Form 8-K BLACKHAWK NETWORK HOLDIN For: Apr 28
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 28, 2015
BLACKHAWK NETWORK HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
001-35882 | 43-2099257 | |
(Commission File Number) | (I.R.S. Employer Identification No.) | |
6220 Stoneridge Mall Road
Pleasanton, CA 94588
(Address of Principal Executive Offices, including Zip Code)
(Registrant’s Telephone Number, Including Area Code): (925) 226-9990
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition.
On April 28, 2015, Blackhawk Network Holdings, Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended March 28, 2015, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference.
The information in this report furnished pursuant to this Item 2.02, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing of the Company under the Exchange Act or the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. | Description | |
99.1 | Press release dated April 28, 2015 | |
99.2 | Q1 2015 Earnings Presentation | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
BLACKHAWK NETWORK HOLDINGS, INC. | ||||||
Date: April 28, 2015 | By: | /s/ Kirsten E. Richesson | ||||
Name: | Kirsten E. Richesson | |||||
Title: | General Counsel and Secretary | |||||
EXHIBIT INDEX
Exhibit No. | Description | |
99.1 | Press release dated April 28, 2015 | |
99.2 | Q1 2015 Earnings Presentation | |
Exhibit 99.1
News Release
INVESTORS/ANALYSTS: | MEDIA: |
Patrick Cronin | Teri Llach |
(925) 226-9973 | (925) 226-9028 |
Blackhawk Announces First Quarter 2015 Financial Results
Adjusted Operating Revenues Up 48% Versus First Quarter 2014
Adjusted Net Income Increases 266%
Pleasanton, California, April 28, 2015— Blackhawk Network Holdings, Inc. (NASDAQ: HAWK and HAWKB) today announced financial results for the first quarter ended March 28, 2015.
$ in millions except per share amounts | Q1'15 | Q1'14 | % Increase | |||||||
Operating Revenues | $ | 319.7 | $ | 233.1 | 37% | |||||
Adjusted Operating Revenues | $ | 164.4 | $ | 110.8 | 48% | |||||
Adjusted EBITDA | $ | 27.2 | $ | 12.0 | 127% | |||||
Adjusted Net Income | $ | 18.9 | $ | 5.2 | 266% | |||||
Adjusted EPS (Diluted) | $ | 0.34 | $ | 0.10 | 240% | |||||
EPS (GAAP Diluted) | $ | 0.08 | $ | (0.06 | ) | N/M | ||||
"Our U.S. and international retail segments began the year with good momentum, growing first quarter transaction dollar volume 26% and 29% respectively," commented CEO Bill Tauscher. "In our U.S. retail segment, which accounted for 64% of adjusted operating revenues, adjusted operating revenues grew 33% over last year's first quarter. This reflected strong sales of closed and open loop gift cards. International retail adjusted operating revenues grew 5%, or 19% on a constant currency basis, driven by sales of digital media products. In our incentives and rewards segment transaction dollar volume grew 294% primarily reflecting the acquisition of Parago, or 45% excluding 2014 acquisitions. Incentives and rewards, which generated 22% of worldwide adjusted operating revenues, grew its adjusted operating revenues 279%, or 47% excluding 2014 acquisitions. That brought Company-wide adjusted operating revenues to $164 million for the quarter, a 48% increase over the same period last year."
CFO Jerry Ulrich added, "Adjusted EBITDA grew 127%, higher than adjusted operating revenue growth due to expense leverage in sales and marketing and general and administrative expenses. Excluding 2014 acquisitions, our adjusted operating revenues grew 27% and adjusted EBITDA grew 94%. First quarter adjusted net income grew 266% to $18.9 million and adjusted diluted EPS totaled $0.34, an increase of 240% over the first quarter of 2014. Excluding a reduction in cash taxes payable related to our 2014 spin-off from Safeway and the realization of acquisition-related net operating losses, adjusted net income grew 153% and adjusted diluted EPS grew 143%."
Conference Call/Webcast
On Wednesday, April 29 at 6:00 a.m. PDT / 9:00 a.m. EDT the Company will host a conference call and live webcast to discuss first quarter financial results and provide financial guidance for the remainder of 2015. Hosting the call will be Bill Tauscher, Chief Executive Officer; Talbott Roche, President; and Jerry Ulrich, Chief Financial & Administrative Officer. Participants may access the live webcast by visiting the Company’s investor relations website at ir.blackhawknetwork.com. A copy of the webcast presentation slides will be posted to the presentations tab of the Company's investor relations website by 2 p.m. PDT on April 28, 2015. A replay of the webcast will be available on the Company's investor relations website until Wednesday, May 13, 2015.
