ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 43-2099257 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
6220 Stoneridge Mall Road Pleasanton, CA | 94588 | |
(Address of Principal Executive Offices) | (Zip Code) |
Large accelerated filer | ý | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | |||
Emerging growth company | ¨ |
Page | ||
PART I. FINANCIAL STATEMENTS | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II. OTHER INFORMATION | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
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 | |||||
See accompanying notes to condensed consolidated financial statements |
BLACKHAWK NETWORK HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (In thousands, except par value) (Unaudited) | |||||||||||
March 24, 2018 | December 30, 2017 | March 25, 2017 | |||||||||
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 | ||||||||
Commitments and contingencies (see Note 9) | |||||||||||
Stockholders’ equity: | |||||||||||
Preferred stock: $0.001 par value; 10,000 shares authorized; no shares outstanding | — | — | — | ||||||||
Common stock: $0.001 par value; 210,000 shares authorized; 57,097, 55,767 and 56,290 shares outstanding, respectively | 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 |
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 |
12 weeks ended | ||||||||
March 24, 2018 | March 25, 2017 | |||||||
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS | $ | (15,588 | ) | $ | (17,342 | ) | ||
Other comprehensive income (loss): | ||||||||
Currency translation adjustments | 7,752 | 5,975 | ||||||
COMPREHENSIVE INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS | (7,836 | ) | (11,367 | ) | ||||
Comprehensive loss (income) attributable to non-controlling interests, net of tax | — | (82 | ) | |||||
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC. | $ | (7,836 | ) | $ | (11,449 | ) |
12 weeks ended | ||||||||
March 24, 2018 | March 25, 2017 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net income (loss) before allocation to non-controlling interests | $ | (15,588 | ) | $ | (17,342 | ) | ||
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 | ||||||
Amortization of intangibles | 15,951 | 13,755 | ||||||
Amortization of deferred program and contract costs | 7,905 | 7,397 | ||||||
Amortization of deferred financing costs and debt discount | 2,860 | 3,162 | ||||||
Loss on property, equipment and technology disposal/write-down | 16 | 108 | ||||||
Employee stock-based compensation expense | 8,062 | 8,401 | ||||||
Change in fair value of contingent consideration | 100 | 1,040 | ||||||
Deferred income taxes | — | (2,307 | ) | |||||
Other | 2,942 | 1,605 | ||||||
Changes in operating assets and liabilities: | ||||||||
Settlement receivables | 634,105 | 330,177 | ||||||
Settlement payables | (1,401,302 | ) | (1,080,989 | ) | ||||
Accounts receivable, current and long-term | 29,788 | (7,666 | ) | |||||
Other current assets | (3,273 | ) | (7,146 | ) | ||||
Other assets | (63,174 | ) | (3,037 | ) | ||||
Consumer and customer deposits | (13,424 | ) | 32,018 | |||||
Accounts payable and accrued operating expenses | (27,065 | ) | (4,645 | ) | ||||
Contract liabilities | (6,673 | ) | 2,980 | |||||
Other current and long-term liabilities | (21,820 | ) | 635 | |||||
Income taxes, net | (14,642 | ) | (9,944 | ) | ||||
Net cash (used in) provided by operating activities | (853,084 | ) | (720,198 | ) | ||||
INVESTING ACTIVITIES: | ||||||||
Expenditures for property, equipment and technology | (15,819 | ) | (16,697 | ) | ||||
Business acquisitions, net of cash acquired | — | (10,881 | ) | |||||
Investment in unconsolidated entities | — | (5,200 | ) | |||||
Other | (1,000 | ) | — | |||||
Net cash (used in) provided by investing activities | (16,819 | ) | (32,778 | ) | ||||
See accompanying notes to condensed consolidated financial statements |
BLACKHAWK NETWORK HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In thousands) (Unaudited) | ||||||||
12 weeks ended | ||||||||
March 24, 2018 | March 25, 2017 | |||||||
FINANCING ACTIVITIES: | ||||||||
Payments for acquisition liability | (2,000 | ) | — | |||||
Proceeds from issuance of note payable | 75,000 | — | ||||||
Repayment of note payable | (15,000 | ) | (10,000 | ) | ||||
Borrowings under revolving bank line of credit | 127,536 | 667,936 | ||||||
Repayments on revolving bank line of credit | (127,536 | ) | (653,521 | ) | ||||
Repayment on notes payable to Safeway | — | (254 | ) | |||||
Proceeds from issuance of common stock from exercise of employee stock options and employee stock purchase plans | 10,924 | 3,700 | ||||||
Other stock-based compensation related | (18,254 | ) | (8,897 | ) | ||||
Net cash (used in) provided by financing activities | 50,670 | (1,036 | ) | |||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 8,573 | 6,462 | ||||||
Decrease in cash, cash equivalents and restricted cash | (810,660 | ) | (747,550 | ) | ||||
Cash, cash equivalents and restricted cash—beginning of period | 1,231,540 | 1,018,918 | ||||||
Cash, cash equivalents and restricted cash—end of period | $ | 420,880 | $ | 271,368 | ||||
NONCASH FINANCING AND INVESTING ACTIVITIES: | ||||||||
Financing of business acquisition with contingent consideration | $ | — | $ | 2,000 |
March 24, 2018 | March 25, 2017 | ||||||
Cash and cash equivalents | $ | 351,099 | $ | 214,536 | |||
Restricted cash | 69,781 | 56,832 | |||||
Total cash, cash equivalents and restricted cash | $ | 420,880 | $ | 271,368 |
March 24, 2018 | December 30, 2017 | March 25, 2017 | |||||||||
Accounts receivables, net | $ | 152,262 | $ | 185,741 | $ | 259,138 | |||||
Unbilled receivables, current | $ | 143,824 | $ | 193,734 | $ | 167,392 | |||||
Unbilled receivables, long-term | 11,265 | 9,235 | 1,475 | ||||||||
Total unbilled receivables | $ | 155,089 | $ | 202,969 | $ | 168,867 | |||||
Contract liabilities, current | $ | 54,088 | $ | 60,607 | $ | 46,867 | |||||
Contract liabilities, long-term | 24,463 | 23,897 | 16,318 | ||||||||
Total contract liabilities | $ | 78,551 | $ | 84,504 | $ | 63,185 |
12 weeks ended | |||||||
March 24, 2018 | March 25, 2017 | ||||||
Balance, beginning of period | $ | 84,504 | $ | 63,410 | |||
Revenue recognized that was included in the contract liability balance at beginning of period | (51,790 | ) | (39,222 | ) | |||
Deferrals, excluding amounts recognized as revenue during the period | 45,625 | 38,799 | |||||
Exchange rate effect | 212 | 198 | |||||
Balance, end of period | $ | 78,551 | $ | 63,185 |
12 weeks ended | |||||||||||||||
March 24, 2018 | |||||||||||||||
U.S. Retail | Incentives & Rewards | International | Total | ||||||||||||
Card services—physical retail (1) | $ | 185,625 | $ | — | $ | 118,171 | $ | 303,796 | |||||||
Card services—e-commerce (2) | 25,787 | 12,921 | — | 38,708 | |||||||||||
Marketing services (3) | 5,770 | — | 8,597 | 14,367 | |||||||||||
Other services (4) | 14,753 | 44,533 | 13,051 | 72,337 | |||||||||||
$ | 231,935 | $ | 57,454 | $ | 139,819 | $ | 429,208 |
12 weeks ended | |||||||||||||||
March 25, 2017 | |||||||||||||||
U.S. Retail | Incentives & Rewards | International | Total | ||||||||||||
Card services—physical retail (1) | $ | 159,647 | $ | — | $ | 98,097 | $ | 257,744 | |||||||
Card services—e-commerce (2) | 11,459 | 8,719 | — | 20,178 | |||||||||||
Marketing services (3) | 7,309 | — | 6,972 | 14,281 | |||||||||||
Other services (4) | 19,558 | 44,541 | 30,110 | 94,209 | |||||||||||
$ | 197,973 | $ | 53,260 | $ | 135,179 | $ | 386,412 |
As of December 30, 2017 | |||||||||||
As Previously Reported | Impact of Adoption | As Adjusted | |||||||||
Assets: | |||||||||||
Accounts receivable, net | $ | 184,994 | $ | 747 | $ | 185,741 | |||||
Other current assets | $ | 165,374 | $ | (22,637 | ) | $ | 142,737 | ||||
Intangible assets, net | $ | 431,681 | $ | (703 | ) | $ | 430,978 | ||||
Deferred income taxes | $ | 236,496 | $ | (699 | ) | $ | 235,797 | ||||
Other assets | $ | 115,236 | $ | 6,431 | $ | 121,667 | |||||
Total assets | $ | 4,139,680 | $ | (16,861 | ) | $ | 4,122,819 | ||||
Liabilities: | |||||||||||
Consumer and customer deposits | $ | 252,822 | $ | 73,863 | $ | 326,685 | |||||
Contract liabilities (previously reported as Deferred revenue) | $ | 179,684 | $ | (119,077 | ) | $ | 60,607 | ||||
Deferred income taxes, long term | $ | 28,083 | $ | 1,002 | $ | 29,085 | |||||
Other liabilities | $ | 16,747 | $ | 22,130 | $ | 38,877 | |||||
Total liabilities | $ | 3,469,713 | $ | (22,082 | ) | $ | 3,447,631 | ||||
Stockholders’ equity: | |||||||||||
Accumulated other comprehensive loss | $ | (16,049 | ) | $ | (72 | ) | $ | (16,121 | ) | ||
Retained earnings | $ | 72,571 | $ | 5,293 | $ | 77,864 | |||||
Total stockholder’s equity | $ | 669,967 | $ | 5,221 | $ | 675,188 |
As of March 25, 2017 | |||||||||||
As Previously Reported | Impact of Adoption | As Adjusted | |||||||||
Assets: | |||||||||||
Other current assets | $ | 177,463 | $ | (11,565 | ) | $ | 165,898 | ||||
Intangible assets, net | $ | 340,846 | $ | (2,174 | ) | $ | 338,672 | ||||
Deferred income taxes | $ | 361,404 | $ | 577 | $ | 361,981 | |||||
Other assets | $ | 85,647 | $ | 5,519 | $ | 91,166 | |||||
Total assets | $ | 2,559,139 | $ | (7,643 | ) | $ | 2,551,496 | ||||
Liabilities: | |||||||||||
Consumer and customer deposits | $ | 199,822 | $ | 69,204 | $ | 269,026 | |||||
Accounts payable | $ | 143,858 | $ | (428 | ) | $ | 143,430 | ||||
Contract liabilities (previously reported as Deferred revenue) | $ | 140,834 | $ | (93,967 | ) | $ | 46,867 | ||||
Deferred income taxes, long term | $ | 28,200 | $ | 596 | $ | 28,796 | |||||
Other liabilities | $ | 37,745 | $ | 15,890 | $ | 53,635 | |||||
Total liabilities | $ | 1,770,504 | $ | (8,705 | ) | $ | 1,761,799 | ||||
Stockholders’ equity: | |||||||||||
Accumulated other comprehensive loss | $ | (42,861 | ) | $ | (106 | ) | $ | (42,967 | ) | ||
Retained earnings | $ | 214,833 | $ | 1,168 | $ | 216,001 | |||||
Total stockholder’s equity | $ | 788,635 | $ | 1,062 | $ | 789,697 |
12 weeks ended | |||||||||||
For the quarter ended March 25, 2017 | |||||||||||
As Previously Reported | Impact of Adoption | As Adjusted | |||||||||
Operating revenues: | |||||||||||
Commissions and fees | $ | 255,206 | $ | (5,681 | ) | $ | 249,525 | ||||
Program and other fees | $ | 100,910 | $ | (5,045 | ) | $ | 95,865 | ||||
Product sales | $ | 36,839 | $ | (10,098 | ) | $ | 26,741 | ||||
Total operating revenues | $ | 407,236 | $ | (20,824 | ) | $ | 386,412 | ||||
Operating expenses: | |||||||||||
Partner distribution expense | $ | 179,476 | $ | (4,353 | ) | $ | 175,123 | ||||
Processing and services | $ | 102,272 | $ | (1,251 | ) | $ | 101,021 | ||||
Sales and marketing | $ | 62,785 | $ | (127 | ) | $ | 62,658 | ||||
Costs of products sold | $ | 36,193 | $ | (8,344 | ) | $ | 27,849 | ||||
Amortization of acquisition intangibles | $ | 13,025 | $ | (463 | ) | $ | 12,562 | ||||
Total operating expenses | $ | 424,267 | $ | (14,538 | ) | $ | 409,729 | ||||
Income tax expense (benefit) | $ | (9,775 | ) | $ | (2,307 | ) | $ | (12,082 | ) | ||
Net income (loss) attributable to Blackhawk Network Holdings, Inc. | $ | (13,486 | ) | $ | (3,979 | ) | $ | (17,465 | ) | ||
Diluted earnings (loss) per share | $ | (0.24 | ) | $ | (0.07 | ) | $ | (0.31 | ) |
12 weeks ended | |||||||||||
March 25, 2017 | |||||||||||
As Previously Reported | Impact of Adoption | As Adjusted | |||||||||
Net loss | $ | (13,363 | ) | $ | (3,979 | ) | $ | (17,342 | ) | ||
Amortization of intangibles | $ | 14,218 | $ | (463 | ) | $ | 13,755 | ||||
Deferred income taxes | $ | — | $ | (2,307 | ) | $ | (2,307 | ) | |||
Change in operating assets and liabilities: | |||||||||||
Other current assets | $ | (2,215 | ) | $ | (4,931 | ) | $ | (7,146 | ) | ||
Other assets | $ | (3,158 | ) | $ | 121 | $ | (3,037 | ) | |||
Consumer and customer deposits | $ | (24,484 | ) | $ | 56,502 | $ | 32,018 | ||||
Accounts payable and accrued operating expenses | $ | (4,218 | ) | $ | (427 | ) | $ | (4,645 | ) | ||
Contract liabilities (previously reported as Deferred revenue) | $ | 3,585 | $ | (605 | ) | $ | 2,980 | ||||
Other current and long-term liabilities | $ | (1,403 | ) | $ | 2,038 | $ | 635 | ||||
Net cash provided (used in ) by operating activities | $ | (766,147 | ) | $ | 45,949 | $ | (720,198 | ) | |||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | $ | 6,372 | $ | 90 | $ | 6,462 | |||||
Increase (decrease) in cash, cash equivalents and restricted cash | $ | (793,589 | ) | $ | 46,039 | $ | (747,550 | ) | |||
Cash, cash equivalents and restricted cash—beginning of period | $ | 1,008,125 | $ | 10,793 | $ | 1,018,918 | |||||
Cash, cash equivalents and restricted cash—end of period | $ | 214,536 | $ | 56,832 | $ | 271,368 |
March 24, 2018 | |||
2019 | $ | 15,000 | |
2020 | 30,000 | ||
2021 | 230,000 | ||
2022 | 500,000 | ||
Total long-term debt | $ | 775,000 |
March 24, 2018 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets | |||||||||||||||
Cash and cash equivalents | |||||||||||||||
Money market mutual funds | $ | 43,236 | $ | — | $ | — | $ | 43,236 | |||||||
Contingent asset | $ | — | $ | — | $ | 6,413 | $ | 6,413 | |||||||
Liabilities | |||||||||||||||
Contingent consideration | $ | — | $ | — | $ | 4,029 | $ | 4,029 |
December 30, 2017 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets | |||||||||||||||
Cash and cash equivalents | |||||||||||||||
Money market mutual funds | $ | 694,075 | $ | — | $ | — | $ | 694,075 | |||||||
Contingent asset | $ | — | $ | — | $ | 6,131 | $ | 6,131 | |||||||
Liabilities | |||||||||||||||
Warrants | $ | — | $ | 20,000 | $ | — | $ | 20,000 | |||||||
Contingent consideration | $ | — | $ | — | $ | 3,886 | $ | 3,886 |
March 25, 2017 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets | |||||||||||||||
Cash and cash equivalents | |||||||||||||||
Money market mutual funds | $ | 4,073 | $ | — | $ | — | $ | 4,073 | |||||||
Liabilities | |||||||||||||||
Contingent consideration | $ | — | $ | — | $ | 21,096 | $ | 21,096 |
12 weeks ended | |||||||
March 24, 2018 | March 25, 2017 | ||||||
Balance, beginning of period | $ | 3,886 | $ | 23,752 | |||
Additions from acquisitions | — | 2,000 | |||||
Foreign currency translation adjustments | 43 | — | |||||
Change in fair value of contingent consideration | 100 | 1,040 | |||||
Settlement | — | (5,696 | ) | ||||
Balance, end of period | $ | 4,029 | $ | 21,096 |
March 24, 2018 | December 30, 2017 | March 25, 2017 | |||||||||
Other current assets: | |||||||||||
Inventory | $ | 38,663 | $ | 37,007 | $ | 48,683 | |||||
Deferred expenses | 4,894 | 5,831 | 3,334 | ||||||||
Income tax receivables | 18,547 | 10,823 | 22,960 | ||||||||
Contract asset | 540 | 702 | 1,657 | ||||||||
Other | 68,451 | 64,912 | 44,313 | ||||||||
Assets held for sale | 27,206 | 23,462 | 44,951 | ||||||||
Total other current assets | $ | 158,301 | $ | 142,737 | $ | 165,898 | |||||
Other assets: | |||||||||||
Deferred program and contract costs | $ | 118,819 | $ | 60,000 | $ | 48,678 | |||||
Other receivables | 11,265 | 9,235 | 1,475 | ||||||||
Income tax receivables | 2,323 | 2,321 | 2,358 | ||||||||
Deferred financing costs | 2,579 | 2,759 | 2,552 | ||||||||
Contract asset | — | — | 516 | ||||||||
Other | 50,753 | 47,352 | 35,587 | ||||||||
Total other assets | $ | 185,739 | $ | 121,667 | $ | 91,166 | |||||
Other current liabilities: | |||||||||||
Payroll and related liabilities | $ | 34,693 | $ | 43,022 | $ | 28,198 | |||||
Income taxes payable | 1,841 | 8,056 | 3,860 | ||||||||
Acquisition liability | 2,329 | 4,012 | 9,047 | ||||||||
Warrant liability | — | 20,000 | — | ||||||||
Other payables and accrued liabilities | 15,353 | 25,292 | 9,836 | ||||||||
Liabilities held for sale | 2,237 | 2,441 | 34,710 | ||||||||
Total other current liabilities | $ | 56,453 | $ | 102,823 | $ | 85,651 | |||||
Other liabilities: | |||||||||||
Contingent consideration | $ | 1,700 | $ | 1,874 | $ | 17,744 | |||||
Income taxes payable | 3,393 | 3,883 | 7,056 | ||||||||
Contract liability | 24,463 | 23,897 | 16,318 | ||||||||
Other long-term liabilities | 15,411 | 9,223 | 12,517 | ||||||||
Total other liabilities | $ | 44,967 | $ | 38,877 | $ | 53,635 |
March 24, 2018 | |||
Other current assets | $ | 6,349 | |
Property, equipment and technology, net | 8,467 | ||
Goodwill | 8,991 | ||
Intangible assets, net | 431 | ||
Total assets | $ | 24,238 | |
Accounts payable and accrued operating expenses | $ | 1,468 | |
Other current liabilities | 377 | ||
Contract liabilities | 392 | ||
Total liabilities | $ | 2,237 |
March 24, 2018 | |||||||||||||||
U.S. Retail | Incentives & Rewards | International | Total | ||||||||||||
Balance, beginning of period | $ | 132,660 | $ | 335,298 | $ | 95,447 | $ | 563,405 | |||||||
