PLEASANTON, Calif., Oct. 11, 2017 (GLOBE NEWSWIRE) — Blackhawk Network Holdings, Inc. (NASDAQ:HAWK) today announced financial results for the third quarter ended September 9, 2017.

$ in millions except per share amounts   Q3’17   Q3’16   % Change
(unaudited)            
Operating Revenues   $ 419.3     $ 361.6     16 %
Net Income (Loss)   $ (7.8 )   $ (5.1 )   (52 )%
Diluted Earnings (Loss) Per Share   $ (0.14 )   $ (0.09 )   (56 )%

Non-GAAP Measures (see Table 2)

$ in millions except per share amounts   Q3’17   Q3’16   % Change
(unaudited)            
Adjusted Operating Revenues   $ 208.3     $ 168.9     23 %
Adjusted EBITDA   $ 31.0     $ 26.5     17 %
Adjusted Net Income   $ 10.2     $ 7.8     31 %
Adjusted Diluted EPS   $ 0.18     $ 0.14     29 %

CEO and president Talbott Roche commented, “The Company’s third quarter 2017 earnings were in line with expectations on slightly softer revenues due to a shortfall in our Cardpool exchange business.  We saw strong top line growth in our international and incentives businesses.  In addition, U.S. retail transaction dollar volume (TDV) increased 13% related to the launch of Target as a distribution partner, strong growth in digital channels and the rebound from the EMV(1) impact on open loop products in 2016.  Post-EMV open loop sales are on forecast and we expect to finish the year as originally planned.  Volume from the Target account continues to ramp and we’re currently rolling out larger, upgraded fixtures at 1,800 Target stores in time for the holiday season.  We also remain focused on margin expansion initiatives and are forecasting Adjusted EBITDA margin expansion of approximately 60 to 100 basis points for full year 2017.”

The Company is providing updated guidance for the fourth quarter and full year of 2017 (see “2017 Guidance” below).

Roche added, “We have recently seen increasing competitive pressures in some retail markets and believe this will result in lower growth in our U.S. retail physical channels going forward.  The good news is we have continued to see excellent growth in digital channels, recently added Cashstar to expand into first party gift card markets and are increasingly diversified with solid growth in incentives and international.”

Assets Held for Sale:

Today the Company announced its decision to move the Cardpool gift card exchange business into an “asset held for sale” classification.  Cardpool is excluded from revised fourth quarter and full year 2017 Non-GAAP guidance and information on historical Cardpool revenues and earnings will be provided with the earnings call materials.

The Company previously announced its intention to sell the Grass Roots Meetings & Events business, which contributed $7.0 million of operating revenues, $1.0 million of pre-tax income and $1.1 million of adjusted EBITDA during the third quarter of 2017.  For the first three quarters of 2017, Grass Roots Meetings & Events contributed $43.0 million of operating revenues, $1.0 million of pre-tax income and $1.5 million of adjusted EBITDA.

GAAP financial results for the third quarter of 2017 compared to the third quarter of 2016

  • Operating revenues totaled $419.3 million, an increase of 16% from $361.6 million for the quarter ended September 10, 2016.  This increase was due to a 9% increase in commissions and fees driven primarily by international growth, including the addition of Grass Roots which was acquired during the fourth quarter of 2016, and growth in U.S. retail physical and digital gift card TDV; a 47% increase in program and other fees primarily due to international growth including the acquisition of Grass Roots, higher U.S. retail physical and digital TDV and growth in the incentives segment; a 29.3% increase in product sales due to higher incentives and rewards sales, partially offset by a 20.0% decrease in marketing revenues across both the U.S. retail and international segments and a revenue decline at Cardpool.
  • Net loss totaled $7.8 million compared to net loss of $5.1 million for the quarter ended September 10, 2016.  The year-over-year decline was driven primarily by a $9 million non-cash goodwill impairment charge related to Cardpool, higher non-cash acquisition-related expenses and increased interest expense.
  • Net loss per diluted share was $0.14 compared to a net loss per diluted share of $0.09 for the quarter ended September 10, 2016.  Diluted shares outstanding increased 1.9% to 56.7 million.

