Rewards Network Inc. Reports 16% Increase in Sales and Continued Growth in Operating Profitability
SOURCE:
Rewards Network
2008-07-23 07:30:00
Rewards Network Inc. Reports 16% Increase in Sales and Continued Growth in Operating Profitability
CHICAGO, IL–(EMWNews – July 23, 2008) – Rewards Network Inc. (
provider of marketing services and frequent dining programs to the
restaurant industry, today reported its financial results for the second
quarter ended June 30, 2008.
Rewards Network reported total sales of $65.7 million for the second
quarter ended June 30, 2008, an increase of 15.7% as compared to the second
quarter of the prior year. Rewards Network ended the second quarter of 2008
with 9,769 merchants, a 12.6% increase over the prior year. Diluted
earnings per share for the second quarter of 2008 totaled $0.07 as compared
to diluted earnings per share of $0.24 for the second quarter of the prior
year. The second quarter of the prior year was favorably impacted by a
pre-tax credit of $11.6 million ($0.26 per diluted share) that reversed a
portion of the reserve related to the settlement of the Bistro Executive
class action litigation. Excluding this credit, quarterly earnings per
share were $0.09 higher than the prior year.
“We are encouraged by our sales and profitability results for the first
half of 2008, especially in a challenging economic environment,” said Ron
Blake, CEO of Rewards Network. “Our positive performance is the result of
the actions we have taken to manage the risk profile of our dining credits
portfolio in a disciplined way, to build an effective sales force, and to
improve online member engagement through our internet marketing
initiatives. We have improved sales and profitability in the quarter while
managing to reduce operating expenses, taking advantage of the operating
leverage in the business.”
The following table presents financial highlights of the Company’s
operations for the second quarter and year to date periods ended June 30,
2008 and 2007 (in millions, except per share amounts and merchant count).
2Q'08 2Q'07 YTD'08 YTD'07
-------- -------- -------- --------
Sales $ 65.7 $ 56.8 $ 124.8 $ 109.7
Net revenues $ 19.9 $ 16.2 $ 38.7 $ 30.9
Operating expenses* $ 16.6 $ 5.6 $ 33.6 $ 23.5
Net income* $ 1.9 $ 7.1 $ 3.1 $ 5.1
Diluted earnings per share* $ 0.07 $ 0.24 $ 0.11 $ 0.19
Total merchants 9,769 8,673
Dining Credits portfolio, net of
reserves $ 87.5 $ 87.2
Net Dining Credits Usage Period
(Months) 7.6 9.3
* 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.
Second Quarter 2008 Results
Sales for the second quarter of 2008 were 15.7% higher as compared to the
second quarter of 2007 and total merchant count increased 12.6% between the
two periods. “In addition to a strong increase in quarter over quarter
sales, our performance marks the fifth consecutive quarter of sequential
sales improvement and the fifth consecutive quarter of sequential merchant
count growth,” said Chris Locke, CFO of Rewards Network.
Net revenues for the second quarter of 2008 were 22.8% higher than the
second quarter of 2007. Net revenues were positively impacted by increased
sales and a $2.0 million or 20.6% decrease in member benefits expense,
offset by increases in the provision for losses and cost of sales.
Consistent with the Company’s disciplined approach to managing the dining
credits portfolio, during the second quarter the Company refined its
allowance methodology for estimating losses in the portfolio to incorporate
additional risk elements in the approach. The impact of this change was an
additional loss provision expense of $1.5 million recognized during the
second quarter.
Operating expenses for the three months ended June 30, 2008 were $11.0
million higher than the prior year. Excluding the litigation reserve
adjustment in 2007, operating expenses for the second quarter of 2008 were
$600 thousand lower than the second quarter of 2007. Contributing to the
favorable results in operating expenses was the Company’s continued
migration from print to more cost-effective internet marketing.