Foreign currency translation adjustments | — | (814 | ) | 3,322 | 2,508 | ||||||||||
Balance, end of period | $ | 132,660 | $ | 334,484 | $ | 98,769 | $ | 565,913 |
12 weeks ended | ||||||||
March 24, 2018 | March 25, 2017 | |||||||
Processing and services | $ | 1,779 | $ | 1,702 | ||||
Sales and marketing | 2,558 | 2,812 | ||||||
Cost of products sold | 16 | 17 | ||||||
General and administrative | 3,709 | 3,870 | ||||||
Total stock-based compensation expense | $ | 8,062 | $ | 8,401 |
Distribution Partner Commitments | |||
2018 | $ | 62,088 | |
2019 | 67,772 | ||
2020 | 50,458 | ||
2021 | 46,751 | ||
2022 and after | 86,574 | ||
Distribution partner commissions (uncertainty in timing of future payments) | 6,232 | ||
Total | $ | 319,875 |
12 weeks ended | |||||||||||||||
March 24, 2018 | |||||||||||||||
U.S. Retail | Incentives & Rewards | International | Consolidated | ||||||||||||
Total operating revenues | $ | 231,935 | $ | 57,454 | $ | 139,819 | $ | 429,208 | |||||||
Partner distribution expense | 130,190 | 5,027 | 83,232 | 218,449 | |||||||||||
Operating revenues, net of Partner distribution expense | 101,745 | 52,427 | 56,587 | 210,759 | |||||||||||
Other operating expenses | 108,777 | 59,076 | 61,989 | 229,842 | |||||||||||
Segment profit (loss) / Operating income (loss) | $ | (7,032 | ) | $ | (6,649 | ) | $ | (5,402 | ) | $ | (19,083 | ) | |||
Other income (expense) | (8,010 | ) | |||||||||||||
Income (loss) before income tax expense | $ | (27,093 | ) | ||||||||||||
Noncash charges | $ | 18,158 | $ | 14,870 | $ | 8,370 |
12 weeks ended | |||||||||||||||
March 25, 2017 | |||||||||||||||
U.S. Retail | Incentives & Rewards | International | Consolidated | ||||||||||||
Total operating revenues | $ | 197,973 | $ | 53,260 | $ | 135,179 | $ | 386,412 | |||||||
Partner distribution expense | 97,978 | 3,856 | 73,289 | 175,123 | |||||||||||
Operating revenues, net of Partner distribution expense | 99,995 | 49,404 | 61,890 | 211,289 | |||||||||||
Other operating expenses | 108,604 | 56,827 | 69,175 | 234,606 | |||||||||||
Segment profit (loss) / Operating income (loss) | $ | (8,609 | ) | $ | (7,423 | ) | $ | (7,285 | ) | $ | (23,317 | ) | |||
Other income (expense) | (6,107 | ) | |||||||||||||
Income (loss) before income tax expense | $ | (29,424 | ) | ||||||||||||
Noncash charges | $ | 13,856 | $ | 14,718 | $ | 7,829 |
12 weeks ended | |||||||||||||||
March 24, 2018 | March 25, 2017 | ||||||||||||||
Basic | Diluted | Basic | Diluted | ||||||||||||
Net income (loss) attributable to common stockholders | $ | (15,767 | ) | $ | (15,767 | ) | $ | (17,465 | ) | $ | (17,465 | ) | |||
Weighted-average common shares outstanding | 56,477 | 56,477 | 55,904 | 55,904 | |||||||||||
Common share equivalents | — | — | |||||||||||||
Weighted-average shares outstanding | 56,477 | 55,904 | |||||||||||||
Earnings (loss) per share | $ | (0.28 | ) | $ | (0.28 | ) | $ | (0.31 | ) | $ | (0.31 | ) |
12 weeks ended | |||||||
March 24, 2018 | March 25, 2017 | ||||||
(in thousands, except percentages and per share amounts) | |||||||
Prepaid and processing revenues: | |||||||
Commissions and fees | $ | 288,626 | $ | 249,525 | |||
Program and other fees | 101,402 | 95,865 | |||||
Prepaid and processing revenues | $ | 390,028 | $ | 345,390 | |||
Partner distribution expense as % of prepaid and processing revenues | 56.0 | % | 50.7 | % | |||
Total operating revenues | $ | 429,208 | $ | 386,412 | |||
Revenue adjustment from purchase accounting (2) | 520 | 1,574 | |||||
Marketing revenue and other pass-through revenue | (17,708 | ) | (16,980 | ) | |||
Partner distribution expense | (218,449 | ) | (175,123 | ) | |||
Adjusted operating revenues (1) | $ | 193,571 | $ | 195,883 |
(1) | Our Adjusted operating revenues is a non-GAAP financial measure. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. This measure, however, should be considered in addition to, and not as a substitute for or superior to, operating revenues, operating income, operating margin, cash flows, or other measures of the financial performance prepared in accordance with GAAP. |
(2) | Impact on revenues recognized resulting from the step down in basis of deferred revenue from its carrying value to fair value in a business combination at the acquisition date. |
• | adjusting our operating revenues for distribution commissions paid and other compensation to our retail distribution partners and business clients is useful to understanding our operating margin; |
• | adjusting our operating revenues for marketing and other pass-through revenue, which has offsetting expense, is useful for understanding our operating margin; |
• | in a business combination, a company records an adjustment to reduce the carrying value of deferred revenue to its fair value and reduces the company’s revenues from what it would have recorded otherwise, and as such we do not believe is indicative of our core operating performance. |
12 weeks ended March 24, 2018 | % of Total Operating Revenues | 12 weeks ended March 25, 2017 | % of Total Operating Revenues | ||||||||||
(in thousands, except percentages) | |||||||||||||
OPERATING REVENUES: | |||||||||||||
Commissions and fees | $ | 288,626 | 67.2 | % | $ | 249,525 | 68.6 | % | |||||
Program and other fees | 101,402 | 23.6 | % | 95,865 | 17.9 | % | |||||||
Marketing | 14,367 | 3.3 | % | 14,281 | 5.0 | % | |||||||
Product sales | 24,813 | 5.9 | % | 26,741 | 8.5 | % | |||||||
Total operating revenues | 429,208 | 100.0 | % | 386,412 | 100.0 | % | |||||||
OPERATING EXPENSES: | |||||||||||||
Partner distribution expense | 218,449 | 50.9 | % | 175,123 | 45.2 | % | |||||||
Processing and services | 92,949 | 21.6 | % | 101,021 | 26.1 | % | |||||||
Sales and marketing | 64,181 | 15.0 | % | 62,658 | 16.2 | % | |||||||
Costs of products sold | 24,256 | 5.7 | % | 27,849 | 7.2 | % | |||||||
General and administrative | 29,322 | 6.8 | % | 29,025 | 7.5 | % | |||||||
Transition and acquisition | 4,927 | 1.1 | % | 451 | 0.1 | % | |||||||
Amortization of acquisition intangibles | 14,107 | 3.3 | % | 12,562 | 3.3 | % | |||||||
Change in fair value of contingent consideration | 100 | — | % | 1,040 | 0.3 | % | |||||||
Total operating expenses | 448,291 | 104.4 | % | 409,729 | 106.0 | % | |||||||
OPERATING INCOME (LOSS) | (19,083 | ) | (4.4 | )% | (23,317 | ) | (6.0 | )% | |||||
OTHER INCOME (EXPENSE): | |||||||||||||
Interest income and other income (expense), net | (224 | ) | (0.1 | )% | 836 | 0.2 | % | ||||||
Interest expense | (7,786 | ) | (1.8 | )% | (6,943 | ) | (1.8 | )% | |||||
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) | (27,093 | ) | (6.3 | )% | (29,424 | ) | (7.6 | )% | |||||
INCOME TAX EXPENSE (BENEFIT) | (11,505 | ) | (2.7 | )% | (12,082 | ) | (3.1 | )% | |||||
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS | (15,588 | ) | (3.6 | )% | (17,342 | ) | (4.5 | )% | |||||
Loss (income) attributable to non-controlling interests, net of tax | (179 | ) | (0.1 | )% | (123 | ) | — | % | |||||
NET INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC. | $ | (15,767 | ) | (3.7 | )% | $ | (17,465 | ) | (4.5 | )% |
• | U.S. Retail - sale of prepaid cards to consumers in the U.S. through our physical retail distribution partners as well as through our various online distribution channels. |
• | Incentives & Rewards - our incentives businesses in the U.S., which provide software, services and prepaid products to business clients for their loyalty, incentive and reward programs, our e-commerce incentives business, as well as our Achievers business in Canada. |
• | International - our retail and incentives businesses outside of the United States, except for our Achievers business in Canada, which is reported in the Incentives & Rewards segment. |
12 weeks ended | ||||||||||||||
March 24, 2018 | March 25, 2017 | Change | ||||||||||||
(in thousands, except percentages) | ||||||||||||||
OPERATING REVENUES: | ||||||||||||||
Commissions and fees | $ | 288,626 | $ | 249,525 | $ | 39,101 | 15.7 | % | ||||||
Program and other fees | 101,402 | 95,865 | 5,537 | 5.8 | % | |||||||||
Marketing | 14,367 | 14,281 | 86 | 0.6 | % | |||||||||
Product sales | 24,813 | 26,741 | (1,928 | ) | (7.2 | )% | ||||||||
Total operating revenues | $ | 429,208 | $ | 386,412 | $ | 42,796 | 11.1 | % | ||||||
Partner distribution expense | 218,449 | 175,123 | 43,326 | 24.7 | % | |||||||||
Operating revenues, net of Partner distribution expense | $ | 210,759 | $ | 211,289 | $ | (530 | ) | (0.3 | )% |
12 weeks ended | ||||||||||||||
March 24, 2018 | March 25, 2017 | Change | ||||||||||||
(in thousands, except percentages) | ||||||||||||||
Total operating revenues | $ | 231,935 | $ | 197,973 | $ | 33,962 | 17.2 | % | ||||||
Partner distribution expense | 130,190 | 97,978 | 32,212 | 32.9 | % | |||||||||
Operating revenues, net of Partner distribution expense | $ | 101,745 | $ | 99,995 | $ | 1,750 | 1.8 | % | ||||||
Transaction dollar volume (1) | $ | 2,202,142 | $ | 1,824,213 | $ | 377,929 | 20.7 | % | ||||||
Prepaid and processing revenues | $ | 209,111 | $ | 168,703 | $ | 40,408 | 24.0 | % | ||||||
Prepaid and processing revenues as a percentage of transaction dollar volume (2) | 9.5 | % | 9.2 | % | 0.3 | % | 3.3 | % | ||||||
Partner distribution expense as a percentage of prepaid and processing revenues | 62.3 | % | 58.1 | % | 4.2 | % | 7.2 | % |
(1) | Transaction dollar volume represents the total dollar amount of value loaded onto any of our prepaid products. The dollar amount and volume of card sales and rebates processed directly affect the amount of our revenues and direct costs. We measure and monitor Transaction dollar volume by retail distribution partner channel and content provider program. |
(2) | Prepaid and processing revenues as a percentage of transaction dollar volume—Represents the total amount of Commissions and fees and Program and other fees recognized during the period as a percentage of Transaction dollar volume for the same period. Our prepaid product revenues vary among our various product offerings: closed loop gift and prepaid telecom cards generate the highest rates due to the content provider commissions; open loop gift cards also generate high rates due to program management fees, interchange and other fees included in Program and other fees in addition to the consumer purchase fees included in Commissions and fees; financial services products generate the lowest rates due to higher average transaction values. This metric helps us understand and manage overall margins from our product offerings. |
• | Transaction dollar volume—Increased due to higher sales of prepaid products as a result of the expansion of our retail network, increased sales through our online distribution channels as well as our acquisition of CashStar, Inc. and its subsidiaries (collectively “CashStar”) in the third quarter of 2017. |
• | Prepaid and processing revenues as a percentage of transaction dollar volume—In the first quarter of 2018, we entered into a contractual amendment related to an open loop product which resulted in a one-time benefit of $7.1 million which we recognized in Program and other fees. Excluding this benefit, our Prepaid and processing revenue rate remained the same as the first quarter of 2017 at 9.2%. |
• | Partner distribution expense as a percentage of prepaid and processing revenues—Partner distribution expense as a percentage of prepaid and processing revenues increased for the first quarter of 2018 due to an increase in the proportion of closed loop sales through retail distribution partners with higher commission share rates as well as recent increases in competitive pressures in some U.S. retail markets which we expect to continue to result in higher partner distribution expense as a percentage of prepaid and processing revenues. These impacts were partially offset by higher sales of open loop gift cards which have a lower partner distribution expense as a percentage of prepaid and processing revenues. |
12 weeks ended | ||||||||||||||
March 24, 2018 | March 25, 2017 | Change | ||||||||||||
(in thousands, except percentages) | ||||||||||||||
Total operating revenues | $ | 57,454 | $ | 53,260 | $ | 4,194 | 7.9 | % | ||||||
Partner distribution expense | 5,027 | 3,856 | 1,171 | 30.4 | % | |||||||||
Operating revenues, net of Partner distribution expense | $ | 52,427 | $ | 49,404 | $ | 3,023 | 6.1 | % | ||||||
Prepaid and processing revenues | $ | 52,999 | $ | 49,389 | $ | 3,610 | 7.3 | % | ||||||
Partner distribution expense as a percentage of prepaid and processing revenues | 9.5 | % | 7.8 | % | 1.7 | % | 21.8 | % |
• | Prepaid and processing revenues—Prepaid and processing revenues increased $3.6 million in the first quarter of 2018, driven by the growth in our employee engagement business, loyalty programs and e-commerce channel. These increases were partially offset by decreases in other incentives programs. |
• | Partner distribution expense as a percentage of prepaid and processing revenues—Increased for the first quarter due to higher proportion of sales through business clients for which we recognize net pricing discounts as an expense, partially offset by growth in businesses where we do not incur partner distribution expense. |
12 weeks ended | ||||||||||||||
March 24, 2018 | March 25, 2017 | Change | ||||||||||||
(in thousands, except percentages) | ||||||||||||||
Total operating revenues | $ | 139,819 | $ | 135,179 | $ | 4,640 | 3.4 | % | ||||||
Partner distribution expense | 83,232 | 73,289 | 9,943 | 13.6 | % | |||||||||
Operating revenues, net of Partner distribution expense | $ | 56,587 | $ | 61,890 | $ | (5,303 | ) | (8.6 | )% | |||||
Prepaid and processing revenues | $ | 127,918 | $ | 127,298 | $ | 620 | 0.5 | % | ||||||
Partner distribution expense as a percentage of prepaid and processing revenues | 65.1 | % | 57.6 | % | 7.5 | % | 13.0 | % |
• | Prepaid and processing revenues— Remained relatively constant compared to the first quarter of 2017 primarily due to the sale of The Grass Roots Group Holdings Limited and its subsidiaries (collectively “Grass Roots”) Meeting and Events business (“M&E”) in the fourth quarter of 2017. Excluding M&E, prepaid and processing revenues increased $15.6 million for the first quarter of 2018 due to increased sales volume in all regions, primarily Germany and Canada, partially due to the expansion of our distribution network. |
• | Partner distribution expense as a percentage of prepaid and processing revenues—Increased mainly due to the sale of our M&E business resulting in a reduction of $15.1 million in Prepaid and processing revenues with no corresponding decrease in Partner distribution expense. Excluding the effects of the M&E sale, our partner distribution expense as a percentage of prepaid and processing revenue decreased from 65.3% to 65.1% for the first quarter of 2018 primarily due to higher sales of products which have lower partner distribution expense along with a decrease in proportion of sales through our sub-distributor relationships, primarily in Japan (for which we share a higher portion of commission but for which we incur minimal other operating expenses). |
12 weeks ended | ||||||||||||||
March 24, 2018 | March 25, 2017 | Change | ||||||||||||
(in thousands, except percentages) | ||||||||||||||
OPERATING EXPENSES: | ||||||||||||||
Partner distribution expense | $ | 218,449 | $ | 175,123 | $ | 43,326 | 24.7 | % | ||||||
Processing and services | 92,949 | 101,021 | (8,072 | ) | (8.0 | )% | ||||||||
Sales and marketing | 64,181 | 62,658 | 1,523 | 2.4 | % | |||||||||
Costs of products sold | 24,256 | 27,849 | (3,593 | ) | (12.9 | )% | ||||||||
General and administrative | 29,322 | 29,025 | 297 | 1.0 | % | |||||||||
Transition and acquisition | 4,927 | 451 | 4,476 | 992.5 | % | |||||||||
Amortization of acquisition intangibles | 14,107 | 12,562 | 1,545 | 12.3 | % | |||||||||
Change in fair value of contingent consideration | 100 | 1,040 | (940 | ) | (90.4 | )% | ||||||||
Total operating expenses | $ | 448,291 | $ | 409,729 | $ | 38,562 | 9.4 | % |
12 weeks ended | ||||||||||||||
March 24, 2018 | March 25, 2017 | Change | ||||||||||||
(in thousands, except percentages) | ||||||||||||||
OTHER INCOME (EXPENSE): | ||||||||||||||
Interest income and other income (expense), net | $ | (224 | ) | $ | 836 | $ | (1,060 | ) | (126.8 | )% | ||||
Interest expense | (7,786 | ) | (6,943 | ) | (843 | ) | 12.1 | % | ||||||
Total other income (expense) | $ | (8,010 | ) | $ | (6,107 | ) | $ | (1,903 | ) | 31.2 | % | |||
INCOME TAX EXPENSE (BENEFIT) | $ | (11,505 | ) | $ | (12,082 | ) | $ | 577 | (4.8 | )% | ||||
EFFECTIVE TAX RATE | 42.5 | % | 41.1 | % | 1.4 | % |
12 weeks ended | |||||||
March 24, 2018 | March 25, 2017 | ||||||
(in thousands) | |||||||
Net cash (used in) provided by operating activities | $ | (853,084 | ) | $ | (720,198 | ) | |
