Coinstar, Inc. Announces 2010 Third Quarter Results

Revenue Growth of 42% Drives 74% Growth in Earnings Per Share from Continuing Operations

Company Provides 2011 Full Year Guidance

Oct 28, 2010, 16:01 ET from Coinstar, Inc.

BELLEVUE, 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

      million

  • Income from operations

$     46.2

      million

  • Adjusted EBITDA from continuing operations (See Appendix A)

$     80.5

      million

  • Diluted earnings per share from continuing operations

$     0.66


  • Diluted earnings per share attributable to Coinstar, Inc.

$     0.60


  • Net cash provided by operating activities from continuing operations

$     65.0

      million

  • Free 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.  

Guidance

For 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 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 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 thousands


2010


2009


2010


2009

Income from continuing operations

$

21,399

$

11,619

$

43,479

$

32,050

 Depreciation, amortization, and other


31,382


22,975


95,674


65,300

 Interest expense, net


8,693


9,354


27,032


24,431

 Income taxes


15,969


6,706


29,364


17,435

 Stock-based compensation and share-based expense


3,090


2,636


10,876


7,073

 Early retirement of debt


0


1,082


0


1,082

Adjusted EBITDA from continuing operations

$

80,533

$

54,372

$

206,425

$

147,371



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 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 thousands


2010


2009


2010


2009

Net cash provided by operating activities from continuing operations

$

64,959

$

26,933

$

228,625

$

68,992

Purchase 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 Ended

For the Nine Months Ended


September 30,

September 30,



2010


2009


2010


2009










Revenue

$

380,187

$

267,725

$

1,045,665

$

734,322










Expenses:









   Direct operating


255,449


184,483


722,204


502,884

   Marketing


7,811


4,154


16,375


10,837

   Research and development


1,699


1,360


4,928


3,916

   General and administrative


37,655


26,004


101,053


76,368

   Depreciation and other


30,626


22,047


93,054


62,616

   Amortization of intangible assets


756


928


2,620


2,684

   Litigation settlement


0


0


5,379


0

Total expenses


333,996


238,976


945,613


659,305










Income from operations


46,191


28,749


100,052


75,017










Other income (expense):









   Foreign currency and other, net


(130)


12


(177)


(19)

   Interest income


48


3


135


39

   Interest expense


(8,741)


(9,357)


(27,167)


(24,470)

   Early retirement of debt


0


(1,082)


0


(1,082)



(8,823)


(10,424)


(27,209)


(25,532)










Income from continuing operations before income taxes


37,368


18,325


72,843


49,485

Income tax expense


(15,969)


(6,706)


(29,364)


(17,435)

Income from continuing operations


21,399


11,619


43,479


32,050

Income (loss) from discontinued operations, net of tax


(1,894)


29,744


(4,165)


21,861

Net income


19,505


41,363


39,314


53,911

Net income attributable to non-controlling interests


0


0


0


(3,627)

Net income attributable to Coinstar, Inc.

$

19,505

$

41,363

$

39,314

$

50,284










Basic Earnings Per Share:









Basic earnings per share from continuing operations attributable to Coinstar, Inc.

$

0.68

$

0.38

$

1.38

$

0.96

Basic earnings (loss) per share from discontinued operations attributable to Coinstar, Inc.


(0.06)


0.98


(0.13)


0.73

Basic earnings per share attributable to Coinstar, Inc.

$

0.62

$

1.36

$

1.25

$

1.69










Diluted Earnings Per Share:









Diluted earnings per share from continuing operations attributable to Coinstar, Inc.

$

0.66

$

0.38

$

1.35

$

0.94

Diluted earnings (loss) per share from discontinued operations attributable to Coinstar, Inc.


(0.06)


0.96


(0.13)


0.72

Diluted earnings per share attributable to Coinstar, Inc.

$

0.60

$

1.34

$

1.22

$

1.66










Weighted Average Shares Outstanding:









Shares used in basic per share calculations


31,411


30,437


31,364


29,829

Shares used in diluted per share calculations


32,382


30,840


32,179


30,209



Coinstar, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)



September 30,


December 31,



2010


2009






Assets





Current Assets:





   Cash and cash equivalents

$

36,535

$

19,386

   Cash in machine or in transit


43,164


57,141

   Cash being processed


67,023


69,330

   Accounts receivable, net of allowances of $852 and $859


18,204


19,265

   DVD library


94,910


95,531

   Deferred income taxes


6,233


12,350

   Prepaid expenses and other current assets


15,747


7,756

   Assets of businesses held for sale


121,639


159,318

       Total current assets


403,455


440,077






Property and equipment, net


436,595


386,433

Deferred income taxes


87,966


99,195

Other assets


12,858


14,358

Intangible assets, net


10,257


14,986

Goodwill


267,750


267,750

       Total assets

$

1,218,881

$

1,222,799






Liabilities and Stockholders' Equity





Current Liabilities:





