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Coinstar, Inc. Announces 2011 Fourth Quarter and Full Year Results
Prepared Remarks

Company Drives 33.2% Revenue Growth and $1.00 EPS in Fourth Quarter; Expects Revenue to Top $2.2 Billion in 2012
2012 Initiatives Include Joint Venture with Verizon to Offer New Video Entertainment Choice
Company Announces Agreement to Acquire NCR's DVD Business Assets

BELLEVUE, Wash., Feb. 6, 2012 /PRNewswire/ -- Coinstar, Inc. (Nasdaq: CSTR) today announced financial results for the fourth quarter and full year ended December 31, 2011.

"Our strong finish in the fourth quarter capped a great year for Coinstar, including revenue over $1.8 billion, diluted EPS of $3.61 per share and free cash flow over $227 million," said Paul Davis, chief executive officer of Coinstar, Inc. "The strength of our core businesses provides a solid foundation that enables us to focus on key growth initiatives in 2012, including our joint venture with Verizon that was announced earlier today. We are delighted to be partnering with Verizon to offer consumers affordable entertainment in both physical and streaming formats and look forward to launching our service in the second half of the year."

Davis continued, "We also are very pleased to announce the acquisition of the assets of NCR's DVD business and the opportunity to work with NCR as we develop our portfolio of innovative, self-service concepts."

The acquisition is subject to Hart-Scott-Rodino Antitrust Improvement Act (HSR) review. Assuming HSR approval, the company expects the transaction to close no later than the third quarter of 2012.

Financial highlights for the 2011 fourth quarter and full year included:



2011 Fourth Quarter


2011 Full Year





  • Revenue

$

520.5

million


$

1,845.4

million

  • Operating income

$

54.7

million


$

209.9

million

  • Adjusted EBITDA from continuing operations (See Appendix A)

$

100.4

million


$

373.0

million

  • Diluted earnings per share from continuing operations

$

1.00



$

3.61


  • Net cash flows from operating activities from continuing operations

$

144.9

million


$

406.5

million

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

$

100.4

million


$

227.3

million




"Our results underscore our ability to grow our core businesses profitably and generate substantial free cash flow at the same time," said J. Scott Di Valerio, chief financial officer of Coinstar, Inc. "We are very pleased with the operational performance throughout the organization in 2011 and will continue to focus on the processes that drive success. Moving forward we are confident in our ability to execute enabling us to generate positive cash flows even as we fund our organic growth and strategic initiatives."  

Revenue for the fourth quarter of 2011 increased 33.2% to $520.5 million compared with the fourth quarter of 2010, driven primarily by Redbox revenue growth of 39.5% to $445.6 million primarily reflecting new kiosk installations, strong performance of new release titles, and consumer acceptance of the price increase implemented October 31, 2011. Coin revenue grew 4.8% to $74.4 million, reflecting growth in same store sales.

Operating income for the fourth quarter of 2011 was $54.7 million, which resulted in an operating margin of 10.5%, compared with operating income of $43.2 million and an operating margin of 11.0% in the fourth quarter of 2010.

Income from continuing operations for the fourth quarter of 2011 was $31.5 million, or diluted earnings per share from continuing operations of $1.00, an increase in diluted earnings per share of 47.1% compared with $22.4 million, or $0.68 per share, in the fourth quarter of 2010.

For the 2011 full year revenue was $1,845.4 million, an increase of 28.5% compared with 2010. Operating income for 2011 was $209.9 million, which resulted in an operating margin of 11.4%, compared with operating income of $143.2 million and an operating margin of 10.0% in 2010. Income from continuing operations for 2011 was $115.0 million, or diluted earnings per share of $3.61, an increase in diluted earnings per share of 77.8% compared with income from continuing operations of $65.9 million, or $2.03 per share, in 2010.

Net cash flows from operating activities from continuing operations in the fourth quarter of 2011 was $144.9 million, compared with $87.0 million in the fourth quarter of 2010. Cash paid for capital expenditures for continuing operations for the fourth quarter of 2011 was $44.5 million, compared with $38.4 million in the fourth quarter of 2010. Free cash flow from continuing operations for the fourth quarter of 2011 was $100.4 million, compared with $48.6 million in the fourth quarter of 2010.

