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Blackhawk Announces Fourth Quarter and Full Year 2017 Financial Results

PLEASANTON, Calif., Feb. 27, 2018 (GLOBE NEWSWIRE) -- Blackhawk Network Holdings, Inc. (NASDAQ:HAWK) (the "Company" or "Blackhawk") today announced financial results for the fourth quarter and full year ended December 30, 2017.

Merger Agreement – On January 15, 2018, Silver Lake and P2 Capital Partners agreed to acquire Blackhawk in an all-cash transaction for a total consideration of approximately $3.5 billion, which includes Blackhawk’s debt. Under the terms of the merger agreement, Blackhawk stockholders will receive $45.25 per share in cash upon closing of the transaction.  Blackhawk currently expects the transaction, which is subject to stockholder and regulatory approvals, and other customary closing conditions, to close mid-2018. For further information on the transaction and related merger agreement, please refer to Blackhawk’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on January 16, 2018, and Blackhawk’s preliminary proxy statement filed with the SEC on February 16, 2018.

Non-cash charges related to the Company's income tax provision as well as goodwill impairment contributed to the net loss for 2017.

           
GAAP Results Q4'17 Q4'16   FY'17 FY'16
$ in millions except per share amounts          
Operating Revenues $942.0  $780.6    $2,231.6  $1,899.8 
Net Income (Loss) ($128.2) $24.7    ($155.8) $4.7 
Diluted Earnings (Loss) per Share ($2.28) $0.43    ($2.77) $0.08 
 

During the fourth quarter of 2017, adjusted operating revenues grew 20% and adjusted EBITDA and adjusted net income each grew 34%.

           
Non-GAAP Results Q4'17 Q4'16   FY'17 FY'16
$ in millions except per share amounts          
Adjusted Operating Revenues $423.2 $352.0   $1,079.7 $889.3
Adjusted EBITDA $143.9 $107.3   $224.9 $189.2
Adjusted Net Income $76.5 $57.1   $94.9 $82.0
Adjusted Diluted Earnings per Share $1.32 $1.00   $1.64 $1.43
 

GAAP and Non-GAAP results in the tables above include Cardpool and Grass Roots Meetings and Events businesses which were both assets held for sale in 2017.  In December 2017 the Grass Roots Meetings and Events business was sold for a total consideration of $45.2 million.  Cardpool remains an asset held for sale which the Company intends to divest in 2018.

Grass Roots Meetings & Events Results

For Q4 2017, Grass Roots Meetings & Events contributed $12.0 million of operating revenues, $2.3 million of pre-tax income and $2.4 million of adjusted EBITDA. For fiscal 2017, Grass Roots Meetings & Events contributed $54.9 million of operating revenues, $3.5 million of pre-tax income and $3.9 million of adjusted EBITDA.

Cardpool Results

For Q4 2017, Cardpool contributed $15.3 million of operating revenues, $25.1 million of pre-tax loss and a $2.6 million adjusted EBITDA loss. For fiscal 2017, Cardpool contributed $59.3 million of operating revenues, $39.9 million of pre-tax loss, including a $31.5 million non-cash goodwill impairment charge, and a $7.4 million adjusted EBITDA loss.

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

  • Operating revenues totaled $942.0 million, an increase of $161.4 million from $780.6 million for the quarter ended December 31, 2016.  This increase was due to a 23% increase in operating revenues from the U.S. Retail segment driven by the addition of Target as a distribution partner and the acquisition of CashStar; a 17% increase in operating revenues from the international segment which includes the acquisition of Grass Roots in late 2016; and an 18% increase in operating revenues from the incentives and rewards segment primarily due to growth in Achievers and the loyalty business.
  • Net loss totaled $128.2 million compared to net income of $24.7 million for the quarter ended December 31, 2016.  The decline was driven primarily by a $125.1 million non-cash write-down of the Company's deferred tax asset resulting from tax reform and a $68.5 million non-cash goodwill impairment charge related to the Incentives and Cardpool businesses, partially offset by top line growth in each of the Company's three operating segments.
  • Loss per diluted share was $2.28 compared to earnings per diluted share of $0.43 for the quarter ended December 31, 2016.  Diluted shares outstanding decreased 1.5% to 56.1 million following the Company's 1.2 million share repurchase in October 2017.

