OUTERWALL INC BELLEVUE, Wash., Feb. 5, 2015 /PRNewswire/ -- Outerwall Inc. (Nasdaq: OUTR) today reported financial results for the fourth quarter and full year ended December 31, 2014.
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"We are pleased with our strong performance in the fourth quarter of 2014," said Nora M. Denzel, Outerwall's interim chief executive officer. "As our results demonstrate, we remain focused on executing our strategy of optimizing our core businesses, scaling ecoATM and leveraging our existing platforms to gain operational efficiencies across the company. As we look forward in 2015, we will continue to build on our leading brands, consumer engagement, strong relationships with our retail and studio partners and solid financial foundation."
Three Months Ended December 31, Change Year Ended December 31, Change
------------------------------- ------ ----------------------- ------
Dollars in millions, except per share
data 2014 2013 % 2014 2013 %
---- ---- --- ---- ---- ---
GAAP Results
-- Consolidated revenue $600.6 $593.7 1.2% $2,303.0 $2,306.6 (0.2)%
-- Income from continuing operations $43.8 $42.9 2.2% $107.4 $208.1 (48.4)%
-- Net income $43.8 $22.7 93.2% $106.6 $174.8 (39.0)%
-- Diluted EPS from continuing
operations $2.35 $1.55 51.6% $5.19 $7.33 (29.2)%
-- Net cash provided by operating
activities $131.3 $180.7 (27.3)% $338.4 $327.8 3.2%
Core Results*
-- Core adjusted EBITDA from continuing
operations $141.0 $137.3 2.7% $480.5 $491.7 (2.3)%
-- Core diluted EPS from continuing
operations $2.44 $1.68 45.2% $6.43 $5.92 8.6%
-- Free cash flow $105.7 $142.6 (25.9)% $240.4 $166.4 44.5%
*Refer to Appendix A for a discussion of Use of Non-GAAP Financial Measures and Core and Non-Core Results.
Highlights from the full-year 2014 include:
-- Managed the business for profitability while making investments for the
future as demonstrated by solid core adjusted EBITDA from continuing
operations of $480.5 million despite a decline in revenue at Redbox due
to a challenging release schedule for much of 2014
-- Redbox achieved its 4 billionth cumulative rental in November 2014
-- Extended existing content agreements with Sony, Paramount and Universal
and signed a new agreement with Lionsgate
-- Installed more than 1,000 ecoATM(®) kiosks, bringing total ecoATM
kiosks to 1,890 at December 31, 2014
-- Consolidated general and administrative (G&A) expense improved 13.6%
year-over-year primarily as a result of the company's ongoing focus on
expense management
-- Core diluted EPS from continuing operations increased 8.6%
year-over-year
-- Generated $240.4 million in free cash flow for the full-year 2014, an
increase from $166.4 million in 2013
-- Repurchased 7.9 million shares of common stock at an average price of
$68.31 per share for $541.4 million
Highlights from the fourth quarter 2014 include:
-- Successfully implemented Redbox price increases in December 2014 for
movies and early January 2015 for video games
-- Week of December 29, 2014, marked the highest rental week in Redbox
history, led by strong new release titles
-- Installed approximately 380 net new ecoATM kiosks
-- Consolidated revenue increased 1.2% compared with the fourth quarter of
2013, primarily reflecting an increase in New Ventures segment revenue
as the company continued to scale ecoATM
-- Consolidated G&A expense improved 20.9% compared with the fourth quarter
of 2013, primarily as a result of the company's ongoing focus on expense
management
-- Core adjusted EBITDA from continuing operations increased 2.7% compared
with the fourth quarter of 2013, primarily due to an improvement in G&A
expense
-- Core diluted EPS from continuing operations increased 45.2% compared
with the fourth quarter of 2013, primarily reflecting share repurchases
throughout the year
"Our financial results for the fourth quarter and full-year 2014 reflect our ongoing efforts to manage the business for profitability and free cash flow while we make the appropriate investments for our future," said Galen C. Smith, chief financial officer of Outerwall.
"We continue to maintain a disciplined approach to our capital allocation strategy and remain committed to our current policy of returning 75-to-100 percent of annual free cash flow to shareholders," continued Smith. "Demonstrating confidence in Outerwall's long-term prospects and future cash flows, our board of directors declared our first-ever cash dividend payment of $0.30 per share and approved an additional authorization of $250.0 million to our share repurchase program."
Outerwall also announced today that it is shutting down its Redbox operations in Canada as the business is not meeting the company's performance expectations. As a result, the company recognized an after-tax expense of $1.5 million in the fourth quarter of 2014 related to the accelerated recognition of content library and capitalized install costs on property and equipment. The remaining value of the content library and capitalized install costs will be amortized over an expected three-month wind-down period. Following the final shutdown of the operations in Canada, the company expects to report Redbox Canada results as a discontinued operation.