Guidance

Coinstar's guidance includes financial measures related to core and non-core activities. The core financial measures are non-GAAP financial measures as they exclude certain items related to non-core activities. Definitions of these terms are provided in Appendix A.

For the 2012 full year, Coinstar management expects:

  • Consolidated revenue between $2.075 billion and $2.250 billion;
  • Core adjusted EBITDA from continuing operations between $425 million and $460 million;
  • Core EPS between $3.80 and $4.30 on a fully diluted basis; and
  • Free cash flow from continuing operations between $120 million and $145 million.

For the 2012 first quarter, Coinstar management expects:

  • Consolidated revenue between $530 million and $555 million;
  • Core adjusted EBITDA from continuing operations between $94 million and $104 million; and
  • Core EPS between $0.76 and $0.91 on a fully diluted basis.

Additional Information

Coinstar has provided additional comments on guidance in prepared remarks that also review the company's 2011 operating and financial results and 2012 initiatives. The prepared remarks are posted on the Investor Relations section of the corporate website at http://www.coinstarinc.com/ along with this press release and the fourth quarter Investor Update.

Conference Call

Paul Davis and J. Scott Di Valerio will host a conference call today at 2:00 p.m. PST (5:00 p.m. EST) to answer questions related to the company's business performance, financial results, guidance, and recent announcements. The conference call will be webcast live and archived on the Investor Relations section of Coinstar's website. A recording of the call will be available through February 20, 2012, at 888-286-8010 or 617-801-6888, passcode 94593099.

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 35,400 DVD kiosks and 20,200 coin-counting kiosks in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants. For more information, visit http://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., Redbox, Verizon, or NCR, as well as from risks and uncertainties beyond Coinstar, Inc.'s control.  Such risks and uncertainties include, but are not limited to, competition from other digital entertainment providers, the ability to achieve the strategic and financial objectives for our entry into a new business, our limited ability to direct the management or policies of the new joint venture, the ability to gain government approval for the NCR asset acquisition or acquire all of the desired assets in such transaction, failure to receive the expected benefits of the NCR relationship, 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 Reports on Form 10-Q filed with the Securities and Exchange Commission. These forward-looking statements reflect Coinstar, Inc.'s expectations as of the date of this release. Coinstar, Inc. undertakes no obligation to update the information provided herein.

(Financial Statements Follow)


Appendix A


Use of Non-GAAP Financial Measures


Non-GAAP 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


Twelve Months Ended





December 31,


December 31,

Dollars in thousands


2011


2010


2011


2010

Income from continuing operations

$

31,522

$

22,415

$

114,951

$

65,894


Depreciation, amortization, and other


39,245


31,318


148,218


126,992


Interest expense, net


4,944


7,673


23,822


34,705


Income taxes


17,862


13,668


69,777


43,032


Share-based payments expense (1)


6,849


5,140


16,211


16,016



Adjusted EBITDA from continuing operations

$

100,422

$

80,214

$

372,979

$

286,639














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


Twelve Months Ended




December 31,


December 31,

Dollars in thousands


2011


2010


2011


2010

Net cash provided by operating activities from continuing operations

$

144,877

$

86,994

$

406,516

$

315,619

Purchase of property and equipment


(44,457)


(38,373)


(179,236)


(170,847)


Free cash flow from continuing operations

$

100,420

$

48,621

$

227,280

$

144,772



Use of Core Non-GAAP Financial Measures in 2012 Guidance


We believe investors should consider our core results because they are more indicative of our ongoing performance and trends and are more consistent with how management evaluates our operational results and trends.


Core adjusted EBITDA from continuing operations 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, as well as before non-core adjustments, which are net of applicable taxes and primarily include acquisition expenses, such as advisor fees and closing costs, and non-recurring gain/loss related to the formation of our joint venture with Verizon, as well as gains/(losses) from equity investments, which represent our share of income from entities we do not consolidate or control.


Core EPS is defined as earnings per share from continuing operations excluding non-core adjustments, which are net of applicable taxes and primarily include acquisition expenses and non-recurring gains/losses related to the formation of our joint venture with Verizon, as well as gain/(loss) from equity investments.



COINSTAR, INC.

