Outerwall (OUTR, Financial) has more than 20 years of experience creating some of the most profitable spaces for their retail partners. 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.Â
The company reported solid first quarter results with Redbox delivering sequential growth in revenue, rentals and margins. The company generated sustainable cash flow and profitability. During the quarter, the company witnessed consolidate revenue improvement from the fourth quarter. It demonstrated its continued ability to generate solid cash flow and core EPS.
First quarter results:
GAAP Results
In the first quarter of 2016, consolidated revenue was $536 million, which marked a decrease of $72.7 million or 11.9%, from $608.6 million in the prior year quarter.
Income from continuing operations for the first quarter of 2016 was $38.5 million, or $2.29 of diluted earnings from continuing operations per common share.
Net cash provided by operating activities in the first quarter of 2016 was $67.2 million, which was $106.1 million in the prior year quarter.
Core results
Core adjusted EBITDA from continuing operations for the first quarter of 2016 was $108 million, down from $147.9 million in the prior year quarter.
Core diluted EPS from continuing operations was $2.44, which was $2.81 in the prior year quarter.
Segment wise results
Redbox
Redbox segment revenue was $421.5 million, which was $519.5 million in the prior year quarter.
Redbox generated approximately 137.7 million rentals during the quarter, a decrease from approximately 173.0 million rentals in the prior year quarter.
Net revenue per rental was $3.06 in the first quarter of 2016. Redbox segment operating income was $84.2 million.
Coinstar
Coinstar segment revenue was $72.4 million, which marked an increase of $3 million or 4.4% from the prior year quarter.
Coinstar segment operating income was $24.6 million. Coinstar segment operating margin increased by 150 basis points and was 34%.
ecoATM
Revenue in the ecoATM segment increased by $22.3 million, or 113.1%, and was $42.1 million in the first quarter.
Segment operating loss decreased to $5.7 million in the first quarter of 2016.
Share repurchases
During the quarter, the company repurchased $29.4 million in face value of its 6% senior notes due 2019 for $23.4 million, and $27.7 million in face value of its 5.875% senior notes due 2021 for $21.9 million in cash.
Dividends
The company declared a quarterly cash dividend of 60 cents per share to be paid on June 21 to stockholders of record as of the close of business on June 7. On March 29, the company paid a cash dividend of 30 cents per outstanding share of its common stock totalling approximately $5.1 million.
Expectations for 2016
| Metrics | Range |
| Core adjusted EBITDA from continuing operations | To range between $340 million to $380 million |
| Core effective tax rate | To be between 34.5% to 35.5% |
| Free cash flow | To range between $140 million to $190 million |
| Core diluted EPS from continuing operations | To be between $5.35 to $6.55 |
| Total capex | To be between $45 million to $55 million |
Strong attributes of the quarter
- Optimizing kiosk networks to improve profitability
- Reduce expenses
- Create efficiencies
Focus
- The company continues to leverage its valued and compelling brands, millions of loyal customers, and an unrivalled network of kiosks and retail partners
- Initiating a process to explore strategic and financial alternatives to maximize value for shareholders
- Optimizing core businesses
- Increasing profitability
- Disciplined capital allocation strategy
- Making investments to achieve the highest returns
On a concluding note
The company is successfully executing strategy of optimizing core Redbox and Coinstar businesses, scaling ecoATM business, and increasing shareholder returns. It remains focused on maintaining its position as a leader in automated retail, optimizing core businesses, gaining efficiencies across the company, and managing for profitability and free cash flow. It is looking for opportunities that could leverage its competitive strengths and grow Outerwall’s top and bottom line.
It continues to build upon solid foundation, leading brands with strong consumer engagement, solid relationships with its retail and studio partners, and a sound financial position. The company is performing well and I would recommend it a buy.
Disclosure: I do not hold any position in the company.
