OUTERWALL INC BELLEVUE, Wash., July 30, 2015 /PRNewswire/ -- Outerwall Inc. (Nasdaq: OUTR) today reported financial results for the second quarter ended June 30, 2015.
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"In the second quarter we continued to execute on our key strategies and delivered core results that were up significantly year-over-year across the board," said Nora M. Denzel, Outerwall's interim chief executive officer. "Although we recognized a goodwill impairment for ecoATM during the quarter, given its unique value proposition, we still expect ecoATM revenue growth and profitability over time as the business scales. Overall, our outlook for the second half of 2015 remains positive, with a strong box office expected in the fourth quarter."
The company also separately announced today that its board of directors has appointed Erik E. Prusch as chief executive officer effective July 31, 2015. Prusch will succeed Denzel, who will remain on the board.
"Erik joins Outerwall with more than 25 years of successful leadership and operations experience in consumer, retail, and technology companies, and I look forward to working with him to ensure a smooth transition," said Denzel.
During the three months ended June 30, 2015, the company recognized a non-cash, non-tax deductible charge for goodwill impairment of $85.9 million related to its ecoATM business segment. The impairment charge reflects the impact of competitive pressures on ecoATM and lowered expectations for future revenue growth. The charge resulted in a GAAP reported loss. Core results exclude the impact of the impairment charge as a non-core adjustment.
2015 2014 Change
Second Quarter Second Quarter %
-------------- -------------- ---
GAAP
Results
--
Consolidated
revenue $545.4 million $546.5 million (0.2)%
--
Income
(loss)
from
continuing
operations $(47.4) million $23.8 million (298.7)%
--
Net
income
(loss) $(45.6) million $21.8 million (309.7)%
--
Diluted
earnings
(loss)
from
continuing
operations
per
common
share* $(2.66) $1.15 (331.3)%
--
Net
cash
provided
by
operating
activities $75.1 million $62.8 million 19.6%
Core
Results**
--
Core
adjusted
EBITDA
from
continuing
operations $121.8 million $111.7 million 9.1%
--
Core
diluted
EPS
from
continuing
operations* $2.19 $1.52 44.1%
--
Free
cash
flow $55.6 million $36.8 million 51.4%
*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 second quarter 2015 include:
-- Delivered 9.1% growth in core adjusted EBITDA from continuing operations
to $121.8 million on essentially flat revenue reflecting solid execution
and continued expense management
-- Core diluted EPS from continuing operations grew 44.1% to $2.19 driven
by higher profitability, a lower tax rate and lower share count
-- Twentieth Century Fox Home Entertainment signed a new two-year, 28-day
delay agreement with Redbox and Sony Pictures Home Entertainment
recently extended the existing day and date agreement through September
2016
-- Free cash flow grew 51.4% to $55.6 million bringing the year to date
total to $141.0 million
-- Repurchased 284,537 shares of common stock for $22.0 million and paid
another quarterly dividend of $0.30 per share
"In the second quarter, we delivered solid growth in core adjusted EBITDA, core diluted EPS from continuing operations and free cash flow through solid execution as we continue to align costs and capital expenditures with revenue and optimize the kiosk networks. Our performance allows us to raise expectations for core adjusted EBITDA and core diluted EPS from continuing operations and free cash flow for 2015," said Galen C. Smith, Outerwall's chief financial officer.
"We remain committed to our disciplined approach to capital allocation and returning 75-to-100 percent of annual free cash flow to shareholders," continued Smith. "In addition to paying out the quarterly dividend, we repurchased another $22 million in common stock in the quarter."
CONSOLIDATED RESULTS
GAAP Results
Consolidated revenue for the second quarter of 2015 was down slightly to $545.4 million, compared with $546.5 million in the second quarter of 2014, on lower revenue from Redbox nearly offset by higher revenue from ecoATM and Coinstar.
