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Coinstar, Inc. Announces 2011 Third Quarter Results

Company Posts Strong Growth and Profits
Redbox Becomes Leader in DVD Rentals

BELLEVUE, Wash., Oct. 27, 2011 /PRNewswire via COMTEX/ --

Coinstar, Inc. (Nasdaq: CSTR) today announced financial results for the third quarter and nine months ended September 30, 2011.

"We delivered another strong quarter with growth at the top and bottom line," said Paul Davis, chief executive officer of Coinstar, Inc. "Our redbox business alone passed $1 billion dollars in revenue year to date and became the leading renter of DVDs by staying focused on delivering great value and convenience to our consumers."

Davis continued, "Our Coin business gained traction in initiatives to engage consumers and generate growth and our New Ventures segment is moving forward with our innovative automated retail concepts. We are pleased with our performance and are confident in our ability to continue to provide value to our consumers, partners and shareholders."

Financial highlights for the 2011 third quarter and nine months ended September 30, 2011, included:



2011 Third Quarter


2011 Nine Months

  • Revenue

$

465.6

million


$

1,324.9

million

  • Operating income

$

65.6

million


$

155.2

million

  • Adjusted EBITDA from continuing operations (See Appendix A)

$

104.8

million


$

272.6

million

  • Diluted earnings per share from continuing operations

$

1.18



$

2.61


  • Net cash flows from operating activities from continuing operations

$

89.8

million


$

261.6

million

  • Free cash flow from continuing operations (See Appendix A)

$

42.9

million


$

126.9

million


The company also announced that effective October 31, 2011, the price for renting a redbox standard definition DVD would increase to a $1.20 daily rate from $1.00. The prices for Blu-ray format movie rentals and for video game rentals will not change and the daily rates will continue to be $1.50 and $2.00, respectively.

"We remain committed to providing redbox consumers access to the latest movies at an incredible value," said Davis. "This marks the first price increase for a redbox standard definition DVD rental in eight years. The change is primarily due to the increase in operating expenses, including the recent increase in debit card interchange fees as a result of the Durbin Amendment."

"Our strong results reflect solid execution across the board," said J. Scott Di Valerio, chief financial officer of Coinstar, Inc. "Our business continues to benefit from improved processes and operations, investments in infrastructure and strategic investments in growth, which are particularly important as certain operating costs continue to increase. We remain focused on initiatives that strengthen our position to drive growth at the top and bottom line."

Revenue for the third quarter of 2011 increased 22.5% to $465.6 million compared with the third quarter of 2010, driven primarily by redbox revenue growth of 27.7% to $389.8 million reflecting new kiosk installations and growth in same store sales. Coin revenue grew 1.1% to $75.5 million primarily due to an increase in the average transaction size.

Operating income for the third quarter of 2011 was $65.6 million, which resulted in an operating margin of 14.1%, compared with operating income of $46.2 million and an operating margin of 12.1% in the third quarter of 2010. The increase in operating margin percentage reflects the benefit from the extension of the amortization period related to the amended agreement with SPHE Scan Based Trading Corporation ("Sony")signed in August; lower share based payments expense due to the closing price of Coinstar common stock at the end of the quarter; and improved processes and operations in the redbox segment, among other factors.

Income from continuing operations for the third quarter of 2011 was $37.1 million, or diluted earnings per share from continuing operations of $1.18, compared with $21.4 million, or $0.66 per share, in the third quarter of 2010.

For the first nine months of 2011 revenue was $1,324.9 million, an increase of 26.7% compared with the first nine months of 2010. Operating income for the first nine months of 2011 was $155.2 million, which resulted in an operating margin of 11.7%, compared with operating income of $100.1 million and an operating margin of 9.6% in the first nine months of 2010. Net income for the first nine months of 2011 was $72.4 million, or diluted earnings per share of $2.26, compared with net income of $39.3 million, or $1.22 per share, in the first nine months of 2010.

