SOURCE: Rewards Network
Rewards Network Inc. Reports 9% Increase in Sales and Continued Operating Profitability
CHICAGO, IL--(Marketwire - October 22, 2008) - Rewards Network Inc. (
Rewards Network reported total sales of $62.4 million for the third quarter ended September 30, 2008, an increase of 9.2% as compared to the third quarter of the prior year. Rewards Network ended the third quarter of 2008 with 9,755 merchants, a 5.7% increase over the prior year. Diluted earnings per share for the third quarter of 2008 totaled $0.05 as compared to diluted earnings per share of $0.04 for the third quarter of the prior year.
"Our sales and profitability results for the third quarter were positive and consistent with our performance in the first half of 2008," said Ron Blake, CEO of Rewards Network. "We believe that our results highlight the effectiveness of our actions to manage the risk profile of our Dining Credits portfolio and reduce costs where appropriate. We nonetheless are continuing to look for ways to reduce expenses and manage risk during these challenging economic times."
The following table presents financial highlights of the Company's operations for the third quarter and year to date periods ended September 30, 2008 and 2007 (in millions, except per share amounts and merchant count).
3Q'08 3Q'07 YTD'08 YTD'07
------- ------- ------- -------
Sales $ 62.4 $ 57.2 $ 187.2 $ 166.9
Net revenues $ 18.3 $ 16.6 $ 57.1 $ 47.6
Operating expenses $ 16.5 $ 16.3 $ 50.1 $ 39.9*
Net income $ 1.5 $ 1.1 $ 4.6 $ 6.3*
Diluted earnings per share $ 0.05 $ 0.04 $ 0.17 $ 0.23*
Total merchants 9,755 9,233
Dining Credits portfolio, net of reserves $ 82.4 $ 91.7
Net Dining Credits Usage Period (Months) 7.5 9.7
* Includes the favorable impact of a pre-tax credit of $11.6 million
($0.26 per diluted share) during 2007 that reversed a portion of the
reserve related to the settlement of the Bistro Executive class action
litigation.
Third Quarter 2008 Results
Sales for the third quarter of 2008 were 9.2% higher as compared to the third quarter of 2007 and total merchant count increased 5.7% between the two periods.
Net revenues for the third quarter of 2008 were 10.2% higher than the third quarter of 2007. Net revenues were positively impacted by increased sales and a $0.8 million or 9.1% decrease in member benefits expense, partially offset by a $4.6 million or 16.0% increase in cost of sales.
Operating expenses for the three months ended September 30, 2008 were $0.2 million or 1.4% higher than the prior year. Contributing to the increase in operating expenses over the prior period was an increase in the management bonus accrual offset by a reduction in expense related to the Company's continued migration from print to more cost-effective internet marketing.
Year to Date 2008 Results
Sales for the nine months ended September 30, 2008 were 12.2% higher as compared to the nine months ended September 30, 2007. Net revenues for the nine months ended September 30, 2008 were 20.0% higher than the nine months ended September 30, 2007. Net revenues were positively impacted by increased sales and a $4.9 million or 17.6% decrease in member benefits expense, offset by increases in cost of sales and the provision for losses.
Operating expenses for the nine months ended September 30, 2008 were $10.3 million higher as compared to the prior year. Excluding the litigation reserve adjustment in 2007, operating expenses for the nine months ended September 30, 2008 were $1.4 million lower than the prior year.
Cash Flows
During the first three quarters of 2008, the Company generated $26.4 million of cash and also funded approximately $105.0 million of new dining credits. Although the dining credits balance as of September 30, 2008 was 8.0% lower than the prior year, the Company generated higher sales as a result of more merchants in its portfolio while it lowered the average amount of capital at risk by reducing the net dining credits usage period year over year from 9.7 months to 7.5 months. Net cash used in investing and financing activities for the nine months ended September 30, 2008 was $43.4 million and included the following expenditures:
-- $39.9 million to purchase $40.2 million (par) of our convertible
subordinated debentures.
-- $3.6 million to purchase information technology tools and for the
development of new websites.