GAAP financial results for the first quarter of 2015 compared to the first quarter of 2014
• | Operating revenues totaled $319.7 million, an increase of 37% from $233.1 million for the quarter ended March 22, 2014. This increase was due to a 24% increase in commissions and fees driven primarily by higher closed loop gift card sales; a 105% increase in program, interchange, marketing and other fees due to strong open loop gift card sales in the U.S. retail segment and growth in the incentives and rewards segment, reflecting the acquisition of Parago in late 2014; and a 36% increase in product sales primarily due to growth at Cardpool. |
• | Net income totaled $4.7 million compared to net loss of $2.8 million for the quarter ended March 22, 2014. The increase was driven primarily by a 37% increase in operating revenues and a $4.1 million non-cash contingent consideration credit related to the acquisition of CardLab, partially offset by higher operating expenses including amortization of intangibles and interest expense related to the acquisition of Parago. |
• | Earnings per diluted share was $0.08 compared to net loss per diluted share of $0.06 for the quarter ended March 22, 2014. Diluted shares outstanding increased 6% to 55.4 million due to the dilutive effect of stock options and restricted stock awards in the 2015 period as compared to the 2014 period in which diluted shares were the same as average shares outstanding because of the net loss in the 2014 period. |
Non-GAAP financial results for the first quarter of 2015 compared to the first quarter of 2014 (see Table 2 for Reconciliation of Non-GAAP Measures)
• | Adjusted operating revenues totaled $164.4 million, an increase of 48% from $110.8 million for the quarter ended March 22, 2014. Excluding our 2014 acquisitions, adjusted operating revenues grew 27%, or 30% on a constant currency basis. |
• | Adjusted EBITDA totaled $27.2 million, an increase of 127% from $12.0 million for the quarter ended March 22, 2014. Excluding 2014 acquisitions, adjusted EBITDA increased 94%, or 99% on a constant currency basis. |
• | Adjusted net income totaled $18.9 million, an increase of 266% from $5.2 million for the quarter ended March 22, 2014. Excluding the impact of the reduction in cash taxes payable, adjusted net income was $9.6 million, an increase of 153% from $3.8 million for the quarter ended March 22, 2014. Adjusted net income grew faster than adjusted EBITDA primarily due to slower growth in depreciation as compared to adjusted EBITDA growth and a 210 basis point reduction in the first quarter 2015 effective tax rate on adjusted income before taxes as compared to 2014. The lower tax rate was due primarily to tax benefits from foreign rate differential resulting from jurisdictional mix of pre-tax income and lower operating losses of certain foreign subsidiaries for which we do not recognize an income tax benefit. |
• | Adjusted diluted EPS was $0.34, an increase of 240% from $0.10 for the quarter ended March 22, 2014. Excluding the impact of the reduction in cash taxes payable, adjusted diluted EPS increased 143% to $0.17. |
About Blackhawk Network
Blackhawk Network Holdings, Inc. is a leading prepaid and payments global company that supports the program management and distribution of gift cards, prepaid telecom products and financial service products in a number of different retail, digital and incentive channels. Blackhawk’s digital platform supports prepaid across a network of digital distribution partners including retailers, financial service providers, and mobile wallets. For more information, please visit www.blackhawknetwork.com and www.giftcardmall.com.
Use of Non-GAAP Financial Measures
Blackhawk regards the non-GAAP financial measures provided in this press release as useful measures of the 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 any 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. 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 generate adequate taxable income to enable us to fully utilize the cash tax benefits referred to in this release, changes in applicable tax law that preclude us from fully utilizing the cash tax benefits referred to in this release, our ability to grow adjusted operating revenues and adjusted net income as anticipated, 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, including increasingly stringent money-laundering rules and regulations, and other risks and uncertainties described in our reports and filings with the Securities and Exchange Commission, including the risks and uncertainties set forth in Item 1A under the heading Risk Factors in our Annual Report on Form 10-K and other subsequent periodic reports we have filed with the Securities and Exchange Commission. 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 other than as may be required by law.
BLACKHAWK NETWORK HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) | |||||||
12 weeks ended | |||||||
March 28, 2015 | March 22, 2014 | ||||||
OPERATING REVENUES: | |||||||
Commissions and fees | $ | 220,402 | $ | 178,095 | |||
Program, interchange, marketing and other fees | 73,104 | 35,665 | |||||
