EX-99.1 2 d924800dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

OUTERWALL INC. ANNOUNCES 2015 FIRST QUARTER RESULTS

Delivers Highest Ever Quarterly Consolidated Revenue of $608.6 Million;

Solid Execution Drives Growth in Profitability and Cash Flow;

Board of Directors Declares Quarterly Cash Dividend of $0.30 Per Share

BELLEVUE, Wash.—May 7, 2015—Outerwall Inc. (Nasdaq: OUTR) today reported financial results for the first quarter ended March 31, 2015.

“Outerwall’s strong performance this quarter was the result of continued execution of our strategy of optimizing our core Redbox and Coinstar businesses, scaling ecoATM and improving operational efficiencies across the company,” said Nora M. Denzel, Outerwall’s interim chief executive officer. “We are leveraging our market-leading brands to drive profitability and deliver value for shareholders, partners and customers.”

 

     2015      2014      Change  
     First Quarter      First Quarter      %  

GAAP Results

         

•    Consolidated revenue

    $ 608.6 million       $ 597.8 million         1.8 % 

•    Income from continuing operations

    $ 42.2 million       $ 27.6 million         52.7 % 

•    Net income

    $ 35.6 million       $ 23.2 million         53.6 % 

•    Diluted EPS from continuing operations per common share*

    $ 2.23       $ 1.09         104.6 % 

•    Net cash provided by operating activities

    $ 106.1 million       $ 94.6 million         12.1 % 

Core Results**

         

•    Core adjusted EBITDA from continuing operations

    $ 147.9 million       $ 121.5 million         21.7 % 

•    Core diluted EPS from continuing operations*

    $ 2.87       $ 1.42         102.1 % 

•    Free cash flow

    $ 85.4 million       $ 67.6 million         26.2 % 

 

* Beginning in the first quarter of 2015, the company applied the two-class method of calculating earnings per share for its GAAP results because the impact of unvested restricted shares as a percentage of total common shares outstanding became more dilutive given the level of stock repurchases over the prior year. Core diluted EPS from continuing operations continues to be reported under the treasury stock method.
** Refer to Appendix A for a discussion of Use of Non-GAAP Financial Measures and Core and Non-Core Results.

Highlights from the first quarter 2015 include:

 

  •   Reported consolidated revenue of $608.6 million, the highest quarter in the company’s history

 

  •   Delivered 21.7% growth in core adjusted EBITDA from continuing operations to $147.9 million, reflecting continued expense management across the company, including 3.4% lower direct operating expense and 7.7% lower G&A expense

 

  •   Increased core diluted earnings per share from continuing operations 102.1% to $2.87

 

  •   Redbox generated its highest quarterly revenue in company history and delivered solid margin expansion, primarily driven by the price increase in December 2014

  •   Signed a new two-year content agreement with Warner Bros.

 

  •   Continued investing in growth by scaling ecoATM, installing approximately 250 kiosks in the quarter

 

  •   Generated free cash flow of $85.4 million, an increase of 26.2% year-over-year

 

  •   Repurchased 617,195 shares for $40.7 million and paid the company’s first quarterly dividend of $0.30 per share

“Our strong financial results demonstrate continued solid execution and operational excellence across the company,” said Galen C. Smith, chief financial officer of Outerwall. “Our performance reaffirms our ability to generate strong profitability and free cash flow while simultaneously investing in the future of our business.

“We have maintained a disciplined approach to capital allocation and remain focused on returning capital to shareholders,” said Smith. “Our board of directors has declared the company’s second cash dividend payment of $0.30 per share. Also during the quarter, the board increased our share repurchase authorization by $250 million and we repurchased approximately $41 million of our common shares, leaving us with more than $373 million remaining under our current authorization, demonstrating our continued confidence in Outerwall’s long-term prospects and future cash flow.”

Outerwall also announced that Maria Stipp resigned as the president of ecoATM effective as of May 29, 2015, to take a chief executive officer role at another consumer company. The company expects to name an interim leader in the near future.

CHANGES IN REPORTING IN THE FIRST QUARTER OF 2015

During the first quarter of 2015, the company added ecoATM, its electronic device recycling business, as a separate reportable segment. Previously, the results of ecoATM along with those of other self-service concepts were included in the New Ventures segment. The combined results of the other self-service concepts are now included in the All Other category but are not presented as a separate reportable segment.

The results of the company’s Redbox Canada operations, which were discontinued during the first quarter of 2015, are presented as discontinued operations in the company’s consolidated financial statements and are no longer included in Redbox segment operating results. All prior periods have been recast to exclude Redbox Canada.

CONSOLIDATED RESULTS

Consolidated revenue for the first quarter of 2015 was a record for the company, increasing $10.9 million, or 1.8%, to $608.6 million compared with $597.8 million for the first quarter of 2014. The year-over-year revenue growth was primarily due to higher revenue from Redbox driven primarily by the price increase in December 2014, and an increase in revenue from ecoATM.

