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Press release from PR Newswire

Coinstar, Inc. Announces 2010 Fourth Quarter and Full Year Results

Thursday, February 03, 2011

Coinstar, Inc. Announces 2010 Fourth Quarter and Full Year Results16:01 EST Thursday, February 03, 2011Company Drives 55% Year Over Year Earnings Growth in 2010BELLEVUE, Wash., Feb. 3, 2011 /PRNewswire/ -- Coinstar, Inc. (Nasdaq: CSTR) today announced financial results for the fourth quarter and full year ended December 31, 2010.  "We grew our fourth quarter revenue 31% over the prior year, and while this was not in line with our expectations, we still delivered $2.03 in earnings per share for the full year," said Paul Davis, chief executive officer of Coinstar, Inc. "We have taken definitive steps to correct the issues we encountered with our redbox business in the fourth quarter and will be tracking progress closely. Our coin business remains solid with same store sales growth of approximately 10% and redbox increased its unit market share to 29.8%. We remain optimistic about our core businesses as well as future opportunities with new automated retail concepts and we are committed to driving continued profitable growth."Financial highlights for the 2010 fourth quarter and full year included:2010 Fourth Quarter2010 Full YearRevenue$  390.8million$  1,436.4millionIncome from operations$   43.2million$     143.2millionAdjusted EBITDA from continuing operations (See Appendix A)$   80.2million$    286.6millionDiluted earnings per share from continuing operations $   0.68$      2.03Diluted earnings per share attributable to Coinstar, Inc.$   0.35$      1.57Net cash provided by operating activities from continuing operations$   87.0million$    315.6millionFree cash flow from continuing operations (See Appendix A)$   48.6million$    144.8million"Overall, this was a tremendous year for Coinstar exhibited by our revenue, adjusted EBITDA and EPS growth," said J. Scott Di Valerio, chief financial officer of Coinstar, Inc. "Nonetheless, we did not finish the year as strongly as we expected. We do expect continued growth as we focus on providing a compelling offering to our consumers that is a significant benefit to our retail partners and increases our shareholder value." Revenue for the fourth quarter of 2010 increased 31% to $390.8 million compared with the fourth quarter of 2009, driven primarily by growth in DVD revenue, which increased 38% to $319.6 million, and by Coin revenue which grew 7% to $71.2 million.  Income from operations for the fourth quarter of 2010 was $43.2 million, resulting in an operating margin of 11%, including $3.1 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 $29.7 million and an operating margin of 10% in the fourth quarter of 2009, which included $0.3 million in share-based payments expense related to the Sony agreement.Income from continuing operations for the fourth quarter of 2010 was $22.4 million, with diluted earnings per share of $0.68, compared with $11.6 million, and $0.37, in the fourth quarter of 2009. Coinstar recorded a loss from discontinued operations of $10.7 million, net of tax, or a loss of $0.33 per share, in the fourth quarter.  Net income attributable to Coinstar, Inc. for the fourth quarter of 2010, which includes both continuing and discontinued operations, was $11.7 million, with diluted earnings per share of $0.35. This compares with $3.4 million, and $0.11, in the fourth quarter of 2009. Revenue for 2010 was $1,436.4 million, an increase of 39% compared with 2009. Income from operations for 2010 was $143.2 million compared with income from operations of $104.7 million in 2009.Income from continuing operations for 2010 was $65.9 million, with diluted earnings per share of $2.03, compared with $43.7 million, and $1.31, in 2009. Net income attributable to Coinstar, Inc. for 2010 was $51.0 million, with $1.57 per diluted share, including a loss, net of tax, of $14.9 million from discontinued operations. This compares with net income attributable to Coinstar, Inc. of $53.6 million, and $1.76, in 2009, which included income from discontinued operations, net of tax, of $13.6 million offset by a net loss of $3.6 million attributable to non-controlling interests.Cash paid for capital expenditures for continuing operations for the fourth quarter of 2010 was $38.4 million, compared with $46.5 million in the fourth quarter of 2009. Free cash flow from continuing operations for the fourth quarter of 2010 was $48.6 million, compared with $8.4 million in the fourth quarter of 2009.Coinstar announced that the company's board of directors authorized the repurchase of an additional $50 million of Coinstar's common stock. The company currently has a total authorization to repurchase $74.5 million of Coinstar's common stock.  GuidanceFor the 2011 full year, Coinstar management expects:Consolidated revenue between $1.70 billion and $1.85 billion;EBITDA between $325 million and $355 million;GAAP EPS from continuing operations between $2.60 and $3.10 on a fully diluted basis;Free cash flow from continuing operations between $115 million and $140 million. For the 2011 first quarter, Coinstar management expects:Consolidated revenue between $400 million and $420 million;EBITDA between $50 million and $56 million;GAAP EPS from continuing operations between $0.15 and $0.25 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 fourth 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 February 17, 2011, at 1-888-286-8010 or 1-617-801-6888, passcode 42299302.  