"In October we repurchased the remaining $14.8 million of our convertible debt, once again using our cash reserves and without drawing on our credit facility, which remains available for working capital," said Chris Locke, CFO of Rewards Network. "Our strong year-to-date cash flows made it possible for us to retire the convertible debt entirely out of operating cash flows."
Conclusion
"For over a year, we have been working hard to anticipate and manage risk in the Dining Credits portfolio, to reduce operating expenses, and to take advantage of the operating leverage in the business," concluded Blake. "The positive impact of our disciplined approach is reflected in the results we are reporting today, including our strong cash flows, our ability to buy back our convertible debt out of our cash reserves, our debt-free position, and our significant increase in profitability. We continue to be positive about the opportunities we see in the marketplace and believe that our programs are attractive to both diners and merchants, even in these challenging economic times."
Webcast Information
Management will host a conference call at 10:00 a.m. Eastern Time on Wednesday, October 22, 2008. Participants are invited to join a live webcast of the call, which may be accessed by visiting the Investor Relations section of the Rewards Network website at investor.rewardsnetwork.com. The webcast is also available at www.streetevents.com and www.earnings.com. Participants should log on at least 10 minutes prior to the webcast to register and download any necessary software. If you are unable to participate during the live webcast, a replay of the call will be archived on the Company's website. Alternatively, a dial-in replay is available through November 21, 2008, by dialing 1-888-843-8996 or 1-630-652-3044, using the conference ID number, 22959648.
About Rewards Network
Rewards Network (
Safe Harbor Statement
Statements in this release that are not strictly historical are "forward-looking" statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectation or beliefs, and are subject to risks, trends and uncertainties. Actual results, performance or achievements may differ materially from those expressed or implied by the statements herein due to factors that include, but are not limited to, the following: (i) our inability to attract and retain merchants, (ii) our dependence upon our relationships with payment card issuers, transaction processors, presenters and aggregators, (iii) changes to payment card association rules and practices, (iv) economic changes, (v) our susceptibility to restaurant credit risk and the risk that our allowance for losses related to restaurant credit risk in connection with dining credits may prove inadequate, (vi) our dependence on our relationships with airlines and other reward program partners for a significant number of members, (vii) the concentration of a significant amount of our rewards currency in one industry group, the airline industry, (viii) our inability to attract and retain active members, (ix) changes in our programs that affect the rate of rewards, (x) our inability to maintain an adequately-staffed sales force, (xi) our inability to maintain an appropriate balance between the number of members and the number of participating merchants in each market, (xii) our minimum purchase obligations and performance requirements, (xiii) network interruptions, processing interruptions or processing errors, (xiv) susceptibility to a changing regulatory environment, (xv) increased operating costs or loss of members due to privacy concerns of our program partners, payment card processors and the public, (xvi) the failure of our security measures, (xvii) the loss of key personnel, (xviii) increasing competition, and (xix) a shift toward Marketing Services Program that may cause revenues to decline. A more detailed description of the factors that, among others, should be considered in evaluating our outlook can be found in the company's annual report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission. We undertake no obligation to, and expressly disclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, changes to future results over time or otherwise, except as required by law.
