OUTERWALL INC BELLEVUE, Wash., Oct. 29, 2015 /PRNewswire/ -- Outerwall Inc. (Nasdaq: OUTR) today reported financial results for the third quarter ended September 30, 2015.
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"Our performance in the third quarter underscores our ability to drive the bottom-line," said Erik E. Prusch, Outerwall's chief executive officer. "Redbox was challenged by the lowest theatrical box office in four years for Redbox titles and revenue was lower than we expected. However, we continued to control costs and create efficiencies as our Redbox and Coinstar businesses generated solid margins and cash flow. We remain focused on moving ecoATM to profitability as quickly as possible and made progress in a number of key operational areas due to our deliberate efforts to reduce costs. We are also determined to prudently drive top-line performance and are working on multiple fronts to make that happen."
2015 2014 Change
Third Quarter Third Quarter %
------------- ------------- ---
GAAP
Results
--
Consolidated
revenue $512.1 million $549.9 million (6.9)%
--
Income
from
continuing
operations $37.6 million $22.1 million 69.9%
-- Net
income $37.3 million $17.9 million 108.7%
--
Diluted
earnings
from
continuing
operations
per
common
share* $2.12 $1.12 89.3%
-- Net
cash
provided
by
operating
activities $85.6 million $49.6 million 72.4%
Core
Results**
--
Core
adjusted
EBITDA
from
continuing
operations $119.7 million $115.9 million 3.3%
--
Core
diluted
EPS
from
continuing
operations* $2.21 $1.67 32.3%
--
Free
cash
flow $65.6 million $30.3 million 116.3%
*Beginning in the first quarter
of 2015, the company applied
the two-class method of
calculating earnings per share
for its GAAP results because
the impact of unvested
restricted shares as a
percentage of total common
shares outstanding became more
dilutive given the level of
stock repurchases over the
prior year. Core diluted EPS
from continuing operations
continues to be reported under
the treasury stock method.
**Refer to Appendix A for a
discussion of Use of Non-GAAP
Financial Measures and Core and
Non-Core Results.
Highlights from the third quarter 2015 include:
-- The company continued to focus on effectively managing expenses across
the enterprise, delivering 3.3% year-over-year growth in core adjusted
EBITDA from continuing operations despite revenue decreasing 6.9%
-- Core diluted EPS from continuing operations increased 32.3% to $2.21
reflecting increased profitability and a lower share count
-- Repurchased 938,586 shares of common stock for $60.8 million
-- Generated 116.3% growth in free cash flow (FCF) to $65.6 million
bringing the year-to-date total to $206.6 million
"Our continued focus on operational excellence drove strong third quarter results, with significant year-over-year increases in free cash flow, core adjusted EBITDA and core diluted EPS," said Galen C. Smith, Outerwall's chief financial officer. "We generated more than $65.6 million in free cash flow during the quarter, an increase of 116.3 percent from the third quarter last year. We continued our balanced approach to capital allocation and repurchased more than 900,000 shares in the quarter, or 5.2 percent of shares outstanding. We remain on track to uphold our commitment of returning 75 to 100 percent of annual free cash flow to shareholders directly through share repurchases and quarterly cash dividends."
Smith continued: "Our performance in the quarter demonstrates our ability to continue delivering strong financial results despite exceptionally weak content that impacted revenue and rentals in our Redbox business. We will continue driving Outerwall's financial performance, managing expenses and improving profitability to both reinvest in the business and enhance the bottom-line."
CONSOLIDATED RESULTS
GAAP Results
Consolidated revenue for the third quarter of 2015 was $512.1 million compared with $549.9 million in the third quarter of 2014. The $37.8 million decrease was due primarily to a $39.7 million decrease in revenue from Redbox driven by a decline in rentals and the removal of underperforming kiosks, partially offset by the price increases for movie content implemented in December 2014. Movie rentals were impacted primarily by lower total box office of movie titles released including seven fewer titles, the timing of the release slate, a higher impact from secular decline in the physical market and lower demand from price-sensitive customers following the price increases which is heightened in periods of weak content. Revenue from the ecoATM and Coinstar segments increased by $1.2 million and $0.6 million, respectively, in the third quarter of 2015 compared with the third quarter of 2014.
