Coinstar, Inc. Announces 2012 Second Quarter Results

Revenue Growth and Operational Excellence Drive Strong Bottom Line Results; Redbox Picks Up 8 Percentage Points in Market Share

Jul 26, 2012, 16:01 ET from Coinstar, Inc.

BELLEVUE, Wash., July 26, 2012 /PRNewswire/ -- Coinstar, Inc. (Nasdaq: CSTR) today announced financial results for the second quarter and six months ended June 30, 2012.

"Coinstar's second quarter was marked by strong bottom line performance and significant progress against key initiatives positioning the company for long-term growth," said Paul Davis, chief executive officer of Coinstar, Inc. "Redbox began its expansion into Canada, extended its lead in physical rentals achieving more than 42 percent unit market share, and closed the NCR transaction. We launched our Rubi™ coffee kiosk business in partnership with Seattle's Best Coffee and made further progress across multiple innovation paths that we believe will provide growth and opportunity for our company well into the future."

Coinstar's 2012 second quarter and six months financial highlights included:

2012

2012

Second Quarter

Six Months

  • Consolidated revenue

$

532.2

million

$

1,100.4

million

  • Operating income

$

69.8

million

$

148.1

million

  • Core adjusted EBITDA from continuing operations* (See Appendix A)

$

121.3

million

$

250.4

million

  • Diluted earnings per share from continuing operations

$

1.11

$

2.75

  • Core diluted earnings per share* (See Appendix A)

$

1.25

$

2.62

  • Net cash flows from operating activities from continuing operations

$

139.3

million

$

194.2

million

  • Free cash flow from continuing operations* (See Appendix A)

$

100.6

million

$

117.5

million

"Our performance across the board once again underscores the strength of our business, as we drive profitable growth and generate free cash flow while continuing to invest in our future," said J. Scott Di Valerio, chief financial officer of Coinstar, Inc. "We have the talent and resources to increase our Redbox footprint in the U.S. and Canada, expand the rollout of Rubi, support Redbox Instant™ by Verizon and our New Ventures concepts, while we continue investing in our systems and infrastructure. We remain confident our investments position Coinstar to continue delivering long-term value to our shareholders."

Revenue for the second quarter of 2012 increased 22% to $532.2 million compared with the second quarter of 2011, driven primarily by Redbox revenue growth of 26% to $458.0 million, primarily the result of new kiosk installations, growth in same store sales and the price increase implemented in October 2011. Coin revenue grew 4% to $73.9 million, reflecting new kiosk installations as well as growth in number of transactions and transaction size.

Operating income for the second quarter of 2012 was $69.8 million, which resulted in an operating margin of 13%, compared with operating income of $58.2 million and an operating margin of 13% in the second quarter of 2011.

Income from continuing operations for the second quarter of 2012 was $36.9 million, or diluted earnings per share from continuing operations of $1.11, an increase in diluted earnings per share of 13% compared with $0.98 per share in the second quarter of 2011.

Net cash flows from operating activities from continuing operations in the second quarter of 2012 was $139.3 million, compared with $111.9 million in the second quarter of 2011. Cash paid for capital expenditures for continuing operations for the second quarter of 2012 was $38.7 million, compared with $49.4 million in the second quarter of 2011. Free cash flow from continuing operations for the second quarter of 2012 was $100.6 million, compared with $62.5 million in the second quarter of 2011.

Guidance

Guidance for the 2012 full year and third quarter reflects the impact of the acquisition of the NCR DVD kiosk business, including our expectations to replace between 2,500 and 2,900 of the 6,200 active NCR kiosks when the transaction closed with Redbox kiosks by the end of 2012.

For the 2012 full year, Coinstar management expects:

  • Consolidated revenue between $2.210 billion and $2.310 billion;
  • Core adjusted EBITDA from continuing operations* between $480 million and $505 million;
  • Core diluted EPS from continuing operations* between $4.60 and $4.90 on a fully diluted basis; and
  • Free cash flow from continuing operations* between $140 million and $165 million.

For the 2012 third quarter, Coinstar management expects:

  • Consolidated revenue between $550 million and $575 million;
  • Core adjusted EBITDA from continuing operations* between $121 million and $131 million; and
  • Core diluted EPS from continuing operations* between $1.09 and $1.24 on a fully diluted basis.

Additional Information

Coinstar has provided additional comments on guidance in prepared remarks that also review the company's 2012 second quarter operating and financial results. The prepared remarks are posted on the Investor Relations section of the corporate website at www.coinstarinc.com along with this press release. The 2012 second quarter Segment Supplement, which provides historical data in Excel format and replaces the Investor Update, is also posted on the website.   