“Our results were favorably impacted by the improved operating leverage of
the business, including a redeployment of our member benefits expense
towards more cost-effective member engagement through internet and email
marketing,” added Locke. “We were able to reward and incentivize our most
engaged members towards internet-based communications, which served to
drive our overall member benefits expense down. We expect our orientation
towards online member activity to continue.”
Year to Date 2008 Results
Sales for the six months ended June 30, 2008 were 13.7% higher as compared
to the six months ended June 30, 2007. Net revenues for the six months
ended June 30, 2008 were 25.2% higher than the six months ended June 30,
2007. Net revenues were positively impacted by increased sales and a $4.1
million or 21.4% decrease in member benefits expense, offset by increases
in the provision for losses and cost of sales.
Operating expenses for the six months ended June 30, 2008 were $10.1
million higher as compared to the prior year. Excluding the litigation
reserve adjustment in 2007, operating expenses for the six months ended
June 30, 2008 were $1.5 million lower than the prior year.
Cash Flows
During the first half of 2008, the Company generated $14.3 million of cash.
This increase in cash is net of the funding of approximately $71.5 million
of new dining credits. Although the dining credits balance as of June 30,
2008 was flat as compared with the prior year, the Company generated higher
sales as a result of more merchants in its portfolio while lowering the
average amount of capital at risk through reducing the net dining credits
usage period year over year. Cash used in investing and financing
activities for the period was approximately $4.4 million and included the
following expenditures:
-- $2.0 million to purchase $2.1 million of our convertible subordinated
debentures.
-- $2.4 million to purchase information technology tools and for the
development of new websites.
“Year to date, the Company experienced strong cash flows, which has allowed
us to not only invest in the business, but also to increase our cash
reserves by $10 million,” added Locke. “Cash reserves increased as a result
of our improved financial performance and conservative management of the
dining credits portfolio.”
Conclusion
“We are pleased with our results for the first half of 2008,” said Blake.
“We will continue our disciplined approach to managing our dining credits
portfolio, our focus on maintaining an effective sales force, and on
improving the operating leverage of the business.”
Webcast Information
Management will host a conference call at 10:00 a.m. Eastern Time on
Wednesday, July 23, 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 August 22, 2008, by dialing 1-888-843-8996 or 1-630-652-3044, using
the conference ID number, 22198819.
About Rewards Network
Rewards Network (
operates the leading frequent dining programs in North America. Thousands
of participating restaurants and other merchants benefit from the Company’s
extensive email, internet and print marketing efforts; member ratings,
feedback and reporting; and access to capital. In conjunction with leading
airline frequent flyer programs and other affinity organizations, Rewards
Network provides millions of members with incentives to dine at
participating restaurants, including airline miles, college savings
rewards, reward program points, and Cashback Rewards(SM) savings.
Additional details about Rewards Network can be found at
www.rewardsnetwork.com or by calling 1-877-491-3463.