   Accounts payable

$

110,855

$

80,077

   Accrued payable to retailers


88,469


92,585

   Other accrued liabilities


113,655


80,024

   Current portion of long-term debt


7,338


6,812

   Current portion of capital lease obligations


19,230


26,322

   Liabilities of businesses held for sale


82,525


88,950

       Total current liabilities


422,072


374,770






Long-term debt and other


334,601


409,387

Capital lease obligations


11,755


26,234

Deferred tax liability


15


17

       Total liabilities


768,443


810,408






Commitments and contingencies










Stockholders' Equity:





   Preferred stock, $0.001 par value - 5,000,000 shares authorized; no shares issued or outstanding


0


0

   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 outstanding


453,070


406,333

   Retained earnings


90,285


50,971

   Treasury stock


(90,076)


(40,831)

   Accumulated comprehensive loss


(2,841)


(4,082)

      Total stockholders' equity


450,438


412,391

      Total liabilities and stockholders' equity

$

1,218,881

$

1,222,799



Coinstar, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



For the Three Months Ended  


For the Nine Months Ended  



September 30,  


September 30,



2010


2009


2010


2009

Operating Activities:









  Net income

$

19,505

$

41,363

$

39,314

$

53,911










  Adjustments to reconcile net income to net cash flows
provided by operating activities from continuing operations:









        Depreciation and other


30,626


22,047


93,054


62,616

        Amortization of intangible assets and deferred financing fees


1,264


1,388


4,144


3,650

        Stock-based employee compensation


1,700


1,545


6,664


5,982

        Share-based payments for DVD agreement


1,390


1,091


4,212


1,091

        Excess tax benefits on stock-based awards


(65)


125


(6,290)


0

        Deferred income taxes


10,525


(1,004)


19,280


3,485

        (Gain) loss from discontinued operations, net of tax


1,894


(29,744)


4,165


(21,861)

        Loss on early retirement of debt


0


1,082


0


1,082

        Non-cash interest on convertible debt


1,519


480


4,477


480

        Other


134


(25)


364


401

  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 operations


64,959


26,933


228,625


68,992










Investing Activities:









  Purchase of property and equipment


(48,135)


(28,646)


(132,474)


(101,922)

  Proceeds from sale of property and equipment


765


48


1,032


200

  Cash paid for acquisition, net of cash acquired


0


(159)


0


(159)

  Proceeds from sale of electronic payment services business


0


0


26,078


0

           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 financing


0


22,020


0


22,020

  Net payments on credit facility


(75,000)


(108,000)


(75,000)


(35,000)

  Pay-off of term loan


0


(87,500)


0


0

  Issuance of convertible debt, net of underwriting discounts and commissions of $6,000


0


194,000


0


194,000

  Financing costs associated with revolving line of credit and convertible debt


0


(750)


0


(3,984)

  Cash used to purchase remaining non-controlling interests in Redbox


0


(11,514)


0


(113,867)

  Excess tax benefits related to stock-based awards


65


(125)


6,290


0

  Shares repurchased


(49,245)


0


(49,245)


0

  Proceeds from exercise of stock options


709


8,629


27,959


10,889

           Net cash provided (used) by financing activities from continuing operations


(132,331)


9,868


(118,199)


55,473










Effect of exchange rate changes on cash


899


121


48


2,950

Increase (decrease) in cash and cash equivalents, cash in machine or in









 transit, and cash being processed from continuing operations


(113,843)


8,165


5,110


25,534










Cash flows from discontinued operations:









  Operating cash flows


28,455


(8,706)


8,054


(23,551)

  Investing cash flows


(25,023)


4,707


(12,133)


(678)

  Financing cash flows


0


(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)


3,469


865


(1,214)

Cash and cash equivalents, cash in machine or in transit, and cash









 being processed:









  Beginning of period


257,133


135,817


145,857


140,500

  End of period

$

146,722

$

139,286

$

146,722

$

139,286



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 Months


Nine Months


Ended September 30,


Ended September 30,


2010


2009


2010


2009


(in thousands)


(in thousands)

Revenue:








DVD services

$           305,470


$           198,085


$           840,528


$           541,707

Coin services

74,717


69,640


205,137


192,615









Consolidated revenue

$           380,187


$           267,725


$        1,045,665


$           734,322




Three Months


Nine Months


Ended 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


$     72,447

Coin services

26,986


26,919


69,450


74,943

        Subtotal

80,663


54,360


206,602


147,390









Depreciation, amortization and other








DVD 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 operations








DVD services

29,671


11,900


67,069


28,999

Coin services

19,610


19,485


43,859


53,091

        Subtotal

49,281


31,385


110,928


82,090









Stock-based compensation and share-based payments

(3,090)


(2,636)


(10,876)


(7,073)









Total Income from operations

$     46,191


$     28,749


$   100,052


$     75,017



SOURCE Coinstar, Inc.



RELATED LINKS

http://www.coinstar.com