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Press release from PR Newswire

Coinstar, Inc. Announces 2010 Third Quarter Results

Thursday, October 28, 2010

Coinstar, Inc. Announces 2010 Third Quarter Results16:01 EDT Thursday, October 28, 2010Revenue Growth of 42% Drives 74% Growth in Earnings Per Share from Continuing Operations Company Provides 2011 Full Year GuidanceBELLEVUE, Wash., Oct. 28 /PRNewswire-FirstCall/ -- Coinstar, Inc. (Nasdaq: CSTR) today announced financial results for the third quarter and nine months ended Sept. 30, 2010.  "Coinstar's exceptional third quarter performance demonstrates the strength of our leading Coin and DVD businesses, and our ability to execute, drive operational efficiencies and deliver what our consumers want," said Paul Davis, chief executive officer of Coinstar, Inc.  "We are confident in our growth prospects and believe we are in a great position to continue creating value through our automated retail strategy."Third quarter financial highlights included:Revenue$   380.2       millionIncome from operations$     46.2       millionAdjusted EBITDA from continuing operations (See Appendix A)$     80.5       millionDiluted earnings per share from continuing operations $     0.66Diluted earnings per share attributable to Coinstar, Inc.$     0.60Net cash provided by operating activities from continuing operations$     65.0       millionFree cash flow from continuing operations (See Appendix A)$     16.8       million"Focus on our consumers, our partners and growing profitably continued to drive strong growth at the top and bottom line," said J. Scott Di Valerio, chief financial officer of Coinstar, Inc. "Our solid financial and operating performance enables us to invest for the future and focus on returns for our shareholders. Looking to 2011, we are excited about the opportunities ahead across our businesses." Revenue for the third quarter of 2010 increased 42.0% to $380.2 million compared with the third quarter of 2009, driven primarily by growth in DVD revenue, which increased 54.2% to $305.5 million, and by Coin revenue which grew 7.3% to $74.7 million.  Income from operations for the third quarter of 2010 was $46.2 million, which resulted in an operating margin of 12.1%, including $1.4 million in share-based payments expense related to the company's agreements with Sony Pictures Home Entertainment (Sony) and Paramount Home Entertainment Inc.  This compares with income from operations of $28.7 million and an operating margin of 10.7% in the third quarter of 2009 that included $1.1 million in share-based payments expense related to the Sony agreement.Income from continuing operations for the third quarter of 2010 was $21.4 million, or diluted earnings per share of $0.66, compared with $11.6 million, or $0.38, in the third quarter of 2009. Coinstar recorded a loss from discontinued operations of $1.9 million, net of tax, or a loss of $0.06 per share, in the third quarter. Coinstar agreed to sell its Money Transfer business to Sigue Corporation in the third quarter and all prior periods have been adjusted to reflect discontinued operations.  Net income attributable to Coinstar, Inc. for the third quarter of 2010, which includes both continuing and discontinued operations, was $19.5 million, or diluted earnings per share of $0.60. This compares with $41.4 million, or diluted earnings per share of $1.34, in the third quarter of 2009, which included a pre-tax loss on disposal of $49.8 million and a one-time tax benefit of $82.2 million related to the sale of Coinstar's entertainment services business. Revenue for the first nine months of 2010 was $1,045.7 million, an increase of 42.4% compared with the first nine months of 2009. Income from operations for the first nine months of 2010 was $100.1 million, which resulted in an operating margin of 9.6%, compared with income from operations of $75.0 million and an operating margin of 10.2% in the first nine months of 2009. Net income attributable to Coinstar, Inc. for the first nine months of 2010 was $39.3 million, or $1.22 per diluted share. This compares with net income attributable to Coinstar, Inc. of $50.3 million, or $1.66 per share, in the first nine months of 2009, which included a deduction of $3.6 million attributable to non-controlling interests as well as the previously mentioned pre-tax loss on disposal of $49.8 million and one-time tax benefit of $82.2 million related to the sale of Coinstar's entertainment services business that occurred in the third quarter of 2009. Cash paid for capital expenditures for continuing operations for the third quarter of 2010 was $48.1 million, compared with $28.6 million in the third 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 third quarter of 2010 was $16.8 million, compared with negative $1.7 million in the third quarter of 2009.During the third quarter, Coinstar repurchased 1.1 million shares of common stock for $49.2 million. The company also retired $75 million of the amount outstanding on its revolving credit facility and terminated the associated interest rate swap.  