Coinstar, Inc. Announces 2012 Third Quarter Results Consolidated Revenue Growth of 16% and Solid Bottom Line Performance; Redbox Signs 28-Day Delay Content Agreement with Warner Bros. PR Newswire BELLEVUE, Wash., Oct. 25, 2012 BELLEVUE, Wash., Oct. 25, 2012 /PRNewswire/ --Coinstar, Inc. (Nasdaq: CSTR) today reported financial results for the third quarter and nine months ended September 30, 2012. "In the third quarter, Coinstar delivered 16% year over year revenue growth and solid bottom line results," said Paul Davis, chief executive officer of Coinstar, Inc. "Redbox revenue increased 18% despite temporary headwinds from the new release schedule and Olympics that negatively impacted rentals. We are optimistic regarding the future of Redbox and are focused on key Redbox growth initiatives, including extending the footprint in the U.S. and expanding into Canada, as well as our digital offering with Redbox Instant™ by Verizon. We continue to find new ways to add value at our kiosks to drive increased consumer loyalty and transactions, including Redbox Tickets™, a unique concept recently launched in Philadelphia that enables consumers to purchase tickets to a variety of entertainment events for a fee of only $1.00 per ticket." Davis continued, "We believe that the agreement with Warner Bros. we announced today demonstrates our ongoing commitment to offer new release content to our consumers and underscores the importance of the physical DVD in the home entertainment ecosystem. We are confident that the actions we are taking will serve consumers and shareholders well into the future." Coinstar's 2012 third quarter and nine months financial highlights included: 2012 2012 Third Quarter Nine Months • Consolidated revenue $ 537.6 million $ 1,638.0 million • Income from continuing operations $ 36.8 million $ 127.3 million • Core adjusted EBITDA from continuing $ 117.8 million $ 368.2 million operations* (See Appendix A) • Diluted earnings per share from $ 1.14 $ 3.90 continuing operations • Core diluted earnings per share* (See $ 1.26 $ 3.88 Appendix A) • Net cash flows from operating $ 117.5 million $ 311.7 million activities from continuing operations • Free cash flow from continuing $ 61.0 million $ 178.5 million operations* (See Appendix A) "The third quarter posed a greater challenge than we anticipated as the Olympics' impact served to drive lower physical, digital and theatrical viewership across the board," said J.ScottDiValerio, chief financial officer of Coinstar, Inc. "Even in a challenging quarter, we continued to focus on day-to-day execution and driving strong margins and earnings, while investing in our business, generating free cash flow, and executing a $59million buy back of our stock." DiValerio added, "When we issued guidance for the quarter we recognized that several factors would pressure rentals. However, the new release schedule, including fewer titles and several weeks with little new content, and record-setting Olympics viewership took a large number of movie viewers out of the home entertainment market. The compounding effect of these factors was greater than we expected. We expect to improve performance in the fourth quarter and to finish the year in a strong position moving into 2013. We remain confident in the future of Coinstar and in our ability to deliver long-term value to our shareholders." *Refer to Appendix A for a discussion of non-GAAP financial measures, including the exclusion of certain non-core items. Revenue for the third quarter of 2012 increased 15.5% to $537.6 million compared with the third quarter of 2011, driven primarily by revenue growth in the Redbox segment of 17.9% to $459.5 million, attributable to the price increase implemented at the end of October 2011, same store sales growth and new kiosk installations. Coin segment revenue increased 2.8% to $77.6 million, reflecting growth in the installed kiosk base and an increase in the average transaction size. Operating income for the third quarter of 2012 was $66.9 million, which resulted in an operating margin of 12.4%, compared with operating income of $65.6 million and an operating margin of 14.1% in the third quarter of 2011. Income from continuing operations for the third quarter of 2012 was $36.8 million, or diluted earnings per share from continuing operations of $1.14, compared with $37.1 million or $1.18 per share in the third quarter of 2011. Core diluted earnings per share from continuing operations for the third quarter of 2012 was $1.26, excluding non-core adjustments of $0.12 per share, compared with $1.20 per diluted share, excluding non-core adjustments of $0.02 per share in the third quarter of 2011. Coinstar's third quarter results