Q Earnings Report April 26, 2017, 2:00 PM Pacific

Transcription

1 Q Earnings Report April 26, 2017, 2:00 PM Pacific 1

2 Forward Looking Statements This presentation 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 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 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 ability of our distribution partners to implement EMV compliance within their expected timeline and lift the measures they may have taken prior to such compliance to limit or control their exposure to liability for fraud losses; the timing and manner that our distribution partners remove the limits or controls implemented by them during the period before they achieve EMV compliance; 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 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 March 25, 2017 which is expected to be filed prior to or on May 4, 2017 and other subsequent periodic reports we file 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 - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 2

3 2017 Focus Strong growth from all segments U.S. Retail Incentives International Generate operating leverage Optimize return on capital 2017 Blackhawk Network See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 3

4 Q1 17 Highlights U.S. Retail: AOR 5% Q1 17 vs Q1 16 Volume better than forecast. Progress on return to best practices and recapturing customer traffic post-emv. Expanding original content with Visa 5% cash back product. Digital in U.S. Retail grew 95% YOY to 10% of total AOR in Q1 17. Incentives: AOR 3% Q1 17 vs Q1 16 Consumer rebate volume met expectations; new signings in Achievers; digital incentives, including loyalty and ecommerce +55%; volume shift to international and U.S. retail and lapped Q1 16 bank amendment. International: AOR +172% Q1 17 vs Q1 16 Grass Roots integration with Blackhawk Europe ahead of schedule; B2B launches in Mexico, Europe and Australia; expanding original content Blackhawk Network See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 4

5 U.S. Retail EMV Impact Q EMV impact in affected accounts as expected $6M AOR and $5M Adjusted EBITDA Strong performance of open loop overall including 5% cash-back drove overall Open Loop TDV to 92% of Q1 15 levels 2017 Blackhawk Network See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 5

6 Q1 17 Non-GAAP Financial Results Actual vs Guidance ($ in millions except per share data) Q1 17 Actual Guidance* % Diff vs Midpoint Adjusted Operating Revenues (AOR) $213 $179 to $199 13% Adjusted EBITDA $20 $16 to $19 16% Adjusted Net Income $1 ($1) to ($4) 156% Adjusted Diluted EPS $0.02 ($0.02) to ($0.07) 144% Reduction in income taxes payable $19 $16 19% Reduction in income taxes payable per share (diluted) $0.33 $ % * Guidance provided on February 15, 2017 Grass Roots Meeting and Events business ( M&E ) is asset held for sale and was excluded from guidance. M&E AOR and Adjusted EBITDA included in Actual Q1 17 results above was $15M and -$0.5M, respectively Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 6

7 Non-GAAP Financial Results Year-over-Year ($ in millions except per share data) Q1 17 Q1 16 % Change Adjusted Operating Revenues (AOR) $213 $185 15% Adjusted EBITDA $20 $29-30% Adjusted Net Income $1 $10-86% Adjusted Diluted EPS $0.02 $ % Reduction in income taxes payable $19 $17 14% Reduction in income taxes payable per share (diluted) $0.33 $ % Adjusted EBITDA decline driven by lower retail TDV (EMV impact plus Easter shift), lower bank fees on open loop product and Q1 16 non-repeating bank amendment Adjusted Net Income declined greater than EBITDA primarily due to increased interest expense related to acquisitions Share count 57.4M, flat with Q1 16 due to July 2016 stock buyback 2017 Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 7

8 Non-GAAP Financial Results by Segment ($ in millions) TDV Q1 17 $1,798 TDV Q1 16 $1,938 % Decrease -7% US Retail Incentives International Total AOR Q1 17 $97 $59 $56 $213 AOR Q1 16 $103 $61 $21 $185 % Increase (Decrease) -5% -3% 172% 15% Adjusted EBITDA Q1 17 $12 $7 $1 $20 Adjusted EBITDA Q1 16 $21 $11 $(3) $29 % Increase (Decrease) -43% -31% n/a -30% TDV no longer closely correlated to Adjusted Operating Revenue for Incentives and International segments, disclosure is omitted Segment EBITDA now stated on fully allocated basis 2017 Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 8

