Coinstar, Inc. Announces Third Quarter 2009 Results

Coinstar, Inc. (NASDAQ:CSTR) today announced financial results for the third quarter and nine-month period ended September 30, 2009, which reflect the sale of its entertainment services business on September 8, 2009.

As a result of the sale, Coinstar recorded income from discontinued operations, net of tax, of $31.7 million, or $1.03 per diluted share, for the third quarter. The $31.7 million included a loss from the operations of the discontinued business for the third quarter of $0.7 million, or a loss of $0.02 per share. In addition, Coinstar recorded a pre-tax loss on disposal of $49.8 million and a one-time tax benefit of $82.2 million on the sale of the entertainment services business, netting to $32.4 million, or $1.05 per share. All prior period results have been adjusted to reflect the results of the entertainment services business as discontinued operations.

Highlights for the quarter ended September 30, 2009, were as follows:

					-- Revenue		$	296.0		million
					-- Adjusted EBITDA from continuing operations (See Appendix A)		$	54.9		million
					-- Income from continuing operations		$	9.7		million
					-- Income from discontinued operations, net of tax		$	31.7		million
					-- Net income attributable to Coinstar, Inc.		$	41.4		million
					-- Earnings from continuing operations per diluted share		$	0.31
					-- Earnings per diluted share		$	1.34

Highlights for the nine-month period ended September 30, 2009, were as follows:

					-- Revenue		$	816.8		million
					-- Adjusted EBITDA from continuing operations (See Appendix A)		$	147.6		million
					-- Income from continuing operations		$	25.9		million
					-- Income from discontinued operations, net of tax		$	28.0		million
					-- Net income attributable to Coinstar, Inc.		$	50.3		million
					-- Earnings from continuing operations per diluted share		$	0.74
					-- Earnings per diluted share		$	1.66

Financial results for the third quarter of 2009 included the following:

Revenue for the third quarter of 2009 totaled $296.0 million, an increase of 45.5 percent compared with revenue of $203.5 million in the third quarter of 2008.

Income from operations for the quarter was $27.1 million, resulting in a 9.2 percent operating margin, compared with income from operations of $20.2 million and a 9.9 percent operating margin in the third quarter of 2008.

Income from continuing operations for the quarter was $9.7 million, or $0.31 per diluted share, an increase of 22.5 percent compared with income from continuing operations of $7.9 million, or $0.27 per diluted share, in the third quarter of 2008.

Net income attributable to Coinstar for the quarter was $41.4 million, or $1.34 per diluted share, compared with net income attributable to Coinstar of $4.5 million, or $0.16 per diluted share, in the third quarter of 2008.

“In the third quarter, our core DVD rental and coin-counting businesses continued to produce solid results at both the top and bottom line,” said Paul Davis, chief executive officer of Coinstar, Inc. “Our performance reflects Coinstar’s strength in self-service automated retail and our consistent ability to deliver value and convenience to our consumers and retailers.”

Other Information

On September 16, 2009, Coinstar completed a debt offering of $200 million of convertible senior notes and raised $193.3 million, net of expenses. The net proceeds of the convertible offering were used to pay the outstanding balance of the company's Term Loan under its senior secured credit facility, which was $87.5 million. The company used the remaining proceeds of $105.8 million to pay down part of its existing credit facility.

Cash paid for capital expenditures for the third quarter ended September 30, 2009 was $29.6 million, compared with $49.5 million in the third quarter of 2008.

At September 30, 2009, Coinstar had federal and state cumulative net operating loss carryforwards of approximately $248.6 million and $242.3 million, respectively. In addition, Coinstar had foreign net operating loss carryforwards of approximately $33.6 million. The state and foreign loss carryforwards are subject to certain limitations that may prevent or delay utilization of the losses against future income. Although Coinstar recorded $6.8 million in tax expense for the continuing operations for the quarter, cash paid for taxes during the quarter totaled $0.3 million.

Full Year 2009 Guidance

Guidance provided by management reflects the sale of the entertainment services business and the increased GAAP interest expense from the convertible debt offering. For 2009, management expects revenue in the range of $1.115 to $1.165 billion. Management expects adjusted EBITDA from continuing operations in the range of $200 to $210 million. In addition, management announced that for 2009, on a fully diluted basis, it expects GAAP EPS from continuing operations in the range of $0.98 to $1.04 and GAAP EPS attributable to Coinstar, Inc. in the range of $1.90 to $1.96.

Conference Call

Coinstar management will host a conference call today at 2:00 p.m. PST (5:00 p.m. EST) to review the results. A live webcast of the conference call will be accessible on the Investor Relations section of Coinstar’s website at www.coinstar.com, where it will be archived. A telephonic replay of the call will be available approximately two hours after the call ends through November 19, 2009, at 1-888-286-8010 or 1-617-801-6888, passcode 88829130.

About Coinstar, Inc.