Income from continuing operations for the third quarter of 2015 was $37.6 million, or $2.12 of diluted earnings from continuing operations per common share, compared with income from continuing operations of $22.1 million, or $1.12 of diluted earnings from continuing operations per common share, in the third quarter of 2014. The increases were primarily due to an increase in operating income from the Redbox and Coinstar segments, as a result of lower direct operating expenses, lower kiosk related depreciation, and ongoing cost reduction initiatives.
Net cash provided by operating activities increased 72.4% to $85.6 million in the third quarter of 2015, compared with $49.6 million in the third quarter of 2014. The increase was primarily due to a decrease in net cash outflows from changes in working capital.
Cash capital expenditures for the third quarter of 2015 increased 3.4% to $19.9 million, compared with $19.3 million in the third quarter of 2014, as the result of timing of ongoing investments in the businesses.
Core Results
Core adjusted EBITDA from continuing operations for the third quarter of 2015 was $119.7 million, an increase of $3.8 million, or 3.3%, compared with $115.9 million for the third quarter of 2014. The increase was primarily due to increased segment operating income from the Redbox and Coinstar segments.
Core diluted EPS from continuing operations for the third quarter of 2015 was $2.21, an increase of 32.3% compared with $1.67 per diluted share in the third quarter of 2014. The increase was primarily attributable to increased segment operating income from the Redbox and Coinstar segments, and a reduction in the number of weighted average shares used in the diluted per share calculation due to stock repurchases. Non-core adjustments in the third quarter of 2015 totaled $0.05 compared with $0.51 in the third quarter of 2014.
Free cash flow for the third quarter of 2015 was $65.6 million, an increase of $35.3 million, or 116.3%, compared with $30.3 million in the third quarter of 2014, primarily driven by higher net operating cash flow.
SEGMENT RESULTS
Redbox
Redbox segment revenue for the third quarter of 2015 was $395.4 million compared with $435.1 million in the third quarter of 2014. The decrease of $39.7 million reflects $35.8 million attributed to a decline in total disc rentals and $3.9 million related to a decrease in revenue from kiosks removed subsequent to the third quarter of 2014 as a result of continued efforts to optimize the network by removing underperforming kiosks.
Redbox generated approximately 132.6 million rentals in the third quarter of 2015, down from approximately 170.8 million rentals in the third quarter of 2014. The decline in rentals was driven by several factors, including a substantially lower box office which was 45.3% lower and included seven fewer titles than the third quarter of 2014, the timing of the release slate, a higher impact from secular decline in the physical market, lower demand from price-sensitive customers following the price increases implemented in December 2014 and January 2015, which is heightened during periods of weak content, and a decline in video game rentals due to consumer transition to new generation platforms and the limited new release titles available for the new platforms.
Net revenue per rental was $2.96 in the third quarter of 2015, an increase of $0.42, or 16.5%, from $2.54 in the third quarter of 2014. The increase in net revenue per rental was primarily the result of the impact of the increase in daily rental prices, partially offset by the expected increase in single night rental activity and lower demand from price-sensitive customers as a result of the price increases; a decrease in Blu-ray revenue primarily as a result of fewer Blu-ray releases; and a decrease in video game revenue resulting from the consumer transition to new generation platforms and a lack of new release content availability related to the transition and seasonality of publisher release schedules.
Redbox segment operating income in the third quarter of 2015 was $90.4 million, an increase of $2.1 million or 2.4%, compared with $88.3 million in the third quarter of 2014. Segment operating margin increased 260 basis points to 22.9% in the third quarter of 2015, compared with segment operating margin of 20.3% in the third quarter of 2014, primarily attributable to an improvement in gross margin related to the price increases and lower spending on content in the third quarter of 2015 due to fewer movie releases and weak content, lower games purchases due to the consumer transition to new generation platforms, and lower cost per title driven by studio mix, as well as reductions in direct operating, general and administrative and marketing expenses as the business continues to focus on operating efficiencies and aligning its cost structure with physical rental demand.
Coinstar
Coinstar segment revenue was $85.7 million, an increase of $0.6 million compared with $85.1 million in the third quarter of 2014, primarily due to an increase in the number of Coinstar Exchange kiosks and transactions and higher revenue for Coinstar in the U.S. due to increased volume.