9 Expense Ratios Q1 17 vs Q1 16 Q1 17 Q1 16 Change FY Est* 2016 Actual Processing & services % of AOR* 47.3% 39.3% 8.0% 37.9% 39.3% Sales & marketing, net % of AOR* 20.2% 20.1% 0.1% 19.2% 19.1% General & administrative % of AOR* 11.8% 10.7% 1.1% 9.3% 9.4% Total as % of AOR* 79.3% 70.1% 9.2% 66.4% 67.8% Processing and services expense ratios increased year-over-year in Q1 due to EMV impact in U.S. Retail and the addition of Grass Roots Will gain leverage for the full year based on US Retail growth recovery in 2H 17 and exclusion of Grass Roots M&E for 2Q 17 through 4Q 17 G&A increase due to Grass Roots acquisition * Notes: Expenses exclude stock compensation Sales and marketing is net of marketing and other pass-through revenues See reconciliation of GAAP revenues to AOR in Appendix 2017 Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 9

10 Adjusted Free Cash Flow ($ in millions) LTM Q1 17 LTM Q1 16 Adjusted EBITDA $180 $196 Less: CapEx (60) (48) Less: Interest Expense (14) (12) Add (Subtract): Cash Taxes Refunded (Paid) 4 (3) Less: Noncash PPA Adjustment (14) (10) Add (Subtract): Changes in W/C (1) (35) Add: Settlement Timing Benefit Adjusted Free Cash Flow $113 $ Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 10

11 2017 Business Outlook U.S. Retail AOR +8% to +19% FY 2017 Growth Moving past EMV; Target on schedule to launch Q3 17; 5% cash-back Visa launched in 15,000+ locations; focusing on higher margin original content; expanding content and increasing marketing in digital channels. Incentives AOR +12% to +25% FY 2017 Growth Expect strong organic growth from 2017 launches of new loyalty points programs, consumer rebates and Achievers; Achievers tracking toward $140M in 2017 billings; completed small acquisition in mid-q1, not material for International AOR +51% to +68% FY 2017 Growth Grass Roots integration expected to drive enhanced contribution versus pre-acquisition; expect to add Achievers customers in all regions during 2017; newer markets growing AOR > 100% Blackhawk Network See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 11

12 Key Initiatives for Margin Expansion Acquisition integration Technology platform consolidation Continue migration of third party processing services Review of lower margin business units Expand distribution and sales of higher margin content Cost reduction from productivity enhancements Formal procurement process for spend analytics

13 Q2 17 GAAP Financial Guidance ($ in millions except EPS) Q2 17 Guidance Q2 16 % Change Operating Revenues $428 to $454 $391 9% to 16% Net Loss ($11) to ($14) ($11) 3% to -24% Diluted Loss Per Share ($0.22) to ($0.25) ($0.20) -9% to -24% 2017 Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 13

14 Q2 17 Non-GAAP Financial Guidance ($ in millions except EPS) Q2 17 Guidance Q2 16 % Change Adjusted Operating Revenues $207 to $223 $184 13% to 21% Adjusted EBITDA $25 to $28 $26-4% to 8% Adjusted Net Income (Loss) $1 to $3 $7-86% to -57% Adjusted Diluted EPS $0.02 to $0.05 $ % to -62% Reduction in income taxes payable $12 $14-12% Reduction in income taxes payable per share (diluted) $0.21 $ % EMV impact $5M AOR and $4M EBITDA Q2 16 included $4M bank fees from transition of acquired company card portfolio to Blackhawk issuing bank and $1M gain on sale of PayPower business Lower program management fee rates on Open Loop -$2.5M AOR growth forecast by Segment (midpoint): US Retail +2%; Incentives +17%; International +79% Higher interest expense based on financing completed mid-2016 Diluted shares forecast for Q2 17: 57.6M vs 57.4M for Q Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 14