The loss from continuing operations for the second quarter of 2015 was $47.4 million, or $2.66 of diluted loss from continuing operations per common share, compared with income from continuing operations of $23.8 million, or $1.15 of diluted earnings from continuing operations per common share, in the second quarter of 2014, primarily due to the non-cash $85.9 million goodwill impairment charge recognized in the second quarter of 2015.
Net cash provided by operating activities increased 19.6% to $75.1 million in the second quarter of 2015, compared with $62.8 million in the second quarter of 2014. The increase was primarily due to higher Redbox segment operating income and a change in net non-cash income and expense included in net income and a decrease in net cash outflows from changes in working capital.
Cash capital expenditures for the second quarter of 2015 decreased 25.2% to $19.5 million, compared with $26.1 million in the second quarter of 2014, with the decrease primarily related to lower capital expenditures in the company's Redbox and Coinstar segments.
Core Results
Core adjusted EBITDA from continuing operations for the second quarter of 2015 was $121.8 million, which excludes the $85.9 million non-cash goodwill impairment charge and other non-core adjustments, an increase of $10.2 million, or 9.1%, compared with $111.7 million for the second quarter of 2014. The year-over-year increase was primarily due to higher Redbox segment operating income in the second quarter of 2015.
Core diluted EPS from continuing operations for the second quarter of 2015 was $2.19, an increase of 44.1% compared with $1.52 per diluted share in the second quarter of 2014. The increase was primarily attributable to the results of operations described 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 second quarter of 2015 amounted to $4.82 compared with $0.34 in the second quarter of 2014.
Free cash flow for the second quarter of 2015 was $55.6 million, an increase of $18.9 million, or 51.4%, compared with $36.8 million in the second quarter of 2014, primarily driven by higher net operating cash flow and lower capital expenditures.
SEGMENT RESULTS
Redbox
Redbox segment revenue for the second quarter of 2015 was $439.0 million, compared with $442.8 million in the second quarter of 2014, a modest 0.9% year-over-year decline despite a 13.1% decrease in rentals, as the recent price increases largely offset the impact of lower rentals.
Redbox generated approximately 146.0 million rentals in the second quarter of 2015, down from approximately 168.1 million rentals in the second quarter of 2014, primarily driven by a decline in video game rentals from a consumer transition to new generation platforms, lower demand from price-sensitive customers following the price increases, the expected secular decline in the physical market, and the removal of underperforming kiosks. Movie rentals were further impacted by weaker content and the timing of the release slate, as well as an increase in competition for viewing time from several significant theatrical releases during the second quarter of 2015.
Net revenue per rental was $3.00 in the second quarter of 2015, an increase of $0.37, or 14.1%, from $2.63 in the second quarter of 2014. The increase in net revenue per rental was primarily the result of the price increases, partially offset by an expected increase in single night rental activity as a result of the price increases.
Redbox segment operating income in the second quarter of 2015 was $98.9 million, an increase of 14.7%, compared with $86.2 million in the second quarter of 2014. Segment operating margin increased 300 basis points to 22.5% in the second quarter of 2015, compared with segment operating margin of 19.5% in the second quarter of 2014, primarily attributable to a decrease in direct operating expenses, driven by gross margin improvement. Direct operating and marketing expense also improved as the company continued to drive operating efficiencies in the business to align the cost structure with an anticipated gradual decline in physical rental demand.
Coinstar
Coinstar segment revenue was $80.3 million, an increase of $0.4 million, or 0.5%, compared with $79.9 million in the second quarter of 2014, primarily due to the growth in the number of Coinstar Exchange kiosks and transactions partially offset by decreased revenue for Coinstar in the U.S. due to a reduction in volume.
The U.K. business continued to benefit from the increased coin voucher product transaction fee implemented in August 2014, however the benefit was offset by the unfavorable exchange rate impact on U.K. revenue in the second quarter of 2015 due to the strengthening of the U.S. dollar versus the British pound as compared with the second quarter of 2014.