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
inability to obtain sufficient cash and refinance the repurchase of our
convertible subordinated debentures, (iii) our dependence upon our
relationships with payment card issuers, transaction processors, presenters
and aggregators, (iv) changes to payment card association rules and
practices, (v) economic changes, (vi) 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, (vii) our dependence on our relationships with airlines and
other reward program partners for a significant number of members,
(viii) the concentration of a significant amount of our rewards currency in
one industry group, the airline industry, (ix) our inability to attract and
retain active members, (x) changes in our programs that affect the rate of
rewards, (xi) our inability to maintain an adequately-staffed sales force,
(xii) our inability to maintain an appropriate balance between the number
of members and the number of participating merchants in each market,
(xiii) our minimum purchase obligations and performance requirements,
(xiv) network interruptions, processing interruptions or processing errors,
(xv) susceptibility to a changing regulatory environment, (xvi) increased
operating costs or loss of members due to privacy concerns of our program
partners, payment card processors and the public, (xvii) the failure of our
security measures, (xviii) the loss of key personnel, (xix) increasing
competition, and (xx) 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 June 30,
---------------------------------------
2008 % 2007 %
--------- -------- -------- --------
Sales $ 65,723 100.00% $ 56,822 100.00%
Cost of sales 34,876 53.07% 28,351 49.89%
Provision for losses 3,259 4.96% 2,574 4.53%
Member benefits 7,718 11.74% 9,717 17.10%
--------- -------- -------- --------
Net revenues $ 19,870 30.23% $ 16,180 28.47%
Membership fees and other income 318 0.48% 445 0.78%
--------- -------- -------- --------
Total operating revenues $ 20,188 30.72% $ 16,625 29.26%
--------- -------- -------- --------
Operating expenses:
Salaries and benefits $ 5,620 8.55% $ 4,788 8.43%
Sales commission and expenses 4,606 7.01% 5,308 9.34%
Professional fees 892 1.36% 478 0.84%
Member and merchant marketing 1,090 1.66% 2,086 3.67%
General and administrative 4,415 6.72% 4,593 8.08%
Litigation and related expenses 0 0.00% (11,631) -20.47%
--------- -------- -------- --------
Total operating expenses $ 16,623 25.29% $ 5,622 9.89%
--------- -------- -------- --------
Operating income 3,565 5.42% 11,003 19.36%
Other expenses, net 430 0.65% 48 0.08%
--------- -------- -------- --------
Income before income tax
provision $ 3,135 4.77% $ 10,955 19.28%
Income tax provision 1,226 1.87% 3,828 6.74%
--------- -------- -------- --------
Net income $ 1,909 2.90% $ 7,127 12.54%
========= ======== ======== ========
Net income available for
common stockholders $ 1,909 2.90% $ 7,579 13.34%
========= ======== ======== ========
Net earnings per share
Basic $ 0.07 $ 0.26
Diluted $ 0.07 $ 0.24
Weighted average number of common
and common equivalent shares
Basic 27,164 27,018
Diluted 27,312 30,992
Six Months Ended June 30,
---------------------------------------
2008 % 2007 %
--------- -------- -------- --------
Sales $ 124,786 100.00% $109,738 100.00%
Cost of sales 65,495 52.49% 54,787 49.93%
Provision for losses 5,484 4.39% 4,849 4.42%
Member benefits 15,068 12.08% 19,165 17.46%
--------- -------- -------- --------
Net revenues $ 38,739 31.04% $ 30,937 28.19%
Membership fees and other income 669 0.54% 919 0.84%
--------- -------- -------- --------
Total operating revenues $ 39,408 31.58% $ 31,856 29.03%
