OUTERWALL INC BELLEVUE, Wash., July 28, 2016 /PRNewswire/ -- Outerwall Inc. (Nasdaq: OUTR) today reported financial results for the second quarter ended June 30, 2016.
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"Outerwall achieved strong results in the second quarter, underscoring our ability to generate continued profitability and cash flow, and deliver shareholder value," said Erik E. Prusch, chief executive officer. "Our second quarter results reflect solid execution company-wide, with improved sequential results at Redbox and the highest second quarter revenue in Coinstar's 25-year history. We also made substantial progress at ecoATM and continue to expect the business to achieve segment operating profitability for 2016."
Prusch continued, "Earlier this week we announced that we completed our comprehensive process reviewing alternatives to maximize value for all shareholders and reached an agreement to be acquired by affiliates of Apollo Global Management. We are pleased with the agreement and the immediate and substantial cash premium it provides to our shareholders, and look forward to working with Apollo to continue serving our millions of loyal customers and unparalleled network of retail partners."
Outerwall's GAAP results for the second quarter of 2015 include the impact of a non-cash, non-tax deductible charge for goodwill impairment of $85.9 million related to its ecoATM business segment. The company's Core results exclude the impact of the impairment charge as a non-core adjustment.
2016 2015 Change
Dollars
in
millions,
except
per
share
data Second Quarter Second Quarter %
-------------- -------------- ---
GAAP
Results
--
Consolidated
revenue $518.0 $545.4 (5.0)%
-- Income
(loss)
from
continuing
operations $40.5 $(47.4) NM*
-- Net
income
(loss) $40.5 $(45.6) NM*
-- Diluted
earnings
(loss)
from
continuing
operations
per
common
share $2.38 $(2.66) NM*
-- Net
cash
provided
by
operating
activities $75.0 $75.1 (0.2)%
Core
Results**
-- Core
adjusted
EBITDA
from
continuing
operations $115.9 $121.8 (4.9)%
-- Core
diluted
EPS from
continuing
operations*** $2.41 $2.20 9.5%
-- Free
cash
flow $60.1 $55.6 8.0%
* Not meaningful
** Refer to Appendix A for a
discussion of the Use of Non-
GAAP Financial Measures and
Core and Non-Core Results
*** Beginning in the first quarter
of 2016, to better align with
our GAAP presentation of EPS,
we adjusted our non-GAAP
financial measure of core
diluted EPS from continuing
operations to be defined as
diluted earnings per share from
continuing operations utilizing
the two-class method excluding
non-core adjustments, net of
applicable taxes. Historically,
we had defined this measure
using diluted earnings per
share from continuing
operations utilizing the
treasury stock method excluding
non-core adjustments, net of
applicable taxes. Prior period
results have been updated to
reflect this change.
Highlights from the second quarter 2016 include:
-- Delivered $115.9 million in core adjusted EBITDA from continuing
operations, down $6.0 million from the second quarter of 2015, despite
$27.3 million in lower revenue
-- Produced $2.41 in core diluted EPS from continuing operations
-- Generated $60.1 million in free cash flow
-- Distributed $10.2 million in quarterly cash dividends
-- Repurchased $2.6 million in face value of 2021 Notes and reduced the
outstanding balance on its credit facility by $44.7 million
"We generated solid margins and strong profitability in the second quarter by continuing to align expenses with revenue across the enterprise," said Galen C. Smith, chief financial officer of Outerwall Inc. "During the quarter, we continued our disciplined expense management and reduced operating costs, G&A and marketing expenses while improving overall productivity. In line with our commitment to return substantial free cash flow to our investors, we distributed $10.2 million in cash dividends, opportunistically repurchased $2.6 million in face value of our senior notes, and further reduced the outstanding balance on our credit facility by $44.7 million."
CONSOLIDATED RESULTS
GAAP Results
In the second quarter of 2016, consolidated revenue was $518.0 million, a decrease of $27.3 million, or 5.0%, compared with $545.4 million in the second quarter of 2015, primarily reflecting a $49.9 million decrease in Redbox revenue, partially offset by an $18.7 million increase in revenue from ecoATM and a $3.9 million increase from Coinstar.