Net cash (used in) provided by investing activities | (16,819 | ) | (32,778 | ) | |||
Net cash (used in) provided by financing activities | 50,670 | (1,036 | ) | ||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 8,573 | 6,462 | |||||
Decrease in cash, cash equivalents and restricted cash | $ | (810,660 | ) | $ | (747,550 | ) |
• | an increase of $73.3 million cash used by non-settlement related operating assets and liabilities for the 12 weeks ended March 24, 2018 compared to the 12 weeks ended March 25, 2017, mainly due to an increase in our operating assets; partially offset by |
• | pre-tax income, adjusted for noncash reconciling items (excluding deferred income taxes), increased $5.2 million |
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share (2) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||
Dec 31 2017 to Jan 27 2018 | 43 | $ | 35.75 | — | $ | — | ||||||||
Jan 28 2018 to Feb 24 2018 | 101 | $ | 45.28 | — | $ | — | ||||||||
Feb 25 2018 to Mar 24 2018 | — | $ | — | — | $ | — | ||||||||
Total | 144 | $ | 42.43 | — | $ | — |
(1) | This table does not include shares of common stock that we withheld in order to satisfy minimum tax withholding requirements in connection with the vesting of restricted stock units or exercise of options or stock appreciation rights. The numbers represent the shares of common stock that we withheld in order to satisfy minimum tax withholding requirements in connection with the vesting of restricted stock awards. |
(2) | Average price paid per share of common stock does not include brokerage commissions. |
Blackhawk Network Holdings, Inc. |
/s/ Charles O. Garner |
Charles O. Garner |
Chief Financial Officer |
(Principal Financial Officer and Duly Authorized Signatory) |
Incorporated by Reference | Filed Herewith | |||||||||||
Exhibit No | Description of Exhibit | Form | File No. | Exhibit(s) | Filing Date | |||||||
10.1 | X | |||||||||||
31.1 | X | |||||||||||
31.2 | X | |||||||||||
32.1* | X | |||||||||||
101.INS | XBRL Instance Document | X | ||||||||||
101.SCH | XBRL Taxonomy Extension Schema | X | ||||||||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | X | ||||||||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | X | ||||||||||
101.LAB | XBRL Taxonomy Extension Label Linkbase | X | ||||||||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | X |
† | Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the SEC. |
* | The certification attached as Exhibit 32.1 to this Quarterly Report is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Quarterly Report), irrespective of any general incorporation language contained in such filing. |
1. | The termination date of Amendment No. 8 to the Agreement (as set forth in Section 9 of Amendment No. 8) is changed from March 1, 2018 to May 1, 2018. |
2. | Except as specifically modified by this Amendment No. 10, the Agreement shall remain in full force and effect. This Amendment No. 10 may not be amended or modified except pursuant to a written agreement signed by each of the Parties hereto. This Amendment shall bind, and inure to the benefit of, Servicer and Bank and their successors and permitted assigns. This Amendment No. 10 may be executed in counterparts, which execution may be by facsimile or other electronic means, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. |
Blackhawk Network, Inc. | Metabank, dba Meta Payment Systems |
By: /s/ Chuck Garner | By: /s/ Linda M. Loof |
Name: Chuck Garner | Name: Linda M. Loof |
Title: CFO | Title: SVP, Strategic Accounts |
Date: 3/2/2018 | Date: 3/1/2018 |
1. | I have reviewed this Quarterly Report on Form 10-Q of Blackhawk Network Holdings, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 1, 2018 |
/s/ Talbott Roche |
Talbott Roche |
President and Chief Executive Officer |
(Principal Executive Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of Blackhawk Network Holdings, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 1, 2018 |
/s/ Charles O. Garner |
Charles O. Garner |
Chief Financial Officer |
(Principal Financial Officer) |
1. | The Company’s Quarterly Report on Form 10-Q for the period ended March 24, 2018, to which this Certification is attached as Exhibit 32.1 (this “Quarterly Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and |
2. | The information contained in this Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Talbott Roche | /s/ Charles O. Garner | |
Talbott Roche | Charles O. Garner | |
President and Chief Executive Officer | Chief Financial Officer | |
(Principal Executive Officer) | (Principal Financial Officer) |
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 24, 2018 |
Apr. 23, 2018 |
|
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 24, 2018 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q1 | |
Entity Registrant Name | BLACKHAWK NETWORK HOLDINGS, INC | |
Entity Central Index Key | 0001411488 | |
Current Fiscal Year End Date | --12-29 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 57,117,000 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 24, 2018 |
Dec. 30, 2017 |
Mar. 25, 2017 |
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Statement of Financial Position [Abstract] | |||
Preferred stock, par value (in usd per share) | $ 0.001 | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 | 10,000,000 |
Preferred stock, shares outstanding | 0 | 0 | 0 |
Common stock, par value (in usd per share) | $ 0.001 | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 210,000,000 | 210,000,000 | 210,000,000 |
Common stock, shares outstanding | 57,097,000 | 55,767,000 | 56,290,000 |
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 24, 2018 |
Mar. 25, 2017 |
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Statement of Comprehensive Income [Abstract] | ||
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS | $ (15,588) | $ (17,342) |
Other comprehensive income (loss): | ||
Currency translation adjustments | 7,752 | 5,975 |
COMPREHENSIVE INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS | (7,836) | (11,367) |
Comprehensive loss (income) attributable to non-controlling interests, net of tax | 0 | (82) |
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC. | $ (7,836) | $ (11,449) |
The Company and Significant Accounting Policies |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Company and Significant Accounting Policies | The Company and Significant Accounting Policies The Company Blackhawk Network Holdings, Inc., together with its subsidiaries (“we”, “us”, “our”, the “Company”), is a leading prepaid payment network utilizing proprietary technology to offer consumers and businesses a broad selection of prepaid cards in physical and electronic forms, as well as complementary prepaid products, payment services and incentives solutions. We currently offer our products and/or solutions directly or through commercial relationships in the United States and 25 other countries and can deliver solutions in over 100 countries. Our product offerings include single-use gift cards; loyalty, incentive and reward products and services; prepaid telecom products and prepaid financial services products, including general purpose reloadable (“GPR”) cards, and our reload network (collectively, “prepaid products”). We offer gift cards from leading consumer brands (known as “closed loop”) as well as branded gift and incentive cards from leading payment network card associations such as American Express, Discover, MasterCard and Visa (known as “open loop”) and prepaid telecom products offered by prepaid wireless telecom carriers. We also distribute GPR cards and operate a proprietary reload network named Reloadit, which allows consumers to reload funds onto their previously purchased GPR cards. We distribute these prepaid products across multiple high-traffic channels such as grocery, convenience, specialty and online retailers (referred to as “retail distribution partners”) in the Americas, Europe, Africa, Australia and Asia and provide these prepaid products and related services to business clients for their loyalty, incentive and reward programs. Merger Agreement On January 15, 2018, we entered into an agreement and plan of merger (the “Merger Agreement”) with BHN Holdings, Inc., a Delaware corporation (“Parent”), and BHN Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). The Merger Agreement provides, among other things and subject to the terms and conditions set forth therein, that Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and as a wholly owned subsidiary of Parent. Parent has agreed to acquire the Company in an all-cash transaction for a total consideration of approximately $3.5 billion, which includes assumption of our debt. Pursuant to the terms of the Merger Agreement, the completion of the Merger is subject to the satisfaction or waiver of certain customary closing conditions, including the stockholder approval which was obtained at the Special Meeting of Stockholders held on March 30, 2018. The completion of the Merger remains subject to certain other customary closing conditions, including, among others, (i) the absence of any law, order or injunction of a court or governmental entity of competent jurisdiction prohibiting the consummation of the Merger or the other transactions contemplated by the Merger Agreement; (ii) receipt of certain consents and approvals (or confirmation that no consent is required) from the applicable regulatory authority in a number of jurisdictions, including various U.S. states; and (iii) the absence of a “material adverse effect” on the Company after the date of the Merger Agreement. As of the date of this report, the Company continues to expect to complete the Merger in mid-2018. See Part I, Item 1A, “Risk Factors” and Note 16- Subsequent Event of the Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the fiscal year ended on December 30, 2017, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2018 (the “Annual Report”). Basis of Presentation The accompanying condensed consolidated financial statements of Blackhawk Network Holdings, Inc. are unaudited. We have prepared our unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. We have condensed or omitted certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP pursuant to such rules and regulations. Accordingly, our interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related notes included in the Annual Report. We have prepared our condensed consolidated financial statements on the same basis as our annual audited consolidated financial statements and, in the opinion of management, have reflected all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position and results of operations for the interim periods presented. Our results for the interim periods are not necessarily reflective of the results to be expected for the year ending December 29, 2018 or for any other interim period or other future year. Our condensed consolidated balance sheet as of December 30, 2017, included herein was derived from our audited consolidated financial statements as of that date but does not include all disclosures required by GAAP for annual financial statements, including notes to the financial statements. Seasonality For our retail business, a significant portion of gift card sales occurs in late December each year during the holiday selling season. As a result, we earn a significant portion of our revenues, net income and cash flows during the fourth quarter of each year and remit the majority of the cash, less commissions, to our content providers in January of the following year. The timing of our fiscal year-end, December holiday sales and the related January cash settlement with content providers significantly increases our Cash and cash equivalents, Settlement receivables and Settlement payables balances at the end of each fiscal year relative to normal daily balances. We also experience an increase in revenues, net income and cash flows during the second quarter of each year, which we primarily attribute to the Mother’s Day, Father’s Day and graduation gifting season and the Easter holiday. Depending on when the Easter holiday occurs, the associated increase is in either the first or second quarter. As a result, quarterly financial results are not necessarily reflective of the results to be expected for the year or any other interim or future period. Seasonality also impacts our incentives businesses, but such impact is smaller in comparison to our retail business. Significant Accounting Policies The Company's significant accounting policies are detailed in "Note 1: Summary of Significant Accounting Policies" within Item 8 of the Company's Annual Report on Form 10-K for the year ended December 30, 2017. Recently Adopted Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (Topic 606)(“ASC 606”), which, along with amendments issued in 2015, 2016 and 2017, replaces nearly all current U.S. GAAP guidance on this topic with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. This new guidance provides a five-step analysis in determining when and how revenue is recognized. Under the new guidance, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the new guidance requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. As part of our assessment and implementation plan, we evaluated and made changes to our policies and procedures. Additionally, we evaluated the impact of this new guidance on the purchase accounting or intangibles assets from our recent acquisitions; this resulted in a reclassification of certain backlog assets to contract asset, with no impact to our consolidated net income. The Company adopted this new guidance using the full retrospective method in the first quarter of fiscal 2018, which impacted each prior reporting period presented. Revenue Recognition under ASC 606 Performance obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Certain of the Company’s contracts have multiple performance obligations, as the promise to transfer individual goods or services is separately identifiable from other promises in the contracts and, therefore, is distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on its relative standalone selling price. Our performance obligations are satisfied at a point in time or over time as work progresses. Revenue from goods and services transferred to customers at a point in time accounted for 5% and 6% of total operating revenues for the 12 weeks ended March 24, 2018 and March 25, 2017, respectively. Revenue recognized at a point in time relates to our card production services, handset sales and our Cardpool business. Revenue on these contracts is recognized when the goods are delivered or when the service is provided. Revenue from products and services transferred to customers over time accounted for 95% and 94% of total operating revenues for the 12 weeks ended March 24, 2018 and March 25, 2017, respectively. This primarily includes revenue related to our employee engagement business, our rebate processing and reward fulfillment businesses as well as the sale of closed loop and open loop gift cards under long-term contracts for which we have a stand-ready obligation to provide services over the term of the contract. Revenue is typically recognized over time using an input measure (e.g., number of days passed or units sold) to measure progress. Revenue allocated to the remaining performance obligations represent contracted revenue that has not yet been recognized (“contracted not recognized”), which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods, including noncancelable contractual commitments related to our employee engagement business. Based on average historical commission rates earned on redeemed points, total contracted not recognized revenue was $107.7 million as of March 24, 2018. Based on historical trends, points related to our employee engagement business are estimated to be redeemed and recognized as revenue within a year following the issuance of such points. The Company expects to recognize approximately 61% of its remaining performance obligations as revenue in fiscal 2018, an additional 20% by fiscal 2019 and 19% of the amount thereafter. Significant Estimates Transaction price—The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer. The nature of our contracts gives rise to several types of variable consideration. The amount of program management fees or merchant commissions that we will receive from the card partner or issuing bank varies according to the redemption rates on those cards. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. We estimate the amount we ultimately expect to collect from our customers and record a receivable or contract asset depending on the contractual billing schedule. Estimating the transaction price requires significant management judgment about future events and is based on historical card redemption patterns as well as other relevant information for the respective card programs. The estimated transaction price is determined at the inception of the contract; we recognize the related revenue as the performance obligation is fulfilled. Standalone selling price—For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling prices are determined based on the prices at which the Company separately sells these services. For services that are not sold separately, the Company estimates the standalone selling prices using the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service. Forecasting the expected costs and estimating the appropriate margin require significant management judgement and affects the timing of revenue recognition. Material right—We also consider whether renewal options for certain customer contracts represents a material right and should be accounted for as a separate performance obligation. This requires us to evaluate whether the renewal option to acquire additional goods and services provides the customer with a discount that is incremental to a discount typically given to that class of customer. We concluded that one of our key customer contracts includes a material right and we have accounted for this material right as a separate performance obligation. These significant estimates are re-assessed each reporting period as required. Contract Balances We receive payments from customers based upon contractual billing schedules. The timing of revenue recognition, billings and cash collections results in contract assets (billed accounts receivable and unbilled receivables), and contract liabilities. We record a receivable when we have an unconditional right to invoice and receive payment in the future. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables which are anticipated to be invoiced in the next twelve months are included in Accounts receivable, net on the condensed consolidated balance sheet. Long-term unbilled receivables are included in Other assets. Amounts collected in advance of services being provided are included in Contract Liability if we expect to recognize the revenue within the next twelve months. Long-term contract liabilities are included in Other Liabilities. The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):