Coinstar revenue in the U.K. and Canada in the third quarter of 2015 was negatively impacted by unfavorable exchange rates due to the strengthening of the U.S. dollar versus the British pound and Canadian dollar compared with the prior year, and largely offset the impact of the increased coin voucher product transaction fee from 8.9% to 9.9% implemented in the U.K. in August 2014.
Coinstar segment operating income was $34.5 million in the third quarter of 2015, an increase of $1.1 million, or 3.1%, compared with $33.4 million in the third quarter of 2014. Coinstar segment operating margin increased 100 basis points to 40.3% for the third quarter of 2015, compared with 39.3% in the third quarter of 2014, as the business continues to actively manage expenses and identify additional opportunities to reduce costs.
ecoATM
Revenue in the ecoATM segment was $31.0 million in the third quarter of 2015, an increase of $1.2 million, or 4.1%, compared with $29.7 million in the third quarter of 2014. This increase was primarily due to an increase in the number of ecoATM installed kiosks, increased collections and an increase in the number of value devices sold, partially offset by a lower average selling price of value devices sold, primarily due to a lower mix of higher value devices and lower collections of value devices per kiosk due to sustained carrier marketing of alternative recycling options.
While the number of overall devices sold increased 38.5% and the number of value devices sold increased 35.1% in the third quarter of 2015 compared with the third quarter of 2014, the collection of value devices on a per kiosk basis, as well as the number of higher value devices collected, declined as a result of alternative recycling options marketed by the carriers. The average selling price of value devices sold was $59.15 in the third quarter of 2015 compared with $75.95 in the third quarter of 2014.
Segment operating loss increased to $3.1 million in the third quarter of 2015, compared with $2.0 million in the third quarter of 2014, primarily due to an increase in direct operating expenses related to costs associated with the increased installed ecoATM kiosk base.
The number of installed ecoATM kiosks were 2,210 in the third quarter of 2015, an increase of 700 compared with the third quarter of 2014. As a result of the company's optimization efforts in the third quarter of 2015, ecoATM removed approximately 250 underperforming kiosks, primarily from the grocery channel, and redeployed approximately 180 kiosks into retailer locations, with the majority in the mall and mass merchant channels, for a net reduction of 50 kiosks from the second quarter.
CAPITAL ALLOCATION
On October 27, 2015, the company's board of directors declared a quarterly cash dividend of $0.30 per share expected to be paid on December 8, 2015, to all stockholders of record as of the close of business on November 23, 2015.
During the third quarter of 2015, the company repurchased 938,586 shares of common stock at an average price per share of $64.73 for a total of $60.8 million. As of September 30, 2015, there was approximately $292.7 million remaining under the company's stock repurchase authorization.
2015 ANNUAL GUIDANCE
The following table presents Outerwall's updated full-year 2015 guidance and reflects the company's third quarter results and current outlook on the remainder of the year:
2015 FULL-YEAR GUIDANCE As of
Dollars in millions, except per share
data October 29, 2015
----------------
Consolidated results
Revenue $2,205 - $2,240
Core adjusted EBITDA from continuing
operations(1) $490 - $510
Core diluted EPS from continuing
operations(1)(2) $8.82 - $9.52
Free cash flow(1) $252 - $282
Weighted average diluted shares
outstanding(2) 17.67 - 17.73
Core effective tax rate 35.5% - 37.5%
Segment revenue
Redbox $1,790 - $1,815
Coinstar $315 - $320
ecoATM $100 - $105
Capital expenditures
Redbox $15 - $18
Coinstar $12 - $14
ecoATM $25 - $31
Corporate $19 - $23
Total CAPEX $71 - $86
=========
Net kiosk installations
Redbox (1,500) - (1,700)
Coinstar (150) - (175)
ecoATM 400 - 450
(1) Refer to Appendix A for a
discussion of Use of Non-GAAP
Financial Measures and Core and
Non-Core Results
(2) Excludes the impact of any
potential share repurchases for
the remainder of 2015
ADDITIONAL INFORMATION
Additional information regarding the company's 2015 third quarter operating and financial results and guidance is included in the company's prepared remarks, which, as well as this press release, are posted on the Investor Relations section of the corporate website at ir.outerwall.com.
