Delaware (State or Other Jurisdiction of Incorporation or Organization) | ||
001-35882 | 43-2099257 | |
(Commission File Number) | (I.R.S. Employer Identification No.) | |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Exhibit No. | Description | |
99.1 |
BLACKHAWK NETWORK HOLDINGS, INC. | |||||
Date:May 1, 2018 | By: | /s/ Charles O. Garner | |||
Name: | Charles O. Garner | ||||
Title: | Chief Financial Officer | ||||
(Principal Financial Officer and Duly Authorized Signatory) |
Exhibit No. | Description | |
99.1 |
$ in millions except per share amounts | Q1'18 | Q1'17 | % Change | |||||||
(unaudited) | ||||||||||
Operating Revenues | $ | 429.2 | $ | 386.4 | 11% | |||||
Net Income (Loss) | $ | (15.8 | ) | $ | (17.5 | ) | (10)% | |||
Diluted Earnings (Loss) Per Share | $ | (0.28 | ) | $ | (0.31 | ) | (10)% |
$ in millions except per share amounts | Q1'18 | Q1'17 | % Change | |||||||
(unaudited) | ||||||||||
Adjusted Operating Revenues | $ | 193.6 | $ | 195.9 | (1)% | |||||
Adjusted EBITDA | $ | 22.3 | $ | 13.1 | 71% | |||||
Adjusted Net Income (Loss) | $ | 1.7 | $ | (2.8 | ) | N/M | ||||
Adjusted Diluted Earnings (Loss) Per Share | $ | 0.03 | $ | (0.05 | ) | N/M |
• | Operating revenues totaled $429.2 million, an increase of 11% from $386.4 million for the quarter ended March 25, 2017. This increase was due to a 17% increase in operating revenues from the U.S. Retail segment driven by the addition of Target as a distribution partner, the acquisition of CashStar and growth in original content; a 3% increase in operating revenues from the international segment driven by growth across all regions, partially offset by the lost revenue related to the sale of Grass Roots Meetings and Events; and an 8% increase in operating revenues from the incentives and rewards segment primarily due to growth in Achievers and the loyalty business. |
• | Net loss totaled $15.8 million compared to net loss of $17.5 million for the quarter ended March 25, 2017. The net loss was driven primarily by an increase in partner distribution expense related to transaction dollar volume generated by distribution partners with higher commission share and higher transition and acquisition costs, partially offset by processing and services expense savings. |
• | Net loss per diluted share was $0.28 compared to a net loss per diluted share of $0.31 for the quarter ended March 25, 2017. Diluted shares outstanding increased 1.0% to 56.5 million. |
• | Adjusted operating revenues totaled $193.6 million, a 1% decrease from $195.9 million for the quarter ended March 25, 2017. The decline was driven by higher partner distribution expense related to transaction dollar volume generated by distribution partners with higher commission share, lost revenue related to the sale of Grass Roots Meetings and Events and lower Cardpool revenue. These declines were partially offset by a $7.1 million one-time benefit due to a contractual amendment related to an open loop product, the addition of CashStar, growth in original content, as well as growth in Achievers and the loyalty business. |
• | Adjusted EBITDA totaled $22.3 million, an increase of 71% from $13.1 million for the quarter ended March 25, 2017. The increase was primarily driven by a $7.1 million one-time benefit due to a contractual amendment related to an open loop product. |
• | Adjusted net income totaled $1.7 million, compared to an adjusted net loss of $2.8 million for the quarter ended March 25, 2017. |
• | Adjusted diluted EPS was $0.03, compared to an adjusted diluted loss per share of $0.05 for the quarter ended March 25, 2017. |
