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Blackhawk Announces First Quarter 2014 Financial Results Adjusted Operating Revenues Rise 29%; Adjusted Net Income Increases 31%

(April 23, 2014)

PLEASANTON, Calif., April 23, 2014 (GLOBE NEWSWIRE) -- Blackhawk Network Holdings, Inc. (Nasdaq:HAWK) (Nasdaq:HAWKB) today announced financial results for the first quarter ended March 22, 2014.



CEO Bill Tauscher commented, "We started 2014 with solid growth in revenues and earnings. Each of our key adjusted financial metrics grew at least 25% driven by strong sales of open loop gift cards in the U.S., robust increases in international load value, and the addition of InteliSpend, the incentives and rewards business we acquired in late 2013. Worldwide load value grew 36%, or 23% excluding acquisitions, and international accounted for 24% of worldwide load value during the first quarter."



On February 19, 2014, Safeway announced its intention to distribute the remaining 37.8 million shares of Blackhawk Class B common stock it owned (71.9% of the 52.6 million total outstanding Blackhawk shares) to Safeway stockholders. The Spin-Off was completed on April 14, 2014.


On March 28, 2014, the Company closed a credit agreement with a group of banks. The credit agreement includes a $175 million 4-year term loan, with an option to increase such loan to $225 million, and a revolving credit facility of up to $200 million with up to an additional $100 million available during the year-end holiday period for specific settlement related requirements. The revolving credit facility includes $100 million for the issuance of letters of credit to replace certain guarantees provided by Safeway that were terminated as a result of the Spin-Off.




GAAP financial results for the first quarter of 2014 compared to the first quarter of 2013




  • Operating revenues totaled $233.1 million, an increase of 26% from $185.1 million for the quarter ended March 23, 2013. This increase was due primarily to a 23% increase in commissions and fees driven by increases in world-wide closed loop gift card sales, a 46% increase in program, interchange, marketing and other fees due to strong open loop gift card sales in the U.S. and the acquisition of InteliSpend in late 2013, and a 19% increase in product sales.


  • A net loss of $2.8 million compared to net income of $0.3 million for the quarter ended March 23, 2013 was mainly due to an increase of $4.3 million before-tax ($2.6 million after-tax) in intangible asset amortization expense related to the InteliSpend and Retailo acquisitions.


  • Net loss per diluted share was $0.06 compared to earnings per diluted share of $0.01 for the quarter ended March 23, 2013. Diluted shares outstanding increased 2% to 52.1 million.



Non-GAAP financial results for the first quarter of 2014 compared to the first quarter of 2013 (see Table 2 for Reconciliation of Non-GAAP Measures)




  • Adjusted operating revenues totaled $114.5 million, an increase of 29% from $89.1 million for the quarter ended March 23, 2013.


  • Adjusted EBITDA totaled $10.0 million, an increase of 36% from $7.4 million for the quarter ended March 23, 2013.


  • Adjusted net income totaled $2.6 million, an increase of 31% from $2.0 million for the quarter ended March 23, 2013.


  • Adjusted diluted EPS was $0.05, an increase of 25% from $0.04 for the quarter ended March 23, 2013.



Conference Call



The Company will provide additional details on Q1 2014 performance and its outlook for Q2 2014 during a conference call scheduled for Wednesday, April 23, 2014 at 2:00 p.m. PDT / 5:00 p.m. EDT. Joining the call will be Blackhawk's CEO, William Tauscher; President, Talbott Roche; and Chief Financial & Administrative Officer, Jerry Ulrich. Participants may listen to a real time audio webcast of the call by visiting the Company's investor relations website located at http://ir.blackhawknetwork.com. Following the call, an archived webcast will be available on the Company's investor relations website, or the replay can be accessed by dialing (888) 286-8010 and entering the participant passcode 38748675. The replay will be available until Wednesday, April 30, 2014.