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

  • Adjusted operating revenues totaled $423.2 million, an increase of 20% from $352.0 million for the quarter ended December 31, 2016.  The increase was driven by growth in all three of the Company's operating segments as described in the GAAP financial results section above.
  • Adjusted EBITDA totaled $143.9 million, an increase of 34% from $107.3 million for the quarter ended December 31, 2016.
  • Adjusted net income totaled $76.5 million, an increase of 34% from $57.1 million for the quarter ended December 31, 2016.
  • Adjusted diluted EPS was $1.32, an increase of 32% from $1.00 for the quarter ended December 31, 2016.

Deferred Tax Asset Write-down

As a result of the U.S. Tax Cuts and Jobs Act, Blackhawk remeasured its net deferred tax assets in the fourth quarter which resulted in a $125.1 million income tax expense.  There should be no immediate impact on cash taxes paid as a result of the reduction in rate due to the continued utilization of the asset, but at a lower tax rate.  The long term benefits of the rate reduction are expected to benefit the company due to the significant domestic earnings stream.

Goodwill Impairment Charge

During the fourth quarter of 2017, Cardpool’s results were less than forecasted, and the Company performed a full assessment of goodwill impairment. The assessment determined that the carrying value of the net assets of the Cardpool gift card exchange business to be sold was higher than the expected selling price less the costs to sell the business. Accordingly, the Company recorded an additional impairment charge of $22.5 million in the fourth quarter of 2017. For the Blackhawk Engagement Solutions U.S. (“BES”) reporting unit, included within the Incentives and Rewards segment, the Company performed a full assessment of goodwill impairment and determined that BES had an elevated risk of goodwill impairment due to lower expectations of sales volume, operating income and cash flows. As a result of the lower valuation, the Company recorded an impairment charge of $46.0 million in the fourth quarter of 2017.

Conference Call

As a result of the proposed merger, the Company will not host an earnings conference call, provide earnings guidance or publish supplemental earnings presentation slides.

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 the United States and 26 other 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 and Reduction in income taxes payable 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 and other pass-through revenues, which has offsetting 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, legal and accounting costs incurred in conjunction with the sale of Grass Roots Meetings and Events 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 and BES businesses 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; and
  • 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

Additional Information and Where to Find It

In connection with the proposed merger, the Company filed a preliminary proxy statement on Schedule 14A with the SEC on February 16, 2018. When completed, a definitive proxy statement and a form of proxy will be filed with the SEC and mailed to the Company’s stockholders. The Company also plans to file other relevant materials with the SEC regarding the proposed merger. This communication is not a substitute for the definitive proxy statement or any other document that the Company may file with the SEC or send to its stockholders in connection with the proposed merger. BEFORE MAKING ANY VOTING DECISION, STOCKHOLDERS OF THE COMPANY ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE DEFINITIVE PROXY STATEMENT, WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain the documents (when available) free of charge at the SEC’s website, http://www.sec.gov, and the Company’s website, www.blackhawknetwork.com. In addition, the documents (when available) may be obtained free of charge by directing a request to Patrick Cronin by email at patrick.cronin@bhnetwork.com or by calling (925) 226-9939.

Cautionary Statements Regarding 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: the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement; the failure to obtain the Company’s stockholders’ approval of the transaction; the failure to obtain certain required regulatory approvals to the completion of the transaction or the failure to satisfy any of the other conditions to the completion of the transaction; the effect of the announcement of the transaction on our ability to retain and hire key personnel and maintain relationships with our partners, clients, customers, providers, advertisers, and others with whom we do business, or on our operating results and businesses generally; risks associated with the disruption of management’s attention from ongoing business operations due to the transaction; our ability to meet expectations regarding the timing and completion of the merger; 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 SEC.  These risks, as well as other risks associated with the proposed merger, are more fully discussed in Item 1A under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 30, 2017 which is expected to be filed on February 28, 2018 and other periodic reports we file with the SEC, which are available at www.sec.gov and the Company’s website at www.blackhawknetwork.com.  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. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

