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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) July 31, 2014

OUTERWALL INC.

(Exact name of registrant as specified in its charter)

Delaware

000-22555

94-3156448

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

1800 – 114^th Avenue SE

BELLEVUE, WA 98004

(Address of Principal Executive Offices and Zip Code)

Registrant’s telephone number, including area code: (425) 943-8000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02

Results of Operations and Financial Condition.

On July 31, 2014, Outerwall Inc. (the “Company”) issued an earnings release announcing its financial results for the quarter ended June 30, 2014, and separate prepared remarks from its Chief Executive Officer and Chief Financial Officer. Copies of the earnings release and prepared remarks are attached hereto as Exhibits 99.1 and 99.2.

Item 9.01

Financial Statements and Exhibits.

(d) Exhibits


Exhibit No.		Description

99.1		Earnings release for the quarter ended June 30, 2014.

99.2		Prepared remarks from the Chief Executive Officer and Chief Financial Officer.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit 99.1

OUTERWALL INC. ANNOUNCES 2014 SECOND QUARTER RESULTS

Reports Solid Profitability and Strong Operating and Free Cash Flow;

Updates Full-Year 2014 Guidance

BELLEVUE, Wash.—July 31, 2014—Outerwall Inc. (Nasdaq: OUTR) today reported financial results for the second quarter ended June 30, 2014.

“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 office¹ 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.

¹	Total box office is calculated as total box office of titles with North American box office receipts of at least $5.0 million.

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 ratio² 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 million³.

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.

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

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

• Net 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.

Investor Contact:

Angie McCabe

Vice President, Investor Relations

425-943-8754

angie.mccabe@outerwall.com

Media Contact:

Debby Wilson

Vice President, Corporate & Public Affairs

425-943-8314

debby.wilson@outerwall.com

Exhibit 99.2

LOGO

Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

Today, July 31, 2014, Outerwall Inc. issued a press release announcing financial results for the second quarter of 2014. The following prepared remarks provide additional information related to the company’s operating and financial performance as well as third quarter and full year 2014 guidance. The prepared remarks also include supplementary slides.

The company will host a conference call today at 2:30 p.m. PDT to discuss second quarter 2014 results and third quarter and full year 2014 guidance.

The second quarter 2014 earnings press release, prepared remarks and conference call webcast are available on the Investor Relations section of Outerwall’s website at ir.outerwall.com.

Safe Harbor for Forward-Looking Statements

•

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 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.

Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

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 in Appendix A, 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

Page 2

Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

Q2 2014 CONSOLIDATED RESULTS

Q2 Consolidated Results Highlights¹


(In millions, except per share data)	Q2 2014		Q2 2013			Change (%)
GAAP Results
Consolidated revenue	$	549.2	$	553.1			(0.7	)%
Income from continuing operations	$	21.8	$	50.4			(56.7	)%
Net income	$	21.8	$	46.9			(53.6	)%
Diluted EPS from continuing operations	$	1.08	$	1.77			(39.0	)%
Net cash provided by operating activities	$	62.8	$	30.2			108.2	%
Core Results²
Core adjusted EBITDA from continuing operations	$	110.3	$	129.9			(15.1	)%
Core diluted EPS from continuing operations	$	1.42	$	2.04			(30.4	)%
Free cash flow (“FCF”)	$	36.8	$	(5.9	)		719.1	%

Highlights from Q2 2014 include:

•

Managed the business for profitability and cash flow despite a weak release schedule that impacted Redbox revenue – consolidated revenue, core adjusted EBITDA from continuing operations and core diluted EPS from continuing operations results were within the guidance we issued in May 2014

•

Generated free cash flow of $36.8 million in the quarter, bringing the year-to-date total to $104.4 million

•

Repurchased approximately 712,000 shares of our common stock for $50.0 million

•

Completed successful debt offering and amended and extended credit facility, effectively locking in attractive interest rates, extending debt maturities and maintaining financial flexibility

For year-over-year comparisons of our Q2 results, note the following:

•

As a reminder, in Q2 2013, we implemented a new accounting methodology for amortizing our Redbox content library to better align costs with revenue. This methodology was prospectively applied beginning in Q2 2013, but had it been applied retrospectively, Redbox content costs, which are included in direct operating expenses, would have been $29.4 million higher in Q2 2013 on a pretax basis as content costs would have shifted from prior periods to Q2 2013.