15 FY2017 GAAP Financial Guidance ($ in millions except EPS) 2017 Guidance 2016 % Change Operating Revenues $2,148 to $2,312 $1,900 13% to 22% Net Income $22 to $26 $5 337% to 416% Diluted EPS $0.35 to $0.44 $ % to 444% Year-over-year GAAP results reflect EMV rebound and growth in Incentives and International Net Income and EPS reflect acquisition related expenses, including amortization of intangibles and interest 2017 Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 15

16 FY2017 Non-GAAP Financial Guidance ($ in millions except EPS) 2017 Guidance 2016 % Change Adjusted Operating Revenues $1,028 to $1,141 $889 16% to 28% Adjusted EBITDA $225 to $250 $189 19% to 32% Adjusted Net Income $91 to $100 $82 11% to 22% Adjusted Diluted EPS $1.56 to $1.70 $1.43 9% to 19% Adjusted EBITDA Margin* 21.9% 21.3% +60bps Adjusted Free Cash Flow $115 to $135 $109 6% to 24% Reduction in income taxes payable $58 $58 - Reduction in income taxes payable per share (diluted) $0.98 $1.02-3% * Calculated based on the mid-point of guidance of Adjusted EBITDA and AOR 2017 Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 16

17 2017 Cash Flow and Debt Update 2017 free cash flow projection remains $115 million to $135 million Capex estimate increased to $55 million Bank amendment increased debt leverage cap to 4.25X Adjusted EBITDA for Q2 17 and Q3 17, reverting to 4.0X for 4Q 17 & thereafter Delayed draw provision for up to $100 million additional term debt extended to January 2018 Increased restricted payments basket to $60 million per year (from $40 million) when leverage ratio exceeds 2.75X Total debt at end of Q1 17 $658M, pro forma leverage ratio 3.4X Stock repurchases $35 million in 2016 in connection with convertible debt offering Board authority for up to $100 million granted in Q4 16 for purchases over two year period; no purchases to-date Continuing to evaluate repurchase opportunities vs. business acquisitions 2017 Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 17

18 Appendix Q1 16 to Q1 17 Walks Reconciliation of GAAP to Non-GAAP Measures

19 Management s Use of Non-GAAP Financial Measures 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 and financial performance for the following reasons: Adjusting operating revenues for compensation to retail distribution partners and pass through marketing revenues is useful to 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 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 2017 Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 28

20 Management s Use of Non-GAAP Financial Measures (cont d) 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 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 Adjusted free cash flow - 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 Free cash flow for, among other things, making investment decisions and managing its capital structure 2017 Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 29

21 GAAP Revenues to AOR Reconciliation ($ in millions) Q1 17 Q1 16 % Change Total operating revenues $407 $366 11% Partner distribution expense (179) (172) 4% Marketing and other pass-through revenues (17) (13) 26% Revenue adjustment from purchase accounting % Adjusted operating revenues $213 $185 15% 2017 Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 21

22 GAAP Net Income to Adjusted EBITDA Reconciliation ($ in millions) Q1 17 Q1 16 % Change Net Income $(13) $(3) 286% Interest and other (income) expense, net (1) - n/a Interest expense % Tax expense (benefit) (10) (3) 202% Depreciation and amortization % EBITDA % Employee stock-based compensation 8 8 5% Revenue adjustment from purchase accounting, net % Change in fair value contingent consideration 1 - n/a Adjusted EBITDA $20 $29-30% 2017 Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 22

23 GAAP Pre-tax Income to Adjusted Net Income Reconciliation ($ in millions) Q1 17 Q1 16 % Change Income before income tax expense $(23) $(7) 245% Employee stock-based compensation 8 8 5% Revenue adjustment from purchase accounting, net % Change in fair value of contingent consideration 1 - n/a Amortization of intangibles % Adjusted income before income tax expense % Income tax expense (benefit) (10) (3) 202% Tax expense on adjustments % Adjusted tax expense (benefit) % Adjusted net income $ 1 $ 10-86% 2017 Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 23