Non-GAAP financial results for the third quarter of 2017 compared to the third quarter of 2016 (see Table 2 for Reconciliation of Non-GAAP Measures)

  • Adjusted operating revenues totaled $208.3 million, a 23% increase from $168.9 million for the quarter ended September 10, 2016.  The increase was primarily in international due to strong organic revenue growth in each region, coupled with the addition of Grass Roots and growth in the incentives loyalty business, partially offset by a decline in Cardpool adjusted operating revenues.  Excluding Cardpool, U.S. retail adjusted operating revenues grew 9%.
  • Adjusted EBITDA totaled $31.0 million, an increase of 17% from $26.5 million for the quarter ended September 10, 2016.  Excluding Grass Roots Meetings and Events, total Company adjusted EBITDA grew 12% primarily due to strong growth in international, partially offset by a decline at Cardpool and a decline in the incentives rebate volume.
  • Adjusted net income totaled $10.2 million, an increase of 31% from $7.8 million for the quarter ended September 10, 2016.  The increase was driven primarily by a lower effective tax rate on adjusted income before taxes which was 11.1% for the third quarter 2017 compared to 20.1% for the comparable 2016 period.  The lower rate was related to the release of tax reserves established prior to the Safeway spin-off of Blackhawk Network due to the expiration of the statutory audit period.
  • Adjusted diluted EPS was $0.18, an increase of 29% from $0.14 for the quarter ended September 10, 2016.  Grass Roots Meetings and Events represented $0.01 of adjusted diluted EPS during the third quarter of 2017.

(1) Reference to “EMV impact” refers to our estimates of the impact on our revenues and earnings of measures taken by some U.S. retail distribution partners related to their delay in implementing the new secure payment card requirements from Europay, Mastercard and Visa (“EMV” mandate). The failure to implement EMV in their point of sale systems by October 2015 transferred the liability for fraudulent credit card payments from card issuers to the retailers. In order to limit chargebacks related to fraudulent credit cards used to purchase certain prepaid products in their stores, some of our distribution partners began taking measures in late January 2016 to limit or control the sale of high value prepaid cards and, in particular, open loop products. While the type of restrictive measures varied by distribution partner, the following types of restrictions were in place during 2016: establishment of limits on using credit cards to purchase gift cards, a move to cash or debit only for purchases of certain gift cards and removal of high denomination open loop products from store shelves.

2017 Guidance

GAAP guidance includes the Cardpool gift card exchange and Grass Roots Meetings & Events businesses.  Non-GAAP guidance excludes the Cardpool gift card exchange and Grass Roots Meetings & Events businesses which are assets held for sale.  Compared to the GAAP guidance provided on July 19, 2017, the range provided in the table below is lower due to slower sales trends at Cardpool, the Cardpool goodwill impairment charge recorded in the third quarter of 2017, net revenue accounting treatment at Grass Roots (which lowers reported revenues but has no earnings impact) and the mix of incentives businesses.  Compared to the Non-GAAP guidance provided on July 19, 2017, the revenue range provided in the tables below is lower due to the exclusion of Cardpool and net revenue accounting treatment at Grass Roots (which lowers reported revenues but has no earnings impact).  While the Adjusted EBITDA and Adjusted Net Income ranges are not changed, the Company now believes it will finish its 2017 fiscal year slightly below the midpoint of Adjusted EBITDA range and near the high end of the range for Adjusted Net Income and Adjusted EPS.

Further details regarding the Company’s guidance, including a breakdown of guidance for the fourth fiscal quarter 2017, will be provided on the October 11, 2017 earnings call.

Annual GAAP Guidance

$ in millions except per share amounts   2017 Guidance   2016 Actual   % Change
             
Operating Revenues     $2,169 to $2,262   $ 1,900     14% to 19%
Net Income     $20 to $24   $ 5     304% to 383%
Diluted EPS     $0.35 to $0.42   $ 0.08     332% to 417%

Annual Non-GAAP Guidance (excludes Cardpool and Grass Roots Meetings & Events)

$ in millions except per share amounts   2017 Guidance   2016 Actual   % Change
             
Adjusted Operating Revenues     $940 to $981     $ 800     18% to 23%
Adjusted EBITDA     $225 to $250     $ 189     19% to 33%
Adjusted Net Income     $91 to $100     $ 82     11% to 22%
Adjusted Diluted EPS     $1.56 to $1.70     $ 1.43     9% to 19%
                 
Reduction in income taxes payable     $ 58     $ 58      
Reduction in income taxes payable per share (diluted)     $ 0.98     $ 1.02     (3 )%

The Company’s revised 2017 annual free cash flow projection is in the range of $125 million to $140 million.  

The guidance above does not account for the impact of any future acquisitions, dispositions, partnerships or similar transactions, any changes to the Company’s existing capital structure or business model or any adverse outcome to any litigation or government investigation, and any such developments could have an impact on the Company’s guidance. Also see “Forward-Looking Statements” below.