include a negative impact of $8.7 million, or $0.16 per diluted share, on core diluted earnings per share from continuing operations attributable to the operating results of the kiosks acquired as part of the NCR asset acquisition. Net cash flows from operating activities from continuing operations in the third quarter of 2012 was $117.5million, compared with $89.8 million in the third quarter of 2011. Cash paid for capital expenditures for continuing operations for the third quarter of 2012 was $56.5 million, compared with $46.9 million in the third quarter of 2011. Free cash flow from continuing operations for the third quarter of 2012 was $61.0 million, compared with $42.9 million in the third quarter of 2011. During the third quarter of 2012, the company repurchased its stock for approximately $59.0 million representing 1.16 million shares of common stock at an average price of $51.07 per share through a combination of the 10b5-1 plan implemented in August and other open market purchases. On September 30, 2012, there was $209.6 million remaining under the current Board authorization for stock repurchases. Guidance Guidance for the 2012 full year and fourth quarter reflects Coinstar management's expectations related to: oA negative impact of approximately $9.7million, or $0.19 per diluted share, on core diluted earnings per share from continuing operations in the fourth quarter; oThe pace of return of Redbox customers after lack of new content in the third quarter; oThe rate of replacing between 400 and 500 NCR kiosks and removing between 700 and 800 NCR kiosks in the fourth quarter; and oThe timing of the new release schedule, with more titles available to Redbox in the back end of the fourth quarter. For the 2012 full year, Coinstar management expects: oConsolidated revenue between $2.190 billion and $2.240 billion; oCore adjusted EBITDA from continuing operations between $455 million and $470 million; oCore diluted EPS from continuing operations between $4.50 and $4.65 on a fully diluted basis; and oFree cash flow from continuing operations between $185 million and $210 million. For the 2012 fourth quarter, Coinstar management expects: oConsolidated revenue between $552 million and $602 million; oCore adjusted EBITDA from continuing operations between $87 million and $102 million; and oCore diluted EPS from continuing operations between $0.62 and $0.77 on a fully diluted basis. Additional Information Coinstar has provided additional comments on guidance in prepared remarks that also review the company's 2012 third quarter operating and financial results. The prepared remarks and supplemental slides are posted on the Investor Relations section of the corporate website at www.coinstarinc.com along with this press release. The 2012 third 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 November 9, 2012, at 1-888-843-7419 or 1-630-652-3042, passcode 33442426. 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 42,400 Redbox DVD kiosks and 20,300 coin-counting kiosks in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants. Redbox also offers DVD rentals through additional kiosks acquired from NCR Corporation in June 2012. 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 fourth 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, ocompetition from other digital entertainment providers, othe ability to achieve the strategic and financial objectives for our entry into a new business, oour limited ability to direct the management or policies of the new joint venture with Verizon Communications, ofailure to receive the expected benefits of the NCR relationship, othe termination, non-renewal or renegotiation on materially adverse terms of our contracts with our significant retailers and suppliers, opayment of increased fees to retailers, suppliers and other third-party providers, including financial service providers, othe 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, onoteholders electing to convert our convertible notes, othe effective management of our content library, othe ability to attract new retailers, penetrate new markets and distribution channels and react to changing consumer demands, othe ability to achieve the strategic and financial objectives for our entry into or expansion of new businesses, othe ability to adequately protect our intellectual property, and othe 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. (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: oCore adjusted EBITDA from continuing operations; oCore diluted earnings per share ("EPS") from continuing operations; and oFree 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 Nine Months Ended September 30, September 30, Dollars