Press release from PR Newswire
Coinstar, Inc. Announces 2010 Second Quarter Results
Thursday, July 29, 2010
Coinstar, Inc. Announces 2010 Second Quarter Results16:04 EDT Thursday, July 29, 2010Company Raises Guidance after Reporting 35% Revenue Growth from Continuing Operations; E-payment and Money Transfer Businesses Reported as Discontinued OperationsBELLEVUE, Wash., July 29, 2010 /PRNewswire-FirstCall/ -- Coinstar, Inc. (Nasdaq: CSTR) today announced financial results for the second quarter and six months ended June 30, 2010, which reflect its E-payment and Money Transfer businesses as discontinued operations. "We are very pleased with our second quarter results and the performance of our core businesses," said Paul Davis, chief executive officer of Coinstar, Inc. "We continue to have great momentum in our DVD business as demonstrated by our increasing market share and expanding relationships with key partners. Our Coin business is showing impressive growth in same store sales, and our outlook for the remainder of 2010 is positive as we continue to execute on our automated retail strategy."Second quarter financial highlights included:Revenue $ 342.4 millionIncome from operations $ 29.3 millionAdjusted EBITDA from continuing operations (See Appendix A) $ 65.5 millionDiluted earnings per share from continuing operations $ 0.39Diluted earnings per share attributable to Coinstar, Inc. $ 0.41Net cash provided by operating activities from continuing operations $ 104.7 millionFree cash flow from continuing operations (See Appendix A) $ 51.8 million"With the sale of our E-payment business and the decision to dispose of Money Transfer, we are better positioned to build on the solid operating performance of our DVD and Coin businesses and have raised our guidance for 2010," said J. Scott Di Valerio, chief financial officer of Coinstar, Inc. "We will continue to focus on consumers and partners while making investments to drive profitable growth." Revenue for the second quarter of 2010 increased 34.9% to $342.4 million compared with the second quarter of 2009, driven primarily by growth in DVD revenue, which increased 43.9% to $271.9 million, and by Coin revenue which grew 8.5% to $70.4 million. Income from operations for the second quarter of 2010 was $29.3 million, which resulted in an operating margin of 8.6%, including a pre-tax charge of approximately $2.0 million in accelerated depreciation related to the company's decision to exit the DVDXpress-branded business and $2.2 million in share-based payments expense related to the company's agreements with Sony Pictures Home Entertainment and Paramount Home Entertainment Inc. This compares with income from operations of $25.8 million and an operating margin of 10.2% in the second quarter of 2009.Income from continuing operations for the second quarter of 2010 was $12.8 million, or diluted earnings per share of $0.39, including the accelerated depreciation and share-based payments expense reflected in income from operations as well as 2.4 million additional shares outstanding, compared with $10.5 million, or $0.35, in the second quarter of 2009. In the second quarter, Coinstar completed the sale of its E-payment business and committed to a formal plan to sell its Money Transfer business and, as a result, the second quarter and all prior periods have been adjusted to reflect these businesses as discontinued operations. Coinstar recorded income from discontinued operations of $0.5 million, or earnings per diluted share of $0.02, in the second quarter, which included a gain, net of tax, on the sale of the E-payment business and an anticipated loss, net of tax, upon disposal of the Money Transfer business.Net income attributable to Coinstar, Inc. for the second quarter of 2010, which includes both continuing and discontinued operations, was $13.4 million, or diluted earnings per share of $0.41, compared with $7.0 million, or diluted earnings per share of $0.23, in the second quarter of 2009. Revenue for the first six months of 2010 was $665.5 million, an increase of 42.6% compared with the first six months of 2009. Income from operations for the first six months of 2010 was $53.9 million, which resulted in an operating margin of 8.1%, compared with income from operations of $46.3 million and an operating margin of 9.9% in the first six months of 2009. Net income attributable to Coinstar, Inc. for the first six months of 2010 was $19.8 million, or $0.62 per diluted share compared with net income of $8.9 million, or $0.30 per share, in the first six months of 2009, which included a loss of $3.6 million attributable to non-controlling interests. Cash paid for capital expenditures for continuing operations for the second quarter of 2010 was $52.8 million, compared with $38.3 million in the second quarter of 2009, with the increase primarily due to increased