GuidanceFor the 2010 full year, Coinstar management updated guidance and now expects:Consolidated revenue between $1.460 billion and $1.485 billion;EBITDA between $291 million and $297 million;GAAP EPS from continuing operations between $2.14 and $2.20 on a fully diluted basis;Free cash flow from continuing operations between $100 million and $110 million. For the 2010 fourth quarter, Coinstar management expects:Consolidated revenue between $415 million and $440 million;EBITDA between $84 million and $90 million;GAAP EPS from continuing operations between $0.79 and $0.85 on a fully diluted basis.Coinstar management is providing an initial view of 2011 with the following guidance for the 2011 full year:Consolidated revenue between $1.80 billion and $1.95 billion;EBITDA between $350 million and $380 million;GAAP EPS from continuing operations between $3.00 and $3.50 on a fully diluted basis;Free cash flow from continuing operations between $175 million and $200 million.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 third 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 Nov. 11, 2010, at 1-888-286-8010 or 1-617-801-6888, passcode 29816824.  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 28,500 DVD kiosks and 18,900 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 additional information to users of the financial statements 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 Ended Nine Months Ended September 30,September 30,Dollars in thousands2010200920102009Income from continuing operations$21,399$11,619$43,479$32,050  Depreciation, amortization, and other31,38222,97595,67465,300  Interest expense, net8,6939,35427,03224,431  Income taxes15,9696,70629,36417,435  Stock-based compensation and share-based expense3,0902,63610,8767,073  Early retirement of debt01,08201,082Adjusted EBITDA from continuing operations$80,533$54,372$206,425$147,371Free 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 additional information to users of the financial statements 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 Ended Nine Months Ended September 30,September 30,Dollars in thousands2010200920102009Net cash provided by operating activities from continuing operations$64,959$26,933$228,625$68,992Purchase of property and equipment(48,135)(28,646)(132,474)(101,922)Free cash flow from continuing operations$16,824$(1,713)$96,151$(32,930)Coinstar, Inc.Consolidated Statements of Net Income(in thousands, except per share data)(unaudited)For the Three Months EndedFor the Nine Months Ended September 30, September 30, 2010200920102009Revenue$380,187$267,725$1,045,665$734,322Expenses:    Direct operating 255,449184,483722,204502,884    Marketing7,8114,15416,37510,837    Research and development1,6991,3604,9283,916    General and administrative37,65526,004101,05376,368    Depreciation and other 30,62622,04793,05462,616    Amortization of intangible assets7569282,6202,684    Litigation settlement005,3790Total expenses333,996238,976945,613659,305Income from operations46,19128,749100,05275,017Other income (expense):    Foreign currency and other, net(130)12(177)(19)    Interest income48313539    Interest expense(8,741)(9,357)(27,167)(24,470)    Early retirement of debt0(1,082)0(1,082)(8,823)(10,424)(27,209)(25,532)Income from continuing operations before income taxes37,36818,32572,84349,485Income tax expense(15,969)(6,706)(29,364)(17,435)Income from continuing operations21,39911,61943,47932,050Income (loss) from discontinued operations, net of tax(1,894)29,744(4,165)21,861Net income19,50541,36339,31453,911Net income attributable to non-controlling interests000(3,627)Net income attributable to Coinstar, Inc.$19,505$41,363$39,314$50,284Basic Earnings Per Share:Basic earnings per share from continuing operations attributable to Coinstar, Inc.$0.68$0.38$1.38$0.96Basic earnings (loss) per share from discontinued operations attributable to Coinstar, Inc.(0.06)0.98(0.13)0.73Basic earnings per share attributable to Coinstar, Inc.$0.62$1.36$1.25$1.69Diluted Earnings Per Share:Diluted earnings per share from continuing operations attributable to Coinstar, Inc.$0.66$0.38$1.35$0.94Diluted earnings (loss) per share from discontinued operations attributable to Coinstar, Inc.(0.06)0.96(0.13)0.72Diluted earnings per share attributable to Coinstar, Inc.$0.60$1.34$1.22$1.66Weighted Average Shares Outstanding:Shares used in basic per share calculations31,41130,43731,36429,829Shares used in diluted per share calculations32,38230,84032,17930,209Coinstar, Inc.Consolidated Balance Sheets(in thousands, except share data)(unaudited)September 30,December 31,20102009AssetsCurrent Assets:    Cash and cash equivalents$36,535$19,386    Cash in machine or in transit43,16457,141    Cash being processed67,02369,330    Accounts receivable, net of allowances of $852 and $859 18,20419,265    DVD library94,91095,531    Deferred income taxes6,23312,350    Prepaid expenses and other current assets15,7477,756    Assets of businesses held for sale121,639159,318        Total current assets403,455440,077Property and equipment, net436,595386,433Deferred income taxes87,96699,195Other assets12,85814,358Intangible assets, net10,25714,986Goodwill267,750267,750        Total assets$1,218,881$1,222,799Liabilities and Stockholders' EquityCurrent Liabilities:    Accounts payable$110,855$80,077    Accrued payable to retailers88,46992,585    Other accrued liabilities113,65580,024    Current portion of long-term debt7,3386,812    Current portion of capital lease obligations19,23026,322    Liabilities of businesses held for sale82,52588,950        Total current liabilities422,072374,770Long-term debt and other334,601409,387Capital lease obligations11,75526,234Deferred tax liability1517        Total liabilities768,443810,408Commitments and contingenciesStockholders' Equity:    Preferred stock, $0.001 par value - 5,000,000 shares authorized; no shares issued or outstanding00    