higher percentage of Blu-ray rentals as a percent of total
rentals, a 29.1% reduction in promotional spend as Redbox continued
its focus on increasing promotional efficiency through
customer-specific offerings, and continued stabilization in single
night rentals.
Redbox segment operating income in the second quarter of 2014
was $83.5 million compared with
$107.2 million in the second quarter
of 2013. Segment operating margin was 18.7% in the second quarter
of 2014 compared with 22.4% in the second quarter of 2013,
primarily due to the impact of a weak release schedule. Segment
operating income and margin in the second quarter 2013 would have
been $77.8 million and 16.3%,
respectively, had the updated amortization accounting methodology
been in effect prior to the second quarter of 2013.
Coinstar
Coinstar segment revenue was $79.9
million, an increase of 7.2%, compared with $74.5 million in the second quarter of 2013. Same
store sales grew 6.7% in the second quarter of 2014 compared with a
decrease of 1.1% in the second quarter of 2013 primarily due to the
price increase for all U.S. grocery retail locations for the coin
voucher product that was implemented on October 1, 2013. The
average transaction size in the second quarter of 2014 increased
$0.14 to $41.32 from the second quarter of 2013.
Coinstar segment operating income was $30.8 million, an increase of 21.1% compared
with the second quarter of 2013, and Coinstar segment operating
margin was 38.6%, an increase of 450 basis points compared with the
second quarter of 2013. Both increases were primarily the result of
the U.S. price increase, higher volume in the U.K. due to an
increase in the U.K. kiosk base, lower research and development
expenses, and cost efficiencies across the Coinstar field
organization.
New Ventures
New Ventures segment revenue was $23.8
million in the second quarter of 2014, primarily due to the
inclusion of the ecoATM business that was acquired in July 2013. New Ventures segment operating loss of
$6.4 million in the second quarter of
2014 was primarily due to investments in ecoATM, including the
addition of approximately 70 net new ecoATM kiosks, as business
expands in the mass merchant and grocery channels. At June 30, 2014, New Ventures had approximately
1,010 kiosks installed, including approximately 980 ecoATM
kiosks.
In the ecoATM business, the number of devices collected and the
value per device increased in the second quarter of 2014 compared
with the first quarter of 2014, primarily as a result of a higher
installed kiosk base, greater consumer awareness, competitive
pricing and kiosk enhancements.
During 2013, the company discontinued four new venture concepts:
Orango, Rubi™, Crisp Market™ and Star
Studio™ ventures. These concepts are classified as
discontinued operations for all periods presented.
SHARE REPURCHASES AND CAPITAL STRUCTURE
During the second quarter of 2014, the company completed the
sale of $300 million of 5.875% senior
unsecured notes due 2021 and amended and extended its senior
secured credit facility consisting of a $150
million amortizing term loan and a $600 million revolving line of credit. The
maturity of the credit facility was extended from July 2016 to June
2019.
The company repurchased approximately $50.0 million of its common stock, representing
approximately 712,000 shares at an average price of $70.27 per share during the second quarter of
2014. At June 30, 2014, there was
approximately $233.3 million in
authority remaining under the company's stock repurchase
authorization.
The company's net leverage ratio[2] was 2.00x at June 30, 2014. The company continues to expect a
net leverage ratio in the range of 1.75x to 2.25x in 2014.
GUIDANCE
A comprehensive 2014 guidance table is included in the "Earnings
Release Schedules" section at the end of this release. Beginning in
2015, Outerwall will provide annual guidance only. The company
believes annual guidance is a more relevant measurement of the
business given its stage of growth, and full-year results capture
the varying seasonal patterns of each of its businesses.
Guidance for the third quarter and full-year 2014 reflects lower
than expected second quarter 2014 revenue, a lower box office for
the second half of this year compared with the company's previous
expectations, changes in the timing of the release schedule,
increased interest expense as a result of the new debt issued
in June, the repurchase of common stock in the second quarter of
2014 and the delayed timing of ecoATM kiosk installs.
For the 2014 third quarter, the company expects:
- Consolidated revenue between $535
million and $565 million;
- Core adjusted EBITDA from continuing operations between
$100 million and $115 million;
- Core diluted EPS from continuing operations between
$0.99 and $1.29 on a fully diluted
basis; and
- Average diluted shares outstanding between 19.7 million and
19.8 million[3].
For the full-year 2014, the company expects:
- Consolidated revenue between $2.254
billion and $2.334 billion;
- Core adjusted EBITDA from continuing operations between
$450 million and $490 million;
- Core diluted EPS from continuing operations between
$5.78 and $6.28 on a fully diluted
basis;
- Free cash flow between $200 million and
$240 million; and
- Average diluted shares outstanding between 20.9 million and
21.0 million3.
ADDITIONAL INFORMATION
Additional information regarding the company's 2014 second
quarter operating and financial results and guidance are included
in the company's prepared remarks and supplementary slides. These
items, as well as this press release, are posted on the Investor
Relations section of the corporate website at ir.outerwall.com. The
Segment Supplement, which provides historical data in Excel format,
is also posted on the website.
