Blackhawk Network Holdings, Inc. (HAWK)

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Blackhawk Network Holdings, Inc. (HAWK)

Q1 2014 Earnings Conference Call

April 23, 2014 17:00 ET


Patrick Cronin - Vice President, Finance and Investor Relations

Bill Tauscher - Chairman and Chief Executive Officer

Talbott Roche - President

Jerry Ulrich - Chief Financial and Administrative Officer


Ramsey El-Assal - Jefferies

Bryan Keane - Deutsche Bank

David Chu - Merrill Lynch

Mike Grondahl - Piper Jaffray

Gil Luria - Wedbush Securities

Tim Willi - Wells Fargo

Paul Condra - BMO



Welcome to the Blackhawk Network’s First Quarter 2014 Earnings Conference Call. For those 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 VP of Finance and Investor Relations. Please go ahead.

Patrick Cronin - Vice President, Finance and Investor Relations

Okay, well, thank you, operator, and good afternoon everyone. Before we jump in for your reference, a copy of the earnings release that accompanies this call to be accessed on our IR website at ir.blackhawknetwork.com. With me today to discuss Blackhawk’s first quarter 2014 earnings results is Bill Tauscher, our Chairman and Chief Executive Officer, Talbott Roche, our President and Jerry Ulrich, our Chief Financial and 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.

And with that I’d like to turn the call over to Bill Tauscher.

Bill Tauscher - Chairman and Chief Executive Officer

Thank you, Patrick, and good afternoon everyone. The first several months of 2014 including – both represented a very exciting and busy time in Blackhawk. We delivered strong financial results during the first quarter which I’ll touch on in a moment. On March 28 we closed on our new credit facility to provide us growth capital as we completed the separation from Safeway.

During the first week of April Blackhawk’s executive team, the group on this call visited several major investment centers in the U.S. as part of a roadshow related to the Safeway spin-off. The purpose of the roadshow of course was to discuss the benefits of the spin and reinforce with investors, Blackhawk’s growth strategy and investment highlights. I know many listeners on today’s call participated in the roadshow and we hope you founded informative.

On April 14, Safeway completed the spin-off by distributing to Safeway shareholders the remaining 37.8 million shares of Blackhawk that they owned. We are now as of today a fully independent public company trading on NASDAQ under the ticker symbols HAWK and HAWKB with HAWKB representing the Class B shares Safeway distributive.

Turning to the Blackhawk business the first quarter of 2014 produced strong financial results. We delivered adjusted operating revenue growth of 29%, adjusted EBITDA growth of 36%, adjusted net income growth of 31% and adjusted diluted EPS growth of 25%, all in line with the guidance range we had provided on our roadshow webcast on April 1.

We do want to callout our Q1 results including approximately 800,000 of spin-related legal and accounting expenses which obviously had an effect. This incremental cost was not fully factored into our original guidance but we didn’t anticipate the full extent of the (upper) associated with negotiating an amendment to the tax sharing agreement between Blackhawk and Safeway including obtaining opinions to meet the fiduciary requirements of our Independent Board Conflicts Committee. This amendment was filed on Form 8-K on April 11. Now I’ll cover some additional details around our first quarter load value, revenue and earnings.

Load value grew 36% in total or 23% excluding load value from InteliSpend and Retailo which we acquired in late 2013. International load value represented 24% of worldwide load value in the first quarter and hit a high double-digit growth rate. I’ll talk more about international development shortly but it was a good start to 2014 and gives us comfort regarding our previous forecast of international load value growth in the high 50 plus percent range.

First quarter GAAP revenues totaled $233 million, an increase of 26% over the first quarter last year. Commission and fees which are driven primarily by closed-loop gift card sales increased 23% for the quarter. Program management interchange, marketing and other fee revenues or PIMO as we call it increased 46% primarily the result of the strong growth in U.S. open-loop gift cards and the addition of InteliSpend, the incentive and rewards business we acquired late last year. Finally revenues from product sales grew 19% with two-thirds of the growth coming from Cardpool and one-third from our card services business.

Adjusted operating revenues which are total revenues net of the share of commissions and fees paid to our distribution partners grew 29% for the quarter to $115 million. On a GAAP basis net income for the first quarter decreased $3.2 million from a 346,000 profit in Q1, 2013 to a loss of $2.8 million. This was mainly due to a $4.4 million of non-cash acquisition-related amortization expense in the 2014 period. Excluding all non-cash expenses for the quarter our adjusted net income increased from $2 million in Q1, 2013 to $2.6 million in Q1, 2014.

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