OUTR Outerwall Inc. (MM)

 

 

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)        October 29, 2015

 

 

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))

 

 

 

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Item 2.02 Results of Operations and Financial Condition.

On October 29, 2015, Outerwall Inc. (the “Company”) issued an earnings release announcing its financial results for the quarter ended September 30, 2015, 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 8.01 Other Events.

On October 29, 2015, the Company issued a press release announcing a quarterly cash dividend. A copy of the press release is attached hereto as Exhibit 99.3 and incorporated by reference.

Item 9.01 Financial Statements and Exhibits.

 

(d)

Exhibits

 

Exhibit No.		Description
99.1		Earnings release for the quarter ended September 30, 2015.
99.2		Prepared remarks from the Chief Executive Officer and Chief Financial Officer.
99.3		Press release dated October 29, 2015.

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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.

 

				OUTERWALL INC.
				By:		/s/ Galen C. Smith
Date: October 29, 2015						Galen C. Smith
						Chief Financial Officer

 

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Exhibit 99.1

OUTERWALL INC. ANNOUNCES 2015 THIRD QUARTER RESULTS

Delivers Solid Profitability and Strong Operating and Free Cash Flow Growth;

Generated Net Income Growth of More Than 108 Percent Year-Over-Year;

Raises 2015 Full Year Core EPS Guidance

BELLEVUE, Wash.—October 29, 2015—Outerwall Inc. (Nasdaq: OUTR) today reported financial results for the third quarter ended September 30, 2015.

“Our performance in the third quarter underscores our ability to drive the bottom-line,” said Erik E. Prusch, Outerwall’s chief executive officer. “Redbox was challenged by the lowest theatrical box office in four years for Redbox titles and revenue was lower than we expected. However, we continued to control costs and create efficiencies as our Redbox and Coinstar businesses generated solid margins and cash flow. We remain focused on moving ecoATM to profitability as quickly as possible and made progress in a number of key operational areas due to our deliberate efforts to reduce costs. We are also determined to prudently drive top-line performance and are working on multiple fronts to make that happen.”

 

		2015				2014				Change
		Third Quarter				Third Quarter				%
GAAP Results
• Consolidated revenue		$	512.1 million			$	549.9 million				(6.9	)%
• Income from continuing operations		$	37.6 million			$	22.1 million				69.9	%
• Net income		$	37.3 million			$	17.9 million				108.7	%
• Diluted earnings from continuing operations per common share*		$	2.12			$	1.12				89.3	%
• Net cash provided by operating activities		$	85.6 million			$	49.6 million				72.4	%
Core Results**
• Core adjusted EBITDA from continuing operations		$	119.7 million			$	115.9 million				3.3	%
• Core diluted EPS from continuing operations*		$	2.21			$	1.67				32.3	%
• Free cash flow		$	65.6 million			$	30.3 million				116.3	%

 

*

Beginning in the first quarter of 2015, the company applied the two-class method of calculating earnings per share for its GAAP results because the impact of unvested restricted shares as a percentage of total common shares outstanding became more dilutive given the level of stock repurchases over the prior year. Core diluted EPS from continuing operations continues to be reported under the treasury stock method.

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

Highlights from the third quarter 2015 include:

 

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The company continued to focus on effectively managing expenses across the enterprise, delivering 3.3% year-over-year growth in core adjusted EBITDA from continuing operations despite revenue decreasing 6.9%

 

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Core diluted EPS from continuing operations increased 32.3% to $2.21 reflecting increased profitability and a lower share count

 

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Repurchased 938,586 shares of common stock for $60.8 million

 

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Generated 116.3% growth in free cash flow (FCF) to $65.6 million bringing the year-to-date total to $206.6 million

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“Our continued focus on operational excellence drove strong third quarter results, with significant year-over-year increases in free cash flow, core adjusted EBITDA and core diluted EPS,” said Galen C. Smith, Outerwall’s chief financial officer. “We generated more than $65.6 million in free cash flow during the quarter, an increase of 116.3 percent from the third quarter last year. We continued our balanced approach to capital allocation and repurchased more than 900,000 shares in the quarter, or 5.2 percent of shares outstanding. We remain on track to uphold our commitment of returning 75 to 100 percent of annual free cash flow to shareholders directly through share repurchases and quarterly cash dividends.”

Smith continued: “Our performance in the quarter demonstrates our ability to continue delivering strong financial results despite exceptionally weak content that impacted revenue and rentals in our Redbox business. We will continue driving Outerwall’s financial performance, managing expenses and improving profitability to both reinvest in the business and enhance the bottom-line.”

CONSOLIDATED RESULTS

GAAP Results

Consolidated revenue for the third quarter of 2015 was $512.1 million compared with $549.9 million in the third quarter of 2014. The $37.8 million decrease was due primarily to a $39.7 million decrease in revenue from Redbox driven by a decline in rentals and the removal of underperforming kiosks, partially offset by the price increases for movie content implemented in December 2014. Movie rentals were impacted primarily by lower total box office of movie titles released including seven fewer titles, the timing of the release slate, a higher impact from secular decline in the physical market and lower demand from price-sensitive customers following the price increases which is heightened in periods of weak content. Revenue from the ecoATM and Coinstar segments increased by $1.2 million and $0.6 million, respectively, in the third quarter of 2015 compared with the third quarter of 2014.

Income from continuing operations for the third quarter of 2015 was $37.6 million, or $2.12 of diluted earnings from continuing operations per common share, compared with income from continuing operations of $22.1 million, or $1.12 of diluted earnings from continuing operations per common share, in the third quarter of 2014. The increases were primarily due to an increase in operating income from the Redbox and Coinstar segments, as a result of lower direct operating expenses, lower kiosk related depreciation, and ongoing cost reduction initiatives.

Net cash provided by operating activities increased 72.4% to $85.6 million in the third quarter of 2015, compared with $49.6 million in the third quarter of 2014. The increase was primarily due to a decrease in net cash outflows from changes in working capital.

Cash capital expenditures for the third quarter of 2015 increased 3.4% to $19.9 million, compared with $19.3 million in the third quarter of 2014, as the result of timing of ongoing investments in the businesses.

Core Results

Core adjusted EBITDA from continuing operations for the third quarter of 2015 was $119.7 million, an increase of $3.8 million, or 3.3%, compared with $115.9 million for the third quarter of 2014. The increase was primarily due to increased segment operating income from the Redbox and Coinstar segments.

Core diluted EPS from continuing operations for the third quarter of 2015 was $2.21, an increase of 32.3% compared with $1.67 per diluted share in the third quarter of 2014. The increase was primarily attributable to increased segment operating income from the Redbox and Coinstar segments, and a reduction in the number of weighted average shares used in the diluted per share calculation due to stock repurchases. Non-core adjustments in the third quarter of 2015 totaled $0.05 compared with $0.51 in the third quarter of 2014.

 

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Free cash flow for the third quarter of 2015 was $65.6 million, an increase of $35.3 million, or 116.3%, compared with $30.3 million in the third quarter of 2014, primarily driven by higher net operating cash flow.

SEGMENT RESULTS

Redbox

Redbox segment revenue for the third quarter of 2015 was $395.4 million compared with $435.1 million in the third quarter of 2014. The decrease of $39.7 million reflects $35.8 million attributed to a decline in total disc rentals and $3.9 million related to a decrease in revenue from kiosks removed subsequent to the third quarter of 2014 as a result of continued efforts to optimize the network by removing underperforming kiosks.