The average Coinstar transaction size increased on a year-over-year basis, while the number of transactions declined for the second quarter of 2015, reflecting larger pours and less frequent visits and a slight decrease in the U.S. kiosk base year-over-year as a result of continued optimization efforts.
Coinstar segment operating income was $31.9 million in the second quarter of 2015, an increase of $1.1 million, or 3.6%, compared with $30.8 million in the second quarter of 2014. Coinstar segment operating margin increased 120 basis points to 39.8% for the second quarter of 2015, compared with 38.6% in the second quarter of 2014, as the business continues to identify opportunities to reduce costs and actively manage expenses.
ecoATM
Revenue in the ecoATM segment was $26.1 million in the second quarter of 2015, an increase of $2.3 million, or 9.5%, compared with $23.8 million in the second quarter of 2014, primarily due to the increase in the number of ecoATM installed kiosks, offset by a lower average selling price on value devices due to a lower mix of higher value devices and lower collections per kiosk compared with the second quarter of 2014.
ecoATM installed approximately 120 net new kiosks in the quarter, primarily in the mass merchant channel, and ended the quarter with a total of 2,260 kiosks installed. During the quarter, ecoATM also redeployed approximately 70 underperforming kiosks from the grocery channel to the mall and mass merchant channels to optimize the profitability of the ecoATM kiosk network.
Collections of value devices on a per kiosk basis were lower in the second quarter of 2015 than in the second quarter of 2014 as a result of fewer transactions at the kiosks, primarily due to competition from carriers. Carrier marketing also impacted the number of higher value devices and the mix of overall value devices collected in the second quarter of 2015, which were the primary reasons for the decline in the average selling price of value devices compared with the second quarter of 2014. Compared with the first quarter of 2015, collections of higher value devices, collections per kiosk and the average selling price improved slightly in the second quarter of 2015 but were below our expectations and historical seasonal trends.
The segment operating loss increased $88.4 million in the second quarter of 2015 to $92.8 million, compared with $4.5 million in the second quarter of 2014, primarily due to the $85.9 million goodwill impairment charge recognized in the second quarter of 2015. Excluding the $85.9 million goodwill impairment charge, the segment operating loss increased $2.5 million, primarily due to an increase in direct operating expenses associated with the increase in the installed kiosk base. As the company continues to install additional ecoATM kiosks and existing kiosks continue to ramp, the company expects to leverage the fixed cost portions of direct operating expenses.
CAPITAL ALLOCATION
On July 28, 2015, the company's board of directors declared a quarterly cash dividend of $0.30 per share expected to be paid on September 15, 2015, to all stockholders of record as of the close of business on August 28, 2015.
During the second quarter of 2015, the company repurchased 284,537 shares of common stock at an average price per share of $77.40 for $22.0 million. As of June 30, 2015, there was approximately $353.4 million remaining under the company's stock repurchase authorization.
2015 ANNUAL GUIDANCE
The following table presents the company's updated full-year 2015 guidance and reflects the company's second quarter results and current outlook on the remainder of the year:
2015 FULL-YEAR GUIDANCE As of
Dollars in millions, except per share
data July 30, 2015
-------------
Consolidated results
Revenue $2,263 - $2,353
Core adjusted EBITDA from continuing
operations(1) $481 - $515
Core diluted EPS from continuing
operations(1)(2) $8.12 - $9.12
Free cash flow(1) $231 - $271
Weighted average diluted shares
outstanding(2) 17.9 - 18.0
Core effective tax rate 35.5% - 37.5%
Segment revenue
Redbox $1,850 - $1,925
Coinstar $313 - $318
ecoATM $100 - $110
Capital expenditures
Redbox $15 - $20
Coinstar $16 - $20
ecoATM $25 - $34
Corporate $26 - $33
Total CAPEX $82 - $107
==========
Net kiosk installations
Redbox (1,000) - (1,900)
Coinstar 0 - (100)
ecoATM 400 - 500
(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 second 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 second 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 August 13, 2015, at 1-855-859-2056 or 1-404-537-3406, using conference ID 74496002.