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 30,200 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," "will," 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 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 termination, non-renewal or renegotiation on materially adverse terms of our contracts with our significant retailers, payment of increased service fees to retailers, 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, actions relating to legal, regulatory, and similar proceedings 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 Reports 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, 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 December 31,Twelve Months ended December 31,Dollars in thousands2010200920102009Income from continuing operations$22,415$11,643$65,894$43,693  Depreciation, amortization, and other31,31824,681126,99289,981  Interest expense, net7,6739,81734,70534,248  Income taxes13,6688,28543,03225,720  Share-based expense5,1401,74316,0168,816  Early retirement of debt0001,082Adjusted EBITDA from continuing operations$80,214$56,169$286,639$203,540Free 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 Twelve Months Ended December 31,December 31,Dollars in thousands2010200920102009Net cash provided by operating activities from continuing operations$86,994$54,898$315,619$123,890Purchase of property and equipment(38,373)(46,545)(170,847)(148,467)Free cash flow from continuing operations$48,621$8,353$144,772$(24,577)Coinstar, Inc.Consolidated Statements of Net Income(in thousands, except per share data)(unaudited) For the Three Months Ended   For the Twelve Months Ended December 31, December 31, 2010200920102009Revenue$390,756$298,301$1,436,421$1,032,623Expenses:    Direct operating 278,737213,1571,000,941716,041    Marketing7,4614,64223,83615,479    Research and development2,5091,3967,4375,312    General and administrative27,57624,730128,629101,098    Depreciation and other 30,63323,802123,68786,418    Amortization of intangible assets6858793,3053,563    Litigation settlement005,3790    Proxy contest0000Total expenses347,601268,6061,293,214927,911Income from operations43,15529,695143,207104,712Other income (expense):    Foreign currency and other, net6015042431    Interest income24(40)1590    Interest expense(7,697)(9,777)(34,864)(34,248)    Early retirement of debt000(1,082)(7,072)(9,767)(34,281)(35,299)Income from continuing operations before income taxes36,08319,928108,92669,413Income tax expense(13,668)(8,285)(43,032)(25,720)Income from continuing operations22,41511,64365,89443,693Income (loss) from discontinued operations, net of tax(10,721)(8,284)(14,886)13,577Net income11,6943,35951,00857,270Less: Net income attributable to non-controlling interests000(3,627)Net income attributable to Coinstar, Inc$11,694$3,359$51,008$53,643Basic earnings per share from continuing operations attributable  to Coinstar, Inc.$0.72$0.38$2.11$1.33Basic earnings (loss) per share from discontinued operations  attributable to Coinstar, Inc.(0.34)(0.27)(0.48)0.45Basic earnings per share attributable to Coinstar, Inc.$0.38$0.111.631.78Diluted earnings per share from continuing operations attributable  to Coinstar, Inc.$0.68$0.37$2.03$1.31Diluted earnings (loss) per share from discontinued operations  attributable to Coinstar, Inc.(0.33)(0.26)(0.46)0.45Diluted earnings per share attributable to Coinstar, Inc.$0.35$0.11$1.57$1.76Shares used in basic per share calculations30,98130,97931,26830,152Shares used in diluted per share calculations33,05231,28832,39730,514Coinstar, Inc.Consolidated Balance Sheets(in thousands, except share data)(unaudited) December 31, December 31, 20102009AssetsCurrent Assets:    Cash and cash equivalents$71,287$19,386    Cash in machine or in transit39,60357,141    Cash being processed72,52669,330    Accounts receivable, net of allowances of $272 and $9925,95819,265    DVD library140,32495,531    Deferred income taxes13,64412,350    Prepaid expenses and other current assets14,7367,756    Assets of businesses held for sale110,316159,318        Total current assets488,394440,077Property and equipment, net444,687386,433Deferred income taxes59,69699,195Other assets12,61214,358Intangible assets subject to amortization, net9,57214,986Goodwill267,750267,750        Total assets$1,282,711$1,222,799Liabilities and Stockholders' EquityCurrent Liabilities:    Accounts payable$161,551$80,077    Accrued payable to retailers96,76492,585    Other accrued liabilities108,42280,024Current callable convertible debt173,1460    Current portion of long-term debt7,5236,812    Current portion of capital lease obligations17,23326,322    Liabilities of businesses held for sale68,66288,950        Total current liabilities633,301374,770Long-term debt and other167,261409,387Capital lease obligations12,15826,234Deferred tax liability1517        Total liabilities812,735810,408Commitments and contingenciesDebt conversion