"Our 2015 annual guidance reflects our ongoing focus on managing the business for profitability while continuing to make disciplined growth investments, including scaling ecoATM," said Smith. "The recently implemented Redbox price increase will support further investments in several initiatives to enhance customer experience and drive engagement. We expect these initiatives will help offset the secular decline in the physical rental market and that our actions to improve operational efficiencies and network optimization will help drive earnings growth."
CONSOLIDATED RESULTS
Consolidated revenue for the fourth quarter of 2014 increased $6.9 million, or 1.2%, to $600.6 million compared with $593.7 million for the fourth quarter of 2013. The year-over-year increase in consolidated revenue was primarily due to an increase in New Ventures revenue. For the full-year 2014, consolidated revenue of $2.30 billion was essentially flat compared with full-year 2013 revenue, reflecting increases in revenue in the New Ventures and Coinstar segments and a decline in revenue in the Redbox segment.
Consolidated G&A expenses were $41.9 million in the fourth quarter of 2014, a 20.9% decrease from $53.0 million in the fourth quarter of 2013. For the full-year 2014, G&A expenses of $191.7 million improved 13.6% from $221.8 million in 2013. The improvement in G&A expenses in both periods primarily reflects the company's ongoing focus on expense management in each of its lines of business and across its shared services organization.
Operating income for the fourth quarter of 2014 was $85.2 million and operating margin was 14.2% compared with operating income of $73.0 million and operating margin of 12.3% in the fourth quarter of 2013. The year?over-year increase in operating margin primarily reflects the improvement in G&A and direct operating expenses that includes a one-time $5.6 million benefit as a result of a reduction of the estimated liability for Redbox personal property taxes. For the full-year 2014, operating income was $248.4 million compared with $261.0 million in 2013, primarily reflecting an increase in the operating loss in the New Ventures segment as the company continued to scale its ecoATM business during the year.
Income from continuing operations for the fourth quarter of 2014 was $43.8 million, or $2.35 per diluted share, compared with $42.9 million, or $1.55 per diluted share, in the fourth quarter of 2013. For the full-year 2014, income from continuing operations was $107.4 million, or $5.19 per diluted share, compared with $208.1 million, or $7.33 per diluted share, for the full-year 2013.
Core adjusted EBITDA from continuing operations for the fourth quarter of 2014 was $141.0 million compared with $137.3 million in the fourth quarter of 2013. The year-over-year increase was primarily due to higher segment operating income in the Redbox and Coinstar segments. For the full-year 2014, core adjusted EBITDA from continuing operations was $480.5 million compared with $491.7 million for the full-year 2013. The year?over-year decrease in core adjusted EBITDA from continuing operations was primarily due to lower segment operating income in the Redbox segment and a higher segment operating loss in the New Ventures segment.
Core diluted earnings per share from continuing operations in the fourth quarter of 2014 were $2.44 compared with $1.68 per diluted share in the fourth quarter of 2013. For the full-year 2014, core diluted earnings per share from continuing operations were $6.43 compared with $5.92 per diluted share for 2013.
Net cash provided by operating activities in the fourth quarter of 2014 was $131.3 million compared with $180.7 million in the fourth quarter of 2013. The decrease was primarily due to higher non-cash expenses in the fourth quarter of 2013, including an impairment of $27.2 million related to discontinued operations and a $21.4 million loss from equity method investments in the fourth quarter of 2013 and a decrease of $12.3 million in net cash inflows from changes in working capital. Net cash provided by operating activities for the year increased by $10.5 million compared with 2013, primarily due to a decrease in net cash outflows from changes in working capital of $76.9 million partially offset by a decrease in net income for the year.
Capital expenditures for the fourth quarter of 2014 were $25.6 million on a cash basis compared with $38.1 million in the fourth quarter of 2013. For the year, cash capital expenditures were $97.9 million in 2014 compared with $161.4 million in 2013. The decrease in capital expenditures in 2014 compared with 2013 was primarily due to lower capital expenditures related to Redbox kiosks.
Free cash flow for the fourth quarter of 2014 was $105.7 million compared with $142.6 million in the fourth quarter of 2013. Free cash flow for the full-year 2014 was $240.4 million compared with $166.4 million for 2013.
SEGMENT RESULTS
Redbox
Effective December 2, 2014, the daily rental rate for DVDs was increased from $1.20 to $1.50, and the daily rental rate for a Blu-ray(®) Disc was increased from $1.50 to $2.00. The daily rental rate for video games increased from $2.00 to $3.00, effective January 6, 2015. The benefit from the price increases to revenue in December 2014 was greater than the company expected due to the robust content slate and holiday seasonality that attracted customers and lessened the impact of increased prices on rental demand, helping to offset weaker performance from September and October releases and secular decline in the physical rental market.