Income from continuing operations for the second quarter of 2016 was $40.5 million, or $2.38 of diluted earnings from continuing operations per common share, compared with a $47.4 million loss from continuing operations, or a $2.66 loss per common share, in the second quarter of 2015. Income from continuing operations for the second quarter of 2016 increased $2.0 million from the second quarter of 2015, excluding the $85.9 million goodwill impairment charge recognized in the second quarter of 2015, primarily due to a $4.2 million decrease in operating loss from ecoATM, a $4.5 million decrease in operating loss in the All Other reporting category related to the shutdown of SAMPLEit in the fourth quarter of 2015, and a $2.1 million increase in operating income from Coinstar, partially offset by a $5.6 million decrease in operating income from Redbox. The $1.9 million decrease in net interest expense due to lower outstanding borrowings and gain from early extinguishment of debt in the second quarter of 2016 partially offset the higher income tax expense in the second quarter of 2016.
In the second quarter of 2016, net cash flows provided by operating activities was $75.0 million, compared with $75.1 million in the second quarter of 2015.
Cash capital expenditures for the second quarter of 2016 decreased $4.6 million, or 23.5%, to $14.9 million, compared with $19.5 million in the second quarter of 2015, with the decrease primarily related to reduced spending on property and equipment for kiosks.
Core Results
In the second quarter of 2016, core adjusted EBITDA from continuing operations was $115.9 million, a decrease of $6.0 million, compared with $121.8 million in the second quarter of 2015. The year-over-year decline was primarily due to lower segment operating income in the Redbox segment, partially offset by decreased segment operating losses in the ecoATM segment and All Other reporting category and an increase in segment operating income in the Coinstar segment.
Core diluted EPS from continuing operations for the second quarter of 2016 was $2.41, an increase of 9.5% compared with $2.20 per diluted share in the second quarter of 2015. The increase was primarily attributable to a reduction in the number of weighted average shares used in the diluted per share calculation due to stock repurchases in the second half of 2015.
Free cash flow for the second quarter of 2016 was $60.1 million, an increase of $4.5 million, or 8.0%, compared with $55.6 million in the second quarter of 2015, driven primarily by lower capital expenditures.
SEGMENT RESULTS
Redbox
Redbox segment revenue for the second quarter of 2016 was $389.1 million, compared with $439.0 million in the second quarter of 2015. Revenue decreased $49.9 million, or 11.4%, primarily due to a $42.8 million decrease from a 10.0% decline in same store sales reflecting lower total disc rentals primarily driven by a higher impact from secular decline in the physical market on movie rentals in the second quarter of 2016, compared with the second quarter of 2015. Kiosks removed or relocated subsequent to the second quarter of 2015 accounted for $7.1 million of the decline in revenue as the company continued its efforts to optimize its kiosk network by removing underperforming kiosks. The decline in revenue was partially offset by an increase in video game rentals as the market penetration of new generation game consoles continued to increase, and a 44.5% higher total box office of movie titles released in the second quarter of 2016, including one title that represented 30.9% of the total box office.
Redbox generated approximately 123.6 million rentals in the second quarter of 2016, down from approximately 146.0 million rentals in the second quarter of 2015.
Net revenue per rental was $3.13 in the second quarter of 2016, compared with $3.00 in the second quarter of 2015. The $0.13 increase in net revenue per rental was primarily due to lower promotional spend as compared with the second quarter of 2015 and higher video game rentals.