Net cash flows from operating activities from continuing operations in the third quarter of 2011 was $89.8 million, compared with $65.0 million in the third quarter of 2010. Cash paid for capital expenditures for continuing operations for the third quarter of 2011 was $46.9 million, compared with $48.1 million in the third quarter of 2010. Free cash flow from continuing operations for the third quarter of 2011 was $42.9 million, compared with $16.8 million in the third quarter of 2010.

Guidance

Coinstar's guidance includes the impact of the price increase to $1.20 daily rate for a standard definition DVD effective October 31, 2011, and interchange fees at the current maximum per transaction rate of $0.22 plus five basis points.

For the 2011 full year, Coinstar management updated guidance and now expects:

  • Consolidated revenue between $1.810 billion and $1.835 billion;
  • Adjusted EBITDA from continuing operations between $351 million and $358 million;
  • GAAP EPS from continuing operations between $3.15 and $3.25 on a fully diluted basis; and
  • Free cash flow from continuing operations between $135 million and $150 million.

For the 2011 fourth quarter, Coinstar management expects:

  • Consolidated revenue between $485 million and $510 million;
  • Adjusted EBITDA from continuing operations between $81 million and $88 million; and
  • GAAP EPS from continuing operations between $0.57 and $0.67 on a fully diluted basis.

Conference Call

Paul Davis and J. Scott Di Valerio will host a conference call today at 2:00 p.m. PDT (5:00 p.m. EDT) to review the third quarter results and discuss guidance. The conference call will be webcast live and archived on the Investor Relations section of Coinstar's website at www.coinstarinc.com. A recording of the call will be available approximately two hours after the call ends through November 10, 2011, at 18882868010 or 16178016888, passcode 95820770.

About Coinstar, Inc.

Coinstar, Inc. (NASDAQ: CSTR) is a leading provider of automated retail solutions offering convenient services that make life easier for consumers and drive incremental traffic and revenue for retailers. The company's core automated retail businesses include the well-known redbox® self-service DVD and video game rental and Coinstar® self-service coin-counting brands. The company has approximately 34,400 DVD kiosks and 19,500 coin-counting kiosks in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants. For more information, visit www.coinstarinc.com.

Safe Harbor for Forward-Looking Statements

Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "estimate," "expect," "intend," "anticipate," "goals," variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. The forward-looking statements in this release include statements regarding Coinstar, Inc.'s anticipated growth and future operating results. Forward-looking statements are not guarantees of future performance and actual results may vary materially from the results expressed or implied in such statements. Differences may result from actions taken by Coinstar, Inc., as well as from risks and uncertainties beyond Coinstar, Inc.'s control. Such risks and uncertainties include, but are not limited to, the termination, non-renewal or renegotiation on materially adverse terms of our contracts with our significant retailers and suppliers, payment of increased fees to retailers, suppliers and other third-party providers, the inability to receive delivery of DVDs on the date of their initial release to the general public, or shortly thereafter, for home entertainment viewing, the effective management of our DVD inventory, the ability to attract new retailers, penetrate new markets and distribution channels and react to changing consumer demands, the ability to achieve the strategic and financial objectives for our entry into or expansion of new businesses, the ability to adequately protect our intellectual property, and the application of substantial federal, state, local and foreign laws and regulations specific to our business. The foregoing list of risks and uncertainties is illustrative, but by no means exhaustive. For more information on factors that may affect future performance, please review "Risk Factors" described in our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission. These forward-looking statements reflect Coinstar, Inc.'s expectations as of the date of this release. Coinstar, Inc. undertakes no obligation to update the information provided herein.

(Financial Statements Follow)




Appendix A


Use of Non-GAAP Financial Measures


Non-GAAP measures may be provided as a complement to results provided in accordance with United States generally accepted accounting principles ("GAAP"). Non-GAAP measures are not a substitute for measures computed in accordance with GAAP. The definitions of such non-GAAP measures are provided below to allow the reader to reconcile non-GAAP data to that presented in accordance with GAAP. Our non-GAAP measures may be different from the presentation of financial information by other companies.