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(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,
-- 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.
(Consolidated Financial Statements, Business Segment Information and Appendix A Follow)
OUTERWALL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
Revenue $545,369 $546,527 $1,154,005 $1,144,289
Expenses:
Direct operating(1) 369,619 381,734 774,803 801,376
Marketing 8,047 9,136 16,467 16,129
Research and development 2,039 3,412 4,123 6,886
General and administrative 48,783 48,596 97,339 101,204
Restructuring and lease
termination costs - - 15,851 557
Goodwill impairment 85,890 - 85,890 -
Depreciation and other 45,174 47,812 87,860 95,754
Amortization of intangible
assets 3,309 3,840 6,618 7,682
----- ----- ----- -----
Total expenses 562,861 494,530 1,088,951 1,029,588
------- ------- --------- ---------
Operating income (loss) (17,492) 51,997 65,054 114,701
Other income (expense), net:
Loss from equity method
investments, net (133) (10,541) (265) (19,909)
Interest expense, net (12,183) (12,932) (24,254) (22,580)
Other income (expense), net 642 1,614 (1,704) 966
--- ----- ------ ---
Total other income
(expense), net (11,674) (21,859) (26,223) (41,523)
------- ------- ------- -------
Income (loss) from
continuing operations
before income taxes (29,166) 30,138 38,831 73,178
Income tax expense (18,185) (6,305) (44,027) (21,739)
------- ------ ------- -------
Income (loss) from
continuing operations (47,351) 23,833 (5,196) 51,439
Income (loss) from
discontinued operations,
net of tax 1,735 (2,080) (4,821) (6,511)
Net income (loss) (45,616) 21,753 (10,017) 44,928
Foreign currency
translation adjustment(2) 473 (336) 3,327 539
--- ---- ----- ---
Comprehensive income (loss) $(45,143) $21,417 $(6,690) $45,467
======== ======= ======= =======
Income (loss) from continuing operations
attributable to common shares:
Basic $(47,472) $23,016 $(5,465) $49,880
Diluted $(47,472) $23,036 $(5,465) $49,918
Basic earnings (loss) per common share:
Continuing operations $(2.66) $1.18 $(0.30) $2.30
Discontinued operations 0.10 (0.11) (0.27) (0.30)
Basic earnings (loss) per
common share $(2.56) $1.07 $(0.57) $2.00
====== ===== ====== =====
Diluted earnings (loss) per common share:
Continuing operations $(2.66) $1.15 $(0.30) $2.24
Discontinued operations 0.10 (0.10) (0.27) (0.29)
Diluted earnings (loss) per
common share $(2.56) $1.05 $(0.57) $1.95
====== ===== ====== =====
Weighted average common shares used in basic
and diluted per share calculations:
Basic 17,848 19,541 18,057 21,730
Diluted 17,848 20,048 18,057 22,298
Dividends declared per
common share $0.30 $ - $0.60 $ -
(1) "Direct operating" excludes
"Depreciation and other" of
$29.6 million and $58.0 million
for the three and six months
ended June 30, 2015,
respectively, and $31.4 million
and $63.1 million for the three
and six months ended June 30,
2014, respectively.
(2) Foreign currency translation
adjustment had no tax effect for
the three and six months ended
June 30, 2015 and 2014,
respectively.