Conference Call/Webcast

On Wednesday, October 11, 2017 at 2:00 p.m. PDT / 5:00 p.m. EDT, the Company will host a conference call and webcast presentation to discuss third quarter 2017 financial results and fourth quarter 2017 guidance.  A copy of the webcast presentation slides will be posted to the presentations tab of the Company’s investor relations website at approximately 1:30 p.m. PDT on October 11, 2017.  Hosting the call will be Talbott Roche, Chief Executive Officer and president; Jerry Ulrich, Chief Financial & Administrative Officer; and Bill Tauscher, Executive Chairman. Participants may access the live webcast by visiting the Company’s investor relations website at ir.blackhawknetwork.com. An audio replay of the webcast will be available on the Company’s investor relations website until Friday, November 3, 2017. 

About Blackhawk Network

Blackhawk Network Holdings, Inc. (NASDAQ:HAWK) is a global financial technology company and a leader in connecting brands and people through branded value solutions. Blackhawk platforms and solutions enable the management of stored value products, promotions and incentive programs in retail, ecommerce, financial services and mobile wallets. Blackhawk’s Hawk Commerce division offers technology solutions to businesses and direct to consumers. The Hawk Incentives division offers enterprise, SMB and reseller partners an array of platforms and branded value products to incent and reward consumers, employees and sales channels. Headquartered in Pleasanton, Calif., Blackhawk operates in 26 countries. For more information, please visit blackhawknetwork.com, hawkcommerce.com, hawkincentives.com or our product websites giftcards.com, giftcardmall.com, cardpool.com, giftcardlab.com, omnicard.com and CashStar.com.

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. Adjusted EBITDA, Adjusted net income and Adjusted diluted earnings per share measures are prepared and presented to eliminate the effect of items from EBITDA, Net income and Diluted earnings per share that the Company does not consider indicative of its core operating performance within the period presented. Adjusted operating revenues are prepared and presented to offset the distribution commissions paid and other compensation to distribution partners and business clients. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of Adjusted operating revenues. Adjusted operating revenues, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted diluted earnings per share may not be comparable to similarly titled measures of other organizations because other organizations may not calculate these measures in the same manner as Blackhawk. Investors are encouraged to evaluate our adjustments and the reasons we consider them appropriate.

The Company believes Adjusted operating revenues, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income, Adjusted diluted earnings per share, Reduction in income taxes payable and Adjusted free cash flow are useful to evaluate the Company’s operating performance for the following reasons:

  • adjusting operating revenues for distribution commissions paid and other compensation to retail distribution partners and business clients is useful to understanding the Company’s operating margin;
  • adjusting operating revenues for marketing revenue, which has offsetting marketing expense, is useful for understanding the Company’s operating margin;
  • EBITDA and Adjusted EBITDA are widely used by investors and securities analysts to measure a company’s operating performance without regard to items that can vary substantially from company to company and from period to period depending upon their financing, accounting and tax methods, the book value of their assets, their capital structures and the method by which their assets were acquired;
  • Adjusted EBITDA margin provides a measure of operating efficiency based on Adjusted operating revenues and without regard to items that can vary substantially from company to company and from period to period depending upon their financing, accounting and tax methods, the book value of their assets, their capital structures and the method by which their assets were acquired;
  • in a business combination, a company records an adjustment to reduce the carrying values of deferred revenue and deferred expenses to their fair values and reduces the company’s revenues and expenses from what it would have recorded otherwise, and as such the Company does not believe is indicative of its core operating performance;
  • non-cash equity grants made to employees and distribution partners at a certain price and point in time do not necessarily reflect how the Company’s business is performing at any particular time and the related expenses are not key measures of the Company’s core operating performance;
  • the net gain on the transaction to transition our program-managed GPR business to another program manager, the gain on the sale of our member interest in Visa Europe and other non-recurring gains / (losses) related to our acquisitions is not reflective of our core operating performance;
  • asset impairment charges related to the write-down of technology assets as part of our post-acquisition integration efforts are not key measures of the Company’s core operating performance;
  • non-cash goodwill impairment charges related to our Cardpool business is not an indicator of the Company’s core operating performance;
  • intangible asset amortization expenses can vary substantially from company to company and from period to period depending upon the applicable financing and accounting methods, the fair value and average expected life of the acquired intangible assets, the capital structure and the method by which the intangible assets were acquired and, as such, the Company does not believe that these adjustments are reflective of its core operating performance;
  • non-cash fair value adjustments to contingent business acquisition liability do not directly reflect how the Company is performing at any particular time and the related expense adjustment amounts are not key measures of the Company’s core operating performance;
  • reduction in income taxes payable from the step-up in tax basis of our assets resulting from the Section 336(e) election due to our Spin-Off and the Safeway Merger and reduction in income taxes payable from amortization of goodwill and other intangibles or utilization of net operating loss carryforwards from business acquisitions represent significant tax savings that are useful for understanding the Company’s overall operating results;
  • reduction in income taxes payable resulting from the tax deductibility of stock-based compensation is useful for understanding the Company’s overall operating results. The Company generally realizes these tax deductions when restricted stock vest, an option is exercised, and, in the case of warrants, after the warrant is exercised but amortized over remaining service period, and such timing differs from the GAAP treatment of expense recognition; and
  • Adjusted free cash flow – the Company receives funds from consumers or business clients for prepaid products that the Company issues or holds on their behalf prior to the issuance of prepaid products. The Company views this cash flow as temporary and not indicative of the cash flows generated by its operating activities, and therefore excludes it from calculations of Adjusted free cash flow. Adjusted free cash flow provides information regarding the cash that the Company generates without the fluctuations resulting from the timing of cash inflows and outflows from these settlement activities, which is useful to understanding the Company’s business and its ability to fund capital expenditures and repay amounts borrowed under its term loan. The Company also may use Adjusted free cash flow for, among other things, making investment decisions and managing its capital structure.