CONFERENCE CALL
The company will host a conference call today at 2:30 p.m. PDT (5:30 p.m. EDT) to discuss third quarter 2015 earnings results and an update to 2015 guidance. The conference call will be webcast live and archived on the Investor Relations section of Outerwall's website at ir.outerwall.com. A recording of the call will be available approximately two hours after the call ends through November 12, 2015, at 1-855-859-2056 or 1-404-537-3406, using conference ID 46780582.
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
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
Revenue $512,055 $549,899 $1,666,060 $1,694,188
Expenses:
Direct operating(1) 340,199 379,442 1,115,002 1,180,818
Marketing 7,131 9,143 23,598 25,272
Research and development 1,514 2,999 5,637 9,885
General and administrative 47,818 47,586 145,157 148,790
Restructuring and lease
termination costs - - 15,851 557
Depreciation and other 39,880 46,380 127,740 142,134
Amortization of intangible
assets 3,308 3,665 9,926 11,347
Goodwill impairment - - 85,890 -
--- --- ------ ---
Total expenses 439,850 489,215 1,528,801 1,518,803
------- ------- --------- ---------
Operating income 72,205 60,684 137,259 175,385
Other expense, net:
Loss from equity method
investments, net (328) (11,352) (593) (31,261)
Interest expense, net (11,973) (12,465) (36,227) (35,045)
Other, net (1,384) (1,352) (3,088) (386)
------ ------ ------ ----
Total other expense, net (13,685) (25,169) (39,908) (66,692)
------- ------- ------- -------
Income from continuing
operations before income
taxes 58,520 35,515 97,351 108,693
Income tax expense (20,928) (13,392) (64,955) (35,131)
------- ------- ------- -------
Income from continuing
operations 37,592 22,123 32,396 73,562
Loss from discontinued
operations, net of tax (256) (4,233) (5,077) (10,744)
Net income 37,336 17,890 27,319 62,818
Foreign currency
translation adjustment(2) (1,651) (695) 1,676 (156)
------ ---- ----- ----
Comprehensive income $35,685 $17,195 $28,995 $62,662
======= ======= ======= =======
Income from continuing operations
attributable to common shares:
Basic $36,462 $21,384 $31,491 $71,268
Diluted $36,462 $21,392 $31,491 $71,309
Basic earnings (loss) per common share:
Continuing operations $2.12 $1.14 $1.77 $3.43
Discontinued operations (0.02) (0.23) (0.28) (0.52)
Basic earnings per common
share $2.10 $0.91 $1.49 $2.91
===== ===== ===== =====
Diluted earnings (loss) per common share:
Continuing operations $2.12 $1.12 $1.77 $3.37
Discontinued operations (0.02) (0.22) (0.29) (0.51)
Diluted earnings per common
share $2.10 $0.90 $1.48 $2.86
===== ===== ===== =====
Weighted average common shares used in basic
and diluted per share calculations:
Basic 17,220 18,798 17,775 20,792
Diluted 17,229 19,021 17,789 21,186
Dividends declared per
common share $0.30 $ - $0.90 $ -
(1) "Direct operating" excludes
"Depreciation and other" of $28.7
million and $86.7 million for the
three and nine months ended
September 30, 2015, respectively,
and $31.2 million and $94.3
million for the three and nine
months ended September 30, 2014,
respectively.
(2) Foreign currency translation
adjustment had no tax effect for
the three and nine months ended
September 30, 2015 and 2014,
respectively.