OUTERWALL INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
June 30, December 31,
2015 2014
---- ----
Assets
Current Assets:
Cash and cash equivalents $237,708 $242,696
Accounts receivable, net of allowances of $979 and $2,223 33,432 48,590
Content library 146,556 180,121
Prepaid expenses and other current assets 60,064 39,837
------ ------
Total current assets 477,760 511,244
Property and equipment, net 360,445 428,468
Deferred income taxes 2,480 11,378
Goodwill and other intangible assets, net 531,446 623,998
Other long-term assets 7,098 8,231
----- -----
Total assets $1,379,229 $1,583,319
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $147,209 $168,633
Accrued payable to retailers 114,815 126,290
Other accrued liabilities 134,566 137,126
Current portion of long-term debt and other long-term liabilities 18,490 20,416
Deferred income taxes 25,676 21,432
Total current liabilities 440,756 473,897
Long-term debt and other long-term liabilities 892,075 973,669
Deferred income taxes 22,237 38,375
------ ------
Total liabilities 1,355,068 1,485,941
Commitments and contingencies
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;
36,695,640 and 36,600,166 shares issued;
18,169,984 and 18,926,242 shares outstanding; 477,259 473,592
Treasury stock (1,055,447) (996,293)
Retained earnings 599,332 620,389
Accumulated other comprehensive income (loss) 3,017 (310)
----- ----
Total stockholders' equity 24,161 97,378
------ ------
Total liabilities and stockholders' equity $1,379,229 $1,583,319
========== ==========
OUTERWALL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
Operating Activities:
Net income (loss) $(45,616) $21,753 $(10,017) $44,928
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Depreciation and other 45,174 49,154 93,718 98,258
Amortization of intangible
assets 3,309 3,847 6,662 7,695
Share-based payments expense 3,289 3,079 7,192 6,844
Windfall excess tax benefits
related to share-based
payments (160) (243) (686) (1,953)
Deferred income taxes (1,392) (5,440) (3,939) (15,004)
Restructuring and lease
termination costs(2) - - 1,680 -
Loss from equity method
investments, net 133 10,541 265 19,909
Amortization of deferred
financing fees and debt
discount 692 1,216 1,385 2,522
Loss from early extinguishment
of debt - 1,963 - 1,963
Goodwill impairment 85,890 - 85,890 -
Other 383 (1,040) (816) (1,164)
Cash flows from changes in operating assets and
liabilities:
Accounts receivable, net 3,254 11,283 15,077 5,331
Content library 24,703 27,505 34,659 47,486
Prepaid expenses and other
current assets (18,976) (24,952) (22,082) 22,003
Other assets 154 599 322 1,036
Accounts payable (20,617) (43,605) (17,697) (70,995)
Accrued payable to retailers 6,931 8,762 (11,510) (6,723)
Other accrued liabilities (12,008) (1,589) 1,112 (4,716)
------- ------ ----- ------
Net cash flows from operating
activities(1) 75,143 62,833 181,215 157,420
Investing Activities:
Purchases of property and
equipment (19,508) (26,076) (40,217) (53,016)
Proceeds from sale of property
and equipment 2,817 962 2,940 1,793
Cash paid for equity
investments - - - (10,500)
--- --- --- -------
Net cash flows used in
investing activities(1) (16,691) (25,114) (37,277) (61,723)
Financing Activities:
Proceeds from issuance of
senior unsecured notes - 295,500 - 295,500
Proceeds from new borrowing on
Credit Facility 77,000 230,000 112,000 505,000
Principal payments on Credit
Facility (68,875) (505,000) (185,750) (534,375)
Financing costs associated
with Credit Facility and
senior unsecured notes - (2,082) - (2,082)
Settlement and conversion of
convertible debt - (17,720) - (17,724)
Repurchases of common stock (22,023) (53,413) (62,731) (474,480)
Dividends paid (5,417) - (11,019) -
Principal payments on capital
lease obligations and other
debt (3,033) (3,384) (6,278) (7,081)
Windfall excess tax benefits
related to share-based
payments 160 243 686 1,953
Withholding tax paid on
vesting of restricted stock
net of proceeds from exercise
of stock options 1,887 563 (1,201) (1,025)
----- --- ------ ------
Net cash flows used in
financing activities(1) (20,301) (55,293) (154,293) (234,314)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
Effect of exchange rate
changes on cash 1,623 (746) 5,367 406
----- ---- ----- ---
Change in cash and cash
equivalents 39,774 (18,320) (4,988) (138,211)
Cash and cash equivalents:
Beginning of period 197,934 251,546 242,696 371,437
End of period $237,708 $233,226 $237,708 $233,226
======== ======== ======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the period
for interest $10,933 $3,198 $22,846 $17,210
Cash paid during the period
for income taxes, net $53,905 $32,853 $66,896 $9,189
Supplemental disclosure of non-cash investing
and financing activities:
Purchases of property and
equipment financed by capital
lease obligations $257 $2,467 $977 $5,513
Purchases of property and
equipment included in ending
accounts payable $2,411 $1,724 $4,436 $1,724
Common stock issued on
conversion of callable
convertible debt $ - $12,715 $ - $12,715
Non-cash debt issue costs $ - $6,069 $ - $6,069
(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
six months ended June 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.
