Coinstar, Inc. Analyst Day May 16, 2012
Redbox Business Review Gregg Kaplan President and COO Coinstar, Inc.
Safe Harbor for Forward Looking Statements Various remarks that we may make about future expectations, plans and prospects for the company constitute forward looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward looking statements as a result of various factors, including those discussed in our most recent Annual Report on Form 10 K and subsequent Quarterly Reports on Form 10 Q filed with the Securities and Exchange Commission. Coinstar, Inc. assumes no obligation and does not intend to update these forward looking statements. Reconciliation of GAAP and Non GAAP Financial Measures This presentation contains references to both GAAP and non GAAP financial measures. A reconciliation between GAAP and non GAAP financial measures is available in the Appendix of this presentation, which is posted on the Investor Relations section of Coinstar s website at www.coinstarinc.com. 2
Birth of Redbox Reimagining Retail Could we change the way people shop? Could we change the way people rent movies? 3
Redbox s Mission People crave entertainment. At Redbox, we make entertainment more accessible and we do it better than anyone else. Redbox America s #1 choice for movie rentals 4
Redbox 2011 and Recent Accomplishments 2011 Became market leader for physical movie rentals* Successfully implemented first price increase in 10 years Signed 5 day and date studio deals Launched Video Games nationwide 3.7MM+ Facebook fans, 6.5MM+ iphone app downloads, 36MM+ email addresses, 3.4MM+ SMS subscribers 2012 thus far Announced digital J.V. with Verizon Signed an agreement to acquire certain assets of NCR s self service entertainment DVD kiosk business Worked with Universal to maintain 28 day delay Successfully implemented workaround for Warner content Prepared to expand into Canada *NPD VideoWatch As of 12/31/2011 5
Redbox Future Growth Future growth will build upon our existing kiosk base and come from 4 key areas Growth Existing Kiosk Base Illustrative Not to Scale Time 6
Redbox Future Growth Redbox future growth will build upon our existing kiosk base and come from 4 key areas New Idea Generation Market Testing Growth Illustrative Not to Scale Existing Kiosk Base Time 35% J.V. Ownership Kiosk Nights New U.S. Singles Duals NCR Canada Marketing and Product Blu ray Pricing Strong Past Performance Key Assets 7
Redbox Future Growth Redbox future growth will build upon our existing kiosk base and come from 4 key areas New Idea Generation Market Testing 35% Share Kiosk Nights Growth Existing Kiosk Base Marketing & Product Blu ray Pricing New U.S. Singles Duals NCR Canada Strong Past Performance Key Assets Illustrative Not to Scale Time 8
Existing Kiosk Base Is Ubiquitous and Widely Used Redbox kiosk base and customers have grown dramatically 2007 2008 2009 Q1 07: 2.0M customers Q1 08: 6.9M customers Q1 09: 14.9M customers 2010 2011 2012 Q1 10: 24.8M customers Q1 11: 32.8M customers Q1 12: 38.6M customers Continental U.S. locations as of March of the given year; customers based on unique credit cards renting in the quarter 9
Strong Historical Performance Millions $2,000 $1,500 Revenue $1,000 $500 $0 2006 2007 2008 2009 2010 2011 Locations Rentals 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2006 2007 2008 2009 2010 2011 Millions 800 600 400 200 0 2006 2007 2008 2009 2010 2011 Results at year end Note: Redbox results consolidated with Coinstar, Inc. beginning 2008 10
Major Retail Partners Redbox has established relationships with many of the most recognized retailers in the U.S. 11
Redbox Future Growth Redbox future growth will build upon our existing kiosk base and come from 4 key areas Growth Existing Kiosk Base Marketing and Product Blu ray Pricing Strong past performance Key assets Illustrative Not to Scale Time 12
Redbox Value Chain Leveraging our assets, Redbox seeks to drive customer engagement throughout the value chain 3 Visits per Customer (frequency) 1 Acquire Customers Active Customers Total Revenue 2 Drive Participation Reduce Attrition 4 Revenue per visit (spend) 13
