COINSTAR, INC. 
By BELLEVUE, Wash., April 28, 2011 /PRNewswire/ -- Coinstar, Inc. (NASDAQ: CSTR) today announced financial results for the first quarter ended March 31, 2011.
"Strong growth in our redbox business and consistent performance in the Coin business delivered better-than-expected earnings in the first quarter," said Paul Davis, chief executive officer of Coinstar, Inc. "The quarter was marked by solid execution across our businesses and the enhancements to operations are showing progress. In addition, I'm very pleased to announce our decision to rollout video games at redbox kiosks nationwide, which we believe will expand our user base by tapping into the growing video game rental market."
Redbox will offer video game rentals alongside movies at more than 21,000 locations beginning in June.
First quarter financial highlights included:
-- Revenue $424.1 million
-- Operating income $31.4 million
Adjusted EBITDA from continuing operations
-- (See Appendix A) $69.1 million
Diluted earnings per share from continuing
-- operations $0.46
Net cash flows from operating activities
-- from continuing operations $60.0 million
Free cash flow from continuing operations
-- (See Appendix A) $21.5 million
"During the first quarter we made progress in driving improvements in our operations and in building scale by investing in infrastructure, while continuing to deliver profitable growth," said J. Scott Di Valerio, chief financial officer of Coinstar, Inc. "We're gaining traction as we've added more rigor to our processes and we will continue to monitor and refine as we progress through the year."
Revenue for the first quarter of 2011 increased 31.2% to $424.1 million compared with the first quarter of 2010, driven primarily by growth in redbox (formerly DVD Services) revenue, which increased 37.7% to $362.3 million, and by Coin revenue which grew 2.4% to $61.4 million.
Operating income for the first quarter of 2011 was $31.4 million, which resulted in an operating margin of 7.4%, compared with operating income of $24.5 million and an operating margin of 7.6% in the first quarter of 2010. The decrease in operating margin percentage primarily reflects increased DVD product costs due in part to higher than optimal purchases of DVD titles.
Income from continuing operations for the first quarter of 2011 was $14.8 million, or diluted earnings per share from continuing operations of $0.46, compared with $9.2 million, or $0.30 per share, in the first quarter of 2010.
Net income for the first quarter of 2011, which includes both continuing and discontinued operations, was $8.5 million, or diluted earnings per share of $0.26. This compares with $6.4 million, or diluted earnings per share of $0.21, in the first quarter of 2010.
Net cash flows from operating activities from continuing operations was $60.0 million in the first quarter of 2011, compared with $59.5 million in the first quarter of 2010. Cash paid for capital expenditures for continuing operations for the first quarter of 2011 was $38.5 million, compared with $31.5 million in the first quarter of 2010, reflecting increased investment in kiosks, as well as investment in corporate infrastructure. Free cash flow from continuing operations for the first quarter of 2011 was $21.5 million, compared with $28.0 million in the first quarter of 2010.
During the first quarter, Coinstar repurchased $13.3 million of common stock on the open market. In addition, the company announced a $50 million accelerated share repurchase (ASR) program, which is expected to close in the second quarter. As of the end of the first quarter, the company had a remaining total authorization to repurchase $11.5 million of Coinstar's common stock.
Guidance
For the 2011 full year, Coinstar management updated guidance and now expects:
-- Consolidated revenue between $1.73 billion and $1.85 billion;
-- Adjusted EBITDA from continuing operations between $335 million and $355
million;
-- GAAP EPS from continuing operations between $2.75 and $3.10 on a fully
diluted basis; and
-- Free cash flow from continuing operations between $110 million and $135
million.
For the 2011 second quarter, Coinstar management expects:
-- Consolidated revenue between $430 million and $450 million;
-- Adjusted EBITDA from continuing operations between $83 million and $93
million; and
-- GAAP EPS from continuing operations between $0.76 and $0.86 on a fully
diluted basis.
Conference Call
Paul Davis and J. Scott Di Valerio will host a conference call today at 2:00 p.m. PDT (5:00 p.m. EDT) to review the first quarter results and discuss guidance. The conference call will be webcast live and archived on the Investor Relations section of Coinstar's website at www.coinstarinc.com. A recording of the call will be available approximately two hours after the call ends through May 12, 2011, at 1-888-286-8010 or 1-617-801-6888, passcode 65266451.
About Coinstar, Inc.
Coinstar, Inc. (NASDAQ: CSTR) is a leading provider of automated retail solutions offering convenient services that make life easier for consumers and drive incremental traffic and revenue for retailers. The company's core automated retail businesses include the well-known redbox® self-service DVD rental and Coinstar® self-service coin-counting brands. The company has approximately 31,800 DVD kiosks and 18,800 coin-counting kiosks in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants. For more information, visit www.coinstarinc.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," "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 Coinstar, Inc.'s anticipated growth and future operating 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 Coinstar, Inc., as well as from risks and uncertainties beyond Coinstar, Inc.'s control. Such risks and uncertainties include, but are not limited to, 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 and suppliers, the inability to receive delivery of DVDs on the date of their initial release to the general public, or shortly thereafter, for home entertainment viewing, the effective management of our DVD inventory, the ability to attract new retailers, penetrate new markets and distribution channels and react to changing consumer demands, the ability to achieve the strategic and financial objectives for our entry into or expansion of new businesses, 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 Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission. These forward-looking statements reflect Coinstar, Inc.'s expectations as of the date of this release. Coinstar, Inc. undertakes no obligation to update the information provided herein.