•

In Q2 2013, the company recognized a $17.8 million tax benefit as a result of selling several thousand NCR kiosks through a wholly owned subsidiary.

¹	Year-over-year comparisons are Q2 2014 versus Q2 2013 unless we note otherwise

²	Additional information on core and non-core results and reconciliations of non-GAAP financial measures are included in Appendix A

Page 3

Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

Additional Q2 Consolidated Metrics


Metric	Amount			Comment
Total net interest expense	$	12.9MM		Includes $1.2MM in noncash interest expense and $2.0MM in loss from early extinguishment of debt
Core effective tax rate		31.0	%
Cash and cash equivalents	$	233.2MM		Includes $91.9MM payable to retailer partners; additionally, $58.8MM of total cash was held in financial institutions domestically
Total principal value of outstanding debt, including capital leases	$	1.0Bn
Net leverage ratio³		2.00x		Target range of 1.75x – 2.25x

Capital Structure

During Q2, we continued to execute on our plan to optimize the company’s capital structure and build upon our strong financial position. We completed the sale of $300 million of 5.875% senior unsecured notes due 2021. We also amended and extended our senior secured credit facility that consists 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.

We believe that our capital structure is now better aligned with our target net leverage ratio³ of 1.75x to 2.25x. In addition, we are maintaining financial flexibility for future opportunities.

Capital Allocation

During Q2, we repurchased approximately 712,000 shares of our common stock at an average price of $70.27. At June 30, 2014, there was approximately $233.3 million remaining under the company’s stock repurchase authorization.

We remain committed to returning 75%-100% of free cash flow (FCF) to shareholders. We believe that share repurchases provide a compelling return on capital given our long-term confidence in the business and potential new growth opportunities. We intend to be opportunistic in purchasing our shares at attractive price levels going forward.

³	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). Additional information and reconciliations of non-GAAP financial measures are included in Appendix A

Page 4

Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

Capital Expenditures

We discuss our capital expenditures (CAPEX) on an accrual basis since we believe this methodology better aligns the reported CAPEX to activities during the quarter driving the expenditures. In Q2, our total investment in CAPEX was $20.5 million, bringing the year-to-date total to $48.0 million. Following is a breakdown of CAPEX by category:


(In millions)	New		Maintenance		Other		TOTAL
Redbox	$	1.7	$	4.9		—	$	6.6
Coinstar		3.5		1.0		—		4.5
New Ventures		7.8		—		—		7.8
Corporate		—		—	$	1.6		1.6
Q2 TOTAL	$	13.0	$	5.9	$	1.6	$	20.5

Redbox

•

Continued to optimize the kiosk network with a net reduction of approximately 250 kiosks in the U.S. in Q2, including approximately 350 removals and 100 new installations

•

Added approximately 50 net installs in Canada, bringing total kiosks to 1,350 at the end of Q2

•

Maintenance CAPEX included a one-time system upgrade for Redbox kiosks that was completed during the quarter and routine kiosk-related maintenance

Coinstar

•

Added 200 net new kiosks including approximately 300 new Coinstar Exchange kiosk installations

New Ventures

•

Primarily reflects 70 net ecoATM installs in Q2 and new ecoATM kiosks built for installations in the second half of 2014

Corporate

•

Investment in software and hardware that provides ongoing support for the business

Page 5

Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

Q2 2014 SEGMENT OPERATING RESULTS

Redbox

Redbox Q2 Key Metrics


Category	Q2 2014			Q2 2013
Revenue	$	445.5MM		$	478.5MM
Rentals		169.3MM			186.7MM
Net revenue per rental	$	2.63		$	2.56
Same store sales growth (decline)		(7.8	)%		(6.8	)%
Gross margin		56.3	%		60.2	%
Segment operating income	$	83.5MM		$	107.2MM
Segment operating margin		18.7	%		22.4	%
Unique credit cards renting in quarter		38.5MM			40.6MM
Total kiosks (at quarter end)		43,900			43,600
U.S. kiosks		42,550			43,100
Canada kiosks		1,350			500
Total locations (at quarter end)		36,300			35,900
U.S. locations		34,950			35,400
Canada locations		1,350			500
Blu-ray
Blu-ray as percentage of rentals		14.1	%		13.3	%
Blu-ray as percentage of Redbox revenue		16.7	%		15.7	%

