Blackhawk Network Holdings, Inc. (HAWK)

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Start Time: 08:00

End Time: 08:59

Blackhawk Network Holdings, Inc. (HAWK)

Q4 2013 Results Earnings Conference Call

February 20, 2014, 08:00 AM ET


Patrick Cronin - VP, Finance and IR

William Y. Tauscher - Chairman and CEO

Jerry Ulrich - CFO and CAO


Sara Gubins - Bank of America Merrill Lynch

Bryan Keane - Deutsche Bank

Ramsey El-Assal - Jefferies

Gil Luria - Wedbush Securities

Mike Grondahl - Piper Jaffray

Tim Willi - Wells Fargo

David Chiaverini - BMO Capital Markets



Welcome to Blackhawk Network's Fourth Quarter and Full Year 2013 Earnings Conference Call. For those of you on the audio on redialing, your lines have been placed on listen-only until the question-and-answer session. This call is being recorded. If you have any objections please disconnect at this time.

I would now like to turn the call over to Mr. Patrick Cronin, Blackhawk's Vice President of Finance and Investor Relations. Please go ahead, sir.

Patrick Cronin

All right, well, thank you, Michelle. Good morning, everyone. Before we get started, I wanted to remind you that we scheduled two events this morning; our earnings call from 8.00 to 8.45 AM Eastern Standard Time and we'll end that with approximately a 10 to 15 minute Q&A session. We'll follow-up our earnings call with our Investor Conference which will run from 10 AM to noon Eastern Standard Time. You can access the webcast of both these events by visiting Blackhawk's Investor Relations website at ir.blackhawknetwork.com.

Also, a copy of the earnings release that accompanies our call this morning can also be found on the Investor Relations website.

So with me today to discuss Blackhawk's fourth quarter and full year 2013 earnings results is Bill Tauscher, our Chairman and Chief Executive Officer; and Jerry Ulrich, our Chief Financial & Administrative Officer.

Before I turn the call over to Bill, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws. Forward-looking statements contain information about future operating or financial performance, and forward-looking statements are based on our current expectations and assumptions and involve risks and uncertainties that could cause actual results or events to be materially different from those anticipated. However, we undertake no obligation to update or revise any such statements as a result of new information, future events or otherwise. For a list and description of those risks and uncertainties, please see our filings with the SEC.

With that, I'd like to turn the call over to Bill Tauscher.

William Y. Tauscher

Thank you, Patrick. Good morning, everyone. Here's the agenda for our call today. First, I'll comment on Safeway's announcement of their intention to complete the spin-off of Blackhawk. I'll then summarize Q4 and full year 2013 financial results and finally I'll share business accomplishments for 2013 in both the U.S. and international. Jerry will then take us through a deeper dive to the numbers and we'll share our 2014 financial outlook.

As many of you are aware, yesterday Safeway announced their intention to distribute the remainder of their ownership in Blackhawk to its shareholders. After much study and analysis, Safeway and its advisors concluded this path was the one that would result in a maximum value for Safeway and Blackhawk taken together. As we've stated previously, we at Blackhawk with Safeway's assistance have been preparing for this eventuality for several years. For the past two years we've been operating independently from Safeway in all respects except for the preparation of consolidated tax returns and treasury management.

Relating to this we also announced that we are negotiating with a group of banks to establish an independent credit facility to support our business going forward. While this will increase our interest cost slightly related to borrowings to support our recent acquisitions, we have operated profitably and we have generated positive cash flows for many years. So we see this as business as usual for Blackhawk.

From an investment standpoint, as you will hear further today, we are optimistic that we will continue to grow the business and with the additional flows that will be available, certain investors that have previously been excluded from investing may have a new opportunity going forward. We won't be able to answer all your questions regarding the spin-off today, but we will work with Safeway to keep everyone apprised of the status going forward.

Turning now to the Blackhawk business, in our first year as a public company we're very pleased to report that we met our full year 2013 financial targets by delivering adjusted operating revenue growth of 21%, adjusted EBITDA growth of 15% and adjusted net income growth of 14%.

On a pro forma basis, adjusting for the change in commissions paid in Safeway at the beginning of 2013, adjusted operating revenues, adjusted EBITDA and adjusted net income growth rates were 23%, 25% and 27%, respectively. Results are in fact slightly higher than the mid to long-term growth targets on the low 20% range that we presented during our road show in April 2013.

We also completed two acquisitions in November. Retailo provided us with access to the important German prepaid market and InteliSpend opens up a significant new opportunity for us in the corporate incentives and rewards market. We'll discuss these deals later in this call and during our Investor Conference this morning.

So now let's review our fourth quarter results. Loan value grew 17% compared to the fourth quarter of 2012 with 13% excluding loan value contributed by InteliSpend and Retailo for the seven weeks and four weeks respectively after the acquisitions closed. Fourth quarter growth rates are typically lower than the other quarters during the year borrowing major new distribution partner rollouts, as the holiday season is more heavily weighted to closed-loop or private branded gift cards.

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