CONFERENCE CALL
The company will host a conference call today at 2:30 p.m. PDT (5:30 p.m.
EDT) to discuss second quarter 2014 earnings results and
third quarter and full-year 2014 guidance. The conference call will
be webcast live and archived on the Investor Relations section of
Outerwall's website at ir.outerwall.com. A recording of the call
will be available approximately two hours after the call ends
through August 14, 2014, at
1-888-843-7419 or 1-630-652-3042, passcode 3755 4196.
ABOUT OUTERWALL INC.
Outerwall Inc. (Nasdaq: OUTR) has more than 20 years of
experience creating some of the most profitable spaces for their
retail partners. The company mission is to create a better everyday
by delivering breakthrough kiosk experiences that delight consumers
and generate revenue for retailers. As the company that brought
consumers Redbox® entertainment, Coinstar®
money services, and ecoATM® electronics recycling
kiosks, Outerwall is leading the next generation of automated
retail and paving the way for inventive, scalable businesses.
Outerwall™ kiosks are in neighborhood grocery stores, drug stores,
mass merchants, malls, and other retail locations in the United States, Canada, Puerto
Rico, the United Kingdom,
and Ireland. Learn more at
www.outerwall.com.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Certain statements in this press release are "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. The words "believe," "estimate," "expect,"
"intend," "will," "anticipate," "goals," variations of such words,
and similar expressions identify forward-looking statements, but
their absence does not mean that the statement is not
forward-looking. The forward-looking statements in this release
include statements regarding Outerwall Inc.'s anticipated growth
and future operating results, including 2014 second quarter and
full year results. Forward-looking statements are not guarantees of
future performance and actual results may vary materially from the
results expressed or implied in such statements. Differences may
result from actions taken by Outerwall Inc. or its subsidiaries, as
well as from risks and uncertainties beyond Outerwall Inc.'s
control. Such risks and uncertainties include, but are not limited
to,
- competition from other entertainment providers,
- the ability to achieve the strategic and financial
objectives for our entry into new businesses, including ecoATM,
SAMPLEit and Redbox Instant™ by Verizon,
- our ability to repurchase stock and the availability of an
open trading window,
- the termination, non-renewal or renegotiation on materially
adverse terms of our contracts with our significant retailers and
suppliers,
- payment of increased fees to retailers, suppliers and other
third-party providers, including financial service
providers,
- the timing of new DVD releases and the inability to receive
delivery of DVDs on the date of their initial release to the
general public, or shortly thereafter, or in sufficient quantity,
for home entertainment viewing,
- the effective management of our content library,
- the timing of the release slate and the relative
attractiveness of titles in a particular quarter or year,
- the ability to attract new retailers, penetrate new markets
and distribution channels and react to changing consumer
demands,
- the ability to generate sufficient cash flow to timely and
fully service indebtedness and adhere to certain covenants and
restrictions,
- the ability to adequately protect our intellectual property,
and
- the application of substantial federal, state, local and
foreign laws and regulations specific to our business.
The foregoing list of risks and uncertainties is
illustrative, but by no means exhaustive. For more information on
factors that may affect future performance, please review "Risk
Factors" described in our most recent Annual Report on Form 10-K
and any subsequent Quarterly Reports on Form 10-Q filed with the
Securities and Exchange Commission. These forward-looking
statements reflect Outerwall Inc.'s expectations as of the date of
this press release. Outerwall Inc. undertakes no obligation to
update the information provided herein.
(Financial Statements Follow)
