Outerwall (OUTR, Financial) has more than 20 years of experience creating some of the most profitable spaces for its retail partners. Outerwall delivers breakthrough kiosk experiences that delight consumers and generate revenue for retailers.
As the company that brought consumers Redbox entertainment, Coinstar money services, and ecoATM electronics recycling kiosks, Outerwall is leading the next generation of automated retail and paving the way for inventive, scalable businesses. Outerwall kiosks are in neighborhood grocery stores, drug stores, mass merchants, malls and other retail locations in the U.S., Canada, Puerto Rico, the U.K. and Ireland.
The company reported strong third-quarter results and is poised to grow. It delivered strong profitability and strong free cashflows. It generated an income of more than 108% year over year and raised full-year core EPS guidance.
Strong third quarter
The company continued to focus on effectively managing expenses across the enterprise, delivering 3.3% year-over-year growth in core adjusted EBITDA from continuing operations despite revenue decreasing 6.9%
Core diluted EPS from continuing operations increased by 32.3% to $2.21 reflecting increased profitability and a lower share count.
The company repurchased 938,586 shares of common stock for $60.8 million.
It generated 116.3% growth in free cash flow (FCF) to $65.6 million bringing the year-to-date total to $206.6 million.
Consolidated results
GAAP results
Consolidated revenue for the third quarter was $512.1 million, which was $549.9 million in the prior year quarter. Revenues from the ecoATM and Coinstar segments increased by $1.2 million and $0.6 million in the third quarter when compared to the prior year quarter.
Income from continuing operations for the third quarter was $37.6 million, or $2.12 of diluted earnings from continuing operations per common share, which was $22.1 million, or $1.12 of diluted earnings from continuing operations per common share in the prior year quarter.
Net cash provided by operating activities increased by 72.4% and was $85.6 million in the third quarter of 2015, which was $49.6 million in the prior year quarter.
Cash capex for the third quarter increased by 3.4% and was $19.9 million, which was $19.3 million in the prior year quarter.
Core results
Core adjusted EBITDA from continuing operations for the third quarter of 2015 was $119.7 million, which marked an increase of $3.8 million, or 3.3%, compared with $115.9 million for the third quarter of 2014.
Core diluted EPS from continuing operations for the third quarter of 2015 was $2.21, an increase of 32.3% compared with $1.67 per diluted share in the prior year quarter. Non-core adjustments in the third quarter of 2015 totaled 5 cents (51 cents in the prior year quarter).
Free cash flow for the third quarter of 2015 was $65.6 million, an increase of $35.3 million, or 116.3%, which was $30.3 million in the prior year quarter.
Segmentwise performance
Redbox segment revenue for the third quarter of 2015 was $395.4 million (which was $435.1 million in the prior year quarter).
Redbox generated approximately 132.6 million rentals in the third quarter, a decline from approximately 170.8 million rentals in the prior year quarter.
Net revenue per rental was $2.96 in the third quarter (which was an increase of 42 cents, or 16.5%, from $2.54 in the prior year quarter).
Redbox segment operating income in the third quarter was $90.4 million, which was an increase of $2.1 million or 2.4%, compared with $88.3 million in the prior year quarter.
Coinstar
Coinstar segment revenue was $85.7 million, which was an increase of $0.6 million compared with $85.1 million in the prior year quarter.
Coinstar segment operating income was $34.5 million in the third quarter of 2015, which marked an increase of $1.1 million, or 3.1%, compared with $33.4 million in the prior year quarter.
ecoATM
Revenue in the ecoATM segment was $31.0 million in the third quarter, which marked an increase of $1.2 million, or 4.1%, compared with $29.7 million in the prior year quarter.
Segment operating loss increased to $3.1 million in the third quarter, which was $2.0 million in the prior year quarter.
The number of installed ecoATM kiosks was 2,210 in the third quarter, which was an increase of 700 compared to the prior year quarter.
On Oct. 27 the company's board of directors declared a quarterly cash dividend of 30 cents per share expected to be paid on Dec. 8 to all stockholders of record as of the close of business on Nov. 23.
During the third quarter, the company repurchased 938,586 shares of common stock at an average price per share of $64.73 for a total of $60.8 million. As of Sept. 30 there was approximately $292.7 million remaining under the company's stock repurchase authorization.
(Source: Company’s Website)
2015 expectations
The company expects the following:
- Revenue to be in the range of $2,205 to $2,240.
- Free cash flow to be in the range of $252 to $282.
- Core adjusted EBITDA from continuing operations to be in the range of $490 to $510.
- Core effective tax rate to be in the range of 35.5% to 37.5%.
- Revenues for Redbox, Coinstar and ecoATM to be around $1,790 to $1,815, $315 to $320 and $100 to $105.
- Capex for Redbox, Coinstar and ecoATM to be around $15 to $18, $12 to $14 and $25 to $31.
On a concluding note
"Our continued focus on operational excellence drove strong third-quarter results, with significant year-over-year increases in free cash flow, core adjusted EBITDA and core diluted EPS," said Galen C. Smith, Outerwall's chief financial officer. "We generated more than $65.6 million in free cash flow during the quarter, an increase of 116.3% from the third quarter last year. We continued our balanced approach to capital allocation and repurchased more than 900,000 shares in the quarter, or 5.2% of shares outstanding. We remain on track to uphold our commitment of returning 75% to 100% of annual free cash flow to shareholders directly through share repurchases and quarterly cash dividends."
Smith continued: "Our performance in the quarter demonstrates our ability to continue delivering strong financial results despite exceptionally weak content that impacted revenue and rentals in our Redbox business. We will continue driving Outerwall's financial performance, managing expenses and improving profitability to both reinvest in the business and enhance the bottom-line."
The company has always looked for ways to provide value, convenience and simplicity to consumers and retailers with its kiosk brands.
Disclosure: I do not hold any position in the company.