feature26,8540Stockholders' 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;     34,813,203 and 33,002,865 shares issued; 31,815,085 and    31,076,784 shares outstanding434,169406,333    Retained earnings101,97950,971    Treasury stock(90,076)(40,831)    Accumulated comprehensive loss (2,950)(4,082)       Total stockholders' equity443,122412,391       Total liabilities and stockholders' equity$1,282,711$1,222,799Coinstar, Inc.Consolidated Statements of Cash Flows(in thousands)(unaudited) For the Three Months Ended   For the Twelve Months Ended   December 31,   December 31,  2010200920102009Operating Activities:   Net income$11,694$3,359$51,008$57,270   Adjustments to reconcile net income to net cash flows provided by      operating activities from continuing operations:         Depreciation and other30,63323,802123,68786,418         Amortization of intangible assets and deferred financing fees1,1941,3875,3385,037         Share-based payments5,1401,74316,0168,816         Excess tax benefits on share-based payments(597)0(6,887)0         Deferred income taxes22,11511,19741,39514,682       (Gain) loss from discontinued operations, net of tax10,7218,28414,886(13,577)         Loss on early retirement of debt0001,082         Non-cash interest on convertible debt1,5601,4386,0371,918         Other302460666861   Cash provided (used) by changes in operating assets and liabilities from     continuing operations:4,2323,22863,473(38,617)            Net cash provided by operating activities from continuing operations86,99454,898315,619123,890Investing Activities:   Purchase of property and equipment(38,373)(46,545)(170,847)(148,467)   Proceeds from sale of property and equipment111911,143291   Cash paid for acquisition, net of cash acquired0230071   Proceeds from sale of electronic payment services business539026,6170            Net cash used by investing activities from continuing operations (37,723)(46,224)(143,087)(148,105)Financing Activities:   Principal payments on capital lease obligations and other debt(8,109)(8,619)(36,312)(27,204)   Proceeds from capital lease financing00022,020   Net borrowings (payments) on credit facility077,500(75,000)42,500   Pay-off of term loan0(87,500)0(87,500)   Issuance of convertible debt, net of underwriting discounts and commissions of $6,000000194,000   Financing costs associated with revolving line of credit and convertible debt000(3,984)   Cash used to purchase remaining non-controlling interests in Redbox000(113,867)   Excess tax benefits related to share-based payments59706,8870   Repurchase of common stock00(49,245)0   Proceeds from exercise of stock options3,6655,08531,62415,974            Net cash provided (used) by financing activities from continuing operations                                                                                               (3,847)(13,534)(122,046)41,939Effect of exchange rate changes on cash(685)517(637)3,466Increase (decrease) in cash and cash equivalents, cash in machine  or in transit, and cash being processed from continuing operations44,739(4,343)49,84921,190Cash flows from discontinued operations:   Operating cash flows(17,578)15,279(9,524)(8,272)   Investing cash flows9,533(4,348)(2,600)(5,026)   Financing cash flows0(17)(166)(2,536)(8,045)10,914(12,290)(15,834)Increase in cash and cash equivalents, cash in machine  or in transit, and cash being processed 36,6946,57137,5595,356Cash and cash equivalents, cash in machine or in transit, and cash  being processed:   Beginning of period146,722139,286145,857140,501   End of period$183,416$145,857$183,416$145,857Coinstar, Inc.Business Segment Information(in thousands)(unaudited)At December 31, 2010, we reflected both the E-payment and Money Transfer businesses as discontinued operations for all periods presented. As a result, our business segments are now DVD services and Coin services. The operating costs related to continuing corporate activities have been reallocated to these two segments.Three MonthsTwelve MonthsEnded December 31,Ended December 31, 2010 2009 2010 2009 (in thousands)(in thousands)Revenue:DVD services$ 319,582$ 231,804$ 1,160,110$    773,511Coin services71,17466,497276,311259,112Consolidated revenue$ 390,756$ 298,301$ 1,436,421$ 1,032,623As a complement to our Consolidated Statements of Net Income, we are providing the following information related to our business segments:Three MonthsTwelve MonthsEnded December 31, Ended December 31, 2010 2009 2010 2009 (in thousands)(in thousands)Operating income before depreciation/amortization and stock-based compensation/share-based payments:DVD services$ 55,408$ 29,460$ 192,563$ 101,908Coin services24,20526,65993,652101,601         Subtotal79,61356,119286,215203,509Depreciation, amortization and otherDVD services(23,558)(17,283)(93,641)(60,731)Coin services(7,760)(7,398)(33,351)(29,250)         Subtotal(31,318)(24,681)(126,992)(89,981)Income from operationsDVD services31,85012,17798,92241,177Coin services16,44519,26160,30172,351         Subtotal48,29531,438159,223113,528Stock-based compensation and share-based payments(5,140)(1,743)(16,016)(8,816)Total Income from operations$ 43,155$ 29,695$ 143,207$ 104,712SOURCE 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, both for Coinstar, Inc.