in thousands 2012 2011 2012 2011 Income from continuing $ 36,774 $ 37,126 $ 127,345 $ 83,429 operations Depreciation, amortization and 52,489 38,839 136,909 108,973 other Interest expense, net 3,892 5,416 11,033 18,878 Income taxes 20,161 22,544 80,608 51,915 Share-based payments expense (1,586) 869 13,144 9,362 (benefit)^(1) Adjusted EBITDA from 111,730 104,794 369,039 272,557 continuing operations Non-core adjustments: Deal fees 20 265 3,235 481 Loss from equity method 6,021 272 15,406 880 investments Gain on formation of Redbox - - (19,500) - Instant™ by Verizon Core Adjusted EBITDA from $ 117,771 $ 105,331 $ 368,180 $ 273,918 continuing operations (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 Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Diluted EPS from continuing $ 1.14 $ 1.18 $ 3.90 $ 2.61 operations Non-core adjustments, net of tax:^(1) Deal fees - 0.01 0.06 0.01 Loss from equity method investments 0.12 0.01 0.29 0.02 Gain on formation of Redbox - - (0.37) - Instant™ by Verizon Core diluted EPS from continuing $ 1.26 $ 1.20 $ 3.88 $ 2.64 operations (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 Nine Months Ended September 30, September 30, Dollars in thousands 2012 2011 2012 2011 Net cash provided by operating $ 117,473 $ 89,779 $ 311,694 $ 261,639 activities Purchase of property and (56,480) (46,902) (133,181) (134,779) equipment Free cash flow from continuing $ 60,993 $ 42,877 $ 178,513 $ 126,860 operations COINSTAR, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands, except per share data) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Revenue $ 537,562 $ 465,617 $ 1,637,961 $ 1,324,917 Expenses: Direct operating 351,541 310,101 1,098,750 917,687 Marketing 7,513 7,723 20,080 20,697 Research and development 3,140 3,239 10,684 7,539 General and administrative 56,010 40,076 156,609 114,795 Depreciation and other 50,470 38,154 133,579 106,918 Amortization of intangible 2,019 685 3,330 2,055 assets Total expenses 470,693 399,978 1,423,032 1,169,691 Operating income 66,869 65,639 214,929 155,226 Other income (expense): Income (loss) from equity (6,021) (272) 4,094 (880) method investments, net Interest expense, net (3,892) (5,416) (11,033) (18,878) Other, net (21) (281) (37) (124) Total other income (expense) (9,934) (5,969) (6,976) (19,882) Income from continuing 56,935 59,670 207,953 135,344 operations before income taxes Income tax expense (20,161) (22,544) (80,608) (51,915) Income from continuing 36,774 37,126 127,345 83,429 operations Loss from discontinued - - - (11,068) operations, net of tax Net income 36,774 37,126 127,345 72,361 Other comprehensive income, before tax: Foreign currency translation 1,477 (832) 1,342 (122) adjustment Reclassification of interest rate hedges to interest - - - 896 expense Loss on short-term investments - - - (20) Income tax expense related to items of other comprehensive - - - (342) income Other comprehensive income 1,477 (832) 1,342 412 (loss), net of tax Comprehensive income $ 38,251 $ 36,294 $ 128,687 $ 72,773 Basic earnings (loss) per share: Continuing operations $ 1.21 $ 1.23 $ 4.16 $ 2.72 Discontinued operations - - - (0.36) Basic earnings per share $ 1.21 $ 1.23 $ 4.16 $ 2.36 Diluted earnings (loss) per share: Continuing operations $ 1.14 $ 1.18 $ 3.90 $ 2.61 Discontinued operations - - - (0.35) Diluted earnings per share $ 1.14 $ 1.18 $ 3.90 $ 2.26 Weighted average shares used in 30,454 30,224 30,605 30,608 basic per share calculations Weighted average shares used in 32,238 31,596 32,684 31,957 diluted per share calculations COINSTAR, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (unaudited) September 30, December 31, 2012 2011 Assets Current Assets: Cash and cash equivalents $ 308,458 $ 341,855 Accounts receivable, net of allowances of 44,263 41,246 $1,373 and $1,586 Content library 140,315 142,386 Deferred income taxes 16,621 84,228 Prepaid expenses and other current assets 37,152 25,274 Total current assets 546,809 634,989 Property and equipment, net 525,523 499,178 Notes receivable 26,289 24,374 Deferred income taxes 738 647 Goodwill and other intangible assets 360,452 274,583 Other long-term assets 58,743 17,066 Total assets $ 1,518,554 $ 1,450,837 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 144,064 $ 175,550 Accrued payable to retailers 133,132 127,450 Other accrued liabilities 157,063 148,996 Current portion of long-term debt 14,792 13,986 Current portion of capital lease obligations 10,473 12,057 Total current liabilities 459,524 478,039 Long-term debt and other long-term liabilities 357,839 359,288 Capital lease obligations 12,776 11,768 Deferred tax liabilities 86,088 87,840 Total liabilities 916,227 936,935 Commitments and contingencies - - 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 authorized; 35,781,764 and 35,251,932 shares issued; 30,184,177 and 30,879,778 shares 504,057 481,249 outstanding Treasury stock (216,495) (153,425) Retained earnings 316,094 188,749 Accumulated other comprehensive loss (1,329) (2,671) Total stockholders' equity 602,327 513,902 Total liabilities and stockholders' equity $ 1,518,554 $ 1,450,837 COINSTAR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Operating Activities: Net income $ 36,774 $ 37,126 $ 127,345 $ 72,361 Adjustments to reconcile net income to net cash flows from operating activities from continuing operations: Depreciation and other 50,470 38,154 133,579 106,918 Amortization of intangible assets and deferred 2,551 1,581 4,925 3,966 financing fees Share-based payments expense (1,586) 869 13,144 9,362 (benefit) Excess tax benefits on (1,936) (117) (5,673) (2,431) share-based payments Deferred income taxes 16,566 20,966 73,190 46,915 Loss from discontinued - - - 11,068 operations, net of tax (Income) loss from equity 6,021 272 (4,094) 880 method investments, net Non-cash interest on 1,789 1,648 5,270 4,857 convertible debt Other (794) (599) (4,107) (730) Cash flows from changes in operating assets and liabilities from continuing operations 7,618 (10,121) (31,885) 8,473 Net cash flows from operating activities from 117,473 89,779 311,694 261,639 continuing operations Investing Activities: Purchases of property and (56,480) (46,902) (133,181) (134,779) equipment Proceeds from sale of property 150 201 819 552 and equipment Proceeds from sale of - - - 12,221 businesses, net Acquisition of NCR DVD kiosk - - (100,000) - business Equity investments (11,377) - (39,727) (2,320) Net cash flows from investing activities from (67,707) (46,701) (272,089) (124,326) continuing operations Financing Activities: Principal payments on capital lease obligations and other (4,008) (5,072) (13,202) (22,145) debt Borrowing from term loan - 175,000 - 175,000 Principal payments on term loan (3,293) (2,187) (7,668) (2,187) Net payments on credit facility - (125,000) - (150,000) Financing costs associated with - (4,196) - (4,196) credit facility Excess tax benefits related to 1,936 117 5,673 2,431 share-based payments Repurchases of common stock and (59,012) - (63,070) (63,349) ASR program Proceeds from exercise of stock 53 842 4,034 2,182 options, net Net cash flows from financing activities from (64,324) 39,504 (74,233) (62,264) continuing operations Effect of exchange rate changes 1,381 (810) 1,231 (165) on cash Increase (decrease) in cash and cash equivalents from (13,177) 81,772 (33,397) 74,884 continuing operations Cash flows from discontinued operations: Operating cash flows - - - 9,678 Investing cash flows - - - (12,678) Financing cash flows - - - - Net cash flows from - - - (3,000) discontinued operations Increase (decrease) in cash and (13,177) 81,772 (33,397) 71,884 cash equivalents Cash and cash equivalents: Beginning of period 321,635 173,528 341,855 183,416 End of period $ 308,458 $ 255,300 $ 308,458 $ 255,300 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 Nine Months Ended September 30, September 30, Dollars in thousands 2012 2011 2012 2011 Revenue: Redbox $ 459,538 $ 389,801 $ 1,420,448 $ 1,116,007 Coin 77,616 75,506 216,297 207,934 New Ventures 408 310 1,216 976 Consolidated revenue $ 537,562 $ 465,617 $ 1,637,961 $ 1,324,917 Segment operating income reconciled to GAAP operating income Three Months Ended Nine Months Ended September 30, September 30, Dollars in thousands 2012 2011 2012 2011 Segment operating income (loss)^(1) Redbox^(2) $ 101,203 $ 83,499 $ 306,741 $ 208,337 Coin 27,915 27,879 72,961 75,288 New Ventures (6,546) (4,425) (18,315) (11,747) Subtotal 122,572 106,953 361,387 271,878 Depreciation, amortization and other: Redbox 41,478 30,910 109,256 85,368 Coin 10,968 7,924 27,588 22,746 New Ventures 43 5 65 859 Total depreciation, 52,489 38,839 136,909 108,973 amortization and other Share-based compensation 3,214 2,475 9,549 7,679 expense Operating income (loss): Redbox 59,725 52,589 197,485 122,969 Coin 16,947 19,955 45,373 52,542 New Ventures (6,589) (4,430) (18,380) (12,606) Share-based compensation (3,214) (2,475) (9,549) (7,679) expense Total operating $ 66,869 $ 65,639 $ 214,929 $ 155,226 income (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. Website: http://www.coinstarinc.com Contact: Marci Maule, Director of Public Relations, 425-943-8277, email@example.com, or Financial Analysts and Investors, Rosemary Moothart, Director of Investor Relations, 425-943-8140, firstname.lastname@example.org
Coinstar, Inc. Announces 2012 Third Quarter Results
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