Forward-Looking Statements

This press release contains 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,” “intends,” “forecasts,” “can,” “could,” “may,” “anticipates,” “estimates,” “plans,” “projects,” “seeks,” “should,” “targets,” “will,” “would,” “outlook,” “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, fail to maintain or renew existing relationships with our distribution partners on the same or similar economic terms 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; changes in consumer behavior away from our distribution partners or our products resulting from limits or controls implemented by our distribution partners during their transition to EMV compliance; our ability to successfully integrate our acquisitions; our ability to generate adequate taxable income to enable us to fully utilize the tax benefits referred to in this release; changes in applicable tax law that preclude us from fully utilizing the tax benefits referred to in this release; the requirement that we comply with applicable laws and regulations, including increasingly stringent anti-money laundering rules and regulations; and other risks and uncertainties described in our reports and filings with the Securities and Exchange Commission (the “SEC”), including the risks and uncertainties set forth in Item 1A under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016, our Quarterly Report on Form 10-Q for the fiscal quarter ended on September 9, 2017 which is expected to be filed prior to or on October 19, 2017 and other subsequent periodic reports we file 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. 

BLACKHAWK NETWORK HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)
    12 weeks ended   36 weeks ended
    September 9,
 2017
  September 10,
 2016
  September 9,
 2017
  September 10,
 2016
OPERATING REVENUES:                
Commissions and fees   $ 269,737     $ 248,138     $ 807,576     $ 750,693  
Program and other fees   95,592     64,857     304,416     207,718  
Marketing   14,348     17,943     53,454     52,098  
Product sales   39,582     30,622     124,195     108,719  
Total operating revenues   419,259     361,560     1,289,641     1,119,228  
OPERATING EXPENSES:                
Partner distribution expense   196,633     178,363     577,634     541,749  
Processing and services   93,877     75,818     303,829     226,634  
Sales and marketing   58,711     52,327     199,218     166,176  
Costs of products sold   37,148     29,122     117,882     103,163  
General and administrative   24,122     21,773     78,710     67,827  
Transition and acquisition   665     2,574     2,021     4,160  
Amortization of acquisition intangibles   13,904     10,376     40,577     35,533  
Change in fair value of contingent consideration   (2,100 )   1,300     (5,097 )   2,100  
Goodwill impairment   9,000         9,000      
Total operating expenses   431,960     371,653     1,323,774     1,147,342  
OPERATING INCOME (LOSS)   (12,701 )   (10,093 )   (34,133 )   (28,114 )
OTHER INCOME (EXPENSE):                
Interest income and other income (expense), net   631     2,360     2,134     3,258  
Interest expense   (7,374 )   (5,684 )   (21,368 )   (13,868 )
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)   (19,444 )   (13,417 )   (53,367 )   (38,724 )
INCOME TAX EXPENSE (BENEFIT)   (11,858 )   (8,357 )   (26,224 )   (18,884 )
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS   (7,586 )   (5,060 )   (27,143 )   (19,840 )
Loss (income) attributable to non-controlling interests, net of tax   (180 )   (42 )   (460 )   (152 )
NET INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC.   $ (7,766 )   $ (5,102 )   $ (27,603 )   $ (19,992 )
EARNINGS (LOSS) PER SHARE:                
Basic   $ (0.14 )   $ (0.09 )   $ (0.49 )   $ (0.36 )
Diluted   $ (0.14 )   $ (0.09 )   $ (0.49 )   $ (0.36 )
Weighted average shares outstanding—basic   56,709     55,668     56,355     55,851  
Weighted average shares outstanding—diluted   56,709     55,668     56,355     55,851  