Common stock, $0.001 par value - 60,000,000 and 45,000,000 authorized; 34,664,810 and 33,002,865 shares issued; 31,666,692 and 31,076,784 shares outstanding453,070406,333    Retained earnings90,28550,971    Treasury stock(90,076)(40,831)    Accumulated comprehensive loss (2,841)(4,082)       Total stockholders' equity450,438412,391       Total liabilities and stockholders' equity$1,218,881$1,222,799Coinstar, Inc.Consolidated Statements of Cash Flows(in thousands)(unaudited)For the Three Months Ended  For the Nine Months Ended  September 30,  September 30,2010200920102009Operating Activities:   Net income$19,505$41,363$39,314$53,911   Adjustments to reconcile net income to net cash flowsprovided by operating activities from continuing operations:         Depreciation and other30,62622,04793,05462,616         Amortization of intangible assets and deferred financing fees1,2641,3884,1443,650         Stock-based employee compensation1,7001,5456,6645,982         Share-based payments for DVD agreement1,3901,0914,2121,091         Excess tax benefits on stock-based awards(65)125(6,290)0         Deferred income taxes10,525(1,004)19,2803,485         (Gain) loss from discontinued operations, net of tax1,894(29,744)4,165(21,861)         Loss on early retirement of debt01,08201,082         Non-cash interest on convertible debt1,5194804,477480         Other134(25)364401   Cash provided (used) by changes in operating assets and liabilities from     continuing operations:(3,533)(11,415)59,241(41,845)            Net cash provided by operating activities from continuing operations64,95926,933228,62568,992Investing Activities:   Purchase of property and equipment(48,135)(28,646)(132,474)(101,922)   Proceeds from sale of property and equipment765481,032200   Cash paid for acquisition, net of cash acquired0(159)0(159)   Proceeds from sale of electronic payment services business0026,0780            Net cash used by investing activities from continuing operations(47,370)(28,757)(105,364)(101,881)Financing Activities:   Principal payments on capital lease obligations and other debt(8,860)(6,892)(28,203)(18,585)   Proceeds from capital lease financing022,020022,020   Net payments on credit facility(75,000)(108,000)(75,000)(35,000)   Pay-off of term loan0(87,500)00   Issuance of convertible debt, net of underwriting discounts and commissions of $6,0000194,0000194,000   Financing costs associated with revolving line of credit and convertible debt0(750)0(3,984)   Cash used to purchase remaining non-controlling interests in Redbox0(11,514)0(113,867)   Excess tax benefits related to stock-based awards65(125)6,2900   Shares repurchased(49,245)0(49,245)0   Proceeds from exercise of stock options7098,62927,95910,889            Net cash provided (used) by financing activities from continuing operations(132,331)9,868(118,199)55,473Effect of exchange rate changes on cash899121482,950Increase (decrease) in cash and cash equivalents, cash in machine or in  transit, and cash being processed from continuing operations(113,843)8,1655,11025,534Cash flows from discontinued operations:   Operating cash flows28,455(8,706)8,054(23,551)   Investing cash flows(25,023)4,707(12,133)(678)   Financing cash flows0(697)(166)(2,519)3,432(4,696)(4,245)(26,748)Increase (decrease) in cash and cash equivalents, cash in machine or in  transit, and cash being processed (110,411)3,469865(1,214)Cash and cash equivalents, cash in machine or in transit, and cash  being processed:   Beginning of period257,133135,817145,857140,500   End of period$146,722$139,286$146,722$139,286Coinstar, Inc.Business Segment Information(in thousands)(unaudited)At June 30, 2010, we reflected both the E-payment and Money Transfer businesses as discontinued operations for all periods presented. As a result, our business segments are now DVD services and Coin services. The operating costs related to continuing corporate activities have been reallocated to these two segments.As a complement to our Consolidated Statements of Net Income, we are providing the following information related to our business segments:Three MonthsNine MonthsEnded September 30,Ended September 30, 2010 2009 2010 2009 (in thousands)(in thousands)Revenue:DVD services$           305,470$           198,085$           840,528$           541,707Coin services74,71769,640205,137192,615Consolidated revenue$           380,187$           267,725$        1,045,665$           734,322Three MonthsNine MonthsEnded September 30, Ended September 30, 2010 2009 2010 2009 (in thousands)(in thousands)Operating income before depreciation/amortization and stock-based compensation/share-based payments:DVD services$     53,677$      27,441$   137,152$     72,447Coin services26,98626,91969,45074,943         Subtotal80,66354,360206,602147,390Depreciation, amortization and otherDVD services(24,006)(15,541)(70,083)(43,448)Coin services(7,376)(7,434)(25,591)(21,852)         Subtotal(31,382)(22,975)(95,674)(65,300)Income from operationsDVD services29,67111,90067,06928,999Coin services19,61019,48543,85953,091         Subtotal49,28131,385110,92882,090Stock-based compensation and share-based payments(3,090)(2,636)(10,876)(7,073)Total Income from operations$     46,191$     28,749$   100,052$     75,017SOURCE Coinstar, Inc.For further information: Media, Marci Maule, Director of Public Relations, +1-425-943-8277, marci.maule@coinstar.com; or Financial Analysts and Investors, Rosemary Moothart, Director of Investor Relations, +1-425-943-8140, rosemary.moothart@coinstar.com