OUTERWALL INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
September 30, December 31,
2015 2014
---- ----
Assets
Current Assets:
Cash and cash equivalents $195,603 $242,696
Accounts receivable, net of
allowances of $816 and $2,223 23,748 48,590
Content library 126,769 180,121
Prepaid expenses and other current
assets 42,406 39,837
------ ------
Total current assets 388,526 511,244
Property and equipment, net 341,002 428,468
Deferred income taxes 2,712 11,378
Goodwill and other intangible
assets, net 528,138 623,998
Other long-term assets 6,443 8,231
----- -----
Total assets $1,266,821 $1,583,319
========== ==========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $119,148 $168,633
Accrued payable to retailers 101,101 126,290
Other accrued liabilities 147,908 137,126
Current portion of long-term debt
and other long-term liabilities 17,868 20,416
Deferred income taxes 9,501 21,432
Total current liabilities 395,526 473,897
Long-term debt and other long-term
liabilities 856,275 973,669
Deferred income taxes 17,071 38,375
------ ------
Total liabilities 1,268,872 1,485,941
Commitments and contingencies
Stockholders' Equity (Deficit):
Preferred stock, $0.001 par value -
5,000,000 shares authorized; no
shares issued or outstanding - -
Common stock, $0.001 par value - 60,000,000 authorized;
36,710,717 and 36,600,166 shares issued;
17,246,475 and 18,926,242 shares
outstanding; 481,281 473,592
Treasury stock (1,116,205) (996,293)
Retained earnings 631,507 620,389
Accumulated other comprehensive
income (loss) 1,366 (310)
----- ----
Total stockholders' equity (deficit) (2,051) 97,378
------ ------
Total liabilities and stockholders'
equity (deficit) $1,266,821 $1,583,319
========== ==========
OUTERWALL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
Operating Activities:
Net income $37,336 $17,890 $27,319 $62,818
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and other 39,880 47,898 133,598 146,156
Amortization of intangible
assets 3,308 3,671 9,970 11,366
Share-based payments expense 4,829 3,249 12,021 10,093
Windfall excess tax benefits
related to share-based
payments (29) (35) (715) (1,988)
Deferred income taxes (21,741) (2,404) (25,680) (17,408)
Restructuring and lease
termination costs(2) - - 1,680 -
Loss from equity method
investments, net 328 11,352 593 31,261
Amortization of deferred
financing fees and debt
discount 693 901 2,078 3,423
Loss from early extinguishment
of debt - 55 - 2,018
Goodwill impairment - - 85,890 -
Other 315 (313) (501) (1,477)
Cash flows from changes in operating assets and
liabilities:
Accounts receivable, net 9,655 12,133 24,732 17,464
Content library 18,546 1,314 53,205 48,800
Prepaid expenses and other
current assets 17,188 1,044 (4,894) 23,047
Other assets 84 611 406 1,647
Accounts payable (28,383) (26,011) (46,080) (97,006)
Accrued payable to retailers (12,777) (21,099) (24,287) (27,822)
Other accrued liabilities 16,327 (629) 17,439 (5,345)
------ ---- ------ ------
Net cash flows from operating
activities(1) 85,559 49,627 266,774 207,047
Investing Activities:
Purchases of property and
equipment (19,947) (19,295) (60,164) (72,311)
Proceeds from sale of property
and equipment 128 42 3,068 1,835
Cash paid for equity
investments - (14,000) - (24,500)
--- ------- --- -------
Net cash flows used in
investing activities(1) (19,819) (33,253) (57,096) (94,976)
Financing Activities:
Proceeds from issuance of
senior unsecured notes - - - 295,500
Proceeds from new borrowing on
Credit Facility 35,000 130,000 147,000 635,000
Principal payments on Credit
Facility (72,813) (86,875) (258,563) (621,250)
Financing costs associated
with Credit Facility and
senior unsecured notes (9) (824) (9) (2,906)
Settlement and conversion of
convertible debt - (33,425) - (51,149)
Repurchases of common stock (60,758) (70,598) (123,489) (545,078)
Dividends paid (5,139) - (16,158) -
Principal payments on capital
lease obligations and other
debt (2,660) (3,516) (8,938) (10,597)
Windfall excess tax benefits
related to share-based
payments 29 35 715 1,988
Withholding tax paid on
vesting of restricted stock
net of proceeds from exercise
of stock options (45) (59) (1,246) (1,084)
--- --- ------ ------
Net cash flows used in
financing activities(1) (106,395) (65,262) (260,688) (299,576)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
Effect of exchange rate
changes on cash (1,450) 563 3,917 969
------ --- ----- ---
Change in cash and cash
equivalents (42,105) (48,325) (47,093) (186,536)
Cash and cash equivalents:
Beginning of period 237,708 233,226 242,696 371,437
End of period $195,603 $184,901 $195,603 $184,901
======== ======== ======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the period
for interest $12,151 $12,614 $34,997 $29,824
Cash paid during the period
for income taxes, net $17,551 $14,594 $84,447 $23,783
Supplemental disclosure of non-cash investing
and financing activities:
Purchases of property and
equipment financed by capital
lease obligations $994 $1,901 $1,971 $7,414
Purchases of property and
equipment included in ending
accounts payable $3,422 $5,869 $3,422 $5,869
Common stock issued on
conversion of callable
convertible debt $ - $14,057 $ - $24,255
Non-cash debt issue costs $ - $ - $ - $4,500
(1) During the first quarter of 2015 we
discontinued our Redbox operations
in Canada. 2014 also includes the
wind-down process of certain new
ventures that were discontinued
during 2013. Cash flows from these
discontinued operations are not
segregated from cash flows from
continuing operations in all
periods presented.