Product sales | 26,225 | 19,355 | |||||
Total operating revenues | 319,731 | 233,115 | |||||
OPERATING EXPENSES: | |||||||
Partner distribution expense | 155,354 | 124,307 | |||||
Processing and services | 64,208 | 41,625 | |||||
Sales and marketing | 43,593 | 33,078 | |||||
Costs of products sold | 24,903 | 19,304 | |||||
General and administrative | 18,748 | 14,603 | |||||
Transition and acquisition | 175 | 2 | |||||
Amortization of acquisition intangibles | 5,974 | 4,409 | |||||
Change in fair value of contingent consideration | (4,139 | ) | — | ||||
Total operating expenses | 308,816 | 237,328 | |||||
OPERATING INCOME (LOSS) | 10,915 | (4,213 | ) | ||||
OTHER INCOME (EXPENSE): | |||||||
Interest income and other income (expense), net | (801 | ) | (409 | ) | |||
Interest expense | (2,757 | ) | (45 | ) | |||
INCOME (LOSS) BEFORE INCOME TAX EXPENSE | 7,357 | (4,667 | ) | ||||
INCOME TAX EXPENSE (BENEFIT) | 2,620 | (1,783 | ) | ||||
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS | 4,737 | (2,884 | ) | ||||
Net (income) loss attributable to non-controlling interests, net of tax | (31 | ) | 43 | ||||
NET INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC. | $ | 4,706 | $ | (2,841 | ) | ||
EARNINGS (LOSS) PER SHARE: | |||||||
Basic – Class A and Class B | $ | 0.09 | $ | (0.06 | ) | ||
Diluted – Class A and Class B | $ | 0.08 | $ | (0.06 | ) | ||
Weighted average shares outstanding—basic | 53,323 | 52,095 | |||||
Weighted average shares outstanding—diluted | 55,416 | 52,095 | |||||
BLACKHAWK NETWORK HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) | |||||||||||
March 28, 2015 | January 3, 2015 | March 22, 2014 | |||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 219,416 | $ | 911,615 | $ | 134,831 | |||||
Restricted cash | 3,189 | 5,000 | — | ||||||||
Settlement receivables, net | 237,233 | 526,587 | 184,395 | ||||||||
Accounts receivable, net | 176,620 | 181,431 | 117,614 | ||||||||
Deferred income taxes | 33,713 | 38,456 | 20,145 | ||||||||
Other current assets | 93,860 | 95,658 | 64,945 | ||||||||
Total current assets | 764,031 | 1,758,747 | 521,930 | ||||||||
Property, equipment and technology, net | 132,014 | 130,008 | 82,156 | ||||||||
Intangible assets, net | 161,040 | 170,957 | 93,351 | ||||||||
Goodwill | 328,510 | 331,265 | 133,633 | ||||||||
Deferred income taxes | 330,686 | 1,678 | 727 | ||||||||
Other assets | 86,285 | 93,086 | 82,194 | ||||||||
TOTAL ASSETS | $ | 1,802,566 | $ | 2,485,741 | $ | 913,991 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Current liabilities: | |||||||||||
Settlement payables | $ | 462,346 | $ | 1,383,481 | $ | 370,757 | |||||
Consumer and customer deposits | 103,575 | 133,772 | 55,093 | ||||||||
Accounts payable and accrued operating expenses | 103,887 | 117,118 | 76,577 | ||||||||
Note payable, current portion | 37,384 | 11,211 | — | ||||||||
Notes payable to Safeway | 19,449 | 27,678 | 113,000 | ||||||||
Bank line of credit | 10,000 | — | — | ||||||||
Other current liabilities | 57,883 | 102,352 | 36,595 | ||||||||
Total current liabilities | 794,524 | 1,775,612 | 652,022 | ||||||||
Deferred income taxes | 8,101 | 45,375 | 24,501 | ||||||||
Note payable | 325,208 | 362,543 | — | ||||||||
Other liabilities | 10,096 | 14,432 | 7,549 | ||||||||
Total liabilities | 1,137,929 | 2,197,962 | 684,072 | ||||||||
Stockholders’ equity: | |||||||||||
Preferred Stock | — | — | — | ||||||||
Class A common stock | 13 | 13 | 12 | ||||||||
Class B common stock | 41 | 41 | 41 | ||||||||
Additional paid-in capital | 519,668 | 137,916 | 112,546 | ||||||||
Treasury stock | — | — | (305 | ) | |||||||
Accumulated other comprehensive loss | (29,059 | ) | (19,470 | ) | (3,397 | ) | |||||
Retained earnings | 167,081 | 162,439 | 114,067 | ||||||||
Total Blackhawk Network Holdings, Inc. equity | 657,744 | 280,939 | 222,964 | ||||||||
Non-controlling interests | 6,893 | 6,840 | 6,955 | ||||||||
Total stockholders’ equity | 664,637 | 287,779 | 229,919 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,802,566 | $ | 2,485,741 | $ | 913,991 | |||||
BLACKHAWK NETWORK HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) | |||||||||||||||
12 weeks ended | 53 weeks ended | 52 weeks ended | |||||||||||||
March 28, 2015 | March 22, 2014 | March 28, 2015 | March 22, 2014 | ||||||||||||
OPERATING ACTIVITIES: | |||||||||||||||
Net income (loss) before allocation to non-controlling interests | $ | 4,737 | $ | (2,884 | ) | $ | 53,046 | $ | 50,543 | ||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||||||
Depreciation and amortization of property, equipment and technology | 8,395 | 5,386 | 31,557 | 22,502 | |||||||||||
Amortization of intangibles | 6,999 | 5,532 | 25,838 | 12,168 | |||||||||||
Amortization of program development costs | 6,454 | 5,657 | 25,248 | 22,518 | |||||||||||
Employee stock-based compensation expense | 4,989 | 2,670 | 17,684 | 9,560 | |||||||||||
Distribution partner mark-to-market expense | — | 622 | 690 | 9,103 | |||||||||||
Change in fair value of contingent consideration | (4,139 | ) | — | (7,861 | ) | (15,318 | ) | ||||||||
Reversal of reserve for patent litigation | — | — | (3,852 | ) | — | ||||||||||