Operating income for the first quarter of 2015 was $82.5 million and the operating margin was 13.6% compared with operating income of $62.7 million and operating margin of 10.5% in the first quarter of 2014. The year-over-year increase in operating margin primarily reflects the higher consolidated revenue and lower direct operating expense resulting from lower product costs in the Redbox segment and a decrease in general and administrative expenses driven by ongoing cost reduction initiatives across the company. Both operating income and operating margin in the first quarter of 2015 were negatively impacted by $15.9 million in restructuring and lease termination costs from the early termination of operating leases for certain floors at Redbox headquarters and severance expense.

 

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Income from continuing operations for the first quarter of 2015 was $42.2 million, or $2.23 of diluted earnings from continuing operations per common share, compared with $27.6 million, or $1.09 of diluted earnings from continuing operations per common share, in the first quarter of 2014.

Core adjusted EBITDA from continuing operations for the first quarter of 2015 was $147.9 million, compared with $121.5 million in the first quarter of 2014. The year-over-year increase was primarily due to higher Redbox segment operating income and lower losses from equity method investments as a result of Redbox’s withdrawal from the Redbox Instant by Verizon joint venture during the fourth quarter of 2014.

Core diluted earnings per share from continuing operations for the first quarter of 2015 were $2.87, an increase of 102.1% compared with $1.42 per diluted share in the first quarter of 2014. The increase was primarily attributable to the results of operations described above, a 25.4% reduction in the number of weighted average shares used in the diluted per share calculations due primarily to stock repurchases, and $0.59 of non-core adjustments, net of tax, in the first quarter of 2015 compared with $0.31 in the first quarter of 2014.

Net cash provided by operating activities in the first quarter of 2015 was $106.1 million, compared with $94.6 million in the first quarter of 2014. The $11.5 million increase was primarily due to the increase in operating income.

Cash capital expenditures for the first quarter of 2015 were $20.7 million compared with $26.9 million in the first quarter of 2014, with the decrease primarily related to lower capital expenditures in the company’s Redbox and Coinstar segments.

Free cash flow for the first quarter of 2015 was $85.4 million, compared with $67.6 million in the first quarter of 2014, primarily driven by higher net operating cash flow and lower capital expenditures.

SEGMENT RESULTS

Redbox

The results of the company’s Redbox Canada operations, which were discontinued during the first quarter of 2015, are presented as discontinued operations in the company’s consolidated financial statements and are no longer included in Redbox segment operating results. All prior periods have been recast to exclude Redbox Canada from Redbox segment results.

Redbox segment revenue increased $6.5 million, or 1.3%, to $519.5 million in the first quarter of 2015, a new quarterly record, from $513.0 million in the first quarter of 2014, primarily due to the price increase in December 2014 and strong seasonality in the first quarter of 2015.

Redbox generated approximately 173.0 million rentals in the first quarter of 2015, compared with 198.8 million rentals in the first quarter of 2014, as rentals were negatively impacted by a weaker content slate, lower demand from price-sensitive customers and ongoing secular decline in the physical rental market.

Net revenue per rental was $3.00, an increase of $0.42, or 16.3%, from the first quarter of 2014. The increase in net revenue per rental was primarily the result of the price increase partially offset by the expected increase in single night rental activity as a result of the price increase.

 

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Redbox segment operating income in the first quarter of 2015 was $122.9 million, an increase of 16.2% compared with the first quarter of 2014. Segment operating margin was 23.6%, an increase of 300 basis points from the first quarter of 2014, despite the impact of the $15.2 million in restructuring and lease termination costs recognized in the first quarter of 2015, primarily due to lower direct operating expenses related to lower content costs and a decline in general and administrative expenses as a result of ongoing cost reduction initiatives.

Coinstar

Coinstar segment revenue was $69.3 million, an increase of $0.6 million, or 0.8%, compared with $68.8 million in the first quarter of 2014, primarily due to growth in the number of Coinstar Exchange kiosks and transactions partially offset by a decrease in Coinstar revenue in the U.S. due to a reduction in coin volume.

The impact of the increased coin voucher product transaction fee from 8.9% to 9.9% implemented in the U.K. in August 2014 was largely offset by the unfavorable exchange rate impact on U.K. revenue due to the recent strengthening of the U.S. dollar versus the British pound.

The average Coinstar transaction size continued to increase while the number of transactions has declined. The decline in transactions is the result of larger pours and less frequent visits and a slight decrease in the U.S. kiosk base year-over-year as a result of continued optimization efforts.