(2) The non-cash restructuring and
lease termination costs in the
nine months ended September 30,
2015 of $1.7 million is composed
of $6.9 million in impairments of
lease related assets partially
offset by a $5.2 million benefit
resulting from the lease
termination.
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
September 30, 2015 Redbox Coinstar ecoATM All Other Corporate Total
Unallocated
---
Revenue $395,372 $85,677 $30,965 $41 $ - $512,055
Expenses:
Direct operating 269,022 41,249 28,583 786 559 340,199
Marketing 4,180 1,439 1,134 262 116 7,131
Research and development - - 1,201 - 313 1,514
General and administrative 31,788 8,502 3,105 933 3,490 47,818
Goodwill impairment - - - - - -
--- --- --- --- --- ---
Segment operating income
(loss) 90,382 34,487 (3,058) (1,940) (4,478) 115,393
Less: depreciation,
amortization and other (27,754) (7,942) (6,788) (704) - (43,188)
------- ------ ------ ---- --- -------
Operating income (loss) 62,628 26,545 (9,846) (2,644) (4,478) 72,205
Loss from equity method
investments, net - - - - (328) (328)
Interest expense, net - - - - (11,973) (11,973)
Other, net - - - - (1,384) (1,384)
--- --- --- --- ------ ------
Income (loss) from
continuing operations
before income taxes $62,628 $26,545 $(9,846) $(2,644) $(18,163) $58,520
======= ======= ======= ======= ======== =======
Dollars in thousands
Three Months Ended
September 30, 2014 Redbox Coinstar ecoATM All Other Corporate Total
Unallocated
-----------
Revenue $435,083 $85,074 $29,733 $9 $ - $549,899
Expenses:
Direct operating 308,123 42,428 26,411 577 1,903 379,442
Marketing 5,419 1,834 973 239 678 9,143
Research and development 15 64 1,360 728 832 2,999
General and administrative 33,249 7,313 3,027 858 3,139 47,586
------
Segment operating income
(loss) 88,277 33,435 (2,038) (2,393) (6,552) 110,729
Less: depreciation,
amortization and other (36,685) (8,989) (4,297) (74) - (50,045)
------- ------ ------ --- --- -------
Operating income (loss) 51,592 24,446 (6,335) (2,467) (6,552) 60,684
Loss from equity method
investments, net - - - - (11,352) (11,352)
Interest expense, net - - - - (12,465) (12,465)
Other, net - - - - (1,352) (1,352)
--- --- --- --- ------ ------
Income (loss) from
continuing operations
before income taxes $51,592 $24,446 $(6,335) $(2,467) $(31,721) $35,515
======= ======= ======= ======= ======== =======
OUTERWALL INC.