Excess tax benefit from stock-based awards | (2,491 | ) | (779 | ) | (4,442 | ) | (3,190 | ) | |||||||
Deferred income taxes | 13,371 | — | 1,546 | (1,053 | ) | ||||||||||
Other | 1,308 | 956 | 5,400 | 4,596 | |||||||||||
Changes in operating assets and liabilities: | |||||||||||||||
Settlement receivables | 284,100 | 625,608 | (65,095 | ) | (23,167 | ) | |||||||||
Settlement payables | (914,632 | ) | (1,109,862 | ) | 109,225 | 33,792 | |||||||||
Accounts receivable, current and long-term | 4,934 | 15,134 | (44,198 | ) | (26,830 | ) | |||||||||
Prepaid expenses and other current assets | (4,027 | ) | 5,446 | (11,753 | ) | (9,526 | ) | ||||||||
Other assets | (529 | ) | (4,978 | ) | (23,930 | ) | (40,892 | ) | |||||||
Consumer and customer deposits | (30,198 | ) | 178 | 4,720 | 425 | ||||||||||
Accounts payable and accrued operating expenses | (10,507 | ) | (22,249 | ) | 12,684 | 21,442 | |||||||||
Other current and long-term liabilities | (21,403 | ) | (24,048 | ) | 21,621 | 7,134 | |||||||||
Income taxes, net | (22,583 | ) | (21,475 | ) | (17,960 | ) | (22,838 | ) | |||||||
Net cash provided by (used in) operating activities | (675,222 | ) | (519,086 | ) | 130,168 | 50,969 | |||||||||
INVESTING ACTIVITIES: | |||||||||||||||
Change in overnight cash advances to Safeway | — | — | — | 40,155 | |||||||||||
Expenditures for property, equipment and technology | (13,843 | ) | (8,538 | ) | (45,014 | ) | (32,456 | ) | |||||||
Business acquisitions, net of cash received | — | (1,341 | ) | (236,264 | ) | (150,711 | ) | ||||||||
Sale of trading securities | — | — | — | 29,749 | |||||||||||
Change in restricted cash | 1,811 | — | (3,189 | ) | 8,968 | ||||||||||
Other | — | — | (499 | ) | (650 | ) | |||||||||
Net cash used in investing activities | (12,032 | ) | (9,879 | ) | (284,966 | ) | (104,945 | ) | |||||||
BLACKHAWK NETWORK HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In thousands) (Unaudited) | |||||||||||||||
12 weeks ended | 53 weeks ended | 52 weeks ended | |||||||||||||
March 28, 2015 | March 22, 2014 | March 28, 2015 | March 22, 2014 | ||||||||||||
FINANCING ACTIVITIES: | |||||||||||||||
Dividends paid | (64 | ) | (67 | ) | (80 | ) | (129 | ) | |||||||
Payments for acquisition liability | (1,811 | ) | — | (1,811 | ) | (4,221 | ) | ||||||||
Proceeds from issuance of note payable | — | — | 375,000 | — | |||||||||||
Payments of costs for issuance of note payable | — | — | (3,783 | ) | — | ||||||||||
Repayment of note payable | (11,250 | ) | — | (11,250 | ) | — | |||||||||
Borrowings under revolving bank line of credit | 387,500 | — | 602,500 | — | |||||||||||
Repayments on revolving bank line of credit | (377,500 | ) | — | (592,500 | ) | — | |||||||||
Proceeds from notes payable to Safeway | — | — | 27,678 | — | |||||||||||
Borrowings under Safeway line of credit, net | — | 113,000 | (113,000 | ) | 113,000 | ||||||||||
Repayment of debt assumed in business acquisitions | — | — | (41,984 | ) | — | ||||||||||
Payments for initial public offering costs | — | — | — | (4,396 | ) | ||||||||||
Reimbursements for initial public offering costs | — | — | — | 5,540 | |||||||||||
Proceeds from issuance of common stock from exercise of employee stock options and employee stock purchase plans | 1,441 | 1,566 | 8,955 | 5,114 | |||||||||||
Other stock-based compensation related | (486 | ) | (374 | ) | (975 | ) | (854 | ) | |||||||
Excess tax benefit from stock-based awards | 2,491 | 779 | 4,442 | 3,190 | |||||||||||
Other | — | — | (44 | ) | 435 | ||||||||||
Net cash provided by financing activities | 321 | 114,904 | 253,148 | 117,679 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | (5,266 | ) | (1,488 | ) | (13,765 | ) | (3,899 | ) | |||||||
Increase (decrease) in cash and cash equivalents | (692,199 | ) | (415,549 | ) | 84,585 | 59,804 | |||||||||
Cash and cash equivalents—beginning of period | 911,615 | 550,380 | 134,831 | 75,027 | |||||||||||
Cash and cash equivalents—end of period | $ | 219,416 | $ | 134,831 | $ | 219,416 | $ | 134,831 | |||||||
NONCASH FINANCING AND INVESTING ACTIVITIES | |||||||||||||||
Net deferred tax assets recognized for tax basis step-up with offset to Additional paid-in capital | $ | 366,306 | $ | — | $ | 366,306 | $ | — | |||||||
Note payable to Safeway contributed to Additional paid-in capital | $ | 8,229 | $ | — | $ | 8,229 | $ | — | |||||||
Financing of business acquisition with contingent consideration | $ | — | $ | — | $ | 13,100 | $ | — | |||||||
BLACKHAWK NETWORK HOLDINGS, INC.
SUPPLEMENTAL INFORMATION
(In thousands except percentages, average transaction value and per share amounts)
(Unaudited)
TABLE 1: OTHER OPERATIONAL DATA | |||||||
12 weeks ended | |||||||
March 28, 2015 | March 22, 2014 | ||||||
Transaction dollar volume | $ | 3,110,533 | $ | 2,187,704 | |||
Transaction count | 60,280 | 44,638 | |||||
Average transaction value | $ | 51.60 | $ | 49.01 | |||
Prepaid and processing revenues | $ | 278,775 | $ | 205,534 | |||
Prepaid and processing revenues as a % of transaction dollar volume | 9.0 | % | 9.4 | % | |||
Partner distribution expense as a % of prepaid and processing revenues | 55.7 | % | 60.5 | % | |||