Redbox segment operating income in the second quarter of 2016 was $82.1 million, a decrease of $16.9 million, or 17.0%, compared with $98.9 million in the second quarter of 2015. The decrease was primarily due to the decrease in revenue described above, partially offset by a decrease in other direct operating expenses, primarily due to lower contractual fees paid to retail partners due to lower revenue and lower credit card fees driven by lower rental volume. The decline in revenue was further offset by lower movie content costs primarily due to content mix and fewer locations as compared with the second quarter of 2015, as the company continued to remove underperforming kiosks to maximize profitability, and a $3.0 million decrease in general and administrative expenses primarily related to ongoing cost reduction initiatives. Segment operating margin was 21.1% in the second quarter of 2016, compared with 22.5% in the second quarter of 2015. Sequentially, Redbox segment operating margin increased 110 basis points from 20.0% in the first quarter of 2016, reflecting an increase in gross margin, lower credit card fees and retailer revenue share rates, and savings in general and administrative expense due to restructuring actions taken in the first quarter of 2016.
Coinstar
Coinstar segment revenue for the second quarter of 2016 was $84.2 million, compared with $80.3 million in the second quarter of 2015. Revenue increased $3.9 million, or 4.8%, primarily due to continued strength in the core U.S. business, while foreign exchange rates continued to negatively impact revenue in the U.K. and Canada in the second quarter of 2016. The average transaction size increased $2.43, or 5.6% on a year-over-year basis, to $45.46, while the total number of transactions decreased slightly.
Coinstar segment operating income was $33.2 million in the second quarter of 2016, an increase of $1.3 million, or 3.9%, compared with $31.9 million in the second quarter of 2015. Coinstar segment operating margin declined 40 basis points to 39.4% for the second quarter of 2016, compared with 39.8% for the second quarter of 2015, primarily due to an increase in direct operating expenses associated with the higher revenue discussed above. General and administrative expenses also increased in the second quarter of 2016, as the result of increased corporate allocations associated with the increase in Coinstar's proportionate share of the company's total revenue compared to the second quarter of 2015, partially offset by ongoing cost reduction initiatives in the segment.
The company continues to expand its testing of Coinstar kiosks in Spain as part of its efforts to explore further international opportunities.
ecoATM
Revenue in the ecoATM segment increased $18.7 million, or 71.9%, to $44.8 million in the second quarter of 2016, primarily due to revenue included in the second quarter of 2016 from devices acquired and sold through Gazelle. The results of Gazelle have also favorably impacted the mix of value devices and the average selling price of value devices sold. The average selling price of value devices sold increased $2.81 to $64.53, compared with $61.72 for the second quarter of 2015.
In the second quarter of 2016, ecoATM segment operating loss decreased to $700,000, which included $384,000 of restructuring and related costs, compared with a loss of $92.8 million in the second quarter of 2015. Excluding the $85.9 million goodwill impairment charge recognized in the second quarter of 2015, the segment operating loss in the second quarter of 2016 was reduced by $6.3 million, or 89.9%, as the growth in revenue outpaced the increase in direct operating expenses, primarily due to operating efficiencies, ongoing cost reduction initiatives, and synergies recognized as a result of the Gazelle acquisition. The business unit continues to be on track to achieve segment operating profitability for 2016.
CAPITAL ALLOCATION
During the second quarter of 2016, the company repurchased $2.6 million in face value of its 5.875% Senior Notes due 2021 for $2.2 million, reducing the outstanding principal balance to $228.6 million. The gain from early extinguishment of these notes reduced net interest expense by approximately $418,000 in the quarter. In addition to the notes repurchased, the company also reduced the outstanding balance on its credit facility by $44.7 million.
On June 21, 2016, the company paid a cash dividend of $0.60 per outstanding share of its common stock totaling approximately $10.2 million. On July 24, 2016, the company's board of directors declared a quarterly cash dividend of $0.60 per share to be paid on September 6, 2016, to stockholders of record as of the close of business on August 23, 2016.
As a result of the pending transaction with Apollo Global Management, there will not be additional repurchases of common stock or senior notes.