Rewards Network Inc. and Subsidiaries
- unaudited -
(amounts in thousands, except per share data, restaurants in the program,
average transaction amount and estimated months to consume dining credits
portfolio)
Three Months Ended September 30,
------------------------------------------
2008 % 2007 %
--------- --------- ---------- ---------
Sales $ 62,442 100.00% $ 57,180 100.00%
Cost of sales 33,246 53.24% 28,652 50.11%
Provision for losses 2,949 4.72% 3,171 5.55%
Member benefits 7,926 12.69% 8,724 15.26%
--------- --------- ---------- ---------
Net revenues 18,321 29.34% 16,633 29.08%
Membership fees and other
income 308 0.49% 409 0.72%
--------- --------- ---------- ---------
Total operating
revenues 18,629 29.83% 17,042 29.80%
--------- --------- ---------- ---------
Operating expenses:
Salaries and benefits 5,414 8.67% 5,063 8.86%
Sales commission and
expenses 4,921 7.88% 5,072 8.87%
Professional fees 836 1.34% 369 0.65%
Member and merchant
marketing 978 1.57% 1,752 3.06%
General and
administrative 4,396 7.04% 4,054 7.09%
Litigation and related
expenses 0 0.00% 0 0.00%
--------- --------- ---------- ---------
Total operating expenses 16,545 26.50% 16,310 28.53%
--------- --------- ---------- ---------
Operating income 2,084 3.34% 732 1.27%
Other (expenses) income, net (79) -0.13% 592 1.04%
--------- --------- ---------- ---------
Income before income
tax provision 2,005 3.21% 1,324 2.31%
Income tax provision 513 0.82% 179 0.31%
--------- --------- ---------- ---------
Net income $ 1,492 2.39% $ 1,145 2.00%
========= ========= ========== =========
Earnings per share
Basic $ 0.05 $ 0.04
Diluted $ 0.05 $ 0.04
Weighted average number of
common and common equivalent
shares
Basic 27,201 27,038
Diluted 27,455 27,120
Nine Months Ended September 30,
------------------------------------------
2008 % 2007 %
--------- --------- --------- ---------
Sales $ 187,228 100.00% $ 166,918 100.00%
Cost of sales 98,741 52.74% 83,439 50.00%
Provision for losses 8,433 4.50% 8,020 4.80%
Member benefits 22,994 12.28% 27,889 16.71%
--------- --------- --------- ---------
Net revenues 57,060 30.48% 47,570 28.50%
Membership fees and other
income 977 0.52% 1,328 0.80%
--------- --------- --------- ---------
Total operating
revenues 58,037 31.00% 48,898 29.29%
--------- --------- --------- ---------
Operating expenses:
Salaries and benefits 16,278 8.69% 15,339 9.19%
Sales commission and
expenses 14,784 7.90% 15,541 9.31%
Professional fees 2,349 1.25% 1,717 1.03%
Member and merchant
marketing 3,003 1.60% 5,425 3.25%
General and
administrative 13,720 7.33% 13,464 8.07%
Litigation and related
expenses 0 0.00% (11,631) -6.97%
--------- --------- --------- ---------
Total operating expenses 50,134 26.78% 39,855 23.88%
--------- --------- --------- ---------
Operating income 7,903 4.22% 9,043 5.42%
Other (expenses) income, net (709) -0.38% 497 0.30%
--------- --------- --------- ---------
Income before income
tax provision 7,194 3.84% 9,540 5.72%
Income tax provision 2,635 1.41% 3,257 1.95%
--------- --------- --------- ---------
Net income $ 4,559 2.43% $ 6,283 3.76%
========= ========= ========= =========
Earnings per share
Basic $ 0.17 $ 0.23
Diluted $ 0.17 $ 0.23
Weighted average number of
common and common equivalent
shares
Basic 27,157 26,969
Diluted 27,443 27,098
Rewards Network Inc. and Subsidiaries
- unaudited -
(amounts in thousands, except per share data, restaurants in the program,
average transaction amount and estimated months to consume dining credits
portfolio)
Three months ended Three months ended
September 30, 2008 September 30, 2007
