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

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

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Feb 06, 2012, 04:01 ET

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 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 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.

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