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Outerwall (OUTR) Erik E. Prusch on Q1 2016 Results - Earnings Call Transcript

Q1 2016 Earnings Call

April 28, 2016 5:30 pm ET

Executives

Rosemary Moothart - Director-Investor Relations

Erik E. Prusch - Chief Executive Officer & Director

Galen C. Smith - Chief Financial Officer

Analysts

Darren P. Aftahi - ROTH Capital Partners

Michael Olson - Piper Jaffray & Co (Broker)

Operator

Good afternoon, ladies and gentlemen. Welcome to Outerwall's 2016 First Quarter Earnings Conference Call. My name is John and I will be your host operator on this call. Please note that this call is being recorded today, Thursday, April 28, 2016, at 2:30 PM Pacific Time. A replay will be available after the call ends today through May 12. Details on how to access the replay are available on Outerwall's earnings press release. Following the company's remarks, we will conduct a question-and-answer session. Instructions will be provided at that time.

I would now like to turn the meeting over to your host for today's call, Rosemary Moothart, Director of Investor Relations at Outerwall. Please go ahead.

Rosemary Moothart - Director-Investor Relations

Thanks, John. Welcome to Outerwall's 2016 first quarter conference call. Our CEO, Erik Prusch; and CFO, Galen Smith, will host today's call. Erik and Galen will make introductory remarks and then we'll open up for Q&A.

The first quarter press release and prepared remarks are posted on the Investor Relations section of Outerwall's website at ir.outerwall.com. The 10-Q was filed earlier today and is also posted in the SEC Filings section. During the call, year-over-year comparisons we make will be Q1 2016 versus Q1 2015, unless we state otherwise. In addition, Erik and Galen may reference non-GAAP financial measures. Definitions and reconciliations of differences between GAAP and non-GAAP financial measures are provided in Appendix A of both the earnings release and the prepared remarks.

Also, during this call, various remarks we make about future expectations, plans and prospects for the company constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from expectations, plans and prospects contemplated in these forward-looking statements as a result of various factors, including those discussed in our latest 10-K and subsequent 10-Q filings with the SEC.

I'll now turn the call over to Erik.

Erik E. Prusch - Chief Executive Officer & Director

Thanks, Rosemary. Thank you, everyone, for joining and for your ongoing interest in Outerwall. During the quarter, we achieved consolidated revenue of $536 million, a sequential improvement from the $527 million in Q4. In addition, we generated $54 million in free cash flow this quarter and core diluted EPS of $2.44. Each results are a testament to the significant value our businesses offer to our millions of loyal customers and retail partners and demonstrate our continued ability to generate solid cash flow and core EPS.

Looking across our business results for the first quarter, we were pleased with the stabilization we saw in the business with Redbox delivering sequential growth in revenue and rentals. Redbox revenue was $421 million, which is up sequentially from the $407 million of revenue in Q4 2015. Rentals were up from Q4 with a stronger average check as we benefited from higher gain rental and lower promotional spend.

Further, we saw a sequential increase in our high frequency renters or HFRs due to our ongoing efforts to engage and retain customers with new content introduced during the quarter. Beyond movies, our new release game rentals continued to perform well across our network of kiosks. Specifically, popular new generation titles from Q4 2015 helped to drive rentals in the quarter. In fact, we conducted a field survey in March that emphasize high margin customer satisfaction and indicated the majority of customers, roughly 80%, see game rentals as a way to influence their purchasing decisions.