Changes in contract liabilities were as follows (in thousands):
Contract Costs Cost to obtain a contract—The Company defers all incremental costs of acquiring customer contracts, which consist of sales commissions paid or payable to our direct sales force. The deferred commission amounts are recoverable through future revenue streams under the contracts and are amortized on a straight-line basis over an estimated period of benefit of six years. Deferred commissions were $8.2 million and $6.5 million at March 24, 2018 and March 25, 2017, respectively. Amortization recognized during the 12 weeks ended March 24, 2018 and March 25, 2017, was $0.3 million and $0.3 million, respectively, included in Sales and marketing expense. There was no impairment loss in relation to the deferred commissions. Cost to fulfill a contract—The Company sometimes incurs costs to fulfill its contract obligations before transferring goods or services to the customer. In certain card programs (for example, aggregated category gift cards), where redemption service has been identified to be the only performance obligation under ASC 606, we incur partner distribution expense upon the sale of a card prior to performing the redemption service. The costs are recoverable through the future revenue streams associated with the card programs. Under ASC 606, such costs are deferred and recognized in Partner Distribution Expense ratably in proportion to the historical redemption patterns of the card portfolio over the estimated life of the card. Deferred partner distribution expenses were $2.4 million and $4.3 million at March 24, 2018 and March 25, 2017, respectively. Amortization recognized during the three months ended March 24, 2018 and March 25, 2017, was $2.4 million and $2.5 million, respectively. There was no impairment loss in relation to the deferred partner distribution expenses. Disaggregation of revenue The following table provides information about disaggregated revenue by major product line for each of our segments (in thousands):
(1) Card services-physical retail: This includes all prepaid products sold in our retail distribution stores and card production services. (2) Card services-e-commerce: This includes all prepaid products sold online through either our own websites or third-party online retailers. It also includes our first-party digital business, our loyalty business as well as digital services for online and mobile applications. (3) Marketing services: Funds received from content providers to promote their prepaid cards throughout our distribution partner network. (4) Other services: This includes our rebate processing and reward fulfillment businesses, software and reward redemption revenue from our employee engagement business, telecom handset sales, our Cardpool business and the Meetings and Events business of Grass Roots, which was sold in the fourth quarter of 2017. In addition, see Note 10—Segment Reporting for additional information regarding our reportable segments. Significant changes in accounting policies resulting from the adoption of ASC 606 Revenue Content Provider Commissions—Under the new guidance, we will continue to recognize content provider commissions for closed loop cards as revenue at the time of card activation, as that is the time that our performance obligation to the content provider is complete. However, the actual revenue recognition treatment required under the new guidance may be dependent on contract-specific terms and, therefore, may vary in some instances. Consumer Purchase Fees and Program Management Fees—Under the new guidance, we consider the transaction price for our open loop gift cards, including our Visa gift card, to include consumer purchase fees and program management fees. Under the new guidance, we have identified three performance obligations - distribution-and-activation, redemption service and customer care. Revenue from consumer purchase fees and program management fees, included within Commissions and fees and Program and other fees, respectively, related to our Visa gift cards will predominantly be recognized as revenue at the time of card activation when our distribution-and-activation obligation is complete. The remainder will be recognized over the estimated period of card redemption as redemption service and customer care obligations are performed. Under previous GAAP, we defer these revenues and recognize them based on the redemption pattern of the card. Interchange revenue will be recognized over the period of card redemption as we provide information required for card redemption, similar to our current revenue recognition. Additionally, revenue from program management fees related to our proprietary Visa gift cards issued by MetaBank will be based on a blended rate over the appropriate periods as required by the contract-specific terms compared to a contractually stated rate under the current accounting policy. Although we expect the blended rate to be lower than the contract rate initially, the economics of the arrangement will be the same over the term of the contract period. Under previous GAAP, we defer consumer purchase fees and program management fees related to our Visa gift cards in Deferred revenue and recognize revenue ratably in proportion to the historical redemption patterns of the card portfolio over the estimated life of the card. Rebate Processing Fees—Under the new guidance, we recognize revenue for rebates fulfilled with open loop incentive cards when we fulfill the cards to the end consumer versus ratably in proportion to historical redemption patterns as our performance obligation for rebate processing is complete at time of fulfillment. The recognition of revenue for rebates fulfilled by checks or closed loop cards is recognized at fulfillment and remains unchanged under the new guidance. Incentive Merchandise Rewards—Under the new guidance, we classify the costs of certain incentive merchandise rewards issued in connection with our employee engagement solutions as a reduction to revenue versus a cost of products sold. These costs will only be recorded as a cost of product sold if it is determined that we control the goods or services before they are transferred to the customer. In doing so, we will evaluate (i) if we are primarily responsible for fulfilling the promise to provide the good or service; (ii) if we have inventory risk before the good or service has been transferred to customer or after transfer of control to the customer; and (iii) if we have discretion in establishing the price for the good or service. Operating Expenses Partner Distribution Expense—Under the new guidance, partner distribution expense for Visa gift and other open loop incentive cards will be recognized at the time of card activation when our distribution-and-activation obligation is complete. Under previous GAAP, we defer these expenses and amortize them based on the redemption pattern of the card. Processing and Services—Under the new guidance, card production and upfront transaction processing fees for the Visa gift card and open loop incentive cards will be recognized at the time of card activation when our distribution-and-activation obligation is complete. Under previous GAAP, these costs are deferred and expensed based on the same redemption pattern as the related revenue. Sales and Marketing—The accounting for the recognition of costs related to obtaining customer contracts under the new guidance is different from our current capitalization policy. The adoption of the new guidance results in additional capitalized commissions which will be amortized over a longer term than our previous policy. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to explain the changes in the combined total of restricted and unrestricted cash balances in the statement of cash flows. ASU 2016-18 should be applied using a retrospective transition method, for fiscal years beginning after December 15, 2017, and early adoption is permitted. The Company adopted this new guidance using the full retrospective method in the first quarter of fiscal 2018, which impacted each prior reporting period presented. The new guidance has no impact on the Company’s condensed consolidated balance sheets or income statements; but impacted the presentation of restricted cash and restricted cash equivalents within our condensed consolidated statements of cash flows. Impacts to Previously Reported Results Adoption of ASU 2014-09 impacted select lines in our previously reported condensed consolidated balance sheets as follows (in thousands):
Adoption of ASU 2014-09 impacted select lines in our previously reported condensed consolidated income statement as follows (in thousands, except per share amounts):
Adoption of ASU 2014-09 and ASU 2016-18 impacted select lines in our previously reported condensed consolidated statement of cash flows as follows (in thousands):
In March 2018, the FASB issued ASU 2018-05 Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 formally amended ASC Topic 740, Income Taxes (“ASC 740”) for the guidance previously provided by SEC Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance for the application of ASC 740 in the reporting period in which the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The Company adopted SAB 118 in the fourth quarter of year-end 2017 and therefore, the Company’s subsequent adoption of ASU 2018-05 in the first quarter of year-end 2018 had no impact on its accounting for income taxes in the first quarter of year-end 2018. Additional information regarding the accounting for income taxes for the Tax Reform Act is contained in Note 8, Income Taxes. Except for the adoption of ASU 2014-09, ASU 2016-18 and ASU 2018-05 as stated above, there have been no material changes to our significant accounting policies, as compared to the significant accounting policies described in the audited consolidated financial statements and related notes included in the Annual Report. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 changes the current lease accounting standard by requiring the recognition of lease assets and lease liabilities for all leases, including those currently classified as operating leases. This new guidance is to be applied under a modified retrospective application to the earliest reporting period presented for reporting periods beginning after December 15, 2018. Early adoption is permitted. We plan to adopt this guidance for our 2019 fiscal year. While management is evaluating the comprehensive impact of this guidance, this new guidance would require us to capitalize, at the appropriate discount rate, our operating lease commitments. |
Business Acquisitions |
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Business Combinations [Abstract] | |
Business Acquisitions | Business Acquisitions There were no acquisitions entered into during the first quarter of 2018. There were also no measurement period adjustments made in the first quarter of 2018. The measurement period for the rebates and incentives business acquired during the first quarter of 2017 is now closed. |
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Financing | Financing Credit Agreement On January 11, 2018, we borrowed an additional $75 million in the form of a term loan under the Amended and Restated Credit Agreement, dated July 27, 2016, between the Company and lenders party thereto and Wells Fargo Bank, National Association as administrative agent (Credit Agreement), as further amended. The terms of the new term loan are substantially similar to the outstanding term loan. On March 21, 2018, we repaid $15 million of the term loan outstanding under the amended Credit Agreement. The following table presents the amounts due by maturity date of our term loan and convertible notes as of March 24, 2018 (in thousands):
As a result of the covenants in the amended Credit Agreement which require us to maintain certain leverage ratios of total debt to adjusted EBITDA (as defined in the amended Credit Agreement), and depending on our levels of adjusted EBITDA, we are limited in our ability to incur additional indebtedness either under the amended Credit Agreement or through other debt facilities. These limitations also affect the amount of capital we can allocate to acquisitions, internal capital developments and capital returned to stockholders. |
Fair Value Measurements |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | Fair Value Measurements We measure certain assets and liabilities at fair value on a recurring basis. The table below summarizes the fair values of these assets and liabilities as of March 24, 2018, December 30, 2017 and March 25, 2017 (in thousands):
Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 investments include money market mutual funds. Level 2— Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable. Level 3— Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the inputs that market participants would use in pricing. Level 3 includes the estimated fair value of our contingent consideration liabilities. We estimate the fair value of the contingent consideration based on our estimates of the probability of achieving the relevant targets and discount rates reflecting the risk of meeting these targets. During the 12 weeks ended March 24, 2018, there were no transfers between levels. Term loan —As of March 24, 2018, using Level 2 inputs, we estimate the fair value of our term loan (classified as Note payable on the balance sheet) to be approximately $275.0 million. Convertible notes payable—As of March 24, 2018, using Level 2 inputs, we estimate the fair value of our convertible notes payable to be approximately $552.5 million. Contingent asset—The changes in fair value of contingent asset for the the first quarter of 2018 is due to foreign currency translation adjustment. Contingent consideration—We estimate the fair value of the contingent consideration based on our estimates of the probability of achieving the relevant targets and discount rates reflecting the risk of meeting these targets. The changes in fair value of contingent consideration for the 12 weeks ended March 24, 2018 and March 25, 2017 are as follows (in thousands):