• | Adjusting operating revenues for distribution commissions paid and other compensation to retail distribution partners and business clients is useful to understanding the Company's operating margin; |
• | Adjusting operating revenues for marketing revenue and other pass-through revenues, which has offsetting expense, is useful for understanding the Company's operating margin; |
• | EBITDA and Adjusted EBITDA are widely used by investors and securities analysts to measure a company’s operating performance without regard to items that can vary substantially from company to company and from period to period depending upon their financing, accounting and tax methods, the book value of their assets, their capital structures and the method by which their assets were acquired; |
• | Adjusted EBITDA margin provides a measure of operating efficiency based on Adjusted operating revenues and without regard to items that can vary substantially from company to company and from period to period depending upon their financing, accounting and tax methods, the book value of their assets, their capital structures and the method by which their assets were acquired; |
• | in a business combination, a company records an adjustment to reduce the carrying values of deferred revenue and deferred expenses to their fair values and reduces the company’s revenues and expenses from what it would have recorded otherwise, and as such the Company does not believe is indicative of its core operating performance; |
• | non-recurring expenses related to Blackhawk's pending merger with Silver Lake is not reflective of our core operating performance; |
• | intangible asset amortization expenses can vary substantially from company to company and from period to period depending upon the applicable financing and accounting methods, the fair value and average expected life of the acquired intangible assets, the capital structure and the method by which the intangible assets were acquired and, as such, the Company does not believe that these adjustments are reflective of its core operating performance; |
• | non-cash fair value adjustments to contingent business acquisition liability do not directly reflect how the Company is performing at any particular time and the related expense adjustment amounts are not key measures of the Company's core operating performance; |
• | reduction in income taxes payable from the step-up in tax basis of our assets resulting from the Section 336(e) election due to our Spin-Off and the Safeway Merger and reduction in income taxes payable from amortization of goodwill and other intangibles or utilization of net operating loss carryforwards from business acquisitions represent significant tax savings that are useful for understanding the Company's overall operating results; and |
• | reduction in income taxes payable resulting from the tax deductibility of stock-based compensation is useful for understanding the Company's overall operating results. The Company generally realizes these tax deductions when restricted stock vest, an option is exercised, and, in the case of warrants, after the warrant is exercised but amortized over remaining service period, and such timing differs from the GAAP treatment of expense recognition |
INVESTORS/ANALYSTS: |
Patrick Cronin |
(925) 226-9939 |
patrick.cronin@bhnetwork.com |
BLACKHAWK NETWORK HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (In thousands, except per share amounts) (Unaudited) | |||||||
12 weeks ended | |||||||
March 24, 2018 | March 25, 2017 | ||||||
