Coinstar, Inc. Announces 2010 Second Quarter Results

BELLEVUE, 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:

"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 A

Use of 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"). 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.

Free 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.

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:

SOURCE Coinstar, Inc.