BLACKHAWK NETWORK HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) 
 
    September 9,
 2017
  December 31,
 2016
  September 10,
 2016
ASSETS            
Current assets:            
Cash and cash equivalents   $ 304,904     $ 1,008,125     $ 300,349  
Restricted cash   66,509     10,793     2,500  
Settlement receivables, net   429,494     641,691     275,471  
Accounts receivable, net   226,126     262,672     199,552  
Other current assets   191,691     131,375     123,919  
Total current assets   1,218,724     2,054,656     901,791  
Property, equipment and technology, net   180,554     172,381     168,865  
Intangible assets, net   418,046     350,185     293,034  
Goodwill   656,266     570,398     508,607  
Deferred income taxes   351,760     362,302     352,683  
Other assets   86,610     85,856     69,039  
TOTAL ASSETS   $ 2,911,960     $ 3,595,778     $ 2,294,019  
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current liabilities:            
Settlement payables   $ 646,160     $ 1,626,827     $ 522,133  
Consumer and customer deposits   267,642     173,344     115,085  
Accounts payable and accrued operating expenses   142,029     153,885     103,920  
Deferred revenue   151,425     150,582     113,867  
Note payable, current portion   9,890     9,856     9,846  
Notes payable to Safeway   4,201     3,163     3,239  
Bank line of credit   115,000          
Other current liabilities   74,804     51,176     48,630  
Total current liabilities   1,411,151     2,168,833     916,720  
Deferred income taxes   30,516     27,887     19,930  
Note payable   178,048     137,984     137,848  
Convertible notes payable   437,769     429,026     425,833  
Other liabilities   26,644     39,653     25,429  
Total liabilities   2,084,128     2,803,383     1,525,760  
Stockholders’ equity:            
Preferred stock            
Common stock   57     56     55  
Additional paid-in capital   638,008     608,568     594,739  
Accumulated other comprehensive loss   (14,934 )   (48,877 )   (34,398 )
Retained earnings   200,484     228,451     203,791  
Total Blackhawk Network Holdings, Inc. equity   823,615     788,198     764,187  
Non-controlling interests   4,217     4,197     4,072  
Total stockholders’ equity   827,832     792,395     768,259  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 2,911,960     $ 3,595,778     $ 2,294,019  