Coinstar segment operating income was $22.5 million compared with $22.7 million in the first quarter of 2014, and Coinstar segment operating margin was 32.5% compared with 33.1% in the first quarter of 2014.

ecoATM

During the first quarter of 2015, the company added ecoATM as a separate reportable segment. All goodwill previously allocated to the New Ventures segment has been allocated to the ecoATM segment.

ecoATM segment revenue was $19.7 million in the first quarter of 2015, an increase of $3.8 million compared with the first quarter of 2014 primarily due to the increase in the installed kiosk base and continued ramping of kiosks deployed in 2014. The company installed approximately 250 kiosks in the quarter and ended the quarter with approximately 2,140 kiosks installed.

The key revenue drivers for the segment are identified as devices collected per kiosk per day, the percentage of those devices that are value devices and the average selling price the business receives when reselling the devices. The collection of value devices on a per kiosk basis in the first quarter of 2015 was lower than in the first quarter of 2014 as a result of lower transactions at the kiosks due to a decline in retail foot traffic at ecoATM locations and expanded alternative recycling options such as carrier promotions. These factors also impacted the mix of value devices collected and was the primary reason for the decline in the average selling price of value devices in the first quarter of 2015 compared with the first quarter of 2014.

The segment operating loss in the first quarter of 2015 was $8.3 million compared with $5.3 million in the first quarter of 2014, due to an increase in direct operating expenses, including the costs associated with the acquisition, transportation and processing of electronic devices, as well as the costs of servicing the kiosks and payments to the retailers for use of their space. As ecoATM continues to expand its installed base and previously installed kiosks continue to ramp, ecoATM expects its direct operating expenses to increase in total but to decline as a percentage of revenue.

 

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CAPITAL ALLOCATION

On May 5, the company’s board of directors declared a quarterly cash dividend of $0.30 per share expected to be paid on June 23, 2015, to all stockholders of record as of the close of business on June 9, 2015.

On February 3, 2015, the board of directors approved an additional stock repurchase authorization of up to $250.0 million of its common stock plus the cash proceeds received from the exercise of stock options by the company’s directors and employees. During the first quarter of 2015, the company repurchased 617,195 shares of common stock at an average price of $65.96 per share for approximately $40.7 million. As of March 31, 2015, there was approximately $373.3 million remaining under the company’s stock repurchase authorization.

The company’s net leverage ratio1 was 1.62x at March 31, 2015.

 

1  Refer to Appendix A for a discussion of Use of Non-GAAP Financial Measures and Core and Non-Core Results.

2015 ANNUAL GUIDANCE

Outerwall’s 2015 annual guidance reflects the company’s first quarter results and current outlook on the remainder of the year. The following table presents the company’s updated full-year 2015 guidance:

2015 FULL-YEAR GUIDANCE

     As of
Dollars in millions, except per share data   

May 7, 2015

Consolidated results

   

Revenue

    $2,294 — $2,419

Core adjusted EBITDA from continuing operations(1)

    $472 — $514

Core diluted EPS from continuing operations(1)(2)

    $7.49 — $8.49

Free cash flow(1)

    $215 — $255

Weighted average diluted shares outstanding(2)

    18.0 — 18.1

Core effective tax rate

    36.5% — 38.5%

Segment revenue

   

Redbox

    $1,850 — $1,955

Coinstar

    $313 — $318

ecoATM

    $131 — $146

Capital expenditures

   

Redbox

    $15 — $20

Coinstar

    $16 — $20

ecoATM

    $31 — $40

Corporate

    $31 — $38
  

 

Total CAPEX

 $93 — $118
  

 

Net kiosk installations

Redbox

 (1,000) — (1,900)

Coinstar

 0 — (100)

ecoATM

 600 — 1,000

 

1  Refer to Appendix A for a discussion of Use of Non-GAAP Financial Measures and Core and Non-Core Results
2  Excludes the impact of any potential share repurchases for the remainder of 2015

 

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ADDITIONAL INFORMATION

Additional information regarding the company’s 2015 first quarter operating and financial results and guidance are included in the company’s prepared remarks. These items, as well as this press release, are posted on the Investor Relations section of the corporate website at ir.outerwall.com.

CONFERENCE CALL

The company will host a conference call today at 2:30 p.m. PDT (5:30 p.m. EDT) to discuss first quarter 2015 earnings results and an update to 2015 guidance. The conference call will be webcast live and archived on the Investor Relations section of Outerwall’s website at ir.outerwall.com. A recording of the call will be available approximately two hours after the call ends through May 21, 2015, at 1-855-859-2056 or 1-404-537-3406, conference ID 16684484.

ABOUT OUTERWALL INC.