Redbox generated approximately 132.6 million rentals in the third quarter of 2015, down from approximately 170.8 million rentals in the third quarter of 2014. The decline in rentals was driven by several factors, including a substantially lower box office which was 45.3% lower and included seven fewer titles than the third quarter of 2014, the timing of the release slate, a higher impact from secular decline in the physical market, lower demand from price-sensitive customers following the price increases implemented in December 2014 and January 2015, which is heightened during periods of weak content, and a decline in video game rentals due to consumer transition to new generation platforms and the limited new release titles available for the new platforms.

Net revenue per rental was $2.96 in the third quarter of 2015, an increase of $0.42, or 16.5%, from $2.54 in the third quarter of 2014. The increase in net revenue per rental was primarily the result of the impact of the increase in daily rental prices, partially offset by the expected increase in single night rental activity and lower demand from price-sensitive customers as a result of the price increases; a decrease in Blu-ray revenue primarily as a result of fewer Blu-ray releases; and a decrease in video game revenue resulting from the consumer transition to new generation platforms and a lack of new release content availability related to the transition and seasonality of publisher release schedules.

Redbox segment operating income in the third quarter of 2015 was $90.4 million, an increase of $2.1 million or 2.4%, compared with $88.3 million in the third quarter of 2014. Segment operating margin increased 260 basis points to 22.9% in the third quarter of 2015, compared with segment operating margin of 20.3% in the third quarter of 2014, primarily attributable to an improvement in gross margin related to the price increases and lower spending on content in the third quarter of 2015 due to fewer movie releases and weak content, lower games purchases due to the consumer transition to new generation platforms, and lower cost per title driven by studio mix, as well as reductions in direct operating, general and administrative and marketing expenses as the business continues to focus on operating efficiencies and aligning its cost structure with physical rental demand.

Coinstar

Coinstar segment revenue was $85.7 million, an increase of $0.6 million compared with $85.1 million in the third quarter of 2014, primarily due to an increase in the number of Coinstar Exchange kiosks and transactions and higher revenue for Coinstar in the U.S. due to increased volume.

Coinstar revenue in the U.K. and Canada in the third quarter of 2015 was negatively impacted by unfavorable exchange rates due to the strengthening of the U.S. dollar versus the British pound and Canadian dollar compared with the prior year, and largely offset the impact of the increased coin voucher product transaction fee from 8.9% to 9.9% implemented in the U.K. in August 2014.

 

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Coinstar segment operating income was $34.5 million in the third quarter of 2015, an increase of $1.1 million, or 3.1%, compared with $33.4 million in the third quarter of 2014. Coinstar segment operating margin increased 100 basis points to 40.3% for the third quarter of 2015, compared with 39.3% in the third quarter of 2014, as the business continues to actively manage expenses and identify additional opportunities to reduce costs.

ecoATM

Revenue in the ecoATM segment was $31.0 million in the third quarter of 2015, an increase of $1.2 million, or 4.1%, compared with $29.7 million in the third quarter of 2014. This increase was primarily due to an increase in the number of ecoATM installed kiosks, increased collections and an increase in the number of value devices sold, partially offset by a lower average selling price of value devices sold, primarily due to a lower mix of higher value devices and lower collections of value devices per kiosk due to sustained carrier marketing of alternative recycling options.

While the number of overall devices sold increased 38.5% and the number of value devices sold increased 35.1% in the third quarter of 2015 compared with the third quarter of 2014, the collection of value devices on a per kiosk basis, as well as the number of higher value devices collected, declined as a result of alternative recycling options marketed by the carriers. The average selling price of value devices sold was $59.15 in the third quarter of 2015 compared with $75.95 in the third quarter of 2014.

Segment operating loss increased to $3.1 million in the third quarter of 2015, compared with $2.0 million in the third quarter of 2014, primarily due to an increase in direct operating expenses related to costs associated with the increased installed ecoATM kiosk base.

The number of installed ecoATM kiosks were 2,210 in the third quarter of 2015, an increase of 700 compared with the third quarter of 2014. As a result of the company’s optimization efforts in the third quarter of 2015, ecoATM removed approximately 250 underperforming kiosks, primarily from the grocery channel, and redeployed approximately 180 kiosks into retailer locations, with the majority in the mall and mass merchant channels, for a net reduction of 50 kiosks from the second quarter.

CAPITAL ALLOCATION

On October 27, 2015, the company’s board of directors declared a quarterly cash dividend of $0.30 per share expected to be paid on December 8, 2015, to all stockholders of record as of the close of business on November 23, 2015.

During the third quarter of 2015, the company repurchased 938,586 shares of common stock at an average price per share of $64.73 for a total of $60.8 million. As of September 30, 2015, there was approximately $292.7 million remaining under the company’s stock repurchase authorization.

 

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2015 ANNUAL GUIDANCE

The following table presents Outerwall’s updated full-year 2015 guidance and reflects the company’s third quarter results and current outlook on the remainder of the year:

 

2015 FULL-YEAR GUIDANCE Dollars in millions, except per share data		As of October 29, 2015
Consolidated results
Revenue		$2,205 — $2,240
Core adjusted EBITDA from continuing operations(1)		$490 — $510
Core diluted EPS from continuing operations(1)(2)		$8.82 — $9.52
Free cash flow(1)		$252 — $282
Weighted average diluted shares outstanding(2)		17.67 — 17.73
Core effective tax rate		35.5% — 37.5%
Segment revenue
Redbox		$1,790 — $1,815
Coinstar		$315 — $320
ecoATM		$100 — $105
Capital expenditures
Redbox		$15 — $18
Coinstar		$12 — $14
ecoATM		$25 — $31
Corporate		$19 — $23
Total CAPEX		$71 — $86
Net kiosk installations
Redbox		(1,500) — (1,700)
Coinstar		(150) — (175)
ecoATM		400 — 450

 

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

2	Excludes the impact of any potential share repurchases for the remainder of 2015

ADDITIONAL INFORMATION

Additional information regarding the company’s 2015 third quarter operating and financial results and guidance is included in the company’s prepared remarks, which, as well as this press release, are posted on the Investor Relations section of the corporate website at ir.outerwall.com.

CONFERENCE CALL

The company will host a conference call today at 2:30 p.m. PDT (5:30 p.m. EDT) to discuss third quarter 2015 earnings results and an update to 2015 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 November 12, 2015, at 1-855-859-2056 or 1-404-537-3406, using conference ID 46780582.

 

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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 delivers 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 2015 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,

 

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competition from other entertainment providers,

 

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the ability to achieve the strategic and financial objectives for our entry into new businesses, including ecoATM and SAMPLEit,

 

•

our ability to repurchase stock and the availability of an open trading window,

 

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our declaration and payment of dividends, including our board’s discretion to change the dividend policy,

 

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the termination, non-renewal or renegotiation on materially adverse terms of our contracts with our significant retailers and suppliers,

 

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payment of increased fees to retailers, suppliers and other third-party providers, including financial service providers,

 

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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,

 

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the effective management of our content library,

 

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the timing of the release slate and the relative attractiveness of titles in a particular quarter or year,

 

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the ability to attract new retailers, penetrate new markets and distribution channels and react to changing consumer demands,

 

•

loss of key personnel or the inability of replacements to quickly and successfully perform in those new roles,

 

•

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

 

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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.

