Rewards Network Inc (DINE) filed Quarterly Report for the period ended 2009-09-30.
Rewards Network Inc. headquartered in Chicago Illinois provides loyalty and rewards programs via its registered credit card platform. Incentives are offered through the iDine branded program airline frequent flyer dining programs club memberships and other affinity organizations. Rewards Network Inc has a market cap of $101 million; its shares were traded at around $11.59 with a P/E ratio of 30.5 and P/S ratio of 0.4.
Highlight of Business Operations:
Our Marketing Credits Program continues to be a significant part of our business. In order to manage the risk in our dining credits portfolio, we implemented more conservative dining credits purchasing policies during mid-2008 in light of the significant economic challenges and the credit uncertainty facing both the restaurant industry and consumers. These more conservative policies were aimed at generally reducing the amount of dining credits we purchased from individual restaurants and shortening the estimated months to consume the dining credits purchased, which we refer to as the usage period. These policies improved the risk profile of our dining credits portfolio but resulted in fewer restaurants participating in the Marketing Credits Program and a smaller dining credits balance. Marketing Credits Program merchants decreased by 1,529, or 23.7%, as of September 30, 2009 from September 30, 2008. Our net dining credits portfolio decreased to $55,125 as of September 30, 2009 from $82,389 as of September 30, 2008 and $75,663 as of December 31, 2008. While the net dining credits portfolio balance was smaller when compared to the prior year, it was relatively flat as compared to the second quarter of 2009, having decreased only $1,493. The composition of our dining credits portfolio has changed over time as dining credits that we purchased under previous purchasing policies were consumed and replaced by dining credits purchased under our more conservative policies. We believe that our dining credits portfolio substantially reflects our more conservative policies as evidenced by the reduction in the provision for losses expense. Our estimated months to consume dining credits net of the allowance for doubtful accounts, which we refer to as the net dining credits usage period, decreased to 6.5 months at September 30, 2009 from 7.5 months at September 30, 2008 and December 31, 2008. Although our net dining credits portfolio has decreased 33.1% between September 30, 2009 and 2008, sales decreased 13.8% for the nine months ended September 30, 2009 compared to the same period in the prior year partially due to a $5,914 or 33.1% increase in sales in the Marketing Services Program.
We have focused on these strategic priorities because we believe these priorities will contribute to growth and improve our liquidity and stockholder value. The implementation of the strategy to date has resulted in consistent, positive operating cash flow, improved return on assets and profitability despite lower sales than a year ago. During the first half of 2009, we generated positive cash from operations, primarily as a result of the purchase of fewer dining credits during the period, but also through operations including the performance of the portfolio. In the third quarter of 2009, we continued to generate positive cash from operations, but the reduction in the amount of dining credits that we purchased was no longer the primary contributor of this cash generation. Our net dining credits portfolio decreased $1,493 during the quarter compared to cash generated from operations during the quarter of $6,479. We currently do not have any borrowings outstanding under our credit facility and continue to operate on a debt-free basis.
The steps we took in 2009 have also provided the liquidity to implement a $5,000 stock repurchase plan and declare a special cash dividend of $2.00 per common share. The special cash dividend of $2.00 per common share was paid on October 22, 2009 to stockholders of record at the close of business on October 15, 2009. We funded the $17,435 total dividend amount from existing cash balances. The stock repurchase authorization does not have an expiration date and may be limited, suspended or terminated at any time without prior notice. Shares may be purchased from time to time on the open market or through private transactions, pursuant to Rule 10b5-1 trading plans or other available means. During the nine months ended September 30, 2009, we repurchased 443 shares for $4,138. Repurchases are dependent on market conditions and other factors. The purchases were funded from cash and cash equivalents and the repurchased shares are maintained as treasury shares for possible future use. Any additional shares we may purchase are expected to be funded through cash from operations and cash equivalents.
We recognize revenue from the Marketing Credits Program and Marketing Services Program when members patronize participating merchants and pay using a payment card they have registered with us. Revenue is recognized only if the member’s transaction qualifies for a benefit in accordance with the rules of the member’s particular program. The amount of revenue recognized is that portion of the member’s total transaction amount that we are entitled to receive in cash, in accordance with the terms of our agreement with the participating merchant. We are entitled to receive a greater amount of cash from merchants in our Marketing Credits Program than from merchants in our Marketing Services Program. For example, if a member’s total qualified transaction amount is $100 at a Marketing Credits Program merchant, as evidenced by the full amount of the payment card transaction, and our contract provides for us to receive 80%, the amount of revenue we recognize is $80, representing what we actually realize in cash. The same $100 transaction at a Marketing Services Program merchant may yield $17 in revenue to be recognized. Under the RCR Loan product, we recognize interest income on an effective yield basis over the life of the loan.
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