investment in redbox® DVD kiosks as well as investment in infrastructure. Free cash flow from continuing operations for the second quarter of 2010 was $51.8 million, compared with negative $5.3 million in the second quarter of 2009.2010 Third Quarter and Full Year Guidance For the 2010 full year, Coinstar management raised guidance provided on May 26 after adjusting for the reclassification of Money Transfer as discontinued operations and now expects:Revenue between $1.425 billion and $1.505 billion;EBITDA between $275 million and $290 million;GAAP EPS from continuing operations between $1.88 and $2.00 on a fully diluted basis;Free cash flow from continuing operations between $80 million and $100 million. For the 2010 third quarter, Coinstar management expects:Revenue between $370 million and $390 million;EBITDA between $69 million and $74 million;GAAP EPS from continuing operations between $0.46 and $0.52 on a fully diluted basis.Conference Call Paul Davis and J. Scott Di Valerio will host a conference call today at 2:00 p.m. PDT (5:00 p.m. EDT) to review the second quarter results and discuss guidance. The conference call will be webcast live and archived on the Investor Relations section of Coinstar's website at www.coinstar.com. A recording of the call will be available approximately two hours after the call ends through August 13, 2010, at 1-888-286-8010 or 1-617-801-6888, passcode 11131953.About Coinstar, Inc. Coinstar, Inc. (NASDAQ: CSTR) is a leading provider of automated retail solutions offering convenient services that make life easier for consumers and drive incremental traffic and revenue for retailers. The company's core automated retail businesses include the well-known redbox® self-service DVD rental and Coinstar® self-service coin-counting brands. The company has approximately 26,900 DVD kiosks and 19,000 coin-counting kiosks in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants. For more information, visit www.coinstar.com.Safe Harbor for Forward-Looking Statements Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "estimate," "expect," "intend," "anticipate," "goals," variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. The forward-looking statements in this release include statements regarding Coinstar, Inc.'s anticipated growth and future operating results. Forward-looking statements are not guarantees of future performance and actual results may vary materially from the results expressed or implied in such statements. Differences may result from actions taken by Coinstar, Inc., as well as from risks and uncertainties beyond Coinstar, Inc.'s control. Such risks and uncertainties include, but are not limited to, the termination, non-renewal or renegotiation on materially adverse terms of our contracts with our significant retailers, payment of increased service fees to retailers, the inability to receive delivery of DVDs on the date of their initial release to the general public, or shortly thereafter, for home entertainment viewing, the effective management of our DVD inventory, the ability to attract new retailers, penetrate new markets and distribution channels and react to changing consumer demands, the ability to achieve the strategic and financial objectives for our entry into or expansion of new businesses, the ability to adequately protect our intellectual property, and the application of substantial federal, state, local and foreign laws and regulations specific to our business. The foregoing list of risks and uncertainties is illustrative, but by no means exhaustive. For more information on factors that may affect future performance, please review "Risk Factors" described in our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission. These forward-looking statements reflect Coinstar, Inc.'s expectations as of the date of this release. Coinstar, Inc. undertakes no obligation to update the information provided herein.(Financial Statements Follow)Appendix AUse of Non-GAAP Financial MeasuresNon-GAAP measures may be provided as a complement to results provided in accordance with United States generally accepted accounting principles ("GAAP"). Non-GAAP measures are not a substitute for measures computed in accordance with GAAP. The definitions of such non-GAAP measures are provided below to allow the reader to reconcile non-GAAP data to that presented in accordance with GAAP. Our non-GAAP measures may be different from the presentation of financial information by other companies.Adjusted EBITDA from continuing operations is defined as earnings before net interest expense, income taxes, depreciation, amortization and certain other non-cash charges including the write-off from early retirement of debt, goodwill impairment, and stock-based compensation and share-based expenses from continuing operations. We believe adjusted EBITDA from continuing