 
  INVESTORS/ANALYSTS:
  Patrick Cronin
  (925) 226-9939
  patrick.cronin@bhnetwork.com
 


 
BLACKHAWK NETWORK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
  16 Weeks Ended   16 Weeks Ended   52 Weeks Ended   52 Weeks Ended
  December 30, 2017   December 31, 2016   December 30, 2017   December 31, 2016
OPERATING REVENUES:              
Commissions and fees $ 661,291     $ 565,062     $ 1,468,867     $ 1,315,755  
Program and other fees 173,468     128,599     477,884     336,317  
Marketing 49,387     42,200     102,841     94,298  
Product sales 57,819     44,689     182,014     153,408  
Total operating revenues 941,965     780,550     2,231,606     1,899,778  
OPERATING EXPENSES:              
Partner distribution expense 462,672     391,393     1,040,306     933,142  
Processing and services 144,828     128,634     448,657     355,268  
Sales and marketing 130,765     108,623     329,983     274,799  
Costs of products sold 52,611     40,104     170,493     143,267  
General and administrative 34,911     31,601     113,621     99,428  
Transition and acquisition 5,776     7,305     7,797     11,465  
Amortization of acquisition intangibles 22,217     21,527     62,794     57,060  
Change in fair value of contingent consideration (9,840 )       (14,937 )   2,100  
Goodwill impairment 68,500         77,500      
Total operating expenses 912,440     729,187     2,236,214     1,876,529  
OPERATING INCOME (LOSS) 29,525     51,363     (4,608 )   23,249  
OTHER INCOME (EXPENSE):              
Interest income and other income (expense), net (2,524 )   (3,707 )   (390 )   (449 )
Interest expense (10,724 )   (7,996 )   (32,092 )   (21,864 )
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 16,277     39,660     (37,090 )   936  
INCOME TAX EXPENSE (BENEFIT) 144,024     14,782     117,800     (4,102 )
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS (127,747 )   24,878     (154,890 )   5,038  
Income attributable to non-controlling interests, net of tax (418 )   (228 )   (878 )   (380 )
NET INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC. $ (128,165 )   $ 24,650     $ (155,768 )   $ 4,658  
EARNINGS (LOSS) PER SHARE:              
Basic $ (2.28 )   $ 0.44     $ (2.77 )   $ 0.08  
Diluted $ (2.28 )   $ 0.43     $ (2.77 )   $ 0.08  
Weighted average shares outstanding—basic 56,126     55,474     56,287     55,734  
Weighted average shares outstanding—diluted 56,126     56,966     56,287     57,260  
                       


 
BLACKHAWK NETWORK HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
  Year-end
2017
  Year-end
2016
ASSETS      
Current assets:      
Cash and cash equivalents $ 1,096,195     $ 1,008,125  
Restricted cash 135,345     10,793  
Settlement receivables, net 1,038,347     641,691  
Accounts receivable, net 184,994     262,672  
Other current assets 165,374     131,375  
Total current assets 2,620,255     2,054,656  
Property, equipment and technology, net 172,607     172,381  
Intangible assets, net 431,681     350,185  
Goodwill 563,405     570,398  
Deferred income taxes 236,496     362,302  
Other assets 115,236     85,856  
TOTAL ASSETS $ 4,139,680     $ 3,595,778  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Settlement payables $ 2,074,673     $ 1,626,827  
Consumer and customer deposits 252,822     173,344  
Accounts payable and accrued operating expenses 156,182     153,885  
Deferred revenue 179,684     150,582  
Note payable, current portion 10,662     9,856  
Notes payable to Safeway 3,941     3,163  
Other current liabilities 102,823     51,176  
Total current liabilities 2,780,787     2,168,833  
Deferred income taxes 28,083     27,887  
Note payable 202,441     137,984  
Convertible notes payable 441,655     429,026  
Other liabilities 16,747     39,653  
Total liabilities 3,469,713     2,803,383  
Stockholders’ equity:      
Preferred stock      
Common stock 56     56  
Additional paid-in capital 649,546     608,568  
Treasury stock (40,023 )    
Accumulated other comprehensive loss (16,049 )   (48,877 )
Retained earnings 72,571     228,451  
Total Blackhawk Network Holdings, Inc. equity 666,101     788,198  
Non-controlling interests 3,866     4,197  
Total stockholders’ equity 669,967     792,395  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 4,139,680     $ 3,595,778  
               