BLACKHAWK NETWORK HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
    36 weeks ended   52 weeks ended
    September 9,
 2017
  September 10,
 2016
  September 9,
 2017
  September 10,
 2016
OPERATING ACTIVITIES:                
Net income (loss) before allocation to non-controlling interests   $ (27,143 )   $ (19,840 )   $ (2,265 )   $ 22,037  
Adjustments to reconcile net income (loss) to net cash used in operating activities:                
Depreciation and amortization of property, equipment and technology   37,518     33,096     52,801     46,314  
Goodwill impairment   9,000         9,000      
Amortization of intangibles   44,416     38,988     67,473     49,720  
Amortization of deferred program and contract costs   21,706     18,805     31,916     27,764  
Amortization of deferred financing costs and debt discount   9,546     2,984     13,068     3,420  
Loss on property, equipment and technology disposal/write-down   660     2,758     7,740     3,758  
Employee stock-based compensation expense   24,560     24,865     32,287     35,139  
Change in fair value of contingent consideration   (5,097 )   2,100     (5,097 )   2,100  
Deferred income taxes           (8,899 )   16,439  
Other   (3,388 )   38     1,667     854  
Changes in operating assets and liabilities:                
   Settlement receivables   233,441     359,398     (119,881 )   (27,221 )
   Settlement payables   (1,003,220 )   (1,091,151 )   107,838     46,692  
   Accounts receivable, current and long-term   35,179     44,585     (22,418 )   (9,013 )
   Other current assets   16,807     3,940     (1,024 )   7,292  
   Other assets   (12,172 )   (9,299 )   (27,563 )   (19,737 )
   Consumer and customer deposits   12,330     13,963     12,139     (9,299 )
   Accounts payable and accrued operating expenses   (17,426 )   (28,775 )   (3,486 )   (22,068 )
   Deferred revenue   4,948     2,703     35,607     25,171  
   Other current and long-term liabilities   5,334     (24,912 )   8,539     (12,420 )
   Income taxes, net   (28,276 )   (13,883 )   (5,851 )   (1,000 )
         Net cash (used in) provided by operating activities   (641,277 )   (639,637 )   183,591     185,942  
INVESTING ACTIVITIES:                
Expenditures for property, equipment and technology   (43,484 )   (33,522 )   (62,294 )   (48,950 )
Business acquisitions, net of cash acquired   (170,773 )   (144,284 )   (247,094 )   (181,371 )
Investments in unconsolidated entities   (5,801 )   (3,901 )   (12,441 )   (9,778 )
Change in restricted cash   2,500     689     (5,880 )   40,543  
Other   (3,245 )   4,000     (5,837 )   4,463  
           Net cash (used in) provided by investing activities   (220,803 )   (177,018 )   (333,546 )   (195,093 )
FINANCING ACTIVITIES:                
Payments for acquisition liability   (5,503 )       (5,503 )    
Repayment of debt assumed in business acquisitions   (8,585 )   (8,964 )   (8,585 )   (8,964 )
Proceeds from issuance of note payable   50,000     250,000     50,000     250,000  
Repayment of note payable   (10,000 )   (463,750 )   (10,000 )   (463,750 )
Payments of financing costs   (1,025 )   (15,926 )   (1,643 )   (17,265 )
Borrowings under revolving bank line of credit   1,771,381     1,959,749     2,797,122     2,897,195  
Repayments on revolving bank line of credit   (1,656,381 )   (1,959,749 )   (2,682,122 )   (2,997,195 )
Repayment on notes payable to Safeway   (254 )   (890 )   (254 )   (8,855 )
Proceeds from issuance of common stock from exercise of employee stock options and employee stock purchase plans   13,286     4,491     19,097     10,253  
Other stock-based compensation related   (10,157 )   (2,135 )   (10,306 )   (3,189 )
Repurchase of common stock       (34,845 )   2     (34,845 )
Proceeds from convertible debt       500,000         500,000  
Payments for note hedges       (75,750 )       (75,750 )
Proceeds from warrants       47,000         47,000  
Other       (155 )   (1 )   (155 )
           Net cash (used in) provided by financing activities   142,762     199,076     147,807     94,480  
Effect of exchange rate changes on cash and cash equivalents   16,097     3,352     6,703     298  
Increase (decrease) in cash and cash equivalents   (703,221 )   (614,227 )   4,555     85,627  
Cash and cash equivalents—beginning of period   1,008,125     914,576     300,349     214,722  
Cash and cash equivalents—end of period   $ 304,904     $ 300,349     $ 304,904     $ 300,349  
                 
NONCASH FINANCING AND INVESTING ACTIVITIES:                
Forgiveness of notes receivable and accrued interest as part of business acquisition   $     $     $ 5,445     $  
Financing of business acquisition with contingent consideration   $ 1,640     $ 20,100     $ 3,192     $ 20,100  

 

BLACKHAWK NETWORK HOLDINGS, INC.
SUPPLEMENTAL INFORMATION
(Tables 1, 2 & 3 in thousands except percentages and per share amounts)
(Unaudited)
TABLE 1: OTHER OPERATIONAL DATA
    12 weeks ended   36 weeks ended
    September 9,
2017
  September 10,
2016
  September 9,
2017
  September 10,
2016
Prepaid and processing revenues   $ 365,329     $ 312,995     $ 1,111,992     $ 958,411  
Partner distribution expense as a % of prepaid and processing revenues   53.8 %   57.0 %   51.9 %   56.5 %