TABLE 2: RECONCILIATION OF NON-GAAP MEASURES | |||||||
12 weeks ended | |||||||
March 28, 2015 | March 22, 2014 | ||||||
Prepaid and processing revenues: | |||||||
Commissions and fees | $ | 220,402 | $ | 178,095 | |||
Program, interchange, marketing and other fees | 73,104 | 35,665 | |||||
Marketing revenues | (14,731 | ) | (8,226 | ) | |||
Total prepaid and processing revenues | $ | 278,775 | $ | 205,534 | |||
Adjusted operating revenues: | |||||||
Total operating revenues | $ | 319,731 | $ | 233,115 | |||
Issuing bank contract amendments | — | 1,955 | |||||
Partner distribution expense | (155,354 | ) | (124,307 | ) | |||
Adjusted operating revenues | $ | 164,377 | $ | 110,763 | |||
Adjusted EBITDA: | |||||||
Net income (loss) before allocation to non-controlling interests | $ | 4,737 | $ | (2,884 | ) | ||
Interest income and other income (expense), net | 801 | 409 | |||||
Interest expense | 2,757 | 45 | |||||
Income tax expense (benefit) | 2,620 | (1,783 | ) | ||||
Depreciation and amortization | 15,394 | 10,918 | |||||
EBITDA | 26,309 | 6,705 | |||||
Adjustments to EBITDA: | |||||||
Employee stock-based compensation | 4,989 | 2,670 | |||||
Distribution partner mark-to-market expense | — | 622 | |||||
Issuing bank contract amendments | — | 1,955 | |||||
Change in fair value of contingent consideration | (4,139 | ) | — | ||||
Adjusted EBITDA | $ | 27,159 | $ | 11,952 | |||
Adjusted EBITDA margin: | |||||||
Total operating revenues | $ | 319,731 | $ | 233,115 | |||
Operating income (loss) | $ | 10,915 | $ | (4,213 | ) | ||
Operating margin | 3.4 | % | (1.8 | )% | |||
Adjusted operating revenues | $ | 164,377 | $ | 110,763 | |||
Adjusted EBITDA | $ | 27,159 | $ | 11,952 | |||
Adjusted EBITDA margin | 16.5 | % | 10.8 | % | |||
TABLE 2: RECONCILIATION OF NON-GAAP MEASURES (continued) | |||||||
12 weeks ended | |||||||
March 28, 2015 | March 22, 2014 | ||||||
Adjusted net income: | |||||||
Income (loss) before income tax expense | $ | 7,357 | $ | (4,667 | ) | ||
Employee stock-based compensation | 4,989 | 2,670 | |||||
Distribution partner mark-to-market expense | — | 622 | |||||
Issuing bank contract amendments | — | 1,955 | |||||
Change in fair value of contingent consideration | (4,139 | ) | — | ||||
Amortization of intangibles | 6,999 | 5,532 | |||||
Adjusted income before income tax expense | 15,206 | 6,112 | |||||
Income tax expense (benefit) | 2,620 | (1,783 | ) | ||||
Tax expense on adjustments | 2,921 | 4,134 | |||||
Adjusted income tax expense before cash tax benefits | 5,541 | 2,351 | |||||
Reduction in cash taxes payable resulting from amortization of spin-off tax basis step-up | (6,618 | ) | — | ||||
Reduction in cash taxes payable from amortization of acquisition intangibles and utilization of acquired NOLs | (2,690 | ) | (1,372 | ) | |||
Adjusted income tax expense (benefit) | (3,767 | ) | 979 | ||||
Adjusted net income before allocation to non-controlling interests | 18,973 | 5,133 | |||||
Net (income) loss attributable to non-controlling interests, net of tax | (31 | ) | 43 | ||||
Adjusted net income attributable to Blackhawk Network Holdings, Inc. | $ | 18,942 | $ | 5,176 | |||
Adjusted diluted earnings per share: | |||||||
Net income (loss) attributable to Blackhawk Network Holdings, Inc. | $ | 4,706 | $ | (2,841 | ) | ||
Distributed and undistributed earnings allocated to participating securities | (51 | ) | (38 | ) | |||
Net income (loss) attributable to common shareholders | $ | 4,655 | $ | (2,879 | ) | ||
Diluted weighted-average shares outstanding | 55,416 | 52,095 | |||||
Diluted earnings (loss) per share | $ | 0.08 | $ | (0.06 | ) | ||
Adjusted net income attributable to Blackhawk Network Holdings, Inc. | $ | 18,942 | $ | 5,176 | |||
Adjusted distributed and undistributed earnings allocated to participating securities | (97 | ) | (59 | ) | |||
Adjusted net income available for common shareholders | $ | 18,845 | $ | 5,117 | |||
Diluted weighted-average shares outstanding | 55,416 | 52,095 | |||||
Increase in common share equivalents | — | 1,597 | |||||
Adjusted diluted weighted-average shares outstanding | 55,416 | 53,692 | |||||
Adjusted diluted earnings per share | $ | 0.34 | $ | 0.10 | |||
TABLE 3: RECONCILIATION OF GAAP CASH FLOW TO FREE CASH FLOW
12 weeks ended | 53 weeks ended | 52 weeks ended | |||||||||||||
March 28, 2015 | March 22, 2014 | March 28, 2015 | March 22, 2014 | ||||||||||||
Net cash flow provided by (used in) operating activities | $ | (675,222 | ) | $ | (519,086 | ) | $ | 130,168 | $ | 50,969 | |||||
Changes in settlement payables and consumer and customer deposits, net of settlement receivables | 660,730 | 484,076 | (48,850 | ) | (11,050 | ) | |||||||||
Adjusted net cash provided by (used in) operating activities | (14,492 | ) | (35,010 | ) | 81,318 | 39,919 | |||||||||
Expenditures for property, equipment and technology | (13,843 | ) | (8,538 | ) | (45,014 | ) | (32,456 | ) | |||||||
Free cash flow | (28,335 | ) | (43,548 | ) | 36,304 | 7,463 | |||||||||
1 Q1 Earnings Report April 29, 2015 6:00 am Pacific © 2015 Blackhawk Network. Confidential and not for replication or distribution.