BUSINESS SEGMENT AND ENTERPRISEWIDE INFORMATION
(unaudited)
Dollars in thousands
Nine Months Ended September
30, 2015 Redbox Coinstar ecoATM All Other Corporate Total
Unallocated
---
Revenue $1,353,881 $235,286 $76,776 $117 $ - $1,666,060
Expenses:
Direct operating 913,401 117,870 78,616 3,055 2,060 1,115,002
Marketing 13,271 3,849 5,013 840 625 23,598
Research and development - - 4,206 (84) 1,515 5,637
General and administrative 99,859 24,065 7,167 6,084 7,982 145,157
Restructuring and lease
termination costs 15,174 550 127 - - 15,851
Goodwill impairment - - 85,890 - - 85,890
--- --- ------ --- --- ------
Segment operating income
(loss) 312,176 88,952 (104,243) (9,778) (12,182) 274,925
Less: depreciation,
amortization and other (92,424) (24,197) (18,995) (2,050) - (137,666)
------- ------- ------- ------ --- --------
Operating income (loss) 219,752 64,755 (123,238) (11,828) (12,182) 137,259
Loss from equity method
investments, net - - - - (593) (593)
Interest expense, net - - - - (36,227) (36,227)
Other, net - - - - (3,088) (3,088)
--- --- --- --- ------ ------
Income (loss) from
continuing operations
before income taxes $219,752 $64,755 $(123,238) $(11,828) $(52,090) $97,351
======== ======= ========= ======== ======== =======
Dollars in thousands
Nine Months Ended September
30, 2014 Redbox Coinstar ecoATM All Other Corporate Total
Unallocated
-----------
Revenue $1,390,970 $233,707 $69,478 $33 $ - $1,694,188
Expenses:
Direct operating 989,100 120,354 64,729 1,421 5,214 1,180,818
Marketing 15,412 4,397 2,568 620 2,275 25,272
Research and development 41 486 4,535 2,035 2,788 9,885
General and administrative 105,642 21,479 9,470 2,352 9,847 148,790
Restructuring and lease
termination costs 534 23 - - - 557
--- --- --- --- --- ---
Segment operating income
(loss) 280,241 86,968 (11,824) (6,395) (20,124) 328,866
Less: depreciation,
amortization and other (114,872) (26,473) (11,821) (315) - (153,481)
-------- ------- ------- ---- --- --------
Operating income (loss) 165,369 60,495 (23,645) (6,710) (20,124) 175,385
Loss from equity method
investments, net - - - - (31,261) (31,261)
Interest expense, net - - - - (35,045) (35,045)
Other, net - - - - (386) (386)
--- --- --- --- ---- ----
Income (loss) from
continuing operations
before income taxes $165,369 $60,495 $(23,645) $(6,710) $(86,816) $108,693
======== ======= ======== ======= ======== ========
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 Nine Months Ended
September 30, September 30,
------------- -------------
Dollars in thousands 2015 2014 2015 2014
---- ---- ---- ----
Net income from continuing
operations $37,592 $22,123 $32,396 $73,562
Depreciation, amortization and
other 43,188 50,045 137,666 153,481
Interest expense, net 11,973 12,465 36,227 35,045
Income taxes 20,928 13,392 64,955 35,131
Share-based payments expense(1) 4,864 3,249 12,125 10,093
----- ----- ------ ------
Adjusted EBITDA from continuing
operations 118,545 101,274 283,369 307,312
Non-Core Adjustments:
Goodwill impairment - - 85,890 -
Restructuring costs - - 15,851 469
Rights to receive cash issued
in connection with the
acquisition of ecoATM 854 3,274 3,779 10,033
Loss from equity method
investments, net 328 11,352 593 31,261
---
Core adjusted EBITDA from
continuing operations $119,727 $115,900 $389,482 $349,075
======== ======== ======== ========
(1) Includes both non-cash share-
based compensation for executives,
non-employee directors and
employees as well as share-based
payments for content arrangements.
Core Diluted EPS from continuing operations
Our non-GAAP financial measure core diluted EPS from continuing operations is defined as diluted earnings per share from continuing operations utilizing the treasury stock method excluding non-core adjustments, net of applicable taxes.
A reconciliation of core diluted EPS from continuing operations to diluted EPS from continuing operations, the most comparable GAAP financial measure, is presented in the following table:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
Diluted EPS from continuing
operations per common
share (two-class method) $2.12 $1.12 $1.77 $3.37
Adjustment from
participating securities
allocation and share
differential to treasury
stock method(1) 0.04 0.04 0.03 0.07
Diluted EPS from continuing
operations (treasury stock
method) 2.16 1.16 1.80 3.44
Non-Core Adjustments, net of tax:(1)
Goodwill impairment - - 4.78 -
Restructuring costs - - 0.54 0.01
Rights to receive cash
issued in connection with
the acquisition of ecoATM 0.04 0.14 0.14 0.37
Loss from equity method
investments, net 0.01 0.36 0.02 0.89
Tax benefit from net
operating loss adjustment - - - (0.04)
Tax benefit of worthless
stock deduction - 0.01 - (0.10)
Core diluted EPS from
continuing operations $2.21 $1.67 $7.28 $4.57
===== ===== ===== =====
(1) Non-Core Adjustments are
presented after-tax using the
applicable effective tax rate
for the respective periods.