(Financial Statements Follow)
Appendix A
Use of Non-GAAP Financial Measures
Non-GAAP measures may be provided as a complement to results provided in accordance with United States generally accepted accounting principles ("GAAP"). Non-GAAP measures are not a substitute for measures computed in accordance with GAAP. The definitions of such non-GAAP measures are provided below to allow the reader to reconcile non-GAAP data to that presented in accordance with GAAP. Our non-GAAP measures may be different from the presentation of financial information by other companies.
Adjusted EBITDA from continuing operations is defined as earnings before net interest expense, income taxes, depreciation, amortization and certain other non-cash charges, including the write-off from early retirement of debt and share-based expenses from continuing operations. We believe adjusted EBITDA from continuing operations 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. In addition, management uses this non-GAAP measure internally to evaluate performance and manage operations. See below for reconciliation of the most comparable GAAP measure, income from continuing operations, to adjusted EBITDA from continuing operations.
Three Months Ended
March 31,
------------------
Dollars in thousands 2011 2010
-------------------- ---- ----
Income from continuing
operations $14,842 $9,239
Depreciation, amortization, and
other 34,644 32,680
Interest expense, net 7,306 9,266
Income taxes 9,261 6,006
Share-based payments
expense(1) 3,040 3,216
----- -----
Adjusted EBITDA from continuing
operations $69,093 $60,407
======= =======
(1) Share-based payments expense includes both non-cash share-
based compensation expense as well as share-based payments related
to DVD arrangements
Free cash flow from continuing operations is defined as net cash provided by operating activities from continuing operations after cash paid for capital expenditures for continuing operations. 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 common stock. See below for reconciliation of the most comparable GAAP measure, net cash flows from operating activities from continuing operations, to free cash flow from continuing operations.
Three Months Ended
March 31,
------------------
Dollars in thousands 2011 2010
-------------------- ---- ----
Net cash provided by operating activities
from continuing operations $59,995 $59,480
Purchase of property and equipment (38,472) (31,517)
------- -------
Free cash flow from continuing operations $21,523 $27,963
======= =======
Coinstar, Inc.
Consolidated Statements of Net Income
(in thousands, except per share data)
(unaudited)
For the Three Months
Ended
March 31,
---------
2011 2010
---- ----
Revenue $424,072 $323,122
Expenses:
Direct operating 315,073 224,959
Marketing 5,117 2,630
Research and development 2,207 1,424
General and administrative 35,662 31,522
Depreciation and other 33,959 31,801
Amortization of intangible assets 685 879
Litigation settlement 0 5,379
--- -----
Total expenses 392,703 298,594
------- -------
Operating Income 31,369 24,528
Other income (expense):
Foreign currency and other, net 40 (17)
Interest income 80 2
Interest expense (7,386) (9,268)
(7,266) (9,283)
------ ------
Income from continuing operations before
income taxes 24,103 15,245
Income tax expense (9,261) (6,006)
------ ------
Income from continuing operations 14,842 9,239
Loss from discontinued operations, net
of tax (6,346) (2,797)
------ ------
Net income $8,496 $6,442
====== ======
Basic Earnings (Loss) Per Share:
Continuing operations $0.47 $0.30
Discontinued operations (0.20) (0.09)
----- -----
Basic earnings per share $0.27 $0.21
===== =====
Diluted Earnings (Loss) Per Share:
Continuing operations $0.46 $0.30
Discontinued operations (0.20) (0.09)
----- -----
Diluted earnings per share $0.26 $0.21
===== =====
Weighted average shares used in basic
per share calculations 31,067 30,950
Weighted average shares used in diluted
per share calculations 32,142 31,217
Coinstar, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
December
March 31, 31,
2011 2010
---- ----
Assets
Current Assets:
Cash and cash equivalents $23,024 $71,287
Cash in machine or in transit 48,867 39,603
Cash being processed 65,969 72,526
Accounts receivable, net of allowances of
$1,048 and $1,131 21,100 25,958
DVD library 93,992 140,324
Deferred income taxes 16,278 13,644
Prepaid expenses and other current assets 13,998 14,736
Assets of businesses held for sale 96,481 110,316
----- ------
Total current assets 379,709 488,394
Property and equipment, net 457,673 444,687
Deferred income taxes 49,494 59,696
Other assets 14,819 12,612
Intangible assets, net 8,888 9,572
Goodwill 267,750 267,750
------ ------
Total assets $1,178,333 $1,282,711
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $124,228 $161,551
Accrued payable to retailers 90,692 96,764
Other accrued liabilities 106,331 108,422
Current callable convertible debt 0 173,146
Current portion of long-term debt 6,930 7,523
Current portion of capital lease obligations 11,102 17,233
Liabilities of businesses held for sale 64,549 68,662
----- -----
Total current liabilities 403,832 633,301
Long-term debt and other 343,759 167,261
