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Coinstar, Inc. Announces 2012 First Quarter Results
Company Reports Revenue Growth of 34% and EPS Growth Over 200%; Reaffirms Higher 2012 Guidance

BELLEVUE, Wash., April 26, 2012 /PRNewswire/ -- Coinstar, Inc. (Nasdaq: CSTR) today announced financial results for the first quarter ended March 31, 2012.

"Coinstar delivered strong financial results in the first quarter demonstrating the strength of our core businesses and the value we offer consumers," said Paul Davis, chief executive officer of Coinstar, Inc.  "As we move forward in 2012, we continue to execute on a number of important initiatives including the launch of our Redbox digital solution with Verizon via our joint venture and the rollout of one to two of our new venture businesses."

Coinstar's 2012 first quarter financial highlights included:

Consolidated revenue

$

568.2

million

Operating income

$

78.3

million

Core adjusted EBITDA from continuing operations* (See Appendix A)

$

129.1

million

Diluted earnings per share from continuing operations

$

1.65


Core diluted earnings per share from continuing operations* (See Appendix A)

$

1.39


Net cash flows from operating activities from continuing operations

$

54.9

million

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

$

16.9

million

"Solid execution and operational excellence across Coinstar drove top and bottom line growth," said J. Scott Di Valerio, chief financial officer of Coinstar, Inc. "Our performance underscores the ability to generate profitable growth and simultaneously invest in the future of our core businesses and new automated retail concepts."

Revenue for the first quarter of 2012 increased 34.0% to $568.2 million compared with the first quarter of 2011, driven primarily by Redbox revenue growth of 38.8% to $502.9 million, reflecting growth in same store sales, new kiosk installations, strong performance of new release titles, and consumer acceptance of the price increase implemented on October 31, 2011. Coin revenue grew 5.6% to $64.8 million, reflecting growth in transactions, transaction size and same store sales.

Operating income for the first quarter of 2012 was $78.3 million, which resulted in an operating margin of 13.8%, compared with operating income of $31.4 million and an operating margin of 7.4% in the first quarter of 2011.

Income from continuing operations for the first quarter of 2012 was $53.7 million, or diluted earnings per share from continuing operations of $1.65, an increase in diluted earnings per share of 258.7% compared with $14.8 million, or $0.46 per share, in the first quarter of 2011.

Net cash flows from operating activities from continuing operations in the first quarter of 2012 was $54.9 million, compared with $60.0 million in the first quarter of 2011. Cash paid for capital expenditures for continuing operations for the first quarter of 2012 was $38.0 million, compared with $38.5 million in the first quarter of 2011. Free cash flow from continuing operations for the first quarter of 2012 was $16.9 million, compared with $21.5 million in the first quarter of 2011.

Guidance

For the 2012 full year, Coinstar management expects:

  • Consolidated revenue between $2.155 billion and $2.280 billion;
  • Core adjusted EBITDA from continuing operations* between $465 million and $495 million;
  • Core diluted EPS from continuing operations* between $4.40 and $4.80 on a fully diluted basis; and
  • Free cash flow from continuing operations* between $130 million and $155 million.

For the 2012 second quarter, Coinstar management expects:

  • Consolidated revenue between $525 million and $550 million;
  • Core adjusted EBITDA from continuing operations* between $114 million and $124 million; and
  • Core diluted EPS from continuing operations* between $1.09 and $1.24 on a fully diluted basis.

Additional Information

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

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 answer questions related to the company's performance and 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 two hours after the call through May 10, 2012, at 1-888-286-8010 or 1-617-801-6888, passcode 71453847.

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 36,800 DVD kiosks and 20,200 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, including 2012 second quarter and 2012 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 Coinstar, Inc. and Redbox, 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 with Verizon Communications,
  • 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, including financial service providers,
  • 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,
  • noteholders electing to convert our convertible notes,
  • the effective management of our content library,
  • 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 any subsequent 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.

* Refer to Appendix A for a discussion of non-GAAP financial measures, including the exclusion of certain non-core items.

(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 Financial Measures

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

  • Core adjusted EBITDA from continuing operations;
  • Core diluted earnings per share from continuing operations; and
  • Free cash flow from continuing operations.