OPERATING REVENUES: | |||||||
Commissions and fees | $ | 288,626 | $ | 249,525 | |||
Program and other fees | 101,402 | 95,865 | |||||
Marketing | 14,367 | 14,281 | |||||
Product sales | 24,813 | 26,741 | |||||
Total operating revenues | 429,208 | 386,412 | |||||
OPERATING EXPENSES: | |||||||
Partner distribution expense | 218,449 | 175,123 | |||||
Processing and services | 92,949 | 101,021 | |||||
Sales and marketing | 64,181 | 62,658 | |||||
Costs of products sold | 24,256 | 27,849 | |||||
General and administrative | 29,322 | 29,025 | |||||
Transition and acquisition | 4,927 | 451 | |||||
Amortization of acquisition intangibles | 14,107 | 12,562 | |||||
Change in fair value of contingent consideration | 100 | 1,040 | |||||
Total operating expenses | 448,291 | 409,729 | |||||
OPERATING INCOME (LOSS) | (19,083 | ) | (23,317 | ) | |||
OTHER INCOME (EXPENSE): | |||||||
Interest income and other income (expense), net | (224 | ) | 836 | ||||
Interest expense | (7,786 | ) | (6,943 | ) | |||
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) | (27,093 | ) | (29,424 | ) | |||
INCOME TAX EXPENSE (BENEFIT) | (11,505 | ) | (12,082 | ) | |||
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS | (15,588 | ) | (17,342 | ) | |||
Loss (income) attributable to non-controlling interests, net of tax | (179 | ) | (123 | ) | |||
NET INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC. | $ | (15,767 | ) | $ | (17,465 | ) | |
EARNINGS (LOSS) PER SHARE: | |||||||
Basic | $ | (0.28 | ) | $ | (0.31 | ) | |
Diluted | $ | (0.28 | ) | $ | (0.31 | ) | |
Weighted average shares outstanding—basic | 56,477 | 55,904 | |||||
Weighted average shares outstanding—diluted | 56,477 | 55,904 |
BLACKHAWK NETWORK HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) | |||||||||||
March 24, 2018 | December 30, 2017 | March 25, 2017 | |||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 351,099 | $ | 1,096,195 | $ | 214,536 | |||||
Restricted cash | 69,781 | 135,345 | 56,832 | ||||||||
Settlement receivables, net | 416,633 | 1,038,347 | 319,557 | ||||||||
Accounts receivable, net | 152,262 | 185,741 | 259,138 | ||||||||
Other current assets | 158,301 | 142,737 | 165,898 | ||||||||
Total current assets | 1,148,076 | 2,598,365 | 1,015,961 | ||||||||
Property, equipment and technology, net | 172,132 | 172,607 | 173,403 | ||||||||
Intangible assets, net | 417,946 | 430,978 | 338,672 | ||||||||
Goodwill | 565,913 | 563,405 | 570,313 | ||||||||
Deferred income taxes | 235,860 | 235,797 | 361,981 | ||||||||
Other assets | 185,739 | 121,667 | 91,166 | ||||||||
TOTAL ASSETS | $ | 2,725,666 | $ | 4,122,819 | $ | 2,551,496 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Current liabilities: | |||||||||||
Settlement payables | $ | 683,027 | $ | 2,074,673 | $ | 547,179 | |||||
Consumer and customer deposits | 321,970 | 326,685 | 269,026 | ||||||||
Accounts payable and accrued operating expenses | 125,073 | 156,182 | 143,430 | ||||||||
Contract liabilities | 54,088 | 60,607 | 46,867 | ||||||||
Note payable, current portion | 14,912 | 10,662 | 7,390 | ||||||||
Notes payable to Safeway | 3,941 | 3,941 | 2,909 | ||||||||
Bank line of credit | — | — | 14,415 | ||||||||
Other current liabilities | 56,453 | 102,823 | 85,651 | ||||||||
Total current liabilities | 1,259,464 | 2,735,573 | 1,116,867 | ||||||||
Deferred income taxes | 29,648 | 29,085 | 28,796 | ||||||||
Note payable | 258,315 | 202,441 | 130,560 | ||||||||
Convertible notes payable | 444,707 | 441,655 | 431,941 | ||||||||
Other liabilities | 44,967 | 38,877 | 53,635 | ||||||||
Total liabilities | 2,037,101 | 3,447,631 | 1,761,799 | ||||||||