OUTERWALL
INC.
|
|
EARNINGS RELEASE
SCHEDULES
|
|
Three Months and
Six Months Ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
•
|
Consolidated
Statements of Comprehensive
Income
|
9
|
|
|
|
•
|
Consolidated Balance
Sheets
|
10
|
|
|
|
•
|
Consolidated
Statements of Cash
Flows
|
11
|
|
|
|
•
|
Business Segment and
Enterprisewide
Information
|
12
|
|
|
|
•
|
2014 Third Quarter
and Full Year
Guidance
|
14
|
|
|
|
•
|
APPENDIX A
|
|
|
|
|
|
°
|
Use of Non-GAAP
Financial
Measures
|
15
|
|
|
|
|
|
°
|
Core and Non-Core
Results
|
15
|
|
|
|
|
|
°
|
Core Adjusted EBITDA
From Continuing
Operations
|
16
|
|
|
|
|
|
°
|
Core Diluted EPS From
Continuing
Operations
|
16
|
|
|
|
|
|
°
|
Free Cash
Flow
|
17
|
|
|
|
|
|
°
|
Debt and Net Leverage
Ratio
|
17
|
OUTERWALL
INC.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands,
except per share data)
(unaudited)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Revenue
|
$
|
549,170
|
|
$
|
553,050
|
|
$
|
1,149,539
|
|
$
|
1,126,357
|
Expenses:
|
|
|
|
|
|
|
|
Direct
operating
|
386,059
|
|
363,950
|
|
810,704
|
|
768,845
|
Marketing
|
9,783
|
|
7,122
|
|
17,380
|
|
14,508
|
Research and
development
|
3,412
|
|
2,354
|
|
6,886
|
|
4,661
|
General and
administrative
|
48,974
|
|
54,294
|
|
101,965
|
|
107,755
|
Depreciation and
other
|
49,180
|
|
47,331
|
|
98,275
|
|
93,911
|
Amortization of
intangible assets
|
3,847
|
|
1,877
|
|
7,695
|
|
3,894
|
Total
expenses
|
501,255
|
|
476,928
|
|
1,042,905
|
|
993,574
|
Operating
income
|
47,915
|
|
76,122
|
|
106,634
|
|
132,783
|
Other income
(expense), net:
|
|
|
|
|
|
|
|
Loss from equity
method investments, net
|
(10,541)
|
|
(9,629)
|
|
(19,909)
|
|
(16,654)
|
Interest expense,
net
|
(12,929)
|
|
(12,018)
|
|
(22,574)
|
|
(17,551)
|
Other, net
|
2,902
|
|
(980)
|
|
1,158
|
|
(921)
|
Total other expense,
net
|
(20,568)
|
|
(22,627)
|
|
(41,325)
|
|
(35,126)
|
Income from
continuing operations before income taxes
|
27,347
|
|
53,495
|
|
65,309
|
|
97,657
|
Income tax
expense
|
(5,537)
|
|
(3,082)
|
|
(19,613)
|
|
(19,237)
|
Income from
continuing operations
|
21,810
|
|
50,413
|
|
45,696
|
|
78,420
|
Loss from
discontinued operations, net of tax
|
(57)
|
|
(3,556)
|
|
(768)
|
|
(8,959)
|
Net income
|
21,753
|
|
46,857
|
|
44,928
|
|
69,461
|
Foreign currency
translation adjustment
|
(336)
|
|
(242)
|
|
539
|
|
(2,156)
|
Comprehensive
income
|
$
|
21,417
|
|
$
|
46,615
|
|
$
|
45,467
|
|
$
|
67,305
|
Basic earnings (loss)
per share:
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
1.12
|
|
$
|
1.84
|
|
$
|
2.10
|
|
$
|
2.86
|
Discontinued
operations
|
—
|
|
(0.13)
|
|
(0.03)
|
|
(0.33)
|
Basic earnings per
share
|
$
|
1.12
|
|
$
|
1.71
|
|
$
|
2.07
|
|
$
|
2.53
|
Diluted earnings
(loss) per share:
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
1.08
|
|
$
|
1.77
|
|
$
|
2.03
|
|
$
|
2.73
|
Discontinued
operations
|
—
|
|
(0.13)
|
|
(0.03)
|
|
(0.31)
|
Diluted earnings per
share
|
$
|
1.08
|
|
$
|
1.64
|
|
$
|
2.00
|
|
$
|
2.42
|
Weighted average
shares used in basic per share calculations
|
19,541
|
|
27,438
|
|
21,730
|
|
27,465
|
Weighted average
shares used in diluted per share calculations
|
20,181
|
|
28,537
|
|
22,488
|
|
28,737
|
OUTERWALL
INC.
CONSOLIDATED
BALANCE SHEETS
(in thousands,
except share data)
(unaudited)
|
|
|
June 30,
2014
|
|
December 31,
2013
|
Assets
|
|
|
|
Current
Assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
233,226
|
|
$
|
371,437
|
Accounts receivable,
net of allowances of $1,493 and $1,826
|
44,968
|
|
50,296
|
Content
library
|
152,382
|
|
199,868
|
Prepaid expenses and
other current assets
|
63,645
|
|
84,709
|
Total current
assets
|
494,221
|
|
706,310
|
Property and
equipment, net
|
475,740
|
|
520,865
|
Deferred income
taxes
|
8,277
|
|
6,443
|
Goodwill and other
intangible assets, net
|
630,995
|
|
638,690
|
Other long-term
assets
|
9,725
|
|
19,075
|
Total
assets
|
$
|
1,618,958
|
|
$
|
1,891,383
|
Liabilities and
Stockholders' Equity
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
|
160,086
|
|
$
|
236,018
|
Accrued payable to
retailers
|
127,773
|
|
134,140
|
Other accrued
liabilities
|
131,044
|
|
134,127
|
Current portion of
long-term debt and other long-term liabilities