Redbox Segment Operating Results

Redbox performance in Q2 2014 was driven by a weak content release schedule, with box office⁴ down 37.5% year-over-year. Notably, June 2014 represented the lowest monthly theatrical box office in Redbox history. Compared with June 2013, the box office in June 2014 was 83.0% lower, and there were only four titles released during the month. We expected typical summer seasonality when consumers have more time to watch movies to help offset the lack of releases and box office in June. However, June rentals were lower than we expected for both titles released prior to and during the month of June. The Wolf of Wall Street, released in Q1 2014, was the top renting title in Q2. Other strong performers in the quarter included Ride Along, Anchorman 2: The Legend Continues and Homefront.

⁴	North American theatrical box office greater than or equal to $5 million

Page 6

Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

In addition, the popularity of the World Cup likely had some impact on June rentals although not to the same degree as we have seen historically with other events such as the Olympics. Redbox Entertainment Advisors (REA), our consumer panel, indicated that 50% of our most engaged consumers watched World Cup games compared with 60% to 70% for the 2012 Summer Olympics. REA also indicated 15% of our most engaged consumers reported watching fewer movies in June due to the World Cup.

As a result, Redbox revenue decreased 6.9% to $445.5 million in Q2 from total rentals of 169.3 million, a decline of 9.3% from Q2 2013. Average check increased 2.7% to $2.63 reflecting the following factors:

•

the continued shift to Blu-ray – although there also was a weak slate for Blu-ray-friendly titles in Q2 2014, Blu-ray represented 14.1% of rentals and 16.7% of revenue in Q2 and in-line with the low end of our guidance;

•

lower discounting compared with Q2 2013 – we continued to focus on providing consumers the right incentive at the right time. As a result, promotional dollars declined 29.1% from Q2 2013; and

•

continued stabilization of single night rentals, which decreased to 56.4% in Q2 2014 from 57.2% in Q2 2013.

As we expected, rentals and revenue per kiosk were down year-over-year due to the weaker content in the quarter. We currently expect rentals and revenue per kiosk to be down in Q3 2014 compared with Q3 2013 due to weaker performance from Q2 titles, resulting in minimal momentum moving into July, and a lower than previously expected box office in Q3, as studios recently shifted several titles to Q4. However, we continue to expect rentals and revenue per kiosk to increase in Q4 2014 compared with Q4 2013 based on the stronger titles expected during the holiday season despite a box office that we expect to be essentially flat in Q4.

Unique credit cards renting during Q2 2014 decreased by 5.1% to 38.5 million compared with Q2 2013 as a result of fewer releases and weaker content. However, customer engagement with Redbox remained strong throughout the quarter as demonstrated by more than 20% year-over-year growth in both e-mail subscribers and cumulative app downloads and an e-mail open rate of 20% of nearly 590 million e-mails delivered during Q2, a year-over-year open rate increase of 30%.

In Q2 2014, high frequency renters represented 51% of revenue, a decrease from approximately 60% over the past several quarters. High frequency renters historically rent less frequently during periods with a substantially weaker release schedule.

In Q2 2014, Redbox segment operating income was $83.5 million, a decrease of 22.1% compared with Q2 2013, and segment operating margin was 18.7%, a decrease of 370 basis points compared with Q2 2013, primarily due to lower revenue and the change in the content amortization accounting methodology

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Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

previously discussed. Had we applied the content amortization accounting change retrospectively, segment operating income and margin in Q2 2013 would have been $77.8 million and 16.3% respectively. This would have resulted in a 240 basis point improvement in segment operating margin in Q2 2014 year-over-year, reflecting lower direct operating costs and our continued focus on general and administrative expense management in Q2 2014.

Video Games Rentals and Revenue


Video Games Performance	Q2 2014			Q2 2013
Percentage of rentals		1.8	%		2.1	%
Percentage of Redbox revenue		3.8	%		4.7	%

As expected, video games declined year-over-year in Q2 2014 as a percentage of Redbox rentals and revenue reflecting a lighter release slate and the game industry’s shift to next generation platforms. Game publishers continue to support Xbox 360 and PS3, consoles that are popular with our customers. In addition, we are testing video games for next generation platforms, including Xbox One and Playstation 4, which are performing better than we expected.