Adjusted EBITDA from continuing operations is defined as earnings before net interest expense, income taxes, depreciation, amortization and certain other non-cash charges, including the write-off from early retirement of debt and share-based expenses from continuing operations. We believe adjusted EBITDA from continuing operations is an important non-GAAP measure as it provides additional information to users of the financial statements regarding our ability to service, incur or pay down indebtedness. In addition, management uses this non-GAAP measure internally to evaluate performance and manage operations. The table below provides a reconciliation of the most comparable GAAP measure, income from continuing operations, to adjusted EBITDA from continuing operations.






Three Months Ended


Nine Months Ended





September 30,


September 30,

Dollars in thousands


2011


2010


2011


2010

Income from continuing operations

$

37,126

$

21,399

$

83,429

$

43,479


Depreciation, amortization, and other


38,839


31,382


108,973


95,674


Interest expense, net


5,416


8,693


18,878


27,032


Income taxes


22,544


15,969


51,915


29,364


Share-based payments expense(1)


869


3,090


9,362


10,876



Adjusted EBITDA from continuing operations

$

104,794

$

80,533

$

272,557

$

206,425












(1)

Share-based payments expense includes both non-cash share-based compensation expense for executives, non-employee directors and employees as well as share-based payments expense related to DVD arrangements.


Free cash flow from continuing operations is defined as net cash provided by operating activities from continuing operations after cash paid for capital expenditures for continuing operations. We believe free cash flow is an important non-GAAP measure as it provides additional information to users of the financial statements regarding our ability to service, incur or pay down indebtedness and repurchase our common stock. The table below provides a reconciliation of the most comparable GAAP measure, net cash flows from operating activities from continuing operations, to free cash flow from continuing operations.




Three Months Ended


Nine Months Ended




September 30,


September 30,

Dollars in thousands


2011


2010


2011


2010

Net cash provided by operating activities from continuing operations

$

89,779

$

64,969

$

261,639

$

228,625

Purchase of property and equipment


(46,902)


(48,135)


(134,779)


(132,474)


Free cash flow from continuing operations

$

42,877

$

16,834

$

126,860

$

96,151


COINSTAR, INC.

CONSOLIDATED STATEMENTS OF NET INCOME

(in thousands, except per share data)

(unaudited)





For the Three Months Ended


For the Nine Months Ended




September 30,


September 30,




2011


2010


2011


2010











Revenue

$

465,617

$

380,187

$

1,324,917

$

1,045,665











Expenses:










Direct operating


310,101


255,449


917,687


722,204


Marketing


7,723


7,811


20,697


16,375


Research and development


3,239


1,699


7,539


4,928


General and administrative


40,076


37,655


114,795


101,053


Depreciation and other


38,154


30,626


106,918


93,054


Amortization of intangible assets


685


756


2,055


2,620


Litigation settlement


-


-


-


5,379

Total expenses


399,978


333,996


1,169,691


945,613











Operating income


65,639


46,191


155,226


100,052











Other income (expense):










Foreign currency and other, net


(553)


(130)


(1,004)


(177)


Interest income


1,008


48


1,200


135


Interest expense


(6,424)


(8,741)


(20,078)


(27,167)




(5,969)


(8,823)


(19,882)


(27,209)











Income from continuing operations before income taxes


59,670


37,368


135,344


72,843

Income tax expense


(22,544)


(15,969)


(51,915)


(29,364)

Income from continuing operations


37,126


21,399


83,429


43,479

Loss from discontinued operations, net of tax


-


(1,894)


(11,068)


(4,165)

Net income

$

37,126

$

19,505

$

72,361

$

39,314




















Basic earnings (loss) per share:










Continuing operations

$

1.23

$

0.68

$

2.72

$

1.38


Discontinued operations


-


(0.06)