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.
OUTERWALL INC.
BUSINESS SEGMENT AND ENTERPRISEWIDE INFORMATION
(unaudited)
Dollars in thousands
Three Months Ended June 30, Redbox Coinstar ecoATM All Other Corporate
2015 Unallocated Total
------ -------- ------ --------- ------------ -----
Revenue $438,976 $80,279 $26,062 $52 $ - $545,369
Expenses:
Direct operating 301,444 39,358 27,227 1,078 512 369,619
Marketing 4,266 1,232 2,149 258 142 8,047
Research and development - - 1,549 1 489 2,039
General and administrative 34,336 7,768 2,094 2,644 1,941 48,783
Goodwill impairment - - 85,890 - - 85,890
--- --- ------ --- --- ------
Segment operating income
(loss) 98,930 31,921 (92,847) (3,929) (3,084) 30,991
Less: depreciation,
amortization and other (33,063) (8,437) (6,305) (678) - (48,483)
------- ------ ------ ---- --- -------
Operating income (loss) 65,867 23,484 (99,152) (4,607) (3,084) (17,492)
Loss from equity method
investments, net - - - - (133) (133)
Interest expense, net - - - - (12,183) (12,183)
Other, net - - - - 642 642
--- --- --- --- --- ---
Income (loss) from
continuing operations
before income taxes $65,867 $23,484 $(99,152) $(4,607) $(14,758) $(29,166)
======= ======= ======== ======= ======== ========
Dollars in thousands
Three Months Ended June 30, Redbox Coinstar ecoATM All Other Corporate
2014 Unallocated Total
------ -------- ------ --------- ------------ -----
Revenue $442,838 $79,880 $23,799 $10 $ - $546,527
Expenses:
Direct operating 317,376 40,203 22,387 436 1,332 381,734
Marketing 5,533 1,557 927 220 899 9,136
Research and development 18 153 1,391 675 1,175 3,412
General and administrative 33,692 7,169 3,564 573 3,598 48,596
------
Segment operating income
(loss) 86,219 30,798 (4,470) (1,894) (7,004) 103,649
Less: depreciation,
amortization and other (38,783) (8,921) (3,812) (136) - (51,652)
------- ------ ------ ---- --- -------
Operating income (loss) 47,436 21,877 (8,282) (2,030) (7,004) 51,997
Loss from equity method
investments, net - - - - (10,541) (10,541)
Interest expense, net - - - - (12,932) (12,932)
Other, net - - - - 1,614 1,614
--- --- --- --- ----- -----
Income (loss) from
continuing operations
before income taxes $47,436 $21,877 $(8,282) $(2,030) $(28,863) $30,138
======= ======= ======= ======= ======== =======
OUTERWALL INC.