About Blackhawk Network



Blackhawk Network Holdings, Inc. is a prepaid payment network which supports the physical and digital distribution of a variety of prepaid products. Blackhawk Network utilizes proprietary technology to provide consumers a wide selection of gift cards, prepaid telecom handsets, airtime cards and general purpose reloadable cards across a global network totaling over 180,000 stores. Through Blackhawk's digital platform, the Company supports prepaid products and offers across a growing network of digital distribution partners including leading etailers, financial service providers, social apps, mobile wallets and other integrated physical-to-digital channels. Founded in 2001, Blackhawk Network is headquartered in Pleasanton, California, and offers products and services in the United States and 21 other countries. 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 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, risks related to our ongoing relationship with Safeway 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 recent Annual Report on Form 10-K. 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)

 

 

 

 

Twelve Weeks Ended

 

March 22, 2014

March 23, 2013

OPERATING REVENUES:

 

 

Commissions and fees

 $ 178,095

 $ 144,475

Program, interchange, marketing and other fees

 35,665

 24,358

Product sales

 19,355

 16,217

Total operating revenues

 233,115

 185,050

 

 

 

OPERATING EXPENSES:

 

 

Distribution partner commissions 

 118,594

 95,982

Processing and services

 41,625

 32,136

Sales and marketing

 38,791

 28,325

Costs of products sold

 19,304

 15,850

General and administrative

 14,603

 11,780

Business acquisition expense and amortization of acquisition intangibles

 4,411

 677

Total operating expenses

 237,328

 184,750

 

 

 

OPERATING INCOME (LOSS)

 (4,213)

 300

 

 

 

OTHER INCOME (EXPENSE):

 

 

Interest income and other income (expense), net

 (409)

 277

Interest expense

 (45)

 -- 

INCOME (LOSS) BEFORE INCOME TAX EXPENSE

 (4,667)

 577

 

 

 

INCOME TAX EXPENSE (BENEFIT)

 (1,783)

 318

 

 

 

NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTEREST

 (2,884)

 259

 

 

 

Add: Net loss attributable to non-controlling interests (net of tax)

 43

 87

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC.

 $ (2,841)

 $ 346

 

 

 

EARNINGS PER SHARE:

 

 

Basic

 $ (0.06)

 $ 0.01

Diluted

 $ (0.06)

 $ 0.01

 

 

 

Weighted average shares outstanding - basic

 52,095

 50,011

Weighted average shares outstanding - diluted

 52,095

 50,920
























































































































































































































































































 

BLACKHAWK NETWORK HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

 

 March 22, 2014 

 December 28, 2013 

ASSETS

 

 

Current assets:

 

 

Cash and cash equivalents

 $ 134,831

 $ 550,380

Settlement receivables, net

 184,395

 813,448

Accounts receivable, net

 117,614

 126,369

Deferred income taxes

 20,145

 20,145

Prepaid expenses and other current assets

 64,945

 67,474

 

 

 

Total current assets

 521,930

 1,577,816

 

 

 

Property, equipment and technology, net

 82,156

 79,663

Intangible assets, net

 93,351

 98,689

Goodwill

 133,633

 133,521

Deferred income taxes

 727

 727

Other assets

 82,194

 90,678

 

 

 

TOTAL ASSETS

 $ 913,991

 $ 1,981,094

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

Current liabilities:

 

 

Settlement payables

 $ 370,757

 $ 1,484,047

Consumer and customer deposits

 55,093

 54,915

Accounts payable and accrued operating expenses

 76,577

 99,499

Other current liabilities

 36,595

 81,270

Note payable to Safeway

 113,000

 -- 

 

 

 

Total current liabilities

 652,022

 1,719,731

 

 

 

Deferred income taxes

 24,501

 24,488

Other liabilities

 7,549

 8,711

 

 

 

Total liabilities

 684,072

 1,752,930

 

 

 

Commitments and contingencies

 

 

 

 

 

Stockholders' equity:

 

 

Class A common stock

 12

 12

Class B common stock

 41

 41

Additional paid-in capital

 112,546

 107,139

Treasury stock

 (305)

 (126)

Accumulated other comprehensive loss

 (3,397)