THE APOLLO ACQUISITION
On July 24, 2016, the company entered into an agreement and plan of merger with affiliates of certain funds managed by affiliates of Apollo Global Management, LLC (Apollo), whereby the company would be acquired by an Apollo affiliate in an all cash transaction, consisting of a tender offer, followed by a subsequent back-end merger. Under the terms of the merger agreement, an Apollo affiliate would soon commence a cash tender offer for all of the company's outstanding shares of common stock at a purchase price of $52.00 per share, without interest and subject to any withholding taxes. The consummation of the tender offer is conditioned on shares of common stock having been validly tendered and not properly withdrawn that represent, together with the shares of common stock then owned by the Apollo affiliate, of at least a majority of the then outstanding shares, the expiration or early termination of the Hart-Scott-Rodino antitrust waiting period and various other conditions. In addition, other than the company's regular quarterly cash dividend for the third quarter of 2016, the company is restricted from declaring or paying any dividend or distribution and authorizing or making any capital stock repurchases.
After closing the tender offer, subject to meeting certain customary conditions in the merger agreement, the company merger will be effected without a meeting or vote of the company's stockholders. At merger closing, shares of common stock then issued and outstanding will be automatically cancelled and converted into the right to receive $52.00, without interest and subject to any withholding taxes. After the closing of the merger, the company will be a wholly owned subsidiary of an Apollo affiliate and will cease to be a publicly-traded company.
For more detailed information about the transaction, please see our filings with the SEC as well as all materials filed relating to the tender offer.
2016 ANNUAL GUIDANCE
In light of the merger agreement with Apollo, Outerwall is suspending full-year 2016 guidance.
ADDITIONAL INFORMATION
Additional information regarding Outerwall's 2016 second quarter operating and financial results is included in the company's prepared remarks. This press release and the prepared remarks are posted on the Investor Relations section of the corporate website at ir.outerwall.com.
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 2016 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,
-- risks that the proposed acquisition, including the tender offer and the
mergers, may not be completed in a timely manner or at all,
-- competition from other entertainment providers,
-- the ability to achieve the strategic and financial objectives for our
entry into new businesses, including ecoATM and Gazelle,
-- the timing of the release slate and the relative attractiveness of
titles in a particular quarter or year,
-- 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 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.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
The tender offer for the outstanding shares of Outerwall referenced in this press release has not yet commenced. This communication is for informational purposes only and is neither an offer to purchase nor a solicitation of an offer to sell shares, nor is it a substitute for the tender offer materials that Apollo and its acquisition subsidiary will file with the U.S. Securities and Exchange Commission (the "SEC") upon commencement of the tender offer. At the time the tender offer is commenced, Apollo and its acquisition subsidiary will file tender offer materials on Schedule TO, and Outerwall thereafter will file a Solicitation/Recommendation Statement on Schedule 14D-9 with the SEC with respect to the tender offer. THE TENDER OFFER MATERIALS (INCLUDING AN OFFER TO PURCHASE, A RELATED LETTER OF TRANSMITTAL AND CERTAIN OTHER TENDER OFFER DOCUMENTS) AND THE SOLICITATION/RECOMMENDATION STATEMENT WILL CONTAIN IMPORTANT INFORMATION. HOLDERS OF SHARES OF OUTERWALL ARE URGED TO READ THESE DOCUMENTS CAREFULLY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION THAT HOLDERS OF THE OUTERWALL SECURITIES SHOULD CONSIDER BEFORE MAKING ANY DECISION REGARDING TENDERING THEIR SECURITIES.
The Offer to Purchase, the related Letter of Transmittal and certain other tender offer documents, as well as the Solicitation/Recommendation Statement, will be made available to all holders of shares of Outerwall at no expense to them. The tender offer materials, the Solicitation/Recommendation Statement and other related documents (when available) will be made available for free at the SEC's web site at www.sec.gov. Investors and securityholders may access copies of the Solicitation/Recommendation Statement and other related documents (when available) that Outerwall files with the SEC at ir.outerwall.com or by contacting the Company's Investor Relations Department by phone at (425) 943-8242 or by e-mail at investor.relations@outerwall.com.
