EcoATM revenue, devices sold increase

Bellevue, Washington-based Outerwall Inc. has announced its ecoATM brand—a San Diego-based nationwide network of automated electronics recycling kiosks—has increased its revenues and number of devices sold year over year. Outerwall included ecoATM’s update in the company’s financial results for the third quarter ended Sept. 30, 2015.

Revenue in the ecoATM segment was $31 million in the third quarter of 2015, an increase of $1.2 million, or 4.1 percent, compared with $29.7 million in the third quarter of 2014, says Outerwall. This increase was primarily because of an increase in the number of ecoATM installed kiosks, increased collections and an increase in the number of value devices sold, partially offset by a lower average selling price of value devices sold primarily in light of a lower mix of higher value devices and lower collections of value devices per kiosk because of sustained carrier marketing of alternative recycling options, according to Outerwall.

While the number of overall devices sold increased 38.5 percent and the number of value devices sold increased 35.1 percent in the third quarter of 2015 compared with the third quarter of 2014, the collection of value devices on a per kiosk basis, as well as the number of higher value devices collected, declined as a result of alternative recycling options marketed by the carriers, according to Outerwall. The average selling price of value devices sold was $59.15 in the third quarter of 2015 compared with $75.95 in the third quarter of 2014.

Segment operating loss increased to $3.1 million in the third quarter of 2015 compared with $2 million in the third quarter of 2014, primarily in light of an increase in direct operating expenses related to costs associated with the increased installed ecoATM kiosk base.

The number of installed ecoATM kiosks reached 2,210 in the third quarter of 2015, an increase of 700 compared with the third quarter of 2014, Outerwall says. As a result of the company’s optimization efforts in the third quarter of 2015, ecoATM removed approximately 250 underperforming kiosks, primarily from the grocery channel, and redeployed approximately 180 kiosks into retailer locations, with the majority in the mall and mass merchant channels, for a net reduction of 50 kiosks from the second quarter.

“Our performance in the third quarter underscores our ability to drive the bottom line,” says Erik E. Prusch, Outerwall’s chief executive officer, in a new release. “We remain focused on moving ecoATM to profitability as quickly as possible and made progress in a number of key operational areas due to our deliberate efforts to reduce costs. We are also determined to prudently drive top-line performance and are working on multiple fronts to make that happen.”

Highlights from the third quarter 2015 include:

 

 

“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,” says Galen C. Smith, Outerwall chief financial officer. “We generated more than $65.6 million in free cash flow during the quarter, an increase of 116.3 percent 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 percent of shares outstanding. We remain on track to uphold our commitment of returning 75 to 100 percent of annual free cash flow to shareholders directly through share repurchases and quarterly cash dividends.”

Smith continues, “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.”

Consolidated revenue for the third quarter of 2015 was $512.1 million compared with $549.9 million in the third quarter of 2014. The $37.8 million decrease was primarily because of a $39.7 million decrease in revenue from Redbox driven by a decline in rentals and the removal of underperforming kiosks, partially offset by the price increases for movie content implemented in December 2014. Movie rentals were impacted primarily by lower total box office of movie titles released including seven fewer titles, the timing of the release slate, a higher impact from secular decline in the physical market and lower demand from price-sensitive customers following the price increases, which is heightened in periods of weak content, Outerwall says. Revenue from the ecoATM and Coinstar segments increased by $1.2 million and $0.6 million, respectively, in the third quarter of 2015 compared with the third quarter of 2014.

Income from continuing operations for the third quarter of 2015 was $37.6 million, or $2.12 of diluted earnings from continuing operations per common share, compared with income from continuing operations of $22.1 million, or $1.12 of diluted earnings from continuing operations per common share, in the third quarter of 2014. The increases were primarily in light of an increase in operating income from the Redbox and Coinstar segments, as a result of lower direct operating expenses, lower kiosk related depreciation, and ongoing cost reduction initiatives.

Net cash provided by operating activities increased 72.4 percent to $85.6 million in the third quarter of 2015 compared with $49.6 million in the third quarter of 2014. The increase was primarily because of a decrease in net cash outflows from changes in working capital.

Cash capital expenditures for the third quarter of 2015 increased 3.4 percent to $19.9 million compared with $19.3 million in the third quarter of 2014, as the result of timing of ongoing investments in the businesses.

Core adjusted EBITDA from continuing operations for the third quarter of 2015 was $119.7 million, an increase of $3.8 million, or 3.3 percent, compared with $115.9 million for the third quarter of 2014. The increase was primarily due to increased segment operating income from the Redbox and Coinstar segments.