-------------------------- --------------------------
Marketing Marketing Marketing Marketing
Credits Services Credits Services
Program Program Total Program Program Total
------- ------- -------- ------- ------- --------
Number of qualified
transactions 1,670 816 2,486 1,440 727 2,167
Average transaction
amount $ 44.18 $ 46.05 $ 44.79 $ 47.07 $ 47.25 $ 47.13
Qualified
transaction amount $73,780 $37,574 $111,354 $67,786 $34,349 $102,135
Sales yield 76.4% 16.1% 56.1% 75.6% 17.2% 56.0%
Sales $56,402 $ 6,040 $ 62,442 $51,267 $ 5,913 $ 57,180
Cost of dining
credits $32,994 - $ 32,994 $28,349 - $ 28,349
Processing fees $ 161 $ 91 $ 252 $ 190 $ 113 $ 303
------- ------- -------- ------- ------- --------
Total cost of sales $33,155 $ 91 $ 33,246 $28,539 $ 113 $ 28,652
------- ------- -------- ------- ------- --------
Provision for
losses $ 2,949 - $ 2,949 $ 3,171 - $ 3,171
Member benefits $ 5,421 $ 2,505 $ 7,926 $ 5,591 $ 3,133 $ 8,724
------- ------- -------- ------- ------- --------
Net revenues $14,877 $ 3,444 $ 18,321 $13,966 $ 2,667 $ 16,633
======= ======= ======== ======= ======= ========
Nine months ended Nine months ended
September 30, 2008 September 30, 2007
---------------------------- ----------------------------
Marketing Marketing Marketing Marketing
Credits Services Credits Services
Program Program Total Program Program Total
-------- -------- -------- -------- -------- --------
Number of
qualified
transactions 4,915 2,377 7,292 4,271 2,151 6,422
Average
transaction
amount $ 45.43 $ 46.15 $ 45.67 $ 47.49 $ 48.28 $ 47.75
Qualified
transaction
amount $223,306 $109,707 $333,013 $202,833 $103,842 $306,675
Sales yield 75.8% 16.3% 56.2% 73.5% 17.3% 54.4%
Sales $169,360 $ 17,868 $187,228 $148,981 $ 17,937 $166,918
Cost of dining
credits $ 97,860 - $ 97,860 $ 82,615 - $ 82,615
Processing fees $ 567 $ 314 $ 881 $ 551 $ 273 $ 824
-------- -------- -------- -------- -------- --------
Total cost of
sales $ 98,427 $ 314 $ 98,741 $ 83,166 $ 273 $ 83,439
-------- -------- -------- -------- -------- --------
Provision for
losses $ 8,433 - $ 8,433 $ 8,020 - $ 8,020
Member benefits $ 16,140 $ 6,854 $ 22,994 $ 18,538 $ 9,351 $ 27,889
-------- -------- -------- -------- -------- --------
Net revenues $ 46,360 $ 10,700 $ 57,060 $ 39,257 $ 8,313 $ 47,570
======== ======== ======== ======== ======== ========
Definitions:
Qualified transaction amounts: Represents the total dollar value of all
member dining transactions at participating
merchants when a benefit is offered.
Qualified transaction amounts are divided by
the number of qualified transactions to
arrive at the average transaction amount.
Sales yield: Represents the percentage of qualified
transaction amounts that Rewards Network
reports as revenue. The percentage is based
on each agreement between the merchant and
Rewards Network.
Cost of dining credits: Represents the amount of dining credits, at
cost, redeemed by members when transacting
at participating merchants when a benefit is
offered. Under the Company's Marketing
Services Program, no dining credits are
purchased by Rewards Network.
Provision for losses: Represents the current period expense
necessary to maintain an appropriate reserve
against the Company's dining credits
portfolio. No provision applies to the
Marketing Services Program, as the Company
does not purchase dining credits under that
program.
Total member benefits: Represents the dollar value of benefits paid
to members in Cashback Rewards(SM) savings,
airline miles, or other benefit currencies,
for dining at participating merchants.