 
BLACKHAWK NETWORK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
  52 Weeks Ended   52 Weeks Ended
  December 30, 2017   December 31, 2016
OPERATING ACTIVITIES:      
Net income (loss) before allocation to non-controlling interests $ (154,890 )   $ 5,038  
Adjustments to reconcile net income (loss) to net cash used in operating activities:      
Depreciation and amortization of property, equipment and technology 55,419     48,379  
Goodwill impairment 77,500      
Amortization of intangibles 67,912     62,045  
Amortization of deferred program and contract costs 30,584     29,015  
Amortization of deferred financing costs and debt discount 13,837     6,506  
Employee stock-based compensation expense 32,708     32,592  
Change in fair value of contingent consideration (14,937 )   2,100  
Loss on property, equipment and technology disposal / write-down 6,802     9,838  
Deferred income taxes 110,276     (8,899 )
Other (1,805 )   5,093  
Changes in operating assets and liabilities:      
Settlement receivables (350,138 )   6,076  
Settlement payables 411,248     19,907  
Accounts receivable, current and long-term 44,857     (13,012 )
Other current assets (14,914 )   (13,891 )
Other assets (40,490 )   (24,690 )
Restricted cash related to operating activities (56,279 )    
Consumer and customer deposits 46,931     13,772  
Accounts payable and accrued operating expenses 8,703     (14,835 )
Deferred revenue 31,458     33,362  
Other current and long-term liabilities 35,422     (21,707 )
Income taxes, net 5,297     8,542  
Net cash provided by operating activities 345,501     185,231  
INVESTING ACTIVITIES:      
Expenditures for property, equipment and technology (64,599 )   (52,332 )
Business acquisitions, net of cash acquired (168,995 )   (220,605 )
Proceeds from divestiture of business, net of cash sold 13,779      
Investments in unconsolidated entities (6,201 )   (10,541 )
Change in restricted cash (59,838 )   (7,691 )
Other (3,244 )   1,408  
Net cash used in investing activities (289,098 )   (289,761 )
       
Continued on next page
  52 Weeks Ended   52 Weeks Ended
  December 30, 2017   December 31, 2016
FINANCING ACTIVITIES:      
Payments for acquisition liability (5,503 )    
Proceeds from issuance of note payable 75,000     250,000  
Repayment of note payable (10,000 )   (463,750 )
Payments of financing costs (1,025 )   (16,544 )
Borrowings under revolving bank line of credit 3,011,270     2,985,490  
Repayments on revolving bank line of credit (3,011,270 )   (2,985,490 )
Repayments on notes payable to Safeway (253 )   (890 )
Repayment of debt assumed in business acquisitions (8,585 )   (8,964 )
Proceeds from convertible debt     500,000  
Payments for note hedges     (75,750 )
Proceeds from warrants     47,000  
Proceeds from issuance of common stock from exercise of employee stock options and employee stock purchase plans 16,782     10,302  
Other stock-based compensation related (10,551 )   (2,284 )
Repurchase of common stock (40,023 )   (34,843 )
Other (343 )   (156 )
Net cash provided by financing activities 15,499     204,121  
Effect of exchange rate changes on cash and cash equivalents 16,168     (6,042 )
Increase in cash and cash equivalents 88,070     93,549  
Cash and cash equivalents—beginning of year 1,008,125     914,576  
Cash and cash equivalents—end of year $ 1,096,195     $ 1,008,125  
       