Coinstar, Inc. (NASDAQ:CSTR) is a leading provider of automated retail solutions offering convenient products and services that make life easier for consumers and drive incremental traffic and revenue for its retailers. The company’s core automated retail businesses are self-service coin counting and self-service DVD rental. Other Coinstar products and services include e-payment products – such as gift cards, prepaid debit cards and other prepaid products – and money transfer services. The company's products and services can be found at more than 90,000 points of presence including supermarkets, drug stores, mass merchants, financial institutions, convenience stores, restaurants, and money transfer agents. For more information, visit www.coinstar.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., 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 our most recent Annual Report on Form 10-K and Quarterly Report 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

(in thousands)

Non-GAAP 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 definition of adjusted EBITDA from continuing operations, a non-GAAP measure, is provided below to allow the reader to reconcile non-GAAP data to that presented in accordance with GAAP. Our non-GAAP measure may be different from the presentation of financial information by other companies.

Adjusted EBITDA from continuing operations, as defined, represents 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 stock-based compensation and share-based expenses from continuing operations. We believe adjusted EBITDA from continuing operations is an important non-GAAP measure as it provides useful information to investors 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. See below for reconciliation of the most comparable GAAP measure, income from continuing operations, to adjusted EBITDA from continuing operations.

			Three-Month Period			Three-Month Period
			Ended September 30, 2009			Ended September 30, 2008
	Income from continuing operations		$	9,641		$	7,870
	Depreciation, amortization and other			25,461			17,425
	Interest expense, net			9,342			5,214
	Income taxes			6,761			6,357
	Stock-based compensation and share-based expense			2,660			2,291
	Early retirement of debt			1,082			-
	Adjusted EBITDA from continuing operations		$	54,947		$	39,157
			Nine-Month Period			Nine-Month Period
			Ended September 30, 2009			Ended September 30, 2008
	Income from continuing operations		$	25,904		$	23,573
	Depreciation, amortization and other			72,805			48,220
	Interest expense, net			24,326			15,010
	Income taxes			16,231			13,272
	Stock-based compensation and share-based expense			7,297			6,175
	Early retirement of debt			1,082			-
	Adjusted EBITDA from continuing operations		$	147,645		$	106,250

Coinstar, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
		Nine Month Periods								Three Month Periods
		Ended September 30,								Ended September 30,
			2009				2008				2009				2008
REVENUE		$	816,786			$	533,817			$	295,970			$	203,452
EXPENSES:
Direct operating			559,054				344,232				203,650				134,342
Marketing			16,605				13,946				5,833				7,372
Research and development			3,916				3,578				1,360				1,157
General and administrative			96,524				65,789				32,570				22,997
Depreciation and other			66,864				41,997				23,432				15,384
Amortization of intangible assets			5,941				6,223				2,029				2,041
Proxy, write-off of acquisition costs, and litigation settlement			-				3,084				-				-
Income from operations			67,882				54,968				27,096				20,159
OTHER INCOME (EXPENSE):
Foreign currency loss and other, net			(339	)			(2,775	)			(270	)			(717	)
Interest income			184				1,063				30				180
Interest expense			(24,510	)			(16,073	)			(9,372	)			(5,394	)
Loss from equity investments			-				(338	)			-				(1	)
Early retirement of debt			(1,082	)			-				(1,082	)			-
Income from continuing operations before income taxes			42,135				36,845				16,402				14,227
Income tax expense			(16,231	)			(13,272	)			(6,761	)			(6,357	)
Income from continuing operations			25,904				23,573				9,641				7,870
Income (loss) from discontinued operations, net of tax			28,007				(2,892	)			31,722				(12	)
Net income			53,911				20,681				41,363				7,858
Less: Net income attributable to non-controlling interests			(3,627	)			(10,789	)			-				(3,347	)
NET INCOME ATTRIBUTABLE TO COINSTAR, INC.		$	50,284			$	9,892			$	41,363			$	4,511
BASIC EARNINGS PER SHARE:
Basic earnings per share from continuing operations attributable to Coinstar, Inc		$	0.75			$	0.45			$	0.32			$	0.16
Basic earnings per share from discontinued operations attributable to Coinstar, Inc			0.94				(0.10	)			1.04				-
Basic earnings per share attributable to Coinstar, Inc.		$	1.69			$	0.35			$	1.36			$	0.16
DILUTED EARNINGS PER SHARE:
Diluted earnings per share from continuing operations attributable to Coinstar, Inc		$	0.74			$	0.45			$	0.31			$	0.16
Diluted earnings per share from discontinued operations attributable to Coinstar, Inc			0.92				(0.10	)			1.03				-
Diluted earnings per share attributable to Coinstar, Inc.		$	1.66			$	0.35			$	1.34			$	0.16
WEIGHTED SHARES OUTSTANDING:
Basic			29,829				27,992				30,437				28,170
Diluted			30,209				28,507				30,840				28,685