(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,
-------- --------
2016 2015 2016 2015
---- ---- ---- ----
Revenue $518,027 $545,369 $1,053,983 $1,154,005
Expenses:
Direct operating(1) 351,581 369,619 727,548 774,803
Marketing 7,422 8,047 16,644 16,467
Research and development 1,317 2,039 2,362 4,123
General and administrative 47,681 48,783 95,451 97,339
Restructuring and related
costs 401 - 3,676 15,851
Goodwill impairment - 85,890 - 85,890
Depreciation and other 33,988 45,174 70,106 87,860
Amortization of intangible
assets 3,790 3,309 7,580 6,618
Total expenses 446,180 562,861 923,367 1,088,951
------- ------- ------- ---------
Operating income (loss) 71,847 (17,492) 130,616 65,054
Other income (expense), net:
Loss from equity method
investments, net (208) (133) (415) (265)
Interest expense, net (10,301) (12,183) (10,543) (24,254)
Other, net 223 642 1,452 (1,704)
--- --- ----- ------
Total other income
(expense), net (10,286) (11,674) (9,506) (26,223)
------- ------- ------ -------
Income (loss) from
continuing operations
before income taxes 61,561 (29,166) 121,110 38,831
Income tax expense (21,013) (18,185) (42,111) (44,027)
------- ------- ------- -------
Income (loss) from
continuing operations 40,548 (47,351) 78,999 (5,196)
Income (loss) from
discontinued operations,
net of tax - 1,735 - (4,821)
Net income (loss) 40,548 (45,616) 78,999 (10,017)
Foreign currency
translation adjustment(2) (1,680) 473 (2,229) 3,327
------ --- ------ -----
Comprehensive income (loss) $38,868 $(45,143) $76,770 $(6,690)
======= ======== ======= =======
Income (loss) from continuing operations
attributable to common shares:
Basic $38,615 $(47,472) $75,665 $(5,465)
Diluted $38,626 $(47,472) $75,681 $(5,465)
Basic earnings (loss) per common share:
Continuing operations $2.39 $(2.66) $4.69 $(0.30)
Discontinued operations - 0.10 - (0.27)
Basic earnings (loss) per
common share $2.39 $(2.56) $4.69 $(0.57)
===== ====== ===== ======
Diluted earnings (loss) per common share:
Continuing operations $2.38 $(2.66) $4.67 $(0.30)
Discontinued operations - 0.10 - (0.27)
Diluted earnings (loss) per
common share $2.38 $(2.56) $4.67 $(0.57)
===== ====== ===== ======
Weighted average common shares used in basic
and diluted per share calculations:
Basic 16,149 17,848 16,122 18,057
Diluted 16,244 17,848 16,216 18,057
Dividends paid per common
share $0.60 $0.30 $0.90 $0.60
(1) "Direct operating" excludes
depreciation and other of
$24.9 million and $51.1 million
for the three and six months
ended June 30, 2016,
respectively, and $29.6 million
and $58.0 million for the three
and six months ended June 30,
2015, respectively.
(2) Foreign currency translation
adjustment had no tax effect
for the three and six months
ended June 30, 2016 and 2015,
respectively.