TABLE 2: RECONCILIATION OF NON-GAAP MEASURES
    12 weeks ended   36 weeks ended
    September 9,
2017
  September 10,
2016
  September 9,
2017
  September 10,
2016
Prepaid and processing revenues:                
Commissions and fees   $ 269,737     $ 248,138     $ 807,576     $ 750,693  
Program and other fees   95,592     64,857     304,416     207,718  
Total prepaid and processing revenues   $ 365,329     $ 312,995     $ 1,111,992     $ 958,411  
Adjusted operating revenues:                
Total operating revenues   $ 419,259     $ 361,560     $ 1,289,641     $ 1,119,228  
Revenue adjustment from purchase accounting   965     3,666     4,454     11,875  
Marketing and other pass-through revenues   (15,336 )   (17,943 )   (59,969 )   (52,098 )
Partner distribution expense   (196,633 )   (178,363 )   (577,634 )   (541,749 )
Adjusted operating revenues   $ 208,255     $ 168,920     $ 656,492     $ 537,256  
Adjusted EBITDA:                
Net income (loss) before allocation to non-controlling interests   $ (7,586 )   $ (5,060 )   $ (27,143 )   $ (19,840 )
Interest and other (income) expense, net   (631 )   (2,360 )   (2,134 )   (3,258 )
Interest expense   7,374     5,684     21,368     13,868  
Income tax expense (benefit)   (11,858 )   (8,357 )   (26,224 )   (18,884 )
Depreciation and amortization   27,754     22,941     81,934     72,084  
EBITDA   15,053     12,848     47,801     43,970  
Adjustments to EBITDA:                
Employee stock-based compensation   8,109     8,293     24,560     24,865  
Acquisition-related employee compensation expense   (14 )   420     548     620  
Revenue adjustment from purchase accounting, net   905     3,665     4,209     11,114  
Other (gains)/losses, net               (754 )
Change in fair value of contingent consideration   (2,100 )   1,300     (5,097 )   2,100  
Goodwill impairment   9,000         9,000      
Adjusted EBITDA   $ 30,953     $ 26,526     $ 81,021     $ 81,915  
Adjusted EBITDA margin:                
Total operating revenues   419,259     361,560     1,289,641     1,119,228  
Operating income (loss)   (12,701 )   (10,093 )   (34,133 )   (28,114 )
Operating margin   (3.0 )%   (2.8 )%   (2.6 )%   (2.5 )%
Adjusted operating revenues   $ 208,255     $ 168,920     $ 656,492     $ 537,256  
Adjusted EBITDA   $ 30,953     $ 26,526     $ 81,021     $ 81,915  
Adjusted EBITDA margin   14.9  %   15.7  %   12.3  %   15.2  %

TABLE 2: RECONCILIATION OF NON-GAAP MEASURES (continued)
    12 weeks ended   36 weeks ended
    September 9, 2017   September 10, 2016   September 9, 2017   September 10, 2016
Adjusted net income:                
Income (loss) before income tax expense   $ (19,444 )   $ (13,417 )   $ (53,367 )   $ (38,724 )
Employee stock-based compensation   8,109     8,293     24,560     24,865  
Acquisition-related employee compensation expense   (14 )   420     548     620  
Revenue adjustment from purchase accounting, net   905     3,665     4,209     11,114  
Other (gains)/losses, net       (1,944 )       (2,698 )
Change in fair value of contingent consideration   (2,100 )   1,300     (5,097 )   2,100  
Amortization of intangibles   15,256     11,529     44,416     38,988  
Goodwill impairment   9,000         9,000      
Adjusted income before income tax expense   $ 11,712     $ 9,846     $ 24,269     $ 36,265  
Income tax expense (benefit)   (11,858 )   (8,357 )   (26,224 )   (18,884 )
Tax expense on adjustments   13,162     10,336     31,698     30,105  
Adjusted income tax expense   1,304     1,979     5,474     11,221  
Adjusted net income before allocation to non-controlling interests   10,408     7,867     18,795     25,044  
Net loss (income) attributable to non-controlling interests, net of tax   (180 )   (42 )   (460 )   (152 )
Adjusted net income attributable to Blackhawk Network Holdings, Inc.   $ 10,228     $ 7,825     $ 18,335     $ 24,892  
Adjusted diluted earnings per share:                
Net income (loss) attributable to Blackhawk Network Holdings, Inc.   $ (7,766 )   $ (5,102 )   $ (27,603 )   $ (19,992 )
Distributed and undistributed earnings allocated to participating securities               (15 )
Net income (loss) available for common shareholders   $ (7,766 )   $ (5,102 )   $ (27,603 )   $ (20,007 )
Diluted weighted average shares outstanding   56,709     55,668     56,355     55,851  
Diluted earnings (loss) per share   $ (0.14 )   $ (0.09 )   $ (0.49 )   $ (0.36 )
Adjusted net income attributable to Blackhawk Network Holdings, Inc.   $ 10,228     $ 7,825     $ 18,335     $ 24,892  
Adjusted distributed and undistributed earnings allocated to participating securities       (7 )       (44 )
Adjusted net income available for common shareholders   $ 10,228     $ 7,818     $ 18,335     $ 24,848  
Diluted weighted-average shares outstanding   56,709     55,668     56,355     55,851  
Increase in common share equivalents   1,590     1,304     1,665     1,496  
Adjusted diluted weighted-average shares outstanding   58,299     56,972     58,020     57,347  
Adjusted diluted earnings per share   $ 0.18     $ 0.14     $ 0.32     $ 0.43  
Reduction in income taxes payable:                
Reduction in income taxes payable resulting from amortization of spin-off tax basis step-up   $ 6,597     $ 6,580     $ 19,791     $ 19,767  
Reduction in cash taxes payable from amortization of acquisition intangibles and utilization of acquired NOLs   1,667     4,428     6,405     12,606  
Reduction in cash taxes payable from deductible stock-based compensation and convertible debt   3,294     2,491     16,936     11,403  
Reduction in income taxes payable   $ 11,558     $ 13,499     $ 43,132     $ 43,776  
Adjusted diluted weighted average shares outstanding   58,299     56,972     58,020     57,347  
Reduction in income taxes payable per share   $ 0.20     $ 0.24     $ 0.74     $ 0.76  