Redbox segment revenue in the fourth quarter of 2014 was relatively flat at $494.0 million compared with $496.4 million in the fourth quarter of 2013, despite lower rentals in the fourth quarter of 2014 compared with the fourth quarter of 2013. Rentals declined 10.7 million to approximately 181.3 million in the fourth quarter of 2014 compared with 192.0 million in the fourth quarter of 2013. Same store sales decreased 1.3% in the fourth quarter of 2014 compared with an increase of 0.9% in the fourth quarter of 2013.
Net revenue per rental increased $0.14, or 5.4% to $2.72 in the fourth quarter of 2014 from $2.58 in the fourth quarter of 2013. The increase was primarily the result of the impact of the price increases and the continued shift to Blu-ray in the fourth quarter of 2014, both of which helped to minimize the impact of lower rentals in the fourth quarter of 2014 compared with the prior year.
Redbox segment operating income in the fourth quarter of 2014 was $121.3 million compared with $111.3 million in the fourth quarter of 2013. Segment operating margin was 24.6% in the fourth quarter of 2014 compared with 22.4% in the fourth quarter of 2013, reflecting the company's focus on managing its costs.
Coinstar
Coinstar segment revenue was $81.9 million, an increase of 1.5%, compared with $80.7 million in the fourth quarter of 2013, primarily due to growth in the number of installed Coinstar Exchange kiosks, a price increase in the U.K., and higher volume in the U.K. as a result of an increased U.K. kiosk base. Same store sales grew 3.3% in the fourth quarter of 2014 compared with 5.9% in the fourth quarter of 2013. The average transaction size in the fourth quarter of 2014 increased $0.63 to $44.45 from the fourth quarter of 2013.
Effective August 1, 2014, the company implemented a price increase for all U.K. grocery retail locations for the coin voucher product, increasing the fee from 8.9% to 9.9%.
Coinstar segment operating income was $33.6 million in the fourth quarter of 2014, an increase of 8.9% compared with the fourth quarter of 2013, and Coinstar segment operating margin was 41.0% in the fourth quarter of 2014, an increase of 280 basis points compared with 38.2% in the fourth quarter of 2013. The increases reflect the higher revenue and continued efforts to manage costs and increase productivity in the business.
New Ventures
New Ventures segment operating results primarily reflect the operations and performance of ecoATM. Beginning in the first quarter of 2015, the company expects to report ecoATM results as a separate segment.
New Ventures segment revenue was $24.7 million compared with $16.6 million in the fourth quarter of 2013, primarily due to the increase in the number of ecoATM kiosks and continued ramping of kiosks deployed in 2014. The company installed approximately 380 net new ecoATM kiosks during the fourth quarter of 2014, primarily in the grocery channel, and ended 2014 with a total of approximately 1,890 ecoATM kiosks. As of December 31, 2014, there were approximately 1,980 New Ventures kiosks installed.
New Ventures direct operating expense was $28.9 million in the fourth quarter of 2014 compared with $16.6 million in the fourth quarter of 2013. This year-over-year increase primarily reflects the necessary investments to support and grow ecoATM and the company's investment in SAMPLEit. Expenses include acquiring, transporting and processing mobile devices at ecoATM, servicing kiosks and payments to retailers.
In the fourth quarter of 2014, New Ventures segment revenue decreased sequentially from $29.7 million in the third quarter of 2014 primarily due to seasonality, a lower mix of high value devices, and a lower average selling price in the secondary market resulting from an increased supply of devices following the iPhone 6 release in September 2014. New Ventures direct operating expense increased from $27.0 million in the third quarter of 2014 primarily due to lower than expected revenue in the fourth quarter of 2014 that did not cover the fixed costs per kiosk associated with additional installations and continued investments necessary to scale and grow the business.
CAPITAL ALLOCATION
On February 3, 2015, the company's board of directors declared a quarterly cash dividend of $0.30 per share to be paid on March 18, 2015, to all stockholders of record as of the close of business on March 3, 2015. Future quarterly dividend payments will be subject to approval by the board of directors.
During 2014, the company repurchased 7.9 million shares of common stock at an average price of $68.31 per share for approximately $541.4 million.
As of December 31, 2014, there was approximately $163.7 million remaining under the company's stock repurchase authorization. On February 3, 2015, the company's board of directors approved an additional stock repurchase authorization of up to $250.0 million of its common stock plus the cash proceeds received from the exercise of stock options by the company's directors and employees, bringing the total available for repurchases to approximately $413.7 million.