|
53,008
|
|
103,889
|
Deferred income
taxes
|
31,432
|
|
23,143
|
Total current
liabilities
|
503,343
|
|
631,317
|
Long-term debt and
other long-term liabilities
|
981,717
|
|
681,403
|
Deferred income
taxes
|
36,937
|
|
58,528
|
Total
liabilities
|
1,521,997
|
|
1,371,248
|
Commitments and
contingencies
|
|
|
|
Debt conversion
feature
|
163
|
|
1,446
|
Stockholders'
Equity:
|
|
|
|
Preferred stock,
$0.001 par value - 5,000,000 shares authorized; no shares issued or
outstanding
|
—
|
|
—
|
Common stock, $0.001
par value - 60,000,000 authorized;
|
|
|
|
36,627,171 and
36,356,357 shares issued;
|
|
|
|
19,865,273 and
26,150,900 shares outstanding;
|
479,494
|
|
482,481
|
Treasury
stock
|
(941,167)
|
|
(476,796)
|
Retained
earnings
|
558,699
|
|
513,771
|
Accumulated other
comprehensive loss
|
(228)
|
|
(767)
|
Total stockholders'
equity
|
96,798
|
|
518,689
|
Total liabilities and
stockholders' equity
|
$
|
1,618,958
|
|
$
|
1,891,383
|
OUTERWALL
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
(unaudited)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Operating
Activities:
|
|
|
|
|
|
|
|
Net income
|
$
|
21,753
|
|
$
|
46,857
|
|
$
|
44,928
|
|
$
|
69,461
|
Adjustments to
reconcile net income to net cash flows from operating
activities:
|
|
|
|
|
|
|
|
Depreciation and
other
|
49,154
|
|
47,617
|
|
98,258
|
|
94,509
|
Amortization of
intangible assets
|
3,847
|
|
1,877
|
|
7,695
|
|
3,894
|
Share-based payments
expense
|
3,079
|
|
3,843
|
|
6,844
|
|
8,680
|
Windfall excess tax
benefits related to share-based payments
|
(243)
|
|
(960)
|
|
(1,953)
|
|
(3,029)
|
Deferred income
taxes
|
(5,440)
|
|
(47,327)
|
|
(15,004)
|
|
(36,911)
|
Impairment
expense
|
—
|
|
130
|
|
—
|
|
2,676
|
Loss from equity
method investments, net
|
10,541
|
|
9,629
|
|
19,909
|
|
16,654
|
Amortization of
deferred financing fees and debt discount
|
1,216
|
|
1,824
|
|
2,522
|
|
4,047
|
Loss from early
extinguishment of debt
|
1,963
|
|
4,011
|
|
1,963
|
|
5,949
|
Other
|
(1,040)
|
|
(482)
|
|
(1,164)
|
|
(1,811)
|
Cash flows from
changes in operating assets and liabilities
|
(21,997)
|
|
(36,845)
|
|
(6,578)
|
|
(77,941)
|
Net cash flows
from operating activities
|
62,833
|
|
30,174
|
|
157,420
|
|
86,178
|
Investing
Activities:
|
|
|
|
|
|
|
|
Purchases of property
and equipment
|
(26,076)
|
|
(36,111)
|
|
(53,016)
|
|
(84,244)
|
Proceeds from sale of
property and equipment
|
962
|
|
12,700
|
|
1,793
|
|
12,832
|
Net sales (purchases)
of short term investments
|
—
|
|
43,000
|
|
—
|
|
(10,000)
|
Receipt of note
receivable principal
|
—
|
|
—
|
|
—
|
|
95
|
Cash paid for equity
investments
|
—
|
|
—
|
|
(10,500)
|
|
(14,000)
|
Net cash flows
from (used in) investing activities
|
(25,114)
|
|
19,589
|
|
(61,723)
|
|
(95,317)
|
Financing
Activities:
|
|
|
|
|
|
|
|
Proceeds from
issuance of senior unsecured notes
|
295,500
|
|
—
|
|
295,500
|
|
343,769
|
Proceeds from new
borrowing on Credit Facility
|
230,000
|
|
—
|
|
505,000
|
|
—
|
Principal payments on
Credit Facility
|
(505,000)
|
|
(3,281)
|
|
(534,375)
|
|
(6,562)
|
Financing costs
associated with Credit Facility and senior unsecured
notes
|
(2,082)
|
|
(142)
|
|
(2,082)
|
|
(444)
|
Conversion of
convertible debt
|
(17,720)
|
|
(107,179)
|
|
(17,724)
|
|
(169,634)
|
Repurchases of common
stock
|
(53,413)
|
|
(24,906)
|
|
(474,480)
|
|
(71,388)
|
Principal payments on
capital lease obligations and other debt
|
(3,384)
|
|
(4,200)
|
|
(7,081)
|
|
(7,451)
|
Windfall excess tax
benefits related to share-based payments
|
243
|
|
960
|
|
1,953
|
|
3,029
|
Withholding tax paid
on vesting of restricted stock net of proceeds from exercise of
stock options
|
563
|
|
5,652
|
|
(1,025)
|
|
6,745
|
Net cash flows
from (used in) financing activities
|
(55,293)
|
|
(133,096)
|
|
(234,314)
|
|
98,064
|
Effect of exchange
rate changes on cash
|
(746)
|
|
126
|
|
406
|
|
(1,574)
|
Increase
(decrease) in cash and cash equivalents
|
(18,320)
|
|
(83,207)
|
|
(138,211)
|
|
87,351
|
Cash and cash
equivalents:
|
|
|
|
|
|
|
|
Beginning of
period
|
251,546
|
|
453,452
|
|
371,437
|
|
282,894
|
End of
period
|
$
|
233,226
|
|
$
|
370,245
|
|
$
|
233,226
|
|
$
|
370,245
|
OUTERWALL
INC.