Outerwall Inc. (Nasdaq: OUTR) has more than 20 years of experience creating some of the most profitable spaces for their retail partners. The company delivers breakthrough kiosk experiences that delight consumers and generate revenue for retailers. As the company that brought consumers Redbox® entertainment, Coinstar® money services, and ecoATM® electronics recycling kiosks, Outerwall is leading the next generation of automated retail and paving the way for inventive, scalable businesses. Outerwall™ kiosks are in neighborhood grocery stores, drug stores, mass merchants, malls, and other retail locations in the United States, Canada, Puerto Rico, the United Kingdom, and Ireland. Learn more at www.outerwall.com.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

Certain statements in this press release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “estimate,” “expect,” “intend,” “will,” “anticipate,” “goals,” variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. The forward-looking statements in this release include statements regarding Outerwall Inc.’s anticipated growth and future operating results, including 2015 full year results. Forward-looking statements are not guarantees of future performance and actual results may vary materially from the results expressed or implied in such statements. Differences may result from actions taken by Outerwall Inc. or its subsidiaries, as well as from risks and uncertainties beyond Outerwall Inc.’s control. Such risks and uncertainties include, but are not limited to,

 

  •   competition from other entertainment providers,

 

  •   the ability to achieve the strategic and financial objectives for our entry into new businesses, including ecoATM and SAMPLEit,

 

  •   our ability to repurchase stock and the availability of an open trading window,

 

  •   our declaration and payment of dividends, including our board’s discretion to change the dividend policy,

 

  •   the termination, non-renewal or renegotiation on materially adverse terms of our contracts with our significant retailers and suppliers,

 

  •   payment of increased fees to retailers, suppliers and other third-party providers, including financial service providers,

 

  •   the timing of new DVD releases and the inability to receive delivery of DVDs on the date of their initial release to the general public, or shortly thereafter, or in sufficient quantity, for home entertainment viewing,

 

  •   the effective management of our content library,

 

  •   the timing of the release slate and the relative attractiveness of titles in a particular quarter or year,

 

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  •   the ability to attract new retailers, penetrate new markets and distribution channels and react to changing consumer demands,

 

  •   the ability to generate sufficient cash flow to timely and fully service indebtedness and adhere to certain covenants and restrictions,

 

  •   the ability to adequately protect our intellectual property, and

 

  •   the application of substantial federal, state, local and foreign laws and regulations specific to our business.

The foregoing list of risks and uncertainties is illustrative, but by no means exhaustive. For more information on factors that may affect future performance, please review “Risk Factors” described in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission. These forward-looking statements reflect Outerwall Inc.’s expectations as of the date of this press release. Outerwall Inc. undertakes no obligation to update the information provided herein.

# # #

(Consolidated Financial Statements, Business Segment Information and Appendix A follow)

Investor Contact:

Rosemary Moothart

Director of Investor Relations

425-943-8140

rosemary.moothart@outerwall.com

Media Contact:

Art Pettigrue

Senior Director, Communications

425-943-8576

art.pettigrue@outerwall.com

 

7

OUTERWALL INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

 

     Three Months Ended
March 31,		  
     2015     2014  

Revenue

    $ 608,636      $ 597,762   

Expenses:

     

Direct operating(1)

      405,184        419,642   

Marketing

      8,420        6,993   

Research and development

      2,084        3,474   

General and administrative

      48,556        52,608   

Restructuring and lease termination costs

      15,851        557   

Depreciation and other

      42,686        47,942   

Amortization of intangible assets

      3,309        3,842   
  

 

 

    

 

 

  

Total expenses

   526,090      535,058   
  

 

 

    

 

 

  

Operating income

   82,546      62,704   

Other expense, net:

Loss from equity method investments, net

   (132 )    (9,368 ) 

Interest expense, net

   (12,071 )    (9,648 ) 

Other, net

   (2,346 )    (648 ) 
  

 

 

    

 

 

  

Total other expense, net

   (14,549 )    (19,664 ) 
  

 

 

    

 

 

  

Income from continuing operations before income taxes

   67,997      43,040   

Income tax expense

   (25,842 )    (15,434 ) 
  

 

 

    

 

 

  

Income from continuing operations

   42,155      27,606   

Loss from discontinued operations, net of tax

   (6,556 )    (4,431 ) 
  

 

 

    

 

 

  

Net income

   35,599      23,175   

Foreign currency translation adjustment(2)

   2,854      875   
  

 

 

    

 

 

  

Comprehensive income

 $ 38,453    $ 24,050   
  

 

 

    

 

 

  

Income from continuing operations attributable to common shares:

Basic

 $ 40,775    $ 26,860   

Diluted

 $ 40,776    $ 26,879   

Basic earnings (loss) per common share:

Continuing operations

 $ 2.23    $ 1.12   

Discontinued operations

   (0.36 )    (0.18 ) 
  

 

 

    

 

 

  

Basic earnings per common share

 $ 1.87    $ 0.94   
  

 

 

    

 

 

  

Diluted earnings (loss) per common share:

Continuing operations

 $ 2.23    $ 1.09   

Discontinued operations

   (0.36 )    (0.18 ) 
  

 

 

    

 

 

  

Diluted earnings per common share

 $ 1.87    $ 0.91   
  

 

 

    

 

 

  

Weighted average common shares used in basic and diluted per share calculations:

Basic

   18,269      23,944   

Diluted

   18,286      24,575   

Dividends declared per common share

 $ 0.30    $ —     

 

(1) “Direct operating” excludes depreciation and other of $30.2 million and $31.7 million for the three months ended March 31, 2015 and 2014, respectively.
(2) Foreign currency translation adjustment had no tax effect for the three months ended March 31, 2015 and 2014, respectively.

 

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OUTERWALL INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

     March 31,
2015		     December 31,
2014		  

Assets

     

Current Assets:

     

Cash and cash equivalents

    $ 197,934      $ 242,696   

Accounts receivable, net of allowances of $1,128 and $2,223

      36,644        48,590   

Content library

      172,500        180,121   

Prepaid expenses and other current assets

      42,908        39,837   
  

 

 

    

 

 

  

Total current assets

   449,986      511,244   

Property and equipment, net

   385,548      428,468   

Deferred income taxes

   2,231      11,378   

Goodwill and other intangible assets, net

   620,645      623,998   

Other long-term assets

   7,651      8,231   
  

 

 

    

 

 

  

Total assets

 $ 1,466,061    $ 1,583,319   
  

 

 

    

 

 

  

Liabilities and Stockholders’ Equity

Current Liabilities:

Accounts payable

 $ 165,336    $ 168,633   

Accrued payable to retailers

   107,082      126,290   

Other accrued liabilities

   146,921      137,126   

Current portion of long-term debt and other long-term liabilities

   19,544      20,416   

Deferred income taxes

   20,926      21,432   
  

 

 

    

 

 

  

Total current liabilities

   459,809      473,897   

Long-term debt and other long-term liabilities

   887,089      973,669   

Deferred income taxes

   26,432      38,375   
  

 

 

    

 

 

  

Total liabilities

   1,373,330      1,485,941   

Commitments and contingencies

Stockholders’ Equity:

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

   —        —     

Common stock, $0.001 par value - 60,000,000 authorized;

36,740,097 and 36,600,166 shares issued;

18,498,978 and 18,926,242 shares outstanding;

   473,225      473,592   

Treasury stock

   (1,033,424 )    (996,293 ) 

Retained earnings

   650,386      620,389   

Accumulated other comprehensive income (loss)

   2,544      (310 ) 
  

 

 

    

 

 

  

Total stockholders’ equity

   92,731      97,378   
  

 

 

    

 

 

  

Total liabilities and stockholders’ equity

 $ 1,466,061    $ 1,583,319   
  

 

 

    

 

 

  

 

9

OUTERWALL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     Three Months Ended
March 31,		  
     2015     2014  

Operating Activities:

     

Net income

    $ 35,599      $ 23,175   

Adjustments to reconcile net income to net cash flows from operating activities:

     

Depreciation and other

      48,543        49,104   

Amortization of intangible assets

      3,353        3,848   

Share-based payments expense

      3,903        3,765   

Windfall excess tax benefits related to share-based payments

      (526 )      (1,710 ) 

Deferred income taxes

      (2,547 )      (9,564 ) 

Restructuring and lease termination costs(2)

      1,680        —     

Loss from equity method investments, net

      132        9,368   

Amortization of deferred financing fees and debt discount

      693        1,306   

Other

      (1,198 )      (124 ) 

Cash flows from changes in operating assets and liabilities:

     

Accounts receivable, net

      11,823        (5,952 ) 

Content library

      9,956        19,981   

Prepaid expenses and other current assets

      (3,106 )      46,955   

Other assets

      168        437   

Accounts payable

      2,920        (27,390 ) 

Accrued payable to retailers

      (18,441 )      (15,485 ) 

Other accrued liabilities

      13,120        (3,127 ) 
  

 

 

    

 

 

  

Net cash flows from operating activities(1)

   106,072      94,587   

Investing Activities:

Purchases of property and equipment

   (20,709 )    (26,940 ) 

Proceeds from sale of property and equipment

   123      831   

Cash paid for equity investments

   —        (10,500 ) 
  

 

 

    

 

 

  

Net cash flows used in investing activities(1)

   (20,586 )    (36,609 ) 

Financing Activities:

Proceeds from new borrowing on Credit Facility

   35,000      275,000   

Principal payments on Credit Facility

   (116,875 )    (29,375 ) 

Settlement and conversion of convertible debt

   —        (4 ) 

Repurchases of common stock

   (40,708 )    (421,067 ) 