Redbox Assets Netflix 3.1M, Blockbuster 400K, Amazon 4.2M, Hulu 723K As of 5/1/2012 Kiosk 290MM weekly impressions Facebook 4.4MM+ fans, one of the fastest growing on Facebook Mobile: App, Mobile Web, SMS 13MM+ app downloads & 3.3MM SMS list active entertainment buyers Redbox.com 11.3MM monthly unique visitors redbox.com is growing Redbox data as of March 31, 2012 Email 39MM email addresses consumers of entertainment Twitter 47K+ Followers 14
Redbox Data Allows Personalization Combining our data with our assets will lead to Redbox growth Customer Intelligence Advanced analytics deliver actionable insights to increase activation, reduce attrition, increase frequency, and spend Campaign Management Automation that aligns specific customer audience segments with targeted offers or messages Channel Integration Targets customers across various touch points 15
Increase Visits: Friday Email Significant progress in email segmentation program; 5%+ rental lift vs. control group over first 12 weeks* Old Friday Spotlight New Friday Spotlight One email content version for 22 million email addresses...... to 22 million unique content versions based on content affinity *Feb April 2012 16
Increase Basket Size: New User Interface Adding a shopping cart to the bottom of the User Interface has increased basket size 17
Increase Basket Size: In Cart Promotions In cart promotion has proven efficient at driving increased basket size and profitability Evolution of In Cart All products Select product inclusion (e.g. video games, Blu ray, specific movies) Future: Personalization based on what is in the shopping cart 18
Increase Basket Size Results: User Interface 2.0 & In Cart Basket size has increased and steadied at a new level 1.75 Average Weekly Basket Size (2010 2011) 2010 2011 1.70 1.65 1.60 1.55 1.50 April 2011 1.45 July August 2011 1.40 1.35 1 2 3 4 5 6 7 8 9 10111213141516171819202122232425262728293031323334353637383940414243444546474849505152 Weeks Rolled out first in-cart nationwide Rolled out UI 2.0 Nationwide, new level set 19
Market Transition to Blu ray Future Blu ray player penetration and forecasted market shifts indicate we have plenty of room to grow our Blu ray share of rentals 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Blu ray Penetration of TV HH (2010 2015F) 2010 2011 2012 2013 2014 2015 Percentage of Movie Sales on DVD & Blu ray (2010 2015F) 100% 90% 80% DVD 70% 60% 50% 40% 30% 20% Blu ray 10% 0% 2010 2011 2012 2013 2014 2015 Data for graphs: Screen Digest 2012 20
Redbox Benefits from the Blu ray Transition On average, migrating a customer to Blu ray increases margin $ per disc Average Rev/Disc Average Product Cost Average Product Margin/Disc DVD Blu ray 21
Price Test Results A significant portion of the price increase flows through to the bottom line 2009 Price Testing History Price Elasticity Study Market Testing: Oct 2009 Aug 2010 $1.50/night $2 First Night/$1 After (ended Jan 2010) Revenue Flow Through of 20% SD Price Increase 2010 Market Testing: May 2010 Aug 2010 $1.25/night $1.15/night 2011 Price Elasticity Study Market Testing: June 2011 Oct 2011 $1.10 $1.15 $1.20 Oct 31, 2011 National Price Change to $1.20 Price Increase Change in Rental Demand Change in Nights Out Revenue Flow Through Standard Definitions rentals only 22
Redbox Future Growth Redbox future growth will build upon our existing kiosk base and come from 4 key areas Growth New U.S. Singles Duals NCR Canada Existing Kiosk Base Illustrative Not to Scale Time 23
Redbox Channel Expansion Redbox plans to roll out in Dollar Stores in 2012 Dollar C Store C Store C Store C Store Drug Drug Drug Drug Drug Walmart Walmart Walmart Walmart Walmart Grocery Grocery Grocery Grocery Grocery Grocery McDonald s McDonald s McDonald s McDonald s McDonald s McDonald s 2007 2008 2009 2010 2011 2012F Illustrative Not to Scale 2007 2011 represents channels with >1000 kiosks 24
New U.S. Single Locations We plan to install kiosks in 1,800 2,400 CVS and Dollar Channel locations in 2012 Continue to expand our partnership with CVS Along with Walgreens, top two drug store chains in the U.S. with ~7,300 stores As of year end 2011, Redbox had over 2,300 CVS locations Plan to expand installations with both retail partners in 2012 Test kiosks are performing above model on average Fastest growing channel in retail 25
Duals ~30 35% of Redbox installs in 2012 expected to be dual machines 26