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION      
Cash payments during the year for:      
Interest paid (net of amounts capitalized) $ 18,008     $ 12,756  
Income taxes paid (refunds received) $ 2,587     $ (2,854 )
Spin-Off income taxes paid (refunds received) funded by (remitted to) Safeway $ (253 )   $ (890 )
       
Noncash investing and financing activities:      
Financing of business acquisition with contingent consideration $ 1,640     $ 21,652  
Forgiveness of notes receivable and accrued interest as part of business acquisition and divestiture $ 973     $ 5,445  
Intangible assets recognized for the issuance of fully vested warrants $ 20,000     $  
Conversion of income tax payable and deferred taxes to (from) additional paid-in capital $ (91 )   $  
               


 
BLACKHAWK NETWORK HOLDINGS, INC.
SUPPLEMENTAL INFORMATION
(Tables 1 & 2 in thousands except percentages and per share amounts)
(Unaudited)
 
TABLE 1: OTHER OPERATIONAL DATA
  16 Weeks Ended   16 Weeks Ended   52 Weeks Ended   52 Weeks Ended
  December 30,
 2017
  December 31,
 2016
  December 30,
 2017
  December 31,
 2016
Transaction dollar volume $ 8,614,618     $ 6,947,031     $ 19,397,056     $ 16,717,834  
Prepaid and processing revenues $ 834,759     $ 693,661     $ 1,946,751     $ 1,652,072  
Prepaid and processing revenues as a % of transaction dollar volume 9.7 %   10 %   10 %   9.9 %
Partner distribution expense as a % of prepaid and processing revenues 55.4 %   56.4 %   53.4 %   56.5 %
                       


 
 TABLE 2: RECONCILIATION OF NON-GAAP MEASURES
  16 Weeks Ended   16 Weeks Ended   52 Weeks Ended   52 Weeks Ended
  December 30,
 2017
  December 31,
 2016
  December 30,
 2017
  December 31,
 2016
Prepaid and processing revenues:              
Commissions and fees 661,291     565,062     1,468,867     1,315,755  
Program and other fees 173,468     128,599     477,884     336,317  
Total prepaid and processing revenues $ 834,759     $ 693,661     $ 1,946,751     $ 1,652,072  
Adjusted operating revenues:              
Total operating revenues $ 941,965     $ 780,550     $ 2,231,606     $ 1,899,778  
Revenue adjustments from purchase accounting 1,104     5,055     5,558     16,930  
Marketing and other pass-through revenues (57,220 )   (42,200 )   (117,189 )   (94,298 )
Partner distribution expense (462,672 )   (391,393 )   (1,040,306 )   (933,142 )
Adjusted operating revenues $ 423,177     $ 352,012     $ 1,079,669     $ 889,268  
Adjusted EBITDA:              
Net income (loss) before allocation to non-controlling interests $ (127,747 )   $ 24,878     $ (154,890 )   $ 5,038  
Interest and other (income) expense, net 2,524     3,707     390     449  
Interest expense 10,724     7,996     32,092     21,864  
Income tax expense (benefit) 144,024     14,782     117,800     (4,102 )
Depreciation and amortization 41,397     38,340     123,331     110,424  
EBITDA 70,922     89,703     118,723     133,673  
Adjustments to EBITDA:              
Employee stock-based compensation 8,148     7,727     32,708     32,592  
Acquisition-related employee compensation expense (110 )   (155 )   438     465  
Goodwill impairment 68,500         77,500      
Revenue adjustments from purchase accounting, net 1,048     4,510     5,257     15,624  
Other (gain)/losses, net 5,189     5,500     5,189     4,746  
Change in fair value of contingent consideration (9,840 )       (14,937 )   2,100  
Adjusted EBITDA $ 143,857     $ 107,285     $ 224,878     $ 189,200  
Adjusted EBITDA margin:              
Total operating revenues $ 941,965     $ 780,550     $ 2,231,606     $ 1,899,778  
Operating income (loss) 29,525     51,363     (4,608 )   23,249  
Operating margin 3.1 %   6.6 %   (0.2)   %   1.2 %
Adjusted operating revenues $ 423,177     $ 352,012     $ 1,079,669     $ 889,268  
Adjusted EBITDA 143,857     107,285     224,878     189,200  
Adjusted EBITDA margin 34.0 %   30.5 %   20.8 %   21.3 %
Adjusted net income:              
Income (loss) before income tax expense $ 16,277     $ 39,660     $ (37,090 )   $ 936  
Employee stock-based compensation expense 8,148     7,727     32,708     32,592  
Acquisition-related employee compensation expense (110 )   (155 )   438     465  
Goodwill impairment 68,500         77,500      
Revenue adjustments from purchase accounting, net 1,048     4,510     5,257     15,624  
Other (gains)/losses, net 6,025     7,875     6,025     5,177  
Change in fair value of contingent consideration (9,840 )       (14,937 )   2,100  
Amortization of intangibles 23,496     23,057     67,912     62,045  
Adjusted income before income tax expense 113,544     82,674     137,813     118,939  
Income tax expense (benefit) 144,024     14,782     117,800     (4,102 )
Tax expense (benefit) on adjustments (107,424 )   10,586     (75,726 )   40,691  
Adjusted income tax expense 36,600     25,368     42,074     36,589  
Adjusted net income before allocation to non-controlling interests 76,944     57,306     95,739     82,350  
Net loss (income) attributable to non-controlling interests, net of tax (418 )   (228 )   (878 )   (380 )
Adjusted net income attributable to Blackhawk Network Holdings, Inc. $ 76,526     $ 57,078     $ 94,861     $ 81,970  
                               