Stockholders’ equity: | |||||||||||
Preferred stock | — | — | — | ||||||||
Common stock | 57 | 56 | 56 | ||||||||
Additional paid-in capital | 670,756 | 649,546 | 612,328 | ||||||||
Treasury stock | (40,023 | ) | (40,023 | ) | — | ||||||
Accumulated other comprehensive loss | (8,362 | ) | (16,121 | ) | (42,967 | ) | |||||
Retained earnings | 62,097 | 77,864 | 216,001 | ||||||||
Total Blackhawk Network Holdings, Inc. equity | 684,525 | 671,322 | 785,418 | ||||||||
Non-controlling interests | 4,040 | 3,866 | 4,279 | ||||||||
Total stockholders’ equity | 688,565 | 675,188 | 789,697 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,725,666 | $ | 4,122,819 | $ | 2,551,496 |
BLACKHAWK NETWORK HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) | |||||||||||||||
12 weeks ended | 52 weeks ended | ||||||||||||||
March 24, 2018 | March 25, 2017 | March 24, 2018 | March 25, 2017 | ||||||||||||
OPERATING ACTIVITIES: | |||||||||||||||
Net income (loss) before allocation to non-controlling interests | $ | (15,588 | ) | $ | (17,342 | ) | $ | (152,990 | ) | $ | (14,146 | ) | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||||||||||
Depreciation and amortization of property, equipment and technology | 12,148 | 11,600 | 55,967 | 50,064 | |||||||||||
Goodwill impairment | — | — | 77,500 | — | |||||||||||
Amortization of intangibles | 15,951 | 13,755 | 68,174 | 58,534 | |||||||||||
Amortization of deferred program and contract costs | 7,905 | 7,397 | 31,092 | 29,246 | |||||||||||
Amortization of deferred financing costs and debt discount | 2,860 | 3,162 | 13,535 | 9,668 | |||||||||||
Loss on property, equipment and technology disposal/write-down | 16 | 108 | 6,710 | 9,946 | |||||||||||
Employee stock-based compensation expense | 8,062 | 8,401 | 32,369 | 32,993 | |||||||||||
Change in fair value of contingent consideration | 100 | 1,040 | (15,877 | ) | 3,140 | ||||||||||
Deferred income taxes | — | (2,307 | ) | 111,957 | (14,660 | ) | |||||||||
Other | 2,942 | 1,605 | (468 | ) | 6,219 | ||||||||||
Changes in operating assets and liabilities: | |||||||||||||||
Settlement receivables | 634,105 | 330,177 | (46,210 | ) | 24,531 | ||||||||||
Settlement payables | (1,401,302 | ) | (1,080,989 | ) | 90,935 | 11,342 | |||||||||
Accounts receivable, current and long-term | 29,788 | (7,666 | ) | 81,564 | (38,731 | ) | |||||||||
Other current assets | (3,273 | ) | (7,146 | ) | (4,899 | ) | (15,996 | ) | |||||||
Other assets | (63,174 | ) | (3,037 | ) | (101,421 | ) | (24,524 | ) | |||||||
Consumer and customer deposits | (13,424 | ) | 32,018 | 16,699 | 19,396 | ||||||||||
Accounts payable and accrued operating expenses | (27,065 | ) | (4,645 | ) | (13,717 | ) | 7,944 | ||||||||
Contract liabilities | (6,673 | ) | 2,980 | (3,911 | ) | 48,647 | |||||||||
Other current and long-term liabilities | (21,820 | ) | 635 | 21,249 | 6,254 | ||||||||||
Income taxes, net | (14,642 | ) | (9,944 | ) | 599 | 2,869 | |||||||||
Net cash (used in) provided by operating activities | (853,084 | ) | (720,198 | ) | 268,857 | 212,736 | |||||||||
INVESTING ACTIVITIES: | |||||||||||||||
Expenditures for property, equipment and technology | (15,819 | ) | (16,697 | ) | (63,721 | ) | (59,869 | ) | |||||||
Business acquisitions, net of cash acquired | — | (10,881 | ) | (152,587 | ) | (118,372 | ) | ||||||||
Investments in unconsolidated entities | — | (5,200 | ) | (1,001 | ) | (15,741 | ) | ||||||||
Proceeds from divestiture in business | — | — | 13,779 | — | |||||||||||
Other | (1,000 | ) | — | (4,244 | ) | 1,408 | |||||||||
