PLEASANTON, Calif., Oct. 10, 2013 (GLOBE NEWSWIRE) -- Blackhawk Network Holdings, Inc. (Nasdaq:HAWK) today announced financial results for the third quarter ended September 7, 2013.
GAAP financial results for the third quarter of 2013 compared to the third quarter of 2012
- Operating revenues totaled $206.0 million, an increase of 25% from $164.7 million for the quarter ended September 8, 2012. This increase was due primarily to an 18% increase in load value, a 58% increase in program, interchange, marketing and other fees due to higher marketing revenues, and a 53% increase in product sales.
- Net income totaled $2.4 million compared to $3.1 million for the quarter ended September 8, 2012, due primarily to the inclusion in 2012 results of a $2.6 million after-tax reduction of the Cardpool contingent consideration liability as compared to a $0.2 million after-tax reduction in the third quarter of 2013.
- Earnings per diluted share was $0.04 compared to $0.06 for the quarter ended September 8, 2012 due primarily to the lower net income described above and a 4% increase in diluted shares outstanding.
Non-GAAP financial results for the third quarter of 2013 compared to the third quarter of 2012 (see Table 2 for Reconciliation of Non-GAAP Measures)
- Adjusted operating revenues totaled $100.6 million, an increase of 34% from $75.2 million for the quarter ended September 8, 2012.
- Adjusted EBITDA totaled $11.5 million, an increase of 59% from $7.2 million for the quarter ended September 8, 2012.
- Adjusted net income totaled $4.0 million, an increase of 134% from $1.7 million for the quarter ended September 8, 2012.
- Adjusted EPS was $0.08, an increase of 167% from $0.03 for the quarter ended September 8, 2012.
"Load value growth rebounded to 18% in the third quarter," said Bill Tauscher, CEO. "Strong revenue growth in both our closed and open gift businesses contributed to a 34% increase in adjusted operating revenues. We remain focused on expanding displays of our gift cards and improving per store productivity in preparation for the important holiday season."
Distribution partner commissions as a percentage of commissions and fees for the quarter ended September 7, 2013 was 66.6% which is consistent with recent quarterly trends.
Mr. Tauscher added, "We also saw some operating leverage in certain expenses related to our core prepaid card businesses, for which we will provide further detail during our earnings call."
Conference Call
The Company will host a conference call to discuss third quarter 2013 financial results this morning at 7:00 a.m. PDT / 10:00 a.m. EDT. Hosting the call will be Bill Tauscher, Chief Executive Officer, Talbott Roche, President, and Jerry Ulrich, Chief Financial & Administrative Officer. The conference call can be accessed via the Company's investor relations website at http://ir.blackhawknetwork.com/. Following the call, an archived audio webcast will be available on the Company's investor relations website, or the call replay can be accessed by dialing (888) 286-8010 and entering the participant passcode 47782528. The replay will be available until Thursday, October 17, 2013.
About Blackhawk Network
Blackhawk is a leading prepaid payment network utilizing proprietary technology to offer a broad range of gift cards, other prepaid products and payment services in the United States and 18 other countries. Blackhawk is a majority-owned subsidiary of Safeway Inc. (NYSE:SWY). More information is available at www.blackhawknetwork.com.
Use of Non-GAAP Financial Measures
Blackhawk regards the non-GAAP financial measures provided in this press release as useful measures of operational and financial performance of its business. Reconciliations of non-GAAP financial measures to Blackhawk's financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. The use of non-GAAP financial measures has certain limitations as they do not reflect all items of income, expense, or cash flows that affect Blackhawk's financial performance under GAAP. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP. In addition, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. Blackhawk encourages investors and others to review Blackhawk's financial information in its entirety and not rely on a single financial measure.