--------- -------- -------- --------
Operating expenses:
Salaries and benefits $ 10,864 8.71% $ 10,276 9.36%
Sales commission and expenses 9,863 7.90% 10,469 9.54%
Professional fees 1,513 1.21% 1,348 1.23%
Member and merchant marketing 2,025 1.62% 3,673 3.35%
General and administrative 9,324 7.47% 9,410 8.57%
Litigation and related expenses 0 0.00% (11,631) -10.60%
--------- -------- -------- --------
Total operating expenses $ 33,589 26.92% $ 23,545 21.46%
--------- -------- -------- --------
Operating income 5,819 4.66% 8,311 7.57%
Other expenses, net 630 0.50% 95 0.09%
--------- -------- -------- --------
Income before income tax
provision $ 5,189 4.16% $ 8,216 7.49%
Income tax provision 2,122 1.70% 3,078 2.80%
--------- -------- -------- --------
Net income $ 3,067 2.46% $ 5,138 4.68%
========= ======== ======== ========
Net income available for
common stockholders $ 3,067 2.46% $ 5,138 4.68%
========= ======== ======== ========
Net earnings per share
Basic $ 0.11 $ 0.19
Diluted $ 0.11 $ 0.19
Weighted average number of common
and common equivalent shares
Basic 27,136 26,934
Diluted 27,394 27,064
Three months ended June Three months ended June
30, 2008 30, 2007
-------------------------- --------------------------
Marketing Marketing Marketing Marketing
Credits Services Credits Services
Program Program Total Program Program Total
------- ------- -------- ------- ------- --------
Number of qualified
transactions 1,724 785 2,509 1,430 740 2,170
Average transaction
amount $ 45.27 $ 46.75 $ 45.73 $ 48.16 $ 48.84 $ 48.39
Qualified transaction
amounts $78,039 $36,702 $114,741 $68,872 $36,138 $105,010
Sales yield 76.5% 16.3% 57.3% 73.44% 17.27% 54.11%
Sales $59,723 $ 6,000 $ 65,723 $50,580 $ 6,242 $ 56,822
Cost of dining
credits $34,528 $ 0 $ 34,528 $28,077 $ 0 $ 28,077
Processing fees 207 141 348 193 81 274
------- ------- -------- ------- ------- --------
Total cost of sales $34,735 $ 141 $ 34,876 $28,270 $ 81 $ 28,351
------- ------- -------- ------- ------- --------
Provision for
losses $ 3,259 $ 0 $ 3,259 $ 2,574 $ 0 $ 2,574
Member benefits $ 5,527 $ 2,191 $ 7,718 $ 6,589 $ 3,128 $ 9,717
------- ------- -------- ------- ------- --------
Net revenues $16,202 $ 3,668 $ 19,870 $13,147 $ 3,033 $ 16,180
======= ======= ======== ======= ======= ========
Six months ended June 30, Six months ended June 30,
2008 2007
-------------------------- ---------------------------
Marketing Marketing Marketing Marketing
Credits Services Credits Services
Program Program Total Program Program Total
------- ------- -------- ------- ------- --------
Number of qualified
transactions 3,245 1,561 4,806 2,831 1,424 4,255
Average transaction
amount $ 46.08 $ 46.21 $ 46.12 $ 47.70 $ 48.80 $ 48.07
Qualified
transaction
amounts $149,526 $72,133 $221,659 $135,047 $69,493 $204,540
Sales yield 75.5% 16.4% 56.3% 72.36% 17.30% 53.65%
Sales $112,958 $11,828 $124,786 $ 97,714 $12,024 $109,738
Cost of dining
credits $ 64,866 $ 0 $64,866 $ 54,266 $ 0 $ 54,266
Processing fees 406 223 629 361 160 521
-------- ------- ------- -------- ------- --------
Total cost of
sales $ 65,272 $ 223 $65,495 $ 54,627 $ 160 $ 54,787
-------- ------- ------- -------- ------- --------
Provision for
losses $ 5,484 $ 0 $ 5,484 $ 4,849 $ 0 $ 4,849
Member benefits $ 10,719 $ 4,349 $15,068 $ 12,947 $ 6,218 $ 19,165
-------- ------- ------- -------- ------- --------
Net revenues $ 31,483 $ 7,256 $38,739 $ 25,291 $ 5,646 $ 30,937
======== ======= ======= ======== ======= ========
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 June 30, December 31,
2008 2007
------------ ------------
(Audited)