Kiosk Optimization

To improve efficiency and productivity, we are removing kiosks that underperform our expected revenue for kiosks in their respective channels. In Q2 2014, we removed approximately 350 Redbox kiosks in the U.S. Our goal is to recapture rentals from removed kiosks in the remaining network while lowering content and servicing costs due to a smaller installed base.

Canada

We installed approximately 50 net new Redbox kiosks in Canada in Q2, bringing total Canadian installations to 1,350. We are focused on increasing our market density in the Toronto and Vancouver markets and currently expect to add up to 200 additional kiosks in Canada in the second half of 2014. We are partnering with retailers to create additional brand awareness and grow our customer base and have seen positive results from the initial programs.

Price Testing

We periodically conduct price testing in various markets and at various price points to learn more about how pricing impacts our business. In early August, we plan to have several in-market tests to test increased pricing for both DVD and Blu-ray formats. We expect to run the tests for several months.

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Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

Redbox Instant™ by Verizon

Redbox Instant by Verizon (RBi) continued to add new subscribers during Q2, and transactional video on demand (TVOD) utilization increased. TVOD allows customers to access new release content in either physical or digital formats.

We did not make any capital contributions in Q2 2014. We expect to make a capital contribution of $10 million to $11 million in Q3 2014. We are closely monitoring progress within the joint venture and have an option to begin exiting in Q1 2015 if certain subscriber thresholds are not achieved.

Coinstar

Coinstar Q2 Key Metrics


Category	Q2 2014			Q2 2013
Revenue	$	79.9MM		$	74.5MM
Average transaction	$	41.32		$	41.18
Transactions		18.9MM			19.7MM
Same store sales (SSS) growth		6.7	%		(1.1	)%
Segment operating income	$	30.8MM		$	25.4MM
Segment operating margin		38.6	%		34.1	%
Kiosks (at quarter end)		21,200			20,700
Locations (at quarter end)		20,300			20,500

Coinstar Segment Operating Results

In the second quarter of 2014, Coinstar recorded its one-billionth transaction. Coinstar has processed more than $38 billion in coins in its 23-year history.

Coinstar segment revenue increased 7.2% year-over-year to $79.9 million in Q2 2014 primarily due to the following factors:

•

the price increase implemented in October 2013⁵ contributed $5.7 million;

•

a larger U.K. kiosk base and higher U.K. same store sales; and

•

additional Coinstar™ Exchange kiosks.

⁵	On October 1, 2013, the coin-counting fee was raised to 10.9% from 9.8% for all U.S. retail grocery locations

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Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

While transactions declined year-over-year, the average coin-to-voucher transaction size continued to increase in Q2 2014. The decline in transactions is the result of larger pours and less frequent visits, a decrease in the U.S. kiosk base year-over-year as a result of network optimization efforts and the impact of the penny reclamation in Canada that occurred in early 2013.

Coinstar segment operating income was $30.8 million in Q2 2014, an increase of 21.1% compared with Q2 2013, and segment operating margin was 38.6%, an increase of 450 basis points year-over-year. The increase in segment operating income is primarily due to the October 2013 price increase.

New Ventures

New Ventures Q2 Key Metrics


Category	Q2 2014		Q2 2013
Revenue	$	23.8MM	$	6K
Segment operating loss	$	6.4MM	$	4.3MM
Total kiosks		1,010		9

New Ventures Segment Operating Results

The segment operating results primarily reflect the operations and performance of ecoATM, which we acquired in July 2013, with the majority of segment revenue of $23.8 million generated by ecoATM. Since we hold devices for at least 30 days before selling them to comply with second-hand dealer laws, Q2 revenue primarily reflects devices acquired from March 2014 through May 2014.

We currently are focused on scaling ecoATM, and the increase in segment operating loss to $6.4 million in Q2 reflects the investments necessary to support and grow this business as well as our limited investment in SAMPLEit. Direct operating expense of $22.8 million, a $22.3 million year-over-year increase, includes expenses primarily related to acquiring, transporting and processing mobile devices at ecoATM, servicing the kiosks, and payments to retailers. General and administrative expense includes building the teams and infrastructure needed to scale the ecoATM business and support our ongoing testing of SAMPLEit.