The company's net leverage ratio(1) was 1.88x at December 31, 2014. The company continues to target a net leverage ratio in the range of 1.75x to 2.25x in 2015.
(1)Refer to Appendix A for a discussion of Use of Non-GAAP Financial Measures and Core and Non-Core Results.
2015 ANNUAL GUIDANCE
Beginning this year, the company is providing annual guidance only and expects to update its annual guidance as appropriate after reporting its financial results each quarter during the year.
There are several factors that influence the company's 2015 expectations, including the impact of pricing, the timing and number of net kiosk installations, the new release schedule and strength of content, and the company's ability to further align costs with revenue.
Outerwall's 2015 annual guidance reflects:
-- the anticipated benefit of the Redbox price increase that is expected to
be partially offset by secular decline;
-- a decrease in box office for titles releasing at Redbox compared with
2014;
-- the continued growth and scaling of ecoATM and further testing of the
company's SAMPLEit business; and
-- ongoing investment in Coinstar Exchange as the business proves out.
As a reminder, Outerwall's guidance for weighted-average diluted shares outstanding does not include the impact from any potential share repurchases in 2015.
The following table presents the company's full-year 2015 guidance:
2015 FULL-YEAR GUIDANCE As of
Dollars in millions, except per share
data February 5, 2015
----------------
Consolidated results
Revenue $2,314 - $2,464
Core adjusted EBITDA from continuing
operations(1) $467 - $512
Core diluted EPS from continuing
operations(1)(2) $6.71 - $7.71
Free cash flow(1) $205 - $245
Weighted average diluted shares
outstanding(2) 18.6 - 18.9
Effective tax rate 36% - 38%
Segment revenue
Redbox $1,835 - $1,965
Coinstar $313 - $318
New Ventures $166 - $181
Capital expenditures
Redbox $17 - $22
Coinstar $16 - $20
New Ventures $39 - $48
Corporate $28 - $35
Total CAPEX $100 - $125
===========
Net kiosk installations
Redbox (U.S.)(3) (1,000) - (1,900)
Coinstar 0 - (100)
New Ventures 600 - 1,200
(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 in
2015
(3)Does not include kiosks in
Canada as the company is
shutting down its Redbox Canada
operations in 2015
ADDITIONAL INFORMATION
Additional information regarding the company's 2014 fourth quarter and full-year operating and financial results and guidance are included in the company's prepared remarks. These items, as well as this press release, are posted on the Investor Relations section of the corporate website at ir.outerwall.com. The Segment Supplement, which provides historical data in Excel format, is also posted on the website.
CONFERENCE CALL
The company will host a conference call today at 2:30 p.m. PST (5:30 p.m. EST) to discuss fourth quarter and full-year 2014 earnings results and 2015 annual 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 February 19, 2015, at 1-855-859-2056 or 1?404?537-3406, using conference ID 58385972.
ABOUT OUTERWALL
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(TM) 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,
-- 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,
-- the ability to generate sufficient cash flow to timely and fully service
indebtedness and adhere to certain covenants and restrictions,
-- the ability to adequately protect our intellectual property, and
-- the application of substantial federal, state, local and foreign laws
and regulations specific to our business.
The foregoing list of risks and uncertainties is illustrative, but by no means exhaustive. For more information on factors that may affect future performance, please review "Risk Factors" described in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission. These forward-looking statements reflect Outerwall Inc.'s expectations as of the date of this press release. Outerwall Inc. undertakes no obligation to update the information provided herein.
(Financial Statements Follow)
OUTERWALL INC.