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 answer questions related to the company's performance and guidance. The conference call will be webcast live and archived on the Investor Relations section of Coinstar's website at www.coinstarinc.com. A recording of the call will be available approximately two hours after the call ends through August 9, 2012, at 1-888-286-8010 or 1-617-801-6888, passcode 22589733.

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 and video game rental and Coinstar® self-service coin-counting brands. The company has approximately 38,500 Redbox DVD kiosks and 20,200 coin-counting kiosks in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants. As a result of the asset purchase agreement with NCR Corporation that closed on June 22, 2012, Redbox also offers DVD rentals through approximately 6,200 additional kiosks acquired from NCR. For more information, visit www.coinstarinc.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, including 2012 third quarter and 2012 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 Coinstar, Inc. and Redbox, as well as from risks and uncertainties beyond Coinstar, Inc.'s control.  Such risks and uncertainties include, but are not limited to,

  • competition from other digital entertainment providers,
  • the ability to achieve the strategic and financial objectives for our entry into a new business,
  • our limited ability to direct the management or policies of the new joint venture with Verizon Communications,
  • failure to receive the expected benefits of the NCR relationship,
  • 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 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,
  • noteholders electing to convert our convertible notes,
  • 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,
  • 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 any subsequent 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.

*Refer to Appendix A for a discussion of non-GAAP financial measures, including the exclusion of certain non-core items.

(Financial Statements Follow)

Appendix A

Use of Non-GAAP Financial Measures

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; and
  • Free cash flow from continuing operations.

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, from non-core activities. Non-core activities are primarily nonrecurring events or events we do not control. Our non-core adjustments include i) deal fees primarily related to the NCR Asset Acquisition, ii) income or loss from equity method investments, which represents our share of income or loss from entities we do not consolidate or control, and iii) a gain on the grant of a license to use certain Redbox trademarks to Redbox Instant™ by Verizon ("Non-Core Adjustments"). We believe investors should consider our core results because they are more indicative of our ongoing performance and trends and are more consistent with how management evaluates our operational results and trends.

Core Adjusted EBITDA from Continuing Operations Our non-GAAP financial measure core adjusted EBITDA from continuing operations is defined as earnings 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 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

2012

2011

2012

2011

Income from continuing operations

$

36,875

$

31,461

$

90,571

$

46,303

   Depreciation, amortization and other

43,629

35,490

84,420

70,134

   Interest expense, net

3,027

6,156

7,141

13,462

   Income taxes

24,775

20,110

60,447

29,371

   Share-based payments expense(1)

5,938

5,453

14,730

8,493

      Adjusted EBITDA from continuing operations

114,244

98,670

257,309

167,763

Non-core adjustments:

   Deal fees

2,012

48

3,215

216

   Loss from equity method investments

5,044

458

9,385

608

   Gain on formation of Redbox Instant by Verizon

-

-

(19,500)

-

      Core adjusted EBITDA from continuing operations

$

121,300

$

99,176

$

250,409

$

168,587

(1) Includes both non-cash share-based compensation for executives, non-employee directors and employees as well as share-based payments for content arrangements.

Core Diluted EPS from Continuing Operations Our non-GAAP financial measure core diluted EPS from continuing operations is defined as diluted earnings per share from continuing operations excluding Non-Core Adjustments, net of applicable taxes.

A reconciliation of core diluted EPS from continuing operations to diluted EPS from continuing operations, the most comparable GAAP financial measure, is presented in the following table:

Three Months Ended

Six Months Ended

June 30,

June 30,

2012

2011

2012

2011

Diluted EPS from continuing operations

$

1.11

$

0.98

$

2.75

$

1.44

Non-core adjustments, net of tax:(1)

   Deal fees

0.04

-

0.06

-

   Loss from equity method investments

0.10

0.01

0.17

0.01

   Gain on formation of Redbox Instant by Verizon

-

-

(0.36)

-

Core diluted EPS from continuing operations

$

1.25

$

0.99

$

2.62

$

1.45

(1) Non-Core Adjustments are presented after-tax using the applicable effective tax rate for the respective periods.