We continued to make progress expanding ecoATM in the mass merchant and grocery channels and installed approximately 70 net new kiosks in Q2. Installations occurred slower than we anticipated in the first half of 2014, and we now expect to install approximately 1,000 to 1,100 ecoATM kiosks this year, which is 100 kiosks lower at the top end than we originally planned. Our second half installations are well underway, and we installed approximately 150 kiosks in July, primarily in the mass merchant channel.

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Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

The delayed timing of kiosk installs does not impact our confidence in our long-term outlook for this business.

In Q2 2014, there was continued improvement in devices collected per kiosk per day and an increase in the percentage of value devices collected. These two factors along with our higher installed kiosk base contributed to a $7.8 million increase in revenue from Q1 2014. Also, as we expand and ramp our installed kiosk base in the second half of 2014, we expect revenue and profitability to continue to grow.

The New Ventures segment includes ecoATM and SAMPLEit. The company discontinued several concepts in 2013 that were previously included in the New Ventures segment. These concepts were moved to discontinued operations for 2013 and prior periods.

Non-Core Results

In Q2 2014, total pretax non-core expenses were $13.9 million, including a $10.5 million loss from equity method investments primarily related to losses at Redbox Instant by Verizon (RBi), and $3.3 million in rights to receive cash issued in connection with the acquisition of ecoATM.

As previously discussed, we did not make any capital contributions to RBi in Q2. We expect to make a capital contribution of $10 million to $11 million in Q3. We expect this to be the last capital contribution in 2014.

Guidance

As a reminder, beginning in 2015, we will provide annual guidance only. We believe annual guidance is a more relevant measurement of the business given our stage of growth, and full-year results capture the varying seasonal patterns for each of our businesses.

There are several factors contributing to our current expectations for 2014:

•

lower than expected revenues in Q2 2014;

•

changes to the release schedule within this year;

•

total theatrical box office is down approximately 7% year-to-date through July;

•

titles originally expected to release in 2014 have shifted to 2015; and

•

the delayed timing of ecoATM kiosk installs.

We remain focused on aligning costs with revenue and are managing the business to maximize profitability and cash flow to produce shareholder value.

Page 11

Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

Q3 2014 Guidance

We have more visibility into the Q3 2014 release schedule which has changed considerably in the past few months. When we provided guidance in May, we expected the box office for Q3 to be 21% higher than what we now anticipate as six titles have since shifted to Q4 2014. Also, the September release slate changed substantially, with three fewer titles, equating to a 50% reduction in box office. Furthermore, over one-third of September box office will be released on the last day of the quarter, and as a result, most of the rentals from these titles will occur in the fourth quarter. These changes represent normal fluctuations in studio release strategies as release dates are determined based on how titles perform theatrically.

Redbox consumer demand for a title is affected by many factors, including the genre, star power, repeatability, sell-through appeal, release window, and timing of release within the quarter. Q3 2014 currently has an estimated total box office of $2.49 billion. If September 30 releases are removed from the Q3 box office, expected box office decreases to $2.2 billion, a 4.0% decline from Q3 2013. As a result, Q3 rentals are expected to decline year-over-year primarily driven by the timing of releases, an unfavorable mix of content releasing in Q3 and a significantly lower flow-through of rentals from Q2 titles. Further, the 83% decrease in June 2014 box office compared with June 2013 is expected to result in an approximately 74% decline in Q3 rentals of June titles compared with a year ago.

The genre mix, release timing and rental appeal of Q3 titles are also significantly less favorable than in Q3 2013. Star-driven comedies tend to rank among top performers at Redbox and Q3 2014 has one less comedy than last year. Also, the release cadence is shifting more towards the end of the quarter compared with last year. For example July 2014 has just two relatively niche comedies, The Grand Budapest Hotel and Tyler Perry’s The Single Mom’s Club. In contrast, July 2013 had four theatrical comedy releases, including Identify Thief, Redbox’s best performing title of 2013, which released early in the quarter on July 2.

The Q3 2014 slate also is more heavily weighted with drama and horror titles that tend to underperform at Redbox relative to box office results, with 10 titles of those genres in 2014 compared with six in 2013. Q3 rental performance will further be impacted by a greater mix of releases from delay studios relative to our “day & date” studio partners. Theatrical releases from delay studios are up 29% year-over-year while releases from “day & date” studios are down 24%.