We present the change in the fair value of contingent consideration in Change in fair value of contingent consideration and as a noncash adjustment to net income in our condensed consolidated statements of cash flows. A significant increase (decrease) in our estimates of the amounts payable for and probability of achieving the relevant targets or a significant decrease (increase) in the discount rate could materially increase (decrease) the estimated fair value of contingent consideration. As of March 25, 2017, related to our acquisition of 888extramoney.com LLC (“Extrameasures”), $5.7 million was estimated to be payable for achieving relevant targets during the first earn-out year, and we estimated the fair value of the remaining contingent consideration based on our estimates of the amounts payable for and probability of achieving the relevant targets and a discount rate of 17%. |
Consolidated Financial Statement Details |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Financial Statement Details | Consolidated Financial Statement Details The following tables represent the components of Other current assets, Other assets, Other current liabilities and Other liabilities as of March 24, 2018, December 30, 2017 and March 25, 2017 consisted of the following (in thousands):
Assets held for sale On October 9, 2017, the Board of Directors approved management’s plan to sell the Cardpool gift card exchange business. As we begin to actively market the Cardpool business, we may identify specific assets and liabilities to be retained by the Company. It is probable that such sale will occur within one year from the date of approval. As a result, beginning from the time the plan was approved, Cardpool’s assets and liabilities were accounted for as held for sale and measured at the lower of its carrying value or fair value less cost to sell. The following table presents the aggregate carrying amounts of the major classes of assets and liabilities as of March 24, 2018 related to the Cardpool business (in thousands):
During the first quarter of 2018, the Cardpool business recorded pre-tax loss of $1.8 million during the period it was accounted for as an asset held for sale. Also included in Assets held for sale is $3.0 million related to a building in the UK that was held for sale as of March 24, 2018. The sale has since been completed. |
Goodwill |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | Goodwill We have assigned goodwill to our U.S. Retail, Incentives & Rewards and International segments. To date, we have recorded goodwill impairment charges totaling $31.5 million and $46.0 million related to the Cardpool and Blackhawk Engagement Solutions reporting units respectively. In March 2018, management became aware that a retail distribution partner in Germany will not be renewing its contract with us after the contract expires at the end of 2018. Accordingly, we performed a goodwill impairment test incorporating such information and determined that the fair value of the Europe East reporting unit exceeded its carrying value by $19.1 million, or 22%. The fair value was determined using a combination of the income approach and the market approach. We believe that the income approach is the more reliable indication of value since it incorporates estimated revenues and earnings for the Europe East reporting unit that the market approach may not directly incorporate. Therefore, a weighting of 75% was assigned to the income approach and a weighting of 25% was assigned to the market approach. We continue to monitor the operating results and cash flows of our reporting units on a quarterly basis for indicators of goodwill impairment. We also assessed the recoverability of the intangible asset related to the Germany retail distribution partner relationships as we concluded that an impairment indicator was present in the current quarter. As of March 24, 2018, the Germany retail distribution partner relationship intangible asset had a remaining carrying value of $18.8 million. The results of the recoverability test indicated that the estimate future undiscounted cash flows exceeded the carrying value of the asset, therefore no impairment was recorded during the quarter. We continue to monitor potential triggering events in our Europe East reporting unit. A summary of changes in goodwill during the 12 weeks ended March 24, 2018 is as follows (in thousands):
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Stock-Based Compensation |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | Stock-Based Compensation During the 12 weeks ended March 24, 2018, our Board of Directors granted 665,733 restricted stock units. No performance stock units were granted during 12 weeks ended March 24, 2018. The following table presents total stock-based compensation expense according to the income statement line in our condensed consolidated statements of income (loss) for 12 weeks ended March 24, 2018 and March 25, 2017 (in thousands):
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Income Taxes |
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Mar. 24, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes On December 22, 2017, the Tax Reform Act was signed into law by the President of the United States. We recognized the income tax effects of the Tax Reform Act in our 2017 financial statements in accordance with SAB 118, subsequently codified by ASU 2018-05 (see Note 1, The Company and Significant Accounting Policies, Recently Adopted Accounting Pronouncements), which provides guidance for the application of ASC 740 in the reporting period in which the Tax Reform Act was signed into law. The guidance addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Reform Act. As noted at year-end 2017 our accounting for the Tax Reform Act is incomplete, however, we were able to reasonably estimate certain effects and, therefore, recorded provisional adjustments associated with the Deemed Repatriation Transition Tax and are continuing to evaluate its impact on outside basis differences with respect to our foreign operations. Further, we are continuing to assess how to account for the global intangible low-taxed income of foreign subsidiaries from an accounting policy standpoint. Our effective tax rates were 42.5% and 41.1% for the 12 weeks ended March 24, 2018 and March 25, 2017, respectively. The increase in the effective tax rate for the 12 weeks ended March 24, 2018 compared to the 12 weeks ended March 25, 2017 was primarily due to current year U.S. taxation of certain income of our foreign subsidiaries and a discrete tax benefit related to an uncertain tax position (increasing the effective tax rate due to pre-tax loss), offset by a decrease in the U.S. federal corporate tax rate effective for our fiscal year ending December 29, 2018. |
Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | Commitments and Contingencies Distribution Partner Commitments Our sales and marketing teams manage our relationships with our distribution partners and develop retail marketing programs and communication strategies to reach our consumers. We provide or fund product display fixtures and provide or coordinate merchandising visits intended to maintain in-stock conditions on the displays. We also manage or participate in the design of effective in-store marketing programs funded jointly by our distribution partners. Future commitments to our distribution partners as of March 24, 2018 are as follows (in thousands):
Included above is $130.0 million which represents the maximum potential payments depending on performance under the arrangements. The estimated fair value of such commitments is approximately $12.0 million. Contingencies From time to time, we enter into contracts containing provisions that require us to indemnify various parties against certain potential claims from third parties. Under contracts with certain issuing banks, we are responsible to the banks for any unrecovered overdrafts on cardholders’ accounts. Under contracts with certain content providers, retail distribution partners and issuing banks, we are responsible for potential losses resulting from certain claims from third parties. Because the indemnity amounts associated with these agreements are not explicitly stated, the maximum amount of the obligation cannot be reasonably estimated. Historically, we have paid immaterial amounts pursuant to these indemnification provisions. We are subject to audits related to various indirect taxes, including, but not limited to, sales and use taxes, value-added tax, and goods and services tax, in various foreign and state jurisdictions. We evaluate our exposure related to these audits and potential audits and do not believe that it is probable that any audit would hold us liable for any material amounts due. Legal and other matters There are various claims and lawsuits arising in the normal course of business pending against us, including the matters described below, some of which seek damages and other relief which, if granted, may require future cash expenditures. Management does not believe that it is probable that the resolution of these matters would result in any liability that would materially affect our results of operations or financial condition. We have equity investments in various markets. With respect to one of our equity investments, we are currently in dispute and attempting to negotiate with certain of the investment partners regarding the future operations of such investment. The carrying value of such joint investment is $8.8 million as of March 24, 2018, which may be adjusted depending on the outcome of the negotiation attempts. In addition, we transact business in non-U.S. markets and may, from time to time, be subject to disputes and tax audits by foreign tax authorities related to value added or other indirect taxes typically on commissions or fees we receive from non-resident content providers. After the application of third party indemnities, our present exposure is approximately $4.6 million, primarily in a single jurisdiction. If we were to be assessed for this exposure, we believe it is probable that we will prevail. |
Segment Reporting |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting | Segment Reporting Our three reportable segments are U.S. Retail, Incentives & Rewards and International. We do not assess performance based on assets and do not provide information on the assets of our reportable segments to our CODM. The key metrics used by our CODM to assess segment performance include Operating revenues, Operating revenues, net of Partner distribution expense and segment profit. The following tables present the key metrics used by our CODM for the evaluation of segment performance, including certain significant noncash charges (consisting of certain depreciation and amortization of property, equipment and technology and distribution partner stock-based compensation expense) which have been deducted from the segment profit amounts shown below, and reconciliations of these amounts to our condensed consolidated financial statements (in thousands):
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Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings Per Share The following table provides reconciliations of net income (loss) and shares used in calculating basic earnings (loss) per share (“EPS”) to those used in calculating diluted EPS (in thousands, except per share amounts):
The weighted-average common shares outstanding for diluted EPS for the 12 weeks ended March 24, 2018 and March 25, 2017, excluded approximately 4,378,000 and 5,307,000, respectively, of total potential common stock outstanding because the effect would have been anti-dilutive. |
The Company and Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Company | The Company Blackhawk Network Holdings, Inc., together with its subsidiaries (“we”, “us”, “our”, the “Company”), is a leading prepaid payment network utilizing proprietary technology to offer consumers and businesses a broad selection of prepaid cards in physical and electronic forms, as well as complementary prepaid products, payment services and incentives solutions. We currently offer our products and/or solutions directly or through commercial relationships in the United States and 25 other countries and can deliver solutions in over 100 countries. Our product offerings include single-use gift cards; loyalty, incentive and reward products and services; prepaid telecom products and prepaid financial services products, including general purpose reloadable (“GPR”) cards, and our reload network (collectively, “prepaid products”). We offer gift cards from leading consumer brands (known as “closed loop”) as well as branded gift and incentive cards from leading payment network card associations such as American Express, Discover, MasterCard and Visa (known as “open loop”) and prepaid telecom products offered by prepaid wireless telecom carriers. We also distribute GPR cards and operate a proprietary reload network named Reloadit, which allows consumers to reload funds onto their previously purchased GPR cards. We distribute these prepaid products across multiple high-traffic channels such as grocery, convenience, specialty and online retailers (referred to as “retail distribution partners”) in the Americas, Europe, Africa, Australia and Asia and provide these prepaid products and related services to business clients for their loyalty, incentive and reward programs. |
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Merger Agreement | Merger Agreement On January 15, 2018, we entered into an agreement and plan of merger (the “Merger Agreement”) with BHN Holdings, Inc., a Delaware corporation (“Parent”), and BHN Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). The Merger Agreement provides, among other things and subject to the terms and conditions set forth therein, that Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and as a wholly owned subsidiary of Parent. Parent has agreed to acquire the Company in an all-cash transaction for a total consideration of approximately $3.5 billion, which includes assumption of our debt. Pursuant to the terms of the Merger Agreement, the completion of the Merger is subject to the satisfaction or waiver of certain customary closing conditions, including the stockholder approval which was obtained at the Special Meeting of Stockholders held on March 30, 2018. The completion of the Merger remains subject to certain other customary closing conditions, including, among others, (i) the absence of any law, order or injunction of a court or governmental entity of competent jurisdiction prohibiting the consummation of the Merger or the other transactions contemplated by the Merger Agreement; (ii) receipt of certain consents and approvals (or confirmation that no consent is required) from the applicable regulatory authority in a number of jurisdictions, including various U.S. states; and (iii) the absence of a “material adverse effect” on the Company after the date of the Merger Agreement. As of the date of this report, the Company continues to expect to complete the Merger in mid-2018. See Part I, Item 1A, “Risk Factors” and Note 16- Subsequent Event of the Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the fiscal year ended on December 30, 2017, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2018 (the “Annual Report”). |
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Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements of Blackhawk Network Holdings, Inc. are unaudited. We have prepared our unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. We have condensed or omitted certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP pursuant to such rules and regulations. Accordingly, our interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related notes included in the Annual Report. We have prepared our condensed consolidated financial statements on the same basis as our annual audited consolidated financial statements and, in the opinion of management, have reflected all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position and results of operations for the interim periods presented. Our results for the interim periods are not necessarily reflective of the results to be expected for the year ending December 29, 2018 or for any other interim period or other future year. Our condensed consolidated balance sheet as of December 30, 2017, included herein was derived from our audited consolidated financial statements as of that date but does not include all disclosures required by GAAP for annual financial statements, including notes to the financial statements. |