# # #

(Consolidated Financial Statements, Business Segment Information and Appendix A Follow)

 

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Investor Contact:

Rosemary Moothart

Director of Investor Relations

425-943-8140

rosemary.moothart@outerwall.com

Media Contact:

Art Pettigrue

Senior Director, Communications

425-943-8576

art.pettigrue@outerwall.com

 

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OUTERWALL INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Revenue		$	512,055			$	549,899			$	1,666,060			$	1,694,188
Expenses:
Direct operating(1)			340,199				379,442				1,115,002				1,180,818
Marketing			7,131				9,143				23,598				25,272
Research and development			1,514				2,999				5,637				9,885
General and administrative			47,818				47,586				145,157				148,790
Restructuring and lease termination costs			—				—				15,851				557
Depreciation and other			39,880				46,380				127,740				142,134
Amortization of intangible assets			3,308				3,665				9,926				11,347
Goodwill impairment			—				—				85,890				—
Total expenses			439,850				489,215				1,528,801				1,518,803
Operating income			72,205				60,684				137,259				175,385
Other expense, net:
Loss from equity method investments, net			(328	)			(11,352	)			(593	)			(31,261	)
Interest expense, net			(11,973	)			(12,465	)			(36,227	)			(35,045	)
Other, net			(1,384	)			(1,352	)			(3,088	)			(386	)
Total other expense, net			(13,685	)			(25,169	)			(39,908	)			(66,692	)
Income from continuing operations before income taxes			58,520				35,515				97,351				108,693
Income tax expense			(20,928	)			(13,392	)			(64,955	)			(35,131	)
Income from continuing operations			37,592				22,123				32,396				73,562
Loss from discontinued operations, net of tax			(256	)			(4,233	)			(5,077	)			(10,744	)
Net income			37,336				17,890				27,319				62,818
Foreign currency translation adjustment(2)			(1,651	)			(695	)			1,676				(156	)
Comprehensive income		$	35,685			$	17,195			$	28,995			$	62,662
Income from continuing operations attributable to common shares:
Basic		$	36,462			$	21,384			$	31,491			$	71,268
Diluted		$	36,462			$	21,392			$	31,491			$	71,309
Basic earnings (loss) per common share:
Continuing operations		$	2.12			$	1.14			$	1.77			$	3.43
Discontinued operations			(0.02	)			(0.23	)			(0.28	)			(0.52	)
Basic earnings per common share		$	2.10			$	0.91			$	1.49			$	2.91
Diluted earnings (loss) per common share:
Continuing operations		$	2.12			$	1.12			$	1.77			$	3.37
Discontinued operations			(0.02	)			(0.22	)			(0.29	)			(0.51	)
Diluted earnings per common share		$	2.10			$	0.90			$	1.48			$	2.86
Weighted average common shares used in basic and diluted per share calculations:
Basic			17,220				18,798				17,775				20,792
Diluted			17,229				19,021				17,789				21,186
Dividends declared per common share		$	0.30			$	—			$	0.90			$	—

 

(1)	“Direct operating” excludes “Depreciation and other” of $28.7 million and $86.7 million for the three and nine months ended September 30, 2015, respectively, and $31.2 million and $94.3 million for the three and nine months ended September 30, 2014, respectively.

(2)	Foreign currency translation adjustment had no tax effect for the three and nine months ended September 30, 2015 and 2014, respectively.

 

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OUTERWALL INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

		September 30, 2015				December 31, 2014
Assets
Current Assets:
Cash and cash equivalents		$	195,603			$	242,696
Accounts receivable, net of allowances of $816 and $2,223			23,748				48,590
Content library			126,769				180,121
Prepaid expenses and other current assets			42,406				39,837
Total current assets			388,526				511,244
Property and equipment, net			341,002				428,468
Deferred income taxes			2,712				11,378
Goodwill and other intangible assets, net			528,138				623,998
Other long-term assets			6,443				8,231
Total assets		$	1,266,821			$	1,583,319
Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Accounts payable		$	119,148			$	168,633
Accrued payable to retailers			101,101				126,290
Other accrued liabilities			147,908				137,126
Current portion of long-term debt and other long-term liabilities			17,868				20,416
Deferred income taxes			9,501				21,432
Total current liabilities			395,526				473,897
Long-term debt and other long-term liabilities			856,275				973,669
Deferred income taxes			17,071				38,375
Total liabilities			1,268,872				1,485,941
Commitments and contingencies
Stockholders’ Equity (Deficit):
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;
36,710,717 and 36,600,166 shares issued;
17,246,475 and 18,926,242 shares outstanding;			481,281				473,592
Treasury stock			(1,116,205	)			(996,293	)
Retained earnings			631,507				620,389
Accumulated other comprehensive income (loss)			1,366				(310	)
Total stockholders’ equity (deficit)			(2,051	)			97,378
Total liabilities and stockholders’ equity (deficit)		$	1,266,821			$	1,583,319

 

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OUTERWALL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Operating Activities:
Net income		$	37,336			$	17,890			$	27,319			$	62,818
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and other			39,880				47,898				133,598				146,156
Amortization of intangible assets			3,308				3,671				9,970				11,366
Share-based payments expense			4,829				3,249				12,021				10,093
Windfall excess tax benefits related to share-based payments			(29	)			(35	)			(715	)			(1,988	)
Deferred income taxes			(21,741	)			(2,404	)			(25,680	)			(17,408	)
Restructuring and lease termination costs(2)			—				—				1,680				—
Loss from equity method investments, net			328				11,352				593				31,261
Amortization of deferred financing fees and debt discount			693				901				2,078				3,423
Loss from early extinguishment of debt			—				55				—				2,018
Goodwill impairment			—				—				85,890				—
Other			315				(313	)			(501	)			(1,477	)
Cash flows from changes in operating assets and liabilities:
Accounts receivable, net			9,655				12,133				24,732				17,464
Content library			18,546				1,314				53,205				48,800
Prepaid expenses and other current assets			17,188				1,044				(4,894	)			23,047
Other assets			84				611				406				1,647
Accounts payable			(28,383	)			(26,011	)			(46,080	)			(97,006	)
Accrued payable to retailers			(12,777	)			(21,099	)			(24,287	)			(27,822	)
Other accrued liabilities			16,327				(629	)			17,439				(5,345	)
Net cash flows from operating activities(1)			85,559				49,627				266,774				207,047
Investing Activities:
Purchases of property and equipment			(19,947	)			(19,295	)			(60,164	)			(72,311	)
Proceeds from sale of property and equipment			128				42				3,068				1,835
Cash paid for equity investments			—				(14,000	)			—				(24,500	)
Net cash flows used in investing activities(1)			(19,819	)			(33,253	)			(57,096	)			(94,976	)
Financing Activities:
Proceeds from issuance of senior unsecured notes			—				—				—				295,500
Proceeds from new borrowing on Credit Facility			35,000				130,000				147,000				635,000
Principal payments on Credit Facility			(72,813	)			(86,875	)			(258,563	)			(621,250	)
Financing costs associated with Credit Facility and senior unsecured notes			(9	)			(824	)			(9	)			(2,906	)
Settlement and conversion of convertible debt			—				(33,425	)			—				(51,149	)
Repurchases of common stock			(60,758	)			(70,598	)			(123,489	)			(545,078	)
Dividends paid			(5,139	)			—				(16,158	)			—
Principal payments on capital lease obligations and other debt			(2,660	)			(3,516	)			(8,938	)			(10,597	)
Windfall excess tax benefits related to share-based payments			29				35				715				1,988
Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options			(45	)			(59	)			(1,246	)			(1,084	)
Net cash flows used in financing activities(1)			(106,395	)			(65,262	)			(260,688	)			(299,576	)

 

10

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		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Effect of exchange rate changes on cash			(1,450	)			563				3,917				969
Change in cash and cash equivalents			(42,105	)			(48,325	)			(47,093	)			(186,536	)
Cash and cash equivalents:
Beginning of period			237,708				233,226				242,696				371,437
End of period		$	195,603			$	184,901			$	195,603			$	184,901
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	12,151			$	12,614			$	34,997			$	29,824
Cash paid during the period for income taxes, net		$	17,551			$	14,594			$	84,447			$	23,783
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment financed by capital lease obligations		$	994			$	1,901			$	1,971			$	7,414
Purchases of property and equipment included in ending accounts payable		$	3,422			$	5,869			$	3,422			$	5,869
Common stock issued on conversion of callable convertible debt		$	—			$	14,057			$	—			$	24,255
Non-cash debt issue costs		$	—			$	—			$	—			$	4,500

 

(1)

During the first quarter of 2015 we discontinued our Redbox operations in Canada. 2014 also includes the wind-down process of certain new ventures that were discontinued during 2013. Cash flows from these discontinued operations are not segregated from cash flows from continuing operations in all periods presented.

