Coinstar, Inc. Announces 2012 Fourth Quarter And Full Year Results

BELLEVUE, Wash., Feb. 7, 2013 /PRNewswire/ -- Coinstar, Inc. (Nasdaq: CSTR) today announced financial results for the fourth quarter and full year ended December 31, 2012.

"We are pleased with our performance in 2012, which drove annual revenue of more than $2 billion for the first time," said Paul Davis, chief executive officer of Coinstar, Inc. "Our ongoing commitment to creating value for our consumers, our partners and, ultimately, our shareholders drove substantial progress on several growth initiatives that we outlined at the beginning of 2012, including Redbox Instant by Verizon, the launch of the Redbox Tickets pilot, Rubi coffee kiosks and our expansion into Canada. We made strategic investments across our business this year that we believe will generate new opportunities for growth as we move through 2013 and beyond."

Financial highlights for the 2012 fourth quarter and full year included:

"Our Q4 and full year results demonstrate our ability to effectively manage growth through challenges and continue to drive earnings and free cash flow," said J. Scott Di Valerio, chief financial officer of Coinstar, Inc. "In 2012 we continued to make the investments, build the organization and refine the processes that are paving the way for additional growth in the long term. We are more focused than ever on executing on our plans to drive success for our company and our shareholders."

Revenue for the fourth quarter of 2012 increased 8.4% to $564.1 million compared with the fourth quarter of 2011, driven primarily by Redbox revenue growth of 9.6% to $488.3 million primarily reflecting new kiosk installations. Coin revenue remained relatively flat at $74.5 million.

Operating income for the fourth quarter of 2012 was $47.8 million, which resulted in an operating margin of 8.5%, compared with operating income of $54.7 million and an operating margin of 10.5% in the fourth quarter of 2011. The decrease in operating margin was primarily driven by the operating results from the kiosks acquired as part of our NCR asset acquisition.

Income from continuing operations for the fourth quarter of 2012 was $22.9 million, or diluted earnings per share from continuing operations of $0.75, a decrease in diluted earnings per share of 25.0% compared with $31.5 million, or $1.00 per share, in the fourth quarter of 2011. Core diluted earnings per share from continuing operations for the fourth quarter of 2012 was $0.93, excluding non-core adjustments of $0.18 per share, compared with $1.03, excluding non-core adjustments of $0.03 per share in the fourth quarter of 2011.

Coinstar's fourth quarter 2012 results include a negative impact of $6.4 million before taxes, or $0.13 on core diluted earnings per share from continuing operations attributable to the operating results of the kiosks acquired as part of the NCR asset acquisition.

For the 2012 full year revenue was $2.2 billion, an increase of 19.3% compared with 2011. Operating income for 2012 was $262.8 million, which resulted in an operating margin of 11.9%, compared with operating income of $209.9 million and an operating margin of 11.4% in 2011. Income from continuing operations for 2012 was $150.2 million, or $4.67 per diluted share, compared with income from continuing operations of $115.0 million, or $3.61 per diluted share, in 2011, an increase in diluted earnings per share of 29.4%. Core diluted earnings per share from continuing operations for the full year 2012 was $4.83, excluding non-core adjustments of $0.16 per share, compared with $3.67 per diluted share, excluding non-core adjustments of $0.06 per share in 2011.

For the full year, results include a negative impact of $14.5 million before taxes, or $0.28 on core diluted earnings per share from continuing operations attributable to the operating results of the kiosks acquired as part of the NCR asset acquisition.

Net cash flows from operating activities from continuing operations in the fourth quarter of 2012 was $152.2 million, compared with $144.9 million in the fourth quarter of 2011. Cash paid for capital expenditures for continuing operations for the fourth quarter of 2012 was $74.9 million, compared with $44.5 million in the fourth quarter of 2011.

Free cash flow from continuing operations for the fourth quarter of 2012 was $77.3 million, compared with $100.4 million in the fourth quarter of 2011, bringing the total to $255.9 million for the full year of 2012.

During the fourth quarter of 2012, the company repurchased approximately $76.7 million of its common stock representing 1.57 million shares at an average price of $48.71 per share. Of the total amount repurchased, $75.0 million was completed through an accelerated share repurchase agreement entered into on November 1 and concluded on December 28, 2012 and the remaining $1.7 million was completed through open market repurchases. During 2012, the company repurchased approximately $139.7 million of its common stock representing 2.80 million shares at an average price of $49.92 per share through a combination of a previously announced 10b5-1 plan, accelerated share repurchase agreements, and open market purchases. On December 31, 2012, there was $133.6 million remaining under the current Board authorization for stock repurchases. In January 2013, Coinstar's board authorized the repurchase of an additional $250 million, plus the amount of cash proceeds received by the company from the exercise of stock options by its officers, directors and employees.

Guidance

For the 2013 full year, Coinstar management expects:

• Consolidated revenue between $2.375 billion and $2.555 billion;
• Core adjusted EBITDA from continuing operations between $473 million and $513 million;
• Core diluted EPS from continuing operations between $4.91 and $5.51; and
• Free cash flow from continuing operations between $180 million and $200 million.

For the 2013 first quarter, Coinstar management expects:

• Consolidated revenue between $568 million and $593 million;
• Core adjusted EBITDA from continuing operations between $95 million and $105 million; and
• Core diluted EPS from continuing operations between $0.77 and $0.92.

Additional Information

Coinstar has provided additional comments on guidance in prepared remarks that also review the company's 2012 fourth quarter and full year 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. The 2012 fourth quarter Segment Supplement, which provides historical data in Excel format, is also posted on the website.

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 www.coinstarinc.com. A recording of the call will be available approximately two hours after the call ends through February 21, 2013, at 888‑843‑7419 or 630‑652‑3042, passcode 3405 2768#.

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 movie and video game rental and Coinstar® self-service coin-counting brands. The company has approximately 43,700 DVD kiosks and 20,300 coin-counting kiosks in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants. Redbox also offers DVD rentals through additional kiosks acquired from NCR Corporation in June 2012. 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 2013 first quarter and 2013 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.

(Financial Statements Follow)

Appendix A

Non-GAAP Financial Measures

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

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

• Core adjusted EBITDA from continuing operations;
• Core diluted earnings per share ("EPS") from continuing operations; 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.

Core and Non-Core Results

We distinguish our core activities, those associated with our primary operations, from non-core activities. Non-core activities are primarily nonrecurring events or events we do not control. Our non-core adjustments include i) deal fees primarily related to the NCR Asset Acquisition, ii) income or 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 Redbox Instant by Verizon ("Non-Core Adjustments"). 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.

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:

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.

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:

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 provided by operating activities from continuing operations, the most comparable GAAP financial measure, to free cash flow from continuing operations:

SOURCE Coinstar, Inc.

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