Capital lease obligations 10,362 12,158
Deferred tax liability 16 15
-- --
Total liabilities 757,969 812,735
Commitments and contingencies 0 0
Debt conversion feature 0 26,854
Stockholders' Equity:
Preferred stock, $0.001 par value -5,000,000
shares authorized; no
shares issued or outstanding 0 0
Common stock, $0.001 par value -60,000,000
and 45,000,000 authorized;
35,063,559 and 34,813,203 shares issued;
31,370,483 and
31,815,085 shares outstanding 464,970 434,169
Treasury stock (153,425) (90,076)
Retained earnings 110,475 101,979
Accumulated comprehensive loss (1,656) (2,950)
------ ------
Total stockholders' equity 420,364 443,122
------ ------
Total liabilities and stockholders' equity $1,178,333 $1,282,711
========== ==========
Coinstar, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
For the Three
Months Ended
March 31,
---------
2011 2010
---- ----
Operating Activities:
Net income $8,496 $6,442
Adjustments to reconcile net income to
net cash flows from operating
activities from continuing operations:
Depreciation and other 33,959 31,801
Amortization of intangible assets and
deferred financing fees 1,193 1,387
Share-based payment expense 3,040 3,216
Excess tax benefits on share-based
payments expense (2,128) (748)
Deferred income taxes 6,356 3,148
Loss from discontinued operations, net
of tax 6,346 2,797
Non-cash interest on convertible debt 1,583 1,459
Other 138 197
Cash flows from changes in operating
assets and liabilities from continuing
operations: 1,012 9,781
-----
Net cash flows from operating activities
from continuing operations 59,995 59,480
Investing Activities:
Purchase of property and equipment (38,472) (31,517)
Proceeds from sale of property and
equipment 176 37
Equity investment (2,320) 0
------ ---
Net cash flows from investing activities
from continuing operations (40,616) (31,480)
Financing Activities:
Principal payments on capital lease
obligations and other debt (12,141) (8,675)
Excess tax benefits related to share-
based payments 2,128 748
Repurchase of common stock (63,349) 0
Proceeds from exercise of stock options 260 2,227
--- -----
Net cash flows from financing activities
from continuing operations (73,102) (5,700)
Effect of exchange rate changes on cash 667 (497)
--- ----
Increase (decrease) in cash and cash
equivalents, cash in machine or in (53,056) 21,803
transit, and cash being processed from
continuing operations
Cash flows from discontinued operations:
Operating cash flows 6,726 (9,938)
Investing cash flows 774 1,817
Financing cash flows 0 (21)
--- ---
7,500 (8,142)
Increase (Decrease) in cash and cash
equivalents, cash in machine or in (45,556) 13,661
transit, and cash being processed
Cash and cash equivalents, cash in
machine or in transit, and cash being
processed:
Beginning of period 183,416 145,857
------- -------
End of period $137,860 $159,518
======== ========
Coinstar, Inc.
Business Segment Information
(in thousands)
(unaudited)
During the first quarter of 2011, we added a segment, New Ventures,
to our existing segments redbox, formerly named DVD Services, and
Coin, formerly named Coin Services, to reflect changes in how our
chief executive officer manages our businesses and allocates
resources for the future growth of the company.
As a complement to our Consolidated Statements of Net Income, we are
providing the following information related to our business
segments, which includes segment operating income (loss), a non-
GAAP financial measure. Management, including our chief executive
officer, evaluates the performances of our business segments
primarily on segment revenue and segment operating income from
continuing operations before depreciation, amortization and other,
and share-based payments ("segment operating income"). We utilize
segment revenue and segment operating income because we believe they
provide useful information for effectively allocating resources
among business segments, evaluating the health of our business
segments based on metrics that management can actively influence,
and gauging our investments and our ability to service, incur or pay
down debt.
Three Months
Ended March 31,
---------------
Dollars in thousands 2011 2010
-------------------- ---- ----
Revenue:
redbox $362,344 $263,078
Coin 61,363 59,918
New Ventures 365 126
Consolidated revenue $424,072 $323,122
======== ========
Segment operating income reconciled to GAAP
operating income
Segment operating income(loss): (1)
redbox (2) $50,821 $46,301
Coin 20,609 15,020
New Ventures (2,555) (1,488)
Total segment operating income(loss) 68,875 59,833
Depreciation, amortization and other:
redbox 27,098 22,121
Coin 7,371 7,059
New Ventures 175 3,500
Total depreciation, amortization and other 34,644 32,680
Share-based compensation expense 2,862 2,625
Operating income(loss):
redbox 23,723 24,180
Coin 13,238 7,961
New Ventures (2,730) (4,988)
Share-based compensation expense (2,862) (2,625)
Total operating income $31,369 $24,528
======= =======
(1) Operating income (loss) before depreciation, amortization and
other, and share-based compensation expense
(2) Share-based payments expense related to our DVD arrangements has
been allocated to our redbox segment
SOURCE Coinstar, Inc.