CONSOLIDATED STATEMENTS OF NET INCOME

(in thousands, except per share data)

(unaudited)




For the Three Months Ended


For the Twelve Months Ended




December 31,


December 31,




2011


2010


2011


2010











Revenue

$

520,455

$

390,756

$

1,845,372

$

1,436,421











Expenses:










Direct operating


365,664


278,737


1,283,351


1,000,941


Marketing


8,307


7,461


29,004


23,836


Research and development


4,018


2,509


11,557


7,437


General and administrative


48,562


27,576


163,357


128,629


Depreciation and other


38,560


30,633


145,478


123,687


Amortization of intangible assets


685


685


2,740


3,305


Litigation settlement


-


-


-


5,379

Total expenses


465,796


347,601


1,635,487


1,293,214











Operating income


54,659


43,155


209,885


143,207











Other income (expense):










Foreign currency and other, net


(331)


601


(1,335)


424


Interest income


961


24


2,161


159


Interest expense


(5,905)


(7,697)


(25,983)


(34,864)




(5,275)


(7,072)


(25,157)


(34,281)











Income from continuing operations before income taxes


49,384


36,083


184,728


108,926

Income tax expense


(17,862)


(13,668)


(69,777)


(43,032)

Income from continuing operations


31,522


22,415


114,951


65,894

Income (loss) from discontinued operations, net of tax


-


(10,721)


(11,068)


(14,886)

Net income

$

31,522

$

11,694

$

103,883

$

51,008





















Basic earnings (loss) per share attributable to Coinstar, Inc.:










Continuing operations

$

1.04

$

0.72

$

3.76

$

2.11


Discontinued operations


-


(0.34)


(0.36)


(0.48)

Basic earnings per share attributable to Coinstar, Inc.

$

1.04

$

0.38

$

3.40

$

1.63











Diluted earnings (loss) per share attributable to Coinstar, Inc.:










Continuing operations

$

1.00

$

0.68

$

3.61

$

2.03


Discontinued operations


-


(0.33)


(0.35)


(0.46)

Diluted earnings per share attributable to Coinstar, Inc.

$

1.00

$

0.35

$

3.26

$

1.57











Weighted average shares used in basic per share calculations


30,261


30,981


30,520


31,268

Weighted average shares used in diluted per share calculations


31,605


33,052


31,869


32,397



COINSTAR, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)





December 31,


December 31,





2011


2010








Assets





Current Assets:






Cash and cash equivalents

$

341,855

$

183,416


Accounts receivable, net of allowances of $1,586 and $1,131


41,246


25,958


Content library


142,386


140,324


Deferred income taxes


101,341


13,644


Prepaid expenses and other current assets


25,274


14,736


Assets of business held for sale


-


110,316



Total current assets


652,102


488,394








Property and equipment, net


499,178


444,687

Notes receivable


24,374


-

Deferred income taxes


647


59,696

Goodwill and other intangible assets


274,583


277,322

Other long-term assets


17,066


12,612

Total assets

$

1,467,950

$

1,282,711








Liabilities and Stockholders' Equity





Current Liabilities:






Accounts payable

$

175,550

$

161,551


Accrued payable to retailers


127,450


96,764


Other accrued liabilities


148,996


108,422


Current callable convertible debt


-


173,146


Current portion of long-term debt


13,986


7,523


Current portion of capital lease obligations


12,057


17,233


Liabilities of business held for sale


-


68,662



Total current liabilities


478,039


633,301








Long-term debt and other long-term liabilities


359,288


167,261

Capital lease obligations


11,768


12,158

Deferred tax liability


87,840


15

Total liabilities


936,935


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;







35,251,932 and 34,813,203 shares issued; 30,879,778 and







31,815,085 shares outstanding


481,249


434,169


Treasury stock


(153,425)


(90,076)


Retained earnings


205,862


101,979


Accumulated comprehensive loss


(2,671)


(2,950)



Total stockholders' equity


531,015


443,122

Total liabilities and stockholders' equity

$

1,467,950

$

1,282,711



COINSTAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



For the Three Months Ended


For the Twelve Months Ended



December 31,


December 31,



2011


2010


2011


2010

Operating Activities:









Net income

$

31,522

$

11,694

$

103,883

$

51,008

Adjustments to reconcile net income to net cash flows from











operating activities from continuing operations:











Depreciation and other


38,560


30,633


145,478


123,687



Amortization of intangible assets and deferred financing fees


1,216


1,194


5,182


5,338



Share-based payments expense


6,849


5,140


16,211


16,016



Excess tax benefits on share-based payments


(40)


