Coinstar Announces Second Quarter 2007 Results

Coinstar, Inc. (NASDAQ:CSTR) today announced results for the three months ended June 30, 2007. Highlights for the three months ended June 30, 2007, were as follows: Revenue $ 137.4 million EBITDA $ 27.9 million (see Appendix A) Free Cash Flow $ (1.0 ) million (see Appendix A) Adjusted earnings per fully taxed, fully diluted share $ 0.21 (see reconciliation below) Net Income $ 3.3 million Highlights for the six months ended June 30, 2007, were as follows: Revenue $ 269.7 million EBITDA $ 54.7 million (see Appendix A) Free Cash Flow $ 2.6 million (see Appendix A) Adjusted earnings per fully taxed, fully diluted share $ 0.37 (see reconciliation below) Net Income $ 5.9 million Included in GAAP net income for the second quarter of 2007 were certain non-cash charges including $1.8 million in amortization of intangible assets, $1.6 million in non-cash stock based compensation, and $0.9 million related to the Company’s portion of non-cash losses associated with investments in DVD kiosk companies and amortization of financing fees. Excluding these items, net of taxes, Coinstar reported adjusted net income of $5.8 million. A reconciliation of GAAP earnings per share to adjusted earnings per share for the three months ended June 30, 2007, is as follows: Three Months Ended June 30, 2007 GAAP fully taxed, fully diluted earnings $ 0.12   Amortization of intangibles, net of tax 0.04 Stock based compensation expense, net of tax 0.04 Non-cash losses in investments in DVD kiosk companies and amortization of financing fees, net of tax 0.01     Adjusted fully taxed, fully diluted earnings $ 0.21 Included in GAAP net income for the first half of 2007 were certain non-cash charges including $3.6 million in amortization of intangible assets, $3.3 million in non-cash stock based compensation, and $1.1 million related to the Company’s portion of non-cash losses associated with investments in DVD kiosk companies and amortization of financing fees. Excluding these items, net of taxes, Coinstar reported adjusted net income of $10.4 million. A reconciliation of GAAP earnings per share to adjusted earnings per share for the six months ended June 30, 2007, is as follows: Six Months Ended June 30, 2007 GAAP fully taxed, fully diluted earnings $ 0.21   Amortization of intangibles, net of tax 0.07 Stock based compensation expense, net of tax 0.07 Non-cash losses in investments in DVD kiosk companies and amortization of financing fees, net of tax 0.02     Adjusted fully taxed, fully diluted earnings $ 0.37 At June 30, 2007, Coinstar had federal and state cumulative net operating loss carryforwards of approximately $42.8 million and $36.0 million respectively. In addition, there was foreign net operating loss carryforwards of approximately $8.6 million. Although Coinstar recorded $5.2 million in tax expense for the first half of the year, as a result of these net operating loss carryforwards, cash paid for taxes during the six-month period totaled only $1.9 million. "We’re pleased with our second quarter and year-to-date performance, which again met our expectations. Coin processing, DVD kiosks and e-payment all made significant progress during the period, although our entertainment category continued to face challenges,” Dave Cole, Chief Executive Officer of Coinstar, Inc. stated. "We’re pleased with our ability to balance investment and profitability over the first two quarters of 2007. We’ve seen strong installations and solid same store sales across most of our business lines, and we believe our plans for the entertainment category will lead to improved results. Our 4th Wall strategy remains in demand by retailers and consumers, and our goal is to continue to grow our business lines and retailer relationships as opportunities present themselves.” Other Information Three Months Ended Three Months Ended 6/30/2007 6/30/2006   Cash paid for capital expenditures (in thousands) $ 24,323 $ 8,447   Installed Base 6/30/2007 6/30/2006   Coin 14,200 13,100 Coin to card, e-payment or e-certificate enabled 8,900 6,700   Crane 29,500 31,000 Bulk heads and other 267,000 267,000 POSA terminals 14,500 19,500 Share Repurchase During the second quarter, Coinstar did not repurchase shares of common stock. For the remainder of 2007, Coinstar expects to repurchase shares of its stock subject to market and other conditions. Expectations Management estimates that revenue for the second half of 2007 will range from $285 million to $305 million. In addition, management estimates that for the second half of 2007 GAAP earnings per fully taxed, fully diluted share will range from $0.33 to $0.49. Management estimates that revenue for the third quarter ending