24 GAAP EPS to Adjusted Diluted EPS Reconciliation Q1 17 Q1 16 % Change Diluted earnings per share $(0.24) $(0.06) 300% Employee stock-based compensation % Revenue adjustment from purchase accounting, net % Change in fair value of contingent consideration n/a Amortization of intangibles % Adjusted diluted EPS $0.02 $ % 2017 Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 24

25 FY17 Guidance Range Reconciliation of GAAP Revenues to Non-GAAP AOR ($ in millions) Low High Operating revenues $ 2,148 $ 2,312 Partner distribution expense (1,052) (1,095) Marketing and other pass-through revenues (72) (80) Revenue adjustment from purchase accounting 4 4 Adjusted operating revenues $ 1,028 $ 1, Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 25

26 FY17 Guidance Range Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA ($ in millions) Low High Net income $ 22 $ 26 Interest and other (income) expense, net Income tax expense Depreciation and amortization EBITDA Employee stock-based compensation Other adjustments 4 4 Adjusted EBITDA $ 225 $ Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 26

27 FY17 Guidance Range Reconciliation of GAAP Net Income to Non-GAAP ANI ($ in millions) Low High Income before income tax expense $ 33 $ 43 Employee stock-based compensation Amortization of intangibles Other 4 4 Adjusted income before income tax expense Income tax expense Tax expense on adjustments Adjusted tax expense (benefit) Adjusted net income $ 91 $ Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 27

28 FY17 Guidance Range Reconciliation of GAAP EPS to Non-GAAP Adjusted EPS Low High Diluted earnings per share $ 0.35 $ 0.44 Employee stock-based compensation Amortization of intangibles Other Adjusted diluted earnings per share $ 1.56 $ Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 28

29 FY17 Guidance Range Reconciliation of Adjusted Free Cash Flow ($ in millions) Low High Adjusted EBITDA $ 225 $ 250 Less: Expenditures for property, equipment and technology (53) (58) Less: Interest paid (19) (24) Less: Cash taxes (paid) and refunded (10) (12) Other (28) (21) Adjusted free cash flow $ 115 $ Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 29

30 Q2 17 Guidance Range Reconciliation of GAAP Revenues to Non-GAAP AOR ($ in millions) Low High Operating revenues $ 428 $ 454 Partner distribution expense (203) (212) Marketing and other pass-through revenues (19) (20) Revenue adjustment from purchase accounting 1 1 Adjusted operating revenues $ 207 $ Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 30

31 Q2 17 Guidance Range Reconciliation of GAAP Net Loss to Non-GAAP Adjusted EBITDA ($ in millions) Low High Net loss $ (11) $ (14) Interest and other (income) expense, net 8 11 Income tax expense (benefit) (7) (8) Depreciation and amortization EBITDA Employee stock-based compensation 8 9 Other adjustments 1 1 Adjusted EBITDA $ 25 $ Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 31

32 Q2 17 Guidance Range Reconciliation of GAAP Net Loss to Non-GAAP Adjusted Net Income ($ in millions) Low High Loss before income tax expense ($21) ($21) Employee stock-based compensation 8 9 Amortization of intangibles Other 1 1 Adjusted loss before income tax expense 2 4 Income tax expense (benefit) (7) (8) Tax expense on adjustments 8 9 Adjusted tax expense (benefit) 1 1 Adjusted net income $1 $ Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 32

33 Q2 17 Guidance Range Reconciliation of GAAP Loss Per Share to Non-GAAP Adjusted Income Per Share Low High Diluted loss per share ($0.22) ($0.25) Employee stock-based compensation Amortization of intangibles Other Adjusted diluted income per share $0.02 $ Blackhawk Network - See Appendix for Reconciliation of GAAP to non-gaap Adjusted Measures 33

34 Q & A