BUSINESS SEGMENT AND ENTERPRISEWIDE INFORMATION
(unaudited)
Dollars in thousands
Six Months Ended June 30, Redbox Coinstar ecoATM All Other Corporate
2015 Unallocated Total
------ -------- ------ --------- ------------ -----
Revenue $958,509 $149,609 $45,811 $76 $ - $1,154,005
Expenses:
Direct operating 644,379 76,621 50,033 2,269 1,501 774,803
Marketing 9,091 2,410 3,879 578 509 16,467
Research and development - - 3,005 (84) 1,202 4,123
General and administrative 68,071 15,563 4,062 5,151 4,492 97,339
Restructuring and lease
termination costs 15,174 550 127 - - 15,851
Goodwill impairment - - 85,890 - - 85,890
--- --- ------ --- --- ------
Segment operating income
(loss) 221,794 54,465 (101,185) (7,838) (7,704) 159,532
Less: depreciation,
amortization and other (64,670) (16,255) (12,207) (1,346) - (94,478)
------- ------- ------- ------ --- -------
Operating income (loss) 157,124 38,210 (113,392) (9,184) (7,704) 65,054
Loss from equity method
investments, net - - - - (265) (265)
Interest expense, net - - - - (24,254) (24,254)
Other, net - - - - (1,704) (1,704)
--- --- --- --- ------ ------
Income (loss) from
continuing operations
before income taxes $157,124 $38,210 $(113,392) $(9,184) $(33,927) $38,831
======== ======= ========= ======= ======== =======
Dollars in thousands
Six Months Ended June 30, Redbox Coinstar ecoATM All Other Corporate
2014 Unallocated Total
------ -------- ------ --------- ------------ -----
Revenue $955,887 $148,633 $39,745 $24 $ - $1,144,289
Expenses:
Direct operating 680,977 77,926 38,318 844 3,311 801,376
Marketing 9,993 2,563 1,595 381 1,597 16,129
Research and development 26 422 3,175 1,307 1,956 6,886
General and administrative 72,393 14,166 6,443 1,494 6,708 101,204
Restructuring and lease
termination costs 534 23 - - - 557
--- --- --- --- --- ---
Segment operating income
(loss) 191,964 53,533 (9,786) (4,002) (13,572) 218,137
Less: depreciation,
amortization and other (78,187) (17,484) (7,524) (241) - (103,436)
------- ------- ------ ---- --- --------
Operating income (loss) 113,777 36,049 (17,310) (4,243) (13,572) 114,701
Loss from equity method
investments, net - - - - (19,909) (19,909)
Interest expense, net - - - - (22,580) (22,580)
Other, net - - - - 966 966
--- --- --- --- --- ---
Income (loss) from
continuing operations
before income taxes $113,777 $36,049 $(17,310) $(4,243) $(55,095) $73,178
======== ======= ======== ======= ======== =======
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.
Core Adjusted EBITDA from continuing operations
Our non-GAAP financial measure core adjusted EBITDA from continuing operations is defined as earnings from continuing operations before depreciation, amortization and other; interest expense, net; income taxes; share-based payments expense; and Non-Core Adjustments.