(597)


(2,471)


(6,887)



Deferred income taxes


13,161


22,115


60,076


41,395



Loss (income) from discontinued operations, net of tax


-


10,721


11,068


14,886



Non-cash interest on convertible debt


1,694


1,560


6,551


6,037



Other


1,346


302


1,496


666

Cash flows from changes in operating assets and liabilities from











continuing operations:


50,569


4,232


59,042


63,473



Net cash flows from operating activities from continuing operations


144,877


86,994


406,516


315,619



















Investing Activities:









Purchases of property and equipment


(44,457)


(38,373)


(179,236)


(170,847)

Proceeds from sale of property and equipment


143


111


695


1,143

Proceeds from sale of businesses, net


(4,001)


539


8,220


26,617

Equity investment


(2,592)


-


(4,912)


-



Net cash flows from investing activities from continuing operations


(50,907)


(37,723)


(175,233)


(143,087)










Financing Activities:









Principal payments on capital lease obligations and other debt


(6,057)


(8,109)


(28,202)


(36,312)

Borrowing from term loan


-


-


175,000


-

Principal payments on term loan


(2,188)


-


(4,375)


-

Net payment on revolving line of credit


-


-


(150,000)


(75,000)

Financing costs associated with credit facility and convertible debt


-


-


(4,196)


-

Excess tax benefits related to share-based payments


40


597


2,471


6,887

Repurchases of common stock and ASR program


-


-


(63,349)


(49,245)

Proceeds from exercise of stock options


1,079


3,665


3,261


31,624



Net cash flows from financing activities from continuing operations


(7,126)


(3,847)


(69,390)


(122,046)










Effect of exchange rate changes on cash


(289)


(685)


(454)


(637)










Increase in cash and cash equivalents from continuing operations


86,555


44,739


161,439


49,849










Cash flows from discontinued operations:









Operating cash flows


-


(17,578)


9,678


(9,524)

Investing cash flows


-


9,533


(12,678)


(2,600)

Financing cash flows


-


-


-


(166)



-


(8,045)


(3,000)


(12,290)










Increase in cash and cash equivalents


86,555


36,694


158,439


37,559

Cash and cash equivalents:









Beginning of period


255,300


146,722


183,416


145,857

End of period

$

341,855

$

183,416

$

341,855

$

183,416



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 December 31,


Twelve Months Ended December 31,

Dollars in thousands


2011


2010


2011


2010

Revenue:









Redbox

$

445,591

$

319,397

$

1,561,598

$

1,159,709

Coin


74,448


71,033


282,382


275,982

New Ventures


416


326


1,392


730

Consolidated revenue

$

520,455

$

390,756

$

1,845,372

$

1,436,421



Segment operating income reconciled to GAAP operating income





Three Months Ended December 31,


Twelve Months Ended December 31,

Dollars in thousands


2011


2010


2011


2010

Segment operating income (loss) (1)









Redbox (2)

$

76,595

$

53,734

$

284,932

$

190,850

Coin


25,678


25,382


100,966


96,317

New Ventures


(6,068)


(2,560)


(17,815)


(8,223)

        Subtotal


96,205


76,556


368,083


278,944










Depreciation, amortization and other:









Redbox


30,062


23,503


115,430


93,445

Coin


9,176


7,632


31,922


29,721

New Ventures


7


183


866


3,826

      Total depreciation, amortization and other


39,245


31,318


148,218


126,992










Share-based compensation expense


2,301


2,083


9,980


8,745










Operating income (loss):









Redbox


46,533


30,231


169,502


97,405

Coin


16,502


17,750


69,044


66,596

New Ventures


(6,075)


(2,743)


(18,681)


(12,049)

Share-based compensation expense


(2,301)


(2,083)


(9,980)


(8,745)

        Total operating income

$

54,659

$

43,155

$

209,885

$

143,207












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

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



SOURCE Coinstar, Inc.

Media, Marci Maule, Director of Public Relations, +1-425-943-8277, marci.maule@coinstar.com, or Financial Analysts and Investors, Rosemary Moothart, Director of Investor Relations, +1-425-943-8140, rosemary.moothart@coinstar.com, both of Coinstar, Inc.