(2)	The non-cash restructuring and lease termination costs in the nine months ended September 30, 2015 of $1.7 million is composed of $6.9 million in impairments of lease related assets partially offset by a $5.2 million benefit resulting from the lease termination.

 

11

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OUTERWALL INC.

BUSINESS SEGMENT AND ENTERPRISEWIDE INFORMATION

(unaudited)

Changes in our Organizational Structure

During the first quarter of 2015, we added ecoATM, our electronic device recycling business, as a separate reportable segment. Previously, the results of ecoATM along with those of other self-service concepts were included in our New Ventures segment. The combined results of the other self-service concepts, which include product sampling kiosk concept SAMPLEit, are now included in the All Other reporting category in the reconciliation below as they do not meet quantitative thresholds to be reported as a separate segment. All goodwill previously allocated to the New Ventures segment has been allocated to the ecoATM segment.

Comparability of Segment Results

We have recast prior period results for the following:

 

•

Discontinued operations, consisting of our Redbox operations in Canada which we shut down during the first quarter of 2015; and

 

•

The addition of our ecoATM segment and an All Other reporting category, which we added during the first quarter of 2015.

Our analysis and reconciliation of our segment information to the consolidated financial statements that follows covers our results of operations, which consists of our Redbox, Coinstar and ecoATM segments, Corporate Unallocated expenses and All Other. All Other includes the results of other self-service concepts, which we regularly assess to determine whether continued funding or other alternatives are appropriate.

 

12

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OUTERWALL INC.

BUSINESS SEGMENT AND ENTERPRISEWIDE INFORMATION

(unaudited)

 

Dollars in thousands
Three Months Ended September 30, 2015		Redbox				Coinstar				ecoATM				All Other				Corporate Unallocated				Total
Revenue		$	395,372			$	85,677			$	30,965			$	41			$	—			$	512,055
Expenses:
Direct operating			269,022				41,249				28,583				786				559				340,199
Marketing			4,180				1,439				1,134				262				116				7,131
Research and development			—				—				1,201				—				313				1,514
General and administrative			31,788				8,502				3,105				933				3,490				47,818
Goodwill impairment			—				—				—				—				—				—
Segment operating income (loss)			90,382				34,487				(3,058	)			(1,940	)			(4,478	)			115,393
Less: depreciation, amortization and other			(27,754	)			(7,942	)			(6,788	)			(704	)			—				(43,188	)
Operating income (loss)			62,628				26,545				(9,846	)			(2,644	)			(4,478	)			72,205
Loss from equity method investments, net			—				—				—				—				(328	)			(328	)
Interest expense, net			—				—				—				—				(11,973	)			(11,973	)
Other, net			—				—				—				—				(1,384	)			(1,384	)
Income (loss) from continuing operations before income taxes		$	62,628			$	26,545			$	(9,846	)		$	(2,644	)		$	(18,163	)		$	58,520
Dollars in thousands
Three Months Ended September 30, 2014		Redbox				Coinstar				ecoATM				All Other				Corporate Unallocated				Total
Revenue		$	435,083			$	85,074			$	29,733			$	9			$	—			$	549,899
Expenses:
Direct operating			308,123				42,428				26,411				577				1,903				379,442
Marketing			5,419				1,834				973				239				678				9,143
Research and development			15				64				1,360				728				832				2,999
General and administrative			33,249				7,313				3,027				858				3,139				47,586
Segment operating income (loss)			88,277				33,435				(2,038	)			(2,393	)			(6,552	)			110,729
Less: depreciation, amortization and other			(36,685	)			(8,989	)			(4,297	)			(74	)			—				(50,045	)
Operating income (loss)			51,592				24,446				(6,335	)			(2,467	)			(6,552	)			60,684
Loss from equity method investments, net			—				—				—				—				(11,352	)			(11,352	)
Interest expense, net			—				—				—				—				(12,465	)			(12,465	)
Other, net			—				—				—				—				(1,352	)			(1,352	)
Income (loss) from continuing operations before income taxes		$	51,592			$	24,446			$	(6,335	)		$	(2,467	)		$	(31,721	)		$	35,515

 

13

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OUTERWALL INC.

BUSINESS SEGMENT AND ENTERPRISEWIDE INFORMATION

(unaudited)

 

Dollars in thousands
Nine Months Ended September 30, 2015		Redbox				Coinstar				ecoATM				All Other				Corporate Unallocated				Total
Revenue		$	1,353,881			$	235,286			$	76,776			$	117			$	—			$	1,666,060
Expenses:
Direct operating			913,401				117,870				78,616				3,055				2,060				1,115,002
Marketing			13,271				3,849				5,013				840				625				23,598
Research and development			—				—				4,206				(84	)			1,515				5,637
General and administrative			99,859				24,065				7,167				6,084				7,982				145,157
Restructuring and lease termination costs			15,174				550				127				—				—				15,851
Goodwill impairment			—				—				85,890				—				—				85,890
Segment operating income (loss)			312,176				88,952				(104,243	)			(9,778	)			(12,182	)			274,925
Less: depreciation, amortization and other			(92,424	)			(24,197	)			(18,995	)			(2,050	)			—				(137,666	)
Operating income (loss)			219,752				64,755				(123,238	)			(11,828	)			(12,182	)			137,259
Loss from equity method investments, net			—				—				—				—				(593	)			(593	)
Interest expense, net			—				—				—				—				(36,227	)			(36,227	)
Other, net			—				—				—				—				(3,088	)			(3,088	)
Income (loss) from continuing operations before income taxes		$	219,752			$	64,755			$	(123,238	)		$	(11,828	)		$	(52,090	)		$	97,351
Dollars in thousands
Nine Months Ended September 30, 2014		Redbox				Coinstar				ecoATM				All Other				Corporate Unallocated				Total
Revenue		$	1,390,970			$	233,707			$	69,478			$	33			$	—			$	1,694,188
Expenses:
Direct operating			989,100				120,354				64,729				1,421				5,214				1,180,818
Marketing			15,412				4,397				2,568				620				2,275				25,272
Research and development			41				486				4,535				2,035				2,788				9,885
General and administrative			105,642				21,479				9,470				2,352				9,847				148,790
Restructuring and lease termination costs			534				23				—				—				—				557
Segment operating income (loss)			280,241				86,968				(11,824	)			(6,395	)			(20,124	)			328,866
Less: depreciation, amortization and other			(114,872	)			(26,473	)			(11,821	)			(315	)			—				(153,481	)
Operating income (loss)			165,369				60,495				(23,645	)			(6,710	)			(20,124	)			175,385
Loss from equity method investments, net			—				—				—				—				(31,261	)			(31,261	)
Interest expense, net			—				—				—				—				(35,045	)			(35,045	)
Other, net			—				—				—				—				(386	)			(386	)
Income (loss) from continuing operations before income taxes		$	165,369			$	60,495			$	(23,645	)		$	(6,710	)		$	(86,816	)		$	108,693

 

14

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APPENDIX A

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 for the periods presented include i) goodwill impairment, ii) restructuring costs (including severance and early lease termination costs and related impairment of assets) associated with actions to reduce costs in our continuing operations across the Company, iii) 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, iv) income or loss from equity method investments, which represents our share of income or loss from entities we do not consolidate or control, v) tax benefits related to a net operating loss adjustment, and vi) tax benefit related to worthless stock deduction (“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 nonrecurring 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.