 (2,873)

Retained earnings

 114,067

 116,975

 

 

 

Total Blackhawk Network Holdings, Inc. equity

 222,964

 221,168

 

 

 

Non-controlling interest

 6,955

 6,996

 

 

 

Total stockholders' equity

 229,919

 228,164

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 $ 913,991

 $ 1,981,094























































































































































































































































































 

BLACKHAWK NETWORK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

Twelve Weeks Ended

 

March 22, 2014

March 23, 2013

OPERATING ACTIVITIES:

 

 

Net income (loss) before allocation to non-controlling interest

 $ (2,884)

 $ 259

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

Depreciation and amortization

 10,918

 4,727

Program development cost amortization

 5,657

 4,178

Provision for doubtful accounts and sales adjustments

 432

 676

Employee stock-based compensation expense

 2,670

 1,634

Distribution partner mark-to-market expense

 622

 117

Change in fair value of contingent consideration

 -- 

 578

Excess tax benefit from stock-based awards

 (779)

 -- 

Other

 524

 1

Changes in operating assets and liabilities:

 

 

Settlement receivables

 625,608

 358,801

Settlement payables

 (1,109,862)

 (903,987)

Accounts receivable, current and long-term

 15,134

 20,637

Prepaid expenses and other current assets

 5,446

 10,145

Other assets

 (4,978)

 (1,246)

Consumer and customer deposits

 178

 467

Accounts payable and accrued operating expenses

 (22,249)

 (16,456)

Other current and long-term liabilities

 (24,048)

 (20,034)

Income taxes, net

 (21,475)

 (2,302)

 

 

 

Net cash used in operating activities

 (519,086)

 (541,805)

 

 

 

INVESTING ACTIVITIES:

 

 

Change in overnight cash advances to Safeway

 -- 

 454,845

Expenditures for property, equipment and technology

 (8,538)

 (6,092)

Payment for working capital adjustment of business acquisitions, net

 (1,341)

 -- 

 

 

 

Net cash provided by (used in) investing activities

 (9,879)

 448,753

 

 

 

FINANCING ACTIVITIES:

 

 

Borrowing under note payable to Safeway

 113,000

 -- 

Dividends paid

 (67)

 (83)

Payment of acquisition liability

 -- 

 (1,394)

Payments for initial public offering costs

 -- 

 (298)

Proceeds from exercise of stock options

 1,566

 -- 

Payments for surrendered stock-based awards for taxes

 (374)

 (290)

Excess tax benefit from stock-based awards

 779

 -- 

Repurchase of redeemable common stock

 -- 

 (253)

 

 

 

Net cash provided by (used in) financing activities

 114,904

 (2,318)

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 (1,488)

 (2,268)

 

 

 

DECREASE IN CASH AND CASH EQUIVALENTS

 (415,549)

 (97,638)

 

 

 

CASH AND CASH EQUIVALENTS - Beginning of year

 550,380

 172,665

 

 

 

CASH AND CASH EQUIVALENTS - End of period

 $ 134,831

 $ 75,027




































































































































































































































































































































































































































































 

BLACKHAWK NETWORK HOLDINGS, INC.

SUPPLEMENTAL INFORMATION

(In thousands except percentages and average transaction value)

(Unaudited)

 

 

TABLE 1: OTHER OPERATIONAL DATA

 

 

 

Twelve Weeks Ended

 

March 22, 2014

March 23, 2013

 

 

 

Load value

 $ 2,187,704

 $ 1,609,841

Commissions and fees as a % of load value

8.1%

9.0%

Distribution partner commissions paid as a % of commissions and fees

66.6%

66.4%

Number of load transactions

 44,638

 36,806

Average load transaction value

 $ 49.01

 $ 43.74

 

 

 

 

 

 

TABLE 2: RECONCILIATION OF NON-GAAP MEASURES

 

 

 

Twelve Weeks Ended

 

March 22, 2014

March 23, 2013

Adjusted operating revenues:

 

 