Core diluted EPS from continuing operations for the third quarter of 2015 was $2.21, an increase of 32.3 percent compared with $1.67 per diluted share in the third quarter of 2014. The increase was primarily attributable to increased segment operating income from the Redbox and Coinstar segments and a reduction in the number of weighted average shares used in the diluted per share calculation due to stock repurchases. Noncore adjustments in the third quarter of 2015 totaled 5 cents compared with 51 cents in the third quarter of 2014.

Free cash flow for the third quarter of 2015 was $65.6 million, an increase of $35.3 million, or 116.3percent, compared with $30.3 million in the third quarter of 2014, primarily driven by higher net operating cash flow.

Redbox segment revenue for the third quarter of 2015 was $395.4 million compared with $435.1 million in the third quarter of 2014. The decrease of $39.7 million reflects $35.8 million attributed to a decline in total disc rentals and $3.9 million related to a decrease in revenue from kiosks removed subsequent to the third quarter of 2014 as a result of continued efforts to optimize the network by removing underperforming kiosks.

Redbox generated approximately 132.6 million rentals in the third quarter of 2015, down from approximately 170.8 million rentals in the third quarter of 2014. The decline in rentals was driven by several factors, including a substantially lower box office which was 45.3 percent lower and included seven fewer titles than the third quarter of 2014,  the timing of the release slate, a higher impact from secular decline in the physical market, lower demand from price-sensitive customers following the price increases implemented in December 2014 and January 2015, which is heightened during periods of weak content, and a decline in video game rentals due to consumer transition to new generation platforms and the limited new release titles available for the new platforms.

Net revenue per rental was $2.96 in the third quarter of 2015, an increase of 42 cents, or 16.5 percent, from $2.54 in the third quarter of 2014. The increase in net revenue per rental was primarily the result of the impact of the increase in daily rental prices, partially offset by the expected increase in single night rental activity and lower demand from price-sensitive customers as a result of the price increases; a decrease in Blu-ray revenue primarily as a result of fewer Blu-ray releases; and a decrease in video game revenue resulting from the consumer transition to new generation platforms and a lack of new release content availability related to the transition and seasonality of publisher release schedules.

Redbox segment operating income in the third quarter of 2015 was $90.4 million, an increase of $2.1 million, or 2.4 percent, compared with $88.3 million in the third quarter of 2014. Segment operating margin increased 260 basis points to 22.9 percent in the third quarter of 2015, compared with segment operating margin of 20.3 percent in the third quarter of 2014, primarily attributable to an improvement in gross margin related to the price increases and lower spending on content in the third quarter of 2015 in light of fewer movie releases and weak content, lower games purchases due to the consumer transition to new generation platforms and lower cost per title driven by studio mix, as well as reductions in direct operating, general and administrative and marketing expenses as the business continues to focus on operating efficiencies and aligning its cost structure with physical rental demand.

Coinstar segment revenue was $85.7 million, an increase of $0.6 million compared with $85.1 million in the third quarter of 2014, primarily because of an increase in the number of Coinstar Exchange kiosks and transactions and higher revenue for Coinstar in the U.S. due to increased volume.

Coinstar revenue in the U.K. and Canada in the third quarter of 2015 was negatively impacted by unfavorable exchange rate resulting from the strengthening of the U.S. dollar versus the British pound and Canadian dollar compared with the prior year, and largely offset the impact of the increased coin voucher product transaction fee from 8.9 percent to 9.9 percent implemented in the U.K. in August 2014.

Coinstar segment operating income was $34.5 million in the third quarter of 2015, an increase of $1.1 million, or 3.1 percent, compared with $33.4 million in the third quarter of 2014. Coinstar segment operating margin increased 100 basis points to 40.3 percent for the third quarter of 2015 compared with 39.3 percent in the third quarter of 2014, as the business continues to actively manage expenses and identify additional opportunities to reduce costs.

On Oct. 27, 2015, the company’s board of directors declared a quarterly cash dividend of 30 cents per share expected to be paid on Dec. 8, 2015, to all stockholders of record as of the close of business on Nov. 23, 2015.

During the third quarter of 2015, 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, 2015, approximately $292.7 million remained under the company’s stock repurchase authorization.

Outerwall Inc. kiosks are in neighborhood grocery stores, drug stores, mass merchants, malls and other retail locations in the United States, Canada, Puerto Rico, the United Kingdom and Ireland. The company has been operating for more than 20 years.