Selected Balance Sheet and Cash Flow
Information September 30, December 31,
2008 2007
------------- -------------
(Unaudited) (Audited)
Cash and cash equivalents $ 18,457 $ 35,517
Dining credits $ 103,265 $ 116,137
Allowance for doubtful dining credits
accounts ($ 20,876) ($ 21,257)
Goodwill $ 8,117 $ 8,117
Total assets $ 139,120 $ 176,544
Accounts payable - dining credits $ 4,619 $ 7,080
Litigation and related accruals (short and
long-term) $ 3,232 $ 6,110
Convertible subordinated debentures $ 14,788 $ 55,000
Stockholders' equity $ 98,796 $ 92,842
Nine months ended
September 30,
----------------------------
2008 2007
----------------------------
Net cash provided by (used in): (Unaudited)
Operations $ 26,359 ($ 19,301)
Investing ($ 3,607) ($ 4,295)
Financing ($ 39,758) ($ 13,874)
Rewards Network Inc. and Subsidiaries
- unaudited -
(amounts in thousands, except per share data, restaurants in the program,
average transaction amount and estimated months to consume dining credits
portfolio)
Q3 Q2 Q1 Q4 Q3
2008 2008 2008 2007 2007
--------- --------- --------- --------- ---------
Sales Statistic
Trends:
Marketing Credits
Program sales $ 56,402 $ 59,723 $ 53,235 $ 52,152 $ 51,267
Marketing Services
Program sales 6,040 6,000 5,828 6,037 5,913
--------- --------- --------- --------- ---------
Total sales $ 62,442 $ 65,723 $ 59,063 $ 58,189 $ 57,180
Sequential
Percentage Change
Marketing Credits
Program sales -5.6% 12.2% 2.1% 1.7% 1.4%
Marketing Services
Program sales 0.7% 3.0% -3.5% 2.1% -5.3%
Total sales -5.0% 11.3% 1.5% 1.8% 0.6%
Merchant Count
Trends (period
ended):
Marketing Credits
Program merchants 6,449 6,646 6,644 6,488 6,188
Marketing Services
Program merchants 3,306 3,123 2,942 3,054 3,045
--------- --------- --------- --------- ---------
Total merchants 9,755 9,769 9,586 9,542 9,233
Sequential
Percentage Change
Marketing Credits
Program merchants -3.0% 0.0% 2.4% 4.8% 4.4%
Marketing Services
Program merchants 5.9% 6.2% -3.7% 0.3% 10.9%
Total merchants -0.1% 1.9% 0.5% 3.3% 6.5%
Qualified
Transaction Amounts
Trends:
Marketing Credits
Program $ 73,780 $ 78,039 $ 71,487 $ 69,046 $ 67,786
Marketing Services
Program 37,574 36,702 35,431 35,330 34,349
--------- --------- --------- --------- ---------
Total qualified
transaction amounts $ 111,354 $ 114,741 $ 106,918 $ 104,376 $ 102,135
Sequential
Percentage Change
Marketing Credits
Program -5.5% 9.2% 3.5% 1.9% -1.6%
Marketing Services
Program 2.4% 3.6% 0.3% 2.9% -5.0%
Total qualified
transaction amounts -3.0% 7.3% 2.4% 2.2% -2.7%
Sales Yield Trends:
Marketing Credits
Program sales yield 76.4% 76.5% 74.5% 75.5% 75.6%
Marketing Services
Program sales yield 16.1% 16.3% 16.5% 17.1% 17.2%
Total sales yield 56.1% 57.3% 55.2% 55.8% 56.0%
Member Activity
Trends:
Member accounts
active last 12
months 3,130 3,103 3,057 3,007 3,016
Number of qualified
transactions during
quarter 2,486 2,509 2,297 2,182 2,167
Cost of Dining
Credits Trends:
Cost of dining
credits $ 32,994 $ 34,528 $ 30,338 $ 29,002 $ 28,349
Cost as % of
Marketing Credits
Program sales 58.5% 57.8% 57.0% 55.6% 55.3%
Dining Credits
Portfolio and
Allowance Trends:
Ending gross dining
credits portfolio $ 103,265 $ 107,815 $ 113,831 $ 116,137 $ 112,418
Ending net dining
credits portfolio $ 82,389 $ 87,547 $ 94,750 $ 94,880 $ 91,692
Net write-offs
(recoveries) -
gross write-offs
less recoveries $ 2,106 $ 2,681 $ 4,743 $ 1,631 ($ 496)
Ending allowance for
dining credits
losses $ 20,876 $ 20,268 $ 19,081 $ 21,257 $ 20,726
Allowance as % of
gross dining
credits 20.2% 18.8% 16.8% 18.3% 18.4%
Estimated months to
consume gross
dining credits * 9.4 9.4 11.3 12.0 11.9
Estimated months to
consume net dining
credits * 7.5 7.6 9.4 9.8 9.7
* Calculated as Ending Dining Credits Portfolio / (Quarterly Cost of Dining
Credits / 3)
Christopher Locke
Chief Financial Officer
Rewards Network Inc.
(312) 521-6741