BUSINESS SEGMENT
AND ENTERPRISEWIDE INFORMATION
(unaudited)
|
|
The analysis and
reconciliation of the company's segment information to the
consolidated financial statements that follows covers the company's
results of operations, which consists of the Redbox, Coinstar and
New Ventures segments. Unallocated general and administrative
expenses relate to share-based compensation and expense related to
the rights to receive cash issued in connection with our
acquisition of ecoATM.
|
|
|
Dollars in
thousands
|
Three Months Ended
June 30, 2014
|
Redbox
|
|
Coinstar
|
|
New
Ventures
|
|
Corporate
Unallocated
|
|
Total
|
Revenue
|
$
|
445,481
|
|
$
|
79,880
|
|
$
|
23,809
|
|
$
|
—
|
|
$
|
549,170
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Direct
operating
|
321,701
|
|
40,203
|
|
22,823
|
|
1,332
|
|
386,059
|
Marketing
|
6,180
|
|
1,557
|
|
1,147
|
|
899
|
|
9,783
|
Research and
development
|
18
|
|
153
|
|
2,066
|
|
1,175
|
|
3,412
|
General and
administrative
|
34,070
|
|
7,169
|
|
4,137
|
|
3,598
|
|
48,974
|
Segment operating
income (loss)
|
83,512
|
|
30,798
|
|
(6,364)
|
|
(7,004)
|
|
100,942
|
Less: depreciation,
amortization and other
|
(40,158)
|
|
(8,921)
|
|
(3,948)
|
|
—
|
|
(53,027)
|
Operating income
(loss)
|
43,354
|
|
21,877
|
|
(10,312)
|
|
(7,004)
|
|
47,915
|
Loss from equity
method investments, net
|
—
|
|
—
|
|
—
|
|
(10,541)
|
|
(10,541)
|
Interest expense,
net
|
—
|
|
—
|
|
—
|
|
(12,929)
|
|
(12,929)
|
Other, net
|
—
|
|
—
|
|
—
|
|
2,902
|
|
2,902
|
Income (loss) from
continuing operations before income taxes
|
$
|
43,354
|
|
$
|
21,877
|
|
$
|
(10,312)
|
|
$
|
(27,572)
|
|
$
|
27,347
|
Dollars in
thousands
|
Three Months Ended
June 30, 2013
|
Redbox
|
|
Coinstar
|
|
New
Ventures
|
|
Corporate
Unallocated
|
|
Total
|
Revenue
|
$
|
478,518
|
|
$
|
74,526
|
|
$
|
6
|
|
$
|
—
|
|
$
|
553,050
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Direct
operating
|
323,266
|
|
39,801
|
|
517
|
|
366
|
|
363,950
|
Marketing
|
5,975
|
|
952
|
|
108
|
|
87
|
|
7,122
|
Research and
development
|
—
|
|
1,911
|
|
342
|
|
101
|
|
2,354
|
General and
administrative
|
42,084
|
|
6,439
|
|
3,313
|
|
2,458
|
|
54,294
|
Segment operating
income (loss)
|
107,193
|
|
25,423
|
|
(4,274)
|
|
(3,012)
|
|
125,330
|
Less: depreciation,
amortization and other
|
(40,364)
|
|
(8,770)
|
|
(74)
|
|
—
|
|
(49,208)
|
Operating income
(loss)
|
66,829
|
|
16,653
|
|
(4,348)
|
|
(3,012)
|
|
76,122
|
Loss from equity
method investments, net
|
—
|
|
—
|
|
—
|
|
(9,629)
|
|
(9,629)
|
Interest expense,
net
|
—
|
|
—
|
|
—
|
|
(12,018)
|
|
(12,018)
|
Other, net
|
—
|
|
—
|
|
—
|
|
(980)
|
|
(980)
|
Income (loss) from
continuing operations before income taxes
|
$
|
66,829
|
|
$
|
16,653
|
|
$
|
(4,348)
|
|
$
|
(25,639)
|
|
$
|
53,495
|
OUTERWALL
INC.