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Seasonality | Seasonality For our retail business, a significant portion of gift card sales occurs in late December each year during the holiday selling season. As a result, we earn a significant portion of our revenues, net income and cash flows during the fourth quarter of each year and remit the majority of the cash, less commissions, to our content providers in January of the following year. The timing of our fiscal year-end, December holiday sales and the related January cash settlement with content providers significantly increases our Cash and cash equivalents, Settlement receivables and Settlement payables balances at the end of each fiscal year relative to normal daily balances. We also experience an increase in revenues, net income and cash flows during the second quarter of each year, which we primarily attribute to the Mother’s Day, Father’s Day and graduation gifting season and the Easter holiday. Depending on when the Easter holiday occurs, the associated increase is in either the first or second quarter. As a result, quarterly financial results are not necessarily reflective of the results to be expected for the year or any other interim or future period. Seasonality also impacts our incentives businesses, but such impact is smaller in comparison to our retail business. |
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Revenue Recognition and Presentation | Performance obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Certain of the Company’s contracts have multiple performance obligations, as the promise to transfer individual goods or services is separately identifiable from other promises in the contracts and, therefore, is distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on its relative standalone selling price. Our performance obligations are satisfied at a point in time or over time as work progresses. Revenue from goods and services transferred to customers at a point in time accounted for 5% and 6% of total operating revenues for the 12 weeks ended March 24, 2018 and March 25, 2017, respectively. Revenue recognized at a point in time relates to our card production services, handset sales and our Cardpool business. Revenue on these contracts is recognized when the goods are delivered or when the service is provided. Revenue from products and services transferred to customers over time accounted for 95% and 94% of total operating revenues for the 12 weeks ended March 24, 2018 and March 25, 2017, respectively. This primarily includes revenue related to our employee engagement business, our rebate processing and reward fulfillment businesses as well as the sale of closed loop and open loop gift cards under long-term contracts for which we have a stand-ready obligation to provide services over the term of the contract. Revenue is typically recognized over time using an input measure (e.g., number of days passed or units sold) to measure progress. Revenue allocated to the remaining performance obligations represent contracted revenue that has not yet been recognized (“contracted not recognized”), which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods, including noncancelable contractual commitments related to our employee engagement business. Based on average historical commission rates earned on redeemed points, total contracted not recognized revenue was $107.7 million as of March 24, 2018. Based on historical trends, points related to our employee engagement business are estimated to be redeemed and recognized as revenue within a year following the issuance of such points. The Company expects to recognize approximately 61% of its remaining performance obligations as revenue in fiscal 2018, an additional 20% by fiscal 2019 and 19% of the amount thereafter. Significant Estimates Transaction price—The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer. The nature of our contracts gives rise to several types of variable consideration. The amount of program management fees or merchant commissions that we will receive from the card partner or issuing bank varies according to the redemption rates on those cards. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. We estimate the amount we ultimately expect to collect from our customers and record a receivable or contract asset depending on the contractual billing schedule. Estimating the transaction price requires significant management judgment about future events and is based on historical card redemption patterns as well as other relevant information for the respective card programs. The estimated transaction price is determined at the inception of the contract; we recognize the related revenue as the performance obligation is fulfilled. Standalone selling price—For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling prices are determined based on the prices at which the Company separately sells these services. For services that are not sold separately, the Company estimates the standalone selling prices using the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service. Forecasting the expected costs and estimating the appropriate margin require significant management judgement and affects the timing of revenue recognition. Material right—We also consider whether renewal options for certain customer contracts represents a material right and should be accounted for as a separate performance obligation. This requires us to evaluate whether the renewal option to acquire additional goods and services provides the customer with a discount that is incremental to a discount typically given to that class of customer. We concluded that one of our key customer contracts includes a material right and we have accounted for this material right as a separate performance obligation. These significant estimates are re-assessed each reporting period as required. Contract Balances We receive payments from customers based upon contractual billing schedules. The timing of revenue recognition, billings and cash collections results in contract assets (billed accounts receivable and unbilled receivables), and contract liabilities. We record a receivable when we have an unconditional right to invoice and receive payment in the future. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables which are anticipated to be invoiced in the next twelve months are included in Accounts receivable, net on the condensed consolidated balance sheet. Long-term unbilled receivables are included in Other assets. Amounts collected in advance of services being provided are included in Contract Liability if we expect to recognize the revenue within the next twelve months. Long-term contract liabilities are included in Other Liabilities. The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):
Changes in contract liabilities were as follows (in thousands):
Contract Costs Cost to obtain a contract—The Company defers all incremental costs of acquiring customer contracts, which consist of sales commissions paid or payable to our direct sales force. The deferred commission amounts are recoverable through future revenue streams under the contracts and are amortized on a straight-line basis over an estimated period of benefit of six years. Deferred commissions were $8.2 million and $6.5 million at March 24, 2018 and March 25, 2017, respectively. Amortization recognized during the 12 weeks ended March 24, 2018 and March 25, 2017, was $0.3 million and $0.3 million, respectively, included in Sales and marketing expense. There was no impairment loss in relation to the deferred commissions. Cost to fulfill a contract—The Company sometimes incurs costs to fulfill its contract obligations before transferring goods or services to the customer. In certain card programs (for example, aggregated category gift cards), where redemption service has been identified to be the only performance obligation under ASC 606, we incur partner distribution expense upon the sale of a card prior to performing the redemption service. The costs are recoverable through the future revenue streams associated with the card programs. Under ASC 606, such costs are deferred and recognized in Partner Distribution Expense ratably in proportion to the historical redemption patterns of the card portfolio over the estimated life of the card. Deferred partner distribution expenses were $2.4 million and $4.3 million at March 24, 2018 and March 25, 2017, respectively. Amortization recognized during the three months ended March 24, 2018 and March 25, 2017, was $2.4 million and $2.5 million, respectively. There was no impairment loss in relation to the deferred partner distribution expenses. Disaggregation of revenue The following table provides information about disaggregated revenue by major product line for each of our segments (in thousands):
(1) Card services-physical retail: This includes all prepaid products sold in our retail distribution stores and card production services. (2) Card services-e-commerce: This includes all prepaid products sold online through either our own websites or third-party online retailers. It also includes our first-party digital business, our loyalty business as well as digital services for online and mobile applications. (3) Marketing services: Funds received from content providers to promote their prepaid cards throughout our distribution partner network. (4) Other services: This includes our rebate processing and reward fulfillment businesses, software and reward redemption revenue from our employee engagement business, telecom handset sales, our Cardpool business and the Meetings and Events business of Grass Roots, which was sold in the fourth quarter of 2017. In addition, see Note 10—Segment Reporting for additional information regarding our reportable segments. Significant changes in accounting policies resulting from the adoption of ASC 606 Revenue Content Provider Commissions—Under the new guidance, we will continue to recognize content provider commissions for closed loop cards as revenue at the time of card activation, as that is the time that our performance obligation to the content provider is complete. However, the actual revenue recognition treatment required under the new guidance may be dependent on contract-specific terms and, therefore, may vary in some instances. Consumer Purchase Fees and Program Management Fees—Under the new guidance, we consider the transaction price for our open loop gift cards, including our Visa gift card, to include consumer purchase fees and program management fees. Under the new guidance, we have identified three performance obligations - distribution-and-activation, redemption service and customer care. Revenue from consumer purchase fees and program management fees, included within Commissions and fees and Program and other fees, respectively, related to our Visa gift cards will predominantly be recognized as revenue at the time of card activation when our distribution-and-activation obligation is complete. The remainder will be recognized over the estimated period of card redemption as redemption service and customer care obligations are performed. Under previous GAAP, we defer these revenues and recognize them based on the redemption pattern of the card. Interchange revenue will be recognized over the period of card redemption as we provide information required for card redemption, similar to our current revenue recognition. Additionally, revenue from program management fees related to our proprietary Visa gift cards issued by MetaBank will be based on a blended rate over the appropriate periods as required by the contract-specific terms compared to a contractually stated rate under the current accounting policy. Although we expect the blended rate to be lower than the contract rate initially, the economics of the arrangement will be the same over the term of the contract period. Under previous GAAP, we defer consumer purchase fees and program management fees related to our Visa gift cards in Deferred revenue and recognize revenue ratably in proportion to the historical redemption patterns of the card portfolio over the estimated life of the card. Rebate Processing Fees—Under the new guidance, we recognize revenue for rebates fulfilled with open loop incentive cards when we fulfill the cards to the end consumer versus ratably in proportion to historical redemption patterns as our performance obligation for rebate processing is complete at time of fulfillment. The recognition of revenue for rebates fulfilled by checks or closed loop cards is recognized at fulfillment and remains unchanged under the new guidance. Incentive Merchandise Rewards—Under the new guidance, we classify the costs of certain incentive merchandise rewards issued in connection with our employee engagement solutions as a reduction to revenue versus a cost of products sold. These costs will only be recorded as a cost of product sold if it is determined that we control the goods or services before they are transferred to the customer. In doing so, we will evaluate (i) if we are primarily responsible for fulfilling the promise to provide the good or service; (ii) if we have inventory risk before the good or service has been transferred to customer or after transfer of control to the customer; and (iii) if we have discretion in establishing the price for the good or service. Operating Expenses Partner Distribution Expense—Under the new guidance, partner distribution expense for Visa gift and other open loop incentive cards will be recognized at the time of card activation when our distribution-and-activation obligation is complete. Under previous GAAP, we defer these expenses and amortize them based on the redemption pattern of the card. Processing and Services—Under the new guidance, card production and upfront transaction processing fees for the Visa gift card and open loop incentive cards will be recognized at the time of card activation when our distribution-and-activation obligation is complete. Under previous GAAP, these costs are deferred and expensed based on the same redemption pattern as the related revenue. Sales and Marketing—The accounting for the recognition of costs related to obtaining customer contracts under the new guidance is different from our current capitalization policy. The adoption of the new guidance results in additional capitalized commissions which will be amortized over a longer term than our previous policy. |