A breakdown of content for Redbox kiosks by month follows:


	Q3 2014				Q3 2013
(2014 data estimated)	Box Office*		Titles		Box Office*		Titles
TOTAL	$	2.49Bn		34	$	2.30Bn		32
July	$	969MM		12	$	604MM		12
August	$	768MM		11	$	358MM		10
September	$	749MM		11	$	1.34Bn		10

*	Includes titles with total North American box office greater than $5MM

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Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

The anticipated decrease in rental performance in Q3 is expected to be partially offset by an increase in Blu-ray demand. Blu-ray rentals are expected to represent 16% to 18% of rentals in Q3 2014 compared with 13% in Q2 2013, driven by increased device penetration, customer experience enhancements, including the launch of Blu-ray upsell across our kiosk network, and improved marketing efforts.

We expect rentals and revenue per kiosk to be down year-over-year in Q3 2014 due to the unfavorable content release schedule and additional kiosk installations in Canada. We expect both rentals and revenue per kiosk to increase year-over-year in Q4 2014.

Additional factors influencing Q3 guidance include:

•

fewer ecoATM kiosk installs in the first half of 2014;

•

interest expense related to new debt issuance in Q2 2014; and

•

the impact of Q2 share repurchases.

2014 Q3 consolidated guidance follows:

•

Consolidated revenue between $535MM and $565MM

•

Core adjusted EBITDA from continuing operations between $100MM and $115MM

•

Core diluted EPS from continuing operations between $0.99 and $1.29

•

For the quarter, we expect average diluted shares in the range of 19.7MM to 19.8MM

2014 Full-Year Guidance

Full-year 2014 guidance includes the following:

•

As previously discussed, a weaker Q2 2014, the change in timing of releases, and the lower box office for the second half of 2014 compared with our previous expectations are contributing to our revised 2014 outlook. While we adjusted our guidance for our current view of the slate, the studios may continue to make changes based on how movies perform in theaters.

•

We are lowering our expectations for New Ventures revenues to a range of $107MM to $117MM as a result of a delay in the timing of ecoATM kiosk installs.

For the full-year 2014, we currently expect:

•

Consolidated revenue between $2.254Bn and $2.334Bn

•

Core adjusted EBITDA from continuing operations between $450MM and $490MM

•

Core diluted EPS from continuing operations between $5.78 and $6.28

•

Free cash flow in the range of $200MM to $240MM

•

We estimate an effective tax rate of 37.0% to 39.0% and cash taxes in the range of $75MM to $85MM

•

For the year, we expect average diluted shares in the range of 20.9MM to 21.0MM

Page 13

Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

Summary

In summary, we delivered solid Q2 2014 results despite a weak content release schedule that impacted Redbox revenue. We generated strong free cash flow and repurchased $50.0 million of our common stock in Q2 2014. While Redbox faced a challenging quarter, it continues to see growth in consumer engagement. Coinstar revenue, segment operating income and margin increased year-over-year. New Ventures segment revenues increased, primarily as a result of the progress we are making in growing and scaling our ecoATM business. We are confident in our long-term outlook as we believe that Redbox will continue to be the leader for new release content transactions for many years to come; Coinstar remains a stable business generating strong cash flow; and ecoATM is a significant growth opportunity. We are leveraging our core competencies in operating and growing automated retail businesses, and we remain focused on delivering value by managing our businesses for profitability and cash flow.

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Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 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.

Core and Non-Core Results

Page 15

Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

Core Adjusted EBITDA from continuing operations

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
	June 30,
Dollars in thousands	2014		2013
Net income from continuing operations	$	21,810	$	50,413
Depreciation, amortization and other		53,027		49,208
Interest expense, net		12,929		12,018
Income taxes		5,537		3,082
Share-based payments expense⁽¹⁾		3,079		3,843

Adjusted EBITDA from continuing operations		96,382		118,564
Non-Core Adjustments:
Restructuring costs		—		—
Acquisition costs		—		1,666
Rights to receive cash issued in connection with the acquisition of ecoATM		3,338		—
Loss from equity method investments		10,541		9,629

Core adjusted EBITDA from continuing operations	$	110,261	$	129,859

(1)	Includes both non-cash share-based compensation for executives, non-employee directors and employees as well as share-based payments for content arrangements.