Dividends paid

   (5,602 )    —     

Principal payments on capital lease obligations and other debt

   (3,245 )    (3,697 ) 

Windfall excess tax benefits related to share-based payments

   526      1,710   

Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options

   (3,088 )    (1,588 ) 
  

 

 

    

 

 

  

Net cash flows used in financing activities(1)

   (133,992 )    (179,021 ) 

 

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     Three Months Ended
March 31,		  
     2015     2014  

Effect of exchange rate changes on cash

      3,744        1,152   
  

 

 

    

 

 

  

Decrease in cash and cash equivalents

   (44,762 )    (119,891 ) 

Cash and cash equivalents:

Beginning of period

   242,696      371,437   
  

 

 

    

 

 

  

End of period

 $ 197,934    $ 251,546   
  

 

 

    

 

 

  

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

 $ 11,913    $ 14,013   

Cash paid during the period for income taxes, net

 $ 12,991    $ 23,664   

Supplemental disclosure of non-cash investing and financing activities:

Purchases of property and equipment financed by capital lease obligations

 $ 720    $ 3,046   

Purchases of property and equipment included in ending accounts payable

 $ 2,025    $ 7,240   

 

(1) During the first quarter of 2015, we discontinued our Redbox operations in Canada. The first quarter of 2014 also includes the wind-down process of certain new ventures that were discontinued during 2013. Cash flows from these discontinued operations are not segregated from cash flows from continuing operations in all periods presented.
(2) The non-cash restructuring and lease termination costs in the first quarter of 2015 of $1.7 million is composed of $6.9 million in impairments of lease related assets partially offset by a $5.2 million benefit resulting from the lease termination.

 

11

OUTERWALL INC.

BUSINESS SEGMENT AND ENTERPRISEWIDE INFORMATION

(unaudited)

Changes in the Organizational Structure

During the first quarter of 2015, we added ecoATM, our electronic device recycling business, as a separate reportable segment. Previously, the results of ecoATM along with those of other self-service concepts were included in our New Ventures segment. The combined results of the other self-service concepts, which include product sampling kiosk concept SAMPLEit, are now included in the All Other category in the reconciliation below as they do not meet quantitative thresholds to be reported as a separate segment. All goodwill previously allocated to the New Ventures segment has been allocated to the ecoATM segment.

Comparability of Segment Results

We have recast prior period results for the following:

 

  •   Discontinued operations, consisting of our Redbox operations in Canada which we shut down during the first quarter of 2015; and

 

  •   The addition of our ecoATM segment which we added during the first quarter of 2015.

Our analysis and reconciliation of our segment information to the consolidated financial statements that follows covers our results of operations, which consists of our Redbox, Coinstar and ecoATM segments, Corporate Unallocated expenses and All Other. All Other includes the results of other self-service concepts which we regularly assess to determine whether continued funding or other alternatives are appropriate.

 

Dollars in thousands                                     
Three Months Ended March 31, 2015    Redbox     Coinstar     ecoATM     All Other     Corporate
Unallocated		     Total  

Revenue

    $ 519,533      $ 69,330      $ 19,749      $ 24      $ —        $ 608,636   

Expenses:

             

Direct operating

      342,935        37,263        22,806        1,191        989        405,184   

Marketing

      4,825        1,178        1,730        320        367        8,420   

Research and development

      —          —          1,456        (85 )      713        2,084   

General and administrative

      33,735        7,795        1,968        2,507        2,551        48,556   

Restructuring and lease termination costs

      15,174        550        127        —          —          15,851   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Segment operating income (loss)

   122,864      22,544      (8,338 )    (3,909 )    (4,620 )    128,541   

Less: depreciation, amortization and other

   (31,607 )    (7,818 )    (5,902 )    (668 )    —        (45,995 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income (loss)

   91,257      14,726      (14,240 )    (4,577 )    (4,620 )    82,546   

Loss from equity method investments, net

   —        —        —        —        (132 )    (132 ) 

Interest expense, net

   —        —        —        —        (12,071 )    (12,071 ) 

Other, net

   —        —        —        —        (2,346 )    (2,346 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) from continuing operations before income taxes

 $ 91,257    $ 14,726    $ (14,240 )  $ (4,577 )  $ (19,169 )  $ 67,997   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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Dollars in thousands                                     
Three Months Ended March 31, 2014    Redbox     Coinstar     ecoATM     All Other     Corporate
Unallocated		     Total  

Revenue

    $ 513,049      $ 68,753      $ 15,946      $ 14      $ —        $ 597,762   

Expenses:

             

Direct operating

      363,601        37,723        15,931        408        1,979        419,642   

Marketing

      4,460        1,006        668        161        698        6,993   

Research and development

      8        269        1,784        632        781        3,474   

General and administrative

      38,701        6,997        2,879        921        3,110        52,608   

Restructuring and lease termination costs

      534        23        —          —          —          557   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Segment operating income (loss)