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Recent Adopted or Issued Accounting Pronouncements | Recently Adopted Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (Topic 606)(“ASC 606”), which, along with amendments issued in 2015, 2016 and 2017, replaces nearly all current U.S. GAAP guidance on this topic with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. This new guidance provides a five-step analysis in determining when and how revenue is recognized. Under the new guidance, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the new guidance requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. As part of our assessment and implementation plan, we evaluated and made changes to our policies and procedures. Additionally, we evaluated the impact of this new guidance on the purchase accounting or intangibles assets from our recent acquisitions; this resulted in a reclassification of certain backlog assets to contract asset, with no impact to our consolidated net income. The Company adopted this new guidance using the full retrospective method in the first quarter of fiscal 2018, which impacted each prior reporting period presented. Revenue Recognition under ASC 606 Performance obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Certain of the Company’s contracts have multiple performance obligations, as the promise to transfer individual goods or services is separately identifiable from other promises in the contracts and, therefore, is distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on its relative standalone selling price. Our performance obligations are satisfied at a point in time or over time as work progresses. Revenue from goods and services transferred to customers at a point in time accounted for 5% and 6% of total operating revenues for the 12 weeks ended March 24, 2018 and March 25, 2017, respectively. Revenue recognized at a point in time relates to our card production services, handset sales and our Cardpool business. Revenue on these contracts is recognized when the goods are delivered or when the service is provided. Revenue from products and services transferred to customers over time accounted for 95% and 94% of total operating revenues for the 12 weeks ended March 24, 2018 and March 25, 2017, respectively. This primarily includes revenue related to our employee engagement business, our rebate processing and reward fulfillment businesses as well as the sale of closed loop and open loop gift cards under long-term contracts for which we have a stand-ready obligation to provide services over the term of the contract. Revenue is typically recognized over time using an input measure (e.g., number of days passed or units sold) to measure progress. Revenue allocated to the remaining performance obligations represent contracted revenue that has not yet been recognized (“contracted not recognized”), which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods, including noncancelable contractual commitments related to our employee engagement business. Based on average historical commission rates earned on redeemed points, total contracted not recognized revenue was $107.7 million as of March 24, 2018. Based on historical trends, points related to our employee engagement business are estimated to be redeemed and recognized as revenue within a year following the issuance of such points. The Company expects to recognize approximately 61% of its remaining performance obligations as revenue in fiscal 2018, an additional 20% by fiscal 2019 and 19% of the amount thereafter. Significant Estimates Transaction price—The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer. The nature of our contracts gives rise to several types of variable consideration. The amount of program management fees or merchant commissions that we will receive from the card partner or issuing bank varies according to the redemption rates on those cards. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. We estimate the amount we ultimately expect to collect from our customers and record a receivable or contract asset depending on the contractual billing schedule. Estimating the transaction price requires significant management judgment about future events and is based on historical card redemption patterns as well as other relevant information for the respective card programs. The estimated transaction price is determined at the inception of the contract; we recognize the related revenue as the performance obligation is fulfilled. Standalone selling price—For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling prices are determined based on the prices at which the Company separately sells these services. For services that are not sold separately, the Company estimates the standalone selling prices using the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service. Forecasting the expected costs and estimating the appropriate margin require significant management judgement and affects the timing of revenue recognition. Material right—We also consider whether renewal options for certain customer contracts represents a material right and should be accounted for as a separate performance obligation. This requires us to evaluate whether the renewal option to acquire additional goods and services provides the customer with a discount that is incremental to a discount typically given to that class of customer. We concluded that one of our key customer contracts includes a material right and we have accounted for this material right as a separate performance obligation. These significant estimates are re-assessed each reporting period as required. Contract Balances We receive payments from customers based upon contractual billing schedules. The timing of revenue recognition, billings and cash collections results in contract assets (billed accounts receivable and unbilled receivables), and contract liabilities. We record a receivable when we have an unconditional right to invoice and receive payment in the future. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables which are anticipated to be invoiced in the next twelve months are included in Accounts receivable, net on the condensed consolidated balance sheet. Long-term unbilled receivables are included in Other assets. Amounts collected in advance of services being provided are included in Contract Liability if we expect to recognize the revenue within the next twelve months. Long-term contract liabilities are included in Other Liabilities. The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):
Changes in contract liabilities were as follows (in thousands):
Contract Costs Cost to obtain a contract—The Company defers all incremental costs of acquiring customer contracts, which consist of sales commissions paid or payable to our direct sales force. The deferred commission amounts are recoverable through future revenue streams under the contracts and are amortized on a straight-line basis over an estimated period of benefit of six years. Deferred commissions were $8.2 million and $6.5 million at March 24, 2018 and March 25, 2017, respectively. Amortization recognized during the 12 weeks ended March 24, 2018 and March 25, 2017, was $0.3 million and $0.3 million, respectively, included in Sales and marketing expense. There was no impairment loss in relation to the deferred commissions. Cost to fulfill a contract—The Company sometimes incurs costs to fulfill its contract obligations before transferring goods or services to the customer. In certain card programs (for example, aggregated category gift cards), where redemption service has been identified to be the only performance obligation under ASC 606, we incur partner distribution expense upon the sale of a card prior to performing the redemption service. The costs are recoverable through the future revenue streams associated with the card programs. Under ASC 606, such costs are deferred and recognized in Partner Distribution Expense ratably in proportion to the historical redemption patterns of the card portfolio over the estimated life of the card. Deferred partner distribution expenses were $2.4 million and $4.3 million at March 24, 2018 and March 25, 2017, respectively. Amortization recognized during the three months ended March 24, 2018 and March 25, 2017, was $2.4 million and $2.5 million, respectively. There was no impairment loss in relation to the deferred partner distribution expenses. Disaggregation of revenue The following table provides information about disaggregated revenue by major product line for each of our segments (in thousands):
(1) Card services-physical retail: This includes all prepaid products sold in our retail distribution stores and card production services. (2) Card services-e-commerce: This includes all prepaid products sold online through either our own websites or third-party online retailers. It also includes our first-party digital business, our loyalty business as well as digital services for online and mobile applications. (3) Marketing services: Funds received from content providers to promote their prepaid cards throughout our distribution partner network. (4) Other services: This includes our rebate processing and reward fulfillment businesses, software and reward redemption revenue from our employee engagement business, telecom handset sales, our Cardpool business and the Meetings and Events business of Grass Roots, which was sold in the fourth quarter of 2017. In addition, see Note 10—Segment Reporting for additional information regarding our reportable segments. Significant changes in accounting policies resulting from the adoption of ASC 606 Revenue Content Provider Commissions—Under the new guidance, we will continue to recognize content provider commissions for closed loop cards as revenue at the time of card activation, as that is the time that our performance obligation to the content provider is complete. However, the actual revenue recognition treatment required under the new guidance may be dependent on contract-specific terms and, therefore, may vary in some instances. Consumer Purchase Fees and Program Management Fees—Under the new guidance, we consider the transaction price for our open loop gift cards, including our Visa gift card, to include consumer purchase fees and program management fees. Under the new guidance, we have identified three performance obligations - distribution-and-activation, redemption service and customer care. Revenue from consumer purchase fees and program management fees, included within Commissions and fees and Program and other fees, respectively, related to our Visa gift cards will predominantly be recognized as revenue at the time of card activation when our distribution-and-activation obligation is complete. The remainder will be recognized over the estimated period of card redemption as redemption service and customer care obligations are performed. Under previous GAAP, we defer these revenues and recognize them based on the redemption pattern of the card. Interchange revenue will be recognized over the period of card redemption as we provide information required for card redemption, similar to our current revenue recognition. Additionally, revenue from program management fees related to our proprietary Visa gift cards issued by MetaBank will be based on a blended rate over the appropriate periods as required by the contract-specific terms compared to a contractually stated rate under the current accounting policy. Although we expect the blended rate to be lower than the contract rate initially, the economics of the arrangement will be the same over the term of the contract period. Under previous GAAP, we defer consumer purchase fees and program management fees related to our Visa gift cards in Deferred revenue and recognize revenue ratably in proportion to the historical redemption patterns of the card portfolio over the estimated life of the card. Rebate Processing Fees—Under the new guidance, we recognize revenue for rebates fulfilled with open loop incentive cards when we fulfill the cards to the end consumer versus ratably in proportion to historical redemption patterns as our performance obligation for rebate processing is complete at time of fulfillment. The recognition of revenue for rebates fulfilled by checks or closed loop cards is recognized at fulfillment and remains unchanged under the new guidance. Incentive Merchandise Rewards—Under the new guidance, we classify the costs of certain incentive merchandise rewards issued in connection with our employee engagement solutions as a reduction to revenue versus a cost of products sold. These costs will only be recorded as a cost of product sold if it is determined that we control the goods or services before they are transferred to the customer. In doing so, we will evaluate (i) if we are primarily responsible for fulfilling the promise to provide the good or service; (ii) if we have inventory risk before the good or service has been transferred to customer or after transfer of control to the customer; and (iii) if we have discretion in establishing the price for the good or service. Operating Expenses Partner Distribution Expense—Under the new guidance, partner distribution expense for Visa gift and other open loop incentive cards will be recognized at the time of card activation when our distribution-and-activation obligation is complete. Under previous GAAP, we defer these expenses and amortize them based on the redemption pattern of the card. Processing and Services—Under the new guidance, card production and upfront transaction processing fees for the Visa gift card and open loop incentive cards will be recognized at the time of card activation when our distribution-and-activation obligation is complete. Under previous GAAP, these costs are deferred and expensed based on the same redemption pattern as the related revenue. Sales and Marketing—The accounting for the recognition of costs related to obtaining customer contracts under the new guidance is different from our current capitalization policy. The adoption of the new guidance results in additional capitalized commissions which will be amortized over a longer term than our previous policy. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to explain the changes in the combined total of restricted and unrestricted cash balances in the statement of cash flows. ASU 2016-18 should be applied using a retrospective transition method, for fiscal years beginning after December 15, 2017, and early adoption is permitted. The Company adopted this new guidance using the full retrospective method in the first quarter of fiscal 2018, which impacted each prior reporting period presented. The new guidance has no impact on the Company’s condensed consolidated balance sheets or income statements; but impacted the presentation of restricted cash and restricted cash equivalents within our condensed consolidated statements of cash flows. Impacts to Previously Reported Results Adoption of ASU 2014-09 impacted select lines in our previously reported condensed consolidated balance sheets as follows (in thousands):
Adoption of ASU 2014-09 impacted select lines in our previously reported condensed consolidated income statement as follows (in thousands, except per share amounts):
Adoption of ASU 2014-09 and ASU 2016-18 impacted select lines in our previously reported condensed consolidated statement of cash flows as follows (in thousands):
In March 2018, the FASB issued ASU 2018-05 Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 formally amended ASC Topic 740, Income Taxes (“ASC 740”) for the guidance previously provided by SEC Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance for the application of ASC 740 in the reporting period in which the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The Company adopted SAB 118 in the fourth quarter of year-end 2017 and therefore, the Company’s subsequent adoption of ASU 2018-05 in the first quarter of year-end 2018 had no impact on its accounting for income taxes in the first quarter of year-end 2018. Additional information regarding the accounting for income taxes for the Tax Reform Act is contained in Note 8, Income Taxes. Except for the adoption of ASU 2014-09, ASU 2016-18 and ASU 2018-05 as stated above, there have been no material changes to our significant accounting policies, as compared to the significant accounting policies described in the audited consolidated financial statements and related notes included in the Annual Report. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 changes the current lease accounting standard by requiring the recognition of lease assets and lease liabilities for all leases, including those currently classified as operating leases. This new guidance is to be applied under a modified retrospective application to the earliest reporting period presented for reporting periods beginning after December 15, 2018. Early adoption is permitted. We plan to adopt this guidance for our 2019 fiscal year. While management is evaluating the comprehensive impact of this guidance, this new guidance would require us to capitalize, at the appropriate discount rate, our operating lease commitments. |
The Company and Significant Accounting Policies (Tables) |
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Contract Balances | The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):
Changes in contract liabilities were as follows (in thousands):
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Disaggregation of Revenue | Disaggregation of revenue The following table provides information about disaggregated revenue by major product line for each of our segments (in thousands):
(1) Card services-physical retail: This includes all prepaid products sold in our retail distribution stores and card production services. (2) Card services-e-commerce: This includes all prepaid products sold online through either our own websites or third-party online retailers. It also includes our first-party digital business, our loyalty business as well as digital services for online and mobile applications. (3) Marketing services: Funds received from content providers to promote their prepaid cards throughout our distribution partner network. (4) Other services: This includes our rebate processing and reward fulfillment businesses, software and reward redemption revenue from our employee engagement business, telecom handset sales, our Cardpool business and the Meetings and Events business of Grass Roots, which was sold in the fourth quarter of 2017. |
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Expected Impact to Reported Results | Adoption of ASU 2014-09 impacted select lines in our previously reported condensed consolidated balance sheets as follows (in thousands):
Adoption of ASU 2014-09 and ASU 2016-18 impacted select lines in our previously reported condensed consolidated statement of cash flows as follows (in thousands):