Forward Looking Statements
This press release may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements relate to, among other things, continued growth in our operating revenues and earnings. Forward-looking statements are indicated by words or phrases such as "guidance," "believes," "expects," "anticipates," "estimates," "plans," "continuing," "ongoing," and similar words or phrases and the negative of such words and phrases. Forward-looking statements are based on our current plans and expectations and involve risks and uncertainties which are, in many instances, beyond our control, and which could cause actual results to differ materially from those included in or contemplated or implied by the forward-looking statements. Such risks and uncertainties include the following: our ability to grow at historic rates or at all, the consequences should we lose one or more of our top distribution partners or fail to attract new distribution partners to our network or if the financial performance of our distribution partners' businesses decline, our reliance on our content providers, the demand for their products and our exclusivity arrangements with them, our reliance on relationships with card issuing banks, the consequences to our future growth if our distribution partners fail to actively and effectively promote our products and services, the requirement that we comply with applicable laws and regulations, the requirement that we comply with increasingly stringent money-laundering rules and regulations, reputational harm that could be caused by abuse of our prepaid products, failure to comply with, or further expansion of, consumer protection regulations, failure by us to comply with federal banking regulation, costs of compliance with or changes in state unclaimed property laws and regulations and tax codes, failure to maintain our existing money transmitter licenses or permits or failure to obtain new licenses or permits in a timely manner, other changes in laws and regulations to which we are subject or to which we become subject in the future, the intense competitive pressure faced by our business, fluctuations in our financial results from quarter to quarter, seasonal fluctuations in our business, any decline in the attractiveness of gift cards to consumers, our ability to increase our revenues from prepaid products or services, including GPR cards, declines in consumer confidence, any interruption in the efficient operation of our transaction processing systems, any data security breach, litigation, investigations or regulatory examinations, fraudulent or other illegal activity involving our products and services, changes in card association rules or standards, any inability to operate and scale our technology, our failure to keep pace with the rapid technological developments in our industry and the greater electronic payments industry, changes in the telecom industry, assertions by third parties of infringement by us, our distribution partners or our content providers, our inability to adequately protect our brands and other intellectual property rights, settlement risk from retailers that sell our products and services, disruption caused by replacing any third party vendor, future acquisitions or investments, our ability to attract and retain key personnel, risks related to our international operations, and risks related to our ongoing relationship with Safeway. We undertake no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so. Please refer to our reports and filings with the Securities and Exchange Commission, including the registration statement filed in connection with our initial public offering.
| BLACKHAWK NETWORK HOLDINGS, INC. | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||
| (In thousands, except per share amounts) | ||||
| (Unaudited) | ||||
| Twelve Weeks Ended | Thirty Six Weeks Ended | |||
| September 7, 2013 | September 8, 2012 | September 7, 2013 | September 8, 2012 | |
| OPERATING REVENUES: | ||||
| Commissions and fees | $ 158,270 | $ 133,993 | $ 479,564 | $ 411,356 |