 

15

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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 September 30,								Nine Months Ended September 30,
Dollars in thousands		2015				2014				2015				2014
Net income from continuing operations		$	37,592			$	22,123			$	32,396			$	73,562
Depreciation, amortization and other			43,188				50,045				137,666				153,481
Interest expense, net			11,973				12,465				36,227				35,045
Income taxes			20,928				13,392				64,955				35,131
Share-based payments expense(1)			4,864				3,249				12,125				10,093
Adjusted EBITDA from continuing operations			118,545				101,274				283,369				307,312
Non-Core Adjustments:
Goodwill impairment			—				—				85,890				—
Restructuring costs			—				—				15,851				469
Rights to receive cash issued in connection with the acquisition of ecoATM			854				3,274				3,779				10,033
Loss from equity method investments, net			328				11,352				593				31,261
Core adjusted EBITDA from continuing operations		$	119,727			$	115,900			$	389,482			$	349,075

 

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

 

16

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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 utilizing the treasury stock method 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 September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Diluted EPS from continuing operations per common share (two-class method)		$	2.12			$	1.12			$	1.77			$	3.37
Adjustment from participating securities allocation and share differential to treasury stock method(1)			0.04				0.04				0.03				0.07
Diluted EPS from continuing operations (treasury stock method)			2.16				1.16				1.80				3.44
Non-Core Adjustments, net of tax:(1)
Goodwill impairment			—				—				4.78				—
Restructuring costs			—				—				0.54				0.01
Rights to receive cash issued in connection with the acquisition of ecoATM			0.04				0.14				0.14				0.37
Loss from equity method investments, net			0.01				0.36				0.02				0.89
Tax benefit from net operating loss adjustment			—				—				—				(0.04	)
Tax benefit of worthless stock deduction			—				0.01				—				(0.10	)
Core diluted EPS from continuing operations		$	2.21			$	1.67			$	7.28			$	4.57

 

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

A reconciliation of amounts used in calculating core diluted EPS from continuing operations in the table above is presented in the following table:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
In thousands		2015				2014				2015				2014
Income from continuing operations attributable to common shares		$	36,462			$	21,392			$	31,491			$	71,309
Add: income from continuing operations allocated to participating securities			1,130				731				905				2,253
Income from continuing operations		$	37,592			$	22,123			$	32,396			$	73,562
Weighted average diluted common shares			17,229				19,021				17,789				21,186
Add: diluted common equivalent shares of participating securities			142				126				182				186
Weighted average diluted shares (treasury stock method)			17,371				19,147				17,971				21,372

 

17

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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 September 30,								Nine Months Ended September 30,
Dollars in thousands		2015				2014				2015				2014
Net cash provided by operating activities		$	85,559			$	49,627			$	266,774			$	207,047
Purchase of property and equipment			(19,947	)			(19,295	)			(60,164	)			(72,311	)
Free cash flow		$	65,612			$	30,332			$	206,610			$	134,736

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		September 30, 2015				December 31, 2014
Senior unsecured notes		$	650,000			$	650,000
Term loans			139,688				146,250
Revolving line of credit			55,000				160,000
Capital leases			8,177				15,391
Total principal value of outstanding debt including capital leases			852,865				971,641
Less domestic cash and cash equivalents held in financial institutions			(33,909	)			(66,546	)
Net debt			818,956				905,095
LTM Core adjusted EBITDA from continuing operations(1)		$	537,227			$	496,820
Net leverage ratio			1.52				1.82

 

(1)	LTM Core Adjusted EBITDA from continuing operations for the twelve months ended September 30, 2015 and December 31, 2014 was determined as follows:

 

Dollars in thousands
Core adjusted EBITDA from continuing operations for the nine months ended September 30, 2015		$	389,482
Add: Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2014(1)			496,820
Less: Core adjusted EBITDA from continuing operations for the nine months ended September 30, 2014			(349,075	)
LTM Core adjusted EBITDA from continuing operations for the twelve months ended September 30, 2015		$	537,227

 

(1)

Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2014 is obtained from our Form 8-K filed on May 8, 2015 for the period ended December 31, 2014, 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, 2014.

 

18

Exhibit 99.2

 

Outerwall Inc. 2015 Third Quarter Earnings

Prepared Remarks

October 29, 2015

Today, October 29, 2015, Outerwall Inc. issued a press release announcing financial results for the 2015 third quarter. The following prepared remarks provide additional information related to the company’s operating and financial performance and 2015 full year guidance.

The company will host a conference call today at 2:30 p.m. PDT to discuss 2015 third quarter results and 2015 full year guidance.

The 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

Certain statements in these prepared remarks 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 these prepared remarks include statements regarding Outerwall Inc.’s anticipated growth and future operating results, including 2015 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 and SAMPLEit,

 

•

our ability to repurchase stock and the availability of an open trading window,

 

•

our declaration and payment of dividends, including our board’s discretion to change the dividend policy,

 

•

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,

 

•

loss of key personnel or the inability of replacements to quickly and successfully perform in those new roles,

 

•

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 these prepared remarks. Outerwall Inc. undertakes no obligation to update the information provided herein.

 

©2015 Outerwall Inc. All Rights Reserved. These materials may not be reproduced, altered or distributed without the express written consent of Outerwall Inc.

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Outerwall Inc. 2015 Third Quarter Earnings

Prepared Remarks

October 29, 2015

 

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 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

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 for the periods presented include i) goodwill impairment, ii) restructuring costs (including severance and early lease termination costs and related impairment of assets) associated with actions to reduce costs in our continuing operations across the Company, iii) 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, iv) income or loss from equity method investments, which represents our share of income or loss from entities we do not consolidate or control, v) tax benefits related to a net operating loss adjustment, and vi) tax benefit related to worthless stock deduction (“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 nonrecurring 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.

 

©2015 Outerwall Inc. All Rights Reserved. These materials may not be reproduced, altered or distributed without the express written consent of Outerwall Inc.

Page 2

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Outerwall Inc. 2015 Third Quarter Earnings

Prepared Remarks

October 29, 2015

 

Overview

Our third quarter results demonstrate our ability to drive increased profitability despite an exceptionally weak content schedule that impacted revenue. We continued to drive operational excellence and manage expenses across the organization, and generated strong free cash flow, which more than doubled year-over-year. We also delivered solid growth in core adjusted EBITDA and core diluted EPS from continuing operations and maintained our balanced approach to capital allocation as we repurchased $60.8 million of stock during the quarter, paid $0.30 per share in quarterly dividends and paid down $37.8 million of debt.

Q3 Consolidated Results

The year-over-year comparisons we make in these prepared remarks will be Q3 2015 versus Q3 2014 unless otherwise noted.