operations is an important non-GAAP measure as it provides useful information to investors regarding our ability to service, incur or pay down indebtedness. In addition, management uses this non-GAAP measure internally to evaluate performance and manage operations. See below for reconciliation of the most comparable GAAP measure, income from continuing operations, to adjusted EBITDA from continuing operations. Three Months Six Months Ended June 30,Ended June 30,2010200920102009(in thousands) Income from continuing operations $ 12,841$ 10,530$ 22,080$ 20,431 Depreciation, amortization and other 31,61222,17564,29242,325 Interest expense, net 9,0738,61118,33915,077 Income taxes 7,3896,70213,39510,729 Stock-based compensation and share-based expense 4,5701,9427,7874,737 Adjusted EBITDA from continuing operations $ 65,485$ 49,960$ 125,893$ 93,299Free cash flow from continuing operations is defined as net cash provided by operating activities from continuing operations after cash paid for capital expenditures for continuing operations. We believe free cash flow is an important non-GAAP measure as it provides useful cash flow information regarding our ability to service, incur or pay down indebtedness and repurchase our common stock. See below for reconciliation of the most comparable GAAP measure, net cash provided by operating activities from continuing operations, to free cash flow from continuing operations. Three Months Six Months Ended June 30,Ended June 30,2010200920102009(in thousands) Net cash provided by operating activities from continuing operations $ 104,651$ 32,965$ 157,381$ 19,760 Purchase of property and equipment (52,822)(38,288)(84,339)(73,276) Free cash flow from continuing operations $ 51,829$ (5,323)$ 73,042$ (53,516)Coinstar, Inc. Consolidated Statements of Net Income(in thousands, except per share data)(unaudited)Three Months EndedSix Months EndedJune 30,June 30, 2010 2009 2010 2009 REVENUE$ 342,356$ 253,844$ 665,478$ 466,597EXPENSES:Direct operating241,796174,871466,755318,401Marketing5,9343,6968,5646,683Research and development1,8051,2993,2292,556General and administrative31,87625,97763,39850,364Depreciation and other30,62721,29362,42840,569Amortization of intangible assets9858821,8641,756Litigation settlement005,3790Income from operations29,33325,82653,86146,268OTHER INCOME (EXPENSE):Foreign currency (loss) gain and other, net(30)17(47)(31)Interest income8548736Interest expense(9,158)(8,615)(18,426)(15,113)Income from continuing operations before income taxes20,23017,23235,47531,160Income tax expense(7,389)(6,702)(13,395)(10,729)Income from continuing operations12,84110,53022,08020,431Income (loss) from discontinued operations, net of tax526(3,572)(2,271)(7,883)Net income13,3676,95819,80912,548Less: Net income attributable to non-controlling interests000(3,627)NET INCOME ATTRIBUTABLE TO COINSTAR, INC.$ 13,367$ 6,958$ 19,809$ 8,921BASIC EARNINGS PER SHARE:Basic earnings per share from continuing operations attributable to Coinstar, Inc.$ 0.40$ 0.35$ 0.70$ 0.57Basic earnings (loss) per share from discontinued operations attributable to Coinstar, Inc.0.02(0.12)(0.07)(0.27)Basic earnings per share attributable to Coinstar, Inc.$ 0.42$ 0.23$ 0.63$ 0.30DILUTED EARNINGS PER SHARE:Diluted earnings per share from continuing operations attributable to Coinstar, Inc.$ 0.39$ 0.35$ 0.69$ 0.56Diluted earnings (loss) per share from discontinued operations attributable to Coinstar, Inc.0.02(0.12)(0.07)(0.26)Diluted earnings per share attributable to Coinstar, Inc.$ 0.41$ 0.23$ 0.62$ 0.30WEIGHTED SHARES OUTSTANDING:Basic31,73130,11731,34029,525Diluted32,93830,57532,07729,893Coinstar, Inc.Consolidated Balance Sheets(in thousands, except share data)(unaudited)June 30,December 31,20102009ASSETSCURRENT ASSETS:Cash and cash equivalents$ 132,607$ 61,280Cash in machine or in transit48,40157,141Cash being processed76,12573,875Accounts receivable, net of allowance for doubtful accounts of $953 and $4,379 at June 30, 2010 and December 31, 2009, respectively 19,45861,371DVD library and inventory87,328104,367Deferred income taxes11,29512,350Prepaid expenses and other current assets19,41320,364Assets of business held for sale77,9450Total current assets472,572390,748PROPERTY AND EQUIPMENT, NET416,228400,289DEFERRED INCOME TAXES90,73199,195OTHER ASSETS14,45317,172INTANGIBLE ASSETS, NET11,01330,893GOODWILL267,750284,502ASSETS OF BUSINESS HELD FOR SALE24,1000TOTAL ASSETS$ 1,296,847$ 1,222,799LIABILITIES AND EQUITYCURRENT LIABILITIES:Accounts payable$ 108,650$ 118,918Accrued payable to retailers and agents96,402131,103Other accrued liabilities104,33191,413Current portion of long-term debt7,1576,812Current portion of capital lease obligations23,16226,396Liabilities of business held for sale59,3090Total current liabilities399,011374,642LONG-TERM DEBT AND OTHER409,551409,423CAPITAL LEASE OBLIGATIONS14,07226,326DEFERRED