EARNINGS RELEASE SCHEDULES
Three Months and Year Ended December 31, 2014
-- Consolidated Statements of Comprehensive Income 10
-- Consolidated Balance Sheets 11
-- Consolidated Statements of Cash Flows 12
-- Business Segment and Enterprisewide Information 14
-- APPENDIX A
* Non-GAAP Financial Measures 16
* Core and Non-Core Results 16
* Core Adjusted EBITDA From Continuing Operations 17
* Core Diluted EPS From Continuing Operations 18
* Free Cash Flow 18
* Net Debt and Net Leverage Ratio 19
OUTERWALL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
Three Months Ended December 31, Year Ended December 31,
------------------------------- -----------------------
2014 2013 2014 2013
---- ---- ---- ----
Revenue $600,600 $593,705 $2,303,003 $2,306,601
Expenses:
Direct operating(1) 406,933 400,459 1,601,748 1,575,277
Marketing 11,098 9,499 38,240 32,402
Research and development 3,162 4,913 13,047 13,084
General and administrative 41,892 52,990 191,721 221,776
Depreciation and other 49,007 49,005 195,178 192,161
Amortization of intangible
assets 3,326 3,848 14,692 10,933
----- ----- ------ ------
Total expenses 515,418 520,714 2,054,626 2,045,633
------- ------- --------- ---------
Operating income 85,182 72,991 248,377 260,968
Other income (expense), net:
Income (loss) from equity
method investments, net 2,527 (21,352) (28,734) 19,928
Interest expense, net (12,599) (6,848) (47,636) (32,801)
Other, net (3,016) (2,204) (4,873) (5,527)
------ ------ ------ ------
Total other income
(expense), net (13,088) (30,404) (81,243) (18,400)
------- ------- ------- -------
Income from continuing
operations before income
taxes 72,094 42,587 167,134 242,568
Income tax expense (28,294) 289 (59,748) (34,477)
------- --- ------- -------
Income from continuing
operations 43,800 42,876 107,386 208,091
Loss from discontinued
operations, net of tax - (20,201) (768) (33,299)
Net income 43,800 22,675 106,618 174,792
Foreign currency
translation adjustment(2) 613 1,160 457 856
--- ----- --- ---
Comprehensive income $44,413 $23,835 $107,075 $175,648
======= ======= ======== ========
Basic earnings (loss) per share:
Continuing operations $2.38 $1.61 $5.32 $7.65
Discontinued operations - (0.76) (0.04) (1.23)
Basic earnings per share $2.38 $0.85 $5.28 $6.42
===== ===== ===== =====
Diluted earnings (loss) per share:
Continuing operations $2.35 $1.55 $5.19 $7.33
Discontinued operations - (0.73) (0.04) (1.17)
Diluted earnings per share $2.35 $0.82 $5.15 $6.16
===== ===== ===== =====
Weighted average shares
used in basic per share
calculations 18,412 26,696 20,192 27,216
Weighted average shares
used in diluted per share
calculations 18,660 27,598 20,699 28,381
(1) "Direct operating" excludes
depreciation and other of $32.3
million and $128.8 million for
the three months and year ended
December 31, 2014,
respectively, and $33.0 million
and $130.3 million for the
three months and year ended
December 31, 2013,
respectively.
(2) Foreign currency translation
adjustment had no tax effect in
2014 and 2013.
OUTERWALL INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
------------
2014 2013
---- ----
Assets
Current Assets:
Cash and cash equivalents $242,696 $371,437
Accounts receivable, net of
allowances of $2,223 and $1,826 48,590 50,296
Content library 180,121 199,868
Prepaid expenses and other current
assets 39,837 84,709
------ ------
Total current assets 511,244 706,310
Property and equipment, net 428,468 520,865
Deferred income taxes 11,378 6,443
Goodwill and other intangible
assets, net 623,998 638,690
Other long-term assets 8,231 19,075
----- ------
Total assets $1,583,319 $1,891,383
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $168,633 $236,018
Accrued payable to retailers 126,290 134,140
Other accrued liabilities 137,126 134,127
Current portion of long-term debt
and other long-term liabilities 20,416 103,889
Deferred income taxes 21,432 23,143
Total current liabilities 473,897 631,317
Long-term debt and other long-term
liabilities 973,669 681,403
Deferred income taxes 38,375 58,528
------ ------
Total liabilities 1,485,941 1,371,248
Commitments and contingencies
Debt conversion feature - 1,446
Stockholders' Equity:
Preferred stock, $0.001 par value -
5,000,000 shares authorized; no
shares issued or outstanding - -
Common stock, $0.001 par value -60,000,000
authorized;
36,600,166 and 36,356,357 shares issued;
18,926,242 and 26,150,900 shares
outstanding; 473,592 482,481
Treasury stock (996,293) (476,796)
Retained earnings 620,389 513,771
Accumulated other comprehensive loss (310) (767)
---- ----
Total stockholders' equity 97,378 518,689
------ -------
Total liabilities and stockholders'
equity $1,583,319 $1,891,383
========== ==========
OUTERWALL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended December 31, Year Ended December 31,
------------------------------- -----------------------
2014 2013 2014 2013
---- ---- ---- ----
Operating Activities:
Net income $43,800 $22,675 $106,618 $174,792
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and other 49,006 49,527 195,162 193,700
Amortization of intangible
assets 3,326 3,848 14,692 10,933
Share-based payments expense 3,291 5,377 13,384 16,831
Windfall excess tax benefits
related to share-based
payments 24 (351) (1,964) (3,698)
Deferred income taxes (5,203) 1,165 (22,611) (10,933)
Impairment expense - 27,470 - 32,732
(Income) loss from equity
method investments, net (2,527) 21,352 28,734 (19,928)
Amortization of deferred
financing fees and debt
discount 693 1,189 4,116 6,394
Loss from early extinguishment
of debt - 63 2,018 6,013
Other (273) (3,059) (1,750) (2,039)
Cash flows from changes in operating assets
and liabilities:
Accounts receivable, net (8,793) 8,284 8,671 7,978
Content library (29,053) (31,905) 19,747 (22,459)
Prepaid expenses and other
current assets 21,235 (19,086) 44,282 (50,542)
Other assets 55 (39) 1,702 230
Accounts payable 28,094 71,671 (68,912) 1,491
Accrued payable to retailers 20,975 5,553 (6,847) (4,088)
Other accrued liabilities 6,654 16,979 1,309 (9,573)
----- ------ ------
Net cash flows from operating
activities(1) 131,304 180,713 338,351 327,834
Investing Activities:
Purchases of property and
equipment (25,613) (38,066) (97,924) (161,412)
Proceeds from sale of property
and equipment 142 456 1,977 13,344
Acquisition of ecoATM, net of
cash acquired - - - (244,036)
Receipt of note receivable
principal - 22,818 - 22,913
Cash paid for equity
investments - - (24,500) (28,000)
Extinguishment payment
received from equity
investment 5,000 - 5,000 -
----- --- ----- ---
Net cash flows used in
investing activities(1) (20,471) (14,792) (115,447) (397,191)
Financing Activities:
Proceeds from issuance of
senior unsecured notes - - 295,500 343,769
Proceeds from new borrowing on
Credit Facility 7,000 250,000 642,000 400,000
Principal payments on Credit
Facility (58,875) (154,375) (680,125) (215,313)
Financing costs associated
with Credit Facility and
senior unsecured notes(2) (5) (1,759) (2,911) (2,203)
Settlement and conversion of
convertible debt - (2,547) (51,149) (172,211)
Repurchases of common stock(3) (13) (100,000) (545,091) (195,004)
Principal payments on capital
lease obligations and other
debt (3,399) (4,010) (13,996) (14,834)
Windfall excess tax benefits
related to share-based
payments (24) 351 1,964 3,698
Withholding tax paid on
vesting of restricted stock
net of proceeds from exercise
of stock options 564 697 (520) 8,460
--- --- -----
Net cash flows from (used in)
financing activities(1) $(54,752) $(11,643) $(354,328) $156,362
Three Months Ended December 31, Year Ended December 31,
------------------------------- -----------------------
2014 2013 2014 2013
---- ---- ---- ----
Effect of exchange rate
changes on cash $1,714 $1,929 $2,683 $1,538
------ ------ ------
Increase (decrease) in cash
and cash equivalents 57,795 156,207 (128,741) 88,543
Cash and cash equivalents:
Beginning of period 184,901 215,230 371,437 282,894
End of period $242,696 $371,437 $242,696 $371,437
======== ======== ======== ========
(1) During 2013, we discontinued
four ventures previously
included in our New Ventures
operating segment: Orango,
Rubi, Crisp Market, and Star
Studio. Cash flows from these
discontinued operations are not
segregated from cash flows from
continuing operations in all
periods presented because they
were not material.
(2) Total financing costs associated
with the Credit Facility and
senior unsecured notes issued
in the second quarter of 2014
were $8.2 million composed of
non-cash debt issue costs of
$4.5 million recorded as debt
discount associated with our
issuance of $300.0 million
senior unsecured notes due
2021, $1.5 million in deferred
financing fees associated with
the senior unsecured notes, and
$2.2 million in deferred
financing fees associated with
the refinancing of our credit
facility. The cash payments for
financing costs associated with
the Credit Facility and senior
unsecured notes in 2014 were
$2.9 million. The remaining
accrued balance of the total
financing cost as of December
31, 2014 was $0.8 million.
(3) The total cost of repurchases of
common stock in 2014 was $545.1
million, which includes $3.7
million in fees and expenses
relating to the tender offer
recorded as part of the cost of
treasury stock in our
Consolidated Balance Sheets.
The cash payments for the
tender offer fees in 2014 were
$3.7 million.
OUTERWALL INC.
BUSINESS SEGMENTS AND ENTERPRISEWIDE INFORMATION
(unaudited)
The analysis and reconciliation of the company's segment information to the consolidated financial statements that follows covers the company's results of operations, which consists of the Redbox, Coinstar and New Ventures segments. Unallocated general and administrative expenses
relate to share-based compensation and expense related to the rights to receive cash issued in connection with our acquisition of ecoATM.