BUSINESS SEGMENT
AND ENTERPRISEWIDE INFORMATION
(unaudited)
|
|
Dollars in
thousands
|
Six Months Ended
June 30, 2014
|
Redbox
|
|
Coinstar
|
|
New
Ventures
|
|
Corporate
Unallocated
|
|
Total
|
Revenue
|
$
|
961,137
|
|
$
|
148,633
|
|
$
|
39,769
|
|
$
|
—
|
|
$
|
1,149,539
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Direct
operating
|
690,305
|
|
77,926
|
|
39,162
|
|
3,311
|
|
810,704
|
Marketing
|
11,244
|
|
2,563
|
|
1,976
|
|
1,597
|
|
17,380
|
Research and
development
|
26
|
|
422
|
|
4,482
|
|
1,956
|
|
6,886
|
General and
administrative
|
73,131
|
|
14,189
|
|
7,937
|
|
6,708
|
|
101,965
|
Segment operating
income (loss)
|
186,431
|
|
53,533
|
|
(13,788)
|
|
(13,572)
|
|
212,604
|
Less: depreciation,
amortization and other
|
(80,721)
|
|
(17,484)
|
|
(7,765)
|
|
—
|
|
(105,970)
|
Operating income
(loss)
|
105,710
|
|
36,049
|
|
(21,553)
|
|
(13,572)
|
|
106,634
|
Loss from equity
method investments, net
|
—
|
|
—
|
|
—
|
|
(19,909)
|
|
(19,909)
|
Interest expense,
net
|
—
|
|
—
|
|
—
|
|
(22,574)
|
|
(22,574)
|
Other, net
|
—
|
|
—
|
|
—
|
|
1,158
|
|
1,158
|
Income (loss) from
continuing operations before income taxes
|
$
|
105,710
|
|
$
|
36,049
|
|
$
|
(21,553)
|
|
$
|
(54,897)
|
|
$
|
65,309
|
Dollars in
thousands
|
Six Months Ended
June 30, 2013
|
Redbox
|
|
Coinstar
|
|
New
Ventures
|
|
Corporate
Unallocated
|
|
Total
|
Revenue
|
$
|
986,438
|
|
$
|
139,909
|
|
$
|
10
|
|
$
|
—
|
|
$
|
1,126,357
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Direct
operating
|
689,947
|
|
77,457
|
|
734
|
|
707
|
|
768,845
|
Marketing
|
12,174
|
|
2,005
|
|
175
|
|
154
|
|
14,508
|
Research and
development
|
4
|
|
3,679
|
|
797
|
|
181
|
|
4,661
|
General and
administrative
|
84,946
|
|
12,728
|
|
4,919
|
|
5,162
|
|
107,755
|
Segment operating
income (loss)
|
199,367
|
|
44,040
|
|
(6,615)
|
|
(6,204)
|
|
230,588
|
Less: depreciation,
amortization and other
|
(80,741)
|
|
(16,954)
|
|
(110)
|
|
—
|
|
(97,805)
|
Operating income
(loss)
|
118,626
|
|
27,086
|
|
(6,725)
|
|
(6,204)
|
|
132,783
|
Loss from equity
method investments, net
|
—
|
|
—
|
|
—
|
|
(16,654)
|
|
(16,654)
|
Interest expense,
net
|
—
|
|
—
|
|
—
|
|
(17,551)
|
|
(17,551)
|
Other, net
|
—
|
|
—
|
|
—
|
|
(921)
|
|
(921)
|
Income (loss) from
continuing operations before income taxes
|
$
|
118,626
|
|
$
|
27,086
|
|
$
|
(6,725)
|
|
$
|
(41,330)
|
|
$
|
97,657
|
OUTERWALL
INC.
2014 THIRD QUARTER
AND FULL YEAR GUIDANCE
(as of July 31,
2014)
|
|
(in millions,
except per share amounts)
|
|
|
|
|
2014 THIRD QUARTER
GUIDANCE
|
RANGE
|
Consolidated
revenue
|
|
$535
|
to
|
$565
|
Core adjusted EBITDA
from continuing operations
|
|
$100
|
to
|
$115
|
Core diluted EPS from
continuing operations(1)
|
|
$0.99
|
to
|
$1.29
|
Average diluted
shares outstanding(1)
|
|
19.7
|
to
|
19.8
|
|
|
|
|
|
2014 FULL YEAR
GUIDANCE
|
|
|
|
|
Consolidated
results:
|
|
|
|
|
Revenue
|
|
$2,254
|
to
|
$2,334
|
Core adjusted EBITDA
from continuing operations
|
|
$450
|
to
|
$490
|
Core diluted EPS from
continuing operations(1)
|
|
$5.78
|
to
|
$6.28
|
Free cash
flow
|
|
$200
|
to
|
$240
|
Average diluted
shares outstanding(1)
|
|
20.9
|
to
|
21.0
|
Effective tax
rate
|
|
37.0%
|
to
|
39.0%
|
Segment
revenue:
|
|
|
|
|
Redbox
|
|
$1,840
|
to
|
$1,905
|
Coinstar
|
|
$307
|
to
|
$312
|
New
Ventures
|
|
$107
|
to
|
$117
|
|
|
|
|
|
Capital
expenditures:
|
|
|
|
|
Redbox
CAPEX
|
|
$22
|
to
|
$27
|
Kiosk, software and
other
|
|
$7
|
to
|
$9
|
Maintenance
|
|
$15
|
to
|
$18
|
Coinstar
CAPEX
|
|
$15
|
to
|
$19
|
New
|
|
$11
|
to
|
$14
|
Maintenance
|
|
$4
|
to
|
$5
|
New
Ventures
|
|
$35
|
to
|
$44
|
Corporate
|
|
$25
|
to
|
$30
|
Total CAPEX
|
|
$97
|
to
|
$120
|
|
|
|
|
|
Net kiosk
installations:
|
|
|
|
|
Redbox
|
|
(450)
|
to
|
(50)
|
U.S.
|
|
(700)
|
to
|
(500)
|
Canada
|
|
250
|
to
|
450
|
Coinstar
|
|
250
|
to
|
450
|
New
Ventures
|
|
1,000
|
to
|
1,200
|
|
(1) Excludes the
impact of any future share repurchases for the remainder of
2014
|
APPENDIX A
Use of Non-GAAP Financial Measures
Non-GAAP measures may be provided as a complement to results
provided in accordance with United
States generally accepted accounting principles
("GAAP").