OUTERWALL INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
June 30, December 31,
2016 2015
---- ----
Assets
Current Assets:
Cash and cash equivalents $199,048 $222,549
Accounts receivable, net of
allowances of $806 and $1,272 25,386 38,464
Content library 147,815 188,490
Prepaid expenses and other current
assets 47,122 51,368
------ ------
Total current assets 419,371 500,871
Property and equipment, net 270,414 316,013
Deferred income taxes 2,456 2,606
Goodwill and other intangible
assets, net 532,934 540,514
Other long-term assets 1,489 2,207
----- -----
Total assets $1,226,664 $1,362,211
========== ==========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $126,654 $184,010
Accrued payable to retailers 100,332 115,098
Other accrued liabilities 155,347 141,437
Current portion of long-term debt
and other long-term liabilities 18,418 17,131
Total current liabilities 400,751 457,676
Long-term debt and other long-term
liabilities 766,570 893,517
Deferred income taxes 13,442 33,092
------ ------
Total liabilities 1,180,763 1,384,285
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;
37,272,647 and 36,720,579 shares issued;
17,209,584 and 16,607,516 shares
outstanding; 489,879 485,163
Treasury stock (1,149,261) (1,151,063)
Retained earnings 707,138 643,452
Accumulated other comprehensive
income (loss) (1,855) 374
------ ---
Total stockholders' equity (deficit) 45,901 (22,074)
------ -------
Total liabilities and stockholders'
equity (deficit) $1,226,664 $1,362,211
========== ==========
OUTERWALL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2016 2015 2016 2015
---- ---- ---- ----
Operating Activities:
Net income (loss) $40,548 $(45,616) $78,999 $(10,017)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Depreciation and other 33,988 45,174 70,106 93,718
Amortization of intangible
assets 3,790 3,309 7,580 6,662
Share-based payments expense 5,174 3,289 9,504 7,192
Windfall excess tax benefits
related to share-based
payments - (160) - (686)
Deferred income taxes (10,736) (1,392) (18,558) (3,939)
Restructuring, impairment and
related costs(2) - - 361 1,680
Loss from equity method
investments, net 208 133 415 265
Amortization of deferred
financing fees and debt
discount 613 692 1,251 1,385
Gain from early extinguishment
of debt (418) - (11,446) -
Goodwill impairment - 85,890 - 85,890
Other (244) 383 (280) (816)
Cash flows from changes in operating assets
and liabilities:
Accounts receivable, net 6,322 3,254 13,185 15,077
Content library 7,723 24,703 40,849 34,659
Prepaid expenses and other
current assets (759) (18,976) 5,263 (22,082)
Other assets 170 154 333 322
Accounts payable (17,055) (20,617) (52,460) (17,697)
Accrued payable to retailers 10,248 6,931 (14,398) (11,510)
Other accrued liabilities (4,552) (12,008) 11,521 1,112
------ ------- ------ -----
Net cash flows from operating
activities(1) 75,020 75,143 142,225 181,215
Investing Activities:
Purchases of property and
equipment (14,921) (19,508) (28,374) (40,217)
Proceeds from sale of property
and equipment 18 2,817 92 2,940
Net cash flows used in
investing activities(1) (14,903) (16,691) (28,282) (37,277)
Financing Activities:
Proceeds from new borrowing on
Credit Facility 91,000 77,000 176,000 112,000
Principal payments on Credit
Facility (135,687) (68,875) (244,000) (185,750)
Repurchases of notes (2,179) - (47,507) -
Repurchases of common stock - (22,023) - (62,731)
Dividends paid (10,084) (5,417) (15,122) (11,019)
Principal payments on capital
lease obligations and other
debt (1,451) (3,033) (3,077) (6,278)
Windfall excess tax benefits
related to share-based
payments - 160 - 686
Withholding tax paid on
vesting of restricted stock
net of proceeds from exercise
of stock options (47) 1,887 (1,472) (1,201)
--- ----- ------ ------
Net cash flows used in
financing activities(1) (58,448) (20,301) (135,178) (154,293)
Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
---- ---- ---- ----
Effect of exchange rate
changes on cash (1,471) 1,623 (2,266) 5,367
------ ----- ------ -----
Change in cash and cash
equivalents 198 39,774 (23,501) (4,988)
Cash and cash
equivalents:
Beginning of period 198,850 197,934 222,549 242,696
End of period $199,048 $237,708 $199,048 $237,708
======== ======== ======== ========
Supplemental disclosure
of cash flow
information:
Cash paid during the
period for interest $8,620 $10,933 $20,670 $22,846
Cash paid during the
period for income
taxes, net $38,890 $53,905 $40,951 $66,896
Supplemental disclosure
of non-cash investing
and financing
activities:
Purchases of property
and equipment financed
by capital lease
obligations $1,146 $257 $2,902 $977
Purchases of property
and equipment included
in ending accounts
payable $654 $4,436 $654 $4,436
(1) During the first quarter of 2015
we discontinued our Redbox
operations in Canada. Cash flows
from these discontinued
operations are not segregated
from cash flows from continuing
operations in the 2015 periods
presented.