Free Cash Flow from Continuing Operations Our non-GAAP financial measure free cash flow from continuing operations is defined as net cash provided by operating activities from continuing operations after capital expenditures. We believe free cash flow 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 and repurchase our common stock. The table below provides a reconciliation of net cash provided by operating activities from continuing operations, the most comparable GAAP financial measure, to free cash flow from continuing operations:

Three Months Ended

Six Months Ended

June 30,

June 30,

Dollars in thousands

2012

2011

2012

2011

Net cash provided by operating activities

$

139,303

$

111,865

$

194,221

$

171,860

Purchase of property and equipment

(38,694)

(49,405)

(76,701)

(87,877)

Free cash flow from continuing operations

$

100,609

$

62,460

$

117,520

$

83,983

 

COINSTAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2012

2011

2012

2011

Revenue

$

532,220

$

435,228

$

1,100,399

$

859,300

Expenses:

Direct operating

356,799

292,513

747,209

607,586

Marketing

5,610

7,857

12,567

12,974

Research and development

3,614

2,093

7,544

4,300

General and administrative

52,788

39,057

100,599

74,719

Depreciation and other

43,005

34,805

83,109

68,764

Amortization of intangible assets

624

685

1,311

1,370

Total expenses

462,440

377,010

952,339

769,713

Operating income

69,780

58,218

148,060

89,587

Other income (expense):

Income (loss) from equity method investments, net

(5,044)

(458)

10,115

(608)

Interest expense, net

(3,027)

(6,156)

(7,141)

(13,462)

Other, net

(59)

(33)

(16)

157

Total other income (expense)

(8,130)

(6,647)

2,958

(13,913)

Income from continuing operations before income taxes

61,650

51,571

151,018

75,674

Income tax expense

(24,775)

(20,110)

(60,447)

(29,371)

Income from continuing operations

36,875

31,461

90,571

46,303

Loss from discontinued operations, net of tax

-

(4,722)

-

(11,068)

Net income

36,875

26,739

90,571

35,235

Other comprehensive income, before tax:

Foreign currency translation adjustment

(862)

(35)

(135)

710

Interest rate hedges on long-term debt

-

-

-

896

Gain on short-term investments

-

(24)

-

(20)

Income tax expense related to items of other comprehensive income

-

9

-

(342)

Other comprehensive income, net of tax

(862)

(50)

(135)

1,244

Comprehensive income

$

36,013

$

26,689

$

90,436

$

36,479

Basic earnings (loss) per share:

Continuing operations

$

1.20

$

1.03

$

2.95

$

1.50

Discontinued operations

-

(0.15)

-

(0.36)

Basic earnings per share

$

1.20

$

0.88

$

2.95

$

1.14

Diluted earnings (loss) per share:

Continuing operations

$

1.11

$

0.98

$

2.75

$

1.44

Discontinued operations

-

(0.15)

-

(0.34)

Diluted earnings per share

$

1.11

$

0.83

$

2.75

$

1.10

Weighted average shares used in basic per share calculations

30,776

30,542

30,682

30,803

Weighted average shares used in diluted per share calculations

33,190

32,144

32,908

32,141

 

COINSTAR, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

June 30,

December 31,

2012

2011

Assets

Current Assets:

Cash and cash equivalents

$

321,635

$

341,855

Accounts receivable, net of allowances of $1,764 and $1,586

47,872

41,246

Content library

150,756

142,386

Deferred income taxes

32,324

84,228

Prepaid expenses and other current assets

34,002

25,274

Total current assets

586,589

634,989

Property and equipment, net

512,633

499,178

Notes receivable

25,858

24,374

Deferred income taxes

899

647

Goodwill and other intangible assets

362,471

274,583

Other long-term assets

53,236

17,066

Total assets

$

1,541,686

$

1,450,837

Liabilities and Stockholders' Equity

Current Liabilities:

Accounts payable

$

156,146

$

175,550

Accrued payable to retailers

125,391

127,450

Other accrued liabilities

152,805

148,996

Current callable convertible debt

183,179

-

Current portion of long-term debt

14,225

13,986

Current portion of capital lease obligations

10,466

12,057

Total current liabilities

642,212

478,039

Long-term debt and other long-term liabilities

177,081

359,288

Capital lease obligations

12,242

11,768

Deferred tax liabilities

87,152

87,840

Total liabilities

918,687

936,935

Commitments and contingencies

-

-

Debt conversion feature

16,821

-

Stockholders' Equity:

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 and 45,000,000 authorized;

35,749,944 and 35,251,932 shares issued; 31,307,790 and

30,879,778 shares outstanding

487,147

481,249

Treasury stock

(157,483)

(153,425)

Retained earnings

279,320

188,749

Accumulated other comprehensive loss

(2,806)

(2,671)

Total stockholders' equity

606,178

513,902

Total liabilities and stockholders' equity

$

1,541,686

$

1,450,837

 

COINSTAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2012

2011

2012

2011

Operating Activities:

Net income

$

36,875

$

26,739

$

90,571

$

35,235

Adjustments to reconcile net income to net cash flows from

operating activities from continuing operations:

Depreciation and other

43,005

34,805

83,109

68,764

Amortization of intangible assets and deferred financing fees

1,155

1,192

2,374

2,385

Share-based payments expense

5,938

5,453

14,730

8,493

Excess tax benefits on share-based payments

(598)

(186)

(3,737)