TAX LIABILITY1717TOTAL LIABILITIES822,651810,408EQUITY:Preferred stock, $0.001 par value?Authorized, 5,000,000 shares; no shares issued and outstanding at June 30, 2010 and December 31, 200900Common stock, $0.001 par value?Authorized: 60,000,000 shares at June 30, 2010 and 45,000,000 at December 31, 2009; 34,643,176 and 33,002,865 issued and 32,717,095 and 31,076,784 shares outstanding at June 30, 2010 and December 31, 2009, respectively448,955406,333Retained earnings70,78050,971Treasury stock(40,831)(40,831)Accumulated other comprehensive loss(4,708)(4,082)Total stockholders? equity474,196412,391TOTAL LIABILITIES AND EQUITY$ 1,296,847$ 1,222,799Coinstar, Inc.Consolidated Statements of Cash Flows(in thousands)(unaudited)Three Months EndedSix Months EndedJune 30,June 30, 2010 2009 2010 2009 OPERATING ACTIVITIES:Net income$ 13,367$ 6,958$ 19,809$ 12,548Adjustments to reconcile net income to net cash provided by operating activities from continuing operations: Depreciation and other30,62721,29362,42840,569 Amortization of intangible assets and deferred financing fees1,4931,2022,8802,262 Non-cash stock-based compensation for employees2,3391,9424,9644,737 Share-based payments for DVD agreement2,23102,8230 Excess tax benefit on share-based awards(5,477)(92)(6,225)(125) Deferred income taxes5,6072,7478,7554,489 (Gain) loss from discontinued operations, net of tax(526)3,5722,2717,883 Non-cash interest on convertible debt1,49902,9580 Other33(106)229126Cash provided (used) by changes in operating assets and liabilities from continuing operations:53,458(4,551)56,489(52,729) Net cash provided by operating activities from continuing operations104,65132,965157,38119,760INVESTING ACTIVITIES: Purchase of property and equipment(52,822)(38,288)(84,339)(73,276) Proceeds from sale of electronic payment services business26,078026,0780 Proceeds from sale of property and equipment23059267152Net cash used by investing activities from continuing operations(26,514)(38,229)(57,994)(73,124)FINANCING ACTIVITIES: Principal payments on capital lease obligations and other debt(10,668)(5,858)(19,343)(11,693) Net borrowings on credit facility018,000073,000 Borrowings on term loan087,500087,500 Financing costs associated with revolving line of credit and convertible debt0(1,329)0(3,234) Cash used to purchase remaining non-controlling interests in Redbox0(92,270)0(102,353) Excess tax benefit on share-based awards5,477926,225125 Proceeds from exercise of stock options25,0231,84127,2502,260Net cash provided by financing activities from continuing operations19,8327,97614,13245,605Effect of exchange rate changes on cash(354)3,050(851)2,829NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN TRANSIT,AND CASH BEING PROCESSED FROM CONTINUING OPERATIONS97,6155,762112,668(4,930)CASH FLOWS FROM DISCONTINUED OPERATIONS: Operating cash flows(26,279)6,840(14,115)7,455 Investing cash flows(32,716)(2,269)(33,550)(4,486) Financing cash flows(145)(887)(166)(1,822)(59,140)3,684(47,831)1,147NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN TRANSIT, AND CASH BEING PROCESSED38,4759,44664,837(3,783)CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN TRANSIT, AND CASH BEING PROCESSED: Beginning of period218,658178,806192,296192,035 End of period$ 257,133$ 188,252$ 257,133$ 188,252 Coinstar, Inc. Business Segment Information (in thousands) (unaudited)At June 30, 2010, we reflected both the E-payment and Money Transfer businesses as discontinued operations for all periods presented. As a result, our business segments are now DVD services and Coin services. The operating costs related to continuing corporate activities have been reallocated to these two segments.As a complement to our Consolidated Statements of Net Income, we are providing the following information related to our business segments:Three MonthsSix MonthsEnded June 30,Ended June 30, 2010 2009 2010 2009 (in thousands)(in thousands)Revenue:DVD services$ 271,929$ 188,925$ 535,058$ 343,622Coin services70,42764,919130,420122,975Consolidated revenue$ 342,356$ 253,844$ 665,478$ 466,597Three MonthsSix MonthsEnded June 30, Ended June 30, 2010 2009 2010 2009 (in thousands)(in thousands)Operating income before depreciation/amortization and stock-based compensation/share-based payments:DVD services$ 39,049$ 24,157$ 83,480$ 45,056Coin services26,46625,78642,46048,274 Subtotal65,51549,943125,94093,330Depreciation, amortization and other(31,612)(22,175)(64,292)(42,325)Stock-based compensation and share-based payments(4,570)(1,942)(7,787)(4,737)Consolidated income from operations$ 29,333$ 25,826$ 53,861$ 46,268SOURCE Coinstar, Inc.For further information: Media, Marci Maule, Director of Public Relations, +1-425-943-8277, email@example.com, or Investors, Rosemary Moothart, Director of Investor Relations, +1-425-943-8140, firstname.lastname@example.org, both of Coinstar, Inc.