| Program, interchange, marketing and other fees | 25,352 | 16,039 | 78,617 | 53,862 |
| Product sales | 22,374 | 14,619 | 58,727 | 40,954 |
| Total operating revenues | 205,996 | 164,651 | 616,908 | 506,172 |
| OPERATING EXPENSES: | ||||
| Distribution partner commissions | 105,361 | 89,458 | 319,496 | 268,040 |
| Processing and services | 34,927 | 29,594 | 101,321 | 85,406 |
| Sales and marketing | 30,502 | 22,891 | 98,791 | 72,260 |
| Costs of products sold | 21,493 | 14,349 | 55,993 | 40,180 |
| General and administrative | 9,979 | 4,123 | 31,894 | 22,672 |
| Total operating expenses | 202,262 | 160,415 | 607,495 | 488,558 |
| OPERATING INCOME | 3,734 | 4,236 | 9,413 | 17,614 |
| OTHER INCOME (EXPENSE): | ||||
| Interest income and other income, net | 59 | 262 | 432 | 972 |
| Interest expense | -- | (1) | -- | (11) |
| INCOME BEFORE INCOME TAX EXPENSE | 3,793 | 4,497 | 9,845 | 18,575 |
| INCOME TAX EXPENSE | 1,544 | 1,494 | 3,972 | 6,876 |
| NET INCOME BEFORE ALLOCATION TO NON-CONTROLLING INTEREST | 2,249 | 3,003 | 5,873 | 11,699 |
| Add: Loss attributable to non-controlling interest (net of tax) | 106 | 88 | 319 | 121 |
| NET INCOME ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC. | $ 2,355 | $ 3,091 | $ 6,192 | $ 11,820 |
| EARNINGS PER SHARE: | ||||
| Basic | $ 0.05 | $ 0.06 | $ 0.12 | $ 0.23 |
| Diluted | $ 0.04 | $ 0.06 | $ 0.12 | $ 0.23 |
| Weighted average shares outstanding - basic | 51,615 | 50,058 | 50,811 | 50,055 |
| Weighted average shares outstanding - diluted | 53,074 | 50,820 | 51,982 | 50,792 |
| BLACKHAWK NETWORK HOLDINGS, INC. | ||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| (In thousands) | ||
| (Unaudited) | ||
| September 7, 2013 | December 29, 2012 | |
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $ 103,453 | $ 172,665 |
| Overnight cash advances to Parent | 9,000 | 495,000 |
| Settlement receivables, net | 167,945 | 510,853 |
| Accounts receivable, net | 91,634 | 101,001 |
| Deferred income taxes | 10,499 | 10,499 |
| Prepaid expenses and other current assets | 57,674 | 53,968 |
| Total current assets | 440,205 | 1,343,986 |
| Property, equipment and technology, net | 71,384 | 66,998 |
| Intangible assets, net | 22,198 | 1,699 |
| Goodwill | 42,729 | 42,729 |
| Restricted cash | -- | 8,968 |
| Deferred income taxes | 983 | 1,937 |
| Other assets | 70,473 | 67,394 |
| TOTAL ASSETS | $ 647,972 | $ 1,533,711 |
| LIABILITIES, REDEEMABLE EQUITY AND STOCKHOLDERS' EQUITY | ||
| Current liabilities: | ||
| Settlement payables | $ 351,938 | $ 1,231,429 |
| Accounts payable and accrued liabilities | 108,575 | 154,542 |
| Total current liabilities | 460,513 | 1,385,971 |
| Warrant and common stock liabilities | -- | 26,675 |
| Deferred income taxes | 9,959 | 266 |
| Other liabilities | 15,986 | 23,152 |
| Total liabilities | 486,458 | 1,436,064 |
| Commitments and contingencies | ||
| Redeemable equity | -- | 34,997 |
| Stockholders' equity: | ||
| Preferred stock | -- | -- |
| Class A common stock | 11 | -- |
| Class B common stock | 41 | 51 |
| Additional paid-in capital | 95,225 | 31,542 |
| Treasury stock | (50) | -- |
| Accumulated other comprehensive income (loss) | (2,930) | 298 |
| Retained earnings | 69,073 | 30,669 |
| Total Blackhawk Network Holdings, Inc. equity | 161,370 | 62,560 |
| Non-controlling interest | 144 | 90 |
| Total stockholders' equity | 161,514 | 62,650 |
| TOTAL LIABILITIES, REDEEMABLE EQUITY AND STOCKHOLDERS' EQUITY | $ 647,972 | $ 1,533,711 |
| BLACKHAWK NETWORK HOLDINGS, INC. | ||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands) | ||
| (Unaudited) | ||
| Thirty Six Weeks Ended | ||
| September 7, 2013 | September 8, 2012 | |
| OPERATING ACTIVITIES: | ||
| Net income before allocation to non-controlling interest | $ 5,873 | $ 11,699 |
| Adjustments to reconcile net income to net cash used in operating activities: | ||
| Depreciation and amortization | 16,963 | 12,882 |
| Program development cost amortization | 13,259 | 11,150 |
| Change in allowance for doubtful accounts and sales adjustments | 333 | (415) |
| Employee stock-based compensation expense | 5,279 | 3,467 |