   105,745      22,735      (5,316 )    (2,108 )    (6,568 )    114,488   

Less: depreciation, amortization and other

   (39,404 )    (8,563 )    (3,712 )    (105 )    —        (51,784 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income (loss)

   66,341      14,172      (9,028 )    (2,213 )    (6,568 )    62,704   

Loss from equity method investments, net

   —        —        —        —        (9,368 )    (9,368 ) 

Interest expense, net

   —        —        —        —        (9,648 )    (9,648 ) 

Other, net

   —        —        —        —        (648 )    (648 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) from continuing operations before income taxes

 $ 66,341    $ 14,172    $ (9,028 )  $ (2,213 )  $ (26,232 )  $ 43,040   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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APPENDIX A

Non-GAAP Financial Measures

Non-GAAP measures may be provided as a complement to results provided in accordance with United States generally accepted accounting principles (“GAAP”).

We use the following non-GAAP financial measures to evaluate our financial results:

 

  •   Core adjusted EBITDA from continuing operations;

 

  •   Core diluted earnings per share (“EPS”) from continuing operations;

 

  •   Free cash flow; and

 

  •   Net debt and net leverage ratio.

These measures, the definitions of which are presented below, are non-GAAP because they exclude certain amounts which are included in the most directly comparable measure calculated and presented in accordance with GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for our GAAP financial measures and may not be comparable with similarly titled measures of other companies.

Core and Non-Core Results

We distinguish our core activities, those associated with our primary operations which we directly control, from non-core activities. Non-core activities are primarily nonrecurring events or events we do not directly control. Our non-core adjustments for the periods presented include i) restructuring costs (including severance and early lease termination costs and related impairment of assets) associated with actions to reduce costs in our continuing operations across the Company, ii) compensation expense for rights to receive cash issued in conjunction with our acquisition of ecoATM and attributable to post-combination services as they are fixed amount acquisition related awards and not indicative of the directly controllable future business results, iii) income or loss from equity method investments, which represents our share of income or loss from entities we do not consolidate or control and iv) tax benefits related to a net operating loss adjustment (“Non-Core Adjustments”).

We believe investors should consider our core results because they are more indicative of our ongoing performance and trends, are more consistent with how management evaluates our operational results and trends, provide meaningful supplemental information to investors through the exclusion of certain expenses which are either nonrecurring or may not be indicative of our directly controllable business operating results, allow for greater transparency in assessing our performance, help investors better analyze the results of our business and assist in forecasting future periods.

 

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Core Adjusted EBITDA from continuing operations

Our non-GAAP financial measure core adjusted EBITDA from continuing operations is defined as earnings from continuing operations before depreciation, amortization and other; interest expense, net; income taxes; share-based payments expense; and Non-Core Adjustments.

A reconciliation of core adjusted EBITDA from continuing operations to net income from continuing operations, the most comparable GAAP financial measure, is presented in the following table:

 

     Three Months Ended
March 31,		  
Dollars in thousands    2015      2014  

Net income from continuing operations

    $ 42,155       $ 27,606   

Depreciation, amortization and other

      45,995         51,784   

Interest expense, net

      12,071         9,648   

Income taxes

      25,842         15,434   

Share-based payments expense(1)

      3,941         3,765   
  

 

 

     

 

 

  

Adjusted EBITDA from continuing operations

   130,004      108,237   

Non-Core Adjustments:

Restructuring costs

   15,851      469   

Rights to receive cash issued in connection with the acquisition of ecoATM

   1,920      3,421   

Loss from equity method investments

   132      9,368   
  

 

 

     

 

 

  

Core adjusted EBITDA from continuing operations

 $ 147,907    $ 121,495   
  

 

 

     

 

 

  

 

(1) Includes both non-cash share-based compensation for executives, non-employee directors and employees as well as share-based payments for content arrangements.

Core Diluted EPS from continuing operations

Our non-GAAP financial measure core diluted EPS from continuing operations is defined as diluted earnings per share from continuing operations utilizing the treasury stock method excluding non-core adjustments, net of applicable taxes.

A reconciliation of core diluted EPS from continuing operations to diluted EPS from continuing operations, the most comparable GAAP financial measure, is presented in the following table:

 

     Three Months Ended
March 31,		  
     2015      2014  

Diluted EPS from continuing operations per common share (two-class method)

    $ 2.23       $ 1.09   

Adjustment from participating securities allocation and share differential to treasury stock method(1)

      0.05         0.02   
  

 

 

     

 

 

  

Diluted EPS from continuing operations (treasury stock method)

   2.28      1.11   

Non-Core Adjustments, net of tax:(1)

Restructuring costs

   0.52      0.01   

Rights to receive cash issued in connection with the acquisition of ecoATM

   0.07      0.11   

Loss from equity method investments

   —        0.23   

Tax benefit from net operating loss adjustment

   —        (0.04 ) 
  

 

 

     

 

 

  

Core diluted EPS from continuing operations

 $ 2.87    $ 1.42   
  

 

 

     

 

 

  

 

(1) Non-Core Adjustments are presented after-tax using the applicable effective tax rate for the respective periods.