 

		Three Months Ended September 30,								Change
(In millions, except per share data)		2015				2014				%
GAAP Results
Consolidated revenue		$	512.1			$	549.9				(6.9	)%
Income from continuing operations		$	37.6			$	22.1				69.9	%
Net income		$	37.3			$	17.9				108.7	%
Diluted earnings from continuing operations per common share*		$	2.12			$	1.12				89.3	%
Net cash provided by operating activities		$	85.6			$	49.6				72.4	%
Core Results**
Core adjusted EBITDA from continuing operations		$	119.7			$	115.9				3.3	%
Core diluted EPS from continuing operations*		$	2.21			$	1.67				32.3	%
Free cash flow		$	65.6			$	30.3				116.3	%

 

*

Beginning in Q1 2015, we applied the two-class method of calculating earnings per share for our GAAP results because the impact of unvested restricted shares as a percentage of total common shares outstanding became more dilutive given the level of stock repurchases over the prior year. Core diluted EPS from continuing operations continues to be reported under the treasury stock method

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

Our Q3 highlights include:

 

•

We continued to focus on effectively managing expenses across the enterprise, delivering 3.3% year-over-year growth in core adjusted EBITDA from continuing operations despite revenue decreasing 6.9%

 

•

Core diluted EPS from continuing operations increased 32.3% to $2.21 reflecting increased profitability and a lower share count

 

•

We repurchased 938,586 shares of our common stock for $60.8 million

 

•

We generated 116.3% growth in free cash flow (FCF) to $65.6 million bringing the year-to-date total to $206.6 million

 

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Capital Allocation

During Q3 we continued to allocate capital to the initiatives we believe will produce the highest returns, including disciplined investments in the business, repurchasing shares and paying dividends. We reiterate our ongoing commitment to return 75% to 100% of annual free cash flow to shareholders through share repurchases and quarterly cash dividends.

During Q3, we repurchased 938,586 shares of our common stock at an average price of $64.73 per share for $60.8 million through open market purchases. As of September 30, 2015, there was approximately $292.7 million in authority remaining under our current stock repurchase program.

Capital Expenditures

In Q3 our total investment in capital expenditures (CAPEX) on an accrual basis was $20.3 million, primarily reflecting investments in the ecoATM business to optimize the kiosk network, maintenance to support the Redbox and Coinstar kiosk networks, and corporate investments in technology, equipment and facilities. The following is a breakdown of CAPEX by category for Q3:

 

Q3 2015 CAPEX (Accrual Basis)
(In millions)		New				Maintenance				Other				Total
Redbox		$	1.8			$	2.2			$	1.0			$	5.0
Coinstar			1.0				2.4				—				3.4
ecoATM			7.3				—				—				7.3
All Other			1.2				—				—				1.2
Corporate			—				—				3.4				3.4
TOTAL		$	11.3			$	4.6			$	4.4			$	20.3

Additional Q3 Consolidated Metrics

 

Metric		Amount				Comment
Total net interest expense		$	12.0	MM
Core effective tax rate			35.7	%
Cash and cash equivalents		$	195.6	MM		Includes $73.6MM payable to retailer partners; additionally, $33.9MM of total cash was held in financial institutions domestically
Total principal value of outstanding debt, including capital leases		$	852.9	MM
Net leverage ratio*			1.52	x

 

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

 

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Outerwall Inc. 2015 Third Quarter Earnings

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October 29, 2015

 

Q3 Segment Operating Results – Redbox

Key Metrics

 

Category		Q3 2015				Q3 2014
Revenue		$	395.4	MM		$	435.1	MM
Rentals			132.6	MM			170.8	MM
Net revenue per rental		$	2.96			$	2.54
Same store sales growth (decline)			(8.4	)%			(11.8	)%
Gross margin			58.8	%			57.3	%
Segment operating income		$	90.4	MM		$	88.3	MM
Segment operating margin			22.9	%			20.3	%
Unique credit cards renting in quarter			33.0	MM			38.7	MM
Total kiosks (at quarter end)			40,790				42,400
Total locations (at quarter end)			33,310				34,820
Blu-ray
Blu-ray as percentage of rentals			13.2	%			15.1	%
Blu-ray as percentage of Redbox revenue			16.9	%			17.6	%

In Q3, Redbox revenue was down 9.1% year-over-year to $395.4 million, reflecting the impact of several factors, including:

 

•

a substantially lower box office that was down 45.3% year-over-year, including 7 fewer releases and shift in the mix of content from day and date to 28-day delay titles;

 

•

a higher impact from secular decline in the physical market;

 

•

lower demand from price-sensitive customers following the price increase, particularly in a time of exceptionally weak content as the impact from the price increase was greater during the quarter;

 

•

consumer transition to new generation platforms in our video games rental business;

 

•

the removal of underperforming kiosks; and

 

•

lower Blu-ray mix.

Content strength had a material impact on Q3 2015. Box office dollars driven by day and date titles was 56.9% lower than Q3 2014 and represented only 40.7% of overall box office in Q3 2015 compared with 51.7% in Q3 2014. Typically, delay titles do not generate the same revenue and rentals as day and date titles. In addition, Q3 2015 had a lower mix of comedy titles than Q3 2014, and historically comedies have performed well for Redbox. The weak box office content coupled with the factors mentioned above resulted in a 22.3% year-over-year decrease in rentals to 132.6 million compared with 170.8 million in Q3 2014.

Q3 net revenue per rental, or average check, increased 16.5% year-over-year to $2.96, driven primarily by the price increase for movies and video games. The higher price points offset the expected increase in single-night rentals, which represented 60.6% of total rentals, an increase of 210 basis points year-over-year. We continued to invest in customer-specific promotional offerings to lessen the impact of

 

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Outerwall Inc. 2015 Third Quarter Earnings

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October 29, 2015

 

the demand decline from the price increase and increased competition. Our promotional strategy has expanded to include more market-wide activities such as CPG (consumer packaged goods) and Retail programs that reinforce brand awareness and value proposition, as well as attract new customers. Programs included partnerships with Walgreens, The Kroger Co. and 7-Eleven, along with Kellogg’s and General Mills.

In Q3 Blu-ray represented 16.9% of revenue and 13.2% of rentals compared with 17.6% of revenue and 15.1% of rentals in Q3 last year. There were 11, or 35.5%, fewer Blu-ray titles and 48.2% lower box office dollars year-over-year, which offset the benefit from the higher price point and resulted in Blu-ray revenue that was 13.2% lower than Q3 2014. Blu-ray continues to be a focus for the business as it drives higher profit dollars per rental while delivering a higher quality movie experience at a great value to our customers.

In Q3 unique credit cards renting decreased 14.9% year-over-year and 6.2% from Q2 2015 to 33.0 million, in line with the lower rental demand driven by weaker sequential content, the price increase and increased competition. High frequency renters (HFR), customers that rent four or more titles per quarter, represented 46.0% of revenue in Q3 2015, a decline from 52.1% last year and 48.0% sequentially due to fewer releases available for rental.

While year-over-year revenue and rentals declined in Q3 2015, Redbox segment operating income increased $2.1 million or 2.4% to $90.4 million. Segment operating margin increased 260 basis points to 22.9% driven by a decrease in direct operating expense, primarily due to higher gross margin, which increased 150 basis points year-over-year to 58.8%. The improvement in gross margin reflects higher revenue per rental, primarily driven by the price increase and content mix. In addition to gross margin benefits, we saw improvements in direct operating, marketing and G&A expenses as we continued to drive operating efficiencies in the business to align our cost structure with the decline in physical rental demand.

Video Games Rentals and Revenue

 

Video Games Performance		Q3 2015				Q3 2014
Percentage of rentals			1.4	%			2.1	%
Percentage of Redbox revenue			2.8	%			4.5	%

Video games rentals and revenue declined year-over-year compared with Q3 2014 due to consumer transition to new generation platforms and the decline in the Wii platform. The number of unique titles released at Redbox in Q3 2015 was down 36.4% compared with Q3 2014, as publishers continue to delay their new releases to Q4 to market to a larger installed new generation base during the holiday season.