(0.36)


(0.13)

Basic earnings per share

$

1.23

$

0.62

$

2.36

$

1.25




















Diluted earnings (loss) per share:










Continuing operations

$

1.18

$

0.66

$

2.61

$

1.35


Discontinued operations


-


(0.06)


(0.35)


(0.13)

Diluted earnings per share

$

1.18

$

0.60

$

2.26

$

1.22




















Weighted average shares used in basic per share calculations


30,224


31,411


30,608


31,364

Weighted average shares used in diluted per share calculations


31,596


32,382


31,957


32,179

COINSTAR, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)





September 30,


December 31,





2011


2010








Assets





Current Assets:






Cash and cash equivalents

$

255,300

$

183,416


Accounts receivable, net of allowances of $1,160 and $1,131


22,276


25,958


DVD library


122,209


140,324


Deferred income taxes


17,256


13,644


Prepaid expenses and other current assets


15,930


14,736


Assets of business held for sale


-


110,316



Total current assets


432,971


488,394








Property and equipment, net


489,221


444,687

Notes receivable


24,397


-

Deferred income taxes


11,597


59,696

Goodwill and other intangible assets


275,268


277,322

Other long-term assets


16,347


12,612

Total assets

$

1,249,801

$

1,282,711








Liabilities and Stockholders' Equity





Current Liabilities:






Accounts payable

$

143,203

$

161,551


Accrued payable to retailers


97,300


96,764


Other accrued liabilities


119,738


108,422


Current callable convertible debt


-


173,146


Current portion of long-term debt


14,485


7,523


Current portion of capital lease obligations


12,227


17,233


Liabilities of business held for sale


-


68,662



Total current liabilities


386,953


633,301








Long-term debt and other long-term liabilities


360,934


167,276

Capital lease obligations


10,288


12,158

Total liabilities


758,175


812,735








Commitments and contingencies


-


-

Debt conversion feature


-


26,854








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 and 45,000,000 authorized;







35,125,093 and 34,813,203 shares issued; 30,752,939 and







31,815,085 shares outstanding


473,249


434,169


Treasury stock


(153,425)


(90,076)


Retained earnings


174,340


101,979


Accumulated comprehensive loss


(2,538)


(2,950)



Total stockholders' equity


491,626


443,122

Total liabilities and stockholders' equity

$

1,249,801

$

1,282,711


COINSTAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)









For the Three Months Ended


For the Nine Months Ended








September 30,


September 30,



2011


2010


2011


2010

Operating Activities:









Net income

$

37,126

$

19,505

$

72,361

$

39,314

Adjustments to reconcile net income to net cash flows from










operating activities from continuing operations:










Depreciation and other


38,154


30,626


106,918


93,054


Amortization of intangible assets and deferred financing fees


1,581


1,264


3,966


4,144


Share-based payments expense


869


3,090


9,362


10,876


Excess tax benefits on share-based payments


(117)


(65)


(2,431)


(6,290)


Deferred income taxes


20,966


10,525


46,915


19,280


Loss (income) from discontinued operations, net of tax


-


1,894


11,068


4,165


Non-cash interest on convertible debt


1,648


1,519


4,857


4,477


Other


(327)


109


150


364

Cash flows from changes in operating assets and liabilities from










continuing operations


(10,121)


(3,498)


8,473


59,241


Net cash flows from operating activities from continuing operations


89,779


64,969


261,639


228,625





























Investing Activities:









Purchases of property and equipment


(46,902)


(48,135)


(134,779)


(132,474)

Proceeds from sale of property and equipment


201


765


552


1,032

Proceeds from sale of businesses, net


-


-


12,221


26,078

Equity investment


-


-


(2,320)


-


Net cash flows from investing activities from continuing operations


(46,701)


(47,370)


(124,326)


(105,364)















Financing Activities:









Principal payments on capital lease obligations and other debt


(5,072)