Total operating revenues

 $ 233,115

 $ 185,050

Distribution partner commissions

 (118,594)

 (95,982)

Adjusted operating revenues

 $ 114,521

 $ 89,068

 

 

 

Adjusted EBITDA:

 

 

Net income (loss) before allocation to non-controlling interest

 $ (2,884)

 $ 259

Interest income and other income (expense), net

 409

 (277)

Interest expense

 45

 -- 

Income tax expense (benefit)

 (1,783)

 318

Depreciation and amortization

 10,918

 4,727

EBITDA

 6,705

 5,027

Adjustments to EBITDA:

 

 

Employee stock-based compensation

 2,670

 1,634

Distribution partner mark-to-market expense

 622

 117

Change in fair value of contingent consideration

 -- 

 578

Adjusted EBITDA

 $ 9,997

 $ 7,356

 

 

 

Adjusted EBITDA margin:

 

 

Total operating revenues

 $ 233,115

 $ 185,050

Operating income (loss)

 $ (4,213)

 $ 300

Operating margin

-1.8%

0.2%

Adjusted operating revenues

 $ 114,521

 $ 89,068

Adjusted EBITDA

 $ 9,997

 $ 7,356

Adjusted EBITDA margin

8.7%

8.3%

 

 

 

Adjusted net income:

 

 

Income (loss) before income tax expense

 $ (4,667)

 $ 577

Employee stock-based compensation

 2,670

 1,634

Distribution partner mark-to-market expense

 622

 117

Change in fair value of contingent consideration

 -- 

 578

Amortization of intangibles

 5,532

 181

Adjusted income before income tax expense

 4,157

 3,087

 

 

 

Income tax expense (benefit)

 (1,783)

 318

Tax expense on adjustments

 3,419

 895

Adjusted income tax expense

 1,636

 1,213

 

 

 

Adjusted net income before allocation to non-controlling interest

 2,521

 1,874

Add: Net loss attributable to non-controlling interests (net of tax)

 43

 87

Adjusted net income attributable to Blackhawk Network Holdings, Inc.

 $ 2,564

 $ 1,961

 

 

 

 

 

 

TABLE 2: RECONCILIATION OF NON-GAAP MEASURES (continued)

 

 

 

Twelve Weeks Ended

 

March 22, 2014

March 23, 2013

 

 

 

Adjusted EPS:

 

 

Net income (loss) attributable to Blackhawk Network Holdings, Inc.

 $ (2,841)

 $ 346

Income allocated to participating securities

 (38)

 (56)

Net income (loss) attributable to common shareholders

 $ (2,879)

 $ 290

Diluted weighted-average shares outstanding

 52,095

 50,920

Diluted earnings per share 

 $ (0.06)

 $ 0.01

 

 

 

Adjusted net income attributable to Blackhawk Network Holdings, Inc.

 $ 2,564

 $ 1,961

Adjusted income allocated to participating securities

 (49)

 (96)

Adjusted net income attributable to common shareholders

 $ 2,515

 $ 1,865

Diluted weighted-average shares outstanding

 52,095

 50,920

Increase in common stock equivalents

 1,597

 -- 

Adjusted diluted weighted average shares outstanding

 53,692

 50,920

Adjusted diluted earnings per share

 $ 0.05

 $ 0.04

 

 

 

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.

 

 

 

 

Twelve Weeks Ended

 

March 22, 2014

March 23, 2013

 

 

 

Net cash flow used in operating activities, as reported

 $ (519,086)

 $ (541,805)

Decrease in settlement payables, net of settlement receivables

 484,254

 545,186

Net cash provided by (used in) operating activities, as adjusted

 (34,832)

 3,381

Expenditures for property, equipment and technology

 (8,538)

 (6,092)

Free cash flow

 $ (43,370)

 $ (2,711)

CONTACT: INVESTORS/ANALYSTS:
Patrick Cronin
(925) 226-9973
investor.relations@bhnetwork.com

MEDIA:
Teri Llach
(925) 226-9028
Teri.llach@bhnetwork.com



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