Page 16

Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

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 operation to diluted EPS from continuing operations, the most comparable GAAP financial measure, is presented in the following table:


	Three Months Ended
	June 30,
	2014			2013
Diluted EPS from continuing operations	$	1.08		$	1.77
Non-Core Adjustments, net of tax:⁽¹⁾
Restructuring costs		—			—
Acquisition costs		—			0.06
Rights to receive cash issued in connection with the acquisition of ecoATM		0.13			—
Loss from equity method investments		0.32			0.21
Tax benefit from net operating loss adjustment		—			—
Tax benefit of worthless stock deduction		(0.11	)		—

Core diluted EPS from continuing operations	$	1.42		$	2.04

(1)	Non-Core Adjustments are presented after-tax using the applicable effective tax rate for the respective periods.

Free Cash Flow

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
	June 30,
Dollars in thousands	2014			2013
Net cash provided by operating activities	$	62,833		$	30,174
Purchase of property and equipment		(26,076	)		(36,111	)

Free cash flow	$	36,757		$	(5,937	)

Page 17

Outerwall Inc. 2014 Second Quarter Earnings

Prepared Remarks

July 31, 2014

Net Debt and Net Leverage Ratio

•

are used to assess the degree of leverage by management;

•

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)

(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)

Page 18

NASDAQ:OUTR

Supplementary Slides

2014 Q2 Prepared Remarks

July 31, 2014

S –

2014 Q2 EPS Bridge

Actual results versus previous guidance

$1.44

($0.25)

$0.14

$0.15

$0.02

($0.08)

$1.42

($0.34)

$1.08

(1)

Includes Coinstar, New Ventures and Corporate results

(2)

Refer to Appendix A for a discussion of Use of Non-GAAP Financial Measures and Core and Non-Core Results

$0.70

$0.90

$1.10

$1.30

$1.50

$0.50

S –

Box Office (MM)

2 = # of new releases

2014 Q3 Redbox Release Schedule

Includes titles with total North American box office greater than $5MM

As of July 31, 2014

Q3 2014

Q3 2013

2014 data

estimated

Box Office

Titles

Box Office

Titles

Total

$2.49Bn

$2.30Bn

July

$969MM

$604MM

August

$768MM

$358MM

September

$749MM

$1.34Bn

$50

$100

$150

$200

$250

$300

$350

7/1

7/8

7/15

7/22

7/29

8/5

8/12

8/19

8/26

9/2

9/9

9/16

9/23

9/30

S –

As of July 31, 2014

2014

–

Revenue by Segment

($MM)

2014

FY Capital Expenditures

($MM)

Redbox

$1,840

–

$1,905

Redbox

$22

–

$27

Coinstar

$307

–

$312

Kiosk, software and other

–

New Ventures

$107

–

$117

Maintenance

$15

–

$18

TOTAL

$2,254

–

$2,334

Coinstar

$15

–

$19

201

–

Other

New

$11

–

$14

Core adjusted EBITDA

from

Maintenance

–

continuing operations

$450

–

$490

New Ventures

$35

–

$44

Core diluted EPS from

Corporate

$25

–

$30

continuing operations

1, 2

$5.78

–

$6.28

Average diluted shares

TOTAL

$97

–

$120

outstanding

(MM)

20.9

–

21.0

Estimated effective tax rate

37% –

39%

201

–

Net Installations

Free cash flow

($MM)

$200

–

$240

2014 Q3

Guidance

Redbox Kiosks

(450) –

(50)

Revenue

($MM)

$535

–

$565

U.S.

(700) –

(500)

Core adjusted EBITDA

from

Canada

250

–

450

continuing operations

($MM)

$100

–

$115

Coinstar Kiosks

250

–

450

Core diluted EPS from

New Ventures Kiosks

1,000

–

1,200

continuing operations

1,2

$0.99

–

$1.29

Average diluted shares

outstanding

(MM)

19.7

–

19.8

Excludes the impact of any future share repurchases for the remainder of 2014

($MM)

See Appendix A for a discussion of Use of Non-GAAP Financial Measures and Core and Non-Core Results

2014 Full-Year and Q3 Guidance

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OUTERWALL INC.

/s/ Galen C. Smith

Date: July 31, 2014

Galen C. Smith

Chief Financial Officer