(8,860)


(22,145)


(28,203)

Borrowing from term loan


175,000


-


175,000


-

Principal payments on term loan


(2,187)


-


(2,187)


-

Net payment on revolving line of credit


(125,000)


(75,000)


(150,000)


(75,000)

Financing costs associated with new credit facility


(4,196)


-


(4,196)


-

Excess tax benefits related to share-based payments


117


65


2,431


6,290

Repurchases of common stock and ASR program


-


(49,245)


(63,349)


(49,245)

Proceeds from exercise of stock options


842


709


2,182


27,959


Net cash flows from financing activities from continuing operations


39,504


(132,331)


(62,264)


(118,199)










Effect of exchange rate changes on cash


(810)


899


(165)


48















Increase (decrease) in cash and cash equivalents from continuing operations


81,772


(113,833)


74,884


5,110















Cash flows from discontinued operations:









Operating cash flows


-


20,926


9,678


8,054

Investing cash flows


-


(17,504)


(12,678)


(12,133)

Financing cash flows


-


-


-


(166)



-


3,422


(3,000)


(4,245)















Increase (decrease) in cash and cash equivalents









Cash and cash equivalents:


81,772


(110,411)


71,884


865

Beginning of period


173,528


257,133


183,416


145,857

End of period

$

255,300

$

146,722

$

255,300

$

146,722










Coinstar, Inc.

Business Segment Information

(in thousands)

(unaudited)


During the first quarter of 2011, we added a segment, New Ventures, to our existing segments, redbox, formerly named DVD Services, and Coin, formerly named Coin Services, to reflect changes in how our chief executive officer manages our businesses and allocates resources for the future growth of the company.


As a complement to our Consolidated Statements of Net Income, we are providing the following information related to our business segments, which includes segment operating income (loss). Management, including our chief executive officer, evaluates the performances of our business segments primarily on segment revenue and segment operating income from continuing operations before depreciation, amortization and other, and certain share-based payments ("segment operating income"). We utilize segment revenue and segment operating income because we believe they provide useful information for effectively allocating resources among business segments, evaluating the health of our business segments based on metrics that management can actively influence, and gauging our investments and our ability to service, incur or pay down debt.




Three Months Ended September 30,


Nine Months Ended September 30,

Dollars in thousands


2011


2010


2011


2010

Revenue:









redbox

$

389,801

$

305,365

$

1,116,007

$

840,312

Coin


75,506


74,669


207,934


204,949

New Ventures


310


153


976


404

Consolidated revenue

$

465,617

$

380,187

$

1,324,917

$

1,045,665


Segment operating income reconciled to GAAP operating income












Three Months Ended September 30,


Nine Months Ended September 30,

Dollars in thousands


2011


2010


2011


2010

Segment operating income (loss):(1)









redbox(2)

$

83,499

$

53,648

$

208,337

$

137,116

Coin


27,879


27,872


75,288


70,935

New Ventures


(4,425)


(2,248)


(11,747)


(5,663)

Subtotal


106,953


79,272


271,878


202,388










Depreciation, amortization and other:









redbox


30,910


23,955


85,368


69,942

Coin


7,924


7,468


22,746


22,089

New Ventures


5


(41)


859


3,643

Total depreciation, amortization and other


38,839


31,382


108,973


95,674










Share-based compensation expense


2,475


1,699


7,679


6,662










Operating income (loss):









redbox


52,589


29,693


122,969


67,174

Coin


19,955


20,404


52,542


48,846

New Ventures


(4,430)


(2,207)


(12,606)


(9,306)

Share-based compensation expense


(2,475)


(1,699)


(7,679)


(6,662)

Total operating income

$

65,639

$

46,191

$

155,226

$

100,052










(1) Operating income (loss) before depreciation, amortization and other, and share-based compensation expense

(2) Share-based payments expense related to our DVD arrangements have been allocated to our redbox segment

SOURCE Coinstar, Inc.