 

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Outerwall Inc. 2015 Third Quarter Earnings

Prepared Remarks

October 29, 2015

 

Last quarter, Redbox announced our commitment to be America’s destination for new generation game rentals and our plans to expand the availability of new generation games across our network of kiosks by the end of the year. We believe Redbox can play a critical role in increasing mainstream consumer adoption of the new formats, providing value to both our industry partners and customers. Offering game rentals for $3 a night versus a $60 purchase price gives Redbox users the same low cost access to new releases that we offer in movies. As a result, we made the decision to focus on purchasing new generation video game content. In Q4 we plan to significantly increase our spend on video games content to further drive this business and expect the percentage of video game rentals will continue to increase with additional content releases and growth in the installed base of new generation consoles over the holiday season.

Redbox has reached agreement with several of the leading game publishers on new business terms that will allow us to increase the number of units in the kiosks to meet growing consumer demand for new generation games. Publishers recognize Redbox’s potential to generate awareness and interest for new generation console games among both casual and core gamers through its large customer base and digital marketing network.

Studio Agreements

In July, Sony Pictures Home Entertainment elected to exercise its option to extend our existing day and date content license agreement with them. In October, Paramount Home Entertainment Inc. also exercised its option to extend their day and date content license. Both extensions are for one year.

Q3 Segment Operating Results – Coinstar

Key Metrics

 

Category		Q3 2015				Q3 2014
Revenue		$	85.7	MM		$	85.1	MM
Average transaction		$	43.50			$	41.92
Transactions			19.2	MM			19.6	MM
Same store sales growth			3.2	%			5.8	%
Segment operating income		$	34.5	MM		$	33.4	MM
Segment operating margin			40.3	%			39.3	%
Kiosks (at quarter end)			21,110				21,210
Locations (at quarter end)			19,910				20,220

Coinstar segment revenue increased $0.6 million, or 0.7%, compared with Q3 2014 primarily due to growth in the number of Coinstar Exchange kiosks and transactions and higher Coinstar U.S. volume. The U.K. business continued to benefit from the increased coin voucher product transaction fee implemented in the U.K. in August 2014, although the benefit was offset in Q3 by the unfavorable exchange rate impact from the strengthening of the U.S. dollar versus the British pound as compared with the prior year. These factors contributed to same store sales growth of 3.2%.

 

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Prepared Remarks

October 29, 2015

 

Coinstar segment operating income increased $1.1 million, or 3.1%, year-over-year and segment operating margin increased 100 basis points compared with Q3 2014, as the business continues to identify areas to reduce expenses, particularly in direct operating and marketing.

Q3 Segment Operating Results – ecoATM

Key Metrics

 

Category		Q3 2015				Q3 2014
Revenue		$	31.0	MM		$	29.7	MM
Segment operating loss		$	(3.1	)MM		$	(2.0	)MM
ASP of value devices sold		$	59.15			$	75.95
Number of value devices sold			505,314				373,981
Number of overall devices sold			735,781				531,265
Kiosks (at quarter end)			2,210				1,510
Locations (at quarter end)			1,980				1,290

During Q3 we continued to make progress in improving kiosk productivity and reducing expenses as we focus on managing the business to profitability as soon as possible.

As a result of our optimization efforts, while kiosks were up 700 from Q3 2014, sequentially our installed kiosk count decreased by 50. During Q3 we removed 250 underperforming kiosks, primarily in the Grocery channel, and redeployed approximately 180 kiosks into retailer locations that satisfied our productivity thresholds, with the majority in the Mass and Mall channels. This brings year-to-date redeployments to 250.

Q3 segment revenue increased 4.1% compared with Q3 2014 reflecting the growth in our installed kiosk base. At the same time, collections of value devices were down on a per kiosk basis year-over-year primarily due to ongoing carrier marketing of alternative recycling options. This also impacted the number of higher value devices collected, which is the primary driver of the year-over-year decline in average selling price (ASP) of value devices sold.

Sequentially, value devices sold per kiosk increased, reflecting the higher seasonality we have seen historically in Q3, an increase in collections of certain higher value devices as we approached the latest iPhone launch, and the redeployment of underperforming kiosks. As a result, revenue per kiosk also increased from Q2 2015.

In September, Apple announced their iPhone upgrade program. While it is too early to measure the effect this could have on our collections, to date we have not seen an impact.

 

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Outerwall Inc. 2015 Third Quarter Earnings

Prepared Remarks

October 29, 2015

 

Segment operating loss increased year-over-year in Q3 due to the increased number of kiosks and the focus on scaling the business during the past year, offset in part by improvements in our operating costs on a per kiosk basis. Sequentially segment operating loss improved due to deliberate efforts to reduce costs, particularly in servicing and supporting the kiosk network.

As the business has historically seen, we expect collections in Q4 2015 to be below Q3 2015 mainly due to seasonality and the increase in carrier marketing around the holiday season. With the reduced level of collections sequentially, we also expect lower net revenue in Q4 compared with Q3.

We expect the ASP on our value devices to decline in Q4 due to the influx of devices entering the secondary market, as well as the typical price decay that occurs when the newest iPhone is released. However, due to the lower number of iPhones expected to be sold during the September to October 2015 timeframe in the U.S., we do not expect the price decline to be as drastic as the decrease in Q4 2014. As we move into the holiday season, we expect an increase in carrier advertising focused on consumer device trade-in.

During Q4 our focus on moving closer to profitability will include improving kiosk performance by continuing to lower per kiosk servicing costs, redeploying additional kiosks to locations that meet our productivity thresholds, and limiting our marketing and G&A spending.

Guidance

We are updating our 2015 annual guidance to reflect changes in our expectations based on Q3 results and our outlook for the remainder of the year. (Exhibit 1)

For the full-year 2015, we expect:

 

•

consolidated revenue in the range of $2.205 billion to $2.240 billion,

 

•

core adjusted EBITDA from continuing operations between $490 million and $510 million, and

 

•

core diluted earnings per share between $8.82 and $9.52, which does not reflect any additional share repurchases we may complete during the year.

We expect Redbox revenue in the range of $1.790 billion to $1.815 billion, reflecting lower revenue in Q3 and a substantial shift in Q4 content with 20 fewer theatrical titles and 8.0% lower box office dollars since our guidance in July. These titles are now expected to be available in our kiosks in the first half of 2016, although as we have said, the release schedule for Redbox titles continually evolves. In addition, the fewer number of customers and the frequency at which they rented in Q3 was impacted by the lack of content and it will take time to return to normal rental patterns. To help increase traffic and frequency of rentals, we are planning to purchase more movie and video game content than we normally would in Q4. Similar to Q4 2012, the higher copy depth is expected to help us reengage consumers following a dearth of content. Further, we are planning to increase the amount of promotion through targeted and retail

 

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Outerwall Inc. 2015 Third Quarter Earnings

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October 29, 2015

 

programs to encourage new and lapsed consumers to rent and for active consumers to increase their frequency. While this strategy will have an impact on Redbox margins in Q4, we believe the additional content is critical to consumers returning to more normal rental patterns.

Q4 box office is expected to be $3.8 billion, 7.4% higher than Q4 2014, but with 9 fewer titles. The Q4 box office includes 4 titles that represent $1.8 billion in box office, nearly half the total for the quarter: Avengers: Age of Ultron, Furious 7, Inside Out and Jurassic World. (Exhibit 2) Sequentially, Q4 box office is up 181.0% with 10 additional titles. However, historically, blockbuster titles have not rented as well at Redbox as they perform in theaters since many customers have already seen the movie in theaters or purchase the DVD or Blu-ray.