A reconciliation of amounts used in calculating core diluted EPS from continuing operations in the table above is presented in the following table:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
In thousands 2015 2014 2015 2014
---- ---- ---- ----
Income from
continuing
operations
attributable to
common shares $36,462 $21,392 $31,491 $71,309
Add: income from
continuing
operations
allocated to
participating
securities 1,130 731 905 2,253
Income from
continuing
operations $37,592 $22,123 $32,396 $73,562
======= ======= ======= =======
Weighted average
diluted common
shares 17,229 19,021 17,789 21,186
Add: diluted
common
equivalent
shares of
participating
securities 142 126 182 186
Weighted average
diluted shares
(treasury stock
method) 17,371 19,147 17,971 21,372
====== ====== ====== ======
Free Cash Flow
Our non-GAAP financial measure free cash flow is defined as net cash provided by operating activities after capital expenditures. We believe free cash flow is an important non-GAAP measure as it provides additional information to users of the financial statements regarding our ability to service, incur or pay down indebtedness and repurchase our securities. A reconciliation of free cash flow to net cash provided by operating activities, the most comparable GAAP financial measure, is presented in the following table:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
Dollars in
thousands 2015 2014 2015 2014
---- ---- ---- ----
Net cash
provided by
operating
activities $85,559 $49,627 $266,774 $207,047
Purchase of
property and
equipment (19,947) (19,295) (60,164) (72,311)
------- ------- ------- -------
Free cash flow $65,612 $30,332 $206,610 $134,736
======= ======= ======== ========
Net Debt and Net Leverage Ratio
Our non-GAAP financial measure net debt is defined as the total face value of outstanding debt, including capital leases, less cash and cash equivalents held in financial institutions domestically. Our non-GAAP financial measure net leverage ratio is defined as net debt divided by core adjusted EBITDA from continuing operations for the last twelve months (LTM). We believe net debt and net leverage ratio are important non-GAAP measures because they:
-- are used to assess the degree of leverage by management;
-- provide additional information to users of the financial statements
regarding our ability to service, incur or pay down indebtedness and
repurchase our securities as well as additional information about our
capital structure; and
-- are reported quarterly to support covenant compliance under our credit
agreement.
A reconciliation of net debt to total outstanding debt including capital leases, the most comparable GAAP financial measure, is presented in the following table:
September 30, December 31,
2015 2014
---- ----
Dollars in
thousands
Senior
unsecured
notes $650,000 $650,000
Term loans 139,688 146,250
Revolving
line of
credit 55,000 160,000
Capital
leases 8,177 15,391
-----
Total
principal
value of
outstanding
debt
including
capital
leases 852,865 971,641
Less
domestic
cash and
cash
equivalents
held in
financial
institutions (33,909) (66,546)
-------
Net debt 818,956 905,095
LTM Core
adjusted
EBITDA from
continuing
operations(1) $537,227 $496,820
--------
Net leverage
ratio 1.52 1.82
(1) LTM Core Adjusted EBITDA from
continuing operations for the
twelve months ended September 30,
2015 and December 31, 2014 was
determined as follows:
Dollars in thousands
Core adjusted EBITDA from
continuing operations for the
nine months ended September
30, 2015 $389,482
Add: Core adjusted EBITDA from
continuing operations for the
twelve months ended December
31, 2014(1) 496,820
Less: Core adjusted EBITDA from
continuing operations for the
nine months ended September
30, 2014 (349,075)
LTM Core adjusted EBITDA from
continuing operations for the
twelve months ended September
30, 2015 $537,227
========
(1) Core adjusted EBITDA from
continuing operations for the
twelve months ended December
31, 2014 is obtained from our
Form 8-K filed on May 8, 2015
for the period ended December
31, 2014, where it is
reconciled to net income from
continuing operations, the
most comparable GAAP
financial measure, and
represents the LTM core
adjusted EBITDA from
continuing operations we use
in our calculation of net
leverage ratio as of December
31, 2014.
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/outerwall-inc-announces-2015-third-quarter-results-300169044.html
SOURCE Outerwall Inc.