Dollars in thousands
Three Months Ended December Redbox Coinstar New Ventures Corporate
31, 2014 Unallocated Total
------ -------- ------------ ------------ -----
Revenue $493,950 $81,921 $24,729 $ - $600,600
Expenses:
Direct operating 335,849 40,860 28,853 1,371 406,933
Marketing 6,634 1,949 1,597 918 11,098
Research and development 79 45 1,975 1,063 3,162
General and administrative 30,098 5,510 4,473 1,811 41,892
------ ----- ----- ----- ------
Segment operating income
(loss) 121,290 33,557 (12,169) (5,163) 137,515
Less: depreciation and
amortization (37,700) (8,998) (5,635) - (52,333)
------- ------ ------ --- -------
Operating income (loss) 83,590 24,559 (17,804) (5,163) 85,182
Income from equity method
investments, net - - - 2,527 2,527
Interest expense, net - - - (12,599) (12,599)
Other, net - - - (3,016) (3,016)
--- --- --- ------ ------
Income (loss) before income
taxes $83,590 $24,559 $(17,804) $(18,251) $72,094
======= ======= ======== ======== =======
Dollars in thousands
Three Months Ended December Redbox Coinstar New Ventures Corporate
31, 2013 Unallocated Total
------ -------- ------------ ------------ -----
Revenue $496,399 $80,698 $16,608 $ - $593,705
Expenses:
Direct operating 342,940 39,272 16,585 1,662 400,459
Marketing 4,953 2,887 993 666 9,499
Research and development 5 1,855 2,514 539 4,913
General and administrative 37,154 5,867 3,940 6,029 52,990
------ ----- ----- ----- ------
Segment operating income
(loss) 111,347 30,817 (7,424) (8,896) 125,844
Less: depreciation and
amortization (40,418) (8,428) (4,007) - (52,853)
------- ------ ------ --- -------
Operating income (loss) 70,929 22,389 (11,431) (8,896) 72,991
Loss from equity method
investments, net - - - (21,352) (21,352)
Interest expense, net - - - (6,848) (6,848)
Other, net - - - (2,204) (2,204)
--- --- --- ------ ------
Income (loss) before income
taxes $70,929 $22,389 $(11,431) $(39,300) $42,587
======= ======= ======== ======== =======
OUTERWALL INC.
BUSINESS SEGMENTS AND ENTERPRISEWIDE INFORMATION
(unaudited)
Dollars in thousands
Year Ended December 31,
2014 Redbox Coinstar New Ventures Corporate Total
Unallocated
---
Revenue $1,893,135 $315,628 $94,240 $ - $2,303,003
Expenses:
Direct operating 1,338,946 161,214 95,003 6,585 1,601,748
Marketing 23,916 6,346 4,785 3,193 38,240
Research and development 120 531 8,545 3,851 13,047
General and administrative 136,756 27,012 16,295 11,658 191,721
------- ------ ------ ------ -------
Segment operating income
(loss) 393,397 120,525 (30,388) (25,287) 458,247
Less: depreciation and
amortization (156,628) (35,471) (17,771) - (209,870)
-------- ------- ------- --- --------
Operating income (loss) 236,769 85,054 (48,159) (25,287) 248,377
Loss from equity method
investments, net - - - (28,734) (28,734)
Interest expense, net - - - (47,636) (47,636)
Other, net - - - (4,873) (4,873)
--- --- --- ------ ------
Income (loss) before income
taxes $236,769 $85,054 $(48,159) $(106,530) $167,134
======== ======= ======== ========= ========
Dollars in thousands
Year Ended December 31,
2013 Redbox Coinstar New Ventures Corporate Total
Unallocated
---
Revenue $1,974,531 $300,218 $31,852 $ - $2,306,601
Expenses:
Direct operating 1,383,646 158,562 29,433 3,636 1,575,277
Marketing 23,010 6,244 1,589 1,559 32,402
Research and development 78 6,962 4,669 1,375 13,084
General and administrative 166,117 25,944 15,551 14,164 221,776
------- ------ ------ ------ -------
Segment operating income
(loss) 401,680 102,506 (19,390) (20,734) 464,062
Less: depreciation and
amortization (162,637) (33,921) (6,536) - (203,094)
-------- ------- ------ --- --------
Operating income (loss) 239,043 68,585 (25,926) (20,734) 260,968
Income from equity method
investments, net - - - 19,928 19,928
Interest expense, net - - - (32,801) (32,801)
Other, net - - - (5,527) (5,527)
--- --- --- ------ ------
Income (loss) before income
taxes $239,043 $68,585 $(25,926) $(39,134) $242,568
======== ======= ======== ======== ========
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, but not limited to, i) restructuring costs associated with actions to reduce costs in our continuing operations primarily through workforce reductions across the Company, ii) acquisition costs primarily related to the acquisition of ecoATM, 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 and includes the impacts of the gain on re-measurement of our previously held equity interest in ecoATM upon acquisition, v) benefits from release of indemnification reserves upon settlement of the Sigue Note and vi) tax benefits related to a net operating loss adjustment and the recognition of a worthless stock deduction in a corporate subsidiary ("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.