Forward Looking Statements This presentation 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. 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 meet our financial forecasts for the current year; our ability to achieve anticipated cost savings; our ability to generate adequate taxable income to enable us to fully utilize the cash tax benefits referred to in this presentation; changes in applicable tax law that preclude us from fully utilizing the cash tax benefits referred to in this presentation; our ability to successfully integrate our recent acquisitions into our company and to realize the forecasted synergies of our incentives and rewards business; our ability to grow adjusted operating revenues and adjusted net income as anticipated, 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, including increasingly stringent money-laundering rules and regulations and other risks and uncertainties described in our reports and filings with the Securities and Exchange Commission, including the risks and uncertainties set forth in Item 1A under the heading Risk Factors in our Annual Report on Form 10-K, and other subsequent periodic reports we have filed with the SEC. 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 other than as may be required by law. © 2015 Blackhawk Network. Confidential and not for replication or distribution. 2
Overview – 2015 Segment Reporting U.S. Retail International Retail Incentives & Rewards © 2015 Blackhawk Network. Confidential and not for replication or distribution. 3 From time to time we may provide data for “online and digital” product sales which includes all online sales and certain web-based B2B fulfillment of our content in physical or digital formats and which are included in the respective reporting segments above. Includes gift cards, reloadable debit and prepaid telecom cards sold at retail and digital distribution partners, and all “product sales” in the U.S. Includes sales of software solutions, prepaid cards and other services to businesses for use as employee, channel and consumer incentives Includes gift cards and reloadable debit cards sold at retail and digital distribution partners and “product sales” outside the U.S.
Continued Growth in Transaction Dollar Volume (TDV) and Adjusted Operating Revenues (AOR) 4 © 2015 Blackhawk Network. Confidential and not for replication or distribution. Q1 YOY TDV growth – 2015 +42% – 2014 +36% – 2013 +23% $- $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 1 Q 1 3 2 Q 1 3 3 Q 1 3 4 Q 1 3 1 Q 1 4 2 Q 1 4 3 Q 1 4 4 Q 1 4 1 Q 1 5 TDV (in billions) $- $50.0 $100.0 $150.0 $200.0 $250.0 $300.0 $350.0 1 Q 1 3 2 Q 1 3 3 Q 1 3 4 Q 1 3 1 Q 1 4 2 Q 1 4 3 Q 1 4 4 Q 1 4 1 Q 1 5 AOR (in millions) Q1 YOY AOR growth – 2015 +48% – 2014 +28% – 2013 +20%
Adjusted EBITDA and Adjusted EPS Quarterly Trend 5 © 2015 Blackhawk Network. Confidential and not for replication or distribution. Q1 YOY Adjusted EBITDA growth – 2015 +127% – 2014 +62% – 2013 -26% Q1 YOY Adjusted EPS growth – 2015 +240% – 2014 +150% – 2013 -50% $- $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 1 Q 1 3 2 Q 1 3 3 Q 1 3 4 Q 1 3 1 Q 1 4 2 Q 1 4 3 Q 1 4 4 Q 1 4 1 Q 1 5 Adjusted EBITDA (in millions) $- $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 1 Q 1 3 2 Q 1 3 3 Q 1 3 4 Q 1 3 1 Q 1 4 2 Q 1 4 3 Q 1 4 4 Q 1 4 1 Q 1 5 Adjusted EPS
Key Financial Metrics (non-GAAP) Q1’15 vs Q1’14 6 © 2015 Blackhawk Network. Confidential and not for replication or distribution. ($ in millions except EPS) Q1 ’15 Q1 ’14 % Change Adjusted Operating Revenues (AOR) $ 164 $ 111 48% Adjusted EBITDA $ 27 $ 12 127% Adjusted EBITDA Margin 17% 11% Adjusted Net Income $ 19 $ 5 266% Adjusted Diluted EPS $0.34 $0.10 240% • Leverage at EBITDA line due to increase in profitability across all segments • Adjusted net income includes reduction in cash taxes payable related to 2014 spin-off from Safeway and acquisition related NOLs • $9.3M or $0.17 per diluted share for 1Q’15 (vs $1.4M or $0.03 per diluted share for 1Q’14)
Segment Financial Metrics (non-GAAP) Q1’15 vs. Q1’14 7 © 2015 Blackhawk Network. Confidential and not for replication or distribution. ($ in millions) US Retail Int’l Retail BES Unallocated Total TDV 2015 $ 1,964 $ 645 $ 502 $ 3,111 TDV 2014 $ 1,560 $ 500 $ 128 $ 2,188 % Increase 26% 29% 294% 42% AOR 2015 $ 105 $ 23 $ 36 $ 164 AOR 2014 $ 80 $ 22 $ 9 $ 111 % Increase 33% 5% 279% 48% Adjusted EBITDA 2015 $ 44 $ 3 $ 7 $ (27) $ 27 Adjusted EBITDA 2014 $ 33 $ 2 $ 1 $ (24) $ 12 % Increase 37% 51% 360% 14% 127% Note: Unallocated is primarily shared services expenses
Transaction Dollar Volume % of Total by Segment 8 © 2015 Blackhawk Network. Confidential and not for replication or distribution. US Retail - strong sales at top partners including Kroger, Safeway, Ahold & Simon Malls International Retail - strong sales in Asia-Pac, primarily digital media content Incentives & Rewards - includes Parago acquisition; >40% organic growth 63% 21% 16% Q1’15 71% 23% 6% Q1’14