Net cash (used in) provided by investing activities | (16,819 | ) | (32,778 | ) | (207,774 | ) | (192,574 | ) |
BLACKHAWK NETWORK HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In thousands) (Unaudited) | |||||||||||||||
12 weeks ended | 52 weeks ended | ||||||||||||||
March 24, 2018 | March 25, 2017 | March 24, 2018 | March 25, 2017 | ||||||||||||
FINANCING ACTIVITIES: | |||||||||||||||
Payments for acquisition liability | (2,000 | ) | — | (7,503 | ) | — | |||||||||
Repayment of debt assumed in business acquisitions | — | — | (8,585 | ) | — | ||||||||||
Proceeds from issuance of note payable | 75,000 | — | 150,000 | 150,000 | |||||||||||
Repayment of note payable | (15,000 | ) | (10,000 | ) | (15,000 | ) | (436,250 | ) | |||||||
Payments of financing costs | — | — | (1,025 | ) | (16,544 | ) | |||||||||
Borrowings under revolving bank line of credit | 127,536 | 667,936 | 2,470,870 | 3,016,981 | |||||||||||
Repayments on revolving bank line of credit | (127,536 | ) | (653,521 | ) | (2,485,285 | ) | (3,117,238 | ) | |||||||
Repayment on notes payable to Safeway | — | (254 | ) | 1 | (1,144 | ) | |||||||||
Proceeds from issuance of common stock from exercise of employee stock options and employee stock purchase plans | 10,924 | 3,700 | 24,006 | 13,570 | |||||||||||
Other stock-based compensation related | (18,254 | ) | (8,897 | ) | (19,908 | ) | (9,429 | ) | |||||||
Repurchase of common stock | — | — | (40,023 | ) | (34,843 | ) | |||||||||
Proceeds from convertible debt | — | — | — | 500,000 | |||||||||||
Payments for note hedges | — | — | — | (75,750 | ) | ||||||||||
Proceeds from warrants | — | — | — | 47,000 | |||||||||||
Other | — | — | (343 | ) | (156 | ) | |||||||||
Net cash (used in) provided by financing activities | 50,670 | (1,036 | ) | 67,205 | 36,197 | ||||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 8,573 | 6,462 | 21,224 | (1,126 | ) | ||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | (810,660 | ) | (747,550 | ) | 149,512 | 55,233 | |||||||||
Cash, cash equivalents and restricted cash—beginning of period | 1,231,540 | 1,018,918 | 271,368 | 216,135 | |||||||||||
Cash, cash equivalents and restricted cash—end of period | $ | 420,880 | $ | 271,368 | $ | 420,880 | $ | 271,368 | |||||||
NONCASH FINANCING AND INVESTING ACTIVITIES: | |||||||||||||||
Forgiveness of notes receivable and accrued interest as part of business acquisition | $ | — | $ | 973 | $ | 5,445 | |||||||||
Financing of business acquisition with contingent consideration | $ | — | $ | 2,000 | $ | (360 | ) | $ | 2,000 | ||||||
Intangible assets recognized for issuance of fully vested warrants | $ | — | $ | — | $ | 20,000 | $ | 20,000 |
TABLE 1: OTHER OPERATIONAL DATA | |||||||
12 weeks ended | |||||||
March 24, 2018 | March 25, 2017 | ||||||
Prepaid and processing revenues | $ | 390,028 | $ | 345,390 | |||
Partner distribution expense as a % of prepaid and processing revenues | 56.0 | % | 50.7 | % |
TABLE 2: RECONCILIATION OF NON-GAAP MEASURES | |||||||
12 weeks ended | |||||||
March 24, 2018 | March 25, 2017 | ||||||
Prepaid and processing revenues: | |||||||
Commissions and fees | $ | 288,626 | $ | 249,525 | |||
Program and other fees | 101,402 | 95,865 | |||||
Total prepaid and processing revenues | $ | 390,028 | $ | 345,390 | |||
Adjusted operating revenues: | |||||||
Total operating revenues | $ | 429,208 | $ | 386,412 | |||
Revenue adjustment from purchase accounting | 520 | 1,574 | |||||
Marketing and other pass-through revenues | (17,708 | ) | (16,980 | ) | |||
Partner distribution expense | (218,449 | ) | (175,123 | ) | |||
Adjusted operating revenues | $ | 193,571 | $ | 195,883 | |||