We use the following non-GAAP financial measures to evaluate our
financial results:
- Core adjusted EBITDA from continuing operations;
- Core diluted earnings per share ("EPS") from continuing
operations;
- Free cash flow; and
- Net debt and net leverage ratio.
These measures, the definitions of which are presented below,
are non-GAAP because they exclude certain amounts which are
included in the most directly comparable measure calculated and
presented in accordance with GAAP. Our non-GAAP financial measures
are not meant to be considered in isolation or as a substitute for
our GAAP financial measures and may not be comparable with
similarly titled measures of other companies.
Core and Non-Core Results
We distinguish our core activities, those associated with our
primary operations which we directly control, from non-core
activities. Non-core activities are primarily nonrecurring events
or events we do not directly control. Our non-core adjustments
include i) restructuring costs associated with actions to reduce
costs in our continuing operations primarily through workforce
reductions across the Company, ii) compensation expense for rights
to receive cash issued in conjunction with our acquisition of
ecoATM and attributable to post-combination services as they are
fixed amount acquisition related awards and not indicative of the
directly controllable future business results, iii) income or loss
from equity method investments, which represents our share of
income or loss from entities we do not consolidate or control, and
iv) a tax benefit related to a net operating loss adjustment
("Non-Core Adjustments").
We believe investors should consider our core results because
they are more indicative of our ongoing performance and trends, are
more consistent with how management evaluates our operational
results and trends, provide meaningful supplemental information to
investors through the exclusion of certain expenses which are
either non-recurring or may not be indicative of our directly
controllable business operating results, allow for greater
transparency in assessing our performance, help investors better
analyze the results of our business and assist in forecasting
future periods.
Core Adjusted EBITDA from continuing operations
Our non-GAAP financial measure core adjusted EBITDA from
continuing operations is defined as earnings from continuing
operations before depreciation, amortization and other; interest
expense, net; income taxes; share-based payments expense; and
Non-Core Adjustments.
A reconciliation of core adjusted EBITDA from continuing
operations to net income from continuing operations, the most
comparable GAAP financial measure, is presented in the following
table:
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
June
30,
|
|
|
June
30,
|
Dollars in
thousands
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Net income from
continuing operations
|
$
|
21,810
|
|
$
|
50,413
|
|
$
|
45,696
|
|
$
|
78,420
|
Depreciation,
amortization and other
|
53,027
|
|
49,208
|
|
105,970
|
|
97,805
|
Interest expense,
net
|
12,929
|
|
12,018
|
|
22,574
|
|
17,551
|
Income
taxes
|
5,537
|
|
3,082
|
|
19,613
|
|
19,237
|
Share-based payments
expense(1)
|
3,079
|
|
3,843
|
|
6,844
|
|
8,680
|
Adjusted EBITDA from
continuing operations
|
96,382
|
|
118,564
|
|
200,697
|
|
221,693
|
Non-Core
Adjustments:
|
|
|
|
|
|
|
|
Restructuring
costs
|
—
|
|
—
|
|
469
|
|
—
|
Acquisition
costs
|
—
|
|
1,666
|
|
—
|
|
1,666
|
Rights to receive
cash issued in connection with the acquisition of ecoATM
|
3,338
|
|
—
|
|
6,759
|
|
—
|
Loss from equity
method investments
|
10,541
|
|
9,629
|
|
19,909
|
|
16,654
|
Core adjusted EBITDA
from continuing operations
|
$
|
110,261
|
|
$
|
129,859
|
|
$
|
227,834
|
|
$
|
240,013
|
|
|
(1)
|
Includes both
non-cash share-based compensation for executives, non-employee
directors and employees as well as share-based payments for content
arrangements.
|
Core Diluted EPS from continuing operations
Our non-GAAP financial measure core diluted EPS from continuing
operations is defined as diluted earnings per share from continuing
operations excluding Non-Core Adjustments, net of applicable
taxes.
A reconciliation of core diluted EPS from continuing operations
to diluted EPS from continuing operations, the most comparable GAAP
financial measure, is presented in the following table:
|
Three Months
Ended
|
|
Six Months
Ended
|
June
30,
|
|
June
30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Diluted EPS from
continuing operations
|
$
|
1.08
|
|
$
|
1.77
|
|
$
|
2.03
|
|
$
|
2.73
|
Non-Core Adjustments,
net of tax:(1)
|
|
|
|
|
|
|
|
Restructuring
costs
|
—
|
|
—
|
|
0.01
|
|
—
|
Acquisition
costs
|
—
|
|
0.06
|
|
—
|
|
0.06
|
Rights to receive
cash issued in connection with the acquisition of ecoATM
|
0.13
|
|
—
|
|
0.23
|
|
—
|
Loss from equity
method investments
|
0.32
|
|
0.21
|
|
0.53
|
|
0.36
|
Tax benefit from net
operating loss adjustment
|
—
|
|
—
|
|
(0.04)
|
|
—
|
Tax benefit of
worthless stock deduction
|
|
(0.11)
|
|
|
—
|
|
|
(0.10)
|
|
|
—
|
Core diluted EPS from
continuing operations
|
$
|
1.42
|
|
$
|
2.04
|
|
$
|
2.66
|
|
$
|
3.15
|
|
|
(1)
|
Non-Core Adjustments
are presented after-tax using the applicable effective tax rate for
the respective periods.
|
Free Cash Flow
Our non-GAAP financial measure free cash flow is defined as net
cash provided by operating activities after capital expenditures.