| Distribution partner mark-to-market expense | 6,961 | 1,928 |
| Change in fair value of contingent consideration | (1,255) | (3,636) |
| Excess tax benefit from stock-based awards | (588) | -- |
| Other | 80 | 262 |
| Changes in operating assets and liabilities: | ||
| Settlement receivables | 339,710 | 113,670 |
| Settlement payables | (877,287) | (669,008) |
| Accounts receivable, current and long term | 16,421 | 12,648 |
| Prepaid expenses and other current assets | (4,624) | (5,566) |
| Other assets | (19,894) | (10,559) |
| Accounts payable and accrued liabilities | (22,029) | (31,871) |
| Other liabilities | 165 | 739 |
| Income taxes, net | (16,956) | (18,611) |
| Net cash used in operating activities | (537,589) | (571,221) |
| INVESTING ACTIVITIES: | ||
| Change in overnight cash advances to Parent | 486,000 | 470,750 |
| Expenditures for property, equipment and technology and intangible assets | (21,349) | (15,097) |
| Change in restricted cash | 8,968 | -- |
| Other | (250) | (160) |
| Net cash provided by investing activities | 473,369 | 455,493 |
| FINANCING ACTIVITIES: | ||
| Dividends paid | (135) | -- |
| Payments for acquisition liability | (2,281) | -- |
| Payments for initial public offering costs | (4,694) | -- |
| Reimbursement for initial public offering costs | 5,540 | -- |
| Proceeds from exercise of stock options | 359 | 100 |
| Excess tax benefit from stock-based awards | 588 | -- |
| Payments for surrendered stock-based awards for taxes | (890) | (374) |
| Repurchase of redeemable common stock | (171) | (937) |
| Contribution from non-controlling interest | 324 | 199 |
| Net cash used in financing activities | (1,360) | (1,012) |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (3,632) | 1,405 |
| DECREASE IN CASH AND CASH EQUIVALENTS | (69,212) | (115,335) |
| CASH AND CASH EQUIVALENTS - Beginning of year | 172,665 | 153,674 |
| CASH AND CASH EQUIVALENTS - End of period | $ 103,453 | $ 38,339 |
| BLACKHAWK NETWORK HOLDINGS, INC. | ||||
| SUPPLEMENTAL INFORMATION | ||||
| (In thousands except percentages and average transaction value) | ||||
| (Unaudited) | ||||
| TABLE 1: OTHER OPERATIONAL DATA | ||||
| Twelve Weeks Ended | Thirty Six Weeks Ended | |||
| September 7, 2013 | September 8, 2012 | September 7, 2013 | September 8, 2012 | |
| Load value | $ 1,727,753 | $ 1,462,201 | $ 5,256,978 | $ 4,505,128 |
| Commissions and fees as a % of load value | 9.2% | 9.2% | 9.1% | 9.1% |
| Distribution partner commissions paid as a % of commissions and fees | 66.6% | 66.8% | 66.6% | 65.2% |
| Number of load transactions | 40,929 | 35,792 | 124,375 | 111,969 |
| Average load transaction value | $ 42.21 | $ 40.85 | $ 42.27 | $ 40.24 |
| TABLE 2: RECONCILIATION OF NON-GAAP MEASURES | ||||
| Twelve Weeks Ended | Thirty Six Weeks Ended | |||
| September 7, 2013 | September 8, 2012 | September 7, 2013 | September 8, 2012 | |
| Adjusted operating revenues: | ||||
| Total operating revenues | $ 205,996 | $ 164,651 | $ 616,908 | $ 506,172 |
| Distribution partner commissions | (105,361) | (89,458) | (319,496) | (268,040) |
| Adjusted operating revenues | $ 100,635 | $ 75,193 | $ 297,412 | $ 238,132 |
| Adjusted EBITDA: | ||||
| Net income before allocation to non-controlling interest | $ 2,249 | $ 3,003 | $ 5,873 | $ 11,699 |
| Interest income and other income, net | (59) | (262) | (432) | (972) |
| Interest expense | -- | 1 | -- | 11 |
| Income tax expense | 1,544 | 1,494 | 3,972 | 6,876 |
| Depreciation and amortization | 6,312 | 4,813 | 16,963 | 12,882 |
| EBITDA | 10,046 | 9,049 | 26,376 | 30,496 |
| Adjustments to EBITDA: | ||||
| Employee stock-based compensation | 1,817 | 1,280 | 5,279 | 3,467 |
| Distribution partner mark-to-market expense | (34) | 636 | 6,961 | 1,928 |
| Change in fair value of contingent consideration | (352) | (3,737) | (1,255) | (3,636) |
| Adjusted EBITDA | $ 11,477 | $ 7,228 | $ 37,361 | $ 32,255 |
| Adjusted EBITDA margin: | ||||
| Total operating revenues | $ 205,996 | $ 164,651 | $ 616,908 | $ 506,172 |
| Operating income | $ 3,734 | $ 4,236 | $ 9,413 | $ 17,614 |
| Operating margin | 1.8% | 2.6% | 1.5% | 3.5% |