Coinstar, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
		September 30,				December 31,
			2009				2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	68,411			$	66,408
Cash in machine or in transit			49,290				34,583
Cash being processed			65,679				91,044
Accounts receivable, net of allowance for doubtful accounts of $4,076 and $2,702
at September 30, 2009 and December 31, 2008, respectively			57,235				51,908
Inventory			88,041				92,247
Deferred income taxes			8,594				6,881
Prepaid expenses and other current assets			24,990				24,715
Total current assets			362,240				367,786
PROPERTY AND EQUIPMENT, NET			382,184				348,949
DEFERRED INCOME TAXES			103,567				4,338
OTHER ASSETS			16,511				11,865
INTANGIBLE ASSETS, NET			32,877				43,385
GOODWILL			292,361				290,391
TOTAL ASSETS		$	1,189,740			$	1,066,714
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable		$	100,919			$	132,194
Accrued payable to retailers and agents			115,303				132,490
Other accrued liabilities			82,027				87,500
Current portion of long-term debt			6,682				11,655
Current portion of capital lease obligations			27,428				20,264
Total current liabilities			332,359				384,103
LONG-TERM DEBT AND OTHER			418,667				295,942
CAPITAL LEASE OBLIGATIONS			31,950				23,509
DEFERRED TAX LIABILITY			60				12,072
TOTAL LIABILITIES			783,036				715,626
EQUITY:
Preferred stock, $0.001 par value—Authorized, 5,000,000 shares; no shares issued and outstanding at September 30, 2009 and December 31, 2008			-				-
Common stock, $0.001 par value—Authorized, 45,000,000 shares; 32,894,913 and 30,181,151 issued and 30,968,832 and 28,255,070 shares outstanding at September 30, 2009 and December 31, 2008, respectively
			401,532				369,735
Retained earnings (accumulated deficit)			47,612				(2,672	)
Treasury stock			(40,831	)			(40,831	)
Accumulated other comprehensive loss			(1,609	)			(6,204	)
Total stockholders’ equity			406,704				320,028
Non-controlling interest			-				31,060
Total equity			406,704				351,088
TOTAL LIABILITIES AND EQUITY		$	1,189,740			$	1,066,714

Coinstar, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
		Nine Month Periods
		Ended September 30,
			2009				2008
OPERATING ACTIVITIES:
Net income		$	53,911			$	20,681
Adjustments to reconcile net income to net cash provided by operating activities from continuing operations:
Depreciation and other			66,864				41,997
Amortization of intangible assets and deferred financing fees			6,907				6,608
Write-off of acquisition costs			1,262				1,004
Non-cash stock-based compensation for employees			6,232				6,288
Share-based payments for DVD agreement			1,091				-
Excess tax benefit on share-based awards			-				(615	)
Deferred income taxes			3,582				9,231
Income from equity investments			-				3,449
(Income) loss from discontinued operations, net of tax			(28,007	)			2,892
Loss on early retirement of debt			1,082				-
Other			632				835
Cash (used) provided by changes in operating assets and liabilities, net of effects of business acquisitions			(70,480	)			14,996
Net cash provided by operating activities from continuing operations			43,076				107,366
INVESTING ACTIVITIES:
Purchase of property and equipment			(105,141	)			(115,740	)
Acquisitions, net of cash acquired of $43,621 in 2008			(1,229	)			(24,829	)
Proceeds from sale of fixed assets			214				290
Net cash used by investing activities from continuing operations			(106,156	)			(140,279	)
FINANCING ACTIVITIES:
Principal payments on capital lease obligations and other			(18,642	)			(12,119	)
Proceeds from capital lease financing			22,020				-
Net (payments) borrowings on credit facility			(35,000	)			34,000
Convertible debt borrowings, net of underwriting discount and commissions of $6,000			194,000				-
Financing costs associated with revolving line of credit and convertible debt			(3,984	)			-
Cash used to purchase remaining non-controlling interests in Redbox			(113,867	)			-
Excess tax benefit on share-based awards			-				615
Proceeds from exercise of stock options			10,889				8,547
Net cash provided by financing activities from continuing operations			55,416				31,043
Effect of exchange rate changes on cash			2,996				(2,462	)
NET DECREASE IN CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN TRANSIT, AND CASH BEING PROCESSED FROM CONTINUING OPERATIONS			(4,668	)			(4,332	)
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Operating cash flows			14,872				2,761
Investing cash flows			(16,397	)			(8,130	)
Financing cash flows			(2,462	)			(4,140	)
			(3,987	)			(9,509	)
NET DECREASE IN CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN TRANSIT, AND CASH BEING PROCESSED			(8,655	)			(13,841	)
CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN TRANSIT, AND CASH BEING PROCESSED:
Beginning of period			192,035				196,592
End of period		$	183,380			$	182,751