We believe free cash flow is an important non-GAAP measure as it
provides additional information to users of the financial
statements regarding our ability to service, incur or pay down
indebtedness and repurchase our securities.
A reconciliation of free cash flow to net cash provided by
operating activities, the most comparable GAAP financial measure,
is presented in the following table:
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
Dollars in
thousands
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Net cash provided by
operating activities
|
$
|
62,833
|
|
$
|
30,174
|
|
$
|
157,420
|
|
$
|
86,178
|
Purchase of property
and equipment
|
(26,076)
|
|
(36,111)
|
|
(53,016)
|
|
(84,244)
|
Free cash
flow
|
$
|
36,757
|
|
$
|
(5,937)
|
|
$
|
104,404
|
|
$
|
1,934
|
Net Debt and Net Leverage Ratio
Our non-GAAP financial measure net debt is defined as the total
face value of outstanding debt, including capital leases, less cash
and cash equivalents held in financial institutions domestically.
Our non-GAAP financial measure net leverage ratio is defined as net
debt divided by core adjusted EBITDA from continuing operations for
the last twelve months (LTM). We believe net debt and net leverage
ratio are important non-GAAP measures because they:
- are used to assess the degree of leverage by management;
- provide additional information to users of the financial
statements regarding our ability to service, incur or pay down
indebtedness and repurchase our securities as well as additional
information about our capital structure; and
- are reported quarterly to support covenant compliance under our
credit agreement.
A reconciliation of net debt to total outstanding debt including
capital leases, the most comparable GAAP financial measure, is
presented in the following table:
Dollars in
thousands
|
June 30,
2014
|
|
December 31,
2013
|
Senior unsecured
notes(1)
|
$
|
650,000
|
|
$
|
350,000
|
Term
loans(1)
|
150,000
|
|
344,375
|
Revolving line of
credit
|
165,000
|
|
—
|
Convertible
debt(2)
|
33,424
|
|
51,148
|
Capital
leases
|
19,778
|
|
21,361
|
Total principal value
of outstanding debt including capital leases
|
1,018,202
|
|
766,884
|
Less domestic cash
and cash equivalents held in financial institutions
|
(58,779)
|
|
(199,027)
|
Net debt
|
959,423
|
|
567,857
|
LTM Core adjusted
EBITDA from continuing operations(3)
|
$
|
479,473
|
|
$
|
491,652
|
Net leverage
ratio
|
2.00
|
|
1.15
|
|
|
(1)
|
The senior unsecured
notes on our Consolidated Balance Sheets as of June 30, 2014
and December 31, 2013 included $9.3 million and $5.3 million
in associated debt discount, respectively. The Term loan on our
Consolidated Balance Sheets as of June 30, 2014 included $0.4
million in associated debt discount. There was no associated debt
discount with the Term loans as of December 31,
2013.
|
(2)
|
The convertible debt
balance on our Consolidated Balance Sheets as of June 30, 2014
and December 31, 2013 included $0.2 million and $1.4 million,
respectively, in associated debt discount.
|
(3)
|
LTM Core Adjusted
EBITDA from continuing operations for the twelve months ended
June 30, 2014 and December 31, 2013 was determined as
follows:
|
Dollars in
thousands
|
|
Core adjusted EBITDA
from continuing operations for the six months ended June 30,
2014
|
$
|
227,834
|
Add: Core adjusted
EBITDA from continuing operations for the twelve months ended
December 31, 2013(A)
|
491,652
|
Less: Core adjusted
EBITDA from continuing operations for the six months ended June 30,
2013
|
(240,013)
|
LTM Core adjusted
EBITDA from continuing operations for the twelve months ended June
30, 2014
|
$
|
479,473
|
|
|
(A)
|
Core adjusted EBITDA
from continuing operations for the twelve months ended December 31,
2013 is obtained from our Annual Report on Form 10-K for the period
ended December 31, 2013, where it is reconciled to net income from
continuing operations, the most comparable GAAP financial measure,
and represents the LTM core adjusted EBITDA from continuing
operations we use in our calculation of net leverage ratio as of
December 31, 2013.
|
[1] Total box office is calculated as total box office of titles
with North American box office receipts of at least $5.0 million.
[2] Refer to Appendix A for a discussion of Use of Non-GAAP
Financial Measures and Core and Non-Core Results.
[3] Excludes the impact of any future share repurchases for the
remainder of 2014
SOURCE Outerwall Inc.