Adjusted Operating Revenues % of Total by Segment 9 © 2015 Blackhawk Network. Confidential and not for replication or distribution. 64% 14% 22% Q1’15 72% 20% 8% Q1’14 US Retail - strong sales of closed & open gift cards and Cardpool exchange International Retail - constant currency growth 19%; lower AOR growth vs. TDV due to higher mix of Japan (lower revenue, minimal expenses) Incentives & Rewards - excluding 2014 acquisitions growth >40%
U.S. Retail % Productivity improvements at existing distribution partners drove ~80% of YOY TDV growth for Q1’15 AOR grew 33% and was 5.4% of TDV, +30 bps vs 2014 due to growth in marketing revenues and product sales. Pro forma AOR up 22% YOY excluding marketing and product Expect to migrate additional 1,000 grocery locations from “basic” to “best practices” during FY 2015 Margin leverage based on gift card growth and improved contribution from Financial Services, Cardpool and Online channel © 2015 Blackhawk Network. Confidential and not for replication or distribution. 10
Online and Digital Just under 400 egift brands in U.S. – 35 of our top 50 content providers are live with egift Content providers doubling marketing spend and events in FY15 10 new digital distribution partners launched in 2014 Digital transaction dollar volume growing over 200% © 2015 Blackhawk Network. Confidential and not for replication or distribution. 11
International Retail Productivity improvement at existing distribution partners represented ~85% of YOY TDV growth for Q1’15 AOR growth 5% (19% in constant currency) - digital media content (iTunes, Google Play, Xbox) driving growth in regions with lower revenue yield Expect to launch Poland, Indonesia, and India over the next several quarters © 2015 Blackhawk Network. Confidential and not for replication or distribution. 12 FX impact expected to worsen – FY15 adjusted EBITDA impact of $3.8M vs. $2.5M impact per guidance ($0.6M impact in Q1’15)
Incentives & Rewards 2015 outlook for “pro forma organic” Transaction Dollar Volume growth of 15% to 20% (as if we owned Parago for all of 2014) Q1 AOR growth >40% excluding 2014 acquisitions; cross selling opportunities into Blackhawk retail developing Synergies on track to yield cost savings of $8M for fiscal 2016 Full year projected Adjusted EBITDA margins 22%-24% © 2015 Blackhawk Network. Confidential and not for replication or distribution. 13 %
Financial Details
Revenue Ratios - Q1’15 vs Q1’14 15 © 2015 Blackhawk Network. Confidential and not for replication or distribution. Q1‘15 Q1‘14 Change FY Est* Prepaid and Processing Revenues (PPR) % of TDV 9.0% 9.4% -0.4% 9.1% Partner Distribution Expense (PDE) % of PPR 55.7% 60.5% -4.8% 57.1% Adjusted Operating Revenues (AOR) % of TDV 5.3% 5.1% +0.2% 5.2% Pro Forma Adjusted Operating Revenues % of TDV 4.0% 3.9% 0.1% 3.9% • PPR as % of TDV lower due to higher mix of open loop vs closed loop • PDE as a % of PPR lower due to addition of Parago and higher mix of US open loop • AOR increase due to faster growth in marketing revenues and product sales Note: PPR is total revenues excluding marketing revenues and product sales. See reconciliation to Pro forma AOR in Appendix * Current point estimate of full year ratios
Expense Ratios - Q1’15 vs Q1’14 16 © 2015 Blackhawk Network. Confidential and not for replication or distribution. Q1‘15 Q1‘14 Change FY Est* Processing & Services % of Pro Forma AOR 50.5% 48.4% 2.1% 46.2% Sales & Marketing , Net % of Pro Forma AOR 22.2% 28.3% -6.1% 21.7% G&A % of Pro Forma AOR 13.1% 15.6% -2.5% 11.3% • Processing & Services increase due to higher mix of open loop products and rebate processing expenses as a result of Parago acquisition • Sales & Marketing (net of marketing revenues) lower due to Parago’s smaller ratio of marketing spend and due to AOR growth rate in Retail • G&A leverage due to strong retail sales growth Note: Expenses exclude non-cash items * Current point estimate of full year ratios
Product Sales and Margin 17 © 2015 Blackhawk Network. Confidential and not for replication or distribution. ($ in millions) Q1‘15 Q1‘14 % Change FY Est* Product Sales $ 26.2 $ 19.4 35% 33% Cost of Products Sold 24.9 19.3 29% 32% Product Gross Profit $ 1.3 $ 0.1 >500% +55% Product Gross Margin 5.0% 0.3% 6.0% • Q1 Product Sales: comprised of Cardpool (85% of total, up 51% YOY), telecom handsets and card services & processing * Current point estimate of full year growth rate and margin
Adjusted EBITDA Bridge – Q1’15 vs Q1’14 18 © 2015 Blackhawk Network. Confidential and not for replication or distribution. ($ in millions) Existing 2014 Acquisitions Total Q1 2014 Adjusted EBITDA $ 12 $ 0 $ 12 AOR 30 24 54 OPEX (18) (20) (38) FX rate impact (1) 0 (1) Q1 2015 Adjusted EBITDA $ 23 $ 4 $ 27 % increase YOY 90% NA 127%
Q1’15 Adjusted EBITDA -> Adjusted Net Income 19 © 2015 Blackhawk Network. Confidential and not for replication or distribution. ($ in millions) Existing 2014 Acquisitions Total Q1 2015 Adjusted EBITDA $ 23 $ 4 $ 27 Depreciation (6) (2) (8) Interest, net (2) (2) (4) Adjusted income before taxes 15 0 15 Income taxes (6) - (6) Adjusted net income before reduction in cash taxes payable 9 0 9 Add: Reduction in cash taxes payable 7 3 10 Q1 2015 Adjusted Net Income $ 16 $ 3 $ 19