|
Financing (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||
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Mar. 24, 2018 | |||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||
Schedule of Maturities of Long-term Debt | The following table presents the amounts due by maturity date of our term loan and convertible notes as of March 24, 2018 (in thousands):
|
Fair Value Measurements (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 24, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Fair Value of Assets, Liabilities and Equity Instruments on Recurring Basis | The table below summarizes the fair values of these assets and liabilities as of March 24, 2018, December 30, 2017 and March 25, 2017 (in thousands):
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Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation | The changes in fair value of contingent consideration for the 12 weeks ended March 24, 2018 and March 25, 2017 are as follows (in thousands):
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Consolidated Financial Statement Details (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 24, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Other Current Assets | The following tables represent the components of Other current assets, Other assets, Other current liabilities and Other liabilities as of March 24, 2018, December 30, 2017 and March 25, 2017 consisted of the following (in thousands):
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Schedule of Other Assets | The following tables represent the components of Other current assets, Other assets, Other current liabilities and Other liabilities as of March 24, 2018, December 30, 2017 and March 25, 2017 consisted of the following (in thousands):
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Schedule of Other Current Liabilities | The following tables represent the components of Other current assets, Other assets, Other current liabilities and Other liabilities as of March 24, 2018, December 30, 2017 and March 25, 2017 consisted of the following (in thousands):
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Schedule of Other Liabilities | The following tables represent the components of Other current assets, Other assets, Other current liabilities and Other liabilities as of March 24, 2018, December 30, 2017 and March 25, 2017 consisted of the following (in thousands):
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Schedule of Assets Held-for-sale | The following table presents the aggregate carrying amounts of the major classes of assets and liabilities as of March 24, 2018 related to the Cardpool business (in thousands):
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Goodwill (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 24, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Changes in Goodwill | A summary of changes in goodwill during the 12 weeks ended March 24, 2018 is as follows (in thousands):
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Stock-Based Compensation (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 24, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock-Based Compensation Expense | The following table presents total stock-based compensation expense according to the income statement line in our condensed consolidated statements of income (loss) for 12 weeks ended March 24, 2018 and March 25, 2017 (in thousands):
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Commitments and Contingencies (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Mar. 24, 2018 | |||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Future Commitments to Distribution Partners | Future commitments to our distribution partners as of March 24, 2018 are as follows (in thousands):
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Segment Reporting (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 24, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information | The following tables present the key metrics used by our CODM for the evaluation of segment performance, including certain significant noncash charges (consisting of certain depreciation and amortization of property, equipment and technology and distribution partner stock-based compensation expense) which have been deducted from the segment profit amounts shown below, and reconciliations of these amounts to our condensed consolidated financial statements (in thousands):
|
Earnings Per Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 24, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliations of Net Income and Shares Used in Calculating Basic and Diluted EPS | The following table provides reconciliations of net income (loss) and shares used in calculating basic earnings (loss) per share (“EPS”) to those used in calculating diluted EPS (in thousands, except per share amounts):
|
The Company and Significant Accounting Policies - Narrative (Detail) $ in Millions |
3 Months Ended | ||
---|---|---|---|
Jan. 15, 2018
USD ($)
|
Mar. 24, 2018
USD ($)
country
|
Mar. 25, 2017
USD ($)
|
|
Accounting Policies | |||
Number of countries in which solutions are deliverable | country | 100 | ||
Contracted not recognized revenue | $ 107.7 | ||
Amortization period | 6 years | ||
Transferred at Point in Time | |||
Accounting Policies | |||
Percentage of revenue | 5.00% | 6.00% | |
Transferred over Time | |||
Accounting Policies | |||
Percentage of revenue | 95.00% | 94.00% | |
Deferred Commissions | |||
Accounting Policies | |||
Capitalized cost, net | $ 8.2 | $ 6.5 | |
Amortization expense | 0.0 | 0.0 | |
Deferred Partner Distribution Expenses | |||
Accounting Policies | |||
Capitalized cost, net | 2.4 | 4.3 | |
Amortization expense | $ 2.4 | $ 2.5 | |
Silver Lake and P2 Capital | |||
Accounting Policies | |||
Total consideration transferred | $ 3,500.0 | ||
US | |||
Accounting Policies | |||
Number of countries in which entity operates | country | 1 | ||
Other countries | |||
Accounting Policies | |||
Number of countries in which entity operates | country | 25 |
Financing - Credit Agreement (Details) - USD ($) $ in Thousands |
3 Months Ended | |||
---|---|---|---|---|
Mar. 21, 2018 |
Jan. 11, 2018 |
Mar. 24, 2018 |
Mar. 25, 2017 |
|
Debt Instrument [Line Items] | ||||
Term loan, repayments | $ 15,000 | $ 10,000 | ||
Term Loan | Restated Credit Agreement | ||||
Debt Instrument [Line Items] | ||||
Term loan, repayments | $ 15,000 | |||
Term loan borrowings | $ 75,000 |
Financing - Maturities of Convertible Notes (Details) $ in Thousands |
Mar. 24, 2018
USD ($)
|
---|---|
Debt Disclosure [Abstract] | |
2019 | $ 15,000 |
2020 | 30,000 |
2021 | 230,000 |
2022 | 500,000 |
Total long-term debt | $ 775,000 |
Fair Value Measurements - Summary of Fair Value of Assets, Liabilities and Equity Instruments on Recurring Basis (Detail) - Fair Value Measurements, Recurring - USD ($) $ in Thousands |
Mar. 24, 2018 |
Dec. 30, 2017 |
Mar. 25, 2017 |
---|---|---|---|
Assets | |||
Contingent asset | $ 6,413 | $ 6,131 | |
Liabilities | |||
Contingent consideration | 4,029 | 3,886 | $ 21,096 |
Warrants | 20,000 | ||
Money Market Mutual Funds | |||
Assets | |||
Cash and cash equivalents | 43,236 | 694,075 | 4,073 |
Level 1 | |||
Assets | |||
Contingent asset | 0 | 0 | |
Liabilities | |||
Contingent consideration | 0 | 0 | 0 |
Warrants | 0 | ||
Level 1 | Money Market Mutual Funds | |||
Assets | |||
Cash and cash equivalents | 43,236 | 694,075 | 4,073 |
Level 2 | |||
Assets | |||
Contingent asset | 0 | 0 | |
Liabilities | |||
Contingent consideration | 0 | 0 | 0 |
Warrants | 20,000 | ||
Level 2 | Money Market Mutual Funds | |||
Assets | |||
Cash and cash equivalents | 0 | 0 | 0 |
Level 3 | |||
Assets | |||
Contingent asset | 6,413 | 6,131 | |
Liabilities | |||
Contingent consideration | 4,029 | 3,886 | 21,096 |
Warrants | 0 | ||
Level 3 | Money Market Mutual Funds | |||
Assets | |||
Cash and cash equivalents | $ 0 | $ 0 | $ 0 |
Fair Value Measurements - Summary of Changes in Fair Value of Contingent Consideration Classified as Level 3 (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 24, 2018 |
Mar. 25, 2017 |
|
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation | ||
Balance - beginning of period | $ 3,886 | $ 23,752 |
Additions from acquisitions | 0 | 2,000 |
Foreign currency translation adjustments | 43 | 0 |
Change in fair value of contingent consideration | 100 | 1,040 |
Settlement | 0 | (5,696) |
Balance - end of period | $ 4,029 | $ 21,096 |
Fair Value Measurements - Narrative (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 24, 2018 |
Mar. 25, 2017 |
|
Business Acquisition [Line Items] | ||
Settlement | $ 0 | $ (5,696) |
Fair value inputs, discount rate percentage | 17.00% | |
Level 2 | Term Loan | ||
Business Acquisition [Line Items] | ||
Fair value of debt instrument | 275,000 | |
Level 2 | Convertible Notes Payable | ||
Business Acquisition [Line Items] | ||
Fair value of debt instrument | $ 552,500 |
Consolidated Financial Statement Details - Components of Other Current Assets, Other Assets, Other Current Liabilities, and Other Liabilities (Detail) - USD ($) $ in Thousands |
Mar. 24, 2018 |
Dec. 30, 2017 |
Mar. 25, 2017 |
---|---|---|---|
Other current assets: | |||
Inventory | $ 38,663 | $ 37,007 | $ 48,683 |
Deferred expenses | 4,894 | 5,831 | 3,334 |
Income tax receivables | 18,547 | 10,823 | 22,960 |
Contract asset | 540 | 702 | 1,657 |
Other | 68,451 | 64,912 | 44,313 |
Assets held for sale | 27,206 | 23,462 | 44,951 |
Total other current assets | 158,301 | 142,737 | 165,898 |
Other assets: | |||
Deferred program and contract costs | 118,819 | 60,000 | 48,678 |
Other receivables | 11,265 | 9,235 | 1,475 |
Income tax receivables | 2,323 | 2,321 | 2,358 |
Deferred financing costs | 2,579 | 2,759 | 2,552 |
Contract asset | 0 | 0 | 516 |
Other | 50,753 | 47,352 | 35,587 |
Total other assets | 185,739 | 121,667 | 91,166 |
Other current liabilities: | |||
Payroll and related liabilities | 34,693 | 43,022 | 28,198 |
Income taxes payable | 1,841 | 8,056 | 3,860 |
Acquisition liability | 2,329 | 4,012 | 9,047 |
Warrant liability | 0 | 20,000 | 0 |
Other payables and accrued liabilities | 15,353 | 25,292 | 9,836 |
Liabilities held for sale | 2,237 | 2,441 | 34,710 |
Total other current liabilities | 56,453 | 102,823 | 85,651 |
Other liabilities: | |||
Contingent consideration | 1,700 | 1,874 | 17,744 |
Income taxes payable | 3,393 | 3,883 | 7,056 |
Contract liability | 24,463 | 23,897 | 16,318 |
Other long-term liabilities | 15,411 | 9,223 | 12,517 |
Total other liabilities | $ 44,967 | $ 38,877 | $ 53,635 |
Consolidated Financial Statement Details - Assets Held-for-sale (Details) - USD ($) $ in Thousands |
Mar. 24, 2018 |
Dec. 30, 2017 |
Mar. 25, 2017 |
---|---|---|---|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Total assets held for sale | $ 27,206 | $ 23,462 | $ 44,951 |
Total liabilities held for sale | 2,237 | $ 2,441 | $ 34,710 |
Assets Held-for-sale | Cardpool | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Other current assets | 6,349 | ||
Property, equipment and technology, net | 8,467 | ||
Goodwill | 8,991 | ||
Intangible assets, net | 431 | ||
Total assets held for sale | 24,238 | ||
Accounts payable and accrued operating expenses | 1,468 | ||
Other current liabilities | 377 | ||
Contract liabilities | 392 | ||
Total liabilities held for sale | $ 2,237 |
Consolidated Financial Statement Details - Narrative (Details) - Assets Held-for-sale $ in Thousands |
3 Months Ended |
---|---|
Mar. 24, 2018
USD ($)
| |
Cardpool | |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |
Pre-tax loss during period | $ 1,800 |
Building | 8,467 |
UK | |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |
Building | $ 3,000 |
Goodwill - Narrative (Details) $ in Millions |
Mar. 24, 2018
USD ($)
|
---|---|
Cardpool | |
Goodwill [Line Items] | |
Accumulated goodwill impairment | $ 31.5 |
Blackhawk Engagement Solutions | |
Goodwill [Line Items] | |
Accumulated goodwill impairment | 46.0 |
Europe East | |
Goodwill [Line Items] | |
Amount of fair value in excess of carrying value | $ 19.1 |
Percentage of fair value in excess of carrying value | 22.00% |
Income Approach Valuation Technique | |
Goodwill [Line Items] | |
Weighted-average percentage | 75.00% |
Market Approach Valuation Technique | |
Goodwill [Line Items] | |
Weighted-average percentage | 25.00% |
Retail Distribution Partner Relationships | Germany | |
Goodwill [Line Items] | |
Carrying value | $ 18.8 |
Goodwill - Summary of Changes in Goodwill (Detail) $ in Thousands |
3 Months Ended |
---|---|
Mar. 24, 2018
USD ($)
| |
Goodwill | |
Balance, beginning of period | $ 563,405 |
Foreign currency translation adjustments | 2,508 |
Balance, end of period | 565,913 |
U.S. Retail | |
Goodwill | |
Balance, beginning of period | 132,660 |
Foreign currency translation adjustments | 0 |
Balance, end of period | 132,660 |
Incentives & Rewards | |
Goodwill | |
Balance, beginning of period | 335,298 |
Foreign currency translation adjustments | (814) |
Balance, end of period | 334,484 |
International | |
Goodwill | |
Balance, beginning of period | 95,447 |
Foreign currency translation adjustments | 3,322 |
Balance, end of period | $ 98,769 |
Stock-Based Compensation - Narrative (Detail) |
3 Months Ended |
---|---|
Mar. 24, 2018
shares
| |
Restricted Stock Units | |
Share-based Compensation Arrangement by Share-based Payment Award | |
Stock awards and stock units granted during period (in shares) | 665,733 |
Performance Stock Units | |
Share-based Compensation Arrangement by Share-based Payment Award | |
Stock awards and stock units granted during period (in shares) | 0 |
Stock-Based Compensation - Schedule of Stock-Based Compensation Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 24, 2018 |
Mar. 25, 2017 |
|
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost | ||
Stock-based compensation expense | $ 8,062 | $ 8,401 |
Processing and services | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost | ||
Stock-based compensation expense | 1,779 | 1,702 |
Sales and marketing | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost | ||
Stock-based compensation expense | 2,558 | 2,812 |
Cost of products sold | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost | ||
Stock-based compensation expense | 16 | 17 |
General and administrative | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost | ||
Stock-based compensation expense | $ 3,709 | $ 3,870 |
Income Taxes (Detail) |
3 Months Ended | |
---|---|---|
Mar. 24, 2018 |
Mar. 25, 2017 |
|
Income Tax Disclosure [Abstract] | ||
Effective income tax rate (percentage) | 42.50% | 41.10% |
Commitments and Contingencies (Details) |
Mar. 24, 2018
USD ($)
|
---|---|
Loss Contingencies [Line Items] | |
Minimum revenue guarantee | $ 130,000,000 |
Guarantee fair value | 12,000,000 |
Carrying amount of joint investment | 8,800,000 |
Foreign Tax Jurisdiction | |
Loss Contingencies [Line Items] | |
Estimate of possible loss, tax liability | $ 4,600,000 |
Commitments and Contingencies - Future Commitments Maturities (Details) - Distribution Partner Commitments $ in Thousands |
Mar. 24, 2018
USD ($)
|
---|---|
Other Commitments [Line Items] | |
2018 | $ 62,088 |
2019 | 67,772 |
2020 | 50,458 |
2021 | 46,751 |
2022 and after | 86,574 |
Distribution partner commissions (uncertainty in timing of future payments) | 6,232 |
Total | $ 319,875 |
Earnings Per Share - Reconciliations of Net Income and Shares Used in Calculating Basic and Diluted EPS (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 24, 2018 |
Mar. 25, 2017 |
|
Earnings Per Share [Abstract] | ||
Net income (loss) attributable to common stockholders, basic | $ (15,767) | $ (17,465) |
Net income (loss) attributable to common stockholders, diluted | $ (15,767) | $ (17,465) |
Weighted-average common shares outstanding-basic (in shares) | 56,477 | 55,904 |
Basic earnings (loss) per share (in usd per share) | $ (0.28) | $ (0.31) |
Common share equivalents (in shares) | 0 | 0 |
Weighted-average common shares outstanding-diluted (in shares) | 56,477 | 55,904 |
Diluted earnings (loss) per share (in usd per share) | $ (0.28) | $ (0.31) |
Earnings Per Share - Narrative (Detail) - shares |
3 Months Ended | |
---|---|---|
Mar. 24, 2018 |
Mar. 25, 2017 |
|
Earnings Per Share [Abstract] | ||
Antidilutive securities excluded from computation of earnings per share (in shares) | 4,378,000 | 5,307,000 |
Label | Element | Value |
---|---|---|
Restricted Cash and Cash Equivalents | us-gaap_RestrictedCashAndCashEquivalents | $ 56,832,000 |
Restricted Cash and Cash Equivalents | us-gaap_RestrictedCashAndCashEquivalents | $ 69,781,000 |
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