| Adjusted operating revenues | $ 100,635 | $ 75,193 | $ 297,412 | $ 238,132 |
| Adjusted EBITDA | $ 11,477 | $ 7,228 | $ 37,361 | $ 32,255 |
| Adjusted EBITDA margin | 11.4% | 9.6% | 12.6% | 13.5% |
| Adjusted net income: | ||||
| Net income before allocation to non-controlling interest | $ 2,249 | $ 3,003 | $ 5,873 | $ 11,699 |
| Employee stock-based compensation | 1,817 | 1,280 | 5,279 | 3,467 |
| Distribution partner mark-to-market expense | (34) | 636 | 6,961 | 1,928 |
| Change in fair value of contingent consideration | (352) | (3,737) | (1,255) | (3,636) |
| Amortization of intangibles | 1,206 | 181 | 2,284 | 544 |
| Total pre-tax adjustments | 2,637 | (1,640) | 13,269 | 2,303 |
| Tax expense on adjustments | (987) | 258 | (4,758) | (1,064) |
| Adjusted net income before allocation to non-controlling interest | 3,899 | 1,621 | 14,384 | 12,938 |
| Non-controlling interest (net of tax) | $ 106 | $ 88 | $ 319 | $ 121 |
| Adjusted net income attributable to Blackhawk Network Holdings, Inc. | $ 4,005 | $ 1,709 | $ 14,703 | $ 13,059 |
| Adjusted EPS: | ||||
| Net income attributable to Blackhawk Network Holdings, Inc. | $ 2,355 | $ 3,091 | $ 6,192 | $ 11,820 |
| Income allocated to participating securities | (14) | (75) | (174) | (294) |
| Net income attributable to common shareholders | $ 2,341 | $ 3,016 | $ 6,018 | $ 11,526 |
| Diluted weighted-average shares outstanding | 53,074 | 50,820 | 51,982 | 50,792 |
| Diluted earnings per share | $ 0.04 | $ 0.06 | $ 0.12 | $ 0.23 |
| Adjusted net income attributable to Blackhawk Network Holdings, Inc. | $ 4,005 | $ 1,709 | $ 14,703 | $ 13,059 |
| Adjusted income allocated to participating securities | (24) | (41) | (312) | (321) |
| Adjusted net income attributable to common shareholders | $ 3,981 | $ 1,668 | $ 14,391 | $ 12,738 |
| Diluted weighted-average shares outstanding | 53,074 | 50,820 | 51,982 | 50,792 |
| Adjusted diluted earnings per share | $ 0.08 | $ 0.03 | $ 0.28 | $ 0.25 |
| TABLE 3: RECONCILIATION OF GAAP CASH FLOW TO FREE CASH FLOW | ||
| A significant portion of gift card sales occurs in late December of each year as a result of the holiday selling season. The timing of December holiday sales, cash inflows from our distribution partners and cash outflows to our content providers results in significant but temporary increases in our Cash, cash equivalents and restricted cash, Overnight cash advances to Parent, Settlement receivables and Settlement payables balances at the end of each fiscal year relative to normal daily balances. As a result, the year over year comparison of cash generated by operating activities and total changes in cash can vary significantly. In light of this effect on interim periods, set forth below is a calculation of "free cash flow" which we calculate as the net cash flow from operating activities adjusted to exclude the impact from changes in Settlement payables and Settlement receivables, less expenditures for property, equipment and technology. Cash from the sale of prepaid products is held for a short period of time and then remitted, less our commissions, to our content providers, and is significantly impacted by the portion of gift card sales that occur in late December. Because this cash flow is temporary and highly seasonal, it is not available for other uses, and it is therefore excluded from our calculation of free cash flow. Free cash flow provides information regarding the cash that our business generates in interim periods without the fluctuations resulting from the timing of cash inflows and outflows from gift card sales in late December, which we believe is useful to understanding our business. | ||
| Thirty Six Weeks Ended | ||
| Net cash flow used in operating activities, as reported | September 7, 2013 | September 8, 2012 |
| Decrease in settlement payables, net of settlement receivables | $ (537,589) | $ (571,221) |
| Net cash used in operating activities, as adjusted | 537,577 | 555,338 |
| Expenditures for property, equipment and technology and intangible assets | (12) | (15,883) |
| Free cash flow | (21,349) | (15,097) |
| $ (21,361) | $ (30,980) | |