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. 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

Our non-GAAP financial measure core adjusted EBITDA from continuing operations is defined as earnings before depreciation, amortization and other; interest expense, net; income taxes; share-based payments expense; and non-core adjustments, including i) deal fees primarily related to the acquisition of certain assets of NCR's self-service entertainment DVD kiosk business, ii) loss from equity method investments, which represents our share of income or loss from entities we do not consolidate or control, and iii) a gain on the grant of a license to use certain Redbox trademarks to our joint venture with Verizon Communications (the "Joint Venture").

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




Three Months Ended




March 31,

Dollars in thousands


2012


2011

Income from continuing operations

$

53,696

$

14,842


Depreciation, amortization and other


40,791


34,644


Interest expense, net


4,114


7,306


Income taxes


35,672


9,261


Share-based payments expense(1)


8,792


3,040



Adjusted EBITDA from continuing operations


143,065


69,093

Non-core adjustments:






Deal fees


1,203


168


Loss from equity method investments


4,341


150


Gain on formation of the Joint Venture


(19,500)


-



Core Adjusted EBITDA from continuing operations

$

129,109

$

69,411









(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 excluding non-core adjustments, net of applicable taxes, which include i) deal fees primarily related to the acquisition of certain assets of NCR's self-service entertainment DVD kiosk business, ii) loss from equity method investments, which represents our share of income or loss from entities we do not consolidate or control, and iii) a gain on the grant of a license to use certain Redbox trademarks to the Joint Venture.

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,



2012


2011

Diluted EPS from continuing operations

$

1.65

$

0.46

Non-core adjustments, net of tax:(1)






Deal fees


0.02


-


Loss from equity method investments


0.08


-


Gain on formation of the Joint Venture


(0.36)


-

Core diluted EPS from continuing operations

$

1.39

$

0.46







(1) Non-core adjustments are presented after-tax using an estimated tax rate of 40.0%.

Free Cash Flow from Continuing Operations

Our non-GAAP financial measure, free cash flow from continuing operations is defined as net cash provided by operating activities from continuing operations after capital expenditures. We believe free cash flow 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 and repurchase our common stock. The table below provides a reconciliation of net cash flows from operating activities from continuing operations, the most comparable GAAP financial measure, to free cash flow from continuing operations:





Three Months Ended





March 31,

Dollars in thousands


2012


2011

Net cash provided by operating activities

$

54,918

$

59,995

Purchase of property and equipment


(38,007)


(38,472)


Free cash flow from continuing operations

$

16,911

$

21,523

 

COINSTAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)








Three Months Ended




March 31,




2012


2011







Revenue

$

568,179

$

424,072







Expenses:






Direct operating


390,410


315,073


Marketing


6,957


5,117


Research and development


3,930


2,207


General and administrative


47,811


35,662


Depreciation and other  


40,104


33,959


Amortization of intangible assets


687


685

Total expenses


489,899


392,703






Operating income


78,280


31,369







Other income (expense):






Income (loss) from equity method investments


15,159


(150)


Interest expense, net


(4,114)


(7,306)


Other, net


43


190

Total other income (expense)


11,088


(7,266)






Income from continuing operations before income taxes


89,368


24,103

Income tax expense


(35,672)


(9,261)

Income from continuing operations


53,696


14,842

Loss from discontinued operations, net of tax


-


(6,346)

Net income


53,696


8,496







Other comprehensive income, before tax:






Foreign currency translation adjustment


727


745


Interest rate hedges on long-term debt


-


896


Gain on short-term investments


-


4


Income tax expense related to items of other comprehensive income


-


(351)

Other comprehensive income, net of tax


727


1,294

Comprehensive income

$

54,423

$

9,790







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






Continuing operations  

$

1.76

$

0.47


Discontinued operations


-


(0.20)

Basic earnings per share attributable to Coinstar, Inc.

$

1.76

$

0.27







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






Continuing operations  

$

1.65

$

0.46


Discontinued operations


-


(0.20)

Diluted earnings per share attributable to Coinstar, Inc.