Our guidance incorporates anticipated lower rental demand and shorter average rental duration as a result of the price increase that partially offsets the increase in the per night rental price. In addition, the benefit from our price increase will be less in Q4 than in prior quarters as we will lap the price increase in December.

We expect ecoATM revenue in the range of $100 million to $105 million, a tightening of the range from the prior quarter. We expect lower ASP than we saw in Q3 for value devices primarily due to the impact of the iPhone launch, although we do not expect the decline in ASP to be as substantial as the one in Q4 2014.

We have adjusted the low end of our core adjusted EBITDA from continuing operations up by $9.0 million, despite the lower expected revenue in Q4 for Redbox as a result of title shifts out of 2015, due to concerted efforts to drive profitability and manage expenses.

We have increased our expectations for FCF to between $252 million and $282 million due to the increase in expected core adjusted EBITDA from continuing operations and lower capital expenditures as we look to drive cash flow across the enterprise.

Summary

In Q3 2015 we drove increased profitability despite the headwinds of an exceptionally weak content schedule that impacted revenue. By continuing to focus on operational excellence, productivity and expense management, we delivered solid margin and earnings growth and more than doubled free cash flow year-over-year. We allocated capital to substantial stock repurchases and our quarterly dividend, and also paid down debt. We are managing ecoATM to profitability as quickly as possible and are addressing top-line growth across the enterprise through multiple initiatives. We will continue to drive the business to create value for our employees, customers, partners and shareholders.

 

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Outerwall Inc. 2015 Third Quarter Earnings

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October 29, 2015

 

Appendix A

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 for the periods presented include i) goodwill impairment, ii) restructuring costs (including severance and early lease termination costs and related impairment of assets) associated with actions to reduce costs in our continuing operations across the Company, iii) 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, iv) income or loss from equity method investments, which represents our share of income or loss from entities we do not consolidate or control, v) tax benefits related to a net operating loss adjustment, and vi) tax benefit related to worthless stock deduction (“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 nonrecurring 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.

 

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Outerwall Inc. 2015 Third Quarter Earnings

Prepared Remarks

October 29, 2015

 

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 September 30,								Nine Months Ended September 30,
Dollars in thousands		2015				2014				2015				2014
Net income from continuing operations		$	37,592			$	22,123			$	32,396			$	73,562
Depreciation, amortization and other			43,188				50,045				137,666				153,481
Interest expense, net			11,973				12,465				36,227				35,045
Income taxes			20,928				13,392				64,955				35,131
Share-based payments expense(1)			4,864				3,249				12,125				10,093
Adjusted EBITDA from continuing operations			118,545				101,274				283,369				307,312
Non-Core Adjustments:
Goodwill impairment			—				—				85,890				—
Restructuring costs			—				—				15,851				469
Rights to receive cash issued in connection with the acquisition of ecoATM			854				3,274				3,779				10,033
Loss from equity method investments, net			328				11,352				593				31,261
Core adjusted EBITDA from continuing operations		$	119,727			$	115,900			$	389,482			$	349,075

 

(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 utilizing the treasury stock method 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 September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Diluted EPS from continuing operations per common share (two-class method)		$	2.12			$	1.12			$	1.77			$	3.37
Adjustment from participating securities allocation and share differential to treasury stock method(1)			0.04				0.04				0.03				0.07
Diluted EPS from continuing operations (treasury stock method)			2.16				1.16				1.80				3.44
Non-Core Adjustments, net of tax:(1)
Goodwill impairment			—				—				4.78				—
Restructuring costs			—				—				0.54				0.01
Rights to receive cash issued in connection with the acquisition of ecoATM			0.04				0.14				0.14				0.37
Loss from equity method investments, net			0.01				0.36				0.02				0.89
Tax benefit from net operating loss adjustment			—				—				—				(0.04	)
Tax benefit of worthless stock deduction			—				0.01				—				(0.10	)
Core diluted EPS from continuing operations		$	2.21			$	1.67			$	7.28			$	4.57

 

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

 

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Outerwall Inc. 2015 Third Quarter Earnings

Prepared Remarks

October 29, 2015

 

A reconciliation of amounts used in calculating core diluted EPS from continuing operations in the table above is presented in the following table:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
In thousands		2015				2014				2015				2014
Income from continuing operations attributable to common shares		$	36,462			$	21,392			$	31,491			$	71,309
Add: income from continuing operations allocated to participating securities			1,130				731				905				2,253
Income from continuing operations		$	37,592			$	22,123			$	32,396			$	73,562
Weighted average diluted common shares			17,229				19,021				17,789				21,186
Add: diluted common equivalent shares of participating securities			142				126				182				186
Weighted average diluted shares (treasury stock method)			17,371				19,147				17,971				21,372

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 September 30,								Nine Months Ended September 30,
Dollars in thousands		2015				2014				2015				2014
Net cash provided by operating activities		$	85,559			$	49,627			$	266,774			$	207,047
Purchase of property and equipment			(19,947	)			(19,295	)			(60,164	)			(72,311	)
Free cash flow		$	65,612			$	30,332			$	206,610			$	134,736

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:

 

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Dollars in thousands		September 30, 2015				December 31, 2014
Senior unsecured notes		$	650,000			$	650,000
Term loans			139,688				146,250
Revolving line of credit			55,000				160,000
Capital leases			8,177				15,391
Total principal value of outstanding debt including capital leases			852,865				971,641
Less domestic cash and cash equivalents held in financial institutions			(33,909	)			(66,546	)
Net debt			818,956				905,095
LTM Core adjusted EBITDA from continuing operations(1)		$	537,227			$	496,820
Net leverage ratio			1.52				1.82

 

(1)	LTM Core Adjusted EBITDA from continuing operations for the twelve months ended September 30, 2015 and December 31, 2014 was determined as follows:

 

Dollars in thousands
Core adjusted EBITDA from continuing operations for the nine months ended September 30, 2015		$	389,482
Add: Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2014(1)			496,820
Less: Core adjusted EBITDA from continuing operations for the nine months ended September 30, 2014			(349,075	)
LTM Core adjusted EBITDA from continuing operations for the twelve months ended September 30, 2015		$	537,227

 

(1)

Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2014 is obtained from our Form 8-K filed on May 8, 2015 for the period ended December 31, 2014, 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, 2014.

 

©2015 Outerwall Inc. All Rights Reserved. These materials may not be reproduced, altered or distributed without the express written consent of Outerwall Inc.

Page 14

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Exhibit 99.3

 

 

OUTERWALL INC. DECLARES QUARTERLY DIVIDEND

BELLEVUE, Wash. – October 29, 2015 – Outerwall Inc. (Nasdaq: OUTR) today announced that on October 27, 2015, its board of directors declared a quarterly dividend of $0.30 per share of common stock. The dividend is expected to be paid on December 8, 2015, to stockholders of record at the close of business on November 23, 2015. The declaration and payment of future dividends will be subject to the board’s approval.

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 delivers 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 future dividends. 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,

 

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competition from other entertainment providers,

 

•

the ability to achieve the strategic and financial objectives for our entry into new businesses, including ecoATM and SAMPLEit,

 

•

our ability to repurchase stock and the availability of an open trading window,

 

•

our declaration and payment of dividends, including our board’s discretion to change the dividend policy,

 

•

the termination, non-renewal or renegotiation on materially adverse terms of our contracts with our significant retailers and suppliers,

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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,

 

•

loss of key personnel or the inability of replacements to quickly and successfully perform in those new roles,

 

•

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.

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Investor Contact:

Rosemary Moothart

Director of Investor Relations

425-943-8140

rosemary.moothart@outerwall.com