Adjusted EBITDA: | |||||||
Net income (loss) before allocation to non-controlling interests | $ | (15,588 | ) | $ | (17,342 | ) | |
Interest and other (income) expense, net | 224 | (836 | ) | ||||
Interest expense | 7,786 | 6,943 | |||||
Income tax expense (benefit) | (11,505 | ) | (12,082 | ) | |||
Depreciation and amortization | 28,099 | 25,356 | |||||
EBITDA | 9,016 | 2,039 | |||||
Adjustments to EBITDA: | |||||||
Employee stock-based compensation | 8,062 | 8,401 | |||||
Acquisition-related employee compensation expense | 248 | 139 | |||||
Revenue adjustment from purchase accounting, net | 490 | 1,467 | |||||
Merger-related expense | 4,400 | — | |||||
Change in fair value of contingent consideration | 100 | 1,040 | |||||
Adjusted EBITDA | $ | 22,316 | $ | 13,086 | |||
Adjusted EBITDA margin: | |||||||
Total operating revenues | 429,208 | 386,412 | |||||
Operating income (loss) | (19,083 | ) | (23,317 | ) | |||
Operating margin | (4.4 | )% | (6.0 | )% | |||
Adjusted operating revenues | $ | 193,571 | $ | 195,883 | |||
Adjusted EBITDA | $ | 22,316 | $ | 13,086 | |||
Adjusted EBITDA margin | 11.5 | % | 6.7 | % |
TABLE 2: RECONCILIATION OF NON-GAAP MEASURES (continued) | |||||||
12 weeks ended | |||||||
March 24, 2018 | March 25, 2017 | ||||||
Adjusted net income: | |||||||
Income (loss) before income tax expense | $ | (27,093 | ) | $ | (29,424 | ) | |
Employee stock-based compensation | 8,062 | 8,401 | |||||
Acquisition-related employee compensation expense | 248 | 139 | |||||
Revenue adjustment from purchase accounting, net | 490 | 1,467 | |||||
Merger-related expense | 4,400 | — | |||||
Change in fair value of contingent consideration | 100 | 1,040 | |||||
Amortization of intangibles | 15,951 | 14,218 | |||||
Adjusted income (loss) before income tax expense | $ | 2,158 | $ | (4,159 | ) | ||
Income tax expense (benefit) | $ | (11,505 | ) | $ | (12,082 | ) | |
Tax expense on adjustments | 11,817 | 10,648 | |||||
Adjusted income tax expense | $ | 312 | $ | (1,434 | ) | ||
Adjusted net income before allocation to non-controlling interests | $ | 1,846 | $ | (2,725 | ) | ||
Net loss (income) attributable to non-controlling interests, net of tax | (179 | ) | (123 | ) | |||
Adjusted net income attributable to Blackhawk Network Holdings, Inc. | $ | 1,667 | $ | (2,848 | ) | ||
Adjusted diluted earnings per share: | |||||||
Net income (loss) available for common shareholders | $ | (15,767 | ) | $ | (17,465 | ) | |
Diluted weighted average shares outstanding | 56,477 | 55,904 | |||||
Diluted earnings (loss) per share | $ | (0.28 | ) | $ | (0.31 | ) | |
Adjusted net income available for common shareholders | $ | 1,667 | $ | (2,848 | ) | ||
Diluted weighted-average shares outstanding | 56,477 | 55,904 | |||||
Increase in common share equivalents | 1,613 | — | |||||
Adjusted diluted weighted-average shares outstanding | 58,090 | 55,904 | |||||
Adjusted diluted earnings per share | $ | 0.03 | $ | (0.05 | ) | ||
Reduction in income taxes payable: | |||||||
Reduction in income taxes payable resulting from amortization of spin-off tax basis step-up | $ | 4,077 | $ | 6,597 | |||
Reduction in cash taxes payable from amortization of acquisition intangibles and utilization of acquired NOLs | 1,017 | 2,592 | |||||
Reduction in cash taxes payable from deductible stock-based compensation and convertible debt | 7,176 | 9,604 | |||||
Reduction in income taxes payable | $ | 12,270 | $ | 18,793 | |||
Adjusted diluted weighted average shares outstanding | 58,090 | 55,904 | |||||
Reduction in income taxes payable per share | $ | 0.21 | $ | 0.34 |