Adjusted EPS Bridge – Q1’15 vs. Q1’14 20 © 2015 Blackhawk Network. Confidential and not for replication or distribution. Total Tax Benefits Total Excl Tax Q1 2014 Adjusted EPS $ 0.10 $ 0.03 $ 0.07 Growth from existing businesses 0.11 0.11 Growth from 2014 acquisitions 0.06 0.02 0.04 Less: Depreciation increase 1st year (0.02) (0.02) Less: Interest increase 1st year (0.02) (0.02) Net increase from acquisitions 0.02 0.02 - Cash tax benefit – spin-off 0.12 0.12 - FX rate impact (0.01) (0.01) Increased interest – spin-off (0.01) (0.01) Tax rate Benefit 0.01 0.01 Q1 2015 Adjusted EPS $ 0.34 $ 0.17 $ 0.17
Q2’15 Financial Guidance 21 © 2015 Blackhawk Network. Confidential and not for replication or distribution. ($ in millions except EPS) Q2’15 Guidance Q2’14 Actual % Change Adjusted Operating Revenues $171- $181 $134.7 27% - 34% Adjusted EBITDA $25 - $27 $21.6 16% - 25% Adjusted Net Income before Reduction in Cash Taxes Payable $8.2 - $8.9 $9.2 -11% to -3% Adjusted Diluted EPS before Reduction in Cash Taxes Payable $0.15 - $0.16 $0.17 -12% to -6% Adjusted Net Income $17.5 - $18.2 $14.8 18% to 23% Adjusted Diluted EPS $0.31 - $0.33 $0.28 11% to 18% • Q2’14 included a litigation settlement pre-tax gain of $3.9 million ($0.044 diluted EPS) • Reduction in cash taxes payable expected to be $9.3 million, $3.7 million more than PY • Projected share count 56.0 million vs 53.7 million
2015 Annual Financial Guidance Update 22 © 2015 Blackhawk Network. Confidential and not for replication or distribution. ($ in millions except EPS) FY 2015 Guidance FY 2014 Actual % Change Adjusted Operating Revenues $840M-$875M $683M 23%-28% Adjusted EBITDA $180M-$190M $145M 24%-31% Adjusted Net Income before Reduction in Cash Taxes Payable $80M-$86M $69M 16%-25% Adjusted Diluted EPS before Reduction in Cash Taxes Payable $1.43 - $1.53 $1.27 13%-20% Adjusted Net Income $119M-$125M $97M 23%-29% Adjusted Diluted EPS $2.13 - $2.23 $1.77 20%-26% • Raising FY’15 guidance upper range by $0.05 to $2.23 compared to original guidance provided on February 26
Trailing 4 Quarters Cash Flow © 2015 Blackhawk Network. Confidential and not for replication or distribution. 23 ($ in millions) 53 Weeks Ended Q1‘15 52 Weeks Ended Q1‘14 Change Cash flows from operating activities: Net income $ 53 $ 51 $ 2 Noncash reconciling items 95 65 30 Income tax related, net (21) (27) 6 Changes in settlement accounts 49 11 38 Changes in other operating accounts (46) (49) 3 Net cash provided by operating activities 130 51 79 Cash flows from investing activities (285) (105) (180) Cash flows from financing activities 253 118 135 Impact of FX (14) (4) (10) Net increase in cash $ 84 $ 60 $ 24
GAAP Cash Flows to Free Cash Flows Reconciliation 24 © 2015 Blackhawk Network. Confidential and not for replication or distribution. ($ in millions) 53 Weeks Ended Q1‘15 52 Weeks Ended Q1‘14 Change Net cash provided by operating activities $ 130 $ 51 $ 79 Change in settlement accounts (49) (11) (38) Adjusted net cash provided by operating activities 81 40 41 Capital expenditures (45) (33) (12) Free cash flow $ 36 $ 7 $ 29
Appendix
GAAP Revenues, Adjusted Operating Revenues (AOR) and Pro Forma AOR Reconciliation 26 © 2015 Blackhawk Network. Confidential and not for replication or distribution. ($ in millions) Q1‘15 Q1‘14 % Change Total Operating Revenues $ 319 $ 233 37% Less: Partner Distribution Expense (155) (124) 25% Add: Bank Amendments - 2 Adjusted Operating Revenues 164 111 48% Less: Marketing Revenues (15) (8) 79% Less: Product Sales (26) (19) 36% Add: Mark-to-Market and Intangible 1 1 8% Pro Forma Adjusted Operating Revenues $ 124 $ 85 47% • Pro forma Adjusted Operating Revenues measure expense leverage • Marketing revenues are a pass through with offset in sales and marketing expense • Product sales and cost of product sales are separate line items on the income statement and product sales don’t drive material other operating expenses • Mark-to-market and intangible expense adjustments represent equity-related items
GAAP Net Income to Adjusted EBITDA Reconciliation 27 © 2015 Blackhawk Network. Confidential and not for replication or distribution. ($ in millions) Q1‘15 Q1‘14 % Change Net income $ 5 $ (3) N/M Interest and other income 1 1 96% Interest expense 3 - N/M Income tax expense 2 (2) N/M Depreciation and amortization 15 11 41% EBITDA 26 7 292% Employee stock-based compensation 5 2 87% Distribution partner mark-to-market - 1 N/M Issuing bank contract amendments - 2 N/M Change in value of contingent consideration (4) - N/M Adjusted EBITDA $ 27 $ 12 127%
GAAP Net Income to Adjusted Net Income Reconciliation 28 © 2015 Blackhawk Network. Confidential and not for replication or distribution. ($ in millions) Q1‘15 Q1‘14 % Change Income before income tax expense $ 7 $ (5) N/M Employee stock-based compensation 5 2 87% Distribution partner mark-to-market 0 1 N/M Issuing bank contract amendments 0 2 N/M Change in value of contingent consideration (4) 0 N/M Amortization of intangibles 7 6 27% Adjusted income before income tax expense 15 6 149% Income tax expense (benefit) 2 (2) N/M Income tax expense on adjustments 3 4 (29%) Spin-Off and NOL benefits (9) (1) N/M Adjusted income tax expense (benefit) (4) 1 N/M Adjusted net income $ 19 $ 5 266%
Q & A