A reconciliation of core adjusted EBITDA from continuing operations to net income from continuing operations, the most comparable GAAP financial measure, is presented in the following table:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
Dollars in thousands 2015 2014 2015 2014
---- ---- ---- ----
Net income (loss) from
continuing operations $(47,351) $23,833 $(5,196) $51,439
Depreciation, amortization and
other 48,483 51,652 94,478 103,436
Interest expense, net 12,183 12,932 24,254 22,580
Income taxes 18,185 6,305 44,027 21,739
Share-based payments expense(1) 3,320 3,079 7,261 6,844
----- ----- ----- -----
Adjusted EBITDA from continuing
operations 34,820 97,801 164,824 206,038
Non-Core Adjustments:
Goodwill impairment 85,890 - 85,890 -
Restructuring costs - - 15,851 469
Rights to receive cash issued
in connection with the
acquisition of ecoATM 1,005 3,338 2,925 6,759
Loss from equity method
investments, net 133 10,541 265 19,909
Core adjusted EBITDA from
continuing operations $121,848 $111,680 $269,755 $233,175
======== ======== ======== ========
(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 Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
Diluted EPS from continuing
operations per common
share (two-class method) $(2.66) $1.15 $(0.30) $2.24
Adjustment from
participating securities
allocation and share
differential to treasury
stock method(1) 0.03 0.03 0.01 0.05
Diluted EPS from continuing
operations (treasury stock
method) (2.63) 1.18 (0.29) 2.29
Non-Core Adjustments, net of tax:(1)
Goodwill impairment 4.77 - 4.71 -
Restructuring costs - - 0.53 0.01
Rights to receive cash
issued in connection with
the acquisition of ecoATM 0.04 0.13 0.11 0.23
Loss from equity method
investments, net 0.01 0.32 0.01 0.53
Tax benefit from net
operating loss adjustment - - - (0.04)
Tax benefit of worthless
stock deduction - (0.11) - (0.10)
Core diluted EPS from
continuing operations $2.19 $1.52 $5.07 $2.92
===== ===== ===== =====
(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 Six Months Ended
June 30, June 30,
-------- --------
In thousands 2015 2014 2015 2014
---- ---- ---- ----
Income (loss)
from continuing
operations
attributable to
common shares $(47,472) $23,036 $(5,465) $49,918
Add: income from
continuing
operations
allocated to
participating
securities 121 797 269 1,521
Income (loss)
from continuing
operations $(47,351) $23,833 $(5,196) $51,439
======== ======= ======= =======
Weighted average
diluted common
shares 17,848 20,048 18,057 22,298
Add: diluted
common
equivalent
shares of
participating
securities 127 133 181 190
Add: dilutive
securities
under treasury
stock method 14 - 16 -
--- --- --- ---
Weighted average
diluted shares
(treasury stock
method) 17,989 20,181 18,254 22,488
====== ====== ====== ======
Free Cash Flow
Our non-GAAP financial measure free cash flow is defined as net cash provided by operating activities after capital expenditures. We believe free cash flow is an important non-GAAP measure as it provides additional information to users of the financial statements regarding our ability to service, incur or pay down indebtedness and repurchase our securities. A reconciliation of free cash flow to net cash provided by operating activities, the most comparable GAAP financial measure, is presented in the following table:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
Dollars in
thousands 2015 2014 2015 2014
---- ---- ---- ----
Net cash
provided by
operating
activities $75,143 $62,833 $181,215 $157,420
Purchase of
property and
equipment (19,508) (26,076) (40,217) (53,016)
------- ------- ------- -------
Free cash flow $55,635 $36,757 $140,998 $104,404
======= ======= ======== ========
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:
June 30, December 31,
2015 2014
---- ----
Dollars in
thousands
Senior unsecured
notes $650,000 $650,000
Term loans 142,500 146,250
Revolving line
of credit 90,000 160,000
Capital leases 9,876 15,391
-----
Total principal
value of
outstanding
debt including
capital leases 892,376 971,641
Less domestic
cash and cash
equivalents
held in
financial
institutions (62,609) (66,546)
-------
Net debt 829,767 905,095
LTM Core
adjusted EBITDA
from continuing
operations(1) $533,400 $496,820
--------
Net leverage
ratio 1.56 1.82
(1) LTM Core Adjusted EBITDA from
continuing operations for the
twelve months ended June 30, 2015
and December 31, 2014 was
determined as follows:
Dollars in thousands
Core adjusted EBITDA from
continuing operations for the
six months ended June 30, 2015 $269,755
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
six months ended June 30, 2014 (233,175)
LTM Core adjusted EBITDA from
continuing operations for the
twelve months ended June 30,
2015 $533,400
========
(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.
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/outerwall-inc-announces-2015-second-quarter-results-300121533.html
SOURCE Outerwall Inc.