$

1.65

$

0.26






Weighted average shares used in basic per share calculations


30,590


31,067

Weighted average shares used in diluted per share calculations


32,628


32,142

 

COINSTAR, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)














March 31,


December 31,






2012


2011










Assets






Current Assets:







Cash and cash equivalents

$

329,628

$

341,855



Accounts receivable, net of allowances of $1,863 and $1,586


43,035


41,246



Content library


145,704


142,386



Deferred income taxes


80,089


101,341



Prepaid expenses and other current assets


30,858


25,274




Total current assets


629,314


652,102










Property and equipment, net


498,302


499,178


Notes receivable


25,444


24,374


Deferred income taxes


485


647


Goodwill and other intangible assets


274,025


274,583


Other long-term assets


59,254


17,066


Total assets

$

1,486,824

$

1,467,950










Liabilities and Stockholders' Equity






Current Liabilities:







Accounts payable

$

137,979

$

175,550



Accrued payable to retailers


113,795


127,450



Other accrued liabilities


147,396


148,996



Current callable convertible debt


181,415


-



Current portion of long-term debt


14,007


13,986



Current portion of capital lease obligations


10,573


12,057




Total current liabilities


605,165


478,039









Long-term debt and other long-term liabilities


176,616


359,288


Capital lease obligations


11,007


11,768


Deferred tax liabilities


94,264


87,840


Total liabilities


887,052


936,935








Commitments and contingencies


-


-


Debt conversion feature


18,585


-








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;








35,670,257 and 35,251,932 shares issued; 31,297,299 and








30,879,778 shares outstanding


476,998


481,249



Treasury stock


(153,425)


(153,425)



Retained earnings


259,558


205,862



Accumulated other comprehensive loss


(1,944)


(2,671)




Total stockholders' equity


581,187


531,015



Total liabilities and stockholders' equity

$

1,486,824

$

1,467,950

 

COINSTAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)
















Three Months Ended








March 31,



2012


2011

Operating Activities:





Net income

$

53,696

$

8,496

Adjustments to reconcile net income to net cash flows from






operating activities from continuing operations:






Depreciation and other



40,104


33,959


Amortization of intangible assets and deferred financing fees



1,219


1,193


Share-based payments expense



8,792


3,040


Excess tax benefits on share-based payments



(3,139)


(2,128)


Deferred income taxes



31,184


6,356


Loss from discontinued operations, net of tax



-


6,346


(Income) loss from equity method investments



(15,159)


150


Non-cash interest on convertible debt



1,717


1,583


Other



(1,511)


(12)

Cash flows from changes in operating assets and liabilities from continuing operations


(61,985)


1,012


Net cash flows from operating activities from continuing operations



54,918


59,995








Investing Activities:





Purchases of property and equipment


(38,007)


(38,472)

Proceeds from sale of property and equipment


144


176

Equity investments


(28,350)


(2,320)


Net cash flows from investing activities from continuing operations



(66,213)


(40,616)











Financing Activities:





Principal payments on capital lease obligations and other debt


(4,683)


(12,141)

Principal payments on term loan


(2,188)


-

Excess tax benefits related to share-based payments


3,139


2,128

Repurchases of common stock and ASR program


-


(63,349)

Proceeds from exercise of stock options, net


2,213


260


Net cash flows from financing activities from continuing operations



(1,519)


(73,102)











Effect of exchange rate changes on cash


587


667

Decrease in cash and cash equivalents from continuing operations


(12,227)


(53,056)

Cash flows from discontinued operations:





Operating cash flows


-


6,726

Investing cash flows


-


774

Financing cash flows


-


-


Net cash flows from discontinued operations



-


7,500

Decrease in cash and cash equivalents


(12,227)


(45,556)

Cash and cash equivalents:





Beginning of period


341,855


183,416

End of period

$

329,628

$

137,860






 

Coinstar, Inc.

Business Segment Information

(in thousands)

(unaudited)


As a complement to our Consolidated Statements of Comprehensive 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




March 31,

Dollars in thousands


2012


2011

Revenue:






Redbox

$

502,942

$

362,344


Coin


64,826


61,363


New Ventures


411


365

Consolidated revenue

$

568,179

$

424,072











Segment operating income reconciled to GAAP operating income









Three Months Ended





March 31,

Dollars in thousands


2012


2011

Segment operating income (loss)(1)






Redbox(2)

$

108,818

$

50,821


Coin


19,319


20,609


New Ventures


(5,617)


(2,555)



Subtotal


122,520


68,875








Depreciation, amortization and other:






Redbox


32,443


27,098


Coin


8,341


7,371


New Ventures


7


175



Total depreciation, amortization and other


40,791


34,644









Share-based compensation expense


3,449


2,862








Operating income (loss):






Redbox


76,375


23,723


Coin


10,978


13,238


New Ventures


(5,624)


(2,730)


Share-based compensation expense


(3,449)


(2,862)



Total operating income

$

78,280

$

31,369









(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