 

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A reconciliation of amounts used in core diluted EPS from continuing operations table above is presented in the following table:

 

     Three Months Ended
March 31,		  
In thousands    2015      2014  

Income from continuing operations attributable to common shares

    $ 40,776       $ 26,879   

Add: income from continuing operations allocated to participating securities

      1,379         727   
  

 

 

     

 

 

  

Income from continuing operations

 $ 42,155    $ 27,606   
  

 

 

     

 

 

  

Weighted average diluted common shares

   18,286      24,575   

Add: diluted common equivalent shares of participating securities

   184      200   
  

 

 

     

 

 

  

Weighted average diluted shares

   18,470      24,775   
  

 

 

     

 

 

  

Free Cash Flow

Our non-GAAP financial measure free cash flow is defined as net cash provided by operating activities after capital expenditures. We believe free cash flow is an important non-GAAP measure as it provides additional information to users of the financial statements regarding our ability to service, incur or pay down indebtedness and repurchase our securities. A reconciliation of free cash flow to net cash provided by operating activities, the most comparable GAAP financial measure, is presented in the following table:

 

     Three Months Ended
March 31,		  
Dollars in thousands    2015      2014  

Net cash provided by operating activities

    $ 106,072       $ 94,587   

Purchase of property and equipment

      (20,709 )       (26,940 ) 
  

 

 

     

 

 

  

Free cash flow

 $ 85,363    $ 67,647   
  

 

 

     

 

 

  

 

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Net Debt and Net Leverage Ratio

Our non-GAAP financial measure net debt is defined as the total face value of outstanding debt, including capital leases, less cash and cash equivalents held in financial institutions domestically. Our non-GAAP financial measure net leverage ratio is defined as net debt divided by core adjusted EBITDA from continuing operations for the last twelve months (LTM). We believe net debt and net leverage ratio are important non-GAAP measures because they:

 

  •   are used to assess the degree of leverage by management;

 

  •   provide additional information to users of the financial statements regarding our ability to service, incur or pay down indebtedness and repurchase our securities as well as additional information about our capital structure; and

 

  •   are reported quarterly to support covenant compliance under our credit agreement.

A reconciliation of net debt to total outstanding debt including capital leases, the most comparable GAAP financial measure, is presented in the following table:

 

Dollars in thousands    March 31,
2015		      December 31,
2014		  

Senior unsecured notes(1)

    $ 650,000       $ 650,000   

Term loans(1)

      144,375         146,250   

Revolving line of credit

      80,000         160,000   

Capital leases

      12,652         15,391   
  

 

 

     

 

 

  

Total principal value of outstanding debt including capital leases

   887,027      971,641   

Less domestic cash and cash equivalents held in financial institutions

   (37,772 )    (66,546 ) 
  

 

 

     

 

 

  

Net debt

   849,255      905,095   

LTM Core adjusted EBITDA from continuing operations(2)

 $ 523,232    $ 496,820   
  

 

 

     

 

 

  

Net leverage ratio

   1.62      1.82   

 

(1) The senior unsecured notes on our Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 included $8.0 million and $8.4 million in associated debt discount, respectively. The Term loan on our Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 included $0.3 million and $0.3 million in associated debt discount, respectively.
(2) LTM Core Adjusted EBITDA from continuing operations for the twelve months ended March 31, 2015 and December 31, 2014 was determined as follows:

 

Dollars in thousands       

Core adjusted EBITDA from continuing operations for the three months ended March 31, 2015

    $ 147,907   

Add: Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2014:

   

Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2014 as reported in our Annual Report on Form 10-K for the period ended December 31, 2014(1)

      480,497   

Add: Core adjusted EBITDA loss from Redbox Canada operations for the twelve months ended December 31, 2014

      16,323   
  

 

 

  

Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2014 as adjusted for discontinued operations

   496,820   

Less: Core adjusted EBITDA from continuing operations for the three months ended March 31, 2014

   (121,495 ) 
  

 

 

  

LTM Core adjusted EBITDA from continuing operations for the twelve months ended March 31, 2015

 $ 523,232   
  

 

 

  

 

(1) Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2014 is obtained from our Form 10-K for the period ended December 31, 2014, where it is reconciled to net income from continuing operations, the most comparable GAAP financial measure, and represents the LTM core adjusted EBITDA from continuing operations we use in our calculation of net leverage ratio as of December 31, 2014.

 

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