(2) The non-cash restructuring,
impairment and related 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)
Comparability of Results
We regularly assess the performance of our concepts to determine whether continued funding or other alternatives are appropriate and as a result, we discontinued operating SAMPLEit in the fourth quarter of 2015. As SAMPLEit did not represent a major component of our operations or financial results, the results of SAMPLEit did not qualify to be reported as a discontinued operation and remain in our All Other reporting category.
On November 10, 2015, we acquired certain assets and liabilities of Gazelle, Inc. ("Gazelle"). Results of operations for Gazelle are included in ecoATM for the three and six months ended June 30, 2016.
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,
2016 Redbox Coinstar ecoATM All Other Corporate Total
Unallocated
---
Revenue $389,059 $84,168 $44,800 $ - $ - $518,027
Expenses:
Direct operating 271,731 42,095 37,291 83 381 351,581
Marketing 3,919 399 3,058 7 39 7,422
Research and development - - 1,194 - 123 1,317
General and administrative 31,325 8,494 3,573 2 4,287 47,681
Restructuring and related
costs 14 3 384 - - 401
--- --- --- --- ---
Segment operating income
(loss) 82,070 33,177 (700) (92) (4,830) 109,625
Less: depreciation,
amortization and other (21,806) (7,595) (8,398) 21 - (37,778)
------- ------ ------ --- --- -------
Operating income (loss) 60,264 25,582 (9,098) (71) (4,830) 71,847
Loss from equity method
investments, net - - - - (208) (208)
Interest expense, net - - - - (10,301) (10,301)
Other, net - - - - 223 223
--- --- --- --- --- ---
Income (loss) from
continuing operations
before income taxes $60,264 $25,582 $(9,098) $(71) $(15,116) $61,561
======= ======= ======= ==== ======== =======
Dollars in thousands
Three Months Ended June 30,
2015 Redbox Coinstar ecoATM All Other Corporate Total
Unallocated
---
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)
======= ======= ======== ======= ======== ========
OUTERWALL INC.
BUSINESS SEGMENT AND ENTERPRISEWIDE INFORMATION
(unaudited)
Dollars in thousands
Six Months Ended June 30,
2016 Redbox Coinstar ecoATM All Other Corporate Total
Unallocated
---
Revenue $810,547 $156,547 $86,889 $ - $ - $1,053,983
Expenses:
Direct operating 570,732 80,740 75,185 169 722 727,548
Marketing 7,743 1,174 7,638 12 77 16,644
Research and development - - 2,129 - 233 2,362
General and administrative 63,354 16,358 7,575 349 7,815 95,451
Restructuring and related
costs 2,422 465 789 - - 3,676
-----
Segment operating income
(loss) 166,296 57,810 (6,427) (530) (8,847) 208,302
Less: depreciation,
amortization and other (46,101) (15,004) (16,602) 21 - (77,686)
------- ------- ------- --- --- -------
Operating income (loss) 120,195 42,806 (23,029) (509) (8,847) 130,616
Loss from equity method
investments, net - - - - (415) (415)
Interest expense, net - - - - (10,543) (10,543)
Other, net - - - - 1,452 1,452
--- --- --- --- ----- -----
Income (loss) from
continuing operations
before income taxes $120,195 $42,806 $(23,029) $(509) $(18,353) $121,110
======== ======= ======== ===== ======== ========
Dollars in thousands
Six Months Ended June 30,
2015 Redbox Coinstar ecoATM All Other Corporate Total
Unallocated
---
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 related
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
======== ======= ========= ======= ======== =======
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 may include 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 the related asset impairments) 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, and iv) loss from equity method investments, which represents our share of loss from entities we do not consolidate or control ("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 2016 2015 2016 2015
---- ---- ---- ----
Net income (loss) from
continuing operations $40,548 $(47,351) $78,999 $(5,196)
Depreciation, amortization and
other 37,778 48,483 77,686 94,478
Interest expense, net 10,301 12,183 10,543 24,254
Income taxes 21,013 18,185 42,111 44,027
Share-based payments expense(1) 5,298 3,320 9,690 7,261
----- ----- ----- -----
Adjusted EBITDA from continuing
operations 114,938 34,820 219,029 164,824
Non-Core Adjustments:
Goodwill impairment - 85,890 - 85,890
Restructuring and related costs 401 - 3,676 15,851
Rights to receive cash issued
in connection with the
acquisition of ecoATM 345 1,005 785 2,925
Loss from equity method
investments, net 208 133 415 265
---
Core adjusted EBITDA from
continuing operations $115,892 $121,848 $223,905 $269,755
======== ======== ======== ========
(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
Beginning in the first quarter of 2016, to align better with our GAAP presentation of EPS, we adjusted our non-GAAP financial measure of core diluted EPS from continuing operations to be defined as diluted earnings per share from continuing operations utilizing the two class method excluding non-core adjustments, net of applicable taxes. Historically we had defined this measure using diluted earnings per share from continuing operations utilizing the treasury stock method excluding non-core adjustments, net of applicable taxes. Prior period results have been updated to reflect this change.