September 30, 2007, will range from $140 million to $150 million. In addition, management estimates that for the third quarter GAAP earnings per fully taxed, fully diluted share will range from $0.15 to $0.23 with adjusted earnings per fully taxed, fully diluted share ranging from $0.23 to $0.31. Conference Call A conference call to discuss second quarter 2007 results will be broadcast live over the Internet today, Thursday, August 2, 2007, at 5:00 p.m. Eastern Time. The Webcast will be hosted at the About Us – Investor Relations section of Coinstar’s Web site at www.coinstar.com. About Coinstar, Inc. Coinstar, Inc. (NASDAQ:CSTR) is a multi-national company offering a range of 4th Wall™ solutions for the retailers’ front of store consisting of self-service coin counting, electronic payment solutions, entertainment services, money transfer and self-service DVD rental. The company’s products and services can be found at more than 60,000 retail locations including supermarkets, drug stores, mass merchants, financial institutions, convenience stores and restaurants. 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, payment of increased service fees to retailers, the ability to attract new retailers, penetrate new markets and distribution channels, cross-sell our products and services 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 Item 1A of Part I of our most recent Annual Report on Form 10-K 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. Appendix A (in thousands unless otherwise noted) Non GAAP measures Non GAAP measures are 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. Definitions of such non GAAP measurements are provided below. These definitions are provided 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. EBITDA represents earnings before net interest expense, income taxes, depreciation, amortization and certain other non-cash charges including stock based compensation expense. Stock based compensation expense was not included in the EBITDA reconciliation table in prior periods. Including stock based compensation expense, EBITDA for the three and six months ended 6/30/06 was $27,152 and $53,623, respectively. We believe EBITDA is an important non GAAP measure as it provides useful information regarding our ability to service, incur or pay down indebtedness and for purposes of calculating certain debt covenants. In addition, management uses such non GAAP measures internally to evaluate performance and manage operations. See below for reconciliation of most comparable GAAP measurements to EBITDA. Three Months Ended Six Months Ended in thousands 6/30/2007 6/30/2007   Net income $ 3,348 $ 5,904 Depreciation, amortization and other 16,366 32,573 Interest expense, net 3,933 7,712 Income taxes 2,656 5,222 Stock based compensation   1,595   3,279 EBITDA $ 27,898 $ 54,690 Free cash flow: we believe free cash flow is an important non GAAP measure as it provides useful cash flow information regarding our ability to service, incur or pay down indebtedness and repurchase our common stock. We use free cash flow as a measure to reflect cash available to service our debt as well as to fund our expenditures. Free cash flow may be reconciled from net cash provided by operating activities, the most directly comparable GAAP measure, as follows: Three Months Ended Six Months Ended in thousands 6/30/2007 6/30/2007   Net cash provided by operating activities $ 40,124 $ 27,495 Changes in operating assets and liabilities (16,778 ) 17,554 Cash paid for capital expenditures   (24,323 )   (42,449 ) FREE CASH FLOW $ (977 ) $ 2,600   Adjusted earnings per share: we believe the adjusted earnings per share are an important non GAAP measure as it provides useful information about our results from operations excluding certain non-cash charges. We believe this measure provides an important comparison to prior period earnings and is representative of our operating results. Coinstar, Inc. Consolidated Statements of Operations (in thousands, except per share data) (unaudited)   Six Month Periods Three Month Periods Ended June 30 Ended June 30   2007     2006     2007     2006     REVENUE $ 269,692 $ 256,359 $ 137,356 $ 130,327 EXPENSES: Direct operating 184,209 175,353 92,570 87,654 Marketing 4,240 4,313 2,614 3,389 Research and development 2,686 2,634 1,345 1,393 General and administrative 25,651 23,960 13,404 12,594 Depreciation and other 29,017 26,154 14,549 13,295 Amortization of intangible assets   3,556     2,837     1,817     1,510   Income from operations 20,333 21,108 11,057 10,492 OTHER INCOME (EXPENSE): Interest income and other, net 248 891 173 420 Interest expense (8,099 ) (7,718 ) (4,125 ) (3,986 ) (Loss) income from equity investments (1,356 ) 495 (1,101 ) 304 Early retirement of debt   -     (238 )   -     -   Income before income taxes 11,126 14,538 6,004 7,230 Income taxes   (5,222 )   (6,240 )   (2,656 )   (3,111 ) NET INCOME $ 5,904   $ 8,298   $ 3,348   $ 4,119     NET INCOME PER SHARE: Basic $ 0.21 $ 0.30 $ 0.12 $ 0.15 Diluted $ 0.21 $ 0.30 $ 0.12 $ 0.15   WEIGHTED SHARES OUTSTANDING: Basic 27,772 27,735 27,766 27,754 Diluted 28,301 28,011 28,314 28,034 Coinstar, Inc. Consolidated Balance Sheets (in thousands) (unaudited)   June 30, Dec. 31,   2007     2006     ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,633 $ 24,726 Cash in machine or in transit 65,635 63,740 Cash being processed 86,247 89,698 Trade accounts receivable, net of allowance for doubtful accounts of $1,225 and $1,050 at June 30, 2007 and December 31, 2006, respectively 21,846 21,339 Inventory 37,609 39,334 Deferred income taxes 20,031 17,775 Prepaid expenses and other current assets   13,791     13,371   Total current assets 250,792 269,983 PROPERTY AND EQUIPMENT, NET 179,943 160,962 DEFERRED INCOME TAXES 1,394 34 OTHER ASSETS 13,786 3,807 EQUITY INVESTMENTS 30,555 31,259 INTANGIBLE ASSETS, NET 41,658 43,121 GOODWILL   210,582     208,917   TOTAL ASSETS $ 728,710   $ 718,083     LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 50,257 $ 57,536 Accrued liabilities payable to retailers 90,244 95,737 Other accrued liabilities 35,457 35,693 Current portion of long-term debt and capital lease obligations   15,116     7,883   Total current liabilities 191,074 196,849 LONG-TERM DEBT, CAPITAL LEASE OBLIGATIONS AND OTHER 193,168 192,381 DEFERRED TAX LIABILITY   13,127     7,488   TOTAL LIABILITIES 397,369 396,718   STOCKHOLDERS’ EQUITY: Preferred stock, $0.001 par value—Authorized, 5,000,000 shares; no shares issued and outstanding at June 30, 2007 and December 31, 2006 - - Common stock, $0.001 par value—Authorized, 45,000,000 shares; 29,590,952 and 29,383,150 issued and 27,903,013 and 27,816,011 shares outstanding at June 30, 2007 and December 31, 2006, respectively   349,610 343,229 Retained earnings 11,373 5,469 Treasury stock (34,301 ) (30,806 ) Accumulated other comprehensive income   4,659     3,473   Total stockholders’ equity   331,341     321,365   TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 728,710   $ 718,083   COINSTAR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)   Six Month Periods Ended June 30,   2007     2006     OPERATING ACTIVITIES: Net income $ 5,904 $ 8,298 Adjustments to reconcile income from operations to net cash provided by operating activities: Depreciation and other 29,017 26,154 Amortization of intangible assets 3,556 2,837 Amortization of deferred financing fees 375 381 Loss on early retirement of debt - 238 Non-cash stock-based compensation 3,279 2,912 Excess tax benefit from exercise of stock options (1,754 ) - Deferred income taxes 4,032 4,702 Loss (income) from equity investments 750 (495 ) Return on equity investments - 720 Other (110 ) (83 ) Cash provided (used) by changes in operating assets and liabilities, net of effects of business acquisitions:   Accounts receivable (117 ) (2,082 ) Inventory 1,726 (4,976 ) Prepaid expenses and other current assets (2,467 ) 2,218 Other assets (2,108 ) 45 Accounts payable (7,283 ) 6,858 Accrued liabilities payable to retailers (6,014 ) (5,997 ) Accrued liabilities   (1,291 )   642   Net cash (used) provided by operating activities 27,495 42,372 INVESTING ACTIVITIES: Purchase of property and equipment (42,449 ) (15,864 ) Acquisitions, net of cash acquired (81 ) (27,747 ) Loan to equity investee (10,000 ) - Proceeds from sale of fixed assets   399     52   Net cash used by investing activities (52,131 ) (43,559 ) FINANCING ACTIVITIES: Principal payments on long-term debt and capital lease obligations (4,744 ) (20,291 ) Additional borrowings on credit facility 7,000 - Excess tax benefit from exercise of stock options 1,754 - Repurchase of common stock (3,495 ) (5,203 ) Proceeds from exercise of stock options   2,743     1,006   Net cash used by financing activities 3,258 (24,488 )   Effect of exchange rate changes on cash 729 1,422   NET DECREASE IN CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN TRANSIT, AND CASH BEING PROCESSED (20,649 ) (24,253 )   CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN TRANSIT, AND CASH BEING PROCESSED:   Beginning of period   178,164     175,267   End of period $ 157,515   $ 151,014     SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 7,766 $ 7,311 Cash paid during the period for taxes 1,868 1,022 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:   Purchase of vehicles financed by capital lease obligations $ 4,105 $ 11,573 Accrued acquisition costs $ 71 $ 1,170