Dual Locations Dual machines are less costly and have a faster revenue ramp than single locations $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Revenue Ramp of Single vs. Dual Year 1 Year 2 Year 3 Year 4 Single Dual Additional Dual Benefits: The 2nd kiosk in a dual costs roughly $1K- $2.5K less in Capex than a single due to leveraging existing infrastructure Predictable performance since we already have a kiosk in location Lower incremental cost to operate Better consumer experience: Broader selection Shorter lines Strengthens relationship with clients as it increases store traffic 27
NCR Transaction Coinstar has announced that it will acquire certain assets of NCR related to NCR s selfservice entertainment DVD kiosk business This strategic move allows for Coinstar/Redbox to gain entry into new clients and gain strategic value in the marketplace Over time, Redbox plans to deinstall the NCR machines and/or replace them with Redbox machines 28
NCR Transaction Opens Up Location and Retailer Opportunities Locations Kiosks operated by NCR under the Blockbuster Express brand NCR Retail Partners Note: Client list is top 10 Blockbuster Express clients and does not imply Redbox contract acquisition or full Redbox kiosk rollout at such retailers 29
Canada Redbox plans to expand its geographic reach into Canada, with installations beginning in the first half of 2012 30
Why Canada Now? Canada represents the world s 3rd largest DVD rental market USD millions $7,000 2010 Physical Rental Market ($MM Consumer Spending) Annual Movie Rental Spending per Capita in USD $6,000 $5,000 $4,000 $3,000 $2,000 Represents Blockbuster and Rogers USD $24 $23 $22 $21 $20 $19.82 $23.09 $1,000 $19 $0 $18 USA Canada Data for graphs from Screen Digest and company filings 31
Canada Signed Contracts We continue to work with leading grocery, drug and mass channel retailers to build out our Canadian network World s largest retailer and a leader in the Canadian mass channel with over 300 stores Plan to begin installing in the next month Greater Toronto and Vancouver markets will be first Canada's leading convenience store chain under the "Macs" banner with over 1,200 locations Couche Tard is the parent of Circle K in the U.S. Plan to begin installing in the next month in greater Vancouver and Toronto markets 32
Major Canadian Retailers 2,000 to 2,500 potential locations in Canada over the next 2 years Major Canadian Retailers 33
Redbox Future Growth Redbox future growth will build upon our existing kiosk base and come from 4 key areas Growth 35% J.V. Ownership Kiosk Nights Existing Kiosk Base Illustrative Not to Scale Time 34
Future Rental Share Projection While the physical rental market will not be disappearing in the next five years, the digital market is ripe with growth 4,000 3,500 3,000 2,500 2,000 1,500 1,000 Share of paid movie rentals (MM of units) physical and digital VOD Digital Physical 500 Redbox rental projections 0 2010 2011 2012 2013 2014 2015 2016 35
Be Simple. Be Fun. Be Everywhere. We will erase old technology boundaries, freeing people to spontaneously enjoy the entertainment they want, whenever they choose, using the devices and media they prefer, at home or away 36
Digital Offering New release rentals at the kiosk as well as streaming of catalog titles online DIGITAL OFFERING New releases at the kiosk At the kiosk Streaming access Related titles On multiple devices New Release 37
JV Economics 35% of JV Net Profits Kiosk Nights Fee JV Revenue: JV Cost: JV Net Profit: $MM ($MM) $MM Redbox gets a fee for the kiosk nights it contributes to each subscription package 35% x JV Net Profit + Kiosk Night Fee 38
Redbox Future Growth Redbox future growth will build upon our existing kiosk base and come from 4 key areas New Idea Generation Market Testing Growth Existing Kiosk Base Illustrative Not to Scale Time R ed 39 b o
New Business Mission What can we do to materially monetize and leverage our existing assets to drive growth? Footprint Brand Partners Media Assets Customers 40
New Business Idea Screening Funnel Fits with Redbox strategy Leverages Redbox assets and capabilities Solves important retailer and/or consumer problem Has an attractive market Has attractive and scalable economics Is defensible & durable Can be executed Implement ideas that could drive ARPU from >$30 to $40? $50? $60? 41