 
TABLE 2: RECONCILIATION OF NON-GAAP MEASURES (continued)
  16 Weeks Ended   16 Weeks Ended   52 Weeks Ended   52 Weeks Ended
  December 30,
 2017
  December 31,
 2016
  December 30,
 2017
  December 31,
 2016
Adjusted diluted earnings per share:              
Net income (loss) attributable to Blackhawk Network Holdings, Inc. $ (128,165 )   $ 24,650     $ (155,768 )   $ 4,658  
Distributed and undistributed earnings allocated to participating securities     (13 )       (28 )
Net income (loss) available for common shareholders $ (128,165 )   $ 24,637     $ (155,768 )   $ 4,630  
Diluted weighted average shares outstanding 56,126     56,966     56,287     57,260  
Diluted earnings (loss) per share $ (2.28 )   $ 0.43     $ (2.77 )   $ 0.08  
Adjusted net income attributable to Blackhawk Network Holdings, Inc. $ 76,526     $ 57,078     $ 94,861     $ 81,970  
Adjusted distributed and undistributed earnings allocated to participating securities     (51 )       (108 )
Adjusted net income available for common shareholders $ 76,526     $ 57,027     $ 94,861     $ 81,862  
Diluted weighted average shares outstanding 56,126     56,966     56,287     57,260  
Increase in common share equivalents 1,656         1,707      
Adjusted diluted weighted average shares outstanding 57,782     56,966     57,994     57,260  
Adjusted diluted earnings per share $ 1.32     $ 1.00     $ 1.64     $ 1.43  
Reduction in income taxes payable:              
Reduction in income taxes payable resulting from amortization of spin-off tax basis step-up 9,547     9,424     29,338     29,191  
Reduction in cash taxes payable from amortization of acquisition intangibles and utilization of acquired NOLs 15,705     1,301     22,110     13,907  
Reduction in cash taxes payable from deductible stock-based compensation and convertible debt 3,683     3,793     20,619     15,196  
Reduction in income taxes payable $ 28,935     $ 14,518     $ 72,067     $ 58,294  
Adjusted diluted weighted average shares outstanding 57,782     56,966     57,994     57,260  
Reduction in income taxes payable per share $ 0.50     $ 0.25     $ 1.24     $ 1.02  

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Source: Blackhawk Network Holdings, Inc.