(2,314)

Deferred income taxes

25,440

19,593

56,624

25,949

Loss from discontinued operations, net of tax

-

4,722

-

11,068

(Income) loss from equity method investments, net

5,044

458

(10,115)

608

Non-cash interest on convertible debt

1,764

1,626

3,481

3,209

Other

(1,802)

(119)

(3,313)

(131)

Cash flows from changes in operating assets and liabilities from

continuing operations

22,482

17,582

(39,503)

18,594

Net cash flows from operating activities from continuing operations

139,303

111,865

194,221

171,860

Investing Activities:

Purchases of property and equipment

(38,694)

(49,405)

(76,701)

(87,877)

Proceeds from sale of property and equipment

525

175

669

351

Proceeds from sale of businesses, net

-

12,221

-

12,221

Acquisition of NCR DVD kiosk business

(100,000)

-

(100,000)

-

Equity investments

-

-

(28,350)

(2,320)

Net cash flows from investing activities from continuing operations

(138,169)

(37,009)

(204,382)

(77,625)

Financing Activities:

Principal payments on capital lease obligations and other debt

(4,511)

(4,932)

(9,194)

(17,073)

Principal payments on term loan

(2,187)

-

(4,375)

-

Net payments on credit facility

-

(25,000)

-

(25,000)

Excess tax benefits related to share-based payments

598

186

3,737

2,314

Repurchases of common stock and ASR program

(4,058)

-

(4,058)

(63,349)

Proceeds from exercise of stock options, net

1,768

1,080

3,981

1,340

Net cash flows from financing activities from continuing operations

(8,390)

(28,666)

(9,909)

(101,768)

Effect of exchange rate changes on cash

(737)

(22)

(150)

645

Increase (decrease) in cash and cash equivalents from continuing operations

(7,993)

46,168

(20,220)

(6,888)

Cash flows from discontinued operations:

Operating cash flows

-

2,952

-

9,678

Investing cash flows

-

(13,452)

-

(12,678)

Financing cash flows

-

-

-

-

Net cash flows from discontinued operations

-

(10,500)

-

(3,000)

Increase (decrease) in cash and cash equivalents

(7,993)

35,668

(20,220)

(9,888)

Cash and cash equivalents:

Beginning of period

329,628

137,860

341,855

183,416

End of period

$

321,635

$

173,528

$

321,635

$

173,528

 

Coinstar, Inc.

Business Segment Information

(in thousands)

(unaudited)

As a complement to our Consolidated Statements of Comprehensive Income, we are providing the following information related to our business segments, which includes segment operating income (loss). Management, including our chief executive officer, evaluates the performances of our business segments primarily on segment revenue and segment operating income from continuing operations before depreciation, amortization and other, and certain share-based payments ("segment operating income"). We utilize segment revenue and segment operating income because we believe they provide useful information for effectively allocating resources among business segments, evaluating the health of our business segments based on metrics that management can actively influence, and gauging our investments and our ability to service, incur or pay down debt.

Three Months Ended

Six Months Ended

June 30,

June 30,

Dollars in thousands

2012

2011

2012

2011

Revenue:

   Redbox

$

457,968

$

363,862

$

960,910

$

726,206

   Coin

73,855

71,065

138,681

132,428

   New Ventures

397

301

808

666

Consolidated revenue

$

532,220

$

435,228

$

1,100,399

$

859,300

Segment operating income reconciled to GAAP operating income:

Three Months Ended

Six Months Ended

June 30,

June 30,

Dollars in thousands

2012

2011

2012

2011

Segment operating income (loss)(1)

Redbox(2)

$

96,720

$

74,017

$

205,538

$

124,838

Coin

25,727

26,800

45,046

47,409

New Ventures

(6,152)

(4,767)

(11,769)

(7,322)

Subtotal

116,295

96,050

238,815

164,925

Depreciation, amortization and other:

Redbox

35,335

27,360

67,778

54,458

Coin

8,279

7,451

16,620

14,822

New Ventures

15

679

22

854

Total depreciation, amortization and other

43,629

35,490

84,420

70,134

Share-based compensation expense

2,886

2,342

6,335

5,204

Operating income (loss):

Redbox

61,385

46,657

137,760

70,380

Coin

17,448

19,349

28,426

32,587

New Ventures

(6,167)

(5,446)

(11,791)

(8,176)

Share-based compensation expense

(2,886)

(2,342)

(6,335)

(5,204)

Total operating income

$

69,780

$

58,218

$

148,060

$

89,587

(1) Operating income (loss) before depreciation, amortization and other, and share-based compensation expense.

(2) Share-based payments expense related to our content arrangements have been allocated to our Redbox segment.

 

SOURCE Coinstar, Inc.



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