TABLE 3: RECONCILIATION OF GAAP CASH FLOW TO ADJUSTED FREE CASH FLOW
    52 weeks ended
    September 9,
2017
  September 10,
2016
Net cash flow provided by operating activities   $ 183,591     $ 185,942  
Changes in settlement payables and consumer and customer deposits, net of settlement receivables   (96 )   (10,172 )
Benefit from settlement timing   18,863     18,859  
Adjust for: Safeway cash tax payment reimbursed (refunded)   (254 )   (8,855 )
Adjusted net cash flow provided by operating activities   202,104     185,774  
Expenditures for property, equipment and technology   (62,294 )   (48,950 )
Adjusted free cash flow   $ 139,810     $ 136,824  
Reconciliation of Adjusted EBITDA to Adjusted free cash flow        
Adjusted EBITDA   $ 188,306     $ 189,481  
Less: Expenditures for property, equipment and technology   (62,294 )   (48,950 )
Less: Interest paid   (18,077 )   (13,881 )
Less: Cash taxes (paid) refunded   (3,563 )   2,958  
Less: Revenue adjustment from purchase price accounting, net   (8,719 )   (15,581 )
Change in working capital and other   25,294     3,938  
Benefit from settlement timing   18,863     18,859  
Adjusted free cash flow   $ 139,810     $ 136,824  

TABLE 4: FULL YEAR 2017 GUIDANCE – RECONCILIATION OF NON-GAAP MEASURES
(In millions except per share amounts)        
Adjusted operating revenues:   Low   High
Total operating revenues   $ 2,169     $ 2,262  
Partner distribution expense   (1,023 )   (1,059 )
Marketing and other pass-through revenues   (90 )   (106 )
Cardpool, Grass Roots M&E Revenues   (116 )   (116 )
Adjusted operating revenues   $ 940     $ 981  
         
Adjusted EBITDA:        
Net income before allocation to non-controlling interests   $ 20     $ 24  
Add back:  Net loss from Cardpool and Grass Roots M&E   9     9  
Interest (income) expense and other (income) expense, net   30     35  
Income tax expense   9     14  
Depreciation and amortization   119     124  
EBITDA   187     206  
Adjustments to EBITDA:        
Employee stock-based compensation   33     39  
Other adjustments   5     5  
Adjusted EBITDA   $ 225     $ 250  
         
Adjusted net income:        
Income before income tax expense   $ 27     $ 37  
Add back:  Cardpool, Grass Roots M&E adjusted loss before income tax expense   5     5  
Employee stock-based compensation   33     39  
Amortization of intangibles   62     62  
Other   –    – 
Adjusted income before income tax expense   127     143  
         
Income tax expense   9     14  
Tax expense on adjustments   27     29  
Adjusted income tax expense   36     43  
Adjusted net income   $ 91     $ 100  
         
Adjusted diluted earnings per share:        
Diluted earnings per share   $ 0.35     $ 0.42  
Add back:  Cardpool, Grass Roots M&E loss per diluted share   0.06     0.06  
Employee stock-based compensation   0.39     0.41  
Amortization of intangibles   0.74     0.76  
Other   0.02     0.05  
Adjusted diluted earnings per share   $ 1.56     $ 1.70  


INVESTORS/ANALYSTS:
Patrick Cronin
(925) 226-9973 
[email protected]

MEDIA:    
Teri Llach
(925) 226-9028
[email protected]