Cash and cash equivalents $ 45,460 $ 35,517
Dining credits $ 107,815 $ 116,137
Allowance for doubtful dining credits accounts $ (20,268) $ (21,257)
Goodwill $ 8,117 $ 8,117
Total assets $ 175,598 $ 176,544
Accounts payable - dining credits $ 4,217 $ 7,080
Litigation and related accruals (short and
long-term) $ 5,894 $ 6,110
Convertible subordinated debentures $ 52,900 $ 55,000
Stockholders' equity $ 97,119 $ 92,842
Six Months Ended
June 30,
--------------------------
2008 2007
------------ ------------
Net cash provided by (used in):
Operations $ 14,292 $ (16,105)
Investing $ (2,412) $ (4,733)
Financing $ (1,964) $ 276
Q2 2008 Q1 2008 Q4 2007 Q3 2007 Q2 2007
--------- --------- --------- --------- ---------
Sales Statistic
Trends:
Marketing Credits
Program sales $ 59,723 $ 53,235 $ 52,152 $ 51,267 $ 50,580
Marketing Services
Program sales $ 6,000 $ 5,828 $ 6,037 $ 5,913 $ 6,242
--------- --------- --------- --------- ---------
Total sales $ 65,723 $ 59,063 $ 58,189 $ 57,180 $ 56,822
Sequential
Percentage Change
Marketing Credits
Program sales 12.2% 2.1% 1.7% 1.4% 7.3%
Marketing Services
Program sales 3.0% -3.5% 2.1% -5.3% 8.0%
Total sales 11.3% 1.5% 1.8% 0.6% 7.4%
Merchant Count
Trends (period
ended):
Marketing Credits
Program merchants 6,646 6,644 6,488 6,188 5,928
Marketing Services
Program merchants 3,123 2,942 3,054 3,045 2,745
--------- --------- --------- --------- ---------
Total merchants 9,769 9,586 9,542 9,233 8,673
Sequential
Percentage Change
Marketing Credits
Program merchants 0.0% 2.4% 4.8% 4.4% 3.9%
Marketing Services
Program merchants 6.2% -3.7% 0.3% 10.9% 4.4%
Total merchants 1.9% 0.5% 3.3% 6.5% 4.0%
Qualified
Transaction Amounts
Trends:
Marketing Credits
Program $ 78,039 $ 71,487 $ 69,046 $ 67,786 $ 68,872
Marketing Services
Program 36,702 35,431 35,330 34,349 36,138
--------- --------- --------- --------- ---------
Total qualified
transaction amounts $ 114,741 $ 106,918 $ 104,376 $ 102,135 $ 105,010
Sequential
Percentage Change
Marketing Credits
Program 9.2% 3.5% 1.9% -1.6% 4.1%
Marketing Services
Program 3.6% 0.3% 2.9% -5.0% 8.3%
Total qualified
transaction amounts 7.3% 2.4% 2.2% -2.7% 5.5%
Sales Yield Trends:
Marketing Credits
Program sales yield 76.5% 74.5% 75.5% 75.6% 73.4%
Marketing Services
Program sales yield 16.3% 16.5% 17.1% 17.2% 17.3%
Total sales yield 57.3% 55.2% 55.8% 56.0% 54.1%
Member Activity
Trends:
Member accounts
active last 12
months 3,103 3,057 3,007 3,016 3,070
Number of qualified
transactions during
quarter 2,509 2,297 2,182 2,167 2,170
Cost of Dining
Credits Trends:
Cost of dining
credits $ 34,528 $ 30,338 $ 29,002 $ 28,349 $ 28,077
Cost as % of
Marketing Credits
Program sales 57.8% 57.0% 55.6% 55.3% 55.5%
Dining Credits
Portfolio and
Allowance Trends:
Ending gross dining
credits portfolio $ 107,815 $ 113,831 $ 116,137 $ 112,418 $ 104,910
Ending net dining
credits portfolio $ 87,547 $ 94,750 $ 94,880 $ 91,692 $ 87,171
Net write-offs
(recoveries) -
gross write-offs
less recoveries $ 2,681 $ 4,743 $ 1,631 ($ 496) ($ 174)
Ending allowance for
dining credits
losses $ 20,268 $ 19,081 $ 21,257 $ 20,726 $ 17,739
Allowance as % of
gross dining
credits 18.8% 16.8% 18.3% 18.4% 16.9%
Estimated months to
consume gross
dining credits * 9.4 11.3 12.0 11.9 11.2
Estimated months to
consume net dining
credits * 7.6 9.4 9.8 9.7 9.3
* Calculated as Ending Dining Credits Portfolio / (Quarterly Cost of Dining
Credits / 3)
Major Newsire & Press Release Distribution with Basic Starting at only $19 and Complete OTCBB / Financial Distribution only $89
Get Unlimited Organic Website Traffic to your Website
TheNFG.com now offers Organic Lead Generation & Traffic Solutions
