Outerwall Posts Q2 Loss Hit By EcoATM Competition Price Hike Offsets Redbox Declines

BELLEVUE, WA -- Outerwall Inc., the operator of Redbox movie and videogame rental kiosks, reported a second-quarter loss of $45.6 million, or $2.56 a share, after reporting a profit of $28.3 million in the same period a year ago. The company posted revenue of $545.4 million for the second quarter, down slightly from $546.5 million in the second quarter of 2014, with lower revenue from Redbox nearly offset by higher revenue from its ecoATM and Coinstar equipment.

During the quarter, ended Jun. 30, Outerwall recognized a noncash, nontax deductible charge for goodwill impairment of $85.9 million related to its ecoATM kiosks, which pay consumers cash for their used cellphones and tablets. The company said the charge was the result of "the impact of competitive pressures on ecoATM and lowered expectations for future revenue growth."

Revenue in the ecoATM segment was $26.1 million, an increase of $2.3 million, or 9.5%, compared with $23.8 million a year earlier, due to the increase in the number of ecoATM installed kiosks, offset by a lower average selling price on "value" devices resulting from a lower mix of higher value devices and lower collections per kiosk.

During the 2015 second quarter, the ecoATM division installed approximately 120 net new kiosks, primarily in the mass merchant channel, and ended the quarter with 2,260 kiosks in operation. EcoATM also redeployed about 70 underperforming kiosks from the grocery channel to shopping mall and mass merchant locations.

Outerwall said collections of "value" devices on a per-kiosk basis were lower in the 2015 second quarter than in the comparable 2014 period as a result of fewer transactions at the kiosks, primarily due to competition from carriers.

"Although we recognized a goodwill impairment for ecoATM during the quarter, given its unique value proposition, we still expect ecoATM revenue growth and profitability over time as the business scales," said interim chief executive Nora M. Denzel.

Outerwall's interim chief executive also said the company's outlook for the second half of 2015 remains positive, with a strong box office in the fourth quarter expected to give its Redbox DVD-rental kiosk business a boost.

Redbox revenue in the second quarter was $439 million, compared with $442.8 million a year earlier, a modest 0.9% year-over-year decline despite a 13.1% decrease in rentals, as the recent price increases largely offset the impact of lower rentals.

The kiosks generated approximately 146 million rentals in the second quarter of 2015, down from approximately 168.1 million rentals a year earlier. The company attributed the decline to fewer videogame rentals as consumers transition to new-generation platforms, sensitivity to recent rental-price increases, decreased demand for physical movie and game rentals, and the company's removal of underperforming kiosks. Movie rentals were further impacted by weaker content and the timing of new releases, Outerwall said.

Net revenue per rental was $3 in the second quarter of 2015, an increase from $2.63 in the second quarter of 2014, primarily the result of the price increases, partially offset by an expected increase in single-night rentals as a result of the price hikes. | SEE STORY

Coinstar revenue was $80.3 million, compared with $79.9 million in the second quarter of 2014, primarily due to the growth in the number of Coinstar Exchange kiosks, which provide cash in exchange for gift cards, and transactions partially offset by decreased revenue for Coinstar in the U.S. due to a reduction in volume.

Outerwall expects full-year earnings in the range of $8.12 to $9.12 per share, with revenue in the range of $2.26 billion to $2.35 billion.