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 Year Ended
December 31, December 31,
------------ ------------
Dollars in thousands 2014 2013 2014 2013
---- ---- ---- ----
Net income from continuing
operations $43,800 $42,876 $107,386 $208,091
Depreciation, amortization and
other 52,333 52,853 209,870 203,094
Interest expense, net 12,599 6,848 47,636 32,801
Income tax expense (benefit) 28,294 (289) 59,748 34,477
Share-based payments expense(1) 3,291 5,377 13,384 16,831
----- ----- ------ ------
Adjusted EBITDA from continuing
operations 140,317 107,665 438,024 495,294
Non-Core Adjustments:
Restructuring costs - 4,495 469 4,495
Acquisition costs - - - 5,669
Rights to receive cash issued
in connection with the
acquisition of ecoATM 3,237 6,364 13,270 8,664
(Income) loss from equity
method investments, net (2,527) 21,352 28,734 48,448
Sigue indemnification reserve
releases - (2,542) - (2,542)
Gain on previously held equity
interest in ecoATM - - - (68,376)
Core adjusted EBITDA from
continuing operations $141,027 $137,334 $480,497 $491,652
======== ======== ======== ========
(1) Includes both non-cash share-
based compensation for executives,
non-employee directors and
employees as well as share-based
payments for content arrangements.
Core Diluted EPS from continuing operations
Our non-GAAP financial measure core diluted EPS from continuing operations is defined as diluted earnings per share from continuing operations excluding Non-Core Adjustments, net of applicable taxes.
A reconciliation of core diluted EPS from continuing operations to diluted EPS from continuing operations, the most comparable GAAP financial measure, is presented in the following table:
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2014 2013 2014 2013
---- ---- ---- ----
Diluted EPS from continuing
operations $2.35 $1.55 $5.19 $7.33
Non-Core Adjustments, net of tax:(1)
Restructuring costs - 0.10 0.01 0.10
Acquisition costs - 0.02 - 0.17
Rights to receive cash issued
in connection with the
acquisition of ecoATM 0.17 0.20 0.53 0.25
(Income) loss from equity
method investments, net (0.08) 0.47 0.85 1.04
Sigue indemnification reserve
releases - (0.06) - (0.05)
Gain on previously held
equity interest on ecoATM - - - (2.33)
Tax benefit from net
operating loss adjustment - - (0.05) -
Tax benefit of worthless
stock deduction - (0.60) (0.10) (0.59)
Core diluted EPS from
continuing operations $2.44 $1.68 $6.43 $5.92
===== ===== ===== =====
(1) Non-Core Adjustments are
presented after-tax using the
applicable effective tax rate
for the respective periods.
Free Cash Flow
Our non-GAAP financial measure free cash flow is defined as net cash provided by operating activities after capital expenditures. We believe free cash flow is an important non-GAAP measure as it provides additional information to users of the financial statements regarding our ability to service, incur or pay down indebtedness and repurchase our securities. A reconciliation of free cash flow to net cash provided by operating activities, the most comparable GAAP financial measure, is presented in the following table:
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
Dollars in
thousands 2014 2013 2014 2013
---- ---- ---- ----
Net cash
provided by
operating
activities $131,304 $180,713 $338,351 $327,834
Purchase of
property and
equipment (25,613) (38,066) (97,924) (161,412)
--------
Free cash flow $105,691 $142,647 $240,427 $166,422
======== ======== ======== ========
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:
December 31,
------------
Dollars in
thousands 2014 2013
---- ----
Senior unsecured
notes(1) $650,000 $350,000
Term loans(1) 146,250 344,375
Revolving line of
credit 160,000 -
Convertible debt(2) - 51,148
Capital leases 15,391 21,361
Total principal
value of
outstanding debt
including capital
leases 971,641 766,884
Less domestic cash
and cash
equivalents held
in financial
institutions (66,546) (199,027)
-------
Net debt 905,095 567,857
LTM Core adjusted
EBITDA from
continuing
operations $480,497 $491,652
-------- --------
Net leverage ratio 1.88 1.15
(1) The senior unsecured notes on
our Consolidated Balance Sheets
as of December 31, 2014 and
December 31, 2013 included $8.4
million and $5.3 million in
associated debt discount,
respectively. The Term loan on
our Consolidated Balance Sheets
as of December 31, 2014
included $0.3 million in
associated debt discount. There
was no associated debt discount
with the Term loans as of
December 31, 2013.
(2) The convertible debt balance on
our Consolidated Balance Sheet
as of December 31, 2013
included $1.4 million in
associated debt discount.
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SOURCE Outerwall Inc.
