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Blackhawk Network Holdings, Inc. (HAWK)

Blackhawk Network to Acquire InteliSpend Prepaid Solutions Conference Call

October 22, 2013 09:00 AM ET


Bill Tauscher - Chairman and Chief Executive Officer

Talbott Roche - President

Jerry Ulrich - Chief Financial Officer & Chief Administrative Officer


Sara Gubins - Bank of America Merrill Lynch

Bryan Keane - Deutsche Bank

Ashwin Shirvaiker - Citibank

Ramsey El-Assal – Jefferies

Wayne Johnson - Raymond James

Gil Luria - Wedbush Securities

David Chiaverini - BMO Capital Markets



Good day, ladies and gentlemen, and welcome to the Blackhawk Network to Acquire InteliSpend Prepaid Solutions Conference Call. My name is Adrian and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Bill Tauscher, Blackhawk’s Chief Executive Officer. Please proceed, sir.

Bill Tauscher

Good morning, everybody, and thank you for starting your day with us. We have some exciting news today. I need to begin the presentation with just reminding everybody that we will be making some forward-looking statements and we’ve included a portion in the presentation normal language for Safe Harbor.

The organization agenda we have for today is I am going to spend a little bit time talking about the strategic rationale for this acquisition and then going to turn it over to Talbott who will give you an overview of InteliSpend and Jerry will end our presentation before questions talking about the transaction itself.

The incentive business, when you look at the prepaid product aspects of it is at least as big as the third party gift card market that of course Blackhawk has its roots in. The Mercator data which we often quote that came out in August of this year for 2012 sizes the business is about $36 billion and we’ll look at some data that says it’s somewhere roughly depending on the estimates about half open loop and half close loop.

It’s a very complementary business to our consumer folks focused retail gift card market as many of the functional aspects of the businesses are parallel as other financial aspects. This space unlike ours is very fragmented and we believe there is a large potential for consolidation as we move forward.

InteliSpend’s revenue growth potential as we have sized it and its EBITDA margins are in line with Blackhawk growth targets that we have provided continuously and previously since we went public. So there is a very good fit in terms of the financial structure of the business. One of the very nice things about it is that has less of the seasonal aspect and because of the corporate nature and the commitment and timeframes for those corporate commitments is good revenue visibility. I’d call it’s got a very clear opportunity here to leverage a digital product solutions and has been investing so heavily in as well as its international presence.

And finally as we move down the road and in time, there are some natural eventual infrastructure and backlog synergies in that we have parallel fulfilment, customer care and processing systems in both of the two companies. If you look at the next slide, the market characteristics that I talk about briefly, this is the growth market, it’s estimated Mercator this year to grow about 10% which is slightly faster than the overall gift card market but slower in line -- a little bit slower than the third party gift card market.

It is divided between incentives that are used for employees, customers, sales and various channel dealers and otherwise. As I said earlier, the estimates on the split of the business, this is an open loop business today, obviously Blackhawk is both an open loop and the close loop business and therein lie some synergies as well, but this is an open loop business, open loop in the incentive space is growing faster than close loop, the same thing that we’re actually experiencing in our third party space currently. And depending on the surveys and the studies it’s believed that somewhere between 40% and 50% of the overall business, open loop that is.

If you look at a couple of key items that are drivers of growth in this business, first, we have an industry that as the economy has been improving in 2013 and early results appear that 2014 will be the same. Companies have been increasing their budget both for incentive programs and most importantly for prepaid cards.

There is a natural shift going on here as incentive programs migrate from the historical roots of merchandise and travel to prepaid gift cards and open loop cards for their incentive programs. In fact today, you know that migration has been driving steady growth in the incentive prepaid space, we're still only at 52% of companies are using gift cards for their incentive programs, obviously a lot of running field left to go.

And finally, nearly half of the companies who source prepaid gift cards are still getting them direct from the merchants. As we move into a more complicated world of digital and as we deliver other services the trend we believe is clearly there for a company to supply a comprehensive set of content and services as opposed to a direct supply and the trend indicates that.

I'm now going to turn it over to Talbott and let her talk to you about this new wonderful company we just acquired.

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