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,
-------- --------
2016 2015 2016 2015
---- ---- ---- ----
Diluted EPS from continuing
operations per common
share $2.38 $(2.66) $4.67 $(0.30)
Non-Core Adjustments:
Goodwill impairment(1) - 4.81 - 4.75
Restructuring and related
costs (pre-tax) 0.02 - 0.21 0.89
Rights to receive cash
issued in connection with
the acquisition of ecoATM
(pre-tax) 0.02 0.06 0.04 0.16
Loss from equity method
investments, net (pre-
tax) 0.01 0.01 0.02 0.01
Tax impact of non-core
adjustments(1)(2) (0.02) (0.02) (0.09) (0.40)
----- ----- ----- -----
Core diluted EPS from
continuing operations $2.41 $2.20 $4.85 $5.11
===== ===== ===== =====
(1) The goodwill impairment
recognized in 2015 is non-
tax deductible.
(2) 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 Six Months Ended
June 30, June 30,
-------- --------
Dollars in
thousands 2016 2015 2016 2015
---- ---- ---- ----
Net cash
provided by
operating
activities $75,020 $75,143 $142,225 $181,215
Purchase of
property and
equipment (14,921) (19,508) (28,374) (40,217)
------- ------- ------- -------
Free cash flow $60,099 $55,635 $113,851 $140,998
======= ======= ======== ========
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,
2016 2015
---- ----
Dollars in
thousands
Senior unsecured
notes $549,212 $608,908
Term loans 129,375 136,875
Revolving line
of credit 80,000 140,500
Capital leases 5,531 5,889
-----
Total principal
value of
outstanding
debt including
capital leases 764,118 892,172
Less domestic
cash and cash
equivalents
held in
financial
institutions (41,742) (46,192)
-------
Net debt 722,376 845,980
LTM Core
adjusted EBITDA
from continuing
operations(1) $439,435 $485,285
--------
Net leverage
ratio 1.64 1.74
(1) LTM Core Adjusted EBITDA from
continuing operations for the
twelve months ended June 30, 2016
and December 31, 2015 was
determined as follows:
Dollars in thousands
Core adjusted EBITDA from
continuing operations for the
six months ended June 30, 2016 $223,905
Add: Core adjusted EBITDA from
continuing operations for the
twelve months ended December
31, 2015(1) 485,285
Less: Core adjusted EBITDA from
continuing operations for the
six months ended June 30, 2015 (269,755)
LTM Core adjusted EBITDA from
continuing operations for the
twelve months ended June 30,
2016 $439,435
========
(1) Core adjusted EBITDA from
continuing operations for the
twelve months ended December
31, 2015 is obtained from our
Annual Report on Form 10-K
for the period ended December
31, 2015, 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, 2015.
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/outerwall-inc-announces-2016-second-quarter-results-300305811.html
SOURCE Outerwall Inc.