Market Test Coming in 2012 Building off an expansive and successful network of retail locations, Redbox plans to test the first Redbox new business concept in market this year 42
Conclusions Redbox has become the leader in DVD units rented* driven by its network of 30,000 locations at the world s premier retail partners Building on this phenomenal foundation, Redbox will be pursuing multiple growth opportunities in the near term: More sophisticated marketing Transition to Blu ray New kiosk locations Duals Canada Digital partnership with Verizon New businesses on the kiosk And more Growth Existing Kiosk Base Time New Locations *NPD VideoWatch 43
Appendix
Reconciliation of GAAP and Non GAAP Financial Measures Core Adjusted EBITDA from Continuing Operations Our non GAAP financial measure core adjusted EBITDA from continuing operations is defined as earnings before depreciation, amortizationandother;interestexpense, net; income taxes; share basedpaymentsexpense; andnon core adjustments, including i) deal fees primarily related to the acquisition of certain assets of NCR s self service entertainment DVD kiosk business, ii) loss from equity method investments, which represents our share of income or loss from entities we do not consolidate or control, and iii) a gain on the grant of a license to use certain Redbox trademarks to our joint venture with Verizon Communications (the Joint Venture ). A reconciliation of core adjusted EBITDA from continuing operations to income from continuing operations, the most comparable GAAP financial measure, is presented in the following table: Three Months Ended March 31, Dollars in thousands 2012 2011 Income from continuing operations $ 53,696 $ 14,842 Depreciation, amortization and other 40,791 34,644 Interest expense, net 4,114 7,306 Income taxes 35,672 9,261 Share-based payments expense (1) 8,792 3,040 Adjusted EBITDA from continuing operations 143,065 69,093 Non-core adjustments: Deal fees 1,203 168 Loss from equity method investments 4,341 150 Gain on formation of the Joint Venture (19,500) - Core Adjusted EBITDA from continuing operations $ 129,109 $ 69,411 (1) Includes both non-cash share-based compensation for executives, non-employee directors and employees as well as share-based payments for content arrangements. 45
Reconciliation of GAAP and Non GAAP Financial Measures Core Diluted EPS from Continuing Operations Our non GAAP financial measure core diluted EPS from continuing operations is defined as diluted earnings per share from continuing operations excluding non core adjustments, net of applicable taxes, which include i) deal fees primarily related to the acquisition of certain assets of NCR s self service entertainment DVD kiosk business, ii) loss from equity method investments, which represents our share of income or loss from entities we do not consolidate or control, and iii) a gain on the grant of a license to use certain Redbox trademarks to the Joint Venture. Three Months Ended March 31, 2012 2011 Diluted EPS from continuing operations $ 1.65 $ 0.46 Non-core adjustments, net of tax: (1) Deal fees 0.02 - Loss from equity method investments 0.08 - Gain on formation of the Joint Venture (0.36) - Core diluted EPS from continuing operations $ 1.39 $ 0.46 (1) Non-core adjustments are presented after-tax using an estimated tax rate of 40.0%. 46
Reconciliation of GAAP and Non GAAP Financial Measures Free Cash Flow from Continuing Operations Our non GAAP financial measure, free cash flow from continuing operations is defined as net cash provided by operating activities from continuing operations after capital expenditures. We believe free cash flow from continuing operations is an important non GAAP measure as it provides additional information to users of the financial statements regarding our ability to service, incur or pay down indebtedness and repurchase our common stock. The table below provides a reconciliation of net cash flows from operating activities from continuing operations, the most comparable GAAP financial measure, to free cash flow from continuing operations: Three Months Ended March 31, Dollars in thousands 2012 2011 Net cash provided by operating activities $ 54,918 $ 59,995 Purchase of property and equipment